<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Electronic Arts Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[ELECTRONIC ARTS LOGO]
June 30, 1999
DEAR FELLOW STOCKHOLDERS:
You are cordially invited to join us at the 1999 Annual Meeting of Stockholders.
This year the Annual Meeting will be held at Electronic Arts' new campus
auditorium, located at 207 Redwood Shores Parkway in Redwood City, California on
July 29, 1999 at 2:00pm. At this meeting the stockholders will elect six
Directors, vote on amendments to the 1998 Directors' Plan, 1991 Stock Option
Plan and Employee Stock Purchase Plan, confirm the appointment of KPMG LLP as
our auditors for the next year, report on our performance in the last year and
answer your questions. Our products will be on display before and after the
meeting.
Enclosed with this Proxy Statement are your voting instructions and the 1999
Annual Report.
This year we have simplified the Proxy Statement to make it easier to
understand. The Securities and Exchange Commission is encouraging companies to
write documents for investors in plain English and we support this effort. We
hope you like this simplified format and welcome your comments.
We know that it is not practical for most stockholders to attend the Annual
Meeting in person. Whether or not you attend, your vote is important. This year
you can vote your shares via the internet, or a toll-free telephone number.
Instructions as to using these services are provided on your proxy card. Of
course you may still vote your shares on the proxy card.
I look forward to seeing you at the meeting.
Sincerely,
LAWRENCE F. PROBST III
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 3
Whether or not you plan to attend the Annual Meeting, we strongly encourage you
to designate the proxies shown on the enclosed card to vote your shares. We are
pleased to offer you three options for designating the proxies and indicating
your voting preferences:
(1) you may complete, sign, date and return by mail the enclosed
proxy card
OR
(2) you may follow the instructions found on the proxy card and vote
by telephone
OR
(3) you may follow the instructions found on the proxy card and vote
via the internet
If you choose to vote via telephone or the internet, you will have a PIN number
assigned to you on the proxy card that you will use to safeguard your vote.
3
<PAGE> 4
[ELECTRONIC ARTS LOGO]
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
DATE: July 29, 1999
TIME: 2:00 P.M.
PLACE: ELECTRONIC ARTS HEADQUARTERS
Auditorium - North Pole/South Pole
207 Redwood Shores Parkway
Redwood City, CA 94065
MATTERS TO BE VOTED UPON:
1. Election of six Directors to hold office for a one-year term
2. Amend the 1998 Directors' Stock Option Plan
3. Amend the 1991 Stock Option Plan
4. Amend the 1991 Employee Stock Purchase Plan
5. Ratification of the appointment of KPMG LLP as our independent auditors
for fiscal year 2000, and
6. Any other matters that may properly come before the meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR EACH OF THE NOMINEES AND FOR
EACH PROPOSAL.
Stockholders owning Company shares at the close of business on June 1, 1999 are
entitled to attend and vote at the meeting. A complete list of these
stockholders will be available at the Company's headquarters prior to the
meeting.
By Order of the Board of Directors,
RUTH A. KENNEDY
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
4
<PAGE> 5
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Letter to Stockholders........................................................................1
Voting Instructions...........................................................................2
Notice of 1999 Annual Meeting of Stockholders.................................................3
Proxy Statement ............................................................................5
Commonly Asked Questions and Answers..........................................................6
Proposals To Be Voted On......................................................................9
The Board of Directors - Biographies.........................................................10
Board Meetings ...........................................................................11
Board Compensation...........................................................................12
Principal Stockholders.......................................................................13
Performance Graph ...........................................................................14
Summary Compensation Table...................................................................15
Options Granted ...........................................................................16
Aggregated Option Exercises..................................................................17
Stock Purchase ...........................................................................18
Employment & Severance Agreements............................................................18
Compensation Committee Report................................................................19
Other Information ...........................................................................23
Appendix ...........................................................................24
o Description of the Directors' Plan...............................................24
o Description of the 1991 Plan.....................................................26
o Description of the Purchase Plan.................................................29
</TABLE>
5
<PAGE> 6
Our Board of Directors is soliciting proxies for the 1999 Annual Meeting of
Stockholders. This Proxy Statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
The Board set June 1, 1999 as the record date for the meeting. Stockholders who
owned Company common stock on that date are entitled to vote at and attend the
meeting, with each share entitled to one vote. There were 61,588,965 shares of
the Company's common stock outstanding on the record date.
Voting materials, which include the Proxy Statement, proxy card and 1999 Annual
Report, will be mailed to stockholders on or about June 30, 1999.
In this Proxy Statement:
o "EA", "we" and "Company" mean Electronic Arts Inc.
o "Directors' Plan" means the Company's 1998 Directors' Stock
Option Plan.
o "1991 Plan" means the Company's 1991 Employee Stock Option Plan.
o "Purchase Plan" means the Company's 1991 Employee Stock Purchase
Plan.
o Holding shares in "street name" means your Company shares are
held in an account at a brokerage firm.
6
<PAGE> 7
QUESTIONS AND ANSWERS
Q: Why am I receiving this Proxy Statement and Proxy Card?
A: This Proxy Statement describes proposals on which we would like you, as
a stockholder, to vote. It also gives you information on these proposals, as
well as other information so that you can make an informed decision.
Q: Who can vote at the Annual Meeting?
A: Stockholders who owned EA common stock on June 1, 1999 may attend and
vote at the annual meeting. Each share is entitled to one vote. There were
61,588,965 shares of the Company's common stock outstanding on June 1, 1999.
Q: What is the Proxy Card?
A: The proxy card enables you to appoint Lawrence F. Probst III and E.
Stanton McKee, Jr. as your representatives at the annual meeting. By completing
and returning the proxy card, you are authorizing Mr. Probst and Mr. McKee to
vote your shares at the meeting, as you have instructed them on the proxy card.
This way, your shares will be voted whether or not you attend the meeting. Even
if you plan to attend the meeting, it is a good idea to complete and return your
proxy card before the meeting date just in case your plans change.
If a proposal comes up for vote at the meeting that is not on the proxy card,
Mr. Probst and Mr. McKee will vote your shares, under your proxy, according to
their best judgement.
Q: What am I voting on?
A: We are asking you to vote on:
o the election of six Directors
o an amendment to the Directors' Plan to increase the number of
shares of EA's common stock reserved for Director options
o an amendment to the 1991 Plan to increase the number of shares
reserved for Employee options
o an amendment to the Purchase Plan to increase the number of
shares reserved to issued shares under this Plan, and
o to confirm the appointment of our auditors for fiscal year 2000
Q: How do I vote?
A: o You may vote by mail
Complete, date, sign and mail the proxy card in the enclosed postage pre-paid
envelope. If you mark your voting instructions on the proxy card, your shares
will be voted as you instruct.
If you do not mark your voting instructions on the proxy card, your shares will
be voted:
o for the election of six Directors
o for the amendment to the Directors' Plan
o for the amendment to the 1991 Plan
o for the amendment to the Purchase Plan
o for the appointment of our auditors for fiscal year 2000
o You may vote by telephone
You may do this by following the "Vote by Telephone" instructions on your proxy
card. If you vote by telephone, you do not have to mail in your proxy card.
o You may vote on the internet
You may do this by following the "Vote by Internet" instructions on your proxy
card. If you vote by internet, you do not have to mail in your proxy card.
7
<PAGE> 8
o You may vote in person at the meeting
You may complete the ballot we will pass out to any stockholder who wants to
vote at the meeting. However, if you hold your shares in street name, you must
request a proxy from your stockbroker in order to vote at the meeting.
Q: What does it mean if I receive more than one proxy card?
A: It means that you have multiple accounts at the transfer agent or with
stockbrokers. Please complete and return all proxy cards to ensure that all your
shares are voted.
Q: What if I change my mind after I return my proxy?
A: You may revoke your proxy and change your vote at any time before the
polls close at the meeting. You may do this by:
o sending a signed statement to the Company that the proxy is
revoked,
o signing another proxy with a later date,
o voting by telephone or on the internet (your latest telephone or
internet vote is counted), or
o voting at the meeting.
Q: Will my shares be voted if I do not sign and return my proxy card?
A: If your shares are held in street name, your brokerage firm, under
certain circumstances, may vote your shares.
EA lists their securities on The Nasdaq Stock Market. Under the Nasdaq Rule
2260, brokerage firms are given authority to use New York Stock Exchange rules
to vote customers' unvoted shares on some "routine" matters. When a brokerage
firm votes its customers' unvoted shares on routine matters, these shares are
counted to determine if a quorum exists to conduct business at the meeting. A
brokerage firm cannot vote customers' unvoted shares on non-routine matters.
Unvoted shares are considered ineligible to vote on non-routine matters, rather
than as a vote against the matters.
EA believes that all of our proposals described later under "Proposals To Be
Voted On" are routine matters.
If you do not give a proxy to vote your shares, your brokerage firm may either:
o vote your shares on routine matters, or
o leave your shares unvoted
We encourage you to provide instructions to your brokerage firm by giving your
proxy. This ensures your shares will be voted at the meeting.
Your stockbroker may be able to vote your shares depending on the terms of the
agreement you have with your stockbroker. You may have granted to your
stockbroker discretionary voting authority over your account.
Q: Who will count the votes?
A: Employees of Norwest Shareholder Services will tabulate the votes and
act as the inspectors of election.
Q: How many shares must be present to hold the meeting?
A: To hold the meeting and conduct business, a majority of EA's outstanding
shares as of June 1, 1999 must be present at the meeting. On this date the
Company had 61,588,965 shares of common stock entitled to vote and a majority,
or 30,794,483 of these shares must be present. This is called a quorum.
Shares are counted as present at the meeting if the stockholder either:
o is present and votes in person at the meeting, or
8
<PAGE> 9
o has properly submitted a proxy card or voted via telephone or
the internet.
Q: How many votes must the nominees have to be elected as Directors?
A: The six nominees receiving the highest number of "for" votes will be
elected as Directors. This number is called a plurality.
Q: What happens if one or more of the nominees is unable to stand for
re-election?
A: The Board may reduce the number of Directors or select a substitute
nominee. In the latter case, if you have completed and returned your proxy card,
Lawrence F. Probst III and E. Stanton McKee can vote your shares for a
substitute nominee. They cannot vote for more than six nominees.
Q: How many votes must the amendments to the Directors' Plan, 1991 Plan and
Purchase Plan have to pass?
A: To pass, the amendments must receive a "for" vote of a majority of the
shares present at the meeting in person or by proxy.
Q: How are votes counted?
A: You may vote either "for" each nominee or withhold your vote. You may
vote "for", "against" or "abstain" on the proposals to amend the Directors'
Plan, the 1991 Plan and the Purchase Plan, and for ratification of the
independent auditors.
If you abstain from voting on any plan amendment, or on the auditors, it has the
same effect as a vote against.
If you give your proxy without voting your instructions, your shares will be
counted as a "for" vote in favor of each nominee and in favor of each proposal.
Q: Where do I find the voting results of the meeting?
A: We will announce preliminary voting results at the meeting. We will
publish the final results in our quarterly report on Form 10-Q for the second
fiscal quarter of 2000. We will file that report with the Securities and
Exchange Commission, and you can get a copy by contacting our Investor Relations
Hotline at (650) 628-7352 or the SEC at (800) SEC-0330 for the location of its
nearest public reference room. You can also get a copy on the internet through
the SEC's electronic data system called EDGAR at www.sec.gov.
Q: Why is EA amending the Directors' Plan?
A: We are amending the Directors' Plan to increase the number of shares
available. These shares are important to continue to retain Directors and to
provide shares to recruit new Directors in the future.
Q: Why is EA amending the 1991 Plan?
A: We are amending the 1991 plan to increase the number of shares
available. EA believes it is essential to be able to grant stock options to new
and existing employees in order to recruit and retain key talent, especially in
the current, intensely competitive recruiting environment.
Q: Why is EA amending the Purchase Plan?
A: We are amending the Purchase Plan to increase the number of shares
available. The Purchase Plan permits the purchase of EA common stock by
employees of EA through payroll deductions and provides continuing opportunities
for employees of EA to become stockholders.
Q: How much did this proxy solicitation cost?
A: The Company has retained Georgeson & Company Inc. to solicit proxies
from stockholders at an estimated fee of $9,000 plus expenses. (Note that this
fee does not include the costs of printing and mailing the proxy statements.)
Some of the officers and other agents may also solicit proxies personally, by
telephone and by mail. EA will also reimburse brokerage houses and other
custodians for their reasonable out-of-pocket expenses for forwarding proxy and
solicitation material to the beneficial owners of common stock.
9
<PAGE> 10
Q: Whom can I call with any questions?
A: You may call Norwest Bank Minnesota at 1-800-468-9716.
10
<PAGE> 11
PROPOSALS TO BE VOTED ON
1. RE-ELECTION OF DIRECTORS
Nominees for re-election this year are:
o M. Richard Asher
o William J. Byron
o Daniel H. Case III
o Gary M. Kusin
o Timothy Mott
o Lawrence F. Probst III
The Board recommends a vote for these nominees.
Each nominee is presently a Director of the Company and has consented to
serve a one-year term.
2. AMENDMENT TO THE DIRECTORS' PLAN
The Directors' Stock Option Plan provides equity incentives to members
of the Board of Directors of the Company who are not employees of the
Company. EA hopes to promote the financial success and progress of the
Company by granting options to purchase shares of the Company's common
stock. Since its initial approval by the stockholders, the Company has
reserved 135,000 shares of its common stock for issuance under the
Directors' Plan.
This amendment would:
o Increase the number of shares by 100,000 to a total of 235,000
shares of common stock for issuance under the Directors' Plan.
The Board recommends a vote for the amendment to the Directors' Plan
If you would like more information about the Directors' Plan, a summary
of its terms is included as an Appendix to this Proxy Statement.
3. AMENDMENT TO THE 1991 PLAN
The 1991 Plan provides equity incentives by granting options to
employees qualified under the 1991 Plan to purchase shares of the
Company's common stock. These grants are offered to assist the Company
in recruiting and retaining qualified officers and employees of the
Company and its subsidiaries and affiliates. Since its initial approval
by the stockholders, the Company has reserved 15,500,000 shares of its
common stock for issuance under the 1991 Plan.
This amendment would:
o Increase the number of shares by 2,650,000 to a total of
18,150,000 shares of common stock for issuance under the 1991
Plan.
The Board recommends a vote for the amendment to the 1991 Plan
If you would like more information about the 1991 Plan, a summary of its
terms is included as an Appendix to this Proxy Statement.
11
<PAGE> 12
4. AMENDMENT TO THE PURCHASE PLAN
The Purchase Plan provides employees of EA with a convenient means of
acquiring equity in the Company through payroll deductions. It also
provides an incentive for continued employment. Since its initial
approval by the stockholders, the Company has reserved 1,250,000 shares
of its common stock for issuance under the Purchase Plan.
This amendment would:
o Increase the number of shares by 250,000 to a total of 1,500,000
shares of common stock for issuance under the Purchase Plan.
The Board recommends a vote for the amendment to the Purchase Plan.
If you would like more information about the Purchase Plan, a summary of
its terms is included as an Appendix to this Proxy Statement.
5. APPROVE THE APPOINTMENT OF KPMG, INDEPENDENT AUDITORS
KPMG LLP has audited the financial statements of EA and its consolidated
subsidiaries since fiscal year 1987 and the Board has appointed them for
fiscal year 2000. The Audit Committee and the Board believe that KPMG's
long-term knowledge of EA and its subsidiaries is valuable to the
Company. Representatives of KPMG have direct access to members of the
Audit Committee and the Board.
The Board recommends a vote to approve the appointment of KPMG.
6. OTHER BUSINESS
The Board knows of no other business for consideration at the meeting.
If other matters are properly presented at the meeting, or for any
adjournment or postponement of the meeting, Lawrence F. Probst III and
E. Stanton McKee, Jr. will vote, or otherwise act, in accordance with
their judgment on such matters.
12
<PAGE> 13
BOARD OF DIRECTORS
BIOGRAPHIES
M. Richard Asher
Director since 1984
Mr. Asher, age 67, is presently a consultant. He served as President and Chief
Executive Officer of Polygram Records, Inc., a publisher and distributor of
recorded music from October 1985 through December 1989. Mr. Asher is a Director
of several private companies.
William J. Byron
Director since 1989
Mr. Byron, age 66, is currently self-employed. From July 1985 through July 1988,
he was President of Sanyo Electric Consumer Products Division. Mr. Byron was
Vice Chairman of the Sanyo Fisher Corporation from January 1987 through July
1988.
Daniel H. Case III
Director since 1993
Mr. Case, age 41, is currently Chairman of the Board and Chief Executive Officer
of Hambrecht & Quist Group and Hambrecht & Quist LLC, an investment banking and
venture capital firm. Mr. Case serves on the Board of Directors of AMB Property
Corp., The Bay Area Council, Hambrecht & Quist Group, Rational Software
Corporation and the Technology Network. His committees include serving as Vice
Chairman for The Securities Industry Association as well as serving on the
executive committee of AMB Property Corp and the Technology Network, and the
audit committee of Rational Software Corporation. Mr. Case joined Hambrecht &
Quist in 1981 and has held positions in management, corporate finance, mergers
and acquisitions and venture capital.
Gary M. Kusin
Director since 1995
Mr. Kusin, age 48, has been the President and Chief Executive Officer of HQ
Global Workplaces, Inc., the world's largest provider of serviced offices since
September of 1998. From March 1995 until August of 1998, Mr. Kusin was
co-founder and Chairman of Kusin Gurwitch Cosmetics, LLC. From 1983 through
February of 1995, Mr. Kusin was the president of Babbages, Inc.
Timothy Mott
Director since 1990
Mr. Mott, age 50, is currently a partner of Ironwood Capital. Mr. Mott was a
co-founder of the Company and was employed by the Company from 1982 to 1990 in a
variety of capacities including Senior Vice President of Business Development
and Managing Director of Electronic Arts (UK) Limited.
Lawrence F. Probst III
Director since 1991
Mr. Probst, age 49, has been employed by EA since 1984. He has served as
Chairman of the Board since July 1994, and Chief Executive Officer since May
1991. Previously Mr. Probst served as President from 1991 until 1998 and Senior
Vice President of EA Distribution from 1987 to 1991. Mr. Probst is also a member
of the Board of Directors of MP3.com, Inc.
NUMBER OF DIRECTORS
At the Meeting, stockholders will elect Directors to hold office until the next
annual meeting. The Company's Board currently has six members and all six
Directors are nominees for re-election this year. Shares represented by the
proxy will be voted for the election of the six nominees recommended by EA's
management unless the Proxy is marked to "withhold authority" to so vote.
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<PAGE> 14
BOARD AND COMMITTEE MEETINGS
The Company held four regular Board meetings and one special telephone meeting
and approved one Action by Written Consent in the 1999 fiscal year. Each
Director attended at least 90% of all Board and applicable committee meetings
during the year. The size of the Audit Committee was increased to three members,
and Mr. Kusin was appointed to that committee in May 1999. This table describes
the Board's committees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Number of
Committee Meetings
Name of Committee and Members Functions of the Committee in FY 1999
- --------------------------------------------------------------------------------------
<S> <C> <C>
AUDIT o Meets with EA's independent
M. Richard Asher auditors to review the 1
Timothy Mott Company's internal control Regular Meeting
Gary M. Kusin systems, financial reporting
procedures and the general 2
scope and results of the Telephone Meetings
Company's annual audit
o Reviews the fees charged by
the independent auditors
o Recommends to the Board the
selection of independent
auditors
- --------------------------------------------------------------------------------------
COMPENSATION o Administers EA's 1991 Plan, 2
M. Richard Asher Purchase Plan and the Telephone Meetings
William J. Byron Directors' Plan. Determines
Daniel H. Case III the compensation of the 12
executive officers. Reviews Actions by Written
and approves: Consent
o Compensation philosophy
o Programs for annual and
long-term executive
compensation
o Material employee
benefit plans
- --------------------------------------------------------------------------------------
NOMINATING o Recommends prospective
M. Richard Asher Director nominees 1
Timothy Mott o Endorses the slate of Telephone Meeting
Lawrence F. Probst III Directors for election at
the annual meeting
- --------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
DIRECTOR COMPENSATION
Mr. Probst, the Company's Chief Executive Officer, is not paid additional
compensation for his services as a Director. During fiscal 1999, compensation
for non-employee Directors included the following stock and cash elements:
CASH COMPENSATION
o $16,000 annual retainer
o $1,200 for each Board meeting attended
o $950 for each telephone Board meeting attended
o $1,000 for each Committee meeting attended
o $750 for each telephone Committee meeting attended
o $1,000 per day, with the approval of the Board of Directors to
individual Directors for special assignments
STOCK COMPENSATION
Under the Directors' Plan, non-employee Directors receive an automatic grant of
options to purchase 8,000 shares upon re-election. New Directors would receive a
grant of 25,000 shares, under the Directors' Plan.
Under the Board Stock Ownership Guidelines, each non-employee Director is also
required, by May of 2001, to own EA common shares having a value of at least 3
years annual retainer.
The annual option grant to non-employee Directors of 8,000 shares was made on
July 30, 1998, on the date of their re-election to the Board, at an exercise
price of $51.375 per share.
Upon approval of the Directors' Plan by the stockholders in July 1998,
non-employee Directors may elect to receive all or part of their cash
compensation in the Company's common stock.
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<PAGE> 16
PRINCIPAL STOCKHOLDERS
This table shows how much EA common stock is owned by the Directors, certain
executive officers and owners of more than 5% of the Company's outstanding
common stock, as of May 21, 1999.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
NUMBER OF
OWNED RIGHT TO PERCENT OF
NAME OWNED(1) ACQUIRE(2) OUTSTANDING SHARES
- --------------------------------------------------------------------------------------
<S> <C> <C>
Putnam Investment Management
Company(3) 8,632,040 -- 14.0
- --------------------------------------------------------------------------------------
Montag & Caldwell, Inc.(4) 8,374,666 -- 13.7
- --------------------------------------------------------------------------------------
Ark Asset Management Company
Inc.(5) 3,925,000 -- 6.4
- --------------------------------------------------------------------------------------
J & W Seligman & Co. Inc.(6) 3,235,355 -- 5.3
- --------------------------------------------------------------------------------------
Lawrence F. Probst III 9,673 790,600 1.3
- --------------------------------------------------------------------------------------
John Riccitiello 3,222 79,200 *
- --------------------------------------------------------------------------------------
E. Stanton McKee, Jr. 140,427 230,800 *
- --------------------------------------------------------------------------------------
Don A. Mattrick 5,313 204,833 *
- --------------------------------------------------------------------------------------
Timothy Mott 70,164 43,102 *
- --------------------------------------------------------------------------------------
M. Richard Asher 86,204 39,302 *
- --------------------------------------------------------------------------------------
Nancy Smith 2,284 108,000 *
- --------------------------------------------------------------------------------------
William J. Byron 25,245 55,969 *
- --------------------------------------------------------------------------------------
Daniel H. Case III 0 44,102 *
- --------------------------------------------------------------------------------------
Gary M. Kusin 384 18,078 *
- --------------------------------------------------------------------------------------
All executive officers and
Directors as a group (14 442,928 1,852,646 3.7
persons)(7)
- --------------------------------------------------------------------------------------
</TABLE>
- ----------
* Less than 1%
(1) Unless otherwise indicated in the footnotes, includes shares for which
the named person:
o has sole voting and investment power, or
o has shared voting and investment power with his or her spouse
Excludes shares that may be acquired through stock option exercises
(2) Shares that can be acquired through stock option exercises through May
21, 1999
(3) Based on information contained in a report on Schedule 13-G filed with
the SEC on February 9, 1999. Certain Putnam Investment managers
(together with their parent corporations, Putnam Investments, Inc. and
Marsh & McLennan Companies, Inc.), are considered "beneficial owners" in
the aggregate of the number of shares, which shares were acquired for
investment purposes by such investment managers for certain of their
advisory clients.
The Address for Putnam Investment Management Company is One Post Office
Square, Boston, Massachusetts 02109
16
<PAGE> 17
(4) Based on information contained in a report on Schedule 13-G filed with
the SEC on March 31, 1999 and written confirmation from Montag &
Caldwell, Inc. on May 31, 1999.
The Address for Montag & Caldwell, Inc. is 3343 Peachtree Road, 1100
Atlanta Financial Center, Atlanta, Georgia 30326-1450
(5) Based on information contained in a report on Schedule 13-G filed with
the SEC on December 31, 1998 and written confirmation from Ark Asset
Management Co. on May 24, 1999.
The address for Ark Asset Management Co., Inc. is 125 Broad Street, New
York, NY 10004.
(6) Based on written confirmation from J & W Seligman & Co., Inc. on May 21,
1999.
The address for J & W Seligman & Co., Inc. is 100 Park Avenue, New York,
NY 10017
(7) In addition to the officers and Directors named in this table, five
other executive officers are members of the group.
17
<PAGE> 18
STOCK PRICE PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns in
the period from March 31, 1994 through March 31, 1999, for the Company's common
stock, Nasdaq Market Composite Index and Hambrecht & Quist High Technology
Index, each of which assumes an initial value of $100.
The comparisons in the graph below are based on historical data and are not
intended to forecast the possible future performance of EA's common stock.
STOCK PRICE PERFORMANCE GRAPH
<TABLE>
<CAPTION>
Measurement Electronic Arts Hambrecht & Quist Nasdaq Market
Period Inc. Technology Composite
----------- --------------- ----------------- -------------
<S> <C> <C> <C>
3/31/94 $100 $100 $100
3/31/95 $86 $132 $110
3/31/96 $101 $179 $148
3/31/97 $101 $206 $164
3/31/98 $179 $307 $246
3/31/99 $167 $412 $325
</TABLE>
Information presented is as of the end of each fiscal year ended March 31st.
This graph shall not be deemed to be incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933 as amended, or under the Securities Exchange Act of
1934 as amended, except to the extent that the Company specifically incorporates
this information by reference and shall not otherwise be deemed filed under such
Acts.
18
<PAGE> 19
SUMMARY COMPENSATION TABLE
COMPENSATION OF EXECUTIVE OFFICERS
This table shows compensation information for the Company's Chief Executive
Officer and the next four most highly compensated executive officers for the
last three fiscal years. We refer to all of these officers as the "Named
Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -----------------------------
---------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION OPTIONS(#) COMPENSATION(3)
- ------------------ ---- --------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
Lawrence F. Probst III 1999 $572,347 $522,620 -- 85,000 $912
Chairman and Chief 1998 537,616 408,400 -- 250,000 594
Executive Officer 1997 500,186 322,013 -- 60,000 594
John Riccitiello 1999 431,886 437,325 -- 60,000 567
President and Chief 1998 184,731 446,890(4) -- 300,000 209,929(5)
Operating Officer
Don A. Mattrick 1999 429,991 386,325 -- 70,000 --
President, Worldwide 1998 316,194 283,522 -- 150,000 41,361(6)
Studios 1997 286,431 209,808 -- 0 110,146(7)
E. Stanton McKee, Jr. 1999 370,561 287,245 -- 40,000 567
Executive Vice 1998 340,443 243,103 -- 150,000 594
President, 1997 300,585 186,704 -- 30,000 594
Chief Financial and
Administrative Officer
Nancy L. Smith 1999 360,020 295,113 -- 25,000 566
Executive Vice 1998 300,140 230,361 -- 105,000 593
President and 1997 262,453 160,123 -- 30,000 594
General Manager of
North American
Publishing
</TABLE>
- ----------
(1) Includes salary actually received during fiscal year, pre-tax health
care contributions, and for U.S. officers deferred compensation for
Section 125 Flexible Spending Account and Dependent Care Account (if
elected) and Section 401(k) Plan contributions and employer matching
contributions.
(2) Represents bonuses earned during the fiscal year.
(3) Represents Company paid term life insurance premiums for the benefit of
executive officers.
(4) Mr. Riccitiello joined the Company during the 1998 fiscal year and
received a $250,000 one time signing bonus .
(5) Represents $209,582 relocation expenses and $347 Company paid term life
insurance premiums paid to Mr. Riccitiello in 1998.
(6) Represents $41,064 relocation expenses and $297 Company paid term life
insurance premiums paid to Mr. Mattrick in 1998.
(7) Represents $109,849 relocation expenses and $297 Company paid term life
insurance premiums paid to Mr. Mattrick in 1997.
19
<PAGE> 20
STOCK OPTION GRANTS
STOCK OPTION GRANTS
This table shows stock option grants to the Named Executive Officers during the
last fiscal year. All the grants listed below were made pursuant to the
Company's 1991 Plan. In accordance with the rules of the Securities and Exchange
Commission, the table sets forth the hypothetical gains or "option spreads" that
would exist for the options at the end of their respective 10 year terms. This
hypothetical gain is based on assumed annualized rates of compound stock price
appreciation of 5% and 10% from the dates the options were granted to the end of
the respective ten year option terms. Actual gains, if any, on option exercises
are dependent on the future performance of EA's common stock. The hypothetical
gains show in this table are not intended to forecast possible future
appreciation, if any, of the stock price.
OPTIONS GRANTED IN FISCAL 1999
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZED
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION FOR OPTION TERM(3)
GRANTED FY1999(1) SHARE DATE 5% 10%
---------- ------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 85,000 2.736 $43.625(2) 9/24/08 2,332,020 5,909,796
Don Mattrick 70,000 2.253 $43.625(2) 9/24/08 1,920,487 4,866,891
35.000(3)
John Riccitiello 60,000 1.931 $43.625(2) 9/24/08 1,646,132 4,171,621
E. Stanton McKee, Jr. 40,000 1.287 $43.625(2) 9/24/08 1,097,421 2,781,081
Nancy L. Smith 25,000 .805 $43.625(2) 9/24/08 685,888 1,738,175
</TABLE>
(1) The Company granted 3,106,919 options to employees in fiscal 1999.
(2) Stock options were granted at an exercise price equal to the closing bid
price of the Company's common stock on September 24, 1998 on the Nasdaq
National Market. The options became exercisable as to 6% on November 1,
1998 and thereafter at a rate of 2% per month for the next 47 months.
(3) Based on 60,831,845 shares of the Company's common stock outstanding as
of September 24, 1998 and a closing bid price of common stock that day
of $43.625, the following gains for all stockholders, assuming a ten
year term, would be:
<TABLE>
<CAPTION>
5% stock price appreciation 10% stock price appreciation
- --------------------------- ----------------------------
<S> <C>
$1,668,953,792 $4,229,456,589
</TABLE>
20
<PAGE> 21
OPTIONS EXERCISED
This table shows stock option exercises and the value of unexercised stock
options held by the Named Executive Officers during the last fiscal year.
1999 AGGREGATED OPTION EXERCISES AND MARCH 26, 1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT MARCH 26, 1999 AT MARCH 26, 1999(2)
ACQUIRED VALUE(1) ----------------------------- -----------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III 4,500 $ 200,250 767,000 343,500 $28,374,438 $ 5,057,063
John Riccitiello 0 0 62,400 297,600 698,850 3,253,650
Don Mattrick 42,400 1,470,157 178,566 283,034 4,308,012 4,790,088
E. Stanton McKee, Jr 65,000 2,441,070 219,600 185,400 6,171,388 2,712,363
Nancy L. Smith 0 0 97,200 125,400 2,359,263 1,382,088
</TABLE>
- ----------
(1) THIS NUMBER IS CALCULATED BY:
o The market value on the date of exercise,
o Subtracting the option exercise price from the market value on
the date of exercise to get the realized value per share, and
o Multiplying the realized value per share by the number of
options exercised.
(2) This number is calculated by:
o Subtracting the option exercise price from the fair market value
of the Company's common stock at the close of business on March
26, 1999 ($48.875) to get the value per option, and
o Multiplying the value per option by the number of exercisable
and unexercisable options.
21
<PAGE> 22
1991 EMPLOYEE STOCK PURCHASE PLAN
This table shows the purchase of common stock under the Purchase Plan by the
Named Executive Officers and for all Executive Officers as a group (9
persons)during the last fiscal year. The purchases of stock are made at the
discretion of participants subject to common limitations. Future purchases under
the Purchase Plan cannot be determined.
ELECTRONIC ARTS 1991 EMPLOYEE STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
DISTRIBUTION PERIOD
--------------------------------------------------
2/27/98 THROUGH 8/31/98 THROUGH
--------------------- --------------------
8/28/98 2/25/99
PURCHASE NUMBER PURCHASE NUMBER
PRICE(1) OF SHARES PRICE(1) OF SHARES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Lawrence F. Probst III $26.1906 413 $32.4063 354
John Riccitiello 36.6031 566 32.4063 656
Don Mattrick 36.6031 566 32.4063 632
E. Stanton McKee, Jr 26.1906 550 32.4063 227
Nancy L. Smith 26.1906 241 32.4063 553
All Executive Officers as a group $26.1906-$30.6031 2,973
(9 persons) $32.4063 3,295
</TABLE>
- ----------
(1) Purchase price depends on the specific purchase period (as defined in
the Purchase Plan) in which an individual is enrolled.
EMPLOYMENT AND SEVERANCE AGREEMENTS
EA currently has no employment contracts with any Named Executive Officer or
severance arrangements with respect to their resignation or termination of
employment, except;
o Outstanding options under the 1991 Plan, including those held by
executive officers, may immediately vest in connection with
certain changes in control or ownership of the Company, unless
the successor company assumes or replaces those options; and
o Mr. Riccitiello's employment agreement provides that if EA
terminates his employment without cause prior to March 31, 1998
or March 1, 1999, he would have received three years and two
years, salary, respectively, and if it terminates without cause
before March 31, 2000, he will receive one years salary. In
addition, Mr. Riccitiello has a purchase option for property
which is affected by a termination of his employment by the
Company. See "Certain Transactions" below.
22
<PAGE> 23
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
RESPONSIBILITIES AND COMPOSITION OF THE COMPENSATION COMMITTEE
The Compensation Committee currently consists of Mr. Asher, Mr. Byron
and Mr. Case. None of these members is a current or past employee of EA or any
of its subsidiaries, nor are any of them eligible to participate in any of the
executive compensation programs of the Company. Each of the members is a
"non-employee Director" as defined by the Securities Exchange Commission. In
addition, each meets the definition of "outside Director" for the purposes of
administering the compensation programs to meet the tax deductibility criteria
under Section 162(m) of the Internal Revenue Code.
The Compensation Committee reviews and approves the compensation
philosophy and policies for the Company's executives and reviews the salaries,
bonuses and stock incentives of each of the executive officers including the
Chief Executive Officer. The Compensation Committee also administers the
Company's equity compensation plans, including the 1991 Plan for all employees
and the bonus plan for executive officers.
COMPENSATION PHILOSOPHY AND CHALLENGES
EA's compensation philosophy for executives relies on two basic
principles. First, a significant portion of each executive's compensation should
be in the form of equity to align the executives' interests with those of EA's
stockholders. Second, a significant portion of each executive's cash
compensation should be performance based and "at risk", varying from year to
year, depending on EA and the individual meeting financial and other performance
measures.
In the last fiscal year, competitive recruiting efforts aimed at EA's
executive officers continued. EA also continued to recruit for key talent and
executives. Our competition for attracting and retaining talent broadly
encompasses the three market segments in which EA operates: entertainment, high
technology, and consumer packaged goods.
The competitive marketplace for seasoned and proven executives, as well
as key creative talent is increasingly fierce. EA's leading position within the
interactive entertainment industry makes it a prime target for recruiting of
executives and key creative talent to assist in the consolidation that the
interactive entertainment industry is experiencing.
As the Company has continued to build its senior management team during
the last fiscal year, it has been successful in attracting talent from other
larger consumer product companies to add management depth and experience in
consumer mass markets. Other consumer products industries have different
compensation strategies, including often higher cash compensation, than does the
Company. Those compensation issues have to be successfully addressed to recruit
such talent while maintaining parity with compensation of current key
executives.
EA's success as a growth Company and proximity to the high-technology
market of Silicon Valley also makes our executives attractive candidates for
leadership of small start-up companies, particularly those in the internet
markets. The high market valuations, large equity positions for key executives
and fast stock price appreciation of these companies make their compensation
packages attractive to those who are already working in a more mature market
segment, thus creating difficulty for EA to compete for attraction and retention
of executive talent.
Continuing to shape and develop our compensation practices to create
compensation packages that allow EA to compete for the best talent across all
three business segments, while maintaining parity with compensation of current
key executives, remains a challenge and priority for the Company. We are
continuing to evaluate alternative or supplemental compensation plans to address
this challenge, with a particular focus on retaining and recruiting key creative
talent and staff for the company's on-line business.
23
<PAGE> 24
DATA CONSIDERED AND PROCESS USED
In fiscal 1999 EA's Human Resources Department gathered executive
compensation data from nationally recognized surveys for a group of high
technology and like market segment companies and provided this data to the
Compensation Committee. The data was compiled from 24 companies with median
sales approximately equal to those of the Company. The factors used to determine
the participants in the survey included annual revenues, industry, growth rate
and geography. Sales growth and operating profit in particular were evaluated to
ensure that the survey companies had a record of financial success. EA's sales
growth is at the 70th percentile of both the total survey companies and of the
software companies included in the survey. The Company's operating profit is at
the 56th percentile of the total survey companies and at the 59th percentile of
the software companies included in the survey as its published line of business
index. The companies in the compensation survey overlap considerably with the
companies contained in the Hambrecht & Quist High Technology Index ("H & Q
Index"). Additional companies included in the survey group were judged to be
relevant because they compete for executive talent with EA. Other companies were
excluded from the survey either because they were determined not to be
competitive with EA for executive talent, or because compensation information
was unavailable.
The Company's executive level positions, including the CEO, were matched
to comparable survey positions and competitive market compensation levels to
determine base salary ranges, target incentives and target total cash
compensation. While equity compensation practices were considered, details on
grants and terms of stock options were not always available. EA's Human
Resources Department has identified other more comprehensive surveys, which it
is currently participating in, for Fiscal Year 2000.
This competitive market data is reviewed by the Human Resources
Department with the CEO for each executive level position, and with the
Compensation Committee for the CEO. In addition, each executive officer's
performance for the last fiscal year and objectives for the subsequent year are
reviewed, together with the executive's responsibility level and the Company's
fiscal performance versus objectives and potential performance targets for the
subsequent year.
EXECUTIVE COMPENSATION
Executive compensation is awarded by the Compensation Committee in three
components: base salary, cash incentive bonus and equity incentives.
Base Salary. Base salaries have been established at the approximate
median of comparable positions at companies included in the survey. In addition,
the Compensation Committee considered each executive's performance over the last
year as reported by the CEO as well as each executive's responsibility level.
For fiscal year 1999, executive officers' base salaries were at the approximate
average base salary levels in effect for comparable positions with survey
companies. Increases for the named executive officers were effected in October,
1998 and constituted an average increase of approximately 9.4 percent over the
prior year and increases for all executive officers constituted an average
increase of approximately 8.3 percent of the prior years' base salaries.
Incentive Bonus. The fiscal 1999 Bonus Plan was adopted by the Committee
in September of 1998. The Committee assigned a target bonus to each executive
officer (expressed as a percentage of that executive's base salary), and
approved the overall mechanics and structure of the Bonus Plan. The bonus for
each executive, excepting Ms. Smith, was divided into two (2) parts, one part
based on EA's financial performance for the fiscal year and one part
discretionary based on the executive's job performance. Ms. Smith's bonus
included a third factor based on divisional financial performance.
Stock Options. In September 1998 the Committee made stock option grants
to certain executive officers including the CEO. See "Options Granted in Fiscal
1999" above. Stock options typically have been granted to executive officers
when the executive first joins the Company, in connection with a significant
change
24
<PAGE> 25
in responsibilities, annually to provide continuing incentives for continued
performance employment and occasionally, to achieve equity within a peer group.
The 1999 annual stock option grants were made by the Committee as
continuing incentives for continuing employment by the Company. The number of
shares subject to each stock option granted to an executive officer was
calculated to achieve a future value in unvested options equal to a multiple of
each executive's annual base salary assuming both growth and stock appreciation.
All grants were made at fair market value on the date of grant and vest as
described in the "Options Granted in Fiscal 1999" above.
FISCAL YEAR 1999 CEO COMPENSATION
Compensation for the CEO is determined through a process similar to that
discussed above for executive officers in general.
Effective October 1, 1998 the Compensation Committee adjusted the base
salary for Mr. Probst by approving an increase of approximately 7.3% percent to
the level of base salary effective until the next review cycle, October 1999.
That increased base salary is at the approximate average salary in effect for
chief executive officers at the same companies surveyed for comparative
compensation purposes. The Committee also established a target bonus for Mr.
Probst under the Bonus Plan for fiscal 1999 which was based upon the market
compensation data discussed above. Mr. Probst's bonus is measured in accordance
with the Bonus Plan described above but for fiscal 1999 was based solely on the
Company's financial performance as defined as fiscal year earnings. For fiscal
year 2000, Mr. Probst's bonus target will be based 70 percent on EA's financial
performance and 30 percent on the Committee's evaluation of his performance to
achieve these goals. Mr. Probst's overall cash compensation increased
approximately 28% percent over the prior fiscal year. Of that increase,
seventy-one percent (71%) was a result of increased incentive compensation based
solely on the Company's performance.
In September 1998 the Compensation Committee also approved a new stock
option grant to Mr. Probst for 85,000 shares based upon the retention and
incentive factors discussed above, taking into account prior option grant
history, the level of vested versus unvested shares and the number of shares Mr.
Probst already owned as of September 1998. The grants reflect the Committee's
continuing policy to subject a substantial portion of his overall compensation
each year to the market performance of the Company's common stock and to
maintain his option holdings at a level consistent with that for other chief
executive officers of the survey companies in the industry.
TAX LAW LIMITS ON EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code limits deductions for
certain executive compensation in excess of $1 million. Certain types of
compensation are deductible only if performance criteria are specified in detail
and are contingent on stockholder approval of the compensation arrangement. The
Company has endeavored to structure its compensation plans to achieve maximum
deductibility under Section 162(m) with minimal sacrifices of flexibility and
corporate objectives.
With respect to equity compensation arrangements, the Committee has
structured its current stock option arrangements in a manner intended to achieve
tax deductibility of such amounts. With respect to non-equity compensation
arrangements, the Committee has reviewed the terms of those arrangements most
likely to be subject to Section 162(m). For the CEO, cash compensation in fiscal
year 1999 slightly exceeded the Section 162(m) threshold. Although the excess
will reduce the tax deduction available to EA, that amount will not be material.
While the Compensation Committee will consider deductibility under Section
162(m) with respect to future compensation arrangements with executive officers,
deductibility will not be the only factor used in ascertaining appropriate
levels or modes of compensation. Since corporate objectives may not always be
consistent with the requirements for full deductibility, it is conceivable that
the Company may enter into compensation arrangements in the future under which
payments are not deductible under Section 162(m).
25
<PAGE> 26
COMPENSATION COMMITTEE
M. RICHARD ASHER
WILLIAM J. BYRON
DANIEL H. CASE III
26
<PAGE> 27
OTHER INFORMATION
CERTAIN TRANSACTIONS
EA and John Riccitiello, President and COO, entered into a residential lease
dated October 13, 1997 in connection with Mr. Riccitiello's employment by EA and
relocation from Illinois to California. The lease has a five year term and
provides for monthly payments by Mr. Riccitiello of $7,500.00. Mr. Riccitiello
is responsible for maintenance and EA is responsible for taxes and insurance.
Mr. Riccitiello has an option to purchase the residence at EA's acquisition
cost, plus the costs of improvements made by EA.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Security Exchange Act of 1934 requires EA's Directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of EA's equity securities, to file reports of ownership and
changes in ownership of common stock and other equity securities of EA. We have
adopted procedures to assist EA's Directors and officers in complying with these
requirements, which include assisting officers and Directors in preparing forms
for filing. The company believes that EA's officers, Directors and greater than
10% stockholders complied with all Section 16 (a) filing requirements during
fiscal year ended March 26, 1999.
INDEPENDENT CERTIFIED PUBLIC AUDITORS
Our Board has selected KPMG as the Company's independent public auditors for the
current fiscal year. They have served the Company since 1987. Representatives of
KPMG are expected to attend the meeting in order to respond to appropriate
questions from stockholders and will have the opportunity to make a statement if
they desire to do so.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
If you want us to consider including a proposal in our 2000 Proxy Statement, you
must deliver it to the Company's Corporate Secretary at our principal executive
office no later than March 30, 2000.
OTHER BUSINESS
The Board does not know of any other matter that will be presented for
consideration at the Meeting except as specified in the notice of the Meeting.
If any other matter does properly come before the Annual Meeting, it is intended
that the proxies will be voted in respect thereof in accordance with the
judgment of the persons voting the proxies.
By Order of the Board of Directors
Ruth A. Kennedy
Senior Vice President, General Counsel
and Secretary
27
<PAGE> 28
APPENDIX
GENERAL DESCRIPTION OF THE DIRECTORS' PLAN
History. The Directors' Plan was adopted by the Board on May 13, 1998
and approved by the Company's stockholders on July 30, 1998. The following
discussion describes the terms of the Directors' Plan. Set forth below is a
summary of the principal features of the Directors' Plan.
Purpose. The purpose of the Directors' Plan is to:
o provide equity incentives for members of the Board of Directors of the
Company who are not employees of the Company,
o promote the financial success and progress of the Company by granting to
such persons options to purchase shares of the Company, and
o provide the opportunity for such persons to receive shares of EA's
common stock in lieu of cash compensation.
Administration. The Directors' Plan provides that it may be administered
by the Board or by a committee of not less than three (3) members of the Board.
The interpretation by the Board of any of the provisions of the Directors' Plan
or any Option granted under the Directors' Plan shall be final and binding upon
EA and all persons having an interest in any Option or any shares purchased
pursuant to an Option.
The members of the Compensation Committee receive no compensation for
administering the Directors' Plan other than their compensation for attending
Board and Committee meetings and for sitting on a Committee. The Company bears
all expenses in connection with administration of the Directors' Plan and has
agreed to indemnify members of the Committee in connection with their
administration of the Directors' Plan.
Eligibility and Award Formula. Options may be granted only to
non-employee Directors according to the following formula:
a. Upon initial election or appointment to the Board of Directors, each
non-employee Director shall be granted an option to purchase 25,000 shares of
the Company's common stock on the date of election or appointment.
b. Upon re-election to the Board of Directors at the annual meeting of
stockholders of EA, each non-employee Director shall be granted an option to
purchase 8,000 shares on the date of re-election. If a Director is elected or
appointed to the Board since the last annual meeting of stockholders and
receives an initial grant, the grant on re-election will be prorated by the
number of calendar months that the Director has served since the date of the
initial grant. The provisions of this Section shall not be amended more than
once every six months, other than to comport with changes in the Internal
Revenue Code of 1986, as amended (the "Code") or the rules thereunder.
Terms of the Options and the Directors' Plan. The Directors' Plan will
expire on July 30, 2008. Options granted under the Directors' Plan will vest 2%
at the date of grant and at the rate of 2% per month from the date of grant.
These granted options must be exercised within ten years of the option grant
date. To exercise an option, the Director must deliver to the Company an
executed exercise notice and full payment for the shares being purchased.
Payment for Options under the Directors' Plan may be made in cash or by other
specified forms of payment.
The Committee determines the exercise price of each option granted under
the Directors' Plan. The exercise price of any Option shall be not less than
100% of the fair market value per share of the Company's common stock on the
date the Option is granted. Fair market value shall be the closing bid price on
the Nasdaq National Market. On May 21,1999, the fair market value of the
Company's common stock (as determined by the closing bid price on the Nasdaq
National Market on such date) was $49.4375.
28
<PAGE> 29
Termination of Options. Under the Directors' Plan, if a Director ceases
to be a Director of the Company for any reason except death or disability, any
outstanding options to the extent (and only to the extent) that they would have
been exercisable upon the date of termination, may be exercised by the Director
within three (3) months after the date of termination, but in any event no later
than the expiration date of the Option. A longer exercise period may apply in
the event of termination of a Director's association with EA because of the
Director's death or disability.
If an option granted pursuant to the Directors' Plan expires or
terminates for any reason without being exercised in whole or in part, the
shares released from such option will again become available for grant and
purchase under the Directors' Plan.
Deferral of Regular Cash Compensation into Common Stock of the Company.
Each Director may elect to reduce all or part of the cash compensation otherwise
payable for services to be rendered by him as a Director (including the annual
retainer and any fees payable for attending Board or Committee meetings) and to
receive common stock of EA instead. Such election must be in writing and must be
made before the services are rendered giving rise to such compensation, and may
not be revoked or changed during the Director's term. On such election, the cash
compensation otherwise payable will be increased by 10% for purposes of
determining the number of shares to be credited to such Director.
If the Director elects to defer, there will be credited to that Director
a number of shares equal to the amount of the deferral (increased by 10% as
described above) divided by the fair market value as determined by the closing
bid price on the Nasdaq National Market on the day in which the compensation
would have been paid in the absence of a deferral election.
Changes in Capital Structure. If the Company issues additional
securities to raise capital or otherwise where consideration is received for the
shares, no adjustment is required in the number of shares or the exercise price
per share for outstanding options under the Directors' Plan. If the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if there is a distribution of a substantial portion of the Company's assets in a
spin-off or similar transaction, the number of shares of common stock available
for option grants under the Directors' Plan and the number of shares and the
exercise price per share for each outstanding option will be proportionately
adjusted, subject to any required action by the Board or stockholders of the
Company.
Acceleration in Connection with a Change of Control. Upon a Change in
Control (as defined below) of the Company, all options previously granted and
not previously exercisable shall become fully exercisable to the same extent and
in the same manner as if they had become exercisable by passage of time in
accordance with the provisions of the Directors' Plan relating to periods of
exercisability. In general, a "Change of Control" will be deemed to have
occurred upon the acquisition of more than 20% of the then outstanding shares of
the Company's common stock, certain mergers or corporate transactions in which
the Company is not the surviving entity, or a dissolution or liquidation of the
Company or a sale of substantially all of the Company's assets.
Federal Tax Consequences-Nonstatutory Options. The Director will not
recognize any taxable income at the time a NSO is granted. However, upon
exercise of a NSO, an amount equal to the difference between the fair market
value of the shares on the date of exercise and the amount paid for that stock
upon exercise of the NSO, will be treated as ordinary income by the Director.
Upon resale of the shares by the Director, any subsequent appreciation or
depreciation in the value of the shares will be treated as capital gain or loss.
Tax Treatment of the Company. The Company is entitled to a deduction in
connection with the exercise of an NSO by an optionee to the extent that the
optionee recognizes ordinary income
Amendment and Termination of the Directors' Plan. The Committee may
amend or terminate the Directors' Plan at any time and in any respect, including
modifying the form of the grant or the exercise notice, except that some
amendments require the approval of the stockholders of the Company. No amendment
of the
29
<PAGE> 30
Directors' Plan may adversely affect any outstanding option or unexercised
portion without the Director's written consent.
GENERAL DESCRIPTION OF THE 1991 PLAN
History. The Company's 1991 Plan was adopted by the Board on April 25,
1991 and approved by the Company's Stockholders on July 25, 1991. On September
4, 1992, the Board approved an Addendum to the 1991 Plan applicable to grants of
options to employees who are residents of the United Kingdom. The terms of all
options granted pursuant to the Addendum are similar in all material respects to
nonqualified options granted under the 1991 Plan except as described herein or
as necessary or appropriate to comply with applicable United Kingdom laws.
The following discussion describes the terms of the 1991 Plan. All
numbers of shares and exercise prices have been adjusted to reflect a one share
for one share stock dividend effected in March, 1992 and a one share for one
share stock dividend effected in February, 1993.
Recent Amendments. The 1991 Plan has been amended eight times since its
adoption, primarily to increase the number of shares available for issuance
thereunder and to update it to reflect changes in relevant tax and corporate
laws.
Purpose. The purpose of the 1991 Plan is to provide equity incentives to
assist the Company in recruiting and retaining qualified officers, employees,
and Directors who are employees of the Company, by granting to such persons
options to purchase shares of the Company's common stock.
Administration. The 1991 Plan provides that it may be administered by
the Board or a committee of two (2) or more Board members appointed by the
Board, none of whom are eligible to participate in the 1991 Plan. Other than as
disclosed herein, members of the Committee have no material relationships with
the Company, its employees or its affiliates. Subject to the terms of the 1991
Plan, the Committee determines the optionees, the number of shares subject to
each option, the exercise prices, the exercise periods and the dates of grants.
The Committee also has the authority to construe and interpret any of the
provisions of the 1991 Plan or any options granted thereunder. Such
interpretations are binding on the Company and on the optionees.
The members of the Compensation Committee received no compensation for
administering the 1991 Plan other than their compensation for attending Board
and Committee meetings. The Company bears all expenses in connection with
administration of the 1991 Plan and has agreed to indemnify members of the
Committee in connection with their administration of the 1991 Plan.
Eligibility. Under the current 1991 Plan, officers, employees, and
Directors who are employees of the Company or any parent, subsidiary, or
affiliate of the Company are eligible to receive option grants. Option grants
under the 1991 Plan to employees of Electronic Arts, Limited, and Bullfrog
Productions Ltd. who reside in the United Kingdom are made pursuant to the
Addendum, which places a limit on the aggregate exercise price of options
granted to any optionee. At the last reported headcount on May 21, 1999,
approximately 2,500 employees, including nine executive officers, were eligible
to receive options under the 1991 Plan. No optionee is eligible to receive
option grants for more than an aggregate maximum of 1,000,000 shares at any time
from July 27, 1994 through the end of the term of the 1991 Plan. An optionee may
hold more than one option granted under the 1991 Plan. Both incentive stock
options ("ISO"), as defined in Section 422 of the Code and nonstatutory options
("NSO") may be granted under the 1991 Plan. The 1991 Plan limits the aggregate
fair market value (determined as of the time the option is granted) of the
shares with respect to which ISOs are exercisable for the first time by the
optionee during any calendar year to not more than $100,000. There is no similar
limit on NSOs granted under the 1991 Plan.
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<PAGE> 31
Terms of the Options and the 1991 Plan. Options may be granted under the
1991 Plan until April 25, 2001. Subject to the provisions of the 1991 Plan, the
Committee may determine the vesting schedule of each option and other terms and
conditions of exercisability under the 1991 Plan.
Options granted under the 1991 Plan must be exercised within ten years
of the option grant date, except that an ISO granted to a person owning ten
percent or more of the total combined voting power of all classes of stock of
the Company or of any parent or subsidiary of the Company (a "Ten Percent
Stockholder") and an ISO granted under the Addendum must be exercised within
five years of the option grant date.
The Committee determines the exercise price of each option granted under
the 1991 Plan. The exercise price must be at least equal to the fair market
value per share of the Company's common stock on the date the option is granted,
except that the exercise price of an ISO granted to a Ten Percent Stockholder
must be at least equal to 110% of the fair market value per share on the date of
grant. On May 21, 1999, the fair market value of the Company's common stock (as
determined by the closing bid price on the Nasdaq National Market on such date)
was $49.4375.
To exercise an option, the optionee must deliver to the Company an
executed exercise notice and full payment for the shares being purchased. shares
purchased under the Addendum must be paid for in cash. With respect to all other
options under the 1991 Plan as currently in effect, payment may be made in cash
or by other specified forms of payment.
Termination of Options. Under the 1991 Plan, if an optionee's
association with the Company is terminated for any reason other than death or
disability, any outstanding option that was exercisable on the date of
termination, may be exercised by the optionee within three (3) months after
termination (or such shorter time as may be specified in the grant evidencing
the option), but not later than the expiration of the option. A longer exercise
period may apply in the event of termination of an optionee's association with
the Company because of the optionee's death or disability.
Changes in Capital Structure. If the Company issues additional
securities to raise capital or otherwise where consideration is received for the
shares, no adjustment is required in the number of shares or the exercise price
per share for outstanding options under the 1991 Plan. If the number of
outstanding shares of common stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if there is a distribution of a substantial portion of the Company's assets in a
spin-off or similar transaction, the number of shares of common stock available
for option grants under the 1991 Plan and the number of shares and the exercise
price per share for each outstanding option will be proportionately adjusted,
subject to any required action by the Board or stockholders of the Company.
Effective both March 26, 1992 and February 22, 1993, a stock dividend was paid
in the form of one additional share for each outstanding share. Accordingly, the
number of outstanding options and the exercise price payable per share, as well
as the number of shares available for issuance under the 1991 Plan as of March
26, 1992 and February 22, 1993, was adjusted to reflect the dividends.
Assumption of Options and Acceleration of Vesting. Under the 1991 Plan,
in the event of a Change of Control, the vesting of all options will accelerate
and the options will become exercisable in full prior to the consummation of
such event, at such times and on such conditions as the Committee determines,
unless the successor corporation assumes the outstanding options or substitutes
substantially equivalent options. In general, a "Change of Control" means a
dissolution or liquidation of the Company, a merger in which the Company is not
the surviving corporation (with certain exceptions), or the sale of all, or
substantially all, of the assets of the Company. The aggregate fair market value
(determined at the time an option is granted) of stock with respect to which
ISOs first become exercisable in the year of any such dissolution, liquidation,
merger or sale of assets cannot exceed $100,000. Any remaining accelerated ISOs
will be treated as NSOs.
Tax Treatment of the Optionee
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<PAGE> 32
ISOs. In the case of ISOs, there is generally no tax liability at the
time of grant or exercise. However, the excess of the fair market value of the
stock on the exercise date over the option price is included in the optionee's
income for purposes of the alternative minimum tax. If the optionee holds the
stock acquired upon exercise of an ISO (the "ISO Shares") for more than one year
after the date the option was exercised and for more than two years after the
date the option was granted, the optionee generally will realize long-term
capital gain or loss (rather than ordinary income or loss) upon disposition of
the ISO Shares. This gain or loss will be equal to the difference between the
amount realized upon such disposition and the amount paid for the shares. An
employee who exercises an ISO might also be subject to an alternative minimum
tax.
If the optionee disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the
shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be long-term or short-term capital gain, depending upon
the length of time the ISO Shares were held by the optionee.
NSOs. The optionee will not recognize any taxable income at the time a
NSO is granted. However, upon exercise of a NSO, the optionee will include in
income as compensation an amount equal to the difference between the fair market
value of the shares on the date of exercise and the amount paid for that stock
upon exercise of the NSO. The included amount will be treated as ordinary income
by the optionee and will be subject to income tax withholding by the Company
(either by payment in cash by the optionee or withholding from the optionee's
salary). Upon resale of the shares by the optionee, any subsequent appreciation
or depreciation in the value of the shares will be treated as capital gain or
loss.
Tax Treatment of the Company
The Company will be entitled to a deduction in connection with the
exercise of a NSO by a domestic optionee to the extent that the optionee
recognizes ordinary income. The Company will be entitled to a deduction in
connection with the disposition of ISO Shares only to the extent that the
optionee recognizes ordinary income on a disqualifying disposition of the ISO
Shares.
Amendment and Termination of the 1991 Plan. The Committee may amend or
terminate the 1991 Plan at any time and in any respect, including modifying the
form of the grant or the exercise notice, except that certain amendments may
require the approval of the stockholders of the Company in accordance with
applicable laws and regulations. No amendment of the 1991 Plan may adversely
affect any outstanding option or unexercised portion thereof without the
Optionee's written consent.
If an option granted pursuant to the 1991 Plan expires or terminates for
any reason without being exercised in whole or in part, the shares released from
such option will again become available for grant and purchase under the
respective Plans.
Outstanding Options Under the 1991 Plan. As of May 21, 1999, 5,184,451
shares had been issued pursuant to exercises under the 1991 Plan by the
Company's optionees, 2,200 persons held NSOs under the 1991 Plan to purchase an
aggregate of 9,922,414 shares of common stock, with a weighted average exercise
price of $32.29 per share and there were 393,135 shares of common stock
available for future grants under the 1991 Plan. Over the term of the 1991 Plan,
the following Named Executive Officers have been granted options to purchase
shares of common stock under the 1991 Plan as follows: Lawrence F. Probst III,
805,000 shares; John Riccitiello, 360,000 shares; E. Stanton McKee, Jr., 460,000
shares; Don Mattrick, 950,000 shares; and Nancy Smith, 325,000 shares. Current
executive officers as a group have been granted options to purchase 3,586,500
shares, and all employees as a group, other than executive officers, have been
granted options to purchase 17,413,778 shares. The outstanding options under the
1991 Plan expire from July 25, 2001 to April 26, 2009 (subject to earlier
termination if an optionee's association with the Company terminates). An
aggregate of 15,500,000 shares of the Company's authorized common stock has been
reserved for issuance upon the exercise of options to be granted under the 1991
Plan.
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<PAGE> 33
EMPLOYEE STOCK PURCHASE PLAN
History. The Purchase Plan was adopted by the Board on April 25, 1991
and approved by the stockholders on July 25, 1991. The Purchase Plan has been
amended six times since its adoption, primarily to increase the number of shares
available for issuance thereunder and to update it to reflect changes in
relevant tax and corporate laws. All numbers of shares have been adjusted to
reflect a one share for one share stock dividend effected in March 1992 and a
one share for one share stock dividend effected in February 1993.
Purpose. The purpose of the Purchase Plan is to provide employees of the
Company with a convenient means of acquiring equity in the Company through
payroll deductions and to provide an incentive for continued employment.
Administration. The Purchase Plan is currently administered by the
Board. The interpretation by the Committee of any provision of the Purchase Plan
is final and binding on all participating employees.
Eligibility. All employees of the Company (including Directors who are
employees), or any parent or subsidiary, are eligible to participate in the
Purchase Plan except the following: (i) employees who are not employed by the
Company on the 15th day of the month before the beginning of an Offering Period
(as defined below); (ii) employees who are customarily employed for less than 20
hours per week; (iii) employees who are customarily employed for less than 5
months in a calendar year; and (iv) employees who, pursuant to Section 424(d) of
the Code, own or hold options to purchase or who, as a result of participation
in the Purchase Plan, would own stock or hold options to purchase stock
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or any parent or subsidiary. At the last reported
headcount on May 21, 1999, approximately 2,600 employees were eligible to
participate in the Purchase Plan.
Participation. Each offering of common stock under the Purchase Plan is
for a period of one year (the "Offering Period"). Offering Periods commence on
the first business day of March and September of each year. The first day of
each Offering Period is the "Offering Date" for such Offering Period. An
employee cannot participate simultaneously in more than one Offering Period.
Each Offering Period consists of two six-month purchase periods (each a
"Purchase Period") commencing on the first business day of March and September.
The last day of each Purchase Period is a "Purchase Date."
Employees may participate in the Purchase Plan during each pay period
through payroll deductions. An employee sets the rate of such payroll
deductions, which may not be less than 2% or more than 10% of the employee's
base salary, wages, commissions, overtime, shift premiums and bonuses plus draws
against commissions, unreduced by the amount by which the employee's salary is
reduced pursuant to Sections 125 or 401(k) of the Code. Eligible employees may
elect to participate in any Offering Period by enrolling as provided under the
terms of the Purchase Plan. Once enrolled, a participating employee will
automatically participate in each succeeding Offering Period unless such
employee withdraws from the Offering Period. After the rate of payroll
deductions for an Offering Period has been set by an employee, that rate
continues to be effective for the remainder of the Offering Period (and for all
subsequent Offering Periods in which the employee is automatically enrolled)
unless otherwise changed by the employee. The employee may increase or lower the
rate of payroll deductions for any subsequent Offering Period but may only lower
the rate of payroll deductions during the current Purchase Period. Not more than
one change may be made effective during any one Purchase Period.
In any given Purchase Period, no employee may purchase more than (a)
twice the number of shares that could have been purchased with the payroll
deductions if the purchase price were determined by using 85% of the fair market
value of a share of the Company's common stock on the Offering Date or (b) the
maximum number of shares set by the Board. In addition, no employee may purchase
shares at a rate that, when aggregated with all other rights to purchase stock
under all other employee stock purchase plans of the Company, or any parent or
subsidiary of the Company, exceeds $25,000 in fair market value (determined on
the Offering Date) for each year.
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<PAGE> 34
Purchase Price. The purchase price of shares that may be acquired in any
Purchase Period under the Purchase Plan is 85% of the lesser of (a) the fair
market value of the shares on the Offering Date of the Offering Period in which
the participant is enrolled or (b) the fair market value of the shares on the
Purchase Date. The fair market value of the common stock on a given date is the
closing bid price of the common stock on the immediately preceding business day
as quoted on the Nasdaq National Market. On May 21, 1999, the closing bid price
of the Company's common stock was $49.4375.
Purchase of Stock. The number of whole shares an employee may purchase
in any Purchase Period is determined by dividing the total amount of payroll
deductions withheld from the employee during the Purchase Period pursuant to the
Purchase Plan by the price per share determined as described above, subject to
the limitations described above. The purchase takes place automatically on the
last day of the Purchase Period.
Withdrawal. An employee may withdraw from any Offering Period at any
time at least 15 days prior to the end of an Offering Period. No further payroll
deductions for the purchase of shares will be made for the succeeding Offering
Period unless the employee enrolls in the new Offering Period in the same manner
as for initial participation in the Purchase Plan.
Termination of Employment. Termination of an employee's employment for
any reason, including retirement or death, immediately cancels the employee's
participation in the Purchase Plan. In such event, the payroll deductions
credited to the employee's account will be returned to such employee or, in case
of death, to the employee's legal representative.
Adjustment Upon Changes in Capitalization. The number of shares subject
to any option, and the number of shares issuable under the Purchase Plan, is
subject to adjustment in the event of a recapitalization of the Company's common
stock. In the event of a proposed dissolution or liquidation of the Company, the
Offering Period will terminate and the Board may, in its sole discretion, give
participants the right to purchase shares that would not otherwise be
purchasable until the last day of the applicable Purchase Period.
Tax Treatment of the Participant. Participating employees will not
recognize income for federal income tax purposes either upon enrollment in the
Purchase Plan or upon the purchase of shares. All tax consequences are deferred
until a participating employee sells the shares, disposes of the shares by gift,
or dies.
If shares are held for more than one year after the date of purchase and
more than two years from the beginning of the applicable Offering Period, or if
the employee dies while owning the shares, the employee realizes ordinary income
on a sale (or a disposition by way of gift or upon death) to the extent of the
lesser of: (i) 15% of the fair market value of the shares at the beginning of
the Offering Period; or (ii) the actual gain (the amount by which the market
value of the shares on the date of sale, gift or death, exceeds the purchase
price). All additional gain upon the sale of shares is treated as long-term
capital gain. If the shares are sold and the sale price is less than the
purchase price, there is no ordinary income, and the employee has a long-term
capital loss for the difference between the sale price and the purchase price.
If the shares are sold or are otherwise disposed of, including by way of
gift (but not death, bequest or inheritance), within either the one-year or the
two-year holding periods described above (in any case a "disqualifying
disposition"), the employee will realize ordinary income at the time of sale or
other disposition taxable to the extent that the fair market value of the shares
at the date of purchase was greater than the purchase price. This excess will
constitute ordinary income (not currently subject to withholding) in the year of
the sale or other disposition even if no gain is realized on the sale or if a
gratuitous transfer is made. The difference, if any, between the proceeds of
sale and the fair market value of the shares at the date of purchase is a
capital gain or loss. Capital gains may be offset by capital losses and up to
$3,000 of capital losses may be offset annually against ordinary income.
Ordinary income recognized by an employee upon a disqualifying disposition
constitutes taxable compensation that will be reported on a W-2 form. We take
the position that this income is not subject to withholding.
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<PAGE> 35
Tax Treatment of the Company. The Company is entitled to a deduction in
connection with the disposition of shares acquired under the Purchase Plan only
to the extent that the employee recognized ordinary income on a disqualifying
disposition of the shares. The Company treats any transfer of record ownership
of shares, including transfer to a broker or nominee or into "street name," as a
disposition, unless it is notified to the contrary. In order to enable the
Company to learn of disqualifying dispositions and ascertain the amount of the
deductions to which it is entitled, employees are required to notify the Company
in writing of the date and terms of any disposition of shares purchased under
the Purchase Plan.
REQUESTS TO THE COMPANY
The Company will provide, without charge, to each person to whom a proxy
statement is delivered, upon request of such person and by first class mail
within one (1) business day of receipt of such request, a copy of the Directors'
Plan,1991 Plan or Purchase Plan requested. Any such request should be directed
as follows: Stock Administration Department, Electronic Arts Inc., 209 Redwood
Shores Parkway, Redwood City, California 94065 telephone number (650) 628-1500.
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<PAGE> 36
ELECTRONIC ARTS INC.
PROXY FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Electronic Arts Inc., a Delaware corporation (the
"Company") hereby appoints Lawrence F. Probst III and E. Stanton McKee, Jr., and
each of them, proxies and attorneys-in-fact, with full power of substitution to
each, on behalf of and in the name of the undersigned, to represent the
undersigned at the 1999 Annual Meeting of Stockholders of the Company to be held
at the Company headquarters, 207 Redwood Shores Parkway, Redwood City, CA 94065
on July 29, 1999, at 2:00 p.m., and at any adjournment thereof, and to vote all
shares the undersigned would be entitled to vote if personally present at the
meeting on the following matters:
<TABLE>
<S> <C>
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as [ ] WITHHOLD AUTHORITY to vote for the
marked to the contrary below) nominees listed below
</TABLE>
Nominees: M. Richard Asher, William J. Byron, Daniel H. Case III, Gary
M. Kusin, Timothy Mott, Lawrence F. Probst III Instruction: To withhold
authority to vote for any individual nominee, write that nominee's name
on the following line:
- --------------------------------------------------------------------------------
2. AMENDMENT TO THE 1998 DIRECTORS' STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT TO THE 1991 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. AMENDMENT TO THE 1991 EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR ELECTION AND FOR
PROPOSALS 2 THROUGH 5.
(Continued and to be executed on reverse side)
<PAGE> 37
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR THE SIX NOMINEES FOR ELECTION AND FOR PROPOSALS 2 THROUGH 5.
In their discretion, the proxy holders are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof to
the extent authorized by Rule 14a-4(c) promulgated by the Securities and
Exchange Commission.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.
The undersigned hereby acknowledges receipt of (a) the Notice of 1999 Annual
Meeting of Stockholders of the Company; (b) the accompanying Proxy Statement;
and (c) the Annual Report to Stockholders for the year ended March 31, 1999.
PLEASE SIGN EXACTLY AS YOUR
NAME(S) APPEARS ON YOUR STOCK
CERTIFICATE. IF SHARES ARE
HELD IN THE NAMES OF TWO OR
MORE PERSONS (INCLUDING
HUSBAND AND WIFE, AS JOINT
TENANTS OR OTHERWISE) ALL
PERSONS MUST SIGN. IF SHARES
ARE HELD BY A CORPORATION,
THE PROXY SHOULD BE SIGNED BY
THE PRESIDENT OR VICE
PRESIDENT AND THE SECRETARY
OR ASSISTANT SECRETARY.
FIDUCIARIES WHO EXECUTE THE
PROXY SHOULD GIVE THEIR FULL
TITLE.
Dated:_________________, 1999
-----------------------------
SIGNATURE
-----------------------------
SIGNATURE
