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EXHIBIT 4.01
ELECTRONIC ARTS INC.
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2000 EMPLOYEE CLASS A STOCK PURCHASE PLAN
As Adopted by the Board of Directors on May 25, 2000
As Approved by the Stockholders on July 27, 2000
1. Establishment of Plan. Electronic Arts Inc., (the "Company")
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proposes to grant options for purchase of the Company's Class A Common Stock to
eligible employees of the Company and its Subsidiaries (as hereinafter defined)
pursuant to this 2000 Employee Stock Purchase Plan (the "Plan"). For purposes of
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this Plan, "parent corporation" and "Subsidiary" (collectively, "Subsidiaries")
shall have the same meanings as "parent corporation" and "subsidiary
corporation" in Sections 424(e) and 424(f), respectively, of the Internal
Revenue Code of 1986, as amended (the "Code"). The Company intends that the Plan
shall qualify as an "employee stock purchase plan" under Section 423 of the Code
(including any amendments or replacements of such section), and the Plan shall
be so construed. Any term not expressly defined in the Plan but defined for
purposes of Section 423 of the Code shall have the same definition herein. A
total of 500,000 shares of Class A Common Stock are reserved for issuance under
the Plan. Such number shall be subject to adjustments effected in accordance
with Section 14 of the Plan.
2. Purposes. The purpose of the Plan is to provide employees of the
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Company and its Subsidiaries designated by the Board of Directors as eligible to
participate in the Plan with a convenient means to acquire an equity interest in
the Company through payroll deductions, to enhance such employees' sense of
participation in the affairs of the Company and its Subsidiaries, and to provide
an incentive for continued employment.
3. Administration. This Plan may be administered by the Board or a
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committee appointed by the Board (the "Committee"). The Plan shall be
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administered by the Board or a committee appointed by the Board consisting of
not less than three (3) persons (who are members of the Board), each of whom is
a disinterested director. As used in this Plan, references to the "Committee"
shall mean either the committee appointed by the Board to administer this Plan
or the Board if no committee has been established. Subject to the provisions of
the Plan and the limitations of Section 423 of the Code or any successor
provision in the Code, all questions of interpretation or application of the
Plan shall be determined by the Committee and its decisions shall be final and
binding upon all participants. Members of the Committee shall receive no
compensation for their services in connection with the administration of the
Plan, other than standard fees as established from time to time by the Board of
Directors of the Company for services rendered by Board members serving on Board
committees. All expenses incurred in connection with the administration of the
Plan shall be paid by the Company.
4. Eligibility. Any employee of the Company or the its Subsidiaries
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is eligible to participate in an Offering Period (as hereinafter defined) under
the Plan except the following:
(a) employees who are not employed by the Company or its
Subsidiaries on the fifteenth (15th) day of the month before the beginning of
such Offering Period;
(b) employees who are customarily employed for less than 20
hours per week;
(c) employees who are customarily employed for less than five
(5) months in a calendar year;
(d) employees who, together with any other person whose stock
would be attributed to such employee pursuant to Section 424(d) of the Code, own
stock or hold options to purchase stock or who, as a result of being granted an
option under the Plan with respect to such Offering Period, would own stock or
hold options to purchase stock possessing five (5) percent or more of the total
combined voting power or value of all classes of stock of the Company or any of
its Subsidiaries; and
(e) employees who would, by virtue of their participation in
such Offering Period, be participating simultaneously in more than one Offering
Period under the Plan.
5. Offering Dates. The Offering Periods of the Plan (the "Offering
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Period") shall be of twelve (12) months duration commencing on the first
business day of March and September of each year and ending on the last business
day of February and August, respectively, hereafter. The first Offering Period
shall commence on September 1, 2000. The first
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day of each Offering Period is referred to as the "Offering Date". Each Offering
Period shall consist of two (2) six-month purchase periods (individually, a
"Purchase Period"), during which payroll deductions of the participant are
accumulated under this Plan. Each such six-month Purchase Period shall commence
on the first business day of March and September of an Offering Period and shall
end on the last business day of the following August and February, respectively.
The last business day of each Purchase Period is hereinafter referred to as the
Purchase Date. The Board of Directors of the Company shall have the power to
change the duration of Offering Periods or Purchase Periods without stockholder
approval if such change is announced at least fifteen (15) days prior to the
scheduled beginning of the first Offering Period or Purchase Period, as the case
may be, to be affected.
6. Participation in the Plan. Eligible employees may become
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participants in an Offering Period under the Plan on the first Offering Date
after satisfying the eligibility requirements by delivering to the Company's or
Subsidiary's (whichever employs such employee) payroll department (the "payroll
department") not later than the 15th day of the month before such Offering Date
unless a later time for filing the subscription agreement is set by the Board
for all eligible Employees with respect to a given Offering Period a
subscription agreement authorizing payroll deductions. An eligible employee who
does not deliver a subscription agreement to the payroll department by such date
after becoming eligible to participate in such Offering Period under the Plan
shall not participate in that Offering Period or any subsequent Offering Period
unless such employee enrolls in the Plan by filing the subscription agreement
with the payroll department not later than the 15th day of the month preceding a
subsequent Offering Date. Once an employee becomes a participant in an Offering
Period, such employee will automatically participate in the Offering Period
commencing immediately following the last day of the prior Offering Period
unless the employee withdraws from the Plan or terminates further participation
in the Offering Period as set forth in Section 11 below. Such participant is not
required to file any additional subscription agreements in order to continue
participation in the Plan. Any participant whose option expires and who has not
withdrawn from the Plan pursuant to Section 11 below will automatically be re-
enrolled in the Plan and granted a new option on the Offering Date of the next
Offering Period. A participant in the Plan may participate in only one Offering
Period at any time.
7. Grant of Option on Enrollment. Enrollment by an eligible employee
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in the Plan with respect to an Offering Period will constitute the grant (as of
the Offering Date) by the Company to such employee of an option to purchase on
each Purchase Date up to that number of shares of Class A Common Stock of the
Company determined by dividing the amount accumulated in such employee's payroll
deduction account during such Purchase Period by the lower of (i) eighty-five
percent (85%) of the fair market value of a share of the Company's Class A
Common Stock on the Offering Date (the "Entry Price") or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Class A
Common Stock on the Purchase Date, provided, however, that the number of shares
of the Company's Class A Common Stock subject to any option granted pursuant to
this Plan shall not exceed the lesser of (a) the maximum number of shares set by
the Board pursuant to Section 10(c) below with respect to all Purchase Periods
within the applicable Offering Period or Purchase Period, or (b) 200% of the
number of shares determined by using 85% of the fair market value of a share of
the Company's Class A Common Stock on the Offering Date as the denominator. Fair
market value of a share of the Company's Class A Common Stock shall be
determined as provided in Section 8 hereof.
8. Purchase Price. The purchase price per share at which a share of
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Class A Common Stock will be sold in any Offering Period shall be eighty-five
percent (85%) of the lesser of:
(a) the fair market value on the Offering Date, or
(b) the fair market value on the Purchase Date.
For purposes of the Plan, the term "fair market value" on a given date
shall mean the closing bid from the previous day's trading of a share of the
Company's Class A Common Stock as reported on the NASDAQ National Market System.
9. Payment of Purchase Price; Changes in Payroll Deductions; Issuance
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of Shares.
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(a) The purchase price of the shares is accumulated by
regular payroll deductions made during each Purchase Period. The deductions are
made as a percentage of the employee's compensation in one percent (1%)
increments not less than two percent (2%) nor greater than ten percent (10%).
Compensation shall mean all W-2 compensation, including, but not limited to base
salary, wages, commissions, overtime, shift premiums and bonuses, plus draws
against commissions; provided, however, that for purposes of determining a
participant's compensation, any election by such participant to reduce his or
her regular cash remuneration under Sections 125 or 401(k) of the Code shall be
treated as if the participant did not make such election. Payroll deductions
shall commence with the first pay period
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following the Offering Date and shall continue to the end of the Offering Period
unless sooner altered or terminated as provided in the Plan.
(b) A participant may lower (but not increase) the rate of
payroll deductions during a Purchase Period by filing with the payroll
department a new authorization for payroll deductions, in which case the new
rate shall become effective for the next payroll period commencing more than 15
days after the payroll department's receipt of the authorization and shall
continue for the remainder of the Offering Period unless changed as described
below. Such change in the rate of payroll deductions may be made at any time
during an Offering Period, but not more than one change may be made effective
during any Purchase Period. A participant may increase or lower the rate of
payroll deductions for any subsequent Purchase Period by filing with the payroll
department a new authorization for payroll deductions not later than the 15th
day of the month before the beginning of such Purchase Period.
(c) All payroll deductions made for a participant are
credited to his or her account under the Plan and are deposited with the general
funds of the Company; no interest accrues on the payroll deductions. All payroll
deductions received or held by the Company may be used by the Company for any
corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.
(d) On each Purchase Date, as long as the Plan remains in
effect and provided that the participant has not submitted a signed and
completed withdrawal form before that date which notifies the Company that the
participant wishes to withdraw from that Offering Period under the Plan and have
all payroll deductions accumulated in the account maintained on behalf of the
participant as of that date returned to the participant, the Company shall apply
the funds then in the participant's account to the purchase of whole shares of
Class A Common Stock reserved under the option granted to such participant with
respect to the Offering Period to the extent that such option is exercisable on
the Purchase Date. The purchase price per share shall be as specified in Section
8 of the Plan. Any cash remaining in a participant's account after such purchase
of shares shall be refunded to such participant in cash; provided, however, that
any amount remaining in participant's account on a Purchase Date which is less
than the amount necessary to purchase a full share of Class A Common Stock of
the Company shall be carried forward, without interest, into the next Purchase
Period or Offering Period, as the case may be. In the event that the Plan has
been oversubscribed, all funds not used to purchase shares on the Purchase Date
shall be returned to the participant. No Class A Common Stock shall be purchased
on a Purchase Date on behalf of any employee whose participation in the Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the
Company shall arrange the delivery to each participant, as appropriate, of a
certificate representing the shares purchased upon exercise of his option;
provided that the Board may deliver certificates to a broker or brokers that
hold such certificates in street name for the benefit of each such participant.
(f) During a participant's lifetime, such participant's
option to purchase hares hereunder is exercisable only by him or her. The
participant will have no interest or voting right in shares covered by his or
her option until such option has been exercised. Shares to be delivered to a
participant under the Plan will be registered in the name of the participant or
in the name of the participant and his or her spouse.
10. Limitations on Shares to be Purchased.
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(a) No employee shall be entitled to purchase stock under
the Plan at a rate which, when aggregated with his or her rights to purchase
stock under all other employee stock purchase plans of the Company or any
Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering
Date (or such other limit as may be imposed by the Code) for each calendar year
in which the employee participates in the Plan.
(b) No more than 200% of the number of shares determined by
using 85% of the fair market value of a share of the Company's Class A Common
Stock on the Offering Date as the denominator may be purchased by a participant
on any single Purchase Date.
(c) No employee shall be entitled to purchase more than the
Maximum Share Amount (as defined below) on any single Purchase Date. Not less
than thirty days prior to the commencement of any Purchase Period, the Board
may, in its sole discretion, set a maximum number of shares which may be
purchased by any employee at any single Purchase Date (hereinafter the "Maximum
Share Amount"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen (15) days prior to the commencement of the next Purchase Period. Once
the Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Purchase Periods unless revised by the Board as
set forth above.
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(d) If the number of shares to be purchased on a Purchase
Date by all employees participating in the Plan exceeds the number of shares
then available for issuance under the Plan, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Board shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares to
be purchased under a participant's option to each employee affected thereby.
(e) Any payroll deductions accumulated in a participant's
account which are not used to purchase stock due to the limitations in this
Section 10 shall be returned to the participant as soon as practicable after the
end of the Offering Period.
11. Withdrawal.
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(a) Each participant may withdraw from an Offering Period
under the Plan by signing and delivering to the payroll department notice on a
form provided for such purpose. Such withdrawal may be elected at any time at
least fifteen (15) days prior to the end of an Offering Period.
(b) Upon withdrawal from the Plan, the accumulated payroll
deductions shall be returned to the withdrawn employee and his or her interest
in the Plan shall terminate. In the event an employee voluntarily elects to
withdraw from the Plan, he or she may not resume his or her participation in the
Plan during the same Offering Period, but he or she may participate in any
Offering Period under the Plan which commences on a date subsequent to such
withdrawal by filing a new authorization for payroll deductions in the same
manner as set forth above for initial participation in the Plan. However, if the
participant is an "insider" for purposes of Rule 16(b), he or she shall not be
eligible to participate in any Offering Period under the Plan which commences
less than six (6) months from the date of withdrawal from the Plan.
(c) A participant may participate in the current Purchase
Period under an Offering Period (the "Current Offering Period") and enroll in
the Offering Period commencing after such Purchase Period (the "New Offering
Period") by (i) withdrawing from participating in the Current Offering Period
effective as of the last day of a Purchase Period within that Offering Period
and (ii) enrolling in the New Offering Period. Such withdrawal and enrollment
shall be effected by filing with the payroll department at least fifteen (15)
days prior to the end of a Purchase Period such form or forms as are provided
for such purposes.
12. Termination of Employment. Termination of a participant's
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employment for any reason, including retirement or death or the failure of a
participant to remain an eligible employee, terminates his or her participation
in the Plan immediately. In such event, the payroll deductions credited to the
participant's account will be returned to him or her or, in the case of his or
her death, to his or her legal representative. For this purpose, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company in the case of sick leave, military leave, or
any other leave of absence approved by the Board of Directors of the Company;
provided that such leave is for a period of not more than ninety (90) days or re
employment upon the expiration of such leave is guaranteed by contract or
statute.
13. Return of Payroll Deductions. In the event an employee's interest
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in the Plan is terminated by withdrawal, termination of employment or otherwise,
or in the event the Plan is terminated by the Board, the Company shall promptly
deliver to the employee all payroll deductions credited to his account. No
interest shall accrue on the payroll deductions of a participant in the Plan.
14. Capital Changes. Subject to any required action by the
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stockholders of the Company, the number of shares of Class A Common Stock
covered by each option under the Plan which has not yet been exercised and the
number of shares of Class A Common Stock which have been authorized for issuance
under the Plan but have not yet been placed under option (collectively, the
"Reserves"), as well as the price per share of Class A Common Stock covered by
each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Class A Common Stock resulting from a stock split or the payment of a
stock dividend (but only on the Class A Common Stock) or any other increase or
decrease in the number of shares of Class A Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration". Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Class A Common Stock subject to an
option.
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In the event of the proposed dissolution or liquidation of the Company,
the Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under the Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each option under
the Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock. If the Board makes an
option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable for a period of twenty (20) days from the date of
such notice, and the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Class A Common Stock covered by each outstanding option, in the
event that the Company effects one or more reorganizations, recapitalizations,
rights offerings or other increases or reductions of shares of its outstanding
Class A Common Stock, and in the event of the Company being consolidated with or
merged into any other corporation.
15. Nonassignability. Neither payroll deductions credited to a
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participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 22 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect.
16. Reports. Individual accounts will be maintained for each
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participant in the Plan. Each participant shall receive promptly after the end
of each Purchase Period a report of his account setting forth the total payroll
deductions accumulated, the number of shares purchased, the per share price
thereof and the remaining cash balance, if any, carried forward to the next
Purchase Period or Offering Period, as the case may be.
17. Notice of Disposition. Each participant shall notify the Company if
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the participant disposes of any of the shares purchased in any Offering Period
pursuant to this Plan if such disposition occurs within two (2) years from the
Offering Date or within twelve (12) months from the Purchase Date on which such
shares were purchased (the "Notice Period"). Unless such participant is
disposing of any of such shares during the Notice Period, such participant shall
keep the certificates representing such shares in his or her name (and not in
the name of a nominee) during the Notice Period. The Company may, at any time
during the Notice Period, place a legend or legends on any certificate
representing shares acquired pursuant to the Plan requesting the Company's
transfer agent to notify the Company of any transfer of the shares. The
obligation of the participant to provide such notice shall continue
notwithstanding the placement of any such legend on certificates.
18. No Rights to Continued Employment. Neither this Plan nor the grant
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of any option hereunder shall confer any right on any employee to remain in the
employ of the Company or any Subsidiary or restrict the right of the Company or
any Subsidiary to terminate such employee's employment.
19. Equal Rights and Privileges. All eligible employees shall have
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equal rights and privileges with respect to the Plan so that the Plan qualifies
as an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
the Plan which is inconsistent with Section 423 or any successor provision of
the Code shall without further act or amendment by the Company or the Board be
reformed to comply with the requirements of Section 423. This Section 19 shall
take precedence over all other provisions in the Plan.
20. Notices. All notices or other communications by a participant to
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the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Stockholder Approval of Amendments. Any required approval of the
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stockholders of the Company for an amendment shall be solicited at or prior to
the first annual meeting of stockholders held subsequent to the grant of an
option under the Plan as then amended to an officer or director of the Company.
If such stockholder approval is obtained at a duly held stockholders' meeting,
it must be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the company represented and voting at the meeting, or if
such stockholder approval is obtained by written consent, it must be obtained by
the majority of the outstanding shares of the Company; provided, however, that
<PAGE>
approval at a meeting or by written consent may be obtained by a lesser degree
of stockholder approval if the Board determines, in its discretion after
consultation with the Company's legal counsel, that such lesser degree of
stockholder approval will comply with all applicable laws and will not adversely
affect the qualification of the Plan under Section 423 of the Code or Rule 16b-3
promulgated under the Exchange Act ("Rule 16b-3").
22. Designation of Beneficiary
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(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of a Purchase Period but prior to delivery to him of such
shares and cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares or cash to the executor or administrator of the estate of
the participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver such
shares or cash to the spouse or to any one or more dependents or relatives of
the participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
23. Conditions Upon Issuance of Shares; Limitation on Sale of Shares.
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Shares shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
24. Applicable Law. The Plan shall be governed by the substantive
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laws (excluding the conflict of laws rules) of the State of California.
25. Amendment or Termination of the Plan. This Plan shall be effective
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on the day after the effective date of the Company's Registration Statement
filed with the Securities Exchange Commission under the Securities Act of 1933,
as amended, with respect to the shares issuable under the Plan (the "Effective
Date"), subject to approval by the stockholders of the Company within twelve
(12) months after the date the Plan is adopted by the Board of Directors of the
company and the Plan shall continue until the earlier to occur of termination by
the Board, issuance of all of the shares of Class A Common Stock reserved for
issuance under the Plan, or ten (10) years from the adoption of the Plan by the
Board. The Board of Directors of the Company may at any time amend or terminate
the Plan, except that any such termination cannot affect options previously
granted under the Plan, nor may any amendment make any change in an option
previously granted which would adversely affect the right of any participant,
nor may any amendment be made without approval of the stockholders of the
Company obtained in accordance with Section 21 hereof within 12 months of the
adoption of such amendment (or earlier if required by Section 21) if such
amendment would:
(a) Increase the number of shares that may be issued under
the Plan;
(b) Change the designation of the employees (or class of
employees) eligible for participation in the Plan; or
(c) Constitute an amendment for which stockholder approval is
required in order to comply with Rule 16b-3 (or any successor rule) of the
Exchange Act.
<PAGE>
[LOGO OF ELECTRONIC ARTS]
EMPLOYEE STOCK PURCHASE PLAN ACTION FORM
ENROLLMENT/CHANGE/WITHDRAWAL AGREEMENT
----------- Action Complete Sections
SECTION 1 ------ -----------------
----------- [_] New Enrollment 2, 3, 4, 6, 8
[_] Payroll Deduction Change 2, 4, 8
[_] Withdrawal 2, 5, 8
[_] Beneficiary Change 2, 6, 8
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SECTION 2: Name:___________________________________ SS#:______________
PERSONAL
INFORMATION Address:____________________________________________________
-------------- Location:________________
------------ I hereby elect to participate in the Electronic Arts
SECTION 3: Employee Stock Purchase Plan (the "Plan") and I agree
NEW to be bound by its terms. Stock purchased under the Plan
ENROLLMENT should be registered in my name or in my name together with
------------ the following name: ____________________________________.
If spouse, circle one: Joint Tenancy / Community Property.
---------------
SECTION 4: I hereby authorize payroll deductions from each paycheck in
PAYROLL that percentage of my compensation as shown below, in
DEDUCTION accordance with the Plan.
AUTHORIZATION
--------------- Amount to be Deducted (Circle One): 0% 2% 3% 4% 5% 6%
7% 8% 9% 10%
------------
SECTION 5: Effective: _____/____/____ I will cease participating in the
WITHDRAWAL Month Date Year Plan, all monies contributed to
------------ the Plan thus far will be
returned, and I may not re-enroll
until the next Offering Period.
<TABLE>
<S> <C>
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SECTION 6: In the event of my death, I hereby designate the following
BENEFICIARY person(s) as my beneficiary(ies) to receive all payments
------------- and/or stock due me under the Employee Stock Purchase Plan:
Primary Beneficiary: %: Relationship: _________________________
-----------------------
Primary Beneficiary: %: Relationship: _________________________
-----------------------
Note: If more than one primary beneficiary listed, please indicate % allocated to each.
Secondary Beneficiary:______________________ Relationship: _________________________
If primary beneficiary is other than spouse, spouse must consent to such beneficiary designation.
</TABLE>
_______________________________ ________________
Spouse Signature Date
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SECTION 7:
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ACCUMULATION I understand that my payroll deductions will be accumulated for
AND PURCHASE the automatic purchase of shares of Common Stock at the end of
PRICE each Purchase Period, unless I withdraw from the Plan or become
ineligible. The purchase price per share will be the lower of (i)
85% of the fair market value on the first day of an Offering
Period or (ii) 85% of the fair market value on the last day of a
Purchase Period.
SUCCESSIVE I understand that this enrollment will be effective for each
PERIODS subsequent Offering Period unless I withdraw from the Plan or
otherwise become ineligible to participate in the Plan. In the
event, however, that the Offering Price for the new Offering
Period for which I am not enrolled is less than the Offering
Price for the Offering Period for which I am currently enrolled,
I understand that I will automatically be withdrawn from the
current Offering Period and re- enrolled in the new Offering
Period unless I notify the Company to the contrary.
REVIEW OF I have received a copy of the Company's most recent prospectus
PROSPECTUS which describes the Plan. I understand that my participation is in
all respects subject to the terms of the Plan.
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SECTION 8:
AUTHORIZATION ______________________________________ Date:____________
--------------- Please send Original to Stock Administration - 207-5/th/ Floor
<PAGE>
[LOGO OF ELECTRONICS ARTS]
================================================================================
EMPLOYEE STOCK PURCHASE PLAN
================================================================================
Electronic Arts Inc., a Delaware corporation (the "Company"), is offering an
aggregate of 500,000 shares of its authorized but unissued Common Stock to
employees of the Company and its subsidiaries pursuant to the terms and
conditions of the Company's 2000 Employee Stock Purchase Plan (the "Plan"), as
described herein.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
ANY STATE SECURITIES COMMISSION NOR HAS ANY STATE SECURITIES
COMMISSION PASS UPON THE ACCURACY OR ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
INTRODUCTION
This Prospectus relates to shares of the Common Stock of the Company
offered to the Company's employees under the Plan. A Registration Statement with
respect to such shares of Common Stock has been filed with the Securities and
Exchange Commission (the "Commission"). This Prospectus, which forms a part of
that Registration Statement and sets forth information concerning the Plan and
the Company, is distributed to participants in the Plan pursuant to the 1933
Act.
The Company maintains its executive offices at 209 Redwood Shores Parkway,
Redwood City, California 94065-1175. Its telephone number if (650) 628-1500
--------------------------------------------------------------------------------
QUESTIONS AND ANSWERS ABOUT THE STOCK PURCHASE PLAN
================================================================================
1. What is the Plan?
The Plan is a payroll deduction plan that permits eligible employees to
purchase from the Company shares of Common Stock of the Company at a discount
from the market price.
------
2. What is the history of the Plan?
The Plan was adopted by the Company's Board of Directors (the "Board") on
May 25, 2000 and approved by the Company's stockholders on July 27,2000.
------
3. What is the purpose of the Plan?
The Plan has been established to provide employees of the Company and its
Subsidiaries designated by the Board as eligible to participate in the Plan with
a convenient means to acquire an equity interest in the Company through payroll
deductions, to enhance such employees' sense of participation in the affairs of
the Company and its Subsidiaries, and to provide an incentive for continued
employment.
------
4. Who is eligible to participate in the Plan?
Any employee of the Company or its Subsidiaries is eligible to participate
in an Offering Period (as hereinafter defined) under the Plan except the
following:
a) employees who are not employed by the Company or Its Subsidiaries on the
fifteenth (15th) day of the month before the beginning of such Offering
Period;
b) employees who are customarily employed for less than 20 hours per week;
c) employees who are customarily employed for less than five (5) months in a
calendar year;
d) employees, who together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Internal
Revenue Code of 1986, as amended (the "Code"), own stock or hold options to
purchase stock or who, as a result of being granted an option under the
Plan with respect to such Offering Period, would own stock or hold options
to purchase stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company or
any of its Subsidiaries; and,
e) employees who would, by virtue of their participation in such Offering
Period, be participating simultaneously in more than one Offering Period
under the Plan.
-----
5. How do I become a participant in the Plan?
<PAGE>
You may participate in the Plan by completing and returning to the
Company's Stock Administration Department, on or before the 15th day of the
month before the next Offering Date (described below), a Subscription Agreement
and Employee Stock Purchase Plan Action Form in which you authorize regular
payroll deductions. The form of the Subscription Agreement and Employee Stock
Purchase Plan Action Form will be provided to you prior to each enrollment
deadline; you will be able to choose the rate of your deductions and the
designation of your beneficiary.
Once you become a participant, you will automatically be enrolled in the
subsequent Offering Periods unless you withdraw from the Plan or become
ineligible to participate.
------
6. Is there a waiting period before I can enroll in the Plan?
No, but you must enroll at least fifteen (15) days prior to the beginning
of an Offering Period.
------
7. What is the Offering Period?
The Plan provides for consecutive overlapping twelve month "Offering
Periods," commencing on the first business day of March and September of each
year and ending on the last business day of February and August. The first
Offering Period will commence on September 1, 2000. The first day of each
Offering Period is referred to as the "Offering Date". The Board has the
discretion to change the duration of Offering periods. The Plan will continue
until the earliest to occur of its termination by the Board, issuance of all of
the shares of Common Stock reserved for issuance under the Plan, or May 25,
2010.
------
8. What is the Purchase Period?
Each Offering Period consists of two (2) six-month Purchase Periods
(individually, a "Purchase Period"), during which payroll deductions of the
participant are accumulated under this Plan. A Purchase Period will commence on
the first business day of March and on the first business day of September of an
Offering Period and will end on the last business day of the following August
and February, respectfully. The last business day of each Purchase Period is the
"Purchase Date". According to your instructions and the terms of the Plan, the
Company will make payroll deductions from your paycheck during the Purchase
Period and will use those deductions to purchase shares of Common Stock of the
Company for you on the Purchase Date.
------
9. What is the discounted purchase price for shares under the Plan?
The purchase price per share at which a share of Common Stock will be sold
in any Offering Period shall be eighty-five percent (85%) of the lesser of:
(a) the fair market value on the Offering Date; or
(b) the fair market value on the Purchase Date.
For purposes of the Plan, the term "fair market value" on a given date shall
mean the closing bid from the previous day's trading of a share of the Company's
Common Stock as reported on the NASDAQ National Market System.
-----
10. Can you clarify how to calculate the discount?
To illustrate the calculation of the discounted purchase price, assume that
you participate in the first Offering Period. Also assume that the market price
of a share on the Offering Date (September 1, 2000) is $85.00 and that it
increases to $90.00 on the first Purchase Date in that Offering Period (February
28, 2000). Your discounted purchase price would be calculated as follows:
--------------------------------------------------------------------------------
Fair Market Value Fair Market Value Your
on on Purchase Your
Offering Date Purchase Date Price Discount
----------------- ----------------- --------- --------
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
$85.00 $90.00 $72.25 $12.75
(85% of 85.00)
================================================================================
As you can see from this example, if the fair market value of a share rises
during the Offering Period, your discount increases.
Assume now that you remain in the Plan for the second Purchase Period
within the first Offering Period (from March 1, 2001 to August 31, 2001) and
that the market price of a share decreases from $85.00 to $75.00 on the second
Purchase Date (August 31, 2000). Your purchase price and the discount for the
second Purchase Period would be:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Fair Market Value Fair Market Value Your
on on Purchase Your
Offering Date Purchase Date Price Discount
------------------ ------------------ -------- --------
<S> <C> <C> <C>
$85.00 $75.00 $63.75 $11.25
(85% of 75.00)
==========================================================================================================
</TABLE>
As illustrated above, if, during an Offering Period, the fair market value
of a share falls, you will be entitled to at least the minimum 15% discount on
the lower fair market value.
These examples only explain how the discounted purchase price is
calculated. No one can accurately predict whether the fair market value of the
Company's shares will rise or fall during any Offering Period.
-----
11. How much can I invest through the Plan?
You may authorize payroll deductions in any whole percentage rate from a
minimum of two percent (2%) up to a maximum of ten percent (10%) of your gross
earnings. Your gross earnings mean all W-2 compensation, including, but not
limited to base salary, wages, commissions, overtime, shift premiums and
bonuses, plus draws against commissions; provided, however, that for purposes of
determining a participant's compensation, any election by such participant to
reduce his or her regular cash remuneration under Sections 125 or 401(k) of the
Code shall be treated as if the participant did not make such election.
All payroll deductions made for you will be credited to your account under
the Plan, but will be deposited with the general funds of the Company and may be
used by the Company for any corporate purpose. No interest accrues on payroll
deductions.
-----
12. Am I limited in the number of shares I can purchase?
Yes. If the fair market value of a share on a Purchase Date is less than
one-half of the fair market value on the applicable Offering Date, you will be
limited to buying twice the number of shares you would have been eligible to
purchase if the price on the Purchase Date was the same as the price on the
Offering Date. In addition, the Board may in the future set a maximum number of
shares that may be purchased within a given Offering Period. You will be
notified if the Board establishes such a limit.
-----
13. Are there any other limitations on the amount I can invest?
By law, you may not purchase shares under the Plan which, with all rights
to purchase stock under all similar stock purchase plans of the Company or any
designated Subsidiary, exceed $25,000 worth of stock (measured at your
enrollment Offering Date at Fair Market Value) in any calendar year unless you
purchased less than $25,000 of stock in the previous year. This means that
because you pay only 85% of the fair market value of the shares, you may not
contribute more than approximately $21,250 toward the purchase of shares under
the Plan in any calendar year unless you have a carry forward from the previous
year.
<PAGE>
-----
14. Can I invest other than by payroll deduction?
No. Investments may be made only by payroll deduction. You may not make
additional cash contributions to the Plan.
-----
15. When do my payroll deductions begin?
Your payroll deductions will begin with the first pay period following the
Offering Date and will continue to the end of the Offering Period, 13 pay
periods. You will not be entitled to interest on the deductions credited to your
Plan account.
-----
16. Can I change the level of payroll deductions?
You may increase or decrease the level of your payroll deductions for any
subsequent Purchase Period within an Offering Period by filing with the
Company's Stock Administration Department a new Employee Stock Purchase Action
Form no later than the 15th day of the month before the beginning of such
Purchase Period.
During a Purchase Period, you may also decrease (but not increase) once the
level of your payroll deductions by filing a Employee Stock Purchase Action Form
with the Company's Stock Administration Department. The new decreased rate will
become effective for the payroll period which begins at least fifteen (15) days
after the Company's Stock Administration Department receives your new
subscription agreement.
Only one change in the level of payroll deduction may be made effective
during a Purchase Period.
-----
17. How many shares will my payroll deductions purchase?
On each Purchase Date, you will be entitled to purchase that number of
whole shares which is equal to the total amount of your payroll deductions
during the Purchase Period divided by your discounted purchase price, subject to
the limitations discussed above. Any amount remaining in your account that is
insufficient to purchase a whole share will be carried forward without interest
to the next Purchase Period.
If however, you are limited in the number of shares you can purchase on a
given Purchase Date (as described in the answers to Questions 12 or 13), any
amount remaining in your account will be refunded to you in cash, without
interest, after the end of the applicable Offering Period.
-----
18. Will the Company withhold taxes when shares are purchased for me under the
Plan?
Your payroll deductions are made by the Company after tax withholding. The
same amount of tax would be withheld whether or not you participate in the Plan.
U.S. employees (citizens and residents) may owe taxes on subsequent sales of the
shares. U.S. employees should carefully read the discussions of the tax
consequences of the Plan included in "Tax Information and ERISA" below.
International employees should consult their respective tax advisors.
-----
19. When will I receive shares?
As soon as practicable after a Purchase Date, the Company will arrange
delivery of a certificate representing the shares purchased on the Purchase
Date. You may choose from one or more brokers selected by the Company to receive
the direct issuance of shares. Unless you specifically elect to have your shares
issued to one of these brokers, the shares will be delivered directly to you.
<PAGE>
If you elect to have your shares issued to the broker, you will be asked to
complete a broker account application for the selected broker. In such case,
each Purchase Date, your shares will be automatically issued to the broker, who
will maintain the shares in individual participant accounts. The Company
believes that a broker will be able to transfer shares quickly and without the
risk of losing certificates in the mail. You may instruct the broker at any time
to hold, transfer or sell your shares.
-----
20. In whose name will my shares be registered?
If your shares are delivered to you, they will be issued and registered in
your name as designated by you on your Employee Stock Purchase Plan Action Form.
If you elect to have your shares issued to the broker, the broker will maintain
your shares in the name designated by you on your broker account application.
-----
21. After becoming a stockholder, can I vote my stock?
Yes, even though you may not be in physical possession of a stock
certificate. You will be notified by the Company whenever there is a vote of the
stockholders.
22. Will I receive dividends and stock splits?
After you become a stockholder, you will be entitled to receive any cash or
stock dividend paid by the Company with respect to its Common Stock.
-----
23. What happens upon a change in capitalization?
If the Company issues additional securities to raise more capital, no
adjustments will be made. However, if there is a stock split, stock dividend or
similar change in the Company's capital structure with respect to its Common
Stock without receipt of consideration by the Company, the purchase price and
number of shares subject to outstanding purchase options under the Plan, as well
as the number of shares available under the Plan, will be adjusted accordingly.
For example, in a "two-for-one" stock split of the Company's Common Stock, the
number of shares you may purchase will be doubled and the purchase price will be
divided in half. You will be notified if such an event occurs.
The Board may, in its sole discretion, adjust the number of shares
available under the Plan as well as the price per share of stock covered by each
outstanding purchase option, in the event that the Company effects a
reorganization, recapitalization, rights offering of other increase or reduction
of shares of the Company's Common Stock.
-----
24. What happens in a merger or consolidation?
In the event of the proposed dissolution or liquidation of the Company, the
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under the Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each option under
the Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock. If the Board makes an
option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable for a period of twenty (20) days from the date of
such notice, and the option will terminate upon the expiration of such period.
-----
25. Are there any restrictions on the resale of the shares I purchase?
<PAGE>
Generally, the Plan does not impose any restrictions on the resale of
shares of Common Stock purchased under the Plan. Furthermore, the Company has
filed a Registration Statement with the Commission that satisfies most federal
securities laws requirements with respect to the resale of such shares. However,
the shares may be subject to resale restrictions imposed by state securities
laws. In addition, if you are an affiliate of the Company you may not resell
under this Prospectus any shares purchased under the Plan. Such resales must
either be described in a separate prospectus (or, statement) or be effected in
accordance with Rule 144 or another available exemption under the 1933 Act.
-----
26. When can I sell my shares?
The Plan is intended to promote long-term investment in the Company, but
subject to the restrictions discussed above, you can sell your shares at any
time. A sale or disposition (by gift or death) of your shares may give rise to
tax consequences and the Company will report your sale on your Form W-2. See
"Tax Information and ERISA".
In addition, as noted above, shares purchased by affiliates of the Company
are subject to special restrictions on resale. These restrictions may affect
when an affiliate may resell shares because Rule 144 imposes limitations on the
volume of shares that may be resold in any three-month period.
-----
27. How do I sell my shares?
If you have elected to have your shares issued to one of the brokers
selected by the Company, you should directly notify that broker. In connection
with the sale, you will pay a commission rate negotiated by the Company for
sales of its shares issued under the Plan. If you wish to use a different
brokerage firm, you can instruct the broker to transfer your shares to your
selected firm.
If your shares have been delivered directly to you, your brokerage firm
will inform you how to sell your shares and will charge you its usual
commission.
In order for the Company to comply with federal tax laws, the brokers have
been instructed to notify the Company whenever shares purchased under the
Employee Stock Purchase Plan are sold.
-----
28. Should I be concerned about taxes?
Yes, if you are a U.S. citizen or resident, you should review "Tax
Information and ERISA," below, for a summary for the general U.S. tax rules
applicable when you buy or sell shares under the Plan. Remember that this
discussion deals only with general rules and typical transactions and may not
cover your special situation. YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING YOUR
SPECIFIC CIRCUMSTANCES.
If you are not a U.S. citizen or resident, you should contact your tax
advisor regarding the tax consequences in your country.
-----
29. Do I need to notify the Company when I sell my shares?
Yes, you must notify the Company if you sell or otherwise dispose of any
shares purchased in any offering Period within two years from the Offering Date
or within twelve months from the Purchase Date on which the shares were
purchased.
----
30. How do I withdraw from the Plan?
You may withdraw from the Plan at any time by completing and delivering to
the Company's Stock Administration Department an Employee Stock Purchase Plan
Action Form. If your form is received at least 15 days prior to the end of an
Offering Period, the entire amount of your payroll deductions will be refunded
to you without interest as
<PAGE>
soon as possible. You may not withdraw less than all of your payroll deductions.
Unless you timely enroll in the next Offering Period, you will be ineligible to
purchase on the next Purchase Date. If you miss the withdrawal deadline, your
payroll deductions will be used to purchase stock on the next Purchase Date and
your participation in the Plan will end upon the beginning of the next Offering
Period.
-----
31. If I withdraw, can I rejoin the Plan later?
If you voluntarily withdraw from the Plan, you may resume your
participation in the Plan during any subsequent Offering Period in the same way
you initially elected to participate in the Plan.
However, Officers and directors subject to Section 16(b) of the Exchange
Act who voluntarily withdraw from the Plan may not participate in any Offering
Period which begins less than six (6) months from the date of withdrawal from
the Plan, unless the Board determines otherwise.
You may also participate in a current Purchase Period under an Offering
Period and enroll in the next Offering Period by (i) withdrawing from
participation in the current Offering Period effective as of the last day of the
concurrent Purchase Period; and (ii) enrolling in the new Offering Period. You
must withdraw from the current Offering Period and enroll in the next Offering
Period by filing the Subscription Agreement and Employee Stock Purchase Plan
Action Form with the Company's Stock Administration Department at least 15 days
prior to the end of the current Offering Period.
-----
32. What happens if I leave the Company?
Participation in the Plan does not, of course, give you any rights to
remain employed by the Company or Subsidiary. If your employment with the
Company (or Subsidiary) terminates for any reason (including death or
disability) or if you become ineligible to participate in the Plan, your payroll
deductions will immediately be discontinued. Any funds remaining in your account
will be refunded to you in your final paycheck (or to your beneficiary or
personal representative) without interest.
Any stock acquired through your participation in prior Offering Periods
would not be affected by your withdrawal from the Plan and would be yours to
hold or sell as you choose.
If you take an approved leave of absence for not more than 90 days (for
instance, a sick leave or military leave), or if your reemployment is guaranteed
by law or your employment agreement (if any), you will continue to be an
eligible participant in the Plan. Any other type of leave will be treated the
same as a termination of employment.
-----
33. Can I assign or transfer my rights under the Plan?
No. The right to participate in the Plan is yours alone and may not be
assigned or transferred to anyone else. However, as will be indicated in the
Employee Stock Purchase Plan Action Form, you may select certain forms of joint
ownership for the shares you purchase under the Plan. You may also designate one
or more beneficiaries to receive your shares and/or cash remaining in your
account in the event of your death.
-----
34. If I participate in the Plan, will I receive financial information provided
to stockholders?
Yes. If you participate in the Plan, you can request annual reports,
quarterly reports, proxy statements and other material sent by the Company to
its stockholders, even if you have not yet purchased any shares under the Plan.
------
35. Who is the administrator of the Plan?
<PAGE>
The Plan is administered by the Board of Directors of the Company, whose
address is the same as that of the Company's principal executive offices. The
members of the Board do not receive any compensation for administering the Plan.
Members of the Board can be contacted by writing to them at the principal
executive offices of the company, to the attention of the Stock Administration
Department.
-----
36. Who is on the Board?
The Board currently consists of M. Richard Asher, William J. Byron, Daniel
H. Case III, Gary M. Kusin, Timothy Mott and Lawrence F. Probst, III, each of
whom is an affiliate of the Company. Mr. Probst is an officer of the Company.
Other than as disclosed herein (including disclosures in material incorporated
by reference herein), members of the Board have no material relationships with
the Company, its employees, or its affiliates.
-----
37. Who elects the Board?
Each member of the Board is elected each year at the Company's annual
meeting of stockholders and serves until the next annual meeting or until his or
her successor is elected and qualified or until his or her earlier death,
resignation or removal. The stockholders may remove any member of the Board from
office by following certain voting procedures set forth in the Company's By-Laws
and the applicable corporate law. A director may be removed from office by the
Board if such director is declared of unsound mind or convicted of a felony.
-----
38. What if there is a dispute concerning the Plan?
Subject to the provisions of the Plan, the Board has the authority to
construe and interpret any of the provisions of the Plan or any purchase options
granted thereunder. Such interpretations are binding on the Company and on you.
-----
39. Can the Plan be changed?
The Board of Directors may amend or terminate the Plan at any time subject
to certain limitations described in the Plan. The Board has authority under the
Plan, for instance, to change Offering Periods, Purchase Periods and maximum
percentage contributions. The Board cannot, however, make any changes to the
Plan which will adversely affect outstanding options. However, without
stockholder approval, the Board may not increase the number of shares that may
be issued under the Plan, change the class of persons eligible to participate in
the Plan or otherwise amend the Plan in a manner that would require stockholder
approval under Rule 16b-3 of the Exchange Act.
The Board of Directors does not contemplate making any changes at this
time. If the Board of Directors intends to change the Plan, you will receive
sufficient advance notice to allow you to consider the effect of such change on
your participation.
-----
40. How many shares are available for purchase under the Plan?
An aggregate of 500,000 shares of the Company's authorized Common Stock has
been reserved for issuance under the Plan.
-----
41. What does the Company contribute to the Plan?
The Company is giving you the opportunity to purchase its Common Stock at a
significant discount. The Company is also bearing all costs of administering the
Plan. The Company does not contribute to the Plan accounts for any participating
employees.
<PAGE>
-----
42. Will participation in the Plan affect my ability to contribute to an
individual retirement account or IRA?
No, because the Plan is not a tax-qualified retirement or profit sharing
plan, your participation in it will not affect your ability to maintain or
contribute to an IRA.
-----
43. Can I get additional information about the Plan?
The full text of the Plan is incorporated by reference as Exhibit 4.05 to
the Registration Statement of which this Prospectus is a part. These questions
and answers are simply a guide to the principal provisions of the Plan and are
qualified in their entirety by the wording of the Plan.
You may also contact the Company's Stock Administration Department to
request a copy of the Plan or to ask any specific questions you may have
regarding the Plan and your individual participation.
TAX INFORMATION AND ERISA
THE FOLLOWING DESCRIPTION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
IS BASED UPON EXISTING STATUTES, REGULATIONS AND INTERPRETATIONS AS OF THE DATE
HEREOF. BECAUSE THE CURRENTLY APPLICABLE RULES ARE COMPLEX AND THE TAX LAWS MAY
CHANGE AND BECAUSE INCOME TAX CONSEQUENCES MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH PARTICIPANT, EACH PARTICIPANT SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR CONCERNING FEDERAL (AND ANY STATE AND LOCAL) INCOME
TAX CONSEQUENCES BY PARTICIPATION IN THE PLAN. THIS PROSPECTUS DOES NOT PURPORT
TO DESCRIBE STATE OR LOCAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES FOR
PARTICIPANTS IN COUNTRIES OTHER THAN THE UNITED STATES.
Tax Treatment of the Participant
Participating employees will not recognize income for federal income tax
purposes either upon enrollment in the 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. Payroll deductions, however, remain
fully taxable as ordinary income at the time the deduction is taken, and there
is no deferral of the ordinary income tax assessed on these amounts.
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 participant dies while owning the shares, the participant 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 participant 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) (in any case, a "disqualifying
disposition"), within either the one year or the two year holding periods
described above, the participant realizes ordinary income at the time of the
disqualifying disposition in the amount by which the fair market value of the
shares at the date of purchase was greater than the purchase price. This amount
will constitute ordinary income (not currently subject to withholding) in the
year of the disqualifying 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.
Ordinary income recognized by a participant upon a disqualifying
disposition constitutes taxable compensation which will be reported on the
participant's W-2 form. The ordinary income should not constitute "wages"
subject to withholding by the Company; however, the Internal Revenue Service is
presently studying this position and may require withholding in the future.
<PAGE>
IRS Restructuring and Reform Act of 1998
The IRS Restructuring and Reform Act of 1998, enacted in July 1998 modifies
and provides technical corrections to the Taxpayer Relief Act of 1997. The new
legislation generally reduces the 18-month holding period requirement to 12
months for tax years ending after December 31, 1997. Therefore, most capital
assets held more than 12 months will be subject to a maximum capital gains rate
of 20% (10% for individuals in the 15% bracket). A special lower rate of 18% (8%
for individuals in a 15% tax bracket) applies to tax years beginning after
December 31, 2000 when the asset was held more than five years. Capital gains
will continue to be offset by capital losses and up to $3,000 of capital losses
may be offset annually against ordinary income.
Tax Treatment of the Company
The Company will be entitled to a deduction in connection with the
disposition of shares acquired under the Plan only to the extent that the
participant recognizes ordinary income on a disqualifying disposition of the
shares. No deduction will be possible if a participant meets the holding period
requirements. The Company will treat any transfer of record ownership of shares,
including a 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, participants will be required to notify the
Company in writing of the date and terms of any disposition of shares purchased
under the Plan.
