def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant þ |
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
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):
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þ No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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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): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o 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. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
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SEC 1913 (02-02) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
June 30, 2006
DEAR FELLOW STOCKHOLDERS:
You are cordially invited to join us at our 2006 Annual Meeting
of Stockholders on July 27, 2006 at 2:00 p.m. The
meeting will be held at the headquarters campus of Electronic
Arts in Building 250 (please note that the street address
for Building 250 is 250 Shoreline Drive, Redwood City,
California). At this meeting, we are asking the stockholders to:
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Elect nine directors; |
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Approve a program to permit eligible employees to voluntarily
exchange significantly underwater stock options for
a lesser number of shares of restricted stock or restricted
stock units to be granted under the 2000 Equity Incentive Plan; |
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Approve amendments to the 2000 Equity Incentive Plan and the
2000 Employee Stock Purchase Plan; and |
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Ratify the appointment of KPMG LLP as our independent registered
public accounting firm for fiscal 2007. |
After the meeting, we will report on our performance in the last
year and answer your questions.
Enclosed with this proxy statement are your proxy card and
voting instructions and our 2006 annual report. We encourage
you to conserve natural resources, expedite the delivery of
future communications, and help us reduce our printing and
mailing costs, by signing up for electronic delivery of our
stockholder communications. For more information, see
Electronic Delivery of Our Stockholder Communications in
the attached proxy statement.
We know that it is not practical for most stockholders to attend
the Annual Meeting in person. If you would like to listen to the
Annual Meeting via webcast, please visit our website at
investor.ea.com. Whether or not you are able to attend in
person, your vote is important. In addition to using the
enclosed proxy card to vote your shares, you may also vote your
shares via the Internet or a toll-free telephone number.
Instructions for using these services are provided on your proxy
card.
I look forward to seeing you at the meeting.
Sincerely,
Lawrence F. Probst III
Chairman and Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, WE
STRONGLY ENCOURAGE YOU TO DESIGNATE THE PROXIES SHOWN ON THE
ENCLOSED CARD SO THAT YOUR SHARES WILL BE REPRESENTED AT THE
ANNUAL MEETING.
Notice of 2006 Annual Meeting of Stockholders
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DATE:
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July 27, 2006 |
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TIME:
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2:00 p.m. |
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PLACE:
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ELECTRONIC ARTS HEADQUARTERS
Building 250*
209 Redwood Shores Parkway
Redwood City, CA 94065 |
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* Please note: Building 250 is located on the
headquarters campus at 250 Shoreline Drive |
MATTERS TO BE VOTED UPON:
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1. |
The election of nine directors to hold office for a one-year
term; |
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2. |
An exchange program in which eligible employees will be offered
the opportunity to surrender significantly
underwater stock options in exchange for a lesser
number of shares of restricted stock or restricted stock units
to be granted under the 2000 Equity Incentive Plan, provided
that Proposal 3 is also approved by the stockholders; |
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3. |
Amendments to the 2000 Equity Incentive Plan to
(i) increase to 15 million shares the limit on the
total number of shares underlying awards of restricted stock and
restricted stock units that may be granted under the Equity
Plan, and (ii) limit the number of shares subject to
options surrendered and cancelled in the Exchange Program that
will be available for issuance under the Equity Plan; |
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4. |
An amendment to the 2000 Employee Stock Purchase Plan to
increase by 1.5 million the number of shares of common
stock reserved for issuance under the Purchase Plan; |
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5. |
Ratification of the appointment of KPMG LLP as our independent
registered public accounting firm for fiscal 2007; and |
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6. |
Any other matters that may properly come before the meeting. |
OUR BOARD OF DIRECTORS RECOMMENDS YOU VOTE FOR EACH OF
THE NOMINEES AND FOR EACH PROPOSAL.
Stockholders of record at the close of business on June 6,
2006 are entitled to notice of the meeting and to attend and
vote at the meeting. A complete list of these stockholders will
be available at Electronic Arts headquarters prior to the
meeting.
By Order of the Board of Directors,
Stephen G. Bené
Senior Vice President, General Counsel
and Secretary
TABLE OF CONTENTS
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PROXY STATEMENT
Our Board of Directors is soliciting proxies for the 2006 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 has set June 6, 2006, as the record date for the
meeting. Stockholders who owned common stock on that date are
entitled to notice of the meeting, and to attend and vote at the
meeting, with each share entitled to one vote. There were
306,158,333 shares of common stock outstanding on the
record date.
Voting materials, which include the proxy statement, proxy card
and our 2006 annual report, were first mailed to stockholders on
or about June 30, 2006.
In this proxy statement:
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EA, we and the Company mean
Electronic Arts Inc. |
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2000 Equity Plan and Equity Plan mean
EAs 2000 Equity Incentive Plan. |
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2000 Purchase Plan and Purchase Plan
mean EAs 2000 Employee Stock Purchase Plan. |
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Holding shares in street name means your EA shares
are held in an account at a bank, brokerage firm or other
nominee. |
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Common Stock means EAs common stock, as
described in EAs current Amended and Restated Certificate
of Incorporation. |
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We use overhang to refer to the total number of
shares subject to outstanding equity awards (such as stock
options and restricted stock units) as a percentage of our total
shares of Common Stock outstanding. |
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Fiscal 2007, fiscal 2006, fiscal
2005, fiscal 2004 and fiscal 2003
refer to EAs fiscal years ending or ended (as the case may
be) on March 31, 2007, 2006, 2005, 2004 and 2003,
respectively. |
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We use independent auditors to refer to an
independent registered public accounting firm. |
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Unless otherwise noted, all share and per-share information has
been adjusted to reflect the November 2003 two-for-one split of
our common stock. |
HOW TO VOTE YOUR SHARES
We are pleased to offer you three options for designating the
proxies and indicating your voting preferences:
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(1) |
You may complete, sign, date and return by mail the enclosed
proxy card; |
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(2) |
You may follow the instructions found on the proxy card and vote
by telephone; or |
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(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.
ELECTRONIC DELIVERY OF OUR STOCKHOLDER COMMUNICATIONS
If you are a beneficial holder or your shares are held in
street name (your shares are held by a bank,
brokerage firm, or other nominee) and you received your annual
meeting materials by mail, we encourage you to conserve natural
resources, expedite the delivery of future communications, and
help reduce our printing and mailing costs, by signing up to
receive future stockholder communications via
e-mail. With electronic
delivery, you will be notified via
e-mail as soon as
EAs next annual report and proxy statement are available
on the Internet, and you can easily submit your stockholder
votes online. Electronic delivery can also help reduce the
number of bulky documents in your personal files and eliminate
duplicate mailings. To sign up for electronic delivery, please
visit www.icsdelivery.com/erts to enroll.
Your electronic delivery enrollment will be effective until you
cancel it. If you have questions about electronic delivery,
please contact our Investor Relations department at 650-628-7352.
COMMONLY ASKED QUESTIONS AND ANSWERS
Why am I receiving this proxy statement and proxy
card?
This proxy statement describes proposals on which you, as a
stockholder, are being asked to vote. It also gives you
information on these proposals, as well as other information so
that you can make an informed decision. You are invited to
attend the Annual Meeting to vote on the proposals, but you do
not need to attend in person in order to vote. You may, instead,
follow the instructions below to vote by mail using the enclosed
proxy card, or to vote by telephone or over the Internet. By
doing so, you are giving a proxy appointing Lawrence F.
Probst III (the Companys Chief Executive Officer) and
Warren C. Jenson (the Companys Chief Financial and
Administrative Officer) to vote your shares at the meeting as
you have instructed. If a proposal comes up for vote at the
meeting that is not on the proxy card, or if you do not indicate
an instruction, Mr. Probst and Mr. Jenson will vote
your shares according to their best judgment. Even if you
currently plan to attend the meeting, it is a good idea to
complete and return your proxy card, or vote by telephone or on
the Internet, before the meeting date just in case your plans
change.
Who can vote at the Annual Meeting?
Stockholders who owned common stock on June 6, 2006 may
attend and vote at the Annual Meeting. Each share of common
stock is entitled to one vote. There were
306,158,333 shares of common stock outstanding on
June 6, 2006.
What am I voting on?
We are asking you to:
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Elect nine directors; |
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Approve a program to permit eligible employees to voluntarily
exchange significantly underwater stock options for
a lesser number of shares of restricted stock or restricted
stock units to be granted under the 2000 Equity Incentive Plan
(the Exchange Program); |
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Approve amendments to the 2000 Equity Incentive Plan to
(a) increase by 11 million shares the limit on the
total number of shares underlying awards of restricted stock and
restricted stock units that may be granted under the Equity
Plan from 4 million to 15 million shares,
and (b) if the Exchange Program is approved by
stockholders, to limit the number of shares subject to options
surrendered and cancelled in the Exchange Program that will be
available for issuance under the Equity Plan to a total of
7 million plus the number of shares necessary for the
issuance of the restricted stock rights to be granted in
connection with the Exchange Program; |
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Approve an amendment to the 2000 Employee Stock Purchase Plan to
increase by 1.5 million the number of shares of common
stock reserved for issuance under the Purchase Plan; and |
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Ratify the appointment of KPMG LLP as our independent auditors
for fiscal 2007. |
How do I vote?
You may vote by mail.
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Complete, date, sign and mail the enclosed proxy card in the
postage pre-paid envelope provided. If you mark your voting
instructions on the proxy card, your shares will be voted as you
instruct. |
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If you do not mark your voting instructions on the proxy card,
your shares will be voted: |
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for the election of the nine nominees for director; |
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for approval of the Exchange Program; |
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for the proposed amendments to the 2000 Equity
Incentive Plan; |
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for the proposed amendment to the 2000 Employee Stock
Purchase Plan; and |
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for ratification of the appointment of KPMG LLP as our
independent auditors for fiscal 2007. |
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You may vote by telephone.
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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. |
You may vote on the Internet.
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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. The law of Delaware, where
we are incorporated, allows a proxy to be sent electronically,
so long as it includes or is accompanied by information that
lets the inspector of elections determine it has been authorized
by the stockholder. |
You may vote in person at the meeting.
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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 obtain a proxy from the
institution that holds your shares in order to vote at the
meeting. |
What does it mean if I receive more than one proxy
card?
It means that you have multiple accounts at the transfer agent
or with stockbrokers. Please complete and return all proxy
cards, or follow the instructions on each to vote by telephone
or over the Internet, to ensure that all your shares are voted.
What if I change my mind after I give my proxy?
You may revoke your proxy and change your vote at any time
before the polls close at the meeting. You may do this by:
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Sending a signed statement to the Company that the proxy is
revoked (you may send such a statement to the Companys
Secretary at our corporate headquarters address listed on the
Notice of Meeting); |
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Signing another proxy with a later date; |
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Voting by telephone or on the Internet at a later date (your
latest vote is counted); or |
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Voting in person at the meeting. |
Your proxy will not be revoked if you attend the meeting but do
not vote.
Who will count the votes?
An employee of Wells Fargo Shareowner Services will tabulate the
votes and act as the inspector of election.
How many shares must be present to hold the
meeting?
To hold the meeting and conduct business, a majority of
EAs outstanding voting shares as of June 6, 2006 must
be present or represented by proxies at the meeting. On this
date a total of 306,158,333 shares of common stock were
outstanding and entitled to vote. Shares representing a
majority, or 153,079,167 of these votes must be present. This is
called a quorum.
Shares are counted as present at the meeting if:
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They are voted in person at the meeting, or |
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The stockholder has properly submitted a proxy card or voted via
telephone or the Internet. |
Will my shares be voted if I do not sign and return my
proxy card?
If your shares are registered in your name, they will not be
voted unless you submit your proxy card, vote by telephone or on
the Internet or vote in person at the meeting.
3
How will my shares be voted if they are held in
street name?
If your shares are held in street name, you should
have received voting instructions with these materials from your
broker or other nominee. We urge you to instruct your broker or
other nominee how to vote your shares by following those
instructions. If you do not give your broker or nominee
instructions as to how to vote your shares, they may be voted
only on matters for which the broker or nominee has
discretionary authority under applicable rules. These
broker non-votes will be counted for purposes of
determining whether a quorum is present but will not be counted
for any purpose with respect to Proposals 2, 3 and 4.
How are votes counted?
In the election of directors, you may vote either
for each nominee or withhold your vote. You may vote
for, against or abstain on
each of the other proposals. Abstentions, although counted for
purposes of determining whether a quorum is present, will not be
counted for any other purpose with respect to Proposals 2,
3, 4 and 5.
If you sign and return your proxy without voting instructions,
your shares will be counted as a for vote in favor
of each nominee and in favor of each of the other proposals.
How many votes must the nominees have to be elected as
Directors?
The nine nominees receiving the highest number of
for votes will be elected as directors. This number
is called a plurality.
What happens if one or more of the nominees is unable to
stand for election?
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
Warren C. Jenson shall have the discretion to vote your shares
for a substitute nominee. They cannot vote for more than nine
nominees.
How many votes are required to pass the Exchange Program,
the amendments to the 2000 Equity Plan and 2000 Purchase Plan,
and to ratify the Companys selection of independent
auditors?
The Exchange Program, Equity Plan and Purchase Plan amendments
and the ratification of independent auditors must receive a
for vote of a majority of the voting shares present
at the meeting in person or by proxy and voting on these
proposals.
Where do I find the voting results of the meeting?
We will announce preliminary voting results at the meeting. We
will also publish the final results in a quarterly report on
Form 10-Q, which
we will file with the Securities and Exchange Commission. Once
filed, you can request a copy of the
Form 10-Q by
contacting our Investor Relations department 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 at http://investor.ea.com or
through the SECs electronic data system called EDGAR at
www.sec.gov.
Why are you proposing the Exchange Program?
We are proposing the Exchange Program to:
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offer a meaningful retention incentive for employees who
currently hold stock options with exercise prices significantly
higher than the current market prices of our Common Stock to
remain with the Company; |
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to reduce our overhang of outstanding equity
awards; and |
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to further align our outstanding equity compensation with our
philosophy of using a mix of stock options and other
equity-based incentives. |
For more information regarding the Exchange Program, please see
Proposal 2. Approval of the Exchange Program below.
4
Why are you amending the Equity Plan?
We are amending the Equity Plan to increase by 11 million
shares the limit on the total number of shares underlying awards
of restricted stock and restricted stock units from
4 million to 15 million shares. If the proposed
increase is not approved, we will have an insufficient number of
shares available to issue restricted stock rights in connection
with, and therefore will be unable to implement, the Exchange
Program.
We are also proposing to amend the Equity Plan to limit the
number of shares subject to options surrendered and cancelled in
the Exchange Program that will be available for issuance under
the Equity Plan to a total of 7 million plus the number of
shares necessary for the issuance of the restricted stock rights
to be granted in connection with the Exchange Program.
For more information regarding the proposed amendments to the
Equity Plan, please see Proposal 3. Amendments to the
2000 Equity Incentive Plan below.
Why are you amending the Purchase Plan?
We are amending the Purchase Plan to increase the number of
shares available for issuance by an additional 1.5 million
shares. The Purchase Plan enables our employees to purchase our
common stock through payroll deductions and provides continuing
opportunities for our employees to become stockholders. It also
provides an incentive for continued employment. Since the
adoption of the Purchase Plan, we have experienced both
significant growth in the number of employees, as well as an
increase in the percentage of employees, who elect to
participate in the Purchase Plan. We estimate that the proposed
increase of shares available for issuance under the Purchase
Plan will permit all current and potential future employees to
fully participate in the Purchase Plan through at least the end
of fiscal 2007, our current fiscal year.
For more information regarding the proposed amendment to the
Purchase Plan, please see Proposal 4. Amendment to the
2000 Employee Stock Purchase Plan below.
Who will pay for this proxy solicitation?
We have retained Georgeson & Company Inc. to solicit
proxies from stockholders at an estimated fee of $7,500 plus
expenses and we will pay these costs. This fee does not include
costs of preparing, assembling, printing, mailing and
distributing the proxy statements and annual reports, all of
which we will pay. If you choose to access the proxy materials
and/or vote over the Internet, you are responsible for Internet
access charges you may incur. If you choose to vote by
telephone, you are responsible for telephone charges you may
incur. In addition, some of our officers, directors, employees
and other agents may also solicit proxies personally, by
telephone and by electronic and regular mail, and we will pay
these costs as well. EA will also reimburse brokerage houses and
other custodians for their reasonable
out-of-pocket expenses
for forwarding proxy and solicitation materials to the
beneficial owners of common stock.
Whom can I call with any questions about my shares?
You may contact your broker. If you dont own your shares
through a broker but are a shareholder of record, you may also
call our transfer agent, Wells Fargo Shareowner Services, at
1-800-468-9716 or visit
their web site at www.wellsfargo.com/shareownerservices.
5
PROPOSALS TO BE VOTED ON
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PROPOSAL 1. |
ELECTION OF DIRECTORS |
At the Annual Meeting, stockholders will elect nine directors to
hold office for a one-year term until the next Annual Meeting
(or until their respective successors are elected and
qualified). All nominees have consented to serve a one-year
term, if elected.
The Board has nominated the following directors to stand for
re-election this year:
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M. Richard Asher |
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Leonard S. Coleman |
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Gary M. Kusin |
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Gregory B. Maffei |
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Timothy Mott |
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Vivek Paul |
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Lawrence F. Probst III |
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Linda J. Srere |
In addition, the Board has nominated the following candidate to
stand for election:
Mr. Simonson was referred to our Nominating and Governance
Committee as a potential candidate for director by an external,
independent recruiting firm. If elected, Mr. Simonson will
fill the seat being vacated by Robert W. Pittman, a current
director who will not be standing for re-election at the Annual
Meeting.
Required Vote and Board of Directors Recommendation
The nine nominees receiving the highest number of
for votes will be elected as directors. Shares
represented by your proxy will be voted for the election of the
nine nominees recommended by EAs management unless you
mark your proxy to withhold authority to so vote.
The Board recommends a vote FOR each of the nominees.
Director Biographies
Each of the following directors and Mr. Simonson have been
nominated for election or re-election at the 2006 Annual Meeting.
M. Richard Asher
Director since 1984
Mr. Asher, age 74, is presently an attorney, a
consultant, and an affiliate professor with Florida Atlantic
University. He was a senior executive officer and CEO in the
music and record business with CBS, Warner Brothers and PolyGram
Records for over 25 years. Mr. Asher is a director of
several private companies and previously served as a director
for a number of public companies.
6
Leonard S. Coleman
Director since 2001
Mr. Coleman, age 57, served as Senior Advisor to Major
League Baseball from 1999 until 2005 and, from 2001 to 2002, was
the Chairman of ARENACO, a subsidiary of Yankees/ Nets.
Mr. Coleman was President of The National League of
Professional Baseball Clubs from 1994 to 1999, having previously
served since 1992 as Executive Director, Market Development of
Major League Baseball. Mr. Coleman serves on the Board of
Directors of the following public companies: Cendant
Corporation; Omnicom Group Inc.; H.J. Heinz Company; Churchill
Downs Inc.; and Aramark Corporation.
Gary M. Kusin
Director since 1995
Mr. Kusin, age 55, has been a Special Advisor to the
Texas Pacific Group since June 2006. He served as the President
and Chief Executive Officer of Fedex Kinkos Office and
Print Services, an operating division of Fedex, Inc. from August
2001 until February 2006. Fedex Kinkos is a leading
provider of document solutions and business services. From
September 1998 to July 2001, he was the Chief Executive Officer
of HQ Global Workplaces, Inc., a global leader in office
outsourcing. In April 2002, HQ Global filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy
Code and subsequently emerged from bankruptcy in October 2003.
Prior to September 1998, Mr. Kusin was co-founder and
Chairman of Kusin Gurwitch Cosmetics, LLC and co-founder and
President of Babbages, Inc.
Gregory B. Maffei
Director since 2003
Mr. Maffei, age 46, has served as President and Chief
Executive Officer of Liberty Media Corporation, which owns
electronic retailing, media, communications and entertainment
businesses and investments, since February 2006. He joined
Liberty Media in November 2005 as CEO-Elect. From June 2005
until November 2005, Mr. Maffei served as President and
Chief Financial Officer of Oracle Corporation. From 2000 until
June 2005, Mr. Maffei served as Chief Executive Officer of
360networks Corporation, a broadband telecom service provider,
and also became Chairman of the Board of 360networks in 2002.
Previously, Mr. Maffei was with Microsoft Corporation from
1993 to 2000, in several positions, including Senior Vice
President, Finance and Administration and Chief Financial
Officer. Mr. Maffei also served as Chairman of Expedia,
Inc. from 1999 to 2002. Mr. Maffei serves on the Board of
Directors of Liberty Media.
Timothy Mott
Director since 1990
Mr. Mott, age 57, has been Chairman of All Covered, a
nationwide information technology outsourcing company focused on
small and mid-size businesses, since June 2000 and was Chief
Executive Officer from November 2001 to February 2004. At
various times prior to 1999, Mr. Mott co-founded and was
Chairman of Audible Inc., co-founded and was Chief Executive
Officer and Chairman of Macromedia Inc., co-founded and was
Senior Vice President of Electronic Arts, and was a member of
the research staff at Xerox PARC. Other than in his role as a
director of EA, Mr. Mott has had no operating involvement
with EA since he ceased serving as an executive officer in 1990.
Vivek Paul
Director since 2005
Mr. Paul, age 47, has been a partner with the Texas
Pacific Group since October 2005. From July 1999 to September
2005, Mr. Paul served as Vice Chairman of the Board of
Directors of Wipro, Ltd., a provider of integrated business,
technology and process solutions, and Chief Executive Officer of
Wipro Technologies, Wipros global information technology,
product engineering, and business process services segments.
From January 1996 to July 1999, Mr. Paul was General
Manager of Global CT Business at General Electric, Medical
Systems Division. From March 1993 to December 1995, he served as
President and Chief Executive Officer of Wipro GE Medical
Systems Limited. Mr. Paul holds a Bachelor of Engineering
from the Birla Institute of Technology and Science, and an
M.B.A. from the University of Massachusetts, Amherst.
7
Lawrence F. Probst III
Director since 1991
Mr. Probst, age 56, 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 holds a B.S. degree from the University of
Delaware.
Richard A. Simonson
Candidate for Director
Mr. Simonson, age 47, has served as Executive Vice
President and Chief Financial Officer of Nokia Corporation, a
manufacturer of mobile devices and a leader in mobile network
equipment, solutions and services since 2004. From 2001 until
2003, Mr. Simonson served as Vice President & Head
of Customer Finance of Nokia. In 2001, Mr. Simonson was
Managing Director of the Telecom & Media Investment
Banking Group of Barclays Capital. Prior to joining Barclays
Capital, Mr. Simonson spent 16 years at Bank of
America Securities where he held various positions, including
Managing Director & Head of Global Project Finance,
Global Corporate & Investment Bank, San Francisco
and Chicago. Mr. Simonson holds a B.S. degree from the
Colorado School of Mines and an M.B.A. from Wharton School of
Business at the University of Pennsylvania.
Linda J. Srere
Director since 2001
Ms. Srere, age 50, is currently a marketing and
advertising consultant. Previously, Ms. Srere was President
of Young & Rubicam Advertising. Since 1994,
Ms. Srere held many positions with Young & Rubicam
Inc. (Y&R), including Vice Chairman and Chief
Client Officer, Executive Vice President and Director of
Business Development, Group Managing Director, and in 1997, was
named Chief Executive Officer of Y&Rs New York office,
becoming the first female CEO in the companys
75-year history.
Ms. Srere also serves on the Board of Directors of
aQuantive, Inc., a digital marketing services and technology
company, and Universal Technical Institute, Inc., a technical
education provider.
BOARD, BOARD MEETINGS, AND COMMITTEES
Our Board of Directors consists of nine directors. The Board has
determined that Mr. Simonson and all of our current
directors, other than Mr. Probst, are
independent as that term is used in the NASDAQ
Marketplace Rules.
The Board meets on a fixed schedule four times each year and
also occasionally holds special meetings and acts by written
consent. At each regularly scheduled meeting, the independent
members of the Board meet in executive session separately
without management present. A Lead Director, elected by the
independent directors and serving a two-year term, is
responsible for chairing executive sessions of the Board and
other meetings of the Board in the absence of the Chairman of
the Board, serving as a liaison between the Chairman of the
Board and the other independent directors, and overseeing the
Boards stockholder communication policies and procedures
(including, under appropriate circumstances, meeting with
stockholders). Our Lead Director may also call meetings of the
independent directors. The term of our current Lead Director,
Linda Srere, is set to expire at the 2006 Annual Meeting of
Stockholders. The independent directors of the Board have
elected Gary Kusin to replace Ms. Srere as Lead Director
for a two-year term beginning with our 2006 Annual Meeting of
Stockholders.
The Board currently has three committees, each of which operates
under a charter approved by the Board: the Audit Committee; the
Compensation Committee; and the Nominating and Governance
Committee. The Board of Directors amended and restated the Audit
Committees charter in May 2006, amended the Compensation
Committees charter in July 2005, and adopted the
Nominating and Governance Committees charter in May 2003.
A copy of the Audit Committee Charter may be found in
Appendix C to this proxy statement. In addition, copies of
the charters of each Committee may be found in the Investor
Relations portion of our website at
http://investor.ea.com. In accordance with the charters
for each, and with current regulatory requirements, all members
of these Committees are independent
8
directors. During fiscal 2006, each director participated in at
least 75% of all Board meetings and Committee meetings held
during the period for which he or she was a member.
As of June 1, 2006, the Committee members were as follows:
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Audit
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Gregory B. Maffei (Chair), Gary M. Kusin and M. Richard Asher |
Compensation
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M. Richard Asher (Chair), Robert W. Pittman, and Linda J. Srere |
Nominating and Governance
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Linda J. Srere (Chair), Timothy Mott and Leonard S. Coleman |
The Board is expected to review and, where appropriate, change
Committee assignments at its regularly-scheduled meeting in July
2006.
Audit Committee
The Audit Committee assists the Board in its oversight of the
Companys financial reporting and other matters, and is
directly responsible for the appointment, compensation and
oversight of our independent auditors. The Audit Committee is
comprised of three directors, each of whom in the opinion of the
Board of Directors meets the independence requirements and the
financial literacy standards of the NASDAQ Marketplace Rules, as
well as the independence requirements of the SEC. In the opinion
of the Board of Directors, Mr. Maffei meets the criteria
for an audit committee financial expert as set forth
in applicable SEC rules. The Audit Committee met ten times in
fiscal 2006. For further information about the Audit Committee,
please see the Report of the Audit Committee below.
Compensation Committee
The Compensation Committee is responsible for setting the
overall compensation strategy for the Company, for determining
the compensation of the CEO and other executive officers and for
overseeing the Companys equity incentive plans and other
benefit plans. In addition, the Compensation Committee is
responsible for reviewing and recommending to the Board
compensation for non-employee directors. The Compensation
Committee is comprised of three directors, each of whom in the
opinion of the Board of Directors meets the independence
requirements of the NASDAQ Marketplace Rules and qualifies as an
outside director within the meaning of
Section 162(m) of the Internal Revenue Code, as amended.
The Compensation Committee met six times in fiscal 2006 and also
acted frequently by written consent. For further information
about the Compensation Committee, please see the Report of
the Compensation Committee below.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for
recommending to the Board nominees for election to the Board of
Directors, for appointing directors to Board Committees, and for
reviewing developments in corporate governance, reviewing and
ensuring the quality of the Companys succession plans,
recommending formal governance standards to the Board, and
establishing the Boards criteria for selecting nominees
for director and for reviewing from time to time the appropriate
skills, characteristics and experience required of the Board as
a whole, as well as its individual members. The Nominating and
Governance Committee is comprised of three directors, each of
whom in the opinion of the Board of Directors meets the
independence requirements of the NASDAQ Marketplace Rules. The
Nominating and Governance Committee met four times in fiscal
2006.
In evaluating nominees for director to recommend to the Board,
the Nominating and Governance Committee will take into account
many factors within the context of the characteristics and needs
of the Board as a whole. While the specific needs of the Board
may change from time to time, all nominees for director are
considered on the basis of the following minimum qualifications:
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the highest level of personal and professional ethics and
integrity, including a commitment to EAs ACTION values (as
set forth in EAs Global Code of Conduct); |
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practical wisdom and mature judgment; |
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broad training and significant leadership experience in
business, entertainment, technology, finance, corporate
governance, public interest or other disciplines relevant to the
long-term success of EA; |
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the ability to gain an in-depth understanding of EAs
business; and |
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a willingness to represent the best interests of all EA
stockholders and objectively appraise managements
performance. |
In determining whether to recommend a director for re-election,
the Nominating and Governance Committee will also consider the
directors tenure on the Board, past attendance at
meetings, participation in and contributions to the activities
of the Board, the Directors continued independence
(including any actual, potential or perceived conflicts of
interest), as well as the directors age and changes in his
or her principal occupation or professional status.
The Nominating and Governance Committee believes that the
continuing service of qualified incumbent directors promotes
stability and continuity on the Board of Directors, contributing
to the Boards ability to work effectively as a collective
body, while providing EA with the benefits of familiarity and
insight into EAs affairs that its directors have developed
over the course of their service. Accordingly, consistent with
past EA practice, the Nominating and Governance Committee will
first consider recommending incumbent directors who wish to
continue to serve on the Board for re-election at EAs
annual meeting of stockholders.
In situations where the Nominating and Governance Committee
determines not to recommend an incumbent director for
re-election, an incumbent director declines to stand for
re-election, or a vacancy arises on the Board for any reason
(including the resignation, retirement, removal, death or
disability of an incumbent director or a decision of the
directors to expand the size of the Board), the Committee will
commence a search for new director nominees. The Nominating and
Governance Committee may, in its discretion, use a variety of
means to identify and evaluate potential nominees for director.
The Nominating and Governance Committee has used, and may
continue to use, qualified search firms and may also work with
members of EAs Human Resources department to identify
potential nominees meeting the Boards general membership
criteria discussed above. The Nominating and Governance
Committee may also consider potential nominees identified by
other sources, including current directors, senior management
and stockholders. In determining whether to recommend a
candidate to the Board of Directors, the Nominating and
Governance Committee will consider the current composition and
capabilities of current directors, as well as any additional
qualities or capabilities considered necessary or desirable in
light of the existing or anticipated needs of the Board.
The Nominating and Governance Committee will evaluate candidates
proposed by stockholders under criteria similar to the
evaluation of other candidates, except that it may also consider
as one of the factors in its evaluation, the amount of EA voting
stock held by the stockholder and the length of time the
stockholder has held such stock. Stockholders wishing to submit
candidates for consideration by the Nominating and Governance
Committee may do so by writing to EAs Corporate Secretary
at 209 Redwood Shores Parkway, Redwood City, CA 94065,
Attn: Director Nominations. To be considered by the Nominating
and Governance Committee in connection with EAs annual
meeting of stockholders, recommendations must be submitted in
writing to EA not less than 120 calendar days prior to the
anniversary of the date on which EAs proxy statement was
released to stockholders in connection with the previous
years annual meeting (on or about March 2, 2007 for
our 2007 Annual Meeting of Stockholders). Recommendations should
include: (1) the stockholders name, address and
telephone number; (2) the amount and nature of record
and/or beneficial ownership of EA securities held by the
stockholder; (3) the name, age, business address,
educational background, current principal occupation or
employment, and principal occupation or employment for the
preceding five full fiscal years of the proposed candidate;
(4) a description of the qualifications and background of
the proposed candidate that addresses the minimum qualifications
and other criteria for Board membership approved by the Board
from time to time and set forth in EAs Corporate
Governance Guidelines; (5) the amount and nature of
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record and/or beneficial ownership of EA securities held by the
proposed candidate, if any; (6) a description of all
arrangements or understandings between the stockholder and the
proposed candidate relating to the proposed candidates
candidacy; (7) a statement as to whether the proposed
candidate would be considered an independent director under
applicable NASDAQ Marketplace Rules; (8) the consent of the
proposed candidate (a) to be named in the proxy statement
relating to EAs annual meeting of stockholders, and
(b) to serve as a director if elected at such annual
meeting; and (9) any other information regarding the
proposed candidate that may be required to be included in a
proxy statement by applicable SEC rules. The Nominating and
Governance Committee may request any additional information
reasonably necessary to assist it in assessing a proposed
candidate.
Corporate Governance Guidelines
Our Board of Directors has adopted, upon the recommendation of
the Nominating and Governance Committee, a formal set of
Corporate Governance Guidelines. A complete copy of the
Corporate Governance Guidelines are available in the Investor
Relations portion of our website at
http://investor.ea.com. Our Corporate Governance
Guidelines contain policies relating to:
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Board membership and independence criteria; |
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Director resignations; |
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Executive sessions of independent directors led by a Lead
Director; |
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Authority to hire outside advisors; |
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Director orientation and education; |
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Board and Committee self-evaluations; |
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Attendance at annual meetings of stockholders; |
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Stock ownership guidelines for our directors and executive
officers; |
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Stockholder communications with the Board; and |
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Access to management, CEO evaluation and management succession
planning. |
Global Code of Conduct
Our Global Code of Conduct (which includes code of ethics
provisions applicable to our directors, principal executive
officer, principal financial officer, principal accounting
officer, and other senior financial officers) is available in
the Investor Relations section of our website at
http://investor.ea.com. We will post amendments to our
Global Code of Conduct in the Investor Relations section of our
website. Copies of our charters and Global Code of Conduct are
available without charge by contacting our Investor Relations
department at
(650) 628-7352.
Director Attendance at Annual Meetings
Our directors are expected to make every effort to attend our
annual meeting of stockholders. Eight of our nine current
directors attended our 2005 Annual Meeting of Stockholders.
Stockholder Communications with the Board of
Directors
EA stockholders may communicate with the Board as a whole, with
a committee of the Board, or with an individual director by
sending a letter to EAs Corporate Secretary at Electronic
Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065,
or by sending an email to StockholderCommunications@ea.com. All
stockholder communications received will be handled in
accordance with procedures approved by the independent directors
serving on the Board. For further information regarding the
submission of stockholder communications, please visit the
Investor Relations portion of our website at
http://investor.ea.com.
11
DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES
Mr. Probst, the Companys Chief Executive Officer, is
not paid additional compensation for his services as a director.
During fiscal 2006, our non-employee directors received the
following compensation:
Cash Compensation
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$35,000 annual retainer for service on the Board of Directors; |
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$7,500 annual retainer for service on the Compensation or
Nominating and Governance Committees; |
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$2,500 additional annual retainer for service as Chair of the
Compensation or Nominating and Governance Committees; |
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$10,000 annual retainer for service on the Audit
Committee; and |
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$5,000 additional annual retainer for service as Chair of the
Audit Committee. |
In addition, individual directors were eligible to earn up to
$1,000 per day, with the approval of the Board of
Directors, for special assignments, which may include providing
advisory services to management in such areas as sales,
marketing, public relations and finance (provided, however, no
independent director is eligible for a special assignment if the
assignment or payment for the assignment would prevent the
director from being considered independent under applicable
NASDAQ Marketplace or SEC rules). No directors earned any
compensation for special assignments during fiscal 2006.
Stock Compensation
Upon their initial appointment or election to the Board, new
directors receive an option grant to
purchase 25,000 shares issued under the 2000 Equity
Incentive Plan. Each continuing director receives an annual
option grant to purchase 10,000 shares upon his or her
re-election to the Board. In fiscal 2006, annual option grants
to purchase 10,000 shares of common stock were made
under the Equity Plan to each of the non-employee directors who
was re-elected at the 2005 Annual Meeting of Stockholders, other
than Mr. Paul. Because Mr. Paul had been appointed to
the Board on June 15, 2005, the number of shares subject to
his annual grant option was pro-rated to 833 shares. All
annual grant options were granted on July 28, 2005, the
date of the directors re-election to the Board, at an
exercise price of $58.45 per share.
Under the Equity Plan, non-employee directors may elect to
receive all or part of their cash compensation in the form of
common stock. As an incentive for our non-employee directors to
increase their stock ownership in EA, non-employee directors
making such an election receive shares of common stock valued at
110% of the cash compensation they would have otherwise received.
The material terms regarding the exercise price of options,
vesting, changes in capital structure, assumption of options and
acceleration of vesting and prohibitions on
repricing under the Equity Plan are contained in
Appendix A to this proxy statement.
Stock Ownership Guidelines
Each non-employee director is required, within three years of
becoming a director, to own shares of EA common stock having a
value of at least 3 years annual retainer for service
on the Board. As of June 1, 2006, each of our directors had
either fulfilled their ownership requirements or had not yet
reached three years of service.
12
PROPOSAL 2. APPROVAL OF
THE EXCHANGE PROGRAM
On June 19, 2006, our Board of Directors authorized,
subject to stockholder approval, a voluntary program (the
Exchange Program) that, if implemented, will permit
our eligible employees to exchange certain outstanding stock
options that are significantly underwater for a
lesser number of shares of restricted stock or restricted stock
units to be granted under our 2000 Equity Incentive Plan,
provided that the proposed amendments to the Equity Plan are
approved by the stockholders (see Proposal 3. Amendments
to the 2000 Equity Incentive Plan). The Exchange Program
will be open to all employees of the Company and any of our
subsidiaries designated for participation by the Compensation
Committee of the Board of Directors. However, members of the
Board of Directors and our Named Executive Officers will not be
eligible to participate. Options eligible for the Exchange
Program (Eligible Options) will be those having
exercise prices that are at least 115% of the average closing
price of our Common Stock as reported on the NASDAQ National
Market for the five business days preceding the date on which we
commence the program. As a prerequisite to the implementation of
the Exchange Program, stockholders must not only approve this
proposal, but also approve the proposed amendment to the Equity
Plan described in Proposal 3 below.
Eligible employees who elect to participate in the Exchange
Program may surrender one or more outstanding grants of Eligible
Options and receive in exchange awards for a lesser number of
shares of Common Stock. These awards may consist either of
shares of restricted stock or restricted stock units, subject to
determination within the discretion of the Compensation
Committee. In making this determination, the Compensation
Committee will take into account factors including tax and other
laws applicable to an exchange of options for such awards in
each of the tax jurisdictions of our participating employees.
Restricted stock is an award of shares of Common Stock that
remain subject to forfeiture upon termination of employment
until they have vested following a specified period of
employment. Restricted stock units are rights to receive shares
of Common Stock on specified future dates when those rights have
vested following a required period of employment. In this
proposal, we refer to both shares of restricted stock and
restricted stock units as restricted stock rights.
The weighted average ratio of shares subject to Eligible Options
cancelled to restricted stock rights issued will be
approximately 3.3-to-1
and is expected to range from
3-to-1 to
4-to-1, subject to
adjustment as further described below. These exchange ratios
have been selected to result in the issuance of restricted stock
rights that have a value, as of the closing date of the Exchange
Program (Exchange Date), that is equal to or less
than the value, determined using the Black-Scholes option
valuation model, of the options to be cancelled in exchange for
the restricted stock rights. The restricted stock rights will be
subject to vesting schedules ranging from a minimum of two years
to a maximum of four years measured from August 1, 2006,
depending on the extent to which the Eligible Options exchanged
were vested (or, in the case of Eligible Options that cliff vest
in their entirety after a minimum of three years, if at least
50% or more of the time required to vest has elapsed) prior to
their cancellation.
Reasons for the Exchange Program
The Company has granted stock options periodically to a
substantial portion of its employees and those of its
subsidiaries. The Company has also assumed stock options in
connection with certain acquisitions, including stock options
granted by JAMDAT Mobile Inc., which was acquired by the Company
in February 2006. Each stock option award specifies the exercise
price that the employee must pay to purchase shares of Common
Stock when the option is exercised. The exercise price per share
is set at the closing market price of a share of our Common
Stock on the date the option is granted. Employees receive value
from their options only by exercising their rights under the
options to purchase shares of Common Stock and subsequently
selling the purchased shares at a price that exceeds their
purchase price.
Restore Retention Incentives. Like many companies,
our stock price has experienced significant volatility during
the last several years. As a result, many of our employees hold
options with exercise prices significantly higher than the
current market price of our Common Stock. On June 19, 2006,
options to purchase 18,463,724 shares held by our
employees (other than our Named Executive Officers and
non-employee directors), representing approximately 60% of
outstanding options, had exercise prices greater
13
than $41.21, the closing price of our Common Stock on that date,
as reported on the NASDAQ National Market. These underwater
options had a weighted average exercise price of $55.89 and a
weighted average expected term of 6 years. On June 19,
2006, approximately 92% of our employees held at least some
options that were underwater, and for approximately 63% of our
employees all of their options were underwater. The exercise
prices of options that were underwater on June 19, 2006,
ranged from $41.49 to $65.93 per share. These underwater
options may not be sufficiently effective as performance and
retention incentives. We believe that to enhance long-term
stockholder value we need to maintain competitive employee
compensation and incentive programs that will assist us to
motivate and retain our employees. By offering restricted stock
rights, which are designed to deliver value without regard to an
exercise price, we believe the Exchange Program will offer a
meaningful retention incentive for eligible employees to remain
with the Company.
Reduce Outstanding Overhang. Since many of the
Eligible Options have been out of the money for an extended
period of time, employees have had little or no incentive to
exercise them. As a result, the value of our overhang (i.e., the
total number of shares subject to outstanding equity awards as a
percentage of our total shares of Common Stock outstanding) has
decreased as a potential retention incentive for our employees.
The Exchange Program will also serve to reduce our overhang,
particularly that portion consisting of stock options having the
highest exercise prices with the least employee retention value.
Under the program, participating employees will receive
significantly fewer restricted stock rights than the number of
shares subject to the options they surrender. Because
participating employees will exchange a greater number of
options for a lesser number of restricted stock rights, there
will be an immediate reduction in our overhang. For example,
assuming that the average closing market price of our Common
Stock for the five business days preceding the commencement of
the Exchange Program is $41.21, options for a total of
15,989,086 shares having exercise prices greater than
$47.39 (115% of $41.21) would be eligible for participation. If
all of these Eligible Options are surrendered for cancellation,
we would issue restricted stock rights for
4,829,496 shares, based on the exchange ratios described in
the table set forth under Exchange Ratios below,
resulting in a net reduction in overhang from the Exchange
Program of 11,159,590 shares or approximately 3.6% of the
number of shares of our Common Stock issued and outstanding as
of June 19, 2006. In this example, assuming all Eligible
Options were surrendered for cancellation in the Exchange
Program and not taking into account additional stock option
grant and exercise activity prior to completion of the Exchange
Program, immediately following the conclusion of the Exchange
Program, we would have (i) options outstanding to
purchase 23,664,173 shares, with a weighted average
exercise price of $26.88 and a weighted average remaining
contractual term of 5.21 years, and (ii) 5,453,430
restricted stock rights outstanding (as compared to 623,934
restricted stock rights outstanding on June 19, 2006).
The actual reduction in our overhang that could result from the
Exchange Program could differ materially from the example in the
preceding paragraph and is dependent on a number of factors,
including the exercise price at which outstanding options become
eligible to participate in the Exchange Program and the actual
level of employee participation in the program. The reduction in
overhang would also be partially offset by the grant of
additional awards under our Equity Plan, including the retention
awards described in Additional Retention Awards
below. As of June 19, 2006, there were
17,258,478 shares available for future issuance under the
Equity Plan. In addition, consistent with the terms of the
Equity Plan, we intend to (i) use shares subject to the
options cancelled for the issuance of the restricted stock
rights granted under the Exchange Program, and (ii) return
up to a total of 7 million shares subject to the options
cancelled in the Exchange Program to the Equity Plan to be
available for issuance pursuant to future awards. While
returning these shares to the Equity Plan will not have any
immediate impact on our outstanding overhang, their use for
future equity awards would increase our outstanding overhang.
Align Equity Incentives with Current Compensation
Philosophy. In designing the terms of the Exchange
Program and recommending its approval by the Board of Directors,
the Compensation Committee took into account its philosophy of
shifting from the exclusive use of stock options to using a mix
of stock options and other equity-based incentives, such as
restricted stock units, to provide long-term equity incentives
to our employees (see Compensation Committee Report on
Executive Compensation
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Executive Compensation Stock-Based
Compensation). By granting replacement awards consisting
of restricted stock rights rather than new,
at-the-money stock
options, the Compensation Committee seeks to strengthen the
Companys equity-based retention incentives, while further
aligning our existing equity compensation programs with our
compensation philosophy.
Additional Retention Awards
The Compensation Committee believes that the Exchange Program
alone will not necessarily provide a sufficiently strong
retention incentive for certain key employees. Therefore, in
addition to proposing adoption of the Exchange Program, the
Compensation Committee has adopted a program of granting a mix
of new stock option and restricted stock unit awards (the
Retention Awards), consistent with our current
equity compensation programs, to a targeted group of key
employees, which may include our Named Executive Officers. The
Retention Awards do not require stockholder approval and are
therefore not part of Proposal 2. When implemented, the
Compensation Committee anticipates granting a mix of stock
options to purchase approximately 2.2 million shares and
600,000 restricted stock units to a select group of key
employees. Retention awards granted to key employees at more
senior positions will consist of a combination of stock options
and restricted stock units, while others will receive Retention
Awards solely in the form of restricted stock units. These
Retention Awards will partially offset the reduction in overhang
achieved by the Exchange Program. In the example used to
illustrate the overhang discussion above, the net reduction in
overhang achieved by the combination of the Exchange Program and
the Retention Awards would be 8,359,590 shares,
representing approximately 2.7% of the number of shares of our
Common Stock issued and outstanding as of June 19, 2006.
The Compensation Committee believes that this combination of the
Exchange Program and the grant of new Retention Awards is
necessary to achieve the Companys primary objective of
improving its ability to retain and motivate current employees,
while still achieving a favorable impact on overhang.
Implementing the Exchange Program
We have not commenced the Exchange Program, and we will not do
so unless our stockholders approve both this proposal and the
amendments to the Equity Plan described in Proposal 3
contained in this proxy statement and the Compensation Committee
determines that the Exchange Program complies with applicable
regulatory requirements (as described in more detail below). The
Exchange Program will commence at a time determined by the
Compensation Committee. However, even if the Exchange Program
and the Equity Plan amendments are approved by our stockholders,
the Compensation Committee will retain the authority, in its
discretion, to terminate, amend or postpone the Exchange Program
at any time prior to expiration of the election period under the
Exchange Program (provided, however, in no event will the
Exchange Program permit the issuance of restricted stock rights
having a value greater than the value of the stock options
surrendered, as estimated using the Black-Scholes option
valuation model).
Upon the commencement of the Exchange Program, eligible
employees holding Eligible Options will receive written
materials in the form of an Offer to Exchange
explaining the precise terms and timing of the Exchange Program.
Employees will be given at least 20 business days to elect to
surrender their Eligible Options in exchange for restricted
stock rights. At or before the commencement of the Exchange
Program, we will file the Offer to Exchange with the Securities
and Exchange Commission (the SEC) as part of a
tender offer statement on Schedule TO. Eligible employees,
as well as stockholders and members of the public, will be able
to obtain the Offer to Exchange and other documents filed by the
Company with the SEC free of charge from the SECs website
at www.sec.gov.
Description of the Exchange Program
Eligible Options. As of June 19, 2006,
options to purchase 39,653,259 shares of our Common
Stock were outstanding under all of our equity compensation
plans, including options assumed by the Company in connection
with acquisitions. Of these, options to
purchase 15,989,086 shares of Common Stock, having
exercise prices ranging from $47.42 to $65.93, are held by
eligible employees and would be eligible for
15
exchange under the Exchange Program if the five-business-day
average closing price of our Common Stock immediately preceding
the commencement of the Exchange Program were equal to $41.21.
The Compensation Committee will retain the discretion to adjust
the threshold exercise price of options eligible to participate
in the Exchange Program (using the five-business-day average
closing price of our Common Stock immediately preceding the
commencement of the Exchange Program) if there is a significant
change in the market price of our Common Stock preceding the
commencement of the Exchange Program in comparison to the
average market price used in determining the exchange ratios
described under Exchange Ratios below.
Eligible Employees. The Exchange Program will be
open to all of our employees and employees of any of our
subsidiaries designated for participation by the Compensation
Committee who hold Eligible Options. However, members of our
Board of Directors and our Named Executive Officers will not be
eligible to participate. In addition, we may exclude employees
in certain
non-U.S. jurisdictions
from the Exchange Program if local tax or other laws would make
their participation infeasible or impractical. To be eligible,
an employee must be employed by us or one of our participating
subsidiaries both at the time the Exchange Program commences and
on the date the surrendered options are cancelled and restricted
stock rights are granted to replace them. Any employee holding
Eligible Options who elects to participate but whose employment
terminates for any reason prior to the grant of the restricted
stock rights, including voluntary resignation, retirement,
involuntary termination, layoff, death or disability, will not
be eligible to participate in the Exchange Program and will
instead retain his or her Eligible Options subject to their
existing terms. As of June 19, 2006, Eligible Options were
held by approximately 5,600 eligible employees.
Exchange Ratios. Our objective in determining the
exchange ratios applicable under the Exchange Program is to
provide for the grant of replacement restricted stock rights
that will have a value no greater than the value of the stock
options surrendered. We estimated the fair value of the Eligible
Options using the Black-Scholes option valuation model. The
Black-Scholes model is a common method used for estimating the
fair value of a stock option, and we have been using this model
for required footnote disclosures in our financial statements
through our fiscal 2006. For purposes of estimating the fair
value of an Eligible Option under the Black-Scholes model, the
following factors were used:
|
|
|
(a) the options exercise price; |
|
|
(b) an assumed value of $41.21 per share of our Common
Stock, which was the closing price reported on the NASDAQ
National Market on June 19, 2006; |
|
|
(c) an expected volatility of our Common Stock price (the
weighted average volatility of all Eligible Options was 54%); |
|
|
(d) the expected term of the stock option (the weighted
average expected term of all Eligible Options is 6 years); |
|
|
(e) a risk-free interest rate (the weighted average
risk-free interest rate of all Eligible Options was 5%); and |
|
|
(f) no expected dividends. |
16
We then discounted the resulting estimated fair value of the
Eligible Options and grouped them into three exercise price
ranges that also represent a range of associated Black-Scholes
values. Finally, we determined an exchange ratio for each
grouping of Eligible Options based on the relationship of the
discounted Black-Scholes value estimate for the most valuable
option within the group to an assumed fair market value of one
share of our Common Stock to be made subject to a restricted
stock right issued in the Exchange Program. For this purpose, we
assumed a fair market value per share equal to the closing price
per share of our Common Stock reported on the NASDAQ National
Market on June 19, 2006. The following table provides for
each of the three option exercise price ranges the number of
shares subject to Eligible Options an employee must surrender in
order to receive one restricted stock right in the Exchange
Program, assuming an average closing market price of
$41.21 per share for the five business days preceding the
commencement of the Exchange Program:
Table of Example Exchange Ratios
|
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|
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|
|
|
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|
|
|
|
|
|
|
Exchange Ratio: |
|
Total Restricted |
|
|
Total Shares |
|
Stock Option Shares |
|
Stock Rights |
|
|
Subject to |
|
per Restricted |
|
Granted (assuming |
Exercise Price Range |
|
Eligible Options |
|
Stock Right* |
|
100% participation) |
|
|
|
|
|
|
|
$47.39 to $53.99
|
|
|
8,211,321 |
|
|
|
3.0 to 1 |
|
|
|
2,738,609 |
|
$54.00 to $60.99
|
|
|
4,055,795 |
|
|
|
3.5 to 1 |
|
|
|
1,160,150 |
|
$61.00 and greater
|
|
|
3,721,970 |
|
|
|
4.0 to 1 |
|
|
|
930,737 |
|
|
|
* |
Actual exchange ratios will be subject to change at the
discretion of the Compensation Committee if there is a change in
the market price of our Common Stock preceding the commencement
of the Exchange Program from the market price used in
determining the exchange ratios set forth in this table or a
change to any of the other factors used in the
Black-Scholes
calculation used to determine the exchange ratios; provided,
however, in no event will the Exchange Program permit the
issuance of restricted stock rights having a value greater than
the value of the stock options surrendered, as estimated using
the Black-Scholes option valuation model. |
The total number of restricted stock rights a participating
employee will receive with respect to a surrendered Eligible
Option will be determined by dividing the number of shares
subject to the surrendered option by the applicable exchange
ratio and rounding up to the nearest whole share.
The valuation of the Eligible Options and estimate of the number
of restricted stock rights that may be issued in the Exchange
Program were made, and the exchange ratios were calculated, on
the basis of the closing price per share of our Common Stock as
reported on the NASDAQ National Market on June 19, 2006.
The Compensation Committee will retain the discretion to adjust
the threshold exercise price of options eligible to participate
in the Exchange Program and the applicable exchange ratios if
there is a change in the market price of our Common Stock
preceding the commencement of the Exchange Program in comparison
to the market price used in determining the exchange ratios set
forth in the table above or a change to any of the other factors
used in the
Black-Scholes
calculation used to determine the exchange ratios. However, in
no event will the Exchange Program permit the issuance of
restricted stock rights having a value greater than the value of
the stock options surrendered, as estimated using the
Black-Scholes option valuation model as of the Exchange Date.
Election to Participate. Participation in the
Exchange Program will be entirely voluntary. Eligible employees
will have an election period of at least 20 business days from
the commencement of the Exchange Program in which to determine
whether they wish to participate.
Vesting of Restricted Stock Rights. Restricted
stock rights issued in the Exchange Program will be completely
unvested at the time they are granted and will become vested on
the basis of the participants continued employment with
the Company or any of its subsidiaries. The restricted stock
rights will have a minimum vesting period of two years measured
from August 1, 2006, regardless of the extent to which the
corresponding Eligible Options were vested upon surrender (even
if the corresponding Eligible Options were already fully vested
upon surrender). Eligible Options that are 50% or more vested
(or, in the case of Eligible Options that cliff vest in their
entirety after a minimum of three years, if at least 50% or more
of the time required to vest has elapsed) on the date on which
they are cancelled in the Exchange Program will be replaced by
restricted stock rights vesting over a period of two years
measured from August 1,
17
2006. Eligible Options that are less than 50% vested on the date
on which they are cancelled in the Exchange Program will be
replaced by restricted stock rights vesting over a period of
three years measured from August 1, 2006. However, Eligible
Options granted in 2006 will be replaced by restricted stock
rights vesting over a period of four years measured from
August 1, 2006. Restricted stock rights vesting over
periods of two or four years will vest in substantially equal
annual installments over the applicable period, while restricted
stock rights vesting over a period of three years will vest at
the rate of 25% in each of the first two years and 50% in the
third year. A participant in the Exchange Program will generally
forfeit any restricted stock rights received that remain
unvested at the time his or her employment with us terminates
for any reason.
Other Material Terms and Conditions of Restricted Stock
Rights. Restricted stock rights issued in the Exchange
Program will be granted pursuant to the Equity Plan and will be
subject to its terms. Each share of restricted stock issued to a
participant in the Exchange Program is a share of our Common
Stock that remains subject to forfeiture upon the
participants termination of employment until it has vested
following a specified period of employment. Each restricted
stock unit issued to a participant in the Exchange Program
represents a right to receive one share of our Common Stock on a
fixed settlement date, which is the date on which the restricted
stock unit vests based on continued employment. A participant is
not required to pay any monetary consideration to receive shares
of our Common Stock upon receipt of a restricted stock award or
settlement of restricted stock units. However, subject to the
limitations described below, employees participating in the
Exchange Program will recognize taxable income in connection
with their restricted stock rights awards no later than the
vesting of the award, although the applicable tax laws may vary
from country to country. For our U.S. employees and many of
our
non-U.S. employees,
this income is subject to income and employment tax withholding.
The Company intends to satisfy its tax withholding obligations
by deducting from the shares of Common Stock that would
otherwise be released to employees upon the vesting of
restricted stock or issued in settlement of restricted stock
units a number of whole shares having a fair market value that
does not exceed by more than the value of a fractional share the
applicable minimum statutory withholding requirements. All other
terms and conditions of the restricted stock rights issued in
the Exchange Program will be substantially the same as those
that apply generally to such awards granted under the Equity
Plan, as described in Appendix A to this proxy statement.
Potential Modification to Exchange Program Terms to Comply
with Governmental Requirements. The terms of the
Exchange Program will be described in an Offer to Exchange that
will be filed with the SEC. Although we do not anticipate that
the SEC would require us to materially modify the programs
terms, it is possible that we will need to alter the terms of
the Exchange Program to comply with comments from the SEC.
Changes in the terms of the Exchange Program may also be
required for tax purposes for participants in the United States
as the tax treatment of the Exchange Program is not entirely
certain. In addition, we intend to make the Exchange Program
available to our employees who are located outside of the United
States, where permitted by local law and where we determine it
is feasible and practical to do so. It is possible that we may
need to make modifications to the terms offered to employees in
countries outside the U.S. to comply with local
requirements, or for tax or accounting reasons. The Compensation
Committee of the Board of Directors will retain the discretion
to make any such necessary or desirable changes to the terms of
the Exchange Program.
Summary of United States Federal Income Tax Consequences
The following is a summary of the anticipated material United
States federal income tax consequences of participating in the
Exchange Program and of holding restricted stock rights. A more
detailed summary of the applicable tax considerations to
participants will be provided in the Offer to Exchange. The tax
consequences of the Exchange Program are not entirely certain,
however, and the Internal Revenue Service is not precluded from
adopting a contrary position and the law and regulations
themselves are subject to change. All holders of Eligible
Options are urged to consult their own tax advisors regarding
the tax treatment of participating in the Exchange Program under
all applicable laws prior to participating in the Exchange
Program. We believe the exchange of Eligible Options for
restricted stock rights pursuant to
18
the Exchange Program should be treated as a non-taxable exchange
and the Company, our stockholders and employees should recognize
no income for United States federal income tax purposes upon the
surrender of Eligible Options and the grant of restricted stock
rights (other than in the case of participants who receive
restricted stock and make certain elections). For a summary of
the current United States federal income tax consequences of
restricted stock and restricted stock units we currently issue
under the Equity Plan, see the discussion of the treatment of
such awards contained in Appendix A to this proxy
statement. The tax consequences of the receipt of restricted
stock and stock units under the Equity Plan for participating
non-United States employees may differ significantly from the
United States federal income tax consequences described above
and in Appendix A.
Accounting Treatment
Effective with our fiscal year commencing on April 2, 2006,
we have adopted the provisions of Financial Accounting Standards
Boards Statement of Financial Accounting Standard
No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123R), on
accounting for share-based payments. Under
SFAS No. 123R, to the extent the fair value of each
award of restricted stock rights granted to employees exceeds
the fair value of the stock options surrendered, such excess is
considered additional compensation. This excess, in addition to
any remaining unrecognized expense for the stock options
surrendered in exchange for the restricted stock rights, will be
recognized by the Company as an expense for compensation. This
expense will be recognized ratably over the vesting period of
the restricted stock rights in accordance with the requirements
of SFAS No. 123R. In the event that any of the
restricted stock rights are forfeited prior to their vesting due
to termination of employment, the expense for the forfeited
restricted stock rights will be reversed and will not be
recognized. Because we do not anticipate issuing any restricted
stock rights having a fair value in excess of the fair value of
the stock options surrendered, we do not expect to recognize any
incremental compensation cost as a result of the Exchange
Program.
New Plan Benefits
Because the decision of eligible employees to participate in the
Exchange Program is completely voluntary, we are not able to
predict who or how many employees will elect to participate, how
many options of any class described in the table above under
Exchange Ratios will be surrendered for exchange or
the number of restricted stock rights that may be issued. As
noted above, members of our Board of Directors and our Named
Executive Officers are not eligible to participate in the
Exchange Program.
Effect on Stockholders
We are not able to predict the impact the Exchange Program will
have on our stockholders because we are unable to predict how
many or which employees will exchange their Eligible Options.
The Exchange Program was designed to avoid any additional
compensation charge and to reduce the overhang from outstanding
stock options. As of June 19, 2006, assuming a
five-business-day average closing price of our Common Stock of
$41.21 immediately prior to the commencement of the Exchange
Program, the maximum number of shares subject to Eligible
Options which could be exchanged is 15,989,086 and the maximum
number of shares of Common Stock underlying the restricted stock
rights which could be issued using the exchange ratios set forth
above is 4,829,496. As explained above, the net reduction in
shares subject to outstanding equity awards resulting from the
Exchange Program could be significantly lower depending on
factors such as the level of participation by our employees in
the Exchange Program. The reduction in overhang will also be
partially offset by the grant of additional Retention Awards. In
addition, we intend to return up to 7 million shares
subject to options cancelled in the Exchange Program to the
Equity Plan where they will be available for the grant of future
awards.
Required Vote and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a
majority of the voting shares present at the meeting in person
or by proxy and voting on this proposal.
19
Our Board of Directors believes that the proposed Exchange
Program is favorable to the interests of our stockholders and,
at the same time, will strengthen incentives for employees
currently holding underwater stock options to remain with the
Company and to contribute to our growth and success.
The Board recommends a vote FOR approval of the Exchange
Program.
20
PROPOSAL 3. AMENDMENTS
TO THE 2000 EQUITY INCENTIVE PLAN
The 2000 Equity Incentive Plan, which initially was approved by
the stockholders on March 22, 2000, continues EAs
program of providing equity incentives to eligible employees,
officers and directors. We offer these incentives in order to
assist in recruiting, retaining and motivating qualified
employees, officers and directors. Since the Equity Plans
adoption, 67,400,000 shares of common stock have been
reserved for issuance. The following summary of the proposed
amendments to the Equity Plan is subject to the specific
provisions contained in the full text of the Equity Plan, as
proposed to be amended, which we have filed with the Securities
and Exchange Commission along with this proxy statement. For
more information regarding the Equity Plan, we urge you to read
the full text of the Equity Plan, as proposed to be amended, or
the summary of its material terms, as proposed to be amended,
included as Appendix A of this proxy statement.
We continue to believe that alignment of the interests of our
stockholders and our employees, officers and directors is best
advanced through the issuance of equity incentives as a portion
of their total compensation. In this way, we reinforce the link
between our stockholders and our employees, officers
and directors focus on personal responsibility, creativity
and stockholder returns. We also believe that delivering a
portion of their total compensation in the form of long-term
equity compensation helps encourage a long-term view in an
industry that is subject to lengthy business cycles. Equity
incentives such as stock options and restricted stock units also
play an important role in our recruitment and retention
strategies, as the competition for creative and technical talent
and leadership in our industry is intense.
Having said this, we also recognize our responsibility to keep
the dilutive impact of the equity incentives we offer within a
reasonable range. For example, we decreased the size of option
grants we made to our executive officers in fiscal 2004 and,
following the two-for-one split of our common stock in November
2003, we did not increase our broad-based stock option award
guidelines to reflect the split. During fiscal 2006, a year in
which our employee base grew by approximately 1,050 people, we
carefully managed stock option and restricted stock unit
issuances, granting stock options to purchase a total of
7,576,630 shares (excluding 1,877,964 shares
underlying options we assumed in connection with our acquisition
of JAMDAT Mobile Inc.) and restricted stock units to acquire a
total of 654,230 shares (excluding 10,096 shares
underlying restricted stock units we assumed in connection with
our acquisition of JAMDAT Mobile Inc.), together representing
approximately 2.7% of our total shares outstanding. During
fiscal 2005, fiscal 2004 and fiscal 2003, we granted stock
options at an average annual rate of approximately 3.6% of total
shares outstanding. Going forward, we intend to continue to
responsibly manage issuances of equity incentive awards under
the Equity Plan.
The Equity Plan also contains several features designed to
protect stockholders interests. For example, the exercise
price of outstanding options issued under the Plan may not be
reduced without stockholder approval, and the Plan does not
allow any options to be granted at less than 100% of fair market
value. The Equity Plan also does not contain an
evergreen provision whereby the number of authorized
shares is automatically increased on a regular basis. In
addition, the Equity Plan prohibits us from loaning, or
guaranteeing the loan of, funds to participants under the Equity
Plan.
We are proposing an amendment to the 2000 Equity Incentive
Plan to increase by 11 million shares the limit on the
total number of shares underlying awards of restricted stock and
restricted stock units that may be granted under the Equity
Plan from 4 million to 15 million
shares.
In May 2005, we began granting restricted stock units to certain
of our U.S.-based
employees, and in March 2006, we began offering restricted stock
units to our employees throughout the world. As described in
Proposal 2, with stockholder approval of that proposal and
this Proposal 3, we expect to implement an Exchange Program
under which eligible employees will be offered the opportunity
to surrender significantly underwater stock options
in exchange for a lesser number of shares of restricted stock or
restricted stock units to be granted under the Equity Plan.
While reducing the number of shares subject to outstanding stock
options and equity awards in general, we anticipate that the
Exchange Program will require the issuance of an estimated
4.8 million shares (based on a set of assumptions discussed
in Proposal 2 above)
21
under the restricted stock and restricted stock unit awards to
be granted in exchange for surrendered stock options. In
addition, we expect restricted stock and/or restricted stock
units to remain an important form of equity incentive
compensation that we offer our employees worldwide, including,
for example, as a component of the Retention Awards program
described in Proposal 2 above under which we intend to
grant restricted stock units to a select group of key employees.
We therefore believe it is important that the Equity Plan be
amended to allow us to issue an adequate amount of restricted
stock and restricted stock units to attract, retain and motivate
eligible employees and to provide the shares necessary for
awards to be granted in exchange for stock options surrendered
in the Exchange Program.
We are also proposing to amend the Equity Plan to limit
the number of shares subject to options surrendered and
cancelled in the Exchange Program that will again become
available for issuance under the Equity Plan to 7 million
plus the number of shares necessary for the issuance of the
restricted stock rights to be granted in connection with the
Exchange Program.
Under the existing terms of the Equity Plan, shares subject to
awards that terminate without shares being issued automatically
become available for issuance under other awards granted
pursuant to the Equity Plan. In order to limit the number of
shares that will be available for future issuance as a result of
the Exchange Program, however, we do not intend to return every
share subject to an award cancelled in the Exchange Program back
to the Equity Plan. Instead, we only intend to (i) use
shares subject to the options cancelled for the issuance of the
restricted stock rights granted under the Exchange Program, and
(ii) return up to a total of an additional seven million
shares subject to the options cancelled in the Exchange Program
to the Equity Plan to be available for issuance pursuant to
future awards. While returning these shares back to the Equity
Plan will not have any immediate impact on our overhang, their
use for future equity awards would increase our overhang.
Required Vote and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a
majority of the voting shares present at the meeting in person
or by proxy and voting on this proposal.
The Board recommends a vote FOR the amendments to the
2000 Equity Incentive Plan.
22
PROPOSAL 4. AMENDMENT TO
THE 2000 EMPLOYEE STOCK PURCHASE PLAN
The 2000 Employee Stock Purchase Plan, which initially was
approved by the stockholders on July 27, 2000, provides our
employees with a convenient means of purchasing equity in the
Company through payroll deductions. It also provides an
incentive for continued employment. Since its adoption,
5,300,000 shares of common stock have been reserved for
issuance under the Purchase Plan.
Since the adoption of the Purchase Plan, we have experienced
significant growth in the number of employees, as well as an
increase in the percentage of employees, who elect to
participate in the Purchase Plan. In addition, in February 2003,
we terminated our International Employee Stock Purchase Plan,
and have since allowed our international employees to
participate in the Purchase Plan. The following table presents
information since the beginning of fiscal 2003 relating to the
aggregate number of shares purchased under the Purchase Plan and
the International Purchase Plan, as well as the number of
employees who have participated in such plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of |
|
|
|
|
|
|
|
|
Employees |
|
|
|
|
Shares Purchased |
|
|
|
Participating |
|
|
Shares Purchased |
|
Pursuant to |
|
|
|
as of the Last |
|
|
Pursuant to 2000 |
|
International |
|
Total Shares |
|
Purchase Date |
|
|
Purchase Plan |
|
Purchase Plan(1) |
|
Purchased |
|
in Fiscal Year |
|
|
|
|
|
|
|
|
|
Fiscal 2003
|
|
|
440,528 |
|
|
|
257,368 |
|
|
|
697,896 |
|
|
|
2,418 |
|
Fiscal 2004
|
|
|
866,541 |
|
|
|
|
|
|
|
866,541 |
|
|
|
2,933 |
|
Fiscal 2005
|
|
|
623,693 |
|
|
|
|
|
|
|
623,693 |
|
|
|
3,615 |
|
Fiscal 2006
|
|
|
624,629 |
|
|
|
|
|
|
|
624,629 |
|
|
|
4,281 |
|
Fiscal 2007
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
4,500 |
(3) |
|
|
(1) |
The International Employee Stock Purchase Plan was terminated in
February 2003. |
|
(2) |
Fiscal 2007 purchases under the 2000 Purchase Plan will be made
in August 2006 and February 2007. |
|
(3) |
Represents estimated number of participants in the 2000 Purchase
Plan as of May 31, 2006. Participants have the right to
withdraw from the 2000 Purchase Plan at any time prior to a
purchase date. The number of participants may increase or
decrease prior to February 2007, the last purchase date in
fiscal 2007. |
The proposed amendment would increase the number of shares
authorized under the Purchase Plan by 1,500,000 to a total of
6,800,000, an amount that we expect will permit all current and
potential future employees to fully participate in the Purchase
Plan at least through fiscal 2007.
For more information about the Purchase Plan, we urge you to
read the summary of its material terms included as
Appendix B to this proxy statement.
Required Vote and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a
majority of the voting shares present at the meeting in person
or by proxy and voting on this proposal.
The Board recommends a vote FOR the amendment to the
2000 Employee Stock Purchase Plan.
23
PROPOSAL 5. RATIFICATION
OF THE APPOINTMENT OF KPMG LLP, INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
KPMG LLP has audited the financial statements of EA and its
consolidated subsidiaries since fiscal 1987. The Board, through
the Audit Committee, has appointed KPMG LLP as EAs
independent registered public accounting firm (independent
auditors) for fiscal 2007. The Audit Committee and the
Board believe that KPMG LLPs long-term knowledge of EA and
its subsidiaries is valuable to the Company. Representatives of
KPMG LLP have direct access to members of the Audit Committee
and the Board. Representatives of KPMG LLP will attend the
meeting in order to respond to appropriate questions from
stockholders, and may make a statement if they desire to do so.
Ratification of the appointment of KPMG LLP as our independent
auditors is not required by our bylaws or otherwise. The Board
of Directors has determined to submit this proposal to the
stockholders as a matter of good corporate practice. If the
stockholders do not ratify the appointment, the Audit Committee
will review their future selection of auditors. Even if the
appointment is ratified, the Audit Committee may, in its
discretion, direct the appointment of different independent
auditors at any time during the year if they determine that such
a change would be in the best interests of the Company and the
stockholders.
Fees of Independent Auditors
The aggregate fees billed for the last two fiscal years for each
of the following categories of services are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
Description of Fees |
|
March 31, 2006 |
|
March 31, 2005 |
|
|
|
|
|
Audit(1)
|
|
|
|
|
|
|
|
|
|
Worldwide audit fee
|
|
$ |
4,428,000 |
|
|
$ |
3,600,000 |
|
|
Accounting concurrence and regulatory matters
|
|
|
67,000 |
|
|
|
169,000 |
|
|
|
|
|
|
|
|
|
|
|
Total audit fees
|
|
|
4,495,000 |
|
|
|
3,769,000 |
|
Audit-Related
Fees(2)
|
|
|
|
|
|
|
|
|
|
Benefit plan audit
|
|
|
27,000 |
|
|
|
18,000 |
|
|
|
|
|
|
|
|
|
|
|
Total audit-related fees
|
|
|
27,000 |
|
|
|
18,000 |
|
Tax(3)
|
|
|
|
|
|
|
|
|
|
Compliance
|
|
|
618,000 |
|
|
|
690,000 |
|
|
Planning
|
|
|
55,000 |
|
|
|
13,000 |
|
|
|
|
|
|
|
|
|
|
|
Total tax fees
|
|
|
673,000 |
|
|
|
703,000 |
|
All Other
Fees(4)
|
|
|
|
|
|
|
|
|
|
Total all other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All Fees
|
|
$ |
5,195,000 |
|
|
$ |
4,490,000 |
|
|
|
(1) |
Audit Fees: This category includes the annual audit of the
Companys financial statements and managements
assessment of internal control over financial reporting,
(including required quarterly reviews of financial statements
included in the Companys quarterly reports on
Form 10-Q) and
services normally provided by the independent auditors in
connection with regulatory filings. This category also includes
consultation on matters that arose during, or as a result of the
audit or review of financial statements, statutory audits
required for our non-US subsidiaries, and services associated
with our periodic reports and other documents filed with the SEC
and foreign filings, as well as Sarbanes-Oxley Section 404
(Section 404) compliance consultation. The
increase in audit fees for fiscal 2006 was primarily due to
costs incurred in connection with the annual audit of the
Companys financial statements, the audit of internal
control over financial reporting, as required by
Section 404 and international regulatory audits. |
|
(2) |
Audit-Related Fees: This category consists primarily of fees
related to the annual audit of our 401(k) benefit plan. |
|
(3) |
Tax Services: This category includes compliance services
rendered for US and foreign tax compliance and returns, and
transfer pricing consultation, as well as planning and advice
which consists primarily of technical tax consulting. |
|
(4) |
Other: In fiscal years 2005 and 2006, no products or services
were provided under this category. |
24
Services Provided by the Independent Auditors
The Audit Committee is required to pre-approve the engagement
of, and has engaged, KPMG LLP to perform audit and other
services for the Company and its subsidiaries. The
Companys procedures for the pre-approval by the Audit
Committee of all services provided by KPMG LLP comply with SEC
regulations regarding pre-approval of services. Services subject
to these SEC requirements include audit services, audit-related
services, tax services and other services. The audit engagement
is specifically approved and the auditors are retained by the
Audit Committee. In some cases, pre-approval for a particular
category or group of services is provided by the Audit Committee
for up to a year, subject to a specific budget and to regular
management reporting. In other cases, the Chairman of the Audit
Committee has the delegated authority from the Audit Committee
to pre-approve additional services up to a specified dollar
limit, and such pre-approvals are then communicated to the full
Audit Committee.
The Audit Committee considered and determined that fees for
services other than audit and audit-related services are
compatible with maintaining KPMG LLPs independence.
Required Vote and Board of Directors Recommendation
Approval of this proposal requires the affirmative vote of a
majority of the voting shares present at the meeting in person
or by proxy and voting for or against the proposal.
The Board recommends a vote FOR the ratification of KPMG
LLP as our independent auditors for fiscal 2007.
OTHER BUSINESS
The Board knows of no other business for consideration at the
Annual Meeting. If other matters are properly presented at the
Annual Meeting, or at any adjournment or postponement of the
Annual Meeting, Lawrence F. Probst III (the Companys
Chief Executive Officer) and Warren C. Jenson (the
Companys Chief Financial and Administrative Officer) will
vote, or otherwise act, in accordance with their judgment on
such matters.
25
PRINCIPAL STOCKHOLDERS
Common Stock
The following table shows, as of June 1, 2006, the number
of shares of our common stock owned by our directors, executive
officers named in the Summary Compensation Table below, our
current directors and executive officers as a group, and
beneficial owners known to us holding more than 5% of our common
stock. As of June 1, 2006, there were
306,143,008 shares of our common stock outstanding. Except
as otherwise indicated, the address for each of our directors
and executive officers is c/o Electronic Arts Inc., 209
Redwood Shores Parkway, Redwood City, CA 94065.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
|
|
Shares |
|
Right to |
|
Outstanding |
Stockholder Name |
|
Owned(1) |
|
Acquire(2) |
|
Shares(3) |
|
|
|
|
|
|
|
Legg Mason Capital Management,
Inc.(4)
|
|
|
32,626,609 |
|
|
|
|
|
|
|
10.7 |
|
Janus Capital Management
LLC(5)
|
|
|
18,744,209 |
|
|
|
|
|
|
|
6.1 |
|
Wellington Management Company,
LLP(6)
|
|
|
17,682,489 |
|
|
|
|
|
|
|
5.8 |
|
Lawrence F.
Probst III(7)
|
|
|
730,973 |
|
|
|
3,718,300 |
|
|
|
1.5 |
|
M. Richard Asher
|
|
|
167,858 |
|
|
|
183,200 |
|
|
|
* |
|
Timothy
Mott(8)
|
|
|
118,624 |
|
|
|
88,160 |
|
|
|
* |
|
Nancy Smith
|
|
|
14,932 |
|
|
|
221,361 |
|
|
|
* |
|
V. Paul
Lee(9)
|
|
|
13,256 |
|
|
|
1,341,000 |
|
|
|
* |
|
Warren C. Jenson
|
|
|
13,558 |
|
|
|
904,600 |
|
|
|
* |
|
Gregory B. Maffei
|
|
|
10,000 |
|
|
|
59,973 |
|
|
|
* |
|
Robert W. Pittman
|
|
|
7,002 |
|
|
|
50,500 |
|
|
|
* |
|
Gerhard Florin
|
|
|
6,808 |
|
|
|
235,872 |
|
|
|
* |
|
Gary M. Kusin
|
|
|
4,574 |
|
|
|
60,640 |
|
|
|
* |
|
Leonard S. Coleman, Jr.
|
|
|
4,095 |
|
|
|
99,872 |
|
|
|
* |
|
Linda J. Srere
|
|
|
3,459 |
|
|
|
99,872 |
|
|
|
* |
|
Vivek Paul
|
|
|
687 |
|
|
|
7,333 |
|
|
|
* |
|
Former executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Don A.
Mattrick(10)
|
|
|
9,500 |
|
|
|
0 |
|
|
|
* |
|
Bruce
McMillan(10)
|
|
|
173,303 |
|
|
|
0 |
|
|
|
* |
|
All executive officers and directors as a group (20
persons)(11)
|
|
|
1,102,672 |
|
|
|
7,461,970 |
|
|
|
2.8 |
|
|
|
* |
Less than 1% |
|
(1) |
Unless otherwise indicated in the footnotes, includes shares for
which the named person has sole voting and investment power, or
has shared voting and investment power with his or her spouse.
Excludes shares that may be acquired through stock option
exercises. |
|
(2) |
Represents shares of common stock that may be acquired through
stock option exercises within 60 days of June 1, 2006.
None of EAs directors or current executive officers hold
restricted stock units that vest within 60 days of
June 1, 2006. |
|
(3) |
Calculated based on the total number of shares owned plus the
number of shares that may be acquired through stock option
exercises and the vesting of restricted stock units within
60 days of June 1, 2006. |
|
(4) |
Based on information contained in a report on Schedule 13F
filed with the SEC on March 31, 2006. The address for Legg
Mason, Inc. is 100 Light Street, Baltimore, MD 21202. |
|
(5) |
Based on information contained in a report on Schedule 13F
filed with the SEC on March 31, 2006. The address for Janus
Capital Management LLC is 100 Fillmore Street, Suite 300,
Denver, CO 80206. |
|
(6) |
Based on information contained in a report on Schedule 13F
filed with the SEC on March 31, 2006. The address for
Wellington Management Company, LLP is 75 State Street, Boston,
MA 02109. |
|
(7) |
Includes 87,886 shares of common stock held by
Mr. Probsts grantors retained annuity trust,
10,805 shares held by Mr. Probsts spouse, and
481,441 shares held by the Probst Family LP, of which
Mr. Probst is a partner. |
|
(8) |
Includes 36,656 shares of common stock held in trust for
the benefit of Mr. Motts son for which Mr. Mott
is the trustee. |
|
(9) |
Includes 15 shares of common stock held by VPL Investments,
of which Mr. Lee is the sole shareholder, and
12,803 shares held by Briel Investments, of which
Mr. Lee is the sole shareholder. |
|
(10) |
Mr. Mattrick and Mr. McMillan ceased serving as
executive officers of EA on September 2, 2005. |
|
(11) |
Includes all executive officers and directors of EA as of
June 1, 2006. |
26
STOCK PRICE PERFORMANCE GRAPH
The following information shall not be deemed to be
soliciting material or to be filed with
the Securities and Exchange Commission nor shall this
information be incorporated by reference into any future filing
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that EA
specifically incorporates it by reference into a filing.
The following graph shows a five-year comparison of cumulative
total returns during the period from March 31, 2001 through
March 31, 2006, for our common stock, the NASDAQ Market
Composite Index, the S&P 500 Index (to which EA was added in
July 2002), the RDG Technology Index and the
S&P Application Software Index (to which EA was added
in July 2002), each of which assumes an initial value of $100.
Each measurement point is as of the end of each fiscal year
ended March 31. The performance of our stock depicted in
the following graph is not necessarily indicative of the future
performance of our stock.
|
|
|
stock price performance
graph |
27
SUMMARY COMPENSATION TABLE
COMPENSATION OF EXECUTIVE OFFICERS
The table below shows compensation information for our Chief
Executive Officer, the next four most highly compensated
executive officers, and two former executive officers, earned
during our fiscal year ended March 31, 2006. We refer to
all of these officers as the Named Executive
Officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Compensation | |
|
|
|
Long Term Awards | |
|
|
|
|
| |
|
|
|
| |
|
|
|
|
Fiscal Year | |
|
|
|
|
|
Restricted | |
|
Securities | |
|
|
|
|
Ended | |
|
|
|
Other Annual | |
|
Stock | |
|
Underlying | |
|
All Other | |
Name and Principal Position |
|
March 31, | |
|
Salary ($) | |
|
Bonus ($) | |
|
Compensation ($) | |
|
Awards ($)(1) | |
|
Options (#)(2) | |
|
Compensation ($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Lawrence F. Probst III
|
|
|
2006 |
|
|
|
743,926 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
225,000 |
|
|
|
3,870 |
(3) |
|
Chairman and Chief |
|
|
2005 |
|
|
|
680,012 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
|
3,795 |
(3) |
|
Executive Officer |
|
|
2004 |
|
|
|
663,759 |
|
|
|
781,000 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
9,720 |
(3) |
|
Warren C. Jenson
|
|
|
2006 |
|
|
|
575,073 |
|
|
|
0 |
|
|
|
21,717 |
(4) |
|
|
390,225 |
(5) |
|
|
52,500 |
|
|
|
143,753 |
(6) |
|
Executive Vice President, |
|
|
2005 |
|
|
|
528,198 |
|
|
|
0 |
|
|
|
1,565,713 |
(7) |
|
|
|
|
|
|
100,000 |
|
|
|
2,122,991 |
(8) |
|
Chief Financial and |
|
|
2004 |
|
|
|
513,087 |
|
|
|
450,000 |
|
|
|
71,667 |
(9) |
|
|
|
|
|
|
120,000 |
|
|
|
299,047 |
(10) |
|
Administrative Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V. Paul Lee
|
|
|
2006 |
|
|
|
548,090 |
|
|
|
0 |
|
|
|
|
|
|
|
390,225 |
(5) |
|
|
202,500 |
|
|
|
0 |
|
|
President, Worldwide |
|
|
2005 |
|
|
|
421,736 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
0 |
|
|
Studios |
|
|
2004 |
|
|
|
374,440 |
|
|
|
278,000 |
|
|
|
|
|
|
|
|
|
|
|
140,000 |
|
|
|
0 |
|
|
Gerhard Florin
|
|
|
2006 |
|
|
|
506,318 |
|
|
|
0 |
|
|
|
25,702 |
(11) |
|
|
260,150 |
(5) |
|
|
110,000 |
|
|
|
44,390 |
(12) |
|
Executive Vice President, |
|
|
2005 |
|
|
|
399,860 |
|
|
|
106,457 |
|
|
|
26,208 |
(11) |
|
|
|
|
|
|
125,000 |
|
|
|
48,966 |
(12) |
|
General Manager, |
|
|
2004 |
|
|
|
355,510 |
|
|
|
252,844 |
|
|
|
22,333 |
(11) |
|
|
|
|
|
|
120,000 |
|
|
|
43,649 |
(12) |
|
International Publishing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nancy L. Smith
|
|
|
2006 |
|
|
|
496,800 |
|
|
|
0 |
|
|
|
|
|
|
|
260,150 |
(5) |
|
|
35,000 |
|
|
|
3,870 |
(3) |
|
Executive Vice President, |
|
|
2005 |
|
|
|
453,594 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
3,795 |
(3) |
|
General Manager, |
|
|
2004 |
|
|
|
441,393 |
|
|
|
343,000 |
|
|
|
42,891 |
(13) |
|
|
|
|
|
|
100,000 |
|
|
|
9,720 |
(3) |
|
The Sims Franchise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don A. Mattrick
(14)
|
|
|
2006 |
|
|
|
704,146 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
674,080 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
585,607 |
|
|
|
565,000 |
|
|
|
|
|
|
|
|
|
|
|
160,000 |
|
|
|
|
|
|
Bruce
McMillan(14)
|
|
|
2006 |
|
|
|
690,594 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
540,924 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
472,709 |
|
|
|
371,000 |
|
|
|
|
|
|
|
|
|
|
|
140,000 |
|
|
|
|
|
|
|
(1) |
Represents awards of restricted stock units. Upon vesting, each
restricted stock unit automatically converts into one share of
EA common stock, and does not have an exercise price or
expiration date. On March 1, 2006, Mr. Jenson and
Mr. Lee were each granted an award for 7,500 restricted
stock units, and Dr. Florin and Ms. Smith were each
granted an award for 5,000 restricted stock units. Each of these
awards will vest as to 25% of the restricted stock units on
March 1, 2007, an additional 25% on March 1, 2008, and
the remaining 50% on March 1, 2009. Based on the closing
price of EAs common stock of $54.72 on March 31,
2006, the last day of EAs fiscal year, the value of the
restricted stock units granted to each of Mr. Jenson and
Mr. Lee was $410,400, and the value of the restricted stock
units granted to each of Dr. Florin and Ms. Smith was
$273,600. The restricted stock units are not entitled to receive
dividends, if any, paid by EA on its common stock. |
|
(2) |
Represents options to purchase shares of EA common stock. |
|
(3) |
Represents $720 of term life insurance premiums paid for the
benefit of each of Mr. Probst and Ms. Smith and
EA-matching 401(k) contributions of $3,150 paid to each in
fiscal 2006; $720 term life insurance premiums paid for the
benefit of each of Mr. Probst and Ms. Smith and
EA-matching 401(k) contributions of $3,075 each in fiscal 2005;
and $720 term life insurance premiums paid for |
28
|
|
|
the benefit of each of Mr. Probst and Ms. Smith and
EA-matching 401(k) contributions of $9,000 each in fiscal 2004. |
|
(4) |
Represents a tax gross-up paid to Mr. Jenson in
connection with taxable relocation-related expenses. |
|
(5) |
Represents the value of unvested restricted stock units granted
on March 1, 2006 calculated by multiplying the closing
price of EA common stock on the date of grant, which was
$52.03, by the number of restricted stock units granted to the
Named Executive Officer. |
|
(6) |
Represents $93,354 in imputed interest income on the remaining
portion of Mr. Jensons interest-free loan (for more
information regarding the loan to Mr. Jenson, see
Certain Transactions below), $46,529 in relocation
expenses, $720 of term life insurance premium paid for the
benefit of Mr. Jenson, and EA-matching 401(k) contribution
of $3,150. |
|
(7) |
Represents $1,565,552 of a tax gross-up paid to
Mr. Jenson in connection with the forgiveness of an
interest-free loan made by EA to Mr. Jenson in June 2002
(for more information regarding the loan to Mr. Jenson, see
Certain Transactions below), and $161 of tax
gross-up paid to Mr. Jenson in connection with
taxable relocation-related expenses. |
|
(8) |
Represents $2,000,000 in partial forgiveness of
Mr. Jensons interest-free loan, $119,196 in imputed
interest income on the remaining portion of the interest-free
loan (for more information regarding the loan to
Mr. Jenson, see Certain Transactions below),
$720 of term life insurance premium paid for the benefit of
Mr. Jenson, and EA-matching 401(k) contribution of $3,075. |
|
(9) |
Represents tax gross-up paid to Mr. Jenson in
connection with taxable relocation-related expenses. |
|
|
(10) |
Includes $148,800 imputed interest income on
Mr. Jensons interest-free loan (for more information
regarding the loan to Mr. Jenson, see Certain
Transactions below), $36,000 temporary housing, $104,527
relocation expenses, $720 paid term life insurance premium, and
EA-matching 401(k) contribution of $9,000. |
|
(11) |
Represents automobile and fuel allowance received by
Dr. Florin and for which all senior employees and members
of management resident in the UK are generally eligible. |
|
(12) |
Represents EA contribution to UK pension plan of $42,633 and
life insurance premiums of $1,757 for fiscal 2006; EA
contribution to UK pension plan of $45,871 and life
insurance premiums of $3,095 for fiscal 2005; and EA
contribution to UK pension plan of $42,399 and life insurance
premiums of $1,250 for fiscal 2004. |
|
(13) |
Represents taxes and related tax gross up paid by EA
on behalf of Ms. Smith. |
|
(14) |
Mr. Mattrick and Mr. McMillan ceased serving as
executive officers of EA on September 2, 2005. Had they
been serving as executive officers as of the end of EAs
fiscal year, each would have been one of the top four most
highly compensated executive officers (other than the CEO).
Under applicable SEC rules, EA is required to include their
compensation information in this proxy statement. |
29
STOCK OPTION GRANTS
The following table shows stock options granted to the Named
Executive Officers during the last fiscal year. In accordance
with the rules of the Securities and Exchange Commission, the
table sets forth the hypothetical gains 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 their respective ten-year
option terms. Actual gains, if any, on option exercises are
dependent on the future performance of EAs common stock.
The hypothetical gains shown in this table are not intended to
forecast possible future appreciation, if any, of EAs
common stock.
Options Granted in Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Realized Value at |
|
|
|
|
Percent of |
|
|
|
|
|
Assumed Annual Rates of |
|
|
Number of |
|
Total Options |
|
|
|
|
|
Stock Price Appreciation for |
|
|
Securities |
|
Granted to |
|
Exercise |
|
|
|
Option Term |
|
|
Underlying |
|
Employees in |
|
Price Per |
|
Expiration |
|
|
|
|
Options Granted |
|
FY2006(1) |
|
Share(2) |
|
Date |
|
5% |
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence F. Probst III
|
|
|
225,000 |
(3) |
|
|
2.41 |
|
|
$ |
52.03 |
|
|
|
03/01/16 |
|
|
$ |
7,362,312 |
|
|
$ |
18,657,545 |
|
Warren C. Jenson
|
|
|
52,500 |
(3) |
|
|
0.56 |
|
|
$ |
52.03 |
|
|
|
03/01/16 |
|
|
$ |
1,717,873 |
|
|
$ |
4,353,427 |
|
V. Paul Lee
|
|
|
52,500 |
(3) |
|
|
0.56 |
|
|
$ |
52.03 |
|
|
|
03/01/16 |
|
|
$ |
1,717,873 |
|
|
$ |
4,353,427 |
|
|
|
|
150,000 |
(4) |
|
|
1.61 |
|
|
$ |
57.42 |
|
|
|
09/02/15 |
|
|
$ |
5,416,669 |
|
|
$ |
13,726,904 |
|
Gerhard Florin
|
|
|
35,000 |
(3) |
|
|
0.37 |
|
|
$ |
52.03 |
|
|
|
03/01/16 |
|
|
$ |
1,145,249 |
|
|
$ |
2,902,285 |
|
|
|
|
75,000 |
(4) |
|
|
0.80 |
|
|
$ |
57.42 |
|
|
|
09/02/15 |
|
|
$ |
2,708,335 |
|
|
$ |
6,863,452 |
|
Nancy L. Smith
|
|
|
35,000 |
(3) |
|
|
0.37 |
|
|
$ |
52.03 |
|
|
|
03/01/16 |
|
|
$ |
1,145,249 |
|
|
$ |
2,902,285 |
|
Former executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don A. Mattrick
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce McMillan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
EA granted and/or assumed options to
purchase 9,337,605 shares of common stock to employees
(excluding non-employee directors) in fiscal 2006. |
|
(2) |
The exercise price of each stock option is equal to the closing
price of EA common stock on the date of grant. |
|
(3) |
These options were granted on March 1, 2006, will first
vest and become exercisable as to 24% of the underlying shares
12 months from date of grant, and will then vest in 2%
increments on the first calendar day of each month thereafter
for 38 months. |
|
(4) |
These options were granted on September 2, 2005, and will
vest and become exercisable as to 100% of the underlying shares
on September 2, 2009. |
All option grants listed above were made pursuant to EAs
2000 Equity Incentive Plan. The material terms of the options,
including their exercise price, vesting terms, change of control
provisions, and prohibitions on repricing are
summarized in Appendix A to this proxy statement.
30
OPTIONS EXERCISED
The following table shows stock option exercises and the number
and value of unexercised stock options held by the Named
Executive Officers during fiscal 2006.
Fiscal 2006 Aggregated Option Exercises and March 31,
2006 Option Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
Value of Unexercised |
|
|
|
|
|
|
Options at March 31, |
|
In-the-Money Options |
|
|
Number of |
|
|
|
2006 |
|
at March 31, 2006(2) |
|
|
Shares Acquired |
|
|
|
|
|
|
|
|
on Exercise |
|
Value Realized(1) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence F. Probst III
|
|
|
0 |
|
|
$ |
0 |
|
|
|
3,662,300 |
|
|
|
643,000 |
|
|
$ |
125,314,147 |
|
|
$ |
2,577,970 |
|
Warren C. Jenson
|
|
|
155,000 |
|
|
$ |
3,617,725 |
|
|
|
247,000 |
|
|
|
860,500 |
|
|
$ |
4,610,695 |
|
|
$ |
16,203,405 |
|
V. Paul Lee
|
|
|
0 |
|
|
$ |
0 |
|
|
|
1,309,800 |
|
|
|
427,500 |
|
|
$ |
38,252,242 |
|
|
$ |
1,222,545 |
|
Gerhard Florin
|
|
|
5,525 |
|
|
$ |
167,961 |
|
|
|
221,472 |
|
|
|
302,001 |
|
|
$ |
4,053,959 |
|
|
$ |
708,710 |
|
Nancy Smith
|
|
|
160,000 |
|
|
$ |
5,294,787 |
|
|
|
198,161 |
|
|
|
188,600 |
|
|
$ |
3,348,093 |
|
|
$ |
893,270 |
|
Former executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Don A. Mattrick
|
|
|
808,105 |
|
|
$ |
22,511,769 |
|
|
|
18,000 |
|
|
|
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Bruce McMillan
|
|
|
288,800 |
|
|
$ |
9,982,609 |
|
|
|
636,959 |
|
|
|
0 |
|
|
$ |
13,872,741 |
|
|
$ |
0 |
|
|
|
(1) |
The value realized is calculated by (a) subtracting the
option exercise price from the market value on the date of
exercise to get the realized value per share, and
(b) multiplying the realized value per share by the number
of shares underlying options exercised. |
|
(2) |
The value of unexercised
in-the-money options is
calculated by (a) subtracting the option exercise price
from $54.72 (the fair market value of EAs common stock at
the close of business on the last trading day of fiscal 2006,
March 31, 2006) to get the value per share subject to
option, and (b) multiplying the value per share subject to
option by the number of shares underlying exercisable and
unexercisable options. |
EQUITY COMPENSATION PLAN INFORMATION
Common Stock
We have five equity incentive plans (excluding plans assumed by
EA in acquisitions, as described in footnote 1 below) under
which our common stock is or has been authorized for issuance to
employees or directors: the 1991 Stock Option Plan;
Directors Stock Option Plan; 1998 Directors
Stock Option Plan; 2000 Equity Incentive Plan; and the 2000
Employee Stock Purchase Plan. Each of these plans has been
approved by our stockholders.
In the past, we have granted options to certain individuals (not
employees or directors) under our Celebrity and Artist Stock
Option Plan. This plan was not approved by the stockholders, has
since expired, and no further grants will be issued under it.
31
The following table gives aggregate information regarding grants
under all of our equity incentive plans as of the end of fiscal
2006, including the 2000 Equity Incentive and 2000 Employee
Stock Purchase Plans, which are proposed to be amended at the
2006 Annual Meeting as described in Proposals To Be Voted
On and Appendices A and B.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
Remaining Available for |
|
|
Number of Securities to |
|
Weighted-Average |
|
Future Issuance Under |
|
|
be Issued upon Exercise |
|
Exercise Price |
|
Equity Compensation Plans |
|
|
of Outstanding Options, |
|
of Outstanding Options, |
|
(Excluding Securities |
Plan Category(1) |
|
Warrants and Rights |
|
Warrants and Rights |
|
Reflected in Column A) |
|
|
|
|
|
|
|
Equity compensation plans approved by security
holders(2)
|
|
|
39,243,560 |
|
|
$ |
40.02 |
|
|
|
19,772,654 |
|
Equity compensation plans not approved by security
holders(3)
|
|
|
174,030 |
|
|
$ |
10.23 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
39,417,590 |
|
|
|
|
|
|
|
19,772,654 |
|
|
|
(1) |
The table does not include information for equity incentive
plans we assumed in connection with our acquisitions of Maxis in
1997, Criterion Software in 2004 and JAMDAT Mobile Inc. in
February 2006. As of March 31, 2006, a total of:
(a) 387,728 shares of common stock were issuable upon
exercise of outstanding options issued under the 1995 Maxis
stock option plan, with a weighted average exercise price of
$26.47; (b) a total of 9,558 shares were issuable upon
exercise of outstanding options issued under the Criterion stock
option plan, with a weighted average exercise price of $1.61;
(c) a total of 57,015 shares were issuable upon
exercise of outstanding options issued under the JAMDAT Amended
and Restated 2000 Stock Incentive Plan, with a weighted average
exercise price of $2.88; and (d) a total of
1,654,640 shares were issuable upon exercise of outstanding
options with a weighted average exercise price of $47.66, and
9,453 unvested restricted stock units were outstanding under the
JAMDAT 2004 Equity Incentive Plan. No shares remain available
for issuance under the Maxis, Criterion or JAMDAT plans. |
|
(2) |
As of March 31, 2006, a total of:
(a) 5,333,870 shares of common stock were issuable
upon exercise of outstanding options under the 1991 Stock Option
Plan, with a weighted average exercise price of $15.16;
(b) a total of 49,400 shares of common stock were
issuable upon exercise of outstanding options under the
Directors Stock Option Plan, with a weighted average
exercise price of $8.13; (c) 534,410 shares of common
stock were issuable upon exercise of outstanding options under
the 1998 Directors Stock Option Plan, with a weighted
average exercise price of $31.00; and
(d) 32,680,470 shares of common stock were issuable
upon exercise of outstanding options with a weighted average
exercise price of $44.28, and 645,410 unvested restricted stock
units were outstanding under the 2000 Equity Incentive Plan. The
1991 and Directors Stock Option Plans have expired and no
further grants may be made under them. As of March 31,
2006, 24,379 shares remained available for issuance under
the 1998 Directors Plan, however, we do not expect to
make any future grants under this plan. As of March 31,
2006, 17,425,228 shares remained available for issuance
under the 2000 Equity Incentive Plan, and 2,323,047 shares
remained available for purchase by our employees under the 2000
Employee Stock Purchase Plan. |
|
(3) |
The Celebrity and Artist Stock Option Plan (Artist
Plan) was adopted by our Board of Directors in July 1994
and expired in July 2004. The Artist Plan was established as a
plan to attract, retain and provide equity incentives to
selected artists and celebrities associated with EA and certain
employees of companies providing services to EA and in which we
hold a minority equity interest. The terms regarding the
exercise price of options, vesting, changes in capital
structure, assumption of options and acceleration of vesting,
and prohibitions on repricing under the Artist Plan
are substantially similar to the terms of the 2000 Equity
Incentive Plan, contained in Appendix A. As of
March 31, 2006, a total of 174,030 shares of common
stock were issuable upon exercise of outstanding options under
the Artist Plan, with a weighted average exercise price of
$10.23. No further grants will be made under the Artist Plan. |
See also Note 12 to the Financial Statements included in
EAs Annual Report on
Form 10-K for the
period ended March 31, 2006 for additional information
about these plans.
32
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
EA currently has no employment contracts with any Named
Executive Officer, other than Dr. Florin, or severance
arrangements with respect to their resignation or termination of
employment, except that outstanding awards under the 2000 Equity
Incentive 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 awards.
In February 2001, prior to becoming an executive officer of EA,
Dr. Florin entered into an agreement with us setting forth
the terms and conditions of his employment (Florin
Employment Agreement). The Florin Employment Agreement
contains standard terms and conditions generally applicable at
that time to all full-time employees in the UK. In addition, the
Florin Employment Agreement provided for:
(i) Dr. Florins salary at the time (which has
been superseded by subsequent salary increases not reflected in
the agreement); (ii) use of a company car and a fuel
allowance (in accordance with company policy, this benefit is
generally available to all senior employees and members of
management resident in the UK); (iii) a notice of
termination of employment period of six months plus one week for
each year of employment with EA, up to a maximum of twelve
additional weeks; and (iv) a six-month non-solicitation
period following the termination of Dr. Florins
employment during which he is prohibited from enticing away from
us any member of our senior management or our sales and
development staff.
On September 2, 2005, Dr. Florin was promoted to
Executive Vice President and General Manager, International
Publishing and accepted a letter setting forth the new terms and
conditions of his employment in connection with this promotion
(Florin Promotion Letter). Pursuant to the terms of
the Florin Promotion Letter, Dr. Florins annual gross
salary was increased to 314,650 British pounds. His
discretionary bonus target was increased to 60% of his annual
gross salary. In addition, Dr. Florin received a stock
option grant to purchase 75,000 shares of EA common
stock, which option will vest in its entirety on the fourth
anniversary of the date of grant and has an exercise price equal
to the closing market price of EA common stock on the NASDAQ
market on the date of grant.
In addition, on September 6, 2005, Dr. Florin accepted
an international relocation offer letter (Florin
Relocation Letter) setting forth the terms and conditions
of his relocation to Geneva, Switzerland, where EA is
establishing a headquarters office for its international
publishing business. The headquarters commenced limited
operations in early 2006 and is expected to become fully
operational later in the year. At the time Dr. Florin
relocates to Geneva, EA intends to enter into an employment
agreement with him that will supersede the Florin Employment
Agreement. Pursuant to the terms of the Florin Relocation
Letter, Dr. Florins salary will be increased to
718,817 Swiss francs (CHF) upon his relocation to
Geneva, while his discretionary bonus target will remain at 60%
of his annual gross salary. In addition, Dr. Florin will be
eligible to receive an annual housing allowance for a period of
up to 5 years of: (i) CHF 300,000 during year
one; (ii) CHF 192,177 during years two and three;
(iii) CHF 102,177 in year four; and
(iv) CHF 42,177 in year five. EA will bear the cost of
any Swiss social security and income taxes incurred by
Dr. Florin arising from the annual housing allowance. The
foregoing amounts reflect the deduction of an annual housing
contribution of 15% of Dr. Florins gross annual
salary at the beginning of year one, or CHF 107,823, that
Dr. Florin is required to make to EA beginning in year two
and continuing each year during which he receives an annual
housing allowance. In the event that Dr. Florin elects to
purchase a primary residence in Switzerland at the beginning of
year one, he will receive 70% of the net housing allowances he
would have received during years one through five. In the event
Dr. Florin elects to purchase a home by the end of year
one, he will receive 70% of the net housing allowances he would
have received during years two through five. EA will bear the
cost of any Swiss social security and income taxes incurred by
Dr. Florin arising from funds provided to him for the
purpose of purchasing a primary residence in Switzerland.
Dr. Florin will also be eligible to receive other
transfer-related assistance, as well an annual car allowance of
CHF 25,000 and other benefits generally available to EA
employees relocating to Switzerland. In the event
Dr. Florin voluntarily terminates his employment with EA in
Switzerland for any reason during the first 12 months
following his relocation, Dr. Florin will be required to
either repay or have deducted from his final salary payment
amounts previously paid by EA for transferring Dr. Florin
and his belongings to Switzerland. In the event that EA
terminates Dr. Florins employment for any reason,
33
except for gross misconduct, at any time up to 24 months
following his transfer to Switzerland, EA will pay the costs of
relocating him and his family back to the United Kingdom.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is the Report of the Compensation Committee
describing the compensation policies applicable to EAs
executive officers (including all Section 16 executive
officers as well as all other employees at the level of vice
president or above). This information shall not be deemed to be
soliciting material or to be filed with
the Securities and Exchange Commission nor shall this
information be incorporated by reference into any future filing
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that EA
specifically incorporates it by reference into a filing.
Responsibilities and Composition of the Compensation
Committee
The Compensation Committees charter, which was most
recently amended in July 2005, reflects the Committees
responsibilities and provides that all members must be
independent, as defined in applicable regulations
and listing standards. M. Richard Asher and Robert W.
Pittman served on the Committee throughout fiscal 2006;
William J. Byron served on the Committee until his
retirement in July 2005, at which time he was replaced on the
Committee by Linda J. Srere. 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 except through automatic
formulaic and other grants pursuant to either the 2000 Equity
Incentive Plan or Directors Plan. In addition, each meets
(and, in the case of Mr. Byron during his tenure on the
Committee, met) 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, and the definition of
independent director under applicable NASDAQ
Marketplace Rules.
The Compensation Committee reviews and approves the compensation
philosophy and programs for EAs executives. In fiscal
2006, the Compensation Committee reviewed and approved the
salaries, bonuses and equity compensation of each of EAs
executive officers, other than the Chief Executive Officer whose
salary, bonus and equity compensation were reviewed by the
Compensation Committee and approved by the independent members
of the Board of Directors after discussing the Compensation
Committees recommendation. The Compensation Committee also
administers the Companys equity compensation plans and the
bonus plan for executive officers and all significant or
non-standard equity grants for other employees. During fiscal
2006, the Compensation Committee engaged in extensive reviews of
long-term incentive compensation strategies in light of stock
option expensing, responsible dilution management, and a desire
to continue to effectively attract, motivate and retain key
talent. During the course of these reviews, the Compensation
Committee evaluated the merits of several alternatives for
delivering long-term incentives.
The Compensation Committee meets at scheduled times throughout
the year and also takes action by written consent, often after
informal telephone discussions amongst the members of the
Committee. The Compensation Committee met six times in fiscal
2006. The Companys Human Resources and Legal departments
support the Committee in its work. In addition, the Compensation
Committee has the authority to engage the services of outside
advisors. During fiscal 2006, the Compensation Committee engaged
an independent compensation consulting firm as an advisor and
resource to assist the Committee in its review of the
compensation for executive officers and other elements of the
Companys total compensation strategy.
Compensation Philosophy and Challenges
EAs compensation philosophy to attract, motivate and
retain the best executive talent relies on two basic principles.
First, a significant portion of each executives
compensation should be in the form of equity to align the
executives interests with those of EAs stockholders.
Second, a significant portion of each
34
executives cash compensation should be performance-based
and at risk varying from year to year
depending on EAs financial and operational performance and
on the individual meeting financial and other performance
measures. Consistent with this philosophy, and in light of the
Companys financial performance during fiscal 2006, several
of EAs most senior executive officers, including the Chief
Executive Officer, all Executive Vice Presidents, and the
CEOs other executive direct reports, did not receive an
incentive bonus for the second consecutive year. The
Compensation Committee and the Company remain committed to this
pay-for-performance philosophy which ensures that
executive compensation will reflect the Companys and the
executives performance.
As the employment market has improved over the last fiscal year,
EA has experienced competitive recruiting efforts aimed at its
executives. EAs leading position within the entertainment
industry makes it a prime target for recruiting of executives
and key creative talent.
The Company also continues to recruit for key talent and
executives. Competition in attracting and retaining talent comes
primarily from three broad industry segments: entertainment,
high technology and consumer packaged goods. EA has continued to
build its senior management team and has been successful in
attracting talent from the entertainment software industry and
other market segments to add management depth and experience to
the organization. The Company continues to look at creative new
methods using its compensation programs to successfully recruit
new talent into the organization while maintaining parity with
compensation of current key executives. Just as important as
recruiting new talent and executives into the organization, is
the internal development and retention of key talent and
executives. As EA grows, it will, like all organizations, have
normal turnover within its executive ranks.
Data Considered and Process Used
In fiscal 2006, at the direction of the Compensation Committee,
EAs Human Resources department gathered executive
compensation data from nationally recognized surveys and
provided a comprehensive analysis of this data to the
Compensation Committee and its independent compensation
consulting firm. The factors used to determine the participants
in the survey included industry type, annual revenues, industry
growth rate and geography. Companies included in this data were
from high technology (primarily software developers),
entertainment and selected packaged goods companies as reference
points. The companies in the compensation survey overlap
considerably with the companies contained in the RDG Technology
Composite index. Additional companies included in the survey
group were judged to be relevant because they compete for
executive talent with EA.
EAs 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. EAs Human
Resources department participated in comprehensive surveys such
as the Buck Global Long-Term Incentive Practices Survey and the
Radford High Tech Executive Compensation Survey to assist in
determining appropriate equity compensation levels. This
competitive market data was reviewed by the Human Resources
department with the CEO for each benchmark executive-level
position, and with the Compensation Committee for the CEO and
other key executives. The Compensation Committee also considers
each executives responsibility level and EAs fiscal
year performance compared to objectives and potential
performance targets for the subsequent year.
Executive Compensation
The Compensation Committee awards executive compensation in
three components: base salary, cash incentive bonus and equity
incentives. The Compensation Committee reviews and, if
appropriate, adjusts executive base salary and equity
compensation each February, and reviews executive bonus
recommendations and approves bonus payments each May.
Base Salary. In reviewing executive base salaries, the
Compensation Committee considered each executives
performance over the last year as reported by the CEO and the
Head of Human Resources, each executives responsibility
level, and the third quartile (50th to
75th percentile) of base salaries reported in the
competitive market compensation surveys noted above. In fiscal
2006, those eligible
35
executives, including the Named Executive Officers (other than
Mr. Mattrick and Mr. McMillan who were no longer
serving as executive officers, and the CEO), received an annual
merit increase to their base salary during the Committees
February 2006 compensation review. Although the CEO did not
receive a merit increase to his base salary in fiscal 2006, he
did receive a market-based salary adjustment. Merit-based salary
increases for EAs executives were, at 3.5% in aggregate,
approximately the same on a percentage basis as merit-based
salary increases received by the overall non-executive employee
population.
Incentive Bonus. In fiscal 2006, the Companys
annual incentive bonus plan remained the same as it was in
fiscal 2005. The Compensation Committee assigned a target bonus
to each executive (expressed as a percentage of that
executives base salary) designed to deliver total target
cash compensation (base salary plus target bonus) in the third
quartile (50th to 75th percentile) of the competitive
market compensation surveys noted above. The Compensation
Committee also determined which portions of each
executives target bonus are dependent on EAs
financial performance and individual achievements, and approved
the overall mechanics and structure of the bonus plan. As a
result of EAs financial performance in fiscal 2006, and in
keeping with the Companys strong pay-for-performance
philosophy, the Compensation Committee approved the
recommendation of EAs CEO and members of his executive
staff that the CEO, all Executive Vice Presidents and the
CEOs other executive direct reports should not be awarded
incentive bonuses. Other executives and employees received
bonuses that were substantially below their target levels.
Stock-Based Compensation. The Company and the
Compensation Committee continue to believe in the use of
stock-based compensation as a core component of the rewards
strategy to achieve the Companys goals of attracting the
best talent to EA, retaining its high-performing teams and
providing an incentive for its executives to perform at their
highest levels. The Company and the Compensation Committee also
continue to believe that stock options reward executives in a
manner consistent with the value that is created for the
Companys stockholders when the Company achieves its goals,
and that performance is reflected in the growth of the
Companys share price. The Company and the Compensation
Committee have engaged in extensive reviews of long-term
incentive compensation strategies in light of newly-applicable
stock-based compensation expensing requirements, responsible
dilution management, and a desire to continue to effectively
attract, motivate and retain key talent. After extensive reviews
of various equity incentive alternatives, the Company and the
Compensation Committee determined that a mix of equity-based
compensation, including both stock options and restricted stock
unit awards (RSU awards), would be an
appropriate and effective means of providing equity compensation
which is aligned with competitive trends, consistent with the
Companys ownership philosophy, helpful in the retention of
executives, and a responsible use of the Companys equity
in light of the expense recognition requirements of
SFAS 123R.
Historically, the Compensation Committee has granted stock
options, but not RSU awards, to executive officers when they
first join EA, in connection with a significant change in
responsibilities, annually to provide incentives for continued
performance and retention of employment and, occasionally, to
achieve internal equity between different positions within EA.
The target value granted to each executive is based upon a
combination of comparable external market benchmarks and
internal parity among similarly situated executives. In
addition, to determine competitive grant levels, the Committee
reviews the ongoing stock option grant value at the market
75th percentile for each benchmark position. Individual
grants are structured to achieve a future value in unvested
awards equal to a multiple of each executives annual base
salary assuming both growth and stock appreciation. All stock
options granted to the Named Executive Officers in fiscal 2006
were made at fair market value on the date of grant and vest as
described in Options Granted in Fiscal 2006 above.
All RSU awards granted in fiscal 2006 to the Named Executive
Officers vest as described in the footnotes to the Summary
Compensation Table above.
In fiscal 2006, the Compensation Committee granted a mix of
stock options and RSU awards to certain executive officers
(other than the CEO) designed to deliver 70% of the target value
in stock options and 30% of the value in RSU awards. This mix of
stock options and RSU awards reflects the Compensation
Committees belief that stock options should remain the
primary vehicle for encouraging equity ownership by executive
officers and aligning their interests with EAs
stockholders, while RSU awards allow the
36
Company keep abreast of competitive trends in equity
compensation and aid in the retention of key employees. The
Compensation Committee determined that, unlike other executives,
the CEOs equity compensation should be structured to
achieve maximum alignment with the interests of EAs
stockholders. As a result, the Compensation Committee granted a
stock option to the CEO in fiscal 2006 but did not grant him an
RSU award.
Excluding stock options and RSU awards assumed by EA in
connection with its acquisition of JAMDAT Mobile Inc., stock
options and RSU awards granted to all executives represented
13.8% of total stock-based compensation awarded during fiscal
2006 and 0.37% of total shares outstanding as of the end of
fiscal 2006. Overall, excluding stock options and RSU awards
assumed by EA in connection with its acquisition of JAMDAT,
total stock option and RSU award grants made by EA to all
employees during fiscal 2006 represented approximately 2.67% of
total shares outstanding as of the end of fiscal 2006.
Executive Ownership Requirements. In fiscal 2004, the
Board of Directors implemented EA stock ownership requirements
for all Section 16 executive officers. These ownership
requirements are established as multiples of the
executives base pay, ranging from one to six times the
executives annual salary depending on the executives
level within the organization. In some cases, the ownership
requirements are phased in on the basis of the executives
tenure. The Compensation Committee believes these ownership
guidelines further align the interests of EAs stockholders
and executives. As of March 31, 2006, each of EAs
executives had either met their then-applicable stock ownership
requirements or had not yet reached the date on which they are
required to meet their ownership requirements.
Exchange Program and Additional Retention Awards
In June 2006, the Compensation Committee considered the ongoing
impact of the recent trading prices of EAs Common Stock on
the Companys ability to retain employees. The Compensation
Committee recognized that many of the Companys employees
hold options with exercise prices significantly higher than the
current market price of EAs Common Stock. The Compensation
Committee concluded that to enhance long-term stockholder value,
the Company needed to maintain competitive employee compensation
and incentive programs that will assist in motivating and
retaining employees. The Compensation Committee believes that a
meaningful equity stake in the success of the Company is a
critical component of these programs. In considering the terms
of the Exchange Program described under Proposal 2 above,
the Compensation Committee consulted with its independent
compensation consulting firm, outside legal counsel, outside
financial consultants (through management), and senior
management of the Company. The Compensation Committee considered
the likely positive impact of the Exchange Program on employee
motivation and retention, and reviewed the terms and accounting
consequences of the Exchange Program, as described under
Proposal 2 above. The Compensation Committee concluded that
the Exchange Program will provide the Company with an
opportunity to enhance incentives for eligible employees to
remain with the Company, while reducing the Companys
outstanding overhang. The Compensation Committee also believes
that the Exchange Program, pursuant to which employees will be
afforded the opportunity to exchange outstanding stock options
for restricted stock or restricted stock units, will further
align the Companys current equity compensation with the
Companys and Compensation Committees philosophy of
shifting from the exclusive use of stock options to using a mix
of stock options and other equity-based incentives, such as RSU
awards, to provide long-term equity incentives to employees.
The Compensation Committee also concluded that while the
Exchange Program would afford significant retention benefits,
these benefits would not necessarily be sufficient to provide
adequate retention for certain key employees due to the
significant competition for talented employees in EAs
industry. Accordingly, and again in consultation with various
outside advisors and senior management, the Compensation
Committee also approved a program of additional retention awards
consisting of a combination of stock options and RSU awards to
acquire up to 2.8 million total shares to be granted in
August 2006, as further described in Proposal 2 above. The
Compensation Committee believes that the combination of the
Exchange Program and these new retention awards is necessary to
achieve the primary
37
objective of improving the Companys ability to retain and
motivate employees, while still having a favorable impact on
overhang.
Fiscal 2006 CEO Compensation
Compensation for the CEO is determined through a process similar
to that discussed above for other executives in general. In
fiscal 2006, EAs Human Resources department gathered CEO
compensation data from several nationally recognized surveys and
conducted a proxy analysis comparing Mr. Probsts
compensation to that of other CEOs. The analysis, which was
reviewed by the Compensation Committees independent
compensation consulting firm, demonstrated that
Mr. Probsts total cash compensation (consisting of
base salary plus bonus target) was below the
50th percentile of the market while his 2005 equity grant
value was within the highest quartile of the market. In February
2006, this analysis was provided to the Compensation Committee
for consideration.
The Compensation Committee then conferred with the full Board
(other than Mr. Probst) in a closed session to further
review and discuss the results of the market analysis, to review
Mr. Probsts performance evaluation, and to recommend
compensation adjustments. The Compensation Committee
recommended, and the independent members of the Board approved,
a market-based salary increase for Mr. Probst of 3.5%,
establishing a new base salary of $734,850 per annum. As a
result of EAs financial performance in fiscal 2006,
Mr. Probst did not receive a cash performance incentive
bonus for fiscal 2006.
Also in February 2006, the Compensation Committee approved a new
stock option grant to Mr. Probst for 225,000 shares of
common stock based upon the retention and incentive factors
discussed above and taking into account market comparisons,
prior option grant history, the level of vested versus unvested
shares and the number of shares Mr. Probst already owned at
the time of the grant. The shares will first vest and become
exercisable as to 24% of the shares 12 months after the
date of grant, and will then vest as to an additional 2% of the
shares on the first calendar day of each month thereafter for
38 months. This grant reflects the Compensation
Committees continuing policy to subject a substantial
portion of Mr. Probsts overall compensation each year
to the market performance of the Companys common stock, to
maintain his option holdings at a level consistent with that for
other chief executive officers of the survey companies, and to
maximize the retention value of those option holdings.
Other
Company-provided air travel for EAs executives is for
business purposes only. EAs use of non-commercial aircraft
is limited to appropriate business travel.
In June 2002, EA hired Warren Jenson as Chief Financial and
Administrative Officer. As part of its efforts to recruit
Mr. Jenson, EA agreed to loan him $4 million, to be
forgiven over four years based on his continuing employment. The
loan does not bear interest. The loan was made prior to
enactment of the Sarbanes-Oxley Act of 2002 and the prohibition
on loans to executive officers. However, the Compensation
Committee did review this proposed arrangement in light of the
then-current environment and sensitivity to transactions with
management and determined the environment for recruiting highly
regarded and talented chief financial officers was, and has
been, intensely competitive, and the Compensation Committee
believed that a competitive compensation offer tied to
continuing service was in EAs best interests and
significantly more beneficial to the Company than unrestricted
cash payments. In June 2004, pursuant to the terms of the loan
agreement, EA forgave $2 million of the loan and provided
Mr. Jenson approximately $1.6 million to offset the
tax implications of the forgiveness. The remaining outstanding
loan balance of $2 million was forgiven on June 24,
2006. No additional funds were provided to Mr. Jenson to
offset the tax implications of the forgiveness of the remaining
$2 million.
Tax Law Limits on Executive Compensation
Section 162(m) of the Internal Revenue Code limits
deductions for executive compensation in excess of
$1 million except for certain compensation which qualifies
for a performance-based exception. Certain types of compensation
in excess of $1 million are deductible by the Company if
performance criteria are
38
specified in detail and are contingent on stockholder approval
of the compensation arrangement. The Company and the
Compensation Committee have endeavored to structure executive
compensation plans to achieve maximum deductibility under
Section 162(m) with minimal sacrifices of flexibility and
impact on corporate objectives.
The Compensation Committee has structured the current use of
stock option arrangements in a manner intended to achieve tax
deductibility of such amounts. Although the Compensation
Committee has the ability to grant restricted stock units
subject to performance factors in order to achieve maximum
deductibility under Section 162(m), it elected not to do so
in fiscal 2006. With respect to non-equity compensation
arrangements, the Compensation Committee has reviewed the terms
of those arrangements most likely to be subject to the deduction
limitation of Section 162(m). Cash compensation paid to
EAs Named Executive Officers did not exceed the
Section 162(m) thresholds in fiscal 2006.
While the Compensation Committee will continue to consider
deductibility under Section 162(m) with respect to future
compensation arrangements with executives, 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 possible that the Committee may, if
consistent with EAs pay-for-performance
philosophy described above, enter into compensation arrangements
in the future under which payments are not fully deductible
under Section 162(m).
COMPENSATION COMMITTEE
M. Richard Asher (Chairman)
Robert Pittman
Linda J. Srere
The following Report of the Audit Committee shall not be deemed
to be soliciting material or to be filed
with the Securities and Exchange Commission nor shall this
information be incorporated by reference into any future filing
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that EA
specifically incorporates it by reference into a filing.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors operates under a
written charter, which is reviewed on an annual basis and was
most recently amended in May 2006. The Audit Committee is
comprised of three non-employee directors, each of whom in the
opinion of the Board of Directors meets the current independence
requirements and financial literacy standards of the NASDAQ
Marketplace Rules, as well as the independence requirements of
the Securities and Exchange Commission (SEC). During
fiscal 2006, the Audit Committee consisted of M. Richard Asher,
Gary M. Kusin and Gregory B. Maffei. In the opinion of the Board
of Directors, Mr. Maffei meets the criteria for a
financial expert as set forth in applicable SEC
rules as well as the above-mentioned independence requirements.
EAs management is primarily responsible for the
preparation, presentation and integrity of the Companys
financial statements. EAs independent registered public
accounting firm, KPMG LLP (independent auditors), is
responsible for performing an independent audit of the
Companys (i) financial statements and expressing an
opinion as to the conformity of the financial statements with
generally accepted accounting principles, and (ii) internal
control over financial reporting in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States) and issuing a report thereon.
The function of the Audit Committee is to assist the Board of
Directors in its oversight responsibilities relating to the
integrity of EAs accounting policies, internal controls
and financial reporting. The Audit Committee reviews EAs
quarterly and annual financial statements prior to public
earnings releases and submission to the SEC; reviews and
evaluates the performance of EAs internal audit function;
reviews and
39
evaluates the performance of EAs independent auditors;
consults with the independent auditors and EAs internal
audit function regarding internal controls and the integrity of
the Companys financial statements; assesses the
independence of the independent auditors; and is responsible for
the selection of the independent auditors.
In this context, the Audit Committee has met and held
discussions with members of management, EAs internal audit
function and the independent auditors. Management has
represented to the Audit Committee that the Companys
consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United
States, and the Audit Committee has reviewed and discussed the
consolidated financial statements with management and the
independent auditors. Management has also represented to the
Audit Committee that the Companys internal control over
financial reporting was effective as of the end of the
Companys most recently-completed fiscal year, and the
Audit Committee has reviewed and discussed the Companys
internal control over financial reporting with management and
the independent auditors. The Audit Committee also discussed
with the independent auditors matters required to be discussed
by Statement on Auditing Standards No. 61 (Communications
with Audit Committees), as amended, including the quality and
acceptability of the Companys financial reporting process
and internal controls. The Audit Committee has also discussed
with the Companys independent auditors the overall scope
and plans for their annual audit and reviewed the results of
that audit with management and the independent auditors.
In addition, the Audit Committee has discussed with the
independent auditors the auditors independence from the
Company and its management, including the matters in the written
disclosures required by Independence Standards Board Standard
No. 1 (Independence Discussions with Audit Committees). The
Audit Committee has also considered whether the provision of any
non-audit services (as described above under
Proposal 5. Ratification of the Appointment of KPMG
LLP, Independent Auditors Fees of Independent
Auditors) and the employment of former KPMG LLP employees
by the Company is compatible with maintaining the independence
of KPMG LLP.
The members of the Audit Committee are not engaged in the
practice of auditing or accounting. In performing its functions,
the Audit Committee necessarily relies on the work and
assurances of the Companys management and independent
auditors.
In reliance on the reviews and discussions referred to in this
report and in light of its role and responsibilities, the Audit
Committee recommended to the Board of Directors that the audited
financial statements of the Company for the three years ended
March 31, 2006 be included for filing with the SEC in the
Companys Annual Report on
Form 10-K for the
year ended March 31, 2006. The Audit Committee has also
approved the selection of KPMG LLP as the Companys
independent auditors for fiscal 2007.
AUDIT COMMITTEE
M. Richard Asher
Gary M. Kusin
Gregory B. Maffei (Chairman)
40
OTHER INFORMATION
CERTAIN TRANSACTIONS
Indebtedness of Management
On June 24, 2002, we hired Warren Jenson as our Chief
Financial and Administrative Officer and agreed to loan him
$4 million, to be forgiven over four years based on his
continuing employment. The loan does not bear interest. On
June 24, 2004, pursuant to the terms of the loan agreement,
we forgave $2 million of the loan and provided
Mr. Jenson approximately $1.6 million to offset the
tax implications of the forgiveness. The remaining outstanding
loan balance of $2 million was forgiven on June 24,
2006. No additional funds were provided to offset the tax
implications of the forgiveness of the remaining $2 million.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
M. Richard Asher and Robert W. Pittman served on the
Compensation Committee throughout fiscal 2006; William J. Byron
served on the Compensation Committee until his retirement in
July 2005, at which time he was replaced on the Compensation
Committee by Linda J. Srere. None of these individuals is an
employee or current or former officer of EA. No EA officer
serves or has served since the beginning of fiscal 2006 as a
member of the board of directors or the compensation committee
of a company at which a member of EAs Compensation
Committee is an employee or officer.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires EAs directors and executive officers, and persons
who own more than ten percent of a registered class of EAs
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 EAs directors and
officers in complying with these requirements, which include
assisting officers and directors in preparing forms for filing.
To EAs knowledge, based solely upon review of such reports
furnished to us and written representations that no other
reports were required, we believe that during the fiscal year
ended March 31, 2006, all Section 16(a) filing
requirements applicable to our officers, directors and
greater-than-ten-percent stockholders were complied with on a
timely basis.
STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
If you would like us to consider a proposal to be included in
our 2007 proxy statement and proxy card, you must deliver it to
the Companys Corporate Secretary at our principal
executive office no later than March 2, 2007.
Stockholders who otherwise wish to present a proposal at the
2007 Annual Meeting of Stockholders must deliver written notice
of the proposal to our Corporate Secretary c/o Electronic
Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA 94065,
no earlier than March 24, 2007 and no later than
April 23, 2007 (provided, however, that if the 2007 Annual
Meeting is held earlier than June 27, 2007 or later than
August 26, 2007, proposals must be received no earlier than
the close of business on the later of the 90th day prior to
the 2007 Annual Meeting or the 10th day following the day
on which public announcement of the 2007 Annual Meeting is first
made). The submission must include certain information
concerning the stockholder and the proposal, as specified in the
Companys amended and restated bylaws. We have filed our
amended and restated bylaws as an exhibit to our Quarterly
Report on
Form 10-Q for the
quarter ended June 30, 2004, which you may access through
the SECs electronic data system called EDGAR at
www.sec.gov. You may also request a copy of our amended
and restated bylaws by contacting our Corporate Secretary at the
address above.
41
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and
intermediaries (e.g., brokers) to satisfy the delivery
requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by
delivering a single proxy statement and annual report addressed
to those stockholders. This process, which is commonly referred
to as householding, potentially means extra
convenience for stockholders and cost savings for companies.
This year, a number of brokers with account holders who are EA
stockholders will be householding our proxy
materials. A single proxy statement will be delivered to
multiple stockholders sharing an address unless contrary
instructions have been received from the affected stockholders.
Once you have received notice from your broker that they will be
householding communications to your address,
householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you
no longer wish to participate in householding and
would prefer to receive a separate proxy statement and annual
report, please notify your broker, direct your written request
to our Corporate Secretary at our principal executive office, or
contact our Corporate Secretary at (650) 628-1500.
Stockholders who currently receive multiple copies of the proxy
statement and annual report at their address and would like to
request householding of their communications should
contact their broker.
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,
Stephen G. Bené
Senior Vice President, General Counsel
and Secretary
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 business day of receipt of such
request, a copy of the 2000 Equity Incentive Plan and 2000
Employee Stock Purchase Plan. Any such request should be
directed as follows: Stock Administration Department, Electronic
Arts Inc., 209 Redwood Shores Parkway, Redwood City, CA
94065 telephone number
(650) 628-1500.
42
Appendix A
GENERAL DESCRIPTION OF THE 2000 EQUITY INCENTIVE PLAN
History
The Companys 2000 Equity Incentive Plan (the Equity
Plan) was adopted by our Board of Directors on
January 27, 2000 and approved by our stockholders on
March 22, 2000. The Equity Plan has been amended several
times since it was initially adopted. The following general
description of the Equity Plan includes all prior amendments as
well as amendments proposed to be adopted by the Companys
stockholders at the 2006 Annual Meeting.
Shares Subject to the Equity Plan
The stock subject to issuance under the Equity Plan consists of
shares of the Companys authorized but unissued common
stock. The Equity Plan, as amended to date, authorizes the
issuance of up to 67,400,000 shares of common stock
pursuant to awards of stock options, stock appreciation rights,
restricted stock and restricted stock units. In addition, shares
are again available for grant and issuance under the Equity Plan
that (a) were subject to an option granted under the Equity
Plan that terminated, to the extent then unexercised,
(b) were subject to a restricted stock or restricted stock
unit award under the Equity Plan that is subsequently forfeited
or repurchased by us at the original issue price, if any, or
(c) are subject to an award of restricted stock or
restricted stock units under the Equity Plan that otherwise
terminates without shares being issued. The following types of
shares are not be available for future grant or issuance as
awards under the Equity Plan: (x) shares that are not
issued or delivered as a result of the net settlement of a stock
option or stock appreciation right; (y) shares that are
used to pay the exercise price or withholding taxes related to
an award granted under the Equity Plan; and (z) shares that
are repurchased by us with the proceeds of a stock option
exercise. Provided that the stockholders approve Proposal 2
(Approval of The Exchange Program) set forth in the
proxy statement prepared in connection with our 2006 Annual
Meeting of Stockholders, we will amend the Equity Plan to limit
the number of shares subject to options surrendered and
cancelled in the Exchange Program that will again become
available for issuance under the Equity Plan to 7 million
plus the number of shares necessary for the issuance of the
restricted stock rights to be granted in connection with the
Exchange Program.
The number of shares issuable under the Equity Plan, and under
outstanding options and other awards, is subject to proportional
adjustment to reflect stock splits, stock dividends and other
similar events.
Limitation on Number of Shares Subject to Restricted Stock
Awards and Restricted Stock Unit Awards.
The number of shares of common stock that may be issued pursuant
to awards of restricted stock and restricted stock units may not
exceed 4,000,000 in the aggregate. As proposed to be amended,
the number of shares that would be issuable pursuant to awards
of restricted stock and restricted stock units would be
increased to 15,000,000 in the aggregate.
Eligibility
The Equity Plan provides for the issuance of incentive stock
options, nonqualified stock options, stock appreciation rights,
restricted stock and restricted stock units. The Equity Plan
provides that employees (including officers and directors who
are also employees) of EA or any parent or subsidiary of EA may
receive incentive stock options under the Equity Plan.
Nonqualified stock options, stock appreciation rights,
restricted stock, and restricted stock units may be granted to
employees and directors of EA or any parent or subsidiary of EA.
As of May 31, 2006, approximately 7,100 persons were in the
class of persons eligible to participate in the Equity Plan. No
person is eligible to receive more than 1,400,000 shares of
common stock (of which no more than 400,000 shares may be
covered by awards of restricted stock) in any calendar year,
other than new employees who will be eligible to receive up to
2,800,000 shares of common stock (of which no more than
800,000 shares may be covered by awards of restricted
stock) in the calendar year in which they commence employment.
No awards of restricted stock or stock appreciation
A-1
rights have been made to date under the Equity Plan. A
participant may hold more than one award granted under the
Equity Plan.
Administration
The Equity Plan is administered by our Compensation Committee.
All of the members of the Compensation Committee are
non-employee and independent directors
under applicable federal securities laws and the NASDAQ National
Market listing requirements and outside directors as
defined under applicable federal tax laws. The Compensation
Committee has the authority to construe and interpret the Equity
Plan, grant awards and make all other determinations necessary
or advisable for the administration of the Equity Plan. The
members of the Compensation Committee receive no compensation
for administering the Equity Plan other than their compensation
for being Board and Committee members. The Company bears all
expenses in connection with administration of the Equity Plan
and has agreed to indemnify members of the Compensation
Committee in connection with their administration of the Equity
Plan. The Compensation Committee may delegate to one or more
officers of the Company the authority to grant Awards under the
Equity Plan to participants who are not executives of the
Company.
Stock Options
Stock options granted under the Equity Plan may be either
incentive stock options or nonqualified stock options. The
exercise period of stock options is determined by the
Compensation Committee but, in no event, may stock options be
exercisable more than ten years from the date they are granted.
The Equity Plan provides the Compensation Committee with the
ability, at its discretion, to grant performance-based options
subject to the achievement of one or more of the performance
factors described under the heading Performance
Factors below.
Exercise Price; No Repricings
The Compensation Committee determines the exercise price of each
option granted under the Equity Plan. The option exercise price
for each incentive and nonqualified stock option share must be
no less than 100% of the fair market value (as
defined in the Equity Plan) of a share of common stock at the
time the stock option is granted. In the case of an incentive
stock option granted to a stockholder that owns more than 10% of
the total combined voting power of all classes of stock of EA or
any parent or subsidiary of EA (a Ten Percent
Stockholder), the exercise price for each such incentive
stock option must be no less than 110% of the fair market value
of a share of common stock at the time the incentive stock
option is granted. Pursuant to an amendment to the Equity Plan
approved by the Board of Directors in February 2002, the
exercise price of outstanding options issued under the Equity
Plan may not be reduced without stockholder approval.
The exercise price of options and purchase price of shares
granted under the Equity Plan may be paid as approved by the
Compensation Committee at the time of grant: (a) in cash
(by check); (b) by cancellation of indebtedness of the
Company to the award holder; (c) by surrender of shares
that either: (1) have been owned by the award holder for
more than six (6) months and have been paid for within the
meaning of SEC Rule 144; or (2) were obtained by the
award holder in the public market; (d) by waiver of
compensation due or accrued for services rendered; (e) with
respect only to purchases upon exercise of an option, and
provided that a public market for the Companys stock
exists: (1) subject to applicable laws, by a same-day
sale commitment from the optionee and a National
Association of Securities Dealers, Inc. (NASD)
broker; or (2) by a margin commitment from the
optionee and an NASD broker; (f) by withholding from the
shares to be issued upon exercise of an award that number of
shares having a fair market value equal to the minimum amount
required to satisfy the exercise price or purchase price;
(g) by any combination of the foregoing; or (h) such
other consideration and method of payment for issuance of shares
to the extent permitted by applicable laws.
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Outside Directors
Our non-employee directors are entitled to receive automatic
annual grants of options to purchase shares of our common stock
under the Equity Plan. Each non-employee director who first
becomes a member of the Board of Directors is granted an option
to purchase 25,000 shares of common stock. Upon re-election
to our Board of Directors following each annual meeting of our
stockholders, each non-employee director is automatically
granted an additional option to purchase 10,000 shares of
common stock. If a non-employee director has not served on our
Board of Directors for a full year at the time of the annual
meeting of our stockholders, such director will receive a
pro-rated annual grant.
Options issued to outside directors upon their initial election
to the Board are exercisable as to 2% of the shares on the date
of grant and as to an additional 2% of the shares on the first
day of each calendar month after the date of grant so long as
the outside director continues as a member of the Board. The
vesting schedule for annual grants made to directors upon their
re-election to the Board is subject to the discretion of the
Compensation Committee.
In the event of our dissolution or liquidation or a change
in control transaction, options granted to our
non-employee directors under the Equity Plan will become 100%
vested and exercisable in full.
In addition, our non-employee directors may elect to receive all
or a portion of their cash compensation in shares of common
stock. Directors making this election are entitled to receive
shares having a value equal to 110% of the amount of the cash
compensation foregone.
Stock Appreciation Rights
The Compensation Committee may grant stock appreciation rights
(a SAR or SARs) as stand-alone awards or
in addition to, or in tandem with, other awards under the Equity
Plan under such terms, conditions and restrictions as the
Compensation Committee may determine. A SAR is an award which
provides the holder with the right to receive the appreciation
in value of a set number of shares of company stock over a set
period of time. A SAR is similar to an option in that the holder
benefits from any increases in stock price above the exercise
price set forth in the award agreement. However, unlike an
option, the holder is not required to pay an exercise price to
exercise a SAR, but simply receives the net amount of the
increase in stock price in the form of cash or stock. The
exercise price for a SAR must be no less than 100% of the
fair market value (as defined in the Equity Plan) of
a share of common stock at the time the SAR is granted. In
addition, the Compensation Committee may, at its discretion,
subject SARs to the achievement of one or more of the
performance factors described under the heading
Performance Factors below.
Restricted Stock Awards
The Compensation Committee may grant restricted stock awards
either in addition to, or in tandem with, other awards under the
Equity Plan under such terms, conditions and restrictions as the
Compensation Committee may determine. A restricted stock award
is an offer by Electronic Arts to award shares of common stock
that are subject to restrictions established by the Compensation
Committee. These restrictions may be based upon completion by
the award holder of a specified number of years of service or by
the attainment of one or more of the performance factors
described under the heading Performance Factors
below. The purchase price, if any, for each such award is
determined by the Compensation Committee at the time of grant.
In the case of an award to a Ten Percent Stockholder, the
purchase price must be 100% of fair market value. The purchase
price, if any, may be paid for in any of the forms of
consideration listed in items under Exercise Price
above, as are approved by the Compensation Committee at the time
of grant.
Restricted Stock Units
The Compensation Committee may grant restricted stock unit
awards either in addition to, or in tandem with, other awards
under the Equity Plan under such terms, conditions and
restrictions as the
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Compensation Committee may determine. A restricted stock unit
award is similar to a restricted stock award (and may be awarded
subject to any or all of the performance goals established by
the Committee described under the heading Performance
Factors below) except the stock is not delivered to the
participant unless and until all restrictions have terminated.
Performance Factors
The Compensation Committee may grant, in its sole discretion,
performance-based stock options, stock appreciation rights,
restricted stock and restricted stock unit awards with vesting
and/or exercisability conditioned on one or more of the
following permissible performance factors, to be measured over a
specified performance period that may be as short as a quarter
or as long as five years (unless tied to a specific and
objective milestone or event), to the extent applicable on an
absolute basis or relative to a pre-established target:
(a) net revenue; (b) earnings before interest, income
taxes, depreciation and amortization; (c) operating income;
(d) operating margin; (e) net income;
(f) earnings per share; (g) total stockholder return;
(h) the Companys stock price; (i) growth in
stockholder value relative to a pre-determined index;
(j) return on equity; (k) return on invested capital;
(l) operating cash flow; (m) free cash flow;
(n) economic value added; and (o) individual
confidential business objectives. In addition, the Committee
may, in its sole discretion and in recognition of unusual or
non-recurring items such as acquisition-related activities or
changes in applicable accounting rules, provide for one or more
equitable adjustments (based on objective standards) to the
performance factors to preserve the Committees original
intent regarding the performance factors at the time of the
initial award grant.
Mergers, Consolidations, Change of Control
Except for automatic grants to non-employee directors, in the
event of a merger, consolidation, dissolution or liquidation of
EA, the sale of substantially all of its assets or any other
similar corporate transaction, the successor corporation may
assume, replace or substitute equivalent awards in exchange for
those granted under the Equity Plan or provide substantially
similar consideration, shares or other property as was provided
to our stockholders (after taking into account the provisions of
the awards). In the event that the successor corporation does
not assume, replace or substitute awards, such awards will
accelerate and all options will become exercisable in full prior
to the consummation of the transaction at the time and upon the
conditions as the Compensation Committee determines. Any awards
not exercised prior to the consummation of the transaction will
terminate.
Transferability
Incentive stock options granted under the Equity Plan are not
transferable other than by means of a distribution upon the
optionees death. Nonqualified stock options, stock
appreciation rights, restricted stock, and restricted stock unit
awards are subject to similar restrictions on transfer unless
otherwise determined by the Compensation Committee and except
that nonqualified stock options may be transferred to family
members and trusts or foundations controlled by, or primarily
benefiting, family members of the optionee.
Term of the Equity Plan
Unless terminated earlier as provided in the Equity Plan, the
Equity Plan expires in 2010, ten (10) years from the date
it was adopted by the Board of Directors.
United States Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY
STATEMENT OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
TO THE COMPANY AND PARTICIPANTS UNDER THE EQUITY PLAN. THE
FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER
INDIVIDUAL CIRCUMSTANCES. IN
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ADDITION, THE INTERNAL REVENUE SERVICE COULD, AT ANY TIME, TAKE
A POSITION CONTRARY TO THE INFORMATION DESCRIBED IN THE
FOLLOWING SUMMARY. ANY TAX EFFECTS THAT ACCRUE TO FOREIGN
PARTICIPANTS AS A RESULT OF PARTICIPATING IN THE EQUITY PLAN ARE
GOVERNED BY THE TAX LAWS OF THE COUNTRIES IN WHICH SUCH
PARTICIPANT RESIDES OR IS OTHERWISE SUBJECT. EACH PARTICIPANT
WILL BE ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE EQUITY
PLAN.
Incentive Stock Options
A participant will recognize no income upon grant of an
incentive stock option and incur no tax on its exercise, unless
the participant is subject to the alternative minimum tax
(AMT). If the participant holds shares acquired upon
exercise of an incentive stock option (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 participant generally will realize
capital gain or loss (rather than ordinary income) 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 ISO Shares. The rate of
taxation that applies to capital gain depends upon the amount of
time the ISO Shares are held by the participant.
If the participant 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 ISO 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 capital gain, taxed at a rate that
depends upon the amount of time the ISO Shares were held by the
participant.
Alternative Minimum Tax
The difference between the option exercise price and the fair
market value of the ISO Shares on the date of exercise of a
vested ISO is an adjustment to income for purposes of the AMT.
If a participant exercises an ISO before it has fully vested,
the participant may incur an AMT liability as the ISO Shares
vest and the Companys right to repurchase the ISO Shares
at the original issue price lapses, unless the participant makes
a timely election under Section 83(b) of the
U.S. Internal Revenue Code (an 83(b) election).
The AMT (imposed to the extent it exceeds the taxpayers
regular income tax) is 26% of an individual taxpayers
alternative minimum taxable income (28% in the case of
alternative minimum taxable income in excess of $175,000 in the
case of married individuals filing a joint return). Alternative
minimum taxable income is determined by adjusting regular
taxable income for certain items, increasing that income by
certain tax preference items (including the difference between
the fair market value of the ISO Shares on the date of exercise
and the exercise price) and reducing this amount by the
applicable exemption amount. Under the Tax Increase Prevention
and Reconciliation Act of 2005, the exemption amount for 2006 is
$62,550 in case of a joint return, subject to reduction under
certain circumstances. If a disqualifying disposition of the ISO
Shares occurs in the same calendar year as exercise of the ISO,
there is no AMT adjustment with respect to those ISO Shares.
Also, upon a sale of ISO Shares that is not a disqualifying
disposition, alternative minimum taxable income is reduced in
the year of sale by the excess of the fair market value of the
ISO Shares at exercise over the amount paid for the ISO Shares.
Nonqualified Stock Options
A participant will not recognize any taxable income at the time
a nonqualified stock option (NQSO) is granted or
vests provided the exercise price is no less than the fair
market value of the underlying shares on the grant date.
However, upon exercise of a vested NQSO, the participant must
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 participants exercise price. The
included amount must be treated as ordinary income by the
participant and may be subject to withholding by the Company or
its subsidiary (either by payment in
A-5
cash or withholding out of the participants salary). If a
participant exercises an NQSO before it has fully vested, the
participant may incur a regular income liability as the shares
vest and the Companys right to repurchase the shares at
the original issue price lapses, unless the participant makes a
timely 83(b) election. Upon resale of the shares by the
participant, any subsequent appreciation or depreciation in the
value of the shares will be treated as capital gain or loss,
taxable at a rate that depends upon the length of time the
shares were held by the participant.
Restricted Stock Awards
A participant who receives a restricted stock award will include
the amount of the award in income as compensation at the time
that any forfeiture restrictions on the shares of stock lapse,
unless the participant makes a timely 83(b) election. If the
participant does not timely make an 83(b) election, the
participant will include in income the fair market value of the
shares of stock on the date that the restrictions lapse as to
those shares, less any purchase price paid for such shares. The
included amount may be treated as ordinary income by the
participant and will be subject to withholding by the Company or
its subsidiary (either by payment in cash or withholding out of
the participants award).
If the participant makes a timely 83(b) election, the
participant who receives a restricted stock award will include
in income as ordinary income, the fair market value of the
shares of stock on the date of receipt of the award (determined
without regard to lapse restrictions), less any purchase price
paid for such shares. The income may be subject to withholding
by the Company or its subsidiary (either by payment in cash or
withholding out of the participants award). If the award
is subsequently forfeited, the participant will not receive any
deduction for the amount treated as ordinary income.
Restricted Stock Units
A participant will recognize income with respect to restricted
stock units at the time that the restrictions lapse, provided
the shares are issued on the date the restrictions lapse. The
participant will include in income the fair market value of the
shares of stock on the date that the restrictions lapse as to
those shares, less any purchase price paid for such shares. The
included amount may be treated as ordinary income by the
participant and will be subject to withholding by the Company or
its subsidiary (either by payment in cash or withholding out of
the participants award).
Stock Appreciation Rights
Assuming that a stock-settled stock appreciation right
(SAR) is granted at an exercise price that is not
less than the fair market value of the underlying shares on the
grant date, a participant will not recognize any taxable income
at the time a stock-settled SAR is granted. However, upon
exercise of a vested SAR, the participant must 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
participants exercise price. The included amount must be
treated as ordinary income by the participant and may be subject
to withholding by the Company or its subsidiary (either by
payment in cash, shares or withholding out of the
participants salary). Upon resale of the shares issued to
the participant at the time of exercise, any subsequent
appreciation or depreciation in the value of the shares will be
treated as capital gain or loss, taxable at a rate that depends
upon the length of time the shares were held by the participant.
Internal Revenue Code Section 409A
At the present time, the Company intends to grant equity awards
to participants which are either outside the scope of
Section 409A of the U.S. Internal Revenue Code or are
exempted from the application of Section 409A. If the
equity award is subject to Section 409A and the
requirements of Section 409A are not met, participants may
suffer adverse tax consequences with respect to the equity
award. Such consequences may include taxation at the time of the
vesting of the award and interest and penalties on any deferred
income.
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Tax Treatment of the Company
The Company generally will be entitled to a deduction in
connection with the exercise of a NQSO or a SAR by a
participant, or the receipt by the participant of restricted
stock or restricted stock unit award, to the extent that the
participant recognizes ordinary income and the Company properly
reports such income to the Internal Revenue Service (the
IRS). The Company will be entitled to a deduction in
connection with the disposition of ISO Shares only to the extent
that the participant recognizes ordinary income on a
disqualifying disposition of the ISO Shares, provided that the
Company properly reports such income to the IRS.
ERISA
The Equity Plan is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974 and is not
qualified under Section 401(a) of the Code.
Outstanding Options Under the Equity Plan
As of March 31, 2006, 16,648,892 shares had been
issued pursuant to exercises of stock options under the Equity
Plan by award recipients, 6,824 persons held NQSOs under the
Equity Plan to purchase an aggregate of 32,680,850 shares
of common stock, with a weighted average exercise price of
$44.28 per share, 2,284 persons held restricted stock units
to acquire 645,910 shares, and there were
17,424,348 shares of common stock available for future
awards under the Equity Plan. An aggregate of
67,400,000 shares of the Companys authorized common
stock have been reserved for issuance under the Equity Plan.
Proposed Amendments to the Equity Plan
At the 2006 Annual Meeting, stockholders will be asked to
approve amendments to the Equity Plan as follows:
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Increase by 11 million shares the limit on the total number
of shares underlying awards of restricted stock and restricted
stock units that may be granted under the Equity
Plan from 4 million to 15 million; and |
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Provided that the stockholders approve Proposal 2
(Approval of The Exchange Program) set forth in the
proxy statement prepared in connection with our 2006 Annual
Meeting of Stockholders, we will amend the Equity Plan to limit
the number of shares subject to options surrendered and
cancelled in the Exchange Program that will be available for
issuance under the Equity Plan to 7 million plus the number
of shares necessary for the issuance of the restricted stock
rights to be granted in connection with the Exchange Program. |
A-7
Appendix B
GENERAL DESCRIPTION OF THE 2000 EMPLOYEE STOCK PURCHASE
PLAN
2000 Employee Stock Purchase Plan, as Amended
History. The 2000 Purchase Plan was adopted by the Board
on May 25, 2000, approved by the Stockholders on
July 27, 2000, and has been subsequently amended. The
following discussion describes the material terms of the
Purchase Plan, as amended to date.
Purpose. The purpose of the Purchase Plan is to provide
employees of the Company with a convenient means of acquiring
common stock of the Company through payroll deductions, to
enhance the employees sense of participation in the
affairs of the Company and subsidiaries, and to provide an
incentive for continued employment.
Administration. The Purchase Plan is administered on
behalf of the Board by the Compensation Committee of the Board.
The interpretation by the Compensation 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
representing 5% or more of the total combined voting power or
value of all classes of stock of the Company or any parent or
subsidiary. As of May 31, 2006, the Company estimates that
approximately 7,100 persons were eligible to participate in the
Purchase Plan.
Participation. Each offering of the Companys 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% nor more
than 10% of the employees base salary, wages, commissions,
overtime, shift premiums and bonuses plus draws against
commissions, unreduced by the amount by which the
employees 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 Companys 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
B-1
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.
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 price of the common stock
on the immediately preceding business day as quoted on the
NASDAQ National Market. On May 31, 2006, the closing price
of the Companys common stock was $42.07.
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
employees employment for any reason, including retirement
or death, immediately cancels the employees participation
in the Purchase Plan. In such event, the payroll deductions
credited to the employees account will be returned to such
employee or, in case of death, to the employees legal
representative.
Adjustment Upon Changes in Capitalization. The number of
shares subject to any purchase, and the number of shares
issuable under the Purchase Plan, is subject to adjustment in
the event of a recapitalization of the Companys 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
U.S.-based
Participants. Participating employees in the U.S. 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
U.S. 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 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 in excess of capital gains may be
offset annually against ordinary income. Ordinary income
recognized by an employee
B-2
upon a disqualifying disposition constitutes taxable
compensation that will be reported on a W-2 form. The Company
takes the position that any ordinary income recognized upon a
sale or other disposition is not subject to withholding.
Tax Treatment of
non-U.S.-based
Participants. For participants residing outside the U.S.,
the Company will assess its requirements regarding tax, social
insurance and other applicable taxes in connection with
participation in the Purchase Plan. These requirements may
change from time to time as laws or interpretations change.
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.
Proposed amendment of the 2000 Employee Stock Purchase
Plan. At the Annual Meeting, stockholders will be asked
to approve an amendment to the Purchase Plan to increase by
1,500,000 the number of shares of the Companys common
stock reserved for issuance under the Purchase Plan. None of
these proposed shares have been granted or issued on the basis
of such proposed approval.
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Appendix C
ELECTRONIC ARTS INC.
BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
As Amended May 24, 2006
The Audit Committee of the Board of Directors (the
Committee) is charged with providing
assistance to the Board of Directors (the
Board) in fulfilling its
responsibility to Electronic Arts Inc.
(EA) and its stockholders in
overseeing (a) management and its auditors in respect of
corporate accounting, financial reporting practices, and the
quality and integrity of the financial reports of EA, including
EAs compliance with legal and regulatory requirements,
(b) the independent auditors qualifications and
independence, (c) the performance of EAs internal
audit function and independent auditor, and (d) the
preparation of the report required by the rules of the
Securities and Exchange Commission
(SEC) to be included in EAs
annual proxy statement.
It is not the role of the Committee to plan or conduct audits,
to guarantee the accuracy or quality of EAs financial
statements or to determine that the financial statements are in
accordance with generally accepted accounting principles and
applicable laws and regulations. These are the responsibilities
of management, the independent auditor and internal auditors. It
is the responsibility of the Committee to maintain regular and
open communication among the directors, the independent auditor,
the internal auditors, and the financial management of EA.
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COMPOSITION OF THE COMMITTEE |
The Committee will consist of not less than three independent
directors. To be considered independent, the member,
and the compensation received by such member, must satisfy the
requirements of all applicable laws and regulations relative to
audit committee independence, including without limitation those
of the NASDAQ Marketplace Rules and the SEC, as determined by
the Board. The members of the Committee shall possess such
degree of financial or accounting expertise as may be required
by law or by the regulations of the SEC or the NASDAQ
Marketplace Rules, as the Board of Directors interprets such
qualification in its business judgment. In addition, at least
one member of the Committee shall possess the requisite
financial sophistication to qualify as a financial
expert under applicable SEC regulations. Each appointed
Committee member will be subject to annual reconfirmation and
may be removed by the Board at any time.
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RESPONSIBILITIES AND DUTIES |
In carrying out its purpose, the Committee will have the
following responsibilities and duties:
Appointment of the Independent Auditor. To the extent
required by applicable law or regulation: (i) the Committee
will be directly responsible for the appointment, retention,
compensation and oversight of EAs registered public
accounting firm (the independent
auditor), including the resolution of any
disagreements between management and the independent auditor
regarding financial reporting, (ii) the independent auditor
shall report directly to the Committee, (iii) the Committee
shall approve in advance all auditing services (including
comfort letters and statutory audits) performed by the
independent auditor, (iv) the Committee shall approve in
advance all permitted non-audit services performed by the
independent auditor and (v) all non-audit services to be
performed by the independent auditor shall be disclosed. The
Committee may delegate to one or more members of the Committee
the authority to grant pre-approvals required by this
subsection, and the decisions of the member to whom this
authority is delegated shall be presented to the Committee at
the next scheduled meeting of the Committee.
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Annual Statement from the Independent Auditor. The
Committee is responsible for obtaining from the independent
auditor at least annually, a formal written statement
delineating all relationships between the auditor and EA,
consistent with Independence Standards Board Standard 1 (as such
may be modified or superseded from time to time). The Committee
shall be responsible for actively engaging in a dialogue with
the independent auditor with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditor and for taking, or
recommending that the Board of Directors take, such appropriate
action as may be necessary to satisfy itself as to the
qualifications, performance and independence of the independent
auditor. To the extent required by law or regulation, the annual
statement also shall describe: (a) the firms internal
quality control procedures, (b) any material issues raised
by the most recent internal quality-control review, or peer
review, of the firm, or by an inquiry or investigation by
governmental or professional authorities, within the preceding
five years, respecting one or more independent audits carried
out by the firm, and (c) any steps taken to deal with any
such issues.
Risk Assessment and Accounting Controls. The Committee
will review with the independent auditor, EAs internal
auditors, and appropriate financial and accounting personnel the
adequacy and effectiveness of the accounting and financial
controls of EA, and guidelines and policies to govern the
process by which risk assessment and risk management is
undertaken, and will elicit any recommendations for the
improvement of such internal control procedures or particular
areas where new or more detailed controls or procedures are
desirable.
The Annual Audit. The Committee will meet with the
independent auditor and financial management of EA to review the
scope of the proposed audit plan for the current year and the
audit procedures to be utilized, and approve the budget for such
audit. At the conclusion of the annual audit, the Committee will
also review such audit, including any comments or
recommendations of the independent auditor.
Review of Issues. The Committee will regularly review
with the independent auditor any audit problems or difficulties
the auditor encountered in the course of the audit work,
including any restrictions on the scope of the independent
auditors activities or on access to requested information,
and any significant disagreements with management, and
managements response. In that regard, no officer or
director of EA, or any other person acting under the direction
thereof, shall violate any law or regulation that prohibits
fraudulently influencing, coercing, manipulating, or misleading
any independent auditor engaged in the performance of an audit
of the financial statements of EA for the purpose of rendering
such financial statements materially misleading.
Hiring Policies. The Committee will set clear hiring
policies for employees or former employees of the independent
auditor consistent with statutory and regulatory requirements.
Related Party Transactions. The Committee will review and
approve any related party transactions, as such term
is defined by SEC rules and regulations and NASDAQ Marketplace
Rules.
Complaint Procedures. The Committee will establish and
maintain procedures for the (i) receipt, retention,
treatment, process and disposition of complaints received by EA
regarding accounting, internal accounting controls or audit
matters, and (ii) the confidential, anonymous submission by
employees of EA of concerns regarding accounting or auditing
matters.
Internal Audit Function. The Committee will oversee the
internal audit function of EA, including the independence and
authority of its reporting obligations, its annual budget, the
proposed audit plans for the coming year, and the coordination
of such plans with the independent auditor. The head of the
Companys internal audit function will report directly to
the Committee. The Committee will receive, as necessary,
notification of material adverse findings from internal audits
and a progress report on the proposed internal audit plan, as
appropriate, with explanations for changes from the original
plan.
Earnings Releases. The Committee will discuss earnings
press releases and financial information and earnings guidance
provided to analysts and rating agencies, though this may be
done generally (i.e., discussion of the types of information to
be disclosed and the type of presentation to be made) and the
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Committee need not discuss in advance each earnings release or
each instance in which EA may provide earnings guidance.
Review of Financial Statements. The Committee will
discuss with management and the independent auditor the annual
audited financial statements and the quarterly unaudited
financial statements, including a discussion of all matters
relevant thereto that are required to be discussed under any
applicable law or regulation or that the Committee otherwise
considers it desirable to discuss.
Review of Additional Matters. The Committee will also
review from time to time such additional matters as may be
required by law or regulation, or that it deems advisable to
review, including without limitation EAs critical
accounting policies, the status of any significant income tax
matters, the Companys investment and foreign exchange
policies and practices, and certifications by management of
EAs filings with the Securities and Exchange Commission.
Separate Meetings. Periodically, the Committee shall meet
separately with management, with the internal auditors, and with
the independent auditor.
Investigations. The Committee will investigate any matter
brought to its attention within the scope of its duties to the
extent and in such manner as it considers appropriate (including
confidential, anonymous submissions by employees of concerns
regarding questionable accounting or auditing matters). The
Committee will discuss with management and the independent
auditor any correspondence with regulators or governmental
agencies and any employee complaints or published reports that
raise material issues regarding EAs financial statements
or accounting policies. EA will follow all provisions of law or
regulation that prohibit discipline of or discrimination against
employees who report what they reasonably believe to be
violations of any law, rule or regulation applicable to EA.
Ethics Policy Compliance. The Committee will review
compliance with EAs Code of Conduct annually. To the
extent required by applicable laws or regulations: (a) the
Code of Conduct will continue to be applicable to senior
financial officers of EA, including its Chief Financial Officer,
and its controller or principal accounting officer, and to
persons performing similar functions; and (b) EAs
Code of Conduct shall continue to include such standards as are
reasonably designed to deter wrongdoing and to promote:
(1) honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest between
personal and professional relationships; (2) full, fair,
accurate, timely, and understandable disclosure in the reports
EA files with or furnishes to the SEC and in other public
communications made by EA; (3) compliance with applicable
governmental laws, rules and regulations; (4) the prompt
internal reporting of violations of the Code of Conduct to an
appropriate person or persons identified in the Code of Conduct;
and (5) accountability for adherence to the Code of Conduct.
Legal Compliance. The Committee will review compliance
with EAs legal compliance policies annually. The Committee
will discuss with EAs General Counsel legal matters that
may have a material impact on EAs financial statements or
compliance policies.
Outside Advisors. The Committee may obtain advice and
assistance from outside legal, accounting or other advisors as
it deems appropriate. It may retain these advisors without
seeking approval of the Board of Directors. EA will provide
appropriate funding, as determined by the Audit Committee, for
payment of the compensation of the independent auditor and of
any advisors engaged by the Committee, and for ordinary
administrative expenses necessary or appropriate in carrying out
its duties.
Access to Management. The Committee shall have full
access to EAs executives and personnel as necessary to
carry out its responsibilities.
Review of Charter. The Committee will review the
Committee Charter from time to time and at least annually and
recommend any changes to the Board.
Reporting to the Board. The Committee will report to the
Board on the major items covered at each Committee meeting. The
Committee will review with the full Board of Directors any
issues that arise with respect to the quality or integrity of
EAs financial statements, EAs compliance with legal
or regulatory
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requirements, the performance and independence of EAs
independent auditor, or the performance of the internal audit
function.
Notwithstanding the foregoing, any action of the Committee may
be subject to Board review and may be revised, modified or
rescinded by the Board.
The Committee will meet as often as necessary to carry out its
responsibilities and in any event at least quarterly. Meetings
may be called by any Committee member and/or by the management
of EA. A majority of the total number of members of the
Committee will constitute a quorum at all Committee meetings and
a quorum will be empowered to act on behalf of the Committee.
Minutes of each meeting will be duly filed in EAs records.
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Appendix D
(included only with electronic filing of Schedule 14A with the SEC;
Appendix D is not a part of the proxy statement)
ELECTRONIC ARTS INC.
2000 EQUITY INCENTIVE PLAN
As Proposed to be Amended by the Stockholders on July 27, 2006
1. PURPOSE. The purpose of this Plan is to provide incentives to attract, retain and
motivate eligible persons whose present and potential contributions are important to the success of
the Company, its Parent and Subsidiaries by offering them an opportunity to participate in the
Companys future performance through awards of Options, Restricted Stock, Restricted Stock Units,
and Stock Appreciation Rights. Capitalized terms not defined in the text are defined in Section
24.
2. SHARES SUBJECT TO THE PLAN.
2.1 Number of Shares. Subject to Sections 2.2, 2.3 and 19, the aggregate number of
Shares that have been reserved pursuant to this Plan is 67,400,000 Shares. Shares that are: (a)
subject to issuance upon exercise of an Award but cease to be subject to such Award for any reason
other than exercise of such Award; (b) subject to an Award granted hereunder but are forfeited; or
(c) subject to an Award that otherwise terminates or is settled without Shares being issued shall
revert to and again become available for issuance under the Plan; provided, however, that no more
than 7,000,000 Shares subject to Options cancelled and not otherwise required to satisfy Awards
issued in exchange for such Options in connection with the stock option exchange program described
in the Companys definitive proxy statement dated June 30, 2006, shall revert to and again become
available for issuance under the Plan. The following Shares shall not again become available for
issuance under the Plan: (x) Shares that are not issued or delivered as a result of the net
settlement of an Option or Stock Appreciation Right; (y) Shares that are used to pay the exercise
price or withholding taxes related to an Award; or (z) Shares that are repurchased by the Company
with the proceeds of an Option exercise. At all times the Company shall reserve and keep available
a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding
Options and Stock Appreciation Rights granted under this Plan and all other outstanding but
unvested Awards granted under this Plan.
2.2 Limitation on Number of Shares Subject to Restricted Stock Awards and Restricted Stock
Unit Awards. The number of Shares that may be issued under Sections 6 and 7 of this Plan
shall not exceed 15,000,000 in the aggregate.
2.3 Adjustment of Shares. In the event that the number of outstanding shares is
changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision,
combination, reclassification or similar change in the capital structure of the Company without
consideration, then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Awards, and (c) the number of Shares
associated with other outstanding Awards, will be proportionately adjusted, subject to any required
action by the Board or the stockholders of the Company and compliance with applicable securities
laws; provided, however, that fractions of a Share will not be issued but will either be replaced
by a cash payment equal to the Fair Market Value of such fraction of a Share or will be rounded up
to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only to employees
(including officers and directors who are also employees) of the Company or of a Parent or
Subsidiary of the Company. All other Awards may be granted to employees and directors of the
Company or any Parent or Subsidiary of the Company. No person will be eligible to receive Awards
covering more than 1,400,000 Shares in any calendar year under this Plan, of which no more than
400,000 Shares shall be covered by Awards of Restricted Stock or Restricted Stock Units, other than
new employees of the Company or of a
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Parent or Subsidiary of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to receive Awards
covering up to a maximum of 2,800,000 Shares in the calendar year in which they commence their
employment, of which no more than 800,000 Shares shall be covered by Awards of Restricted Stock or
Restricted Stock Units. For purposes of these limits, each Restricted Stock Unit settled in Shares
(but not those settled in cash), shall be deemed to cover one Share. A person may be granted more
than one Award under this Plan.
4. ADMINISTRATION.
4.1 Committee Authority. This Plan will be administered by the Committee or by the
Board acting as the Committee. Except for automatic grants to Outside Directors pursuant to
Section 10 hereof, and subject to the general purposes, terms and conditions of this Plan, and to
the direction of the Board, the Committee will have full power to implement and carry out this
Plan. Except for automatic grants to Outside Directors pursuant to Section 10 hereof, the
Committee will have the authority to:
|
(a) |
|
construe and interpret this Plan, any Award
Agreement and any other agreement or document executed pursuant to
this Plan; |
|
|
(b) |
|
prescribe, amend and rescind rules and
regulations relating to this Plan or any Award; |
|
|
(c) |
|
select persons to receive Awards; |
|
|
(d) |
|
determine the form and terms of Awards; |
|
|
(e) |
|
determine the number of Shares or other
consideration subject to Awards; |
|
|
(f) |
|
determine whether Awards will be granted
singly, in combination with, in tandem with, in replacement of, or as
alternatives to, other Awards under this Plan or any other incentive
or compensation plan of the Company or any Parent or Subsidiary of
the Company; |
|
|
(g) |
|
grant waivers of Plan or Award conditions; |
|
|
(h) |
|
determine the vesting, exercisability and
payment of Awards; |
|
|
(i) |
|
correct any defect, supply any omission or
reconcile any inconsistency in this Plan, any Award or any Award
Agreement; |
|
|
(j) |
|
determine whether an Award has been earned;
and |
|
|
(k) |
|
make all other determinations necessary or
advisable for the administration of this Plan. |
4.2 Committee Discretion. Except for automatic grants to Outside Directors pursuant
to Section 10 hereof, any determination made by the Committee with respect to any Award will be
made in its sole discretion at the time of grant of the Award or, unless in contravention of any
express term of this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under this Plan. The
Committee may delegate to one or more officers of the Company the authority to (i) construe and
interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to
this Plan, and (ii) grant an Award under this Plan to Participants who are not Insiders of the
Company.
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4.3 Section 162(m). To the extent that Awards are granted hereunder as
performance-based compensation within the meaning of Section 162(m) of the Code, the Plan shall
be administered by a committee, which may be the Committee, of two or more outside directors
within the meaning of Section 162(m) of the Code. For purposes of qualifying grants of Awards as
performance-based compensation under Section 162(m) of the Code, the committee, in its
discretion, may set restrictions based upon the achievement of performance goals. The performance
goals shall be set by the committee on or before the latest date permissible to enable the Awards
to qualify as performance-based compensation under Section 162(m) of the Code. In granting
Awards that are intended to qualify under Section 162(m) of the Code, the committee shall follow
any procedures determined by it from time to time to be necessary or appropriate to ensure
qualification of the Awards under Section 162(m) of the Code (e.g., in determining the performance
goals).
5. OPTIONS. The Committee may grant Options to eligible persons and will determine whether
such Options will be Incentive Stock Options within the meaning of the Code (ISO) or Nonqualified
Stock Options (NQSOs), the number of Shares subject to the Option, the Exercise Price of the
Option, the period during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan will be evidenced by an
Award Agreement which will expressly identify the Option as an ISO or an NQSO (Stock Option
Agreement), and, except as otherwise required by the terms of Section 10 hereof, will be in such
form and contain such provisions (which need not be the same for each Participant) as the Committee
may from time to time approve, and which will comply with and be subject to the terms and
conditions of this Plan.
5.2 Date of Grant. The date of grant of an Option will be the date on which the
Committee makes the determination to grant such Option, unless otherwise specified by the
Committee. The Stock Option Agreement and a copy of this Plan will be delivered to the Participant
within a reasonable time after the granting of the Option.
5.3 Exercise Period; Performance Goals.
(a) Options may be exercisable within the times or upon the events determined by the
Committee as set forth in the Stock Option Agreement governing such Option; provided, however, that
no Option will be exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided, further, that no ISO granted to a person who directly or by attribution owns
more than ten percent (10%) of the total combined voting power of all classes of stock of the
Company or of any Parent or Subsidiary of the Company (Ten Percent Stockholder) will be
exercisable after the expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee determines.
(b) Participants ability to exercise Options shall be subject to such restrictions, if any,
as the Committee may impose. These restrictions may be based upon completion of a specified number
of years of service with the Company or a Subsidiary or upon completion of the performance goals as
set out in advance in the Participants individual Stock Option Agreement. Options may vary from
Participant to Participant and between groups of Participants. Should the Committee elect to
impose restrictions on an Option, the Committee shall: (a) determine the nature, length and
starting date of any Performance Period for the Option; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the number of Shares
subject to such Option. Prior to such Option becoming exercisable, the Committee shall determine
the extent to which such Performance Factors have been met. Performance Periods may overlap and
Participants may participate simultaneously with respect to Options that are subject to different
Performance Periods and have different performance goals and other criteria.
5.4 Exercise Price. The Exercise Price of an Option will be determined by the
Committee when the Option is granted and may be not less than 100% of the Fair Market Value of the
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Shares on the date of grant; provided that the Exercise Price of any ISO granted to a Ten Percent
Stockholder will not be less than 110% of the Fair Market Value of the Shares on the date of
grant. Payment for the Shares purchased may be made in accordance with Section 9 of this Plan.
5.5 Method of Exercise. Options may be exercised only by delivery to the Company of a
written stock option exercise agreement (the Exercise Agreement) in a form approved by the
Committee (which need not be the same for each Participant), stating the number of Shares being
purchased, the restrictions imposed on the Shares purchased under such Exercise Agreement, if any,
and such representations and agreements regarding Participants investment intent and access to
information and other matters, if any, as may be required or desirable by the Company to comply
with applicable securities laws, together with payment in full of the Exercise Price for the number
of Shares being purchased.
5.6 Termination. Notwithstanding the exercise periods set forth in the Stock Option
Agreement, exercise of an Option will always be subject to the following:
|
(a) |
|
If the Participant is Terminated for any
reason except death or Disability, then the Participant may exercise
such Participants Options only to the extent that such Options would
have been exercisable upon the Termination Date no later than three
(3) months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options. |
|
|
(b) |
|
If the Participant is Terminated because of
Participants death or Disability (or the Participant dies within
three (3) months after a Termination other than for Cause or because
of Participants Disability), then Participants Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participants legal representative or
authorized assignee) no later than twelve (12) months after the
Termination Date (or such shorter or longer time period not exceeding
five (5) years as may be determined by the Committee, with any such
exercise beyond (a) three (3) months after the Termination Date when
the Termination is for any reason other than the Participants death
or Disability, or (b) twelve (12) months after the Termination Date
when the Termination is for Participants death or Disability, deemed
to be an NQSO), but in any event no later than the expiration date of
the Options. |
|
|
(c) |
|
Notwithstanding the provisions in paragraph
5.6(a) above, if a Participant is terminated for Cause, neither the
Participant, the Participants estate nor such other person who may
then hold the Option shall be entitled to exercise any Option with
respect to any Shares whatsoever, after termination of service,
whether or not after termination of service the Participant may
receive payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for the
day on which termination occurs, for salary in lieu of notice, or for
any other benefits. In the event that the Committee has delegated to
one or more officers of the Company the authority set forth in
Section 4.2 above and Participant has been notified that such officer
or officers has made a determination that Participant has been
terminated for Cause, Participant shall have five (5) business days
(measured from the date he or she was first |
D-4
|
|
|
notified of such
determination) to appeal such determination to the
Committee. If Participant appeals to the Committee in a timely
manner, the Committee shall give the Participant an opportunity to
present to the Committee evidence on his or her behalf. If the
Committee has not delegated to one or more officers of the Company
the authority set forth in Section 4.2, and the Committee makes
such Cause determination itself, such decision shall be deemed
final and unappealable. For the purpose of this paragraph,
termination of service shall be deemed to occur on the date when
the Company or Subsidary dispatches notice or advice to the
Participant that his service is terminated. |
5.7 Limitations on Exercise. The Committee may specify a reasonable minimum number of
Shares that may be purchased on any exercise of an Option, provided that such minimum number will
not prevent Participant from exercising the Option for the full number of Shares for which it is
then exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value (determined as of the date of
grant) of Shares with respect to which ISO are exercisable for the first time by a Participant
during any calendar year (under this Plan or under any other incentive stock option plan of the
Company, Parent or Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for the first time by a
Participant during any calendar year exceeds $100,000, then the Options for the first $100,000
worth of Shares to become exercisable in such calendar year will be ISO and the Options for the
amount in excess of $100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after the Effective Date
of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be
subject to ISO, such different limit will be automatically incorporated herein and will apply to
any Options granted after the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may modify, extend or renew
outstanding Options and authorize the grant of new Options, provided however, that (i) any such
action may not, without the written consent of a Participant, impair any of such Participants
rights under any Option previously granted, (ii) any such action shall not extend the exercise
period of the Option to a date later than the later of (a) the fifteenth day of the third month
following the date on which the Option otherwise would have expired or (b) December 31 of the
calendar year in which the Option would have otherwise expired, and (iii) the Committee may not
reduce the Exercise Price of outstanding Options without the approval of the stockholders. Any
outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code.
5.10 No Disqualification. Notwithstanding any other provision in this Plan, no term
of this Plan relating to ISO will be interpreted, amended or altered, nor will any discretion or
authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of
the Code or, without the consent of the Participant affected, to disqualify any ISO under Section
422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company to grant or to
sell to an eligible person Shares that are subject to restrictions. The Committee will determine
to whom an offer will be made, the number of Shares the person may purchase, the price to be paid
(the Purchase Price), if any, the restrictions to which the Shares will be subject, and all other
terms and conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All grants or purchases under a Restricted Stock
Award made pursuant to this Plan will be evidenced by an Award Agreement (Restricted Stock
Purchase Agreement) that will be in such form (which need not be the same for each Participant) as
the Committee will from time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the Participants
execution and delivery of the Restricted Stock Purchase Agreement and full payment, if any, for the
Shares to the
D-5
Company within thirty (30) days, or such other date as may be set forth in the
Restricted Stock Purchase Agreement, from the date the Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with full payment, if
any, for the Shares to the Company within thirty (30) days, or such other date as may be set forth
in the Restricted Stock Purchase Agreement, then the offer will terminate, unless otherwise
determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock
Award, if any, will be determined by the Committee on the date the Restricted Stock Award is
granted. At the Committees discretion, consideration for the Restricted Stock Award may be in the
form of continued service to the Company or a Subsidiary. Payment of the Purchase Price may be
made in accordance with Section 9 of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be subject to
such restrictions as the Committee may impose. These restrictions may be based upon completion of
a specified number of years of service with the Company or a Subsidiary or upon completion of the
performance goals as set out in advance in the Participants individual Restricted Stock Purchase
Agreement. Restricted Stock Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine
the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b)
select from among the Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to the payment of any
Restricted Stock Award, the Committee shall determine the extent to which such Restricted Stock
Award has been earned. Performance Periods may overlap and Participants may participate
simultaneously with respect to Restricted Stock Awards that are subject to different Performance
Periods and having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is Terminated during a
Performance Period for any reason, then such Participant will be entitled to payment (whether in
Shares, cash or otherwise) with respect to the Restricted Stock Award only to the extent earned as
of the date of Termination in accordance with the Restricted Stock Purchase Agreement, unless the
Committee determines otherwise in the case of a Participant who is not a covered employee for
purposes of Section 162(m) of the Code in the year of Termination.
7. RESTRICTED STOCK UNITS. Each Restricted Stock Unit shall have a value equal to the Fair
Market Value of a share of the Companys Common Stock. A Restricted Stock Unit does not constitute
a share of, nor represent any ownership interest in, the Company. The Committee will determine the
number of Restricted Stock Units granted to any eligible person; whether the Restricted Stock Units
will be settled in Shares, in cash, or in a combination of the two; the price to be paid (the
"Purchase Price), if any, for any Shares issued pursuant to a Restricted Stock Unit; the
restrictions to which the Restricted Stock Units will be subject, and all other terms and
conditions of the Restricted Stock Units, subject to the following:
7.1 Form of Restricted Stock Unit Award. All Restricted Stock Units granted pursuant
to this Plan will be evidenced by an Award Agreement (Restricted Stock Unit Agreement) that will
be in such form (which need not be the same for each Participant) as the Committee will from time
to time approve, and will comply with and be subject to the terms and conditions of this Plan. The
offer of Restricted Stock Units will be accepted by the Participants execution and delivery of the
Restricted Stock Unit Agreement within thirty (30) days, or such other date as may be set forth in
the Restricted Stock Unit Agreement, from the date the Restricted Stock Unit Agreement is delivered
to the person. If such person does not execute and deliver the Restricted Stock Unit Agreement
within thirty (30) days, or such other date as may be set forth in the Restricted Stock Unit
Agreement, then the offer will terminate, unless otherwise determined by the Committee.
7.2 Purchase Price. The Purchase Price of Shares sold pursuant to a Restricted Stock
Unit, if any, will be determined by the Committee on the date the Restricted Stock Unit is granted.
At the Committees discretion, consideration for the Restricted Stock Unit may be in the form of
continued
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service to the Company or a Subsidiary. Payment of the Purchase Price, if any, shall be
made in accordance with Section 9 of this Plan when the Shares are issued.
7.3 Terms of Restricted Stock Units. Restricted Stock Units shall be subject to such
restrictions as the Committee may impose. These restrictions may be based upon completion of a
specified number of years of service with the Company or a Subsidiary or upon completion of the
performance goals as set out in advance in the Participants individual Restricted Stock Unit
Agreement. Restricted Stock Units may vary from Participant to Participant and between groups of
Participants. Prior to the grant of Restricted Stock Units, the Committee shall: (a) determine the
nature, length and starting date of any Performance Period for the Restricted Stock Unit; (b)
select from among the Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Restricted Stock Units that will be awarded to the Participant. Prior to
the payment (whether in Shares, cash or otherwise) of any Restricted Stock Units, the Committee
shall determine the extent to which such Restricted Stock Units have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect to Restricted
Stock Units that are subject to different Performance Periods and have different performance goals
and other criteria.
7.4 Termination During Performance Period. If a Participant is Terminated during a
Performance Period for any reason, then such Participant will be entitled to payment (whether in
Shares, cash or otherwise) with respect to the Restricted Stock Units only to the extent earned as
of the date of Termination in accordance with the Restricted Stock Unit Agreement, unless the
Committee determines otherwise in the case of a Participant who is not a covered employee for
purposes of Section 162(m) of the Code in the year of Termination.
7.5 Payment When Restrictions Lapse. The cash or Shares that a Participant is
entitled to receive pursuant to a Restricted Stock Unit shall be paid or issued to the Participant
when all applicable restrictions and other conditions applicable to the Restricted Stock Unit have
lapsed or have been satisfied, unless the Restricted Stock Unit Agreement provides for a later
settlement date in compliance with Section 409A of the Code.
8. STOCK APPRECIATION RIGHTS. The Committee may grant Stock Appreciation Rights or SARs to
eligible persons and will determine the number of Shares subject to the SARs, the Exercise Price of
the SARs, the period during which the SARs may be exercised, and all other terms and conditions of
the SARs, subject to the following:
8.1 Form of SAR Grant. SARs granted under this Plan will be evidenced by an Award
Agreement that will expressly identify the SARs as freestanding SARs (SARs granted independent of
any other Option), tandem SARs (SARs granted in connection with an Option, or any portion thereof),
or any combination thereof (SAR Agreement), and will be in such form and contain such provisions
(which need not be the same for each Participant) as the Committee may from time to time approve,
and which will comply with and be subject to the terms and conditions of this Plan.
8.2 Date of Grant. The date of grant of a SAR will be the date on which the Committee
makes the determination to grant such SAR, unless otherwise specified by the Committee. The SAR
Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time
after the granting of the SAR.
8.3 Exercise Price and Other Terms.
(a) The Committee, subject to the provisions of the Plan, shall have complete discretion to
determine the terms and conditions of SARs granted under the Plan; provided, however, that no SAR
will be exercisable after the expiration of ten (10) years from the date the SAR is granted;
provided, further, that the Exercise Price for freestanding SARs shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the grant date. The Exercise Price for
tandem SARs shall equal the Exercise Price of the related Option.
D-7
(b) Participants ability to exercise SARs shall be subject to such restrictions, if any, as
the Committee may impose. These restrictions may be based upon completion of a specified number of
years of service with the Company or a Subsidiary or upon completion of the performance goals as
set out in advance in the Participants individual SAR Agreement. SARs may vary from Participant to
Participant and between groups of Participants. Should the Committee elect to impose restrictions
on a SAR, the Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the SAR; (b) select from among the Performance Factors to be used to measure
performance goals, if any; and (c) determine the number of Shares subject to such SAR. Prior to
such SAR becoming exercisable, the Committee shall determine the extent to which such Performance
Factors have been met. Performance Periods may overlap and Participants may participate
simultaneously with respect to SAR that are subject to different Performance Periods and have
different performance goals and other criteria.
8.4 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the
Shares subject to the related Option upon the surrender of the right to exercise the equivalent
portion of the related Option. Tandem SARs may be exercised only with respect to the Shares for
which the related Option is then exercisable. With respect to tandem SARs granted in connection
with an Option: (a) the tandem SARs shall expire no later than the expiration of the underlying
Option; (b) the value of the payout with respect to the tandem SARs shall be for no more than one
hundred percent (100%) of the difference between the Exercise Price of the underlying Option and
the Fair Market Value of the Shares subject to the underlying Option at the time the tandem SARs
are exercised; and (c) the tandem SARs shall be exercisable only when the Fair Market Value of the
Shares subject to the underlying Option exceeds the Exercise Price of the Option.
8.5 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable on such
terms and conditions as the Committee, in its sole discretion, shall determine.
8.6 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be entitled to
receive payment from the Company in an amount determined by multiplying:
|
(a) |
|
The difference between (i) the Fair Market
Value of a Share on the date of exercise (or such other date as may
be determined by the Committee and set forth in the Participants SAR
Agreement) and (ii) the Exercise Price; times |
|
|
(b) |
|
The number of Shares with respect to which
the SAR is exercised. |
At the discretion of the Committee, the payment upon exercise of the SAR may be in cash, in
Shares of equivalent value, or in some combination thereof.
8.7 Termination. Notwithstanding the exercise periods set forth in the SAR Agreement,
exercise of a SAR will always be subject to the following:
|
(a) |
|
If the Participant is Terminated for any
reason except death or Disability, then the Participant may exercise
such Participants SAR only to the extent that such SAR would have
been exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee), but in any event, no later than the expiration date of
the SAR. |
|
|
(b) |
|
If the Participant is Terminated because of
Participants death or Disability (or the Participant dies within
three (3) months after a Termination other than for Cause or because
of Participants Disability), then Participants SAR may be exercised
only to the extent that such SAR would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participants |
D-8
|
|
|
legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date, but in any event no later than the expiration date of the SAR. |
|
(c) |
|
Notwithstanding the provisions in paragraph
8.7(a) above, if a Participant is terminated for Cause, neither the
Participant, the Participants estate nor such other person who may
then hold the SAR shall be entitled to exercise any SAR with respect
to any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive payment
from the Company or Subsidiary for vacation pay, for services
rendered prior to termination, for services rendered for the day on
which Termination occurs, for salary in lieu of notice, or for any
other benefits. In the event that the Committee has delegated to one
or more officers of the Company the authority set forth in Section
4.2 above and Participant has been notified that such officer or
officers has made a determination that Participant has been
terminated for Cause, Participant shall have five (5) business days
(measured from the date he or she was first notified of such
determination) to appeal such determination to the Committee. If
Participant appeals to the Committee in a timely manner, the
Committee shall give the Participant an opportunity to present to the
Committee evidence on his or her behalf. If the Committee has not
delegated to one or more officers of the Company the authority set
forth in Section 4.2, and the Committee makes such Cause
determination itself, such decision shall be deemed final and
unappealable. For the purpose of this paragraph, termination of
service shall be deemed to occur on the date when the Company or
Subsidiary dispatches notice or advice to the Participant that his
service is terminated. |
8.8 Modification, Extension or Renewal. The Committee may modify, extend or renew
outstanding SARs and authorize the grant of new SARs, provided however, that (i) any such action
may not, without the written consent of a Participant, impair any of such Participants rights
under any SAR previously granted, (ii) any such action shall not extend the exercise period of the
SAR to a date later than the later of (a) the fifteenth day of the third month following the date
on which the SAR otherwise would have expired or (b) December 31 of the calendar year in which the
Option would have otherwise expired, and (iii) the Committee may not reduce the Exercise Price of
outstanding SARs without the approval of the stockholders.
9. PAYMENT FOR SHARE PURCHASES. Where expressly approved for the Participant by the
Committee and where permitted by law, payment for Shares purchased pursuant to this Plan may:
|
(a) |
|
be made in cash (by check); |
|
|
(b) |
|
by cancellation of indebtedness of the
Company to the Participant; |
|
|
(c) |
|
by surrender of shares that either: (1)
have been owned by Participant for more than six (6) months and have
been paid for within the meaning of SEC Rule 144 (and, if such shares
were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market; |
|
|
(d) |
|
by waiver of compensation due or accrued to
the Participant for services rendered; |
D-9
|
(e) |
|
with respect only to purchases upon
exercise of an Option, and provided that a public market for the
Companys stock exists: |
|
(1) |
|
through a same day sale
commitment from the Participant and a broker-dealer that is a
member of the National Association of Securities Dealers (an
NASD Dealer) whereby the Participant irrevocably elects to
exercise the Option and to sell a portion of the Shares so
purchased to pay for the Exercise Price, and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to
forward the Exercise Price directly to the Company; or |
|
|
(2) |
|
through a margin commitment from the Participant and a NASD Dealer whereby the
Participant irrevocably elects to exercise the Option and to
pledge the Shares so purchased to the NASD Dealer in a margin
account as security for a loan from the NASD Dealer in the
amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or |
|
(f) |
|
by withholding from the Shares to be issued
upon exercise of an Award that number of Shares having a Fair Market
Value equal to the minimum amount required to satisfy the Exercise
Price or Purchase Price (the Fair Market Value of the Shares to be
withheld shall be determined on the date that the Award is exercised
by the Participant); or |
|
|
(g) |
|
by any combination of the foregoing; or |
|
|
(h) |
|
such other consideration and method of
payment for issuance of Shares to the extent permitted by applicable
laws. |
10. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
10.1 Types of Awards and Shares. Awards granted under this Plan and subject to this
Section 10 may, at the discretion of the Committee, be NQSOs or SARs; provided, however, that any
payment upon exercise of SARs granted pursuant to this section 10 shall be in Shares of equivalent
value.
10.2 Eligibility. Awards subject to this Section 10 shall be granted only to Outside
Directors. Outside Directors shall also be eligible to receive Awards granted pursuant to sections
5, 6, 7 and 8 hereof at such times and on such conditions as determined by the Committee.
10.3 Initial Grant. Each Outside Director who first becomes a member of the Board on
or after the Effective Date will automatically be granted an Option or SAR, as determined by the
Committee, for 25,000 Shares (an Initial Grant) on the date such Outside Director first becomes a
member of the Board.
10.4 Succeeding Grants. Upon re-election to the Board at each Annual Meeting of
Stockholders, each Outside Director will automatically be granted an Option or SAR, as determined
by the Committee, for 10,000 Shares (a Succeeding Grant); provided, however, that any such
Outside Director who received an Initial Grant since the last Annual Meeting of Stockholders will
receive a prorated Succeeding Grant to purchase a number of Shares equal to 10,000 multiplied by a
fraction whose numerator is the number of calendar months or portions thereof that the Outside
Director has served since the date of the Initial Grant and whose denominator is twelve.
D-10
10.5 Vesting. The date an Outside Director receives an Initial Grant or a Succeeding
Grant is referred to in this Plan as the Start Date for such Award. Each Initial Grant will vest
as to 2% of the Shares on the Start Date for such Initial Grant, and as to an additional 2% of the Shares
on the first day of each calendar month after the Start Date, so long as the Outside Director
continuously remains a director of the Company. Succeeding Grants will vest in accordance with
each Stock Option Agreement or SAR Agreement, as the case may be.
Notwithstanding any provision to the contrary, in the event of a corporate transaction
described in Section 19.1, the vesting of all Awards granted to Outside Directors pursuant to this
Section 10 will accelerate and such Awards will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee determines, and
must be exercised, if at all, within three months of the consummation of said event. Any Awards
not exercised within such three-month period shall expire.
10.6 Exercise Price. The exercise price of an Award pursuant to an Initial Grant or
Succeeding Grant shall be the Fair Market Value of the Shares at the time that the Award is
granted.
10.7 Shares in Lieu of Cash Compensation . Each Outside 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 serving on the Board or a
Committee of the Board) and to receive in lieu thereof Shares. Any such election shall be in
writing and must be made before the services are rendered giving rise to such compensation, and may
not be revoked or changed thereafter during the Outside Directors 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 Outside Director. If an Outside Director so elects to receive
Shares in lieu of cash, there shall be credited to such Outside Director a number of Shares equal
to the amount of the cash compensation so reduced (increased by 10% as described in the preceding
sentence) divided by the Fair Market Value on the day in which the compensation would have been
paid in the absence of such election.
11. WITHHOLDING TAXES.
11.1 Withholding Generally. Whenever Shares are to be issued in satisfaction of
Awards granted under this Plan, the Company may require the Participant to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax and social security
requirements prior to the delivery of any certificate or certificates for such Shares. Whenever,
under this Plan, payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax and social
security requirements.
11.2 Stock Withholding. When, under applicable tax or social security laws, a
Participant incurs tax or social security liability in connection with the exercise or vesting of
any Award that is subject to tax or social security withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its sole discretion allow
the Participant to satisfy the minimum tax or social security withholding obligation by electing to
have the Company withhold from the Shares to be issued that number of Shares having a Fair Market
Value equal to the minimum amount required to be withheld, determined on the date that the amount
of tax to be withheld is to be determined. All elections by a Participant to have Shares withheld
for this purpose will be made in accordance with the requirements established by the Committee and
be in writing in a form acceptable to the Committee.
12. TRANSFERABILITY.
12.1 Except as otherwise provided in this Section 12, Awards granted under this Plan, and any
interest therein, will not be transferable or assignable by Participant, and may not be made
subject to execution, attachment or similar process, otherwise than by will or by the laws of
descent and distribution or as determined by the Committee and set forth in the Award Agreement
with respect to Awards that are not ISOs.
D-11
12.2 All Awards other than NQSOs and SARs. All Awards other than NQSOs and SARs shall
be exercisable: (i) during the Participants lifetime, only by (A) the Participant, or (B) the
Participants guardian or legal representative; and (ii) after Participants death, by the
legal representative of the Participants heirs or legatees.
12.3 NQSOs and SARs. Unless otherwise restricted by the Committee, a NQSO and SAR
shall be exercisable: (i) during the Participants lifetime only by (A) the Participant, (B) the
Participants guardian or legal representative, (C) a Family Member of the Participant who has
acquired the NQSO or SAR by permitted transfer; and (ii) after Participants death, by the legal
representative of the Participants heirs or legatees. Permitted transfer means, as authorized
by this Plan and the Committee in a Stock Option Agreement or SAR Agreement, any transfer effected
by the Participant during the Participants lifetime of an interest in such NQSO and SAR but only
such transfers which are by gift or domestic relations order. A permitted transfer does not
include any transfer for value and neither of the following are transfers for value: (a) a
transfer under a domestic relations order in settlement of marital property rights or (b) a
transfer to an entity in which more than fifty percent of the voting interests are owned by Family
Members or the Participant in exchange for an interest in that entity.
13. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.
13.1 Voting and Dividends. No Participant will have any of the rights of a
stockholder with respect to any Shares until the Shares are issued to the Participant. After
Shares are issued to the Participant, the Participant will be a stockholder and have all the rights
of a stockholder with respect to such Shares, including the right to vote and receive all dividends
or other distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities the Participant may
become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split
or any other change in the corporate or capital structure of the Company will be subject to the
same restrictions as the Restricted Stock; provided, further, that the Participant
will have no right to retain such stock dividends or stock distributions with respect to Shares
that are repurchased at the Participants Purchase Price or Exercise Price pursuant to Section
13.2.
13.2 Restrictions on Shares. At the discretion of the Committee, the Company may
reserve to itself and/or its assignee(s) in the Award Agreement a right to repurchase a portion of
or all Unvested Shares held by a Participant following such Participants Termination at any time
within ninety (90) days after the later of Participants Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at
the Participants Exercise Price or Purchase Price, as the case may be.
14. CERTIFICATES. All certificates for Shares or other securities delivered under this
Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee
may deem necessary or advisable, including restrictions under any applicable federal, state or
foreign securities law, or any rules, regulations and other requirements of the SEC or any stock
exchange or automated quotation system upon which the Shares may be listed or quoted.
15. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a Participants Shares, the
Committee may require the Participant to deposit all certificates representing Shares, together
with stock powers or other instruments of transfer approved by the Committee, appropriately
endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until
such restrictions have lapsed or terminated, and the Committee may cause a legend or legends
referencing such restrictions to be placed on the certificates. Any Participant who is permitted
to execute a promissory note as partial or full consideration for the purchase of Shares under this
Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased
as collateral to secure the payment of Participants obligation to the Company under the promissory
note; provided, however, that the Committee may require or accept other or additional forms of
collateral to secure the payment of such obligation and, in any event, the Company will have full
recourse against the Participant under the promissory note notwithstanding any pledge of the
Participants Shares or other collateral. In connection with any pledge of the Shares, Participant
will be required to execute and deliver a written pledge agreement in such form as the
D-12
Committee will from time to time approve. The Shares purchased with the promissory note may be released from
the pledge on a pro rata basis as the promissory note is paid.
16. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from time to time,
authorize the Company, with the consent of the respective Participants, to issue new Awards in
exchange for the surrender and cancellation of any or all outstanding Awards; provided, however,
that no such exchange program may, without the approval of the Companys stockholders, allow for
the cancellation of an outstanding Option followed by its immediate replacement with a new Option
having a lower Exercise Price. The Committee may, subject to approval by the Companys
stockholders, at any time buy from a Participant an Award previously granted with payment in cash,
Shares (including Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
17. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be effective unless
such Award is in compliance with all applicable federal and state securities laws, rules and
regulations of any governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they are in effect on the
date of grant of the Award and also on the date of exercise or other issuance. Notwithstanding any
other provision in this Plan, the Company will have no obligation to issue or deliver certificates
for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that
the Company determines are necessary or advisable; and/or (b) completion of any registration or
other qualification of such Shares under any state or federal law or ruling of any governmental
body that the Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock exchange or automated
quotation system, and the Company will have no liability for any inability or failure to do so.
18. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted under this Plan
will confer or be deemed to confer on any Participant any right to continue in the employ of, or to
continue any other relationship with, the Company or any Parent or Subsidiary of the Company or
limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate
Participants employment or other relationship at any time, with or without cause.
19. CORPORATE TRANSACTIONS.
19.1 Assumption or Replacement of Awards by Successor. Except for automatic grants to
Outside Directors pursuant to Section 10 hereof, in the event of (a) a dissolution or liquidation
of the Company, (b) a merger or consolidation in which the Company is not the surviving corporation
(other than a merger or consolidation with a wholly-owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or other transaction in which there is no substantial change
in the stockholders of the Company or their relative stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation, which assumption will be
binding on all Participants), (c) a merger in which the Company is the surviving corporation but
after which the stockholders of the Company immediately prior to such merger (other than any
stockholder that merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in the Company, (d) the
sale of substantially all of the assets of the Company, or (e) the acquisition, sale, or transfer
of more than 50% of the outstanding shares of the Company by tender offer or similar transaction,
any or all outstanding Awards may be assumed, converted or replaced by the successor corporation
(if any), which assumption, conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or provide substantially
similar consideration to Participants as was provided to stockholders (after taking into account
the existing provisions of the Awards). The successor corporation may also issue, in place of
outstanding Shares of the Company held by the Participants, substantially similar shares or other
property subject to repurchase restrictions no less favorable to the Participant. In the event
such successor corporation (if any) refuses to assume or substitute Awards, as provided above,
pursuant to a transaction described in this Section 19.1, such Awards will accelerate and will
become exercisable in full prior to the consummation of such transaction at such time and on such
conditions as the Committee will determine, and if such Awards are
D-13
not exercised prior to the consummation of the corporate transaction, they shall terminate at
such time as determined by the Committee.
19.2 Other Treatment of Awards. Subject to any greater rights granted to Participants
under the foregoing provisions of this Section 19, in the event of the occurrence of any
transaction described in Section 19.1, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation, or sale of assets.
19.3 Assumption of Awards by the Company. The Company, from time to time, also may
substitute or assume outstanding awards granted by another company, whether in connection with an
acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in
substitution of such other companys award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award granted under this
Plan. Such substitution or assumption will be permissible if the holder of the substituted or
assumed award would have been eligible to be granted an Award under this Plan if the other company
had applied the rules of this Plan to such grant. In the event the Company assumes an award
granted by another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable upon exercise
of any such option will be adjusted appropriately pursuant to Sections 409A and 424(a) of the
Code). In the event the Company elects to grant a new Option or SAR rather than assuming an
existing option, such new Option or SAR may be granted with a similarly adjusted Exercise Price.
20. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on the date that it
is adopted by the Board (the Effective Date). This Plan shall be approved by the stockholders of
the Company (excluding Shares issued pursuant to this Plan), consistent with applicable laws,
within twelve (12) months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided, however, that: (a)
no Option or SAR may be exercised prior to initial stockholder approval of this Plan; (b) no Option
or SAR granted pursuant to an increase in the number of Shares subject to this Plan approved by the
Board will be exercised prior to the time such increase has been approved by the stockholders of
the Company; (c) in the event that initial stockholder approval is not obtained within the time
period provided herein, all Awards granted hereunder shall be cancelled, any Shares issued pursuant
to any Awards shall be cancelled and any purchase of Shares issued hereunder shall be rescinded;
and (d) in the event that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be cancelled, any Shares
issued pursuant to any Award granted pursuant to such increase will be cancelled, and any purchase
of Shares pursuant to such increase will be rescinded.
21. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided herein, this Plan
will terminate ten (10) years from the date this Plan is adopted by the Board or, if earlier, the
date of stockholder approval. This Plan and all agreements thereunder shall be governed by and
construed in accordance with the laws of the State of California.
22. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate or amend this
Plan in any respect, including without limitation amendment of any form of Award Agreement or
instrument to be executed pursuant to this Plan; provided, however, that the Board will not,
without the approval of the stockholders of the Company, amend this Plan in any manner that
requires such stockholder approval.
23. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the Board, the
submission of this Plan to the stockholders of the Company for approval, nor any provision of this
Plan will be construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
24. DEFINITIONS. As used in this Plan, the following terms will have the following
meanings:
D-14
"Award means any award under this Plan, including any Option, Restricted Stock, Restricted
Stock Unit or Stock Appreciation Right.
"Award Agreement means, with respect to each Award, the signed written agreement between the
Company and the Participant setting forth the terms and conditions of the Award.
"Board means the Board of Directors of the Company.
"Cause means the commission of an act of theft, embezzlement, fraud, dishonesty, other acts
constituting gross misconduct, or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code means the Internal Revenue Code of 1986, as amended.
"Committee means the Compensation Committee of the Board.
"Company means Electronic Arts Inc. or any successor corporation.
"Disability means a disability, whether temporary or permanent, partial or total, as
determined by the Committee.
"Exchange Act means the Securities Exchange Act of 1934, as amended.
"Exercise Price means the price at which a holder of an Option or a SAR, as the case may be,
may purchase the Shares issuable upon exercise of such Option or SAR.
"Fair Market Value means, as of any date, the value of a share of the Companys Common Stock
determined as follows:
|
(a) |
|
if such Common Stock is then quoted on the
Nasdaq National Market, its closing price on the Nasdaq National
Market on the date of determination as reported in The Wall
Street Journal; |
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(b) |
|
if such Common Stock is publicly traded and
is then listed on a national securities exchange, its closing price
on the date of determination on the principal national securities
exchange on which the Common Stock is listed or admitted to trading
as reported in The Wall Street Journal; |
|
|
(c) |
|
if such Common Stock is publicly traded but
is not quoted on the Nasdaq National Market nor listed or admitted to
trading on a national securities exchange, the average of the closing
bid and asked prices on the date of determination as reported in
The Wall Street Journal; or |
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|
(d) |
|
if none of the foregoing is applicable, by
the Committee in good faith. |
"Family Member includes any of the following:
|
(a) |
|
child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law of the Participant, including any
such person with such relationship to the Participant by adoption; |
|
|
(b) |
|
any person (other than a tenant or
employee) sharing the Participants household; |
|
|
(c) |
|
a trust in which the persons in (a) and (b)
have more than fifty percent of the beneficial interest; |
D-15
|
(d) |
|
a foundation in which the persons in (a)
and (b) or the Participant control the management of assets; or |
|
|
(e) |
|
any other entity in which the persons in
(a) and (b) or the Participant own more than fifty percent of the
voting interest. |
"Insider means an officer or director of the Company or any other person whose transactions
in the Companys Common Stock are subject to Section 16 of the Exchange Act.
"Option means an award of an option to purchase Shares pursuant to Section 5.
"Outside Director means a member of the Board who is not an employee of the Company or any
Parent or Subsidiary of the Company.
"Parent means any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company if each of such corporations other than the Company owns stock possessing
50% or more of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
"Participant means a person who receives an Award under this Plan.
"Performance Factors means any of the factors selected by the Committee and specified in an
Award Agreement, from among the following objective measures, either individually, alternatively or
in any combination, applied to the Company as a whole or any business unit or Subsidiary, either
individually, alternatively, or in any combination, and measured, to the extent applicable on an
absolute basis or relative to a pre-established target, to determine whether the performance goals
established by the Committee with respect to applicable Awards have been satisfied:
|
(a) |
|
Net revenue; |
|
|
(b) |
|
Earnings before interest, income taxes,
depreciation and amortization; |
|
|
(c) |
|
Operating income; |
|
|
(d) |
|
Operating margin; |
|
|
(e) |
|
Net income; |
|
|
(f) |
|
Earnings per share; |
|
|
(g) |
|
Total stockholder return; |
|
|
(h) |
|
The Companys stock price; |
|
|
(i) |
|
Growth in stockholder value relative to a
pre-determined index; |
|
|
(j) |
|
Return on equity; |
|
|
(k) |
|
Return on invested capital; |
|
|
(l) |
|
Operating cash flow; |
|
|
(m) |
|
Free cash flow; |
|
|
(n) |
|
Economic value added; and |
|
|
(o) |
|
Individual confidential business
objectives. |
D-16
The Committee may, in recognition of unusual or non-recurring items such as
acquisition-related activities or changes in applicable accounting rules, provide for one or more
equitable adjustments (based on objective standards) to the Performance Factors to preserve the
Committees original intent regarding the Performance Factors at the time of the initial award
grant. It is within the sole discretion of the Committee to make or not make any such equitable
adjustments.
"Performance Period means the period of service determined by the Committee, which shall be
no less than one calendar quarter nor more than five years (unless tied to a specific and objective
milestone or event), during which time of service or performance is to be measured for Awards.
"Plan means this EA 2000 Equity Incentive Plan, as amended from time to time.
"Restricted Stock Award means an award of Shares that are subject to restrictions pursuant to
Section 6.
Restricted Stock Unit means an award of the right to receive, in cash or Shares, the value
of a share of the Companys Common Stock pursuant to Section 7.
"SEC means the Securities and Exchange Commission.
"Securities Act means the Securities Act of 1933, as amended.
"Shares means shares of the Companys Common Stock reserved for issuance under this Plan,
as adjusted pursuant to Sections 2 and 19, and any successor security.
"Stock Appreciation Right or "SAR means an Award, granted alone or in tandem with a related
Option that pursuant to Section 8 is designated as a SAR.
"Subsidiary means any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
"Termination or Terminated means, for purposes of this Plan with respect to a Participant,
that the Participant has for any reason ceased to provide services as an employee, officer,
director, consultant, independent contractor, or advisor to the Company or a Parent or Subsidiary
of the Company. An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee,
provided, that such leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant
to formal policy adopted from time to time by the Company and issued and promulgated to employees
in writing. In the case of any employee on an approved leave of absence, the Committee may make
such provisions respecting suspension of vesting of the Award while on leave from the employ of the
Company or a Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement. The Committee will
have sole discretion to determine whether a Participant has ceased to provide services and the
effective date on which the Participant ceased to provide services (the Termination Date).
"Unvested Shares means Unvested Shares as defined in the Award Agreement.
"Vested Shares means Vested Shares as defined in the Award Agreement.
D-17
Appendix E
(included only with electronic filing of Schedule 14A with the SEC;
Appendix E is not a part of the proxy statement)
ELECTRONIC ARTS INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
As Proposed to be Amended by the Stockholders on July 27, 2006
1. Establishment of Plan. Electronic Arts Inc., (the Company) proposes to
grant options for purchase of the Companys 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 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 feature two components: (i) an employee stock
purchase plan under Section 423 of the Code (including any amendments or replacements of such
section) for participants residing in the U.S., and (ii) an employee stock purchase plan that is
intended to grant purchase rights under rules, procedures or sub-plans that are not intended to
qualify Section 423 of the Code for participants that are not residing in the U.S. 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 6,800,000 shares of 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 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 committee
appointed by the Board (the Committee). The Plan shall be 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, if applicable, 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 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, 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
(c) employees who would, by virtue of their participation in such Offering Period, be
participating simultaneously in more than one Offering Period under the Plan.
For employees of Subsidiaries located in the U.S., the following would not be eligible to
participate in an Offering Period:
(a) employees who are customarily employed for less than 20 hours per week, and
(b) employees who are customarily employed for less than five (5) months in a calendar year.
E-1
5. Offering Dates. The Offering Periods of the Plan (the Offering 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 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 participants in an
Offering Period under the Plan on the first Offering Date after satisfying the eligibility
requirements by delivering to the Companys or Subsidiarys (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.
In jurisdictions where payroll deductions are not permitted under local law, the eligible
employees may participate in the Plan by making contributions in the form that is acceptable and
approved by the Board or Committee.
7. Grant of Option on Enrollment. Enrollment by an eligible employee 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 Common Stock of the Company determined by dividing the amount accumulated in such employees
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 Companys 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 Companys
Common Stock on the Purchase Date, provided, however, that the number of shares of the Companys
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 Companys
Common Stock on the Offering Date as the denominator. Fair market value of a share of the
Companys Common Stock shall be determined as provided in Section 8 hereof.
8. Purchase Price. 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 days trading of a share of the Companys Common Stock as reported on the
NASDAQ National Market System.
9. Payment of Purchase Price; Changes in Payroll Deductions; Issuance of
Shares.
(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 employees compensation in
one percent (1%) increments not less than two percent (2%) nor greater than ten percent (10%).
Compensation shall mean base salary, commissions, overtime, performance bonuses, discretionary
bonuses, stay bonuses, referral bonuses, sabbatical cash outs, shift differentials,
E-2
and such other forms of compensation as the Committee, in the exercise of its discretion under the
Plan, may designate as subject to payroll deductions for purposes of the Plan. Notwithstanding the
foregoing, Compensation shall not include car benefits/allowances, income derived from stock
options, equity-based compensation, or payments made in connection with termination (including, but
not limited to, holiday accrual cash outs, severance pay, separation pay, or ex gratia payments).
Payroll deductions shall commence with the first pay period 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 departments 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) Subject to the laws of the local jurisdiction, 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. Subject to the laws of the
local jurisdiction, 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 participants account to the purchase of whole shares of 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 participants account after such purchase of shares
shall be refunded to such participant in cash; provided, however, that any amount remaining in
participants account on a Purchase Date which is less than the amount necessary to purchase a full
share of 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 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 participants lifetime, such participants option to purchase shares 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.
(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 US$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 Companys 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
E-3
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.
(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 participants
option to each employee affected thereby.
(e) Any payroll deductions accumulated in a participants 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.
(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 participants 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 participants 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 employees interest 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, unless otherwise required by the laws of a local jurisdiction.
14. Capital Changes. Subject to any required action by the stockholders of the
Company, the number of shares of Common Stock covered by each option under the Plan which has not
yet been exercised and the number of shares of 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 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 Common Stock resulting from a stock split or the payment of a stock dividend (but only
on the Common Stock) or any other increase or decrease in the number of shares of 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 Common Stock subject to an option.
E-4
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 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
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 participants 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 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 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 Companys 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 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 employees
employment.
19. Equal Rights and Privileges. All eligible employees shall have equal rights and
privileges with respect to the Plan. The Section 423 component of the Plan is intended to qualify
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 Section 423 component 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 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 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 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 Companys legal counsel, that such lesser degree of stockholder
approval will comply with all
E-5
applicable laws and will not adversely affect the qualification of the Section 423 component 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
(a) A participant may file a written designation of a beneficiary who is to receive any
shares and cash, if any, from the participants account under the Plan in the event of such
participants 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 participants account under the Plan in the event of such
participants 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 participants 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. 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. Except as otherwise expressly required under the laws of a
country, the Plan and all rights thereunder shall be governed by and construed in accordance with
the laws of the state of California, United States of America. Should any provision of this Plan
be determined by a court of competent jurisdiction to be unlawful or unenforceable for a country,
such determination shall in no way affect the application of that provision in any other country,
or any of the remaining provisions of the Plan.
25. Amendment or Termination of the Plan. This Plan shall be effective on the day
after the effective date of the Companys 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 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.
26. Rules for Foreign Jurisdictions.
(a) The Board or Committee may adopt rules or procedures relating to the operation and
administration of the Plan to accommodate the specific requirements of the law and procedures of
foreign jurisdictions. Without limiting the generality of the foregoing, the Board or Committee is
specifically authorized to adopt rules and procedures regarding handling of payroll deductions,
payment of interest, conversion of local currency, payroll tax, withholding procedures and handling
of stock certificates that vary with local requirements.
E-6
(b) The Board or Committee may also adopt rules, procedures or sub-plans applicable to
particular subsidiaries or locations, which sub-plans may be designed to be outside the scope of
Code Section 423. The rules of such sub-plans may take precedence over other provisions of this
Plan, with the exception of Section 3, but unless otherwise superceded by the terms of such
sub-plan, the provisions of the Plan shall govern the operation of such sub-plan. To extent
inconsistent with the requirements of Code Section 423, such sub-plan shall be considered part of
the Non-423 Plan, and options granted thereunder shall not be considered to comply with Code
Section 423.
27. Designation of Subsidiaries. The Board or Committee shall designate from among
the Subsidiaries, as determined from time to time, the Subsidiary or Subsidiaries whose Employees
shall be eligible to participate in the Plan. The Board or Committee may designate a Subsidiary,
or terminate the designation of a Subsidiary, without the approval of the shareowners of the
Corporation.
E-7
ELECTRONIC ARTS INC.
PROXY FOR 2006 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Electronic Arts Inc., a Delaware corporation (the Company), hereby
appoints Lawrence F. Probst III and Warren C. Jenson, 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 2006 Annual Meeting of Stockholders of the Company
to be held at the Companys headquarters, 209 Redwood Shores Parkway, Building 250, Redwood City,
CA 94065 on July 27, 2006, 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:
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FOR all nominees listed below (except as
marked to the contrary below)
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WITHHOLD AUTHORITY to vote for the
nominees listed below |
Nominees: M. Richard Asher, Leonard S. Coleman, Gary M. Kusin, Gregory B. Maffei, Timothy Mott, Vivek Paul,
Lawrence F. Probst III, Richard A. Simonson, and Linda J. Srere
Instruction: To withhold authority to vote for any individual nominee, write that nominees name on the following line:
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APPROVAL OF STOCK OPTION EXCHANGE PROGRAM |
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FOR
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AGAINST
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ABSTAIN |
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AMENDMENTS TO THE 2000 EQUITY INCENTIVE PLAN |
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FOR
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AGAINST
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ABSTAIN |
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AMENDMENT TO THE 2000 EMPLOYEE STOCK PURCHASE PLAN |
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FOR
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AGAINST
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ABSTAIN |
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RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS |
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FOR
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AGAINST
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ABSTAIN |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES FOR ELECTION AND FOR
PROPOSALS 2, 3, 4 and 5.
(Continued and to be executed on reverse side)
(Continued from other side)
THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES FOR ELECTION AND FOR PROPOSALS 2, 3, 4 and 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 2006 Annual Meeting of
Stockholders of the Company; (b) the accompanying Proxy Statement; and (c) the Annual
Report to Stockholders for the fiscal year ended March 31, 2006.
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.
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Signature |
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Signature
Dated: , 2006 |