June 20, 2007

 

DEAR FELLOW STOCKHOLDERS:

 

You are cordially invited to join us at our 2007 Annual Meeting of Stockholders on July 26, 2007 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:

 

 

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, voting instructions and our 2007 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,

 

John S. Riccitiello

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 2007 Annual Meeting of Stockholders

 

 

MATTERS TO BE VOTED UPON:

 

 

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 1, 2007 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

 

 

Our Board of Directors is soliciting proxies for the 2007 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 1, 2007 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 311,621,350 shares of common stock outstanding on the record date.

 

Voting materials, which include the proxy statement, proxy card and our 2007 annual report, were first mailed to stockholders on or about June 20, 2007.

 

In this proxy statement:

 

 

We are pleased to offer you three options for designating the proxies and indicating your voting preferences:

 

 

If you choose to vote via the Internet or telephone, you will have a PIN number assigned to you on the proxy card that you will use to safeguard your vote.

 

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 EA’s 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.

 

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 John S. Riccitiello (the Company’s Chief Executive Officer) and Warren C. Jenson (the Company’s 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. Riccitiello 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 1, 2007 may attend and vote at the Annual Meeting. Each share of common stock is entitled to one vote. There were 311,621,350 shares of common stock outstanding on June 1, 2007.

 

What am I voting on?

 

We are asking you to:

 

 

How do I vote?

 

You may vote by mail.

 

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.

 

If you do not mark your voting instructions on the proxy card, your shares will be voted:

 

 

 

You may vote by telephone.

 

You may do this by following the “Vote by Telephone” instructions on your proxy card. If you vote by telephone, you do not have to mail in your proxy card.

 

You may vote on the Internet.

 

You may do this by following the “Vote by Internet” instructions on your proxy card. If you vote by Internet, you do not have to mail in your proxy card. 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 that it has been authorized by the stockholder.

 

You may vote in person at the meeting.

 

You may complete the ballot we will pass out to any stockholder who wants to vote at the meeting. However, if you hold your shares in street name, you must 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:

 

 

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 EA’s outstanding voting shares as of June 1, 2007 must be present or represented by proxies at the meeting. On this date a total of 311,621,350 shares of common stock were outstanding and entitled to vote. Shares representing a majority, or 155,810,676 shares, of these votes must be present. This is called a quorum.

 

Shares are counted as present at the meeting if:

 

 

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 vote by telephone or on the Internet, submit your proxy card, or vote in person at the meeting.

 

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 other purpose with respect to Proposals 2, 3, 4 and 5.

 

How are votes counted?

 

You may vote “for”, “against” or “abstain” on each of the proposals. Abstentions, although counted for purposes of determining whether a quorum is present, will not be counted for any other purpose. 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?

 

In an uncontested election (i.e., an election in which EA’s Corporate Secretary has not received timely and proper notice from a stockholder indicating an intention to nominate one or more candidates to compete with the Board’s nominees), EA’s bylaws require each nominee to receive more votes cast “for” than “against” his or her election or re-election in order to be elected or re-elected to the Board. We expect that the election to be held at the 2007 Annual Meeting will be an uncontested election. In the event that the number of nominees for director exceeds the number of directors to be elected, however, directors will instead be elected by a plurality of the votes cast, meaning that the persons receiving the highest number of “for” votes, up to the total number of directors to be elected at the Annual Meeting, will be elected.

 

In accordance with our Corporate Governance Guidelines, the Board expects an incumbent director to tender his or her resignation if he or she fails to receive the required number of votes for re-election in an uncontested election. In such an event, the Nominating and Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and will submit such recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Nominating and Governance Committee and the Board may consider any factors they deem relevant in deciding whether to recommend/accept a director’s resignation. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days from the date of the certification of election results and will publicly disclose its decision promptly thereafter.

 

Shares represented by your proxy will be voted by EA’s management “for” the election of the nine nominees recommended by EA’s Board of Directors unless you vote against any or all of such nominees or you mark your proxy to “abstain” from so voting.

 

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, Mr. Riccitiello and Mr. 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 amendments to the 2000 Equity Plan and 2000 Purchase Plan, the adoption of the Executive Bonus Plan, and to ratify the Company’s selection of independent auditors?

 

The Equity Plan and Purchase Plan amendments, the adoption of the Executive Bonus Plan, 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 for or against these proposals. Abstentions and broker non-votes will have no effect on the outcome of 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 SEC’s electronic data system called EDGAR at www.sec.gov.

 

Why are you amending the Equity Plan?

 

We are proposing to amend the Equity Plan to increase by 9 million shares the number of shares available for issuance. We want to ensure that the Equity Plan includes enough shares for employees, officers and directors to be appropriately compensated under the Equity Plan going forward. We believe it is essential to be able to grant equity incentives to new and existing employees, officers and directors in order to recruit, retain and motivate key talent and to drive our performance.

 

We are also amending the Equity Plan to decrease the limit on the total number of shares underlying awards of restricted stock and restricted stock units — from 15 million to 11 million shares. We expect restricted stock and restricted stock units to remain an important form of equity incentive compensation. Nonetheless, given our current and anticipated usage of restricted stock and restricted stock units, we believe that the current limit is higher than necessary. By decreasing the limit to 11 million shares, we will continue to have an adequate amount of restricted stock and restricted stock units available for issuance and, as a consequence, will be able to increase the pool of overall shares available to be issued as stock options.

 

Finally, we are amending the Equity Plan to revise the amount and nature of annual automatic grants to our non-employee directors by adding restricted stock units and decreasing the size of stock option grants. As proposed to be amended, non-employee directors will be eligible to automatically receive an option grant to purchase 17,500 shares and 2,500 restricted stock units issued under the Equity Plan upon their initial appointment or election to the Board, and each continuing non-employee director will be eligible to automatically receive an annual option grant to purchase 8,400 shares and 1,200 restricted stock units upon his or her election or re-election to the Board.

 

For more information regarding the proposed amendments to the Equity Plan, please see Proposal 2. 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 significant growth in the number 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 2008, our current fiscal year.

 

For more information regarding the proposed amendment to the Purchase Plan, please see Proposal 3. Amendment to the 2000 Employee Stock Purchase Plan below.

Why are you adopting the Executive Bonus Plan?

 

We are adopting the Executive Bonus Plan because the Board believes that it is in the best interests of Electronic Arts and its stockholders to ensure that bonuses paid to our executive officers are generally deductible by Electronic Arts for federal income tax purposes. Accordingly, Electronic Arts has structured the Executive Bonus Plan to satisfy the requirements of Section 162(m) of the Internal Revenue Code (the “Code”) for “performance-based” compensation. If the Executive Bonus Plan is approved by the stockholders, the compensation we pay pursuant to the Executive Bonus Plan, beginning with fiscal 2008, will not be subject to the corporate compensation deduction limits set forth in Section 162(m) of the Code. If the Executive Bonus Plan is not approved by the stockholders, any bonuses we pay to covered executive officers will be subject to the deduction limits of Section 162(m). Even if the Executive Bonus Plan is approved, we reserve the right to pay bonuses to our executive officers outside of the Executive Bonus Plan.

 

For more information regarding the proposed Executive Bonus Plan, please see Proposal 4. Approval of the Electronic Arts Inc. Executive Bonus Plan below.

 

Who will pay for this proxy solicitation?

 

We will bear the costs of soliciting proxies from our stockholders. These costs include preparing, assembling, printing, mailing and distributing the proxy statements, proxy cards and annual reports. 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 don’t 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 1-651-450-4064 for international callers) or visit their web site at www.wellsfargo.com/shareownerservices.

PROPOSALS TO BE VOTED ON

 

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.

 

John S. Riccitiello was appointed as a director on April 2, 2007 and is standing for election to our Board of Directors for the first time. Mr. Riccitiello was appointed to the Board in connection with his selection as our Chief Executive Officer following a process led by Lawrence F. Probst III, our Chairman of the Board and former Chief Executive Officer, and Gary M. Kusin, our Lead Director. At the time of Mr. Riccitiello’s appointment to the Board, the authorized size of our Board was temporarily increased from nine to ten directors. In May 2007, M. Richard Asher announced his retirement from the Board, effective as of the commencement of the 2007 Annual Meeting, and therefore will not be standing for re-election. Accordingly, immediately upon Mr. Asher’s retirement at the commencement of the 2007 Annual Meeting, the authorized size of our Board will be reduced back to nine directors.

 

The Board has nominated the following directors to stand for re-election or, in the case of Mr. Riccitiello, election this year:

 

 

At our 2006 Annual Meeting of Stockholders, Mr. Mott was re-elected with approximately 70.4% of the votes cast “for” him and the remaining votes cast as “withheld”. We believe the disproportionate number of votes withheld from Mr. Mott was primarily the result of the “withhold” recommendation he received from a proxy voting advisory service. Mr. Mott was a co-founder of Electronic Arts and served as an officer of the company until becoming a member of our Board of Directors in 1990. Mr. Mott has not been employed by, nor has he had any operating involvement with, Electronic Arts since 1990. Mr. Mott meets all of the requirements for an independent director under the NASDAQ Marketplace Rules, and our Board of Directors has determined him to be an “independent director”.

 

Our Nominating and Governance Committee considered the number of withhold votes received by Mr. Mott at the 2006 Annual Meeting as part of its decision to recommend that Mr. Mott be nominated for re-election at the 2007 Annual Meeting. The Nominating and Governance Committee believed that the proxy voting advisory service’s withhold recommendation failed to take into account relevant facts and is not in the best interests of the company or of our stockholders. Mr. Mott has made significant contributions to our Board of Directors during his tenure as a director, has a deep understanding of our industry, brings valuable experience to our Board, and continues to be an objective, engaged and active member of both the Board and the Nominating and Governance Committee. Our Board believes that his re-election is in the best interests of our company and our stockholders.

 

In accordance with our bylaws, if EA’s Corporate Secretary has not received timely and proper notice from a stockholder indicating an intention to nominate one or more candidates to compete with the Board’s nominees in a director election, or if such stockholder has withdrawn all such nominations by the tenth day preceding the date on which we first mail our notice of meeting to stockholders, then the election of directors will be considered “uncontested”. We did not receive notice from a stockholder indicating an intention to nominate one or more candidates for election at the 2007 Annual Meeting, therefore the 2007 election will be uncontested. As such, each nominee must receive more votes cast “for” than “against” his or her election or re-election in order to be elected or re-elected to the Board. Shares represented by your proxy will be voted by the proxy holders “for” the election of the nine nominees recommended by EA’s Board of Directors unless you vote “against” any or all of such nominees or you mark your proxy to “abstain” from so voting.

 

In accordance with our Corporate Governance Guidelines, the Board expects a director to tender his or her resignation if he or she fails to receive the required number of votes for re-election in an uncontested election. The Board shall nominate for election or re-election as director only candidates who have previously tendered or, in the case of candidates who have not yet become members of the Board, have agreed to tender promptly following the annual meeting at which they are elected or re-elected as director, irrevocable resignations that will be effective upon (i) a failure to receive the required majority vote at the next annual or special meeting at which they face re-election in an uncontested election, and (ii) Board acceptance of such resignation. In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of irrevocable resignation tendered by other directors in accordance with these guidelines.

 

If an incumbent director fails to receive the required majority vote in an uncontested election, the Nominating and Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and will submit such recommendation for prompt consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating in any decision regarding that resignation. The Nominating and Governance Committee and the Board may consider any factors they deem relevant in deciding whether to recommend/accept a director’s resignation. The Board will act on the Nominating and Governance Committee’s recommendation within 90 days from the date of the certification of election results and will publicly disclose its decision promptly thereafter.

 

The Board recommends a vote FOR each of the nominees.

 

Each of the following directors, other than Mr. Asher, has been nominated for election or re-election at the 2007 Annual Meeting.

 

M. Richard Asher
Director since 1984; retiring at the 2007 Annual Meeting
Mr. Asher, age 75, 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.

 

Leonard S. Coleman
Director since 2001
Mr. Coleman, age 58, 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: Avis Budget Group; Churchill Downs Inc.; H.J. Heinz Corporation; and Omnicom Group Inc.

Gary M. Kusin
Director since 1995; Lead Director since 2006
Mr. Kusin, age 56, has been a Partner at TPG (formerly Texas Pacific Group) since June 2006. He served as the President and Chief Executive Officer of Fedex Kinko’s Office and Print Services, an operating division of Fedex, Inc. from August 2001 until February 2006. Fedex Kinko’s 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. 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 47, 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 58, has been Chairman of All Covered, a nationwide information technology outsourcing company focused on small and mid-size businesses, since June 2000 and has served as Chief Executive Officer since September 2006 (a position he had previously held 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 48, has been a partner at TPG (formerly 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, Wipro’s 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.

 

Lawrence F. Probst III
Director since 1991
Mr. Probst, age 57, has been employed by EA since 1984. He has served as Chairman of the Board since July 1994 and, from May 1991 until April 2007, also served as our Chief Executive Officer. 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.

John S. Riccitiello
Director since 2007
Mr. Riccitiello, age 47, has served as Chief Executive Officer and a director of EA since April 2007. Prior to re-joining EA, he was a co-founder and Managing Partner at Elevation Partners, a private equity fund. From October 1997 to April 2004, Mr. Riccitiello served as President and Chief Operating Officer of EA. Prior to joining EA, Mr. Riccitiello served as President and Chief Executive Officer of the worldwide bakery division at Sara Lee Corporation. Before joining Sara Lee, he served as President and Chief Executive Officer of Wilson Sporting Goods Co. and has also held executive management positions at Haagen-Dazs, PepsiCo, Inc. and The Clorox Company. Mr. Riccitiello holds a B.S. degree from the University of California, Berkeley.

 

Richard A. Simonson
Director since 2006
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 51, 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&R’s New York office, becoming the first female CEO in the company’s 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.

 

Our Board has determined that each of our non-employee directors qualifies as an “independent director” as that term is used in the NASDAQ Marketplace Rules. In addition, prior to his departure from our Board at the 2006 Annual Meeting, our Board had determined that Robert Pittman was an “independent director”. Mr. Probst and Mr. Riccitiello do not qualify as independent because they are EA employees. The NASDAQ Marketplace Rules have both objective tests and a subjective test for determining who is an “independent director”. The objective tests state, for example, that a director is not considered independent if he or she is an employee of the company or is a partner in or executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year. The subjective test states that an independent director must be a person who lacks a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has not established categorical standards or guidelines to make these subjective determinations, but considers all relevant facts and circumstances.

 

In addition to the board-level standards for director independence, the directors who serve on the Audit Committee each satisfy standards established by the SEC providing that to qualify as “independent” for the purposes of membership on that Committee, members of audit committees may not accept directly or indirectly any consulting, advisory, or other compensatory fee from us other than their director compensation.

 

The Board meets on a fixed schedule four times each year and also occasionally holds special meetings and acts by written consent. In fiscal 2007, the Board met six times. 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 Board’s stockholder communication policies and procedures (including, under appropriate circumstances, meeting with stockholders). Our Lead Director may also call meetings of the independent directors. The independent directors of the Board have elected Gary Kusin to serve as Lead Director for a two-year term ending with our 2008 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 Committee’s charter in May 2006, amended the Compensation Committee’s charter in November 2006, and adopted the Nominating and Governance Committee’s charter in May 2003. 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 directors. During fiscal 2007, 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.

 

From July 27, 2006 (the date of the most recent Board election and beginning of the current Board year) through June 1, 2007, the Committee members were as follows:

 

July 2006 — July 2007 Committee Assignments

 

 

Based on the recommendation of the Nominating and Governance Committee, and subject to the re-election of each of the directors named below, the Board will change Committee assignments following the 2007 Annual Meeting as follows:

 

July 2007 — July 2008 Committee Assignments

 

 

The Audit Committee assists the Board in its oversight of the Company’s 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 and Mr. Simonson meet the criteria for an “audit committee financial expert” as set forth in applicable SEC rules. The Audit Committee met eight times in fiscal 2007. For further information about the Audit Committee, please see the Report of the Audit Committee of the Board of Directors below.

 

The Compensation Committee is responsible for setting the overall compensation strategy for the Company, for determining the compensation of the CEO (via recommendation to the Board) and other executive officers and for overseeing the Company’s 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 five times in fiscal 2007 and also acted frequently by written consent. For further information about the Compensation Committee, please see the Compensation Committee Report on Executive Compensation below.

 

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 Company’s succession plans, recommending formal governance standards to the Board, reviewing the performance of the CEO, and establishing the Board’s 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 four 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 2007.

 

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:

 

 

In determining whether to recommend a director for re-election, the Nominating and Governance Committee will also consider the director’s tenure on the Board, past attendance at meetings, participation in and contributions to the activities of the Board, the director’s continued independence (including any actual, potential or perceived conflicts of interest), as well as the director’s 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 Board’s ability to work effectively as a collective body, while providing EA with the benefits of familiarity and insight into EA’s 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 EA’s 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 EA’s Human

Resources department to identify potential nominees meeting the Board’s 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 of the Board 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 EA’s 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 EA’s 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 EA’s proxy statement was released to stockholders in connection with the previous year’s annual meeting (on or about February 21, 2008, for our 2008 Annual Meeting of Stockholders). Recommendations should include: (1) the stockholder’s 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 EA’s Corporate Governance Guidelines; (5) the amount and nature of 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 candidate’s 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 EA’s 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.

 

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 is available in the Investor Relations portion of our website at http://investor.ea.com. Our Corporate Governance Guidelines contain policies relating to:

 

 

 

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.

 

Our directors are expected to make every effort to attend our annual meeting of stockholders. Eight of the nine directors who were elected at the 2006 Annual Meeting of Stockholders attended the meeting.

 

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 EA’s 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.

 

Our Compensation Committee is responsible for reviewing and recommending to our Board the compensation paid to our non-employee directors. Historically, our non-employee directors have been paid a mix of cash and equity compensation for their service as directors. Mr. Riccitiello and Mr. Probst do not receive any additional compensation for their services as directors. On July 27, 2006, our Board of Directors, upon a recommendation of the Compensation Committee, modified the cash and equity compensation paid to our non-employee directors. The table below reflects the annualized components of cash compensation for our non-employee directors that were in place during fiscal 2007. Because our Board year does not correspond to our fiscal year, actual amounts paid during fiscal 2007 were pro-rated based on the annualized figures in the following table (for more information regarding the specific compensation received by each non-employee director during fiscal 2007, see the “Fiscal 2007 Director Compensation Table” below).

 

Fiscal 2007 Annualized Components of Non-Employee Director Cash Compensation

 

 

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 2007.

 

Stock Compensation

 

Prior to July 27, 2006, non-employee directors were eligible to receive an option grant to purchase 25,000 shares issued under the 2000 Equity Incentive Plan upon their initial appointment or election to the Board, and each continuing director was eligible to receive an annual option grant to purchase 10,000 shares upon his or her re- election to the Board. On July 27, 2006, our Board of Directors, upon the recommendation of the Compensation Committee, approved a grant of 700 restricted stock units to each non-employee director. On May 10, 2007, our Board of Directors approved a change in the mix of stock options and restricted stock units to be granted to our non-employee directors. Beginning with our 2007 Annual Meeting, non-employee directors will be eligible to automatically receive an option grant to purchase 17,500 shares and 2,500 restricted stock units issued under the 2000 Equity Incentive Plan upon their initial appointment or election to the Board, and each continuing non-employee director will be eligible to automatically receive an annual option grant to purchase 8,400 shares and 1,200 restricted stock units upon his or her election or re-election to the Board.

 

In fiscal 2007, 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 2006 Annual Meeting of Stockholders. Mr. Simonson, who was initially elected at the 2006 Annual Meeting, was granted an option to purchase 25,000 shares. All stock options were granted on July 27, 2006, the date of the directors’ re-election to the Board, at an exercise price of $46.84 per share. In February 2007, each non-employee director was granted 700 restricted stock units.

 

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.

 

Deferred Compensation Plan

 

We maintain a Deferred Compensation Plan (“DCP”) that allows our directors and certain employees, including our Named Executive Officers, to defer receipt of their salary into cash accounts that mirror the gains and/or losses of several different investment funds which correspond to the funds we have selected for our 401(k) plan. Participants may defer up to 75% of their salary and up to 100% of their bonuses and/or commissions until the date(s) they have specified. We are not required to make any contributions to the DCP and did not do so in fiscal 2007.

 

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, 2007, each of our directors had either fulfilled their ownership requirements or had not yet reached three years of service.

FISCAL 2007 DIRECTOR COMPENSATION TABLE

 

The following table shows compensation information for each of our non-employee directors during fiscal 2007.

 

 

 

 

 

 

 

 

The 2000 Equity Incentive Plan, which initially was approved by the stockholders on March 22, 2000, continues EA’s 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 Plan’s 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 are proposing amendments to the 2000 Equity Incentive Plan that would:

 

 

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.

 

While equity is a strategic tool for recruitment and retention, we also carefully manage stock option and restricted stock unit issuances and strive to keep the dilutive impact of the equity incentives we offer within a reasonable range. Historically, we have made a significant portion of our equity grants in a given fiscal year in connection with our annual reviews and merit increases. In calendar 2007, we re-aligned our annual review cycle to more closely follow our fiscal year. As part of this re-alignment, we moved the date of our annual equity grants from March to June and, as a result, did not make any annual equity grants in fiscal 2007. During fiscal 2007, a year in which our employee base grew by over 700 people, we granted stock options to purchase a total of 4,372,775 shares and restricted stock units to acquire a total of 1,362,439 shares (excluding 444,760 shares underlying restricted stock and restricted stock unit awards which were granted as part of the Option Exchange Program in which 1,778,780 options were cancelled). Together these stock option and restricted stock unit grants represent approximately 1.8% of our total shares outstanding. Excluding stock options and restricted stock units we assumed in connection with our acquisition of JAMDAT Mobile Inc., during fiscal 2006, we granted stock options and restricted stock units representing approximately 2.7% of our 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 Equity Plan does not allow any options to be granted at less than 100% of fair market value, and the exercise price of outstanding options issued under the Equity Plan may not be reduced without stockholder approval. The Equity Plan 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.

 

 

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. We expect restricted stock, restricted stock units and stock options to remain an important form of equity incentive compensation.

Nonetheless, given our current and anticipated usage of restricted stock and restricted stock units, we believe that the current limit is higher than necessary. By decreasing the limit to 11 million shares, we will continue to have an adequate amount of restricted stock and restricted stock units available for issuance and, as a consequence, will be able to increase the pool of overall shares available to be issued as stock options.

 

 

The Equity Plan currently provides that new non-employee directors will be eligible to automatically receive a stock option grant to purchase 25,000 shares and continuing non-employee directors are eligible to automatically receive an annual option grant to purchase 10,000 shares upon their re-election to the Board. As proposed to be revised, non-employee directors will be eligible to automatically receive an option grant to purchase 17,500 shares and 2,500 restricted stock units issued under the Equity Plan upon their initial appointment or election to the Board, and each continuing non-employee director will be eligible to automatically receive an annual option grant to purchase 8,400 shares and 1,200 restricted stock units upon his or her re-election to the Board.

 

Plan Benefits

 

Except for the proposed automatic stock option and restricted stock units grants to non-employee directors described above, the amount and timing of awards granted under the Equity Plan are determined in the sole discretion of the administrator and therefore cannot be determined in advance. The future awards that would be received under the Equity Plan by executive officers and other employees are discretionary and are therefore not determinable at this time.

 

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.

 

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, 6,800,000 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 who elect to participate in the Purchase Plan. The following table presents information since the beginning of fiscal 2005 relating to the aggregate number of shares purchased under the Purchase Plan, as well as the number of employees who have participated in the Purchase Plan.

 

 

 

 

The proposed amendment would increase the number of shares authorized under the Purchase Plan by 1,500,000 to a total of 8,300,000, an amount that we expect will permit all current and potential future employees to fully participate in the Purchase Plan at least through fiscal 2008.

 

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.

 

In May 2007, the Board unanimously approved, subject to stockholder approval, the Electronic Arts Inc. Executive Bonus Plan (the “Executive Bonus Plan”) and directed that the Executive Bonus Plan be submitted to our stockholders at the Annual Meeting. Stockholder approval of the Executive Bonus Plan will allow bonuses paid under it to be considered “performance-based compensation” within the meaning of Section 162(m) of the Code and therefore fully deductible by Electronic Arts for federal income tax purposes.

 

The Board believes that it is in the best interests of Electronic Arts and its stockholders to ensure that bonuses paid to covered employees (as defined in Section 162(m)) who are participants are fully deductible by Electronic Arts for federal income tax purposes. For purposes of Section 162(m), a covered employee is any employee of ours if, as of the close of our taxable year, such employee is our principal executive officer (or an individual acting in such a capacity) or if the total compensation of such employee for that taxable year is required to be reported to our stockholders under applicable securities rules by reason of such employee being among the three highest compensated officers for the taxable year (other than our principal executive officer or the principal financial officer). Accordingly, Electronic Arts has structured the Executive Bonus Plan to satisfy the requirements of Section 162(m) of the Code for “performance-based” compensation.

 

Stockholders are requested to approve the adoption of the Executive Bonus Plan. If the Executive Bonus Plan is approved by the stockholders, compensation paid by Electronic Arts pursuant to the Executive Bonus Plan, beginning with our 2008 fiscal year, to covered employees will not be subject to the corporate compensation deduction limits set forth in Section 162(m) of the Code. If the Executive Bonus Plan is not approved by our stockholders, it will not become effective.

 

Summary of the Executive Bonus Plan

 

The following paragraphs provide a summary of the principal features of the Executive Bonus Plan. The Executive Bonus Plan is attached to this proxy statement as Appendix C. This summary is qualified in its entirety by the Executive Bonus Plan.

 

Purpose.  The purpose of the Executive Bonus Plan is to provide eligible employees with incentive compensation based upon the level of achievement of financial, business and other performance criteria. It is intended that bonuses awarded under the Executive Bonus Plan to covered employees will qualify as deductible “performance-based compensation” within the meaning of Section 162(m) of the Code.

 

Eligibility.  Eligible participants in the Executive Bonus Plan are senior executives of Electronic Arts or of an affiliate who are chosen solely at the discretion of the Compensation Committee. It is expected that participation in the Executive Bonus Plan will generally be limited to our CEO and those executives who directly report to our CEO.

 

Administration.  The Executive Bonus Plan will be administered by our Compensation Committee (or a subcommittee thereof), which is comprised solely of two or more “outside” directors (within the meaning of Section 162(m)). The Compensation Committee has the authority, in its discretion, to make any and all decisions regarding the administration of the Executive Bonus Plan, including selecting employees eligible to receive awards, establishing performance goals and maximum bonus awards for each participant, construing and interpreting the terms of the Executive Bonus Plan and bonuses awarded thereunder, decreasing, paying or declining to pay bonuses under the Executive Bonus Plan, and establishing additional terms, conditions, rules, or procedures for the administration of the Executive Bonus Plan. All determinations of the Compensation Committee that are not inconsistent with the Executive Bonus Plan will be final and binding on all persons.

 

Establishment of Bonuses.  Each performance period, the Compensation Committee will select the individuals to participate in the Executive Bonus Plan, assign each participant a maximum award level and establish the performance goal or goals that must be achieved before an award actually will be paid to the participant. Bonuses are payable in cash.

 

Performance Goals.  Under the Executive Bonus Plan, participants will be eligible to receive cash awards based upon the attainment and certification of certain performance goals established by the Compensation

Committee over the applicable performance period. The performance goals that may be selected by the Compensation Committee include one or more of the following: cash flow (including operating cash flows or free cash flow), revenue (on an absolute basis or adjusted for currency effects), gross margin, operating expenses or operating expenses as a percentage of revenue, earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings, and may be determined in accordance with GAAP or revised to reflect any or all non-GAAP adjustments), earnings per share (on a GAAP or non GAAP basis), growth in any of the foregoing measures, stock price, return on equity or average stockholders’ equity, total stockholder return, growth in stockholder value relative to the moving average of the S&P 500 Index or another index, return on capital, return on assets or net assets, return on investment, economic value added, operating income, operating profit, controllable operating profit, or net operating profit, net profit, net income, operating margin, cash conversion cycle, market share, contract awards or backlog, overhead or other expense reduction, credit rating, strategic plan development and implementation, succession plan development and implementation, improvement in workforce diversity, customer indicators, new product invention or innovation, attainment of research and development milestones, improvements in productivity, attainment of objective operating goals and employee metrics.

 

The performance goals may be measured either on an absolute basis or relative to a pre-established target, to a previous period’s results, or to a designated comparison group and may differ for each participant. For example, the Compensation Committee may appropriately adjust any evaluation of performance under a performance goal to exclude any of the following events that occurs during a performance period: the effects of currency fluctuations; any or all adjustments that are reflected in the calculation of non-GAAP earnings as presented in any Electronic Arts press release or Form 8-K filing relating to an earnings announcement; asset write-downs; litigation or claim judgments or settlements; the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; accruals for reorganization and restructuring programs; and any other extraordinary or non-operational items. Additionally, the Compensation Committee may decide to ignore the effect of mergers or acquisitions in their evaluation of performance goals.

 

The Compensation Committee will establish the performance goals with respect to each participant in writing not later than 90 days after the commencement of the period of service to which the performance goals relate, provided that the outcome of the performance goals is substantially uncertain at the time of their establishment. A performance period shall generally be a fiscal year, but may also be any such other period of time as determined in the sole and absolute discretion of the Compensation Committee.

 

Determination of Bonuses.  As soon as practicable after the end of each performance period, the Compensation Committee will certify in writing the extent to which the pre-established performance goals actually were achieved and the amount of the bonus to be paid. The Compensation Committee reserves the discretion to reduce or eliminate any actual award under the Bonus Plan. The payment of a cash bonus under the Executive Bonus Plan requires that the participant be actively employed when the bonus is paid. The Compensation Committee, however, may make exceptions to the general rule that a participant must be actively employed when a cash bonus is payable in the case of retirement, death or disability, or in the event of a change in control. Additionally, if a participant incurs a change in status that results in him or her being ineligible to participate in this Plan during a performance period, he or she may receive a pro-rated bonus (as determined at the end of the performance period to which such bonus relates). The method in which a bonus is pro-rated is determined in the sole discretion of the Compensation Committee.

 

Payment of Bonuses.  All awards will be paid in cash as soon as is practicable after the Compensation Committee has certified that the applicable performance goals have been achieved, determined the bonus amounts, and authorized the payment of the corresponding bonuses, but in no event later than 21/2 months after the end of the calendar year in which the applicable performance period ends. Receipt of a bonus may be deferred, however, to the extent a participant has made a timely election to defer payment and pursuant to the terms and conditions of the Electronic Arts Inc. Deferred Compensation Plan or any successor plan and in compliance with Section 409A of the Code.

Maximum Award.  The maximum bonus payment that any participant may receive under the Executive Bonus Plan for any performance period is 300% of their base salary for such period, but in no event will a participant’s bonus under the Executive Bonus Plan exceed $5,000,000 during any fiscal year.

 

Term of Executive Bonus Plan.  The Executive Bonus Plan shall first apply to fiscal 2008. The Executive Bonus Plan shall terminate with respect to fiscal 2008 and all subsequent years unless it is approved at the 2007 Annual Meeting. Once approved by our stockholders, the Executive Bonus Plan shall continue until the earlier of (i) the date as of which the Compensation Committee terminates the Executive Bonus Plan, (ii) the date any stockholder approval requirement under Section 162(m) of the Code ceases to be met, or (iii) the date that is five years after the 2007 Annual Meeting.

 

Amendment and Termination.  The Compensation Committee may amend, modify, suspend or terminate the Executive Bonus Plan, in whole or in part, at any time and in any respect, including the adoption of amendments deemed necessary or desirable to correct any defect or supply omitted data or to reconcile any inconsistency in the Executive Bonus Plan or in any award granted thereunder. However, in no event may any such amendment, modification, suspension or termination result in an increase in the amount of compensation payable pursuant to any award under the Executive Bonus Plan or cause compensation that is, or may become, payable under the Executive Bonus Plan to fail to qualify as deductible “performance-based compensation” within the meaning of Section 162(m) of the Code. To the extent required by applicable law, amendments to the Executive Bonus Plan are subject to stockholder approval.

 

Federal Income Tax Consequences.  Under present federal income tax law, an Executive Bonus Plan participant will be taxed at ordinary income rates on the cash bonus in the year in which such cash is received. If a participant elects to defer all or a portion of the bonus, the participant may be entitled to defer the recognition of income. However, bonus deferrals are subject to applicable required withholdings, and Electronic Arts will withhold such amounts from the amount of the bonus deferral. Generally, and subject to the provisions of Section 162(m) of the Code, Electronic Arts will receive a federal income tax deduction corresponding to the amount of income recognized by the 162(m) Bonus Plan participants.

 

Bonuses to be Paid to Certain Individuals and Groups

 

Awards under the Executive Bonus Plan are determined based on actual future performance. Accordingly, it is not possible to determine the awards that would have been made had the Executive Bonus Plan been in effect for fiscal 2007. Notwithstanding the foregoing, the maximum bonus payment that any participant may receive under the Executive Bonus Plan for any performance period is 300% of their base salary for such period, but in no event will a participant’s bonus under the Executive Bonus Plan exceed $5,000,000 during any fiscal year. For fiscal 2007, we have paid discretionary bonuses or other types of compensation. See “Fiscal 2007 Summary Compensation Table” below for a description of bonuses paid to our Named Executive Officers in fiscal 2007. Though no participants have been definitively identified as of the filing of this proxy statement, our Compensation Committee intends to choose participants in the Executive Bonus Plan and set their bonus amounts in the near future.

 

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 approval of the Executive Bonus Plan.

 

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 EA’s independent registered public accounting firm (“independent auditors”) for fiscal 2008. The Audit Committee and the Board believe that KPMG LLP’s 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 Annual 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:

 

 

 

 

 

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 Company’s 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 LLP’s 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 2008.

 

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.

 

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”). From April 1, 2006 (the first day of fiscal 2007) through July 27, 2006, the Audit Committee consisted of M. Richard Asher, Gary M. Kusin and Gregory B. Maffei; from July 27, 2006 through April 1, 2007 (the last day of fiscal 2007), the Audit Committee consisted of Mr. Maffei, Vivek Paul and Richard A. Simonson. In the opinion of the Board of Directors, Mr. Maffei and Mr. Simonson each meet the criteria for a “financial expert” as set forth in applicable SEC rules as well as the above-mentioned independence requirements.

 

EA’s management is primarily responsible for the preparation, presentation and integrity of the Company’s financial statements. EA’s independent registered public accounting firm, KPMG LLP (“independent auditors”), is responsible for performing an independent audit of the Company’s (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 EA’s accounting policies, internal controls and financial reporting. The Audit Committee

reviews EA’s quarterly and annual financial statements prior to public earnings releases and submission to the SEC; reviews and evaluates the performance of EA’s internal audit function; reviews and evaluates the performance of EA’s independent auditors; consults with the independent auditors and EA’s internal audit function regarding internal controls and the integrity of the Company’s 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, EA’s internal audit function and the independent auditors. Management has represented to the Audit Committee that the Company’s 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 Company’s internal control over financial reporting was effective as of the end of the Company’s most recently-completed fiscal year, and the Audit Committee has reviewed and discussed the Company’s 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 Company’s financial reporting process and internal controls. The Audit Committee has also discussed with the Company’s 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 Registered Public Accounting Firm” — “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 Company’s 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 as of and for each of the last three years ended March 31, 2007 be included for filing with the SEC in the Company’s Annual Report on Form 10-K for the year ended March 31, 2007. The Audit Committee has also approved the selection of KPMG LLP as the Company’s independent auditors for fiscal 2008.

 

AUDIT COMMITTEE

 

Gregory B. Maffei (Chairman)

 

Vivek Paul

 

Richard A. Simonson

 

 

Common Stock

 

The following table shows, as of June 1, 2007, 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, 2007, there were 311,621,350 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.

 

 

 

 

 

Compensation Philosophy

 

Our success as a global leader in the interactive entertainment industry depends heavily on attracting, motivating and retaining the best executive talent available from many diverse industries and backgrounds. Likewise, our leading position within the interactive entertainment industry makes us a prime target for recruiting of executives and key creative talent. Our compensation philosophy, designed to attract, motivate and retain the best executive talent, relies on two basic principles. First, a significant portion of each executive’s compensation should be in the form of equity to align the executive’s interests with those of EA’s stockholders. Second, a significant portion of each executive’s cash compensation should be performance-based and “at risk” — varying from year to year depending on EA’s financial and operational performance and on the individual meeting financial and other performance measures. Consistent with this philosophy, we regularly consider and implement creative new methods of using our compensation programs to successfully recruit new, and retain existing, talent into the organization while maintaining parity with compensation of current key executives.

 

AUTHORITY FOR EXECUTIVE COMPENSATION DECISIONS

 

Compensation Committee

 

The Compensation Committee is charged with establishing EA’s compensation philosophy and strategy for our senior officers. Consistent with this purpose, the Committee has adopted a “pay-for-performance” philosophy designed to ensure that each executive officer’s compensation will reflect the performance of both EA and the executive officer.

 

The Committee’s scope of authority includes the oversight and review of all compensation, equity and employee benefit plans and programs. For fiscal 2007, the Compensation Committee reviewed and approved the salaries, bonuses and equity compensation of each of our 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 Committee’s recommendation. The Compensation Committee also administers our equity compensation plans and the bonus plan for executive officers and all significant or non-standard equity grants for other employees.

 

The Compensation Committee has delegated limited authority for determining and approving equity grants for non-executive employees, consisting of pre-defined size limits and vesting schedules, to a committee consisting of our CEO and our Executive Vice President in charge of Human Resources, which we refer to as the “Management Committee”. The Management Committee is generally responsible for all equity grants to employees below the Senior Vice President level, up to an annual grant limit of stock options to purchase 30,000 shares or 10,000 restricted stock units (“RSU Awards”), using vesting schedules previously approved by the Compensation Committee. The Management Committee reports on its activities to the Compensation Committee on at least an annual basis.

 

Compensation Consultant

 

The Compensation Committee has the authority to engage the services of outside advisors. During fiscal 2007, the Compensation Committee engaged Compensia, Inc., as an independent advisor to assist the Committee in its review of the compensation for executive officers and other elements of our total compensation strategy. Compensia also advised and counseled the Committee regarding updated executive compensation disclosure requirements and its related responsibilities. Compensia works directly with the Committee Chair and Committee members and sends all invoices, including descriptions of services rendered, to the Committee Chair for review and payment approval. Compensia performed no work for company management during fiscal 2007. Our management also engages separate consulting services in the preparation and recommendation of executive compensation levels to the Committee. In fiscal 2007, management retained Aon/Radford

Consulting (to provide data, analyze and recommend executive compensation changes) and Frederic W. Cook & Co. (to assist management and the Compensation Committee with a review of compensation levels for members of the Board of Directors).

 

Role of Company Management in Establishing Executive Compensation

 

Certain of our executives are involved in the development and recommendation of executive compensation levels to the Committee and/or the Board.

 

Our Executive Vice President of Human Resources is responsible for conducting the analysis of market trends, providing documentation of individual executive performance, and creating initial recommendations of executive salary adjustments, potential cash bonus awards, and potential stock awards. She oversees the preparation of the Committee’s meeting materials, works with the Committee Chair to set the meeting agenda, and attends all Committee Meetings.

 

Our Chief Executive Officer reviews and provides input to all executive compensation recommendations (except his own) prior to and during review by the Committee.

 

Compensation Committee Activity

 

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 Committee met five times in fiscal 2007, four of which were regularly scheduled quarterly meetings and once in a special session to consider our stock option exchange proposal to stockholders (the “Exchange Program”) and to review and approve a targeted retention stock option and restricted stock unit grant program (“Retention Award Program”). For its regular meetings, the Committee maintains a calendar to help guide the meeting agendas and to ensure fulfillment of all responsibilities outlined in its charter. In fiscal 2007, the calendar included a comprehensive review of EA’s total rewards programs, review of compensation levels for members of our Board of Directors, review and approval of all executive offers and promotions, review and approval of fiscal 2006 cash bonuses, review and approval of the August 2006 retention grant recommendations, a review of all actions taken by management using authority delegated by the Committee, and a review of the new disclosure rules related to executive compensation.

 

Also of note in fiscal 2007, the Committee approved a move from twice monthly stock option grant dates to once per month for administrative efficiency. Previously, we had granted new hire and promotional stock options to non-executive employees on the 1st and 16th (or the next business day after the 1st or the 16th, as the case may be) of each month following the event and had granted restricted stock units on the 16th (or the next business day thereafter) of each month following the event. Grants to executive officers had been tied to the actual hire or promotion date of the executive and were, in all cases, approved by the Committee in advance of the grant date. Except as described in the next sentence, following the move to a single monthly grant date, all new hire and promotional grants, including executive grants, have been and will continue to be made on the 16th of each month (or the next business day thereafter). The sole exception to this policy related to the new hire grants we made to Mr. Riccitiello, which were approved in February 2007 for grant on the second trading day following the public release of our earnings results for fiscal 2007.

 

KEY ELEMENTS OF OUR COMPENSATION PROGRAMS

 

The Compensation Committee awards executive compensation in three components: base salary, cash incentive bonus and equity incentives.

 

In fiscal 2007, the Compensation Committee approved a new annual merit increase effective date of June 1 (other than equity grants, which will be made on June 16th, or the first business day thereafter, as described above) for all executive officers. This date is the same for all EA employees, and was selected to allow adequate review and consideration of the company’s full fiscal year performance when determining compensation awards. Previously, annual merit increases and equity grants were made on March 1 of each year and cash incentive bonuses were paid in May.

Benchmarking of Compensation

 

In fiscal 2006 and 2007, at the direction of the Compensation Committee, EA’s 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 technology (primarily software developers), entertainment and selected packaged goods companies as reference points. We deemed additional companies included in the survey group to be relevant because they compete with us for executive talent.

 

The peer group of companies included:

 

• Activision

• Adobe

• Autodesk

• CACI International

• CMGI

• Dreamworks Animation

• eBay

• Google

• Hasbro

• Intuit

• Liberty Media Corp

• Mattel

• Perot Systems

• Scripps EW

• Symantec

• Synopsys

• Take Two Interactive

• THQ

• Univision Communications

• WebMD

• Yahoo

 

Our executive level positions, including Chief Executive Officer, were compared to similar survey positions and competitive market compensation levels to determine base salary ranges, target incentives and target total cash compensation. Our Human Resources Department participated in comprehensive surveys such as the IPAS Technology 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 our 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 executive’s responsibility level and EA’s fiscal year performance compared to pre-determined objectives and potential performance targets for the subsequent year.

 

Base Salary

 

We believe that a competitive base salary is the essential foundation to providing a compelling total compensation package for our executives. In reviewing executive base salaries, the Compensation Committee considered each executive’s performance over the last year as reported by the Chief Executive Officer and the Executive Vice President of Human Resources, each executive’s responsibility level, and the third quartile (50th to 75th percentile) of base salaries reported in the competitive market compensation surveys noted above. We target salaries to fall within the third quartile to reflect the minimum salary levels necessary to attract, motivate and retain highly qualified executives while also allowing flexibility to recognize executives such as those with additional responsibilities or skills which are critical to the success of the company. For fiscal 2007, those eligible executives, including the Named Executive Officers, received an increase to their base salary during the Committee’s February 2006 compensation review. Annual salary increases for EA’s executives were, at 3.5% in aggregate, approximately the same on a percentage basis as annual salary increases received by the overall non-executive employee population.

 

For fiscal 2008, those eligible executives, including the Named Executive Officers, received a salary increase during the Committee’s May 2007 compensation review. Employee salary increases, including those for executives, were pro-rated to account for the additional time between the last annual review on February 15, 2006 and the new annual review date of June 1, 2007. The salary increases for EA’s executives were, at 4.6% in aggregate, approximately the same on a percentage basis as salary increases received by the overall non-executive employee population.

 

Incentive Bonus

 

We use cash incentives to deliver competitive total cash compensation that is linked to annual financial and individual executive performance. For fiscal 2007, the Compensation Committee reviewed and approved

target bonuses for each executive (expressed as a percentage of that executive’s base salary) designed to deliver total target cash compensation (base salary plus target bonus) in the third quartile of the competitive market compensation surveys noted above. As with our targeted salary positions, we target total cash compensation positions within the third quartile to reflect target cash compensation opportunity levels necessary to attract, motivate and retain highly qualified executives while also allowing flexibility to recognize executives such as those who have additional responsibilities or skills which are critical to the success of the company.

 

Incentive bonus payouts to executive officers are determined in accordance with the company’s Discretionary Bonus Program, and are reviewed and approved by the Compensation Committee. Under the Discretionary Bonus Program, each executive is assigned a bonus target (expressed as a percentage of the executive’s base salary), which is then adjusted to reflect (i) EA’s performance as a whole, (ii) in certain cases, an executive’s business unit performance, and (iii) the executive’s individual performance.

 

The bonus component relating to EA’s performance as a whole was determined by comparing EA’s fiscal 2007 operating performance to a fiscal 2007 business and financial plan target, both of which were based on a measure of EA’s earnings per share, adjusted to reflect, among other things, the impact of foreign exchange fluctuations, stock-based compensation, acquisition-related expenses, restructuring charges, tax rate fluctuations, and the impact of bonus accruals. The fiscal 2007 the plan target was established in May 2006, at which time it was expected to be challenging yet achievable. For fiscal 2007, EA’s operating performance exceeded the fiscal 2007 plan target. An executive’s business unit performance may include financial performance criteria such as business unit operating profit or non-financial measures such as the quality and timeliness of products released to market. An executive’s individual performance is measured on the basis of achievement of individual objectives and milestones identified for the fiscal year.

 

Stock-Based Compensation

 

We believe that alignment of the interests of our stockholders and our officers is significantly 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 executive officers’ 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.

 

Historically, the Compensation Committee had granted stock options, but not RSU awards, to executive officers (i) when they first join EA, (ii) in connection with a significant change in responsibilities, (iii) annually to provide incentives for continued performance and retention of employment and, (iv) occasionally, to achieve internal parity between different positions within EA. The target value granted to each executive is based upon a combination of comparable external market benchmarks, such as the ongoing stock option grant value at the market 75th percentile, and internal parity among similarly situated executives.

 

In February 2006, the Compensation Committee began granting the total equity grant value as a mix of stock options and RSU awards to certain executive officers (other than the CEO). The total equity grant value is 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 Committee’s belief that (i) stock options are an important vehicle for encouraging equity ownership by executive officers and aligning their interests with EA’s stockholders’, whereas (ii) RSU awards allow the Company to keep abreast of competitive trends in equity compensation, particularly in light of the implementation of SFAS No. 123(R), and to strengthen the retention of key employees. The Compensation Committee also reviews the estimated total pool of stock options and RSU awards to be granted to executives and other employees to ensure that share consumption remains in line with internal targets. The Compensation Committee determined that, unlike other executives, the CEO’s equity compensation should be structured to achieve maximum alignment with the interests of EA’s stockholders. As a result, the Compensation Committee recommended to our Board of Directors that Mr. Probst’s March 2006 equity grant and Mr. Riccitiello’s May 2007 new hire equity grants should consist solely of stock options.

All stock options granted to the Named Executive Officers in fiscal 2007 were made at fair market value on the date of grant and vest as described in the “Fiscal 2007 Grants of Plan-Based Awards Table” below. RSU awards granted in fiscal 2007 to the Named Executive Officers vest as described in the footnotes to the Summary Compensation Table below.

 

Personal Benefits and Perquisites

 

We believe we have taken a conservative approach with respect to our use of executive perquisites and other personal benefits. Our executive officers receive the same benefits package that is available to other regular full time employees of the company. In addition, all executive officers, including our Named Executive Officers, have access to a company-paid executive physical program, receive company-paid supplemental long term disability insurance, and receive paid parking at locations where free parking is not available. We consider these programs to be standard components of a competitive executive total compensation package. For the supplemental long-term disability insurance, the primary goal is to provide the same level of coverage as is available to all other employees but is limited in the general policy due to covered earnings caps.

 

We do provide certain additional benefits and perquisites related to international and domestic assignments and relocations, including housing allowance, car allowance and tax protection to offset costs incurred by executive officers associated with his or her assignment. In fiscal 2007, Dr. Florin was the only Named Executive Officer to receive assignment-related benefits and perquisites, which are reflected in the Fiscal 2007 Summary Compensation Table below.

 

Retirement and Other Benefits

 

We do not offer a retirement plan to our executive officers other than through participation in the defined contribution plans we offer to all eligible employees.

 

We maintain a Deferred Compensation Plan (“DCP”) that allows directors and certain employees, including our Named Executive Officers, to defer receipt of their salary into cash accounts that mirror the gains and/or losses of several different investment funds which correspond to the funds we have selected for our 401(k) plan. Participants may defer up to 75% of their salary and up to 100% of their bonuses and/or commissions until the date(s) they have specified. We are not required to make any contributions to the DCP and did not do so in fiscal 2007. None of our Named Executive Officers participated in the DCP during fiscal 2007.

 

FISCAL 2007 COMPENSATION

 

For fiscal 2007, the Compensation Committee reviewed and, where appropriate, adjusted executive base salary, reviewed and approved cash bonus awards, and reviewed and approved annual equity compensation grants at its February 2006 meeting. In an effort to retain and motivate a select group of key employees, including certain executive officers, in June 2006, our Compensation Committee approved the Retention Award Program pursuant to which equity awards were granted on August 16, 2006, the first regular grant date following our earnings release for the quarter ended June 30, 2006.

 

For fiscal 2008, the Compensation Committee reviewed and, where appropriate, adjusted executive base salary, reviewed and approved cash bonus awards, and reviewed and approved equity compensation grants at a meeting held in May 2007.

 

Lawrence F. Probst III — Chief Executive Officer during fiscal 2007

 

Mr. Probst served as our Chief Executive Officer through the end of fiscal 2007.

 

In February 2006, based on a recommendation from the Compensation Committee, our Board of Directors (i) approved a market-based salary adjustment of 3.5% for Mr. Probst, increasing his salary to $734,850, and (ii) awarded a stock option to purchase 225,000 shares, which vests as to 24% on the first anniversary of February 1, 2006 and then 2% monthly thereafter.

In May 2006, in light of EA’s fiscal year performance and based on a recommendation from the Compensation Committee, our Board of Directors decided not to award a cash bonus to Mr. Probst for fiscal 2006 performance.

 

In May 2007, based on a recommendation from the Compensation Committee, our Board of Directors decided to award a $993,517 cash bonus based on (i) EA’s fiscal 2007 performance, as described above, (ii) Mr. Probst’s achievement of specific performance goals in fiscal 2007, and (iii) Mr. Probst’s bonus target of 100% of his base salary. In addition, based on a recommendation of the Compensation Committee, the Board of Directors reduced Mr. Probst’s salary to $367,426 to reflect his ongoing responsibilities as Chairman of the Board following his retirement as Chief Executive Officer.

 

Warren C. Jenson — Chief Financial and Administrative Officer

 

In February 2006, the Compensation Committee reviewed and approved the following compensation actions for Mr. Jenson:

 

 

In May 2006, in light of EA’s fiscal year performance, the Compensation Committee decided not to award a cash bonus to Mr. Jenson for fiscal 2006.

 

In May 2007, the Compensation Committee reviewed and approved for Mr. Jenson a $637,226 cash bonus based on (i) EA’s fiscal 2007 performance, as described above, (ii) Mr. Jenson’s achievement of specific performance goals in fiscal 2007, and (iii) Mr. Jenson’s bonus target of 75% of his base salary.

 

In June 2002, we hired Mr. Jenson as Chief Financial and Administrative Officer. As part of our efforts to recruit Mr. Jenson, we agreed to loan him $4 million, to be forgiven over four years based on his continuing employment. The loan did not bear interest. The loan was made prior to enactment of the Sarbanes-Oxley Act of 2002 and its prohibition on loans to executive officers. 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 EA’s best interests and significantly more beneficial to the Company than unrestricted cash payments. In June 2004, pursuant to the terms of his offer letter and 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 Mr. Jenson to offset the tax implications of the forgiveness of the remaining $2 million.

 

In connection with our recruitment of Mr. Jenson, we also agreed to pay certain relocation-related costs. In fiscal 2007, we paid a total of $68,143 on behalf of Mr. Jenson in relocation-related costs, including storage and shipping of household goods and the related tax gross-up.

 

Paul Lee — President, Worldwide Studios

 

In February 2006, the Compensation Committee reviewed and approved the following compensation actions for Mr. Lee:

 

 

 

In May 2006, in light of EA’s fiscal year performance, the Compensation Committee decided not to award a cash bonus to Mr. Lee for fiscal 2006.

 

In July 2006, the Compensation Committee reviewed and approved a special retention stock grant for Mr. Lee delivered as:

 

 

In May 2007 the Compensation Committee reviewed and approved for Mr. Lee a $639,020 cash bonus based on (i) EA’s fiscal 2007 performance, as described above, (ii) Mr. Lee’s achievement of specific performance goals in fiscal 2007, and (iii) Mr. Lee’s bonus target of 80% of his base salary.

 

Gerhard Florin — Executive Vice President, General Manager, International Publishing

 

In February 2006, the Compensation Committee reviewed and approved the following compensation actions for Dr. Florin:

 

 

In May 2006, in light of EA’s fiscal year performance, the Compensation Committee decided not to award a cash bonus to Dr. Florin for fiscal 2006.

 

In July 2006, the Compensation Committee reviewed and approved a special retention stock grant for Dr. Florin delivered as:

 

 

In September 2006, an exchange rate adjustment of 1.5% was made to Dr. Florin’s salary, bringing it to 729,485 Swiss francs, in connection with Dr. Florin’s move to Geneva, Switzerland as part of the relocation of our international publishing headquarters.

 

In May 2007 the Compensation Committee reviewed and approved for Dr. Florin a $526,874 cash bonus based on (i) EA’s fiscal 2007 performance, as described above, (ii) Dr. Florin’s achievement of specific performance goals in fiscal 2007, and (iii) Dr. Florin’s bonus target of 60% of base salary.

 

Beginning in September 2006, in connection with his relocation to Geneva, Switzerland, Dr. Florin received a total of $383,022 for assignment-related expenses, including a housing allowance, temporary living reimbursement, cultural training, dependent education reimbursement, tax preparation assistance and household goods shipping and storage. Dr. Florin will continue to receive assignment-related benefits in fiscal 2008.

 

Mitch Lasky — Executive Vice President, EA Mobile

 

In May 2006, in light of EA’s fiscal year performance, the Compensation Committee decided not to award a cash bonus to Mr. Lasky for fiscal 2006.

In August 2006, the Compensation Committee reviewed and approved the following compensation actions for Mr. Lasky:

 

 

In September 2006, Mr. Lasky was promoted to Executive Vice President of EA Mobile. In connection with his promotion, the Compensation Committee reviewed and approved the following compensation actions for Mr. Lasky:

 

 

In May 2007 the Compensation Committee reviewed and approved for Mr. Lasky a $352,365 cash bonus based on (i) EA’s fiscal 2007 performance, as described above, (ii) Mr. Lasky’s achievement of specific performance goals in fiscal 2007, and (iii) Mr. Lasky’s bonus target of 60% of base salary.

 

At the time of our acquisition of JAMDAT, Mr. Lasky held a number of shares of unvested JAMDAT restricted stock. In accordance with the terms of the acquisition agreement we entered into with JAMDAT, Mr. Lasky’s shares of restricted stock were cancelled and automatically converted into rights to receive $27.00 per share, subject to the same terms and conditions that had been applicable to the restricted stock immediately prior to the acquisition, including vesting schedules and repurchase rights. As such, we were required to pay $27.00 for each share of JAMDAT restricted stock that was cancelled but would have vested as a result of Mr. Lasky’s continued employment with EA following the acquisition. In fiscal 2007, we paid Mr. Lasky a total of $1,437,048 for cancelled shares of JAMDAT restricted stock.

 

Effective April 2, 2007, Mr. Lasky resigned from EA.

 

EMPLOYMENT AGREEMENTS, CONTINGENT COMPENSATION AND OTHER MATTERS

 

Change of Control, Arrangements

 

We have not entered into any arrangements with the Named Executive Officers that provide for any benefits in connection with a change of control of EA.

 

Severance Arrangements

 

On September 26, 2006, in connection with his relocation to Geneva, Switzerland, we entered into an agreement with Dr. Florin setting forth the terms and conditions of his employment. The agreement provides for (i) a notice period of six months in the event of termination of Dr. Florin’s employment (other than for gross misconduct on the part of Dr. Florin); (ii) a redundancy payment of 16 weeks salary (determined by the number of years of Dr. Florin’s previous service to the Company according to EA’s standard policy regarding the calculation of redundancy payments) in the event that Dr. Florin is made redundant (i.e., the Company no longer requires the services for which Dr. Florin is employed, or his position is relocated to another EA entity) within 3 years after the effective date of the agreement; and (iii) payment of air fare and relocation of household goods for Dr. Florin and his family back to the UK in the event that Dr. Florin is made redundant within 2 years after the effective date of the agreement.

Retirement

 

The Company has implemented a special retirement provision related to the exercise of outstanding vested stock options after a qualifying termination of employment. All employees, including our Named Executive Officers, are eligible for this provision. Normally, an employee has three months after employment terminates to exercise their stock options that were vested on their termination date. After three months, those options expire.

 

For an employee or director whose length of service plus age equals 60, and whose length of service is at least 10 years, a retirement provision applies that allows exercise of stock options that were vested on their termination date for a period up to 60 months after their termination of employment.

 

Dr. Florin participated in an executive defined contribution plan in the United Kingdom during the first half of fiscal 2007, which allowed him to make larger contributions into his plan than he would have been able to make under the standard employee plan, which has a cap on contributions. Under the executive plan, Dr. Florin was able to contribute up to 5% of his salary, which is the same maximum contribution rate used by employees under the standard plan, and the Company contributed 7% of his salary, which is the same contribution rate used for Company contributions under the standard plan for employees contributing at the 5% level. Dr. Florin currently participates in a defined contribution plan in Switzerland for which all of the Company’s Swiss employees are eligible.

 

Non-competition Agreements

 

As part of our acquisition of JAMDAT Mobile Inc. on February 15, 2006, we entered into a non-competition agreement with Mr. Lasky, which provided that, for a period of three years, Mr. Lasky would not: (i) participate in any business that engages in the development and distribution of downloadable wireless entertainment applications for mobile telephone devices carried on by JAMDAT at the time of the acquisition, including, without limitation, games for use on mobile telephones and other handheld mobile devices; (ii) induce any EA employee to terminate employment with EA to accept employment in any business that engages in the activities described in clause (i), or (iii) solicit EA employees for employment.

 

Dr. Florin’s employment agreement contains the following restrictions: (i) a six-month period following the termination of Dr. Florin’s employment during which he is prohibited from soliciting or providing goods or services to, in competition with EA, certain customers of EA, (ii) a six-month period following the termination of Dr. Florin’s employment during which he is prohibited from contracting with or engaging, in competition with EA, certain suppliers of EA; (iii) a six-month period following the termination of Dr. Florin’s employment during which he is prohibited from employing, or engaging or offering employment to certain employees of EA; and (iv) a six-month period following termination of Dr. Florin’s employment during which he is restricted from competing with EA in Switzerland.

 

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 based on multiples of the executive’s base pay, ranging from one to six times the executive’s annual salary depending on the executive’s level within the organization. In some cases, the ownership requirements are phased in on the basis of the executive’s tenure. The Compensation Committee monitors these ownership guidelines and believes they further align the interests of EA’s stockholders and executives. As of March 31, 2007, each of EA’s 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.

 

Trading Policy

 

We have a policy designed to promote compliance by all EA personnel with insider trading laws. Under the policy, certain employees (including all executive officers) who regularly have access to material, non-public information are prohibited from buying or selling EA common stock during periods when EA’s trading window is closed (unless such transactions are made pursuant to a pre-approved 10b5-1 trading plan). When

the trading window is open, these employees are prohibited from buying or selling EA common stock while in possession of material, non-public information and must request a trading clearance from EA’s General Counsel prior to buying or selling EA common stock (unless such transactions are made pursuant to a pre-approved 10b5-1 trading plan). In addition, because we believe it is improper and inappropriate for any EA personnel to engage in any transaction designed to result in a benefit from a decline in the trading price of EA’s common stock, EA’s directors, executive officers and other employees may not engage in short sales of EA common stock under any circumstances, including trading in puts and calls.

 

IMPACT OF REGULATORY REQUIREMENTS ON COMPENSATION

 

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 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 2007. 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). In fiscal 2007, the following compensation paid to EA’s Named Executive Officers exceeded the Section 162(m) thresholds: (i) Mr. Probst’s cash compensation; and (ii) Mr. Lasky’s cash compensation and the cash payments he received for cancelled shares of JAMDAT restricted stock that would have vested during fiscal 2007. Pursuant to recent guidance from the Internal Revenue Service, Mr. Jenson, our Chief Financial Officer, is not considered to be a covered employee for purposes of Section 162(m).

 

For fiscal 2008, our Board has adopted an executive bonus plan under which payments made to covered executive officers in excess of $1 million would be deductible. The executive bonus plan is subject to approval by our stockholders at the 2007 Annual Meeting. For further information regarding the executive bonus plan, see Proposal 4. Approval of the Electronic Arts Inc. Executive Bonus Plan above.

 

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 EA’s “pay-for-performance” philosophy described above, enter into compensation arrangements in the future under which payments are not fully deductible under Section 162(m).

 

Accounting for Stock-Based Compensation

 

In fiscal 2007, we began accounting for stock-based compensation in accordance with the requirements of SFAS No. 123(R). During calendar year 2005, we began granting restricted stock units to certain overtime-eligible employees. In calendar year 2006, we expanded the use of restricted stock units to all employee groups including the Named Executive Officers. The comparable expense of restricted stock units and stock options we recognize under SFAS No. 123(R) removed a financial reporting disincentive to use restricted stock units that existed before we began expensing stock options granted to employees and directors.

 

The following Compensation Committee Report on Executive Compensation 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 Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on its review and discussions with management, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

COMPENSATION COMMITTEE

 

M. Richard Asher (Chairman)

 

Leonard S. Coleman, Jr.

 

Linda J. Srere

 

The following table shows information concerning the compensation earned during fiscal 2007 by our Chief Executive Officer, our Chief Financial and Administrative Officer and our next three most highly compensated executive officers. We refer to these individuals collectively as the “Named Executive Officers”.

 

 

 

 

The following table shows information regarding equity awards granted to the Named Executive Officers during fiscal 2007.

 

 

 

 

The following table shows information regarding all outstanding equity awards held by the Named Executive Officers as of the end of fiscal 2007.

 

 

 

The following table shows all stock options exercised and value realized upon exercise and all restricted stock units vested and value realized upon vesting by the Named Executive Officers during fiscal 2007.

 

 

 

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.

 

The following table gives aggregate information regarding grants under all of our equity incentive plans as of the end of fiscal 2007, including the 2000 Equity Incentive and 2000 Employee Stock Purchase Plans, which are proposed to be amended at the 2007 Annual Meeting as described in “Proposals To Be Voted On” and Appendices A and B.

 

 

 

 

See also Note 12 to the Consolidated Financial Statements included in EA’s Annual Report on Form 10-K for the period ended March 31, 2007 for additional information about these plans.

 

OTHER INFORMATION

 

Our Board of Directors has adopted a written Related Person Transactions Policy. The purpose of the policy is to describe the procedures used to identify, review, approve or ratify and, if necessary, disclose (i) any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which EA (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $120,000, and in which any “related person” had, has or will have a direct or indirect interest, or (ii) any transaction for which EA’s Global Code of Conduct would require approval of the Board of Directors. For purposes of the policy, a “related person” is (a) any person who is, or at any time since the beginning of EA’s last fiscal year was, a director or executive officer of EA or a nominee to become a director of EA, (b) any person who is known to be the beneficial owner of more than 5% of any class of EA’s voting securities, (c) any immediate family member or person sharing the household (other than a tenant or employee) of any of the foregoing persons, and (d) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.

 

Once a potential related person transaction has been identified, the Audit Committee (if the transaction involves an executive officer of EA) or the Nominating and Governance Committee (if the transaction involves a director of EA) will review the transaction at the next scheduled meeting of such committee. In those instances in which it is not practicable or desirable to wait until the next scheduled committee meeting, the chairperson of the applicable committee shall consider the matter and report back to the relevant committee at the next scheduled meeting.

 

In determining whether to approve or ratify a related person transaction, the Audit Committee or Nominating and Governance Committee (or the relevant chairperson of such committee) shall consider all of the relevant facts and circumstances available. No member of the Audit Committee or Nominating and Governance

Committee shall participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The Audit Committee and Nominating and Governance Committee (or the relevant chairperson) shall approve only those related person transactions that are in, or are not inconsistent with, the best interests of EA and its stockholders, as determined in good faith.

 

We enter into indemnification agreements with each of the members of our Board of Directors at the time they join the Board to indemnify them to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the directors are sued or charged as a result of their service as members of our Board of Directors.

 

In June 2002, we hired Mr. Jenson as Chief Financial and Administrative Officer. As part of our efforts to recruit Mr. Jenson, we agreed to loan him $4 million, to be forgiven over four years based on his continuing employment. The loan did not bear interest. The loan was made prior to enactment of the Sarbanes-Oxley Act of 2002 and its prohibition on loans to executive officers. Although the loan was made prior to the adoption of our related person transactions policy, our 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 EA’s best interests and significantly more beneficial to EA than unrestricted cash payments. In June 2004, pursuant to the terms of his offer letter and 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 Mr. Jenson to offset the tax implications of the forgiveness of the remaining $2 million.

 

The sister of Nancy Smith, an executive officer of EA, was an employee of EA until February 2007. During fiscal 2007, Ms. Smith’s sister was paid cash compensation, including salary, bonus, vacation accrual payout, and a severance payment, of approximately $299,000 (of this amount, approximately $54,000 was paid in connection with a bonus she earned during fiscal 2004, which vested over time and was paid in fiscal 2007). Ms. Smith’s sister did not report directly or indirectly to Ms. Smith at any time during fiscal 2007. Ms. Smith’s sister’s employment with EA commenced prior to the adoption of our related person transactions policy and was therefore not approved pursuant to such policy.

 

From April 1, 2006 (the first day of fiscal 2007) through July 27, 2006, the Compensation Committee consisted of M. Richard Asher, Robert W. Pittman and Linda J. Srere; from July 27, 2006 through April 1, 2007 (the last day of fiscal 2007), the Compensation Committee consisted of Mr. Asher, Ms. Srere and Leonard S. Coleman, Jr. 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 2007 as a member of the board of directors or the compensation committee of a company at which a member of EA’s Compensation Committee is an employee or officer.

 

Section 16(a) of the Securities Exchange Act of 1934 requires EA’s directors and executive officers, and persons who own more than ten percent of a registered class of EA’s equity securities, to file reports of ownership and changes in ownership of common stock and other equity securities of EA. We have adopted procedures to assist EA’s directors and officers in complying with these requirements, which include assisting officers and directors in preparing forms for filing.

To EA’s knowledge, based solely upon review of such reports furnished to us and written representations that no other reports were required, we believe that, except as described in the following sentence, during the fiscal year ended March 31, 2007, all Section 16(a) filing requirements applicable to our officers, directors and greater-than-ten-percent stockholders were complied with on a timely basis. As the result of an administrative error, a late Form 4 was filed on May 23, 2006, for Kenneth A. Barker to report his receipt of a stock option on April 18, 2006 to purchase 20,000 shares.

 

If you would like us to consider a proposal to be included in our 2008 proxy statement and proxy card, you must deliver it to the Company’s Corporate Secretary at our principal executive office no later than February 21, 2008.

 

Stockholders who otherwise wish to present a proposal at the 2008 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 22, 2008 and no later than April 21, 2008 (provided, however, that if the 2008 Annual Meeting is held earlier than June 26, 2008 or later than August 25, 2008, proposals must be received no earlier than the close of business on the later of the 90th day prior to the 2008 Annual Meeting or the 10th day following the day on which public announcement of the 2008 Annual Meeting is first made). The submission must include certain information concerning the stockholder and the proposal, as specified in the Company’s amended and restated bylaws. Our amended and restated bylaws are included as an exhibit to a Current Report on Form 8-K we filed with the SEC on November 13, 2006, which you may access through the SEC’s 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.

 

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.

 

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.

 

The Board does not know of any other matter that will be presented for consideration at the Annual Meeting except as specified in the notice of the meeting. If any other matter does properly come before the Annual Meeting, or at any adjournment or postponement of 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

 

GENERAL DESCRIPTION OF THE 2000 EQUITY INCENTIVE PLAN

 

History

 

The Company’s 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 Company’s stockholders at the 2007 Annual Meeting.

 

Shares Subject to the Equity Plan

 

The stock subject to issuance under the Equity Plan consists of shares of the Company’s 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. As proposed to be amended, the number of shares authorized for issuance under the Equity Plan would be increased to 76,400,000. 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 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.

 

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 15,000,000 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 decreased to 11,000,000 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 June 1, 2007, 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 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 NASDAQ 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 executive officers 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

 

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.

 

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 Company’s 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.

 

No Repricings or Exchanges of Awards Without Stockholder Approval