Electronic Arts 2006 Annual Report Download - page 27

Executive Compensation Ì Stock-Based Compensation''). By granting replacement awards consisting of
restricted stock rights rather than new, at-the-money stock options, the Compensation Committee seeks to
strengthen the Company's equity-based retention incentives, while further aligning our existing equity
compensation programs with our compensation philosophy.
Additional Retention Awards
The Compensation Committee believes that the Exchange Program alone will not necessarily provide a
suÇciently strong retention incentive for certain key employees. Therefore, in addition to proposing
adoption of the Exchange Program, the Compensation Committee has adopted a program of granting a
mix of new stock option and restricted stock unit awards (the ""Retention Awards''), consistent with our
current equity compensation programs, to a targeted group of key employees, which may include our
Named Executive OÇcers. The Retention Awards do not require stockholder approval and are therefore
not part of Proposal 2. When implemented, the Compensation Committee anticipates granting a mix of
stock options to purchase approximately 2.2 million shares and 600,000 restricted stock units to a select
group of key employees. Retention awards granted to key employees at more senior positions will consist of
a combination of stock options and restricted stock units, while others will receive Retention Awards solely
in the form of restricted stock units. These Retention Awards will partially oÅset the reduction in overhang
achieved by the Exchange Program. In the example used to illustrate the overhang discussion above, the
net reduction in overhang achieved by the combination of the Exchange Program and the Retention
Awards would be 8,359,590 shares, representing approximately 2.7% of the number of shares of our
Common Stock issued and outstanding as of June 19, 2006. The Compensation Committee believes that
this combination of the Exchange Program and the grant of new Retention Awards is necessary to achieve
the Company's primary objective of improving its ability to retain and motivate current employees, while
Proxy Statement
still achieving a favorable impact on overhang.
Implementing the Exchange Program
We have not commenced the Exchange Program, and we will not do so unless our stockholders approve
both this proposal and the amendments to the Equity Plan described in Proposal 3 contained in this proxy
statement and the Compensation Committee determines that the Exchange Program complies with
applicable regulatory requirements (as described in more detail below). The Exchange Program will
commence at a time determined by the Compensation Committee. However, even if the Exchange
Program and the Equity Plan amendments are approved by our stockholders, the Compensation
Committee will retain the authority, in its discretion, to terminate, amend or postpone the Exchange
Program at any time prior to expiration of the election period under the Exchange Program (provided,
however, in no event will the Exchange Program permit the issuance of restricted stock rights having a
value greater than the value of the stock options surrendered, as estimated using the Black-Scholes option
valuation model).
Upon the commencement of the Exchange Program, eligible employees holding Eligible Options will
receive written materials in the form of an ""OÅer to Exchange'' explaining the precise terms and timing of
the Exchange Program. Employees will be given at least 20 business days to elect to surrender their
Eligible Options in exchange for restricted stock rights. At or before the commencement of the Exchange
Program, we will Ñle the OÅer to Exchange with the Securities and Exchange Commission (the ""SEC'')
as part of a tender oÅer statement on Schedule TO. Eligible employees, as well as stockholders and
members of the public, will be able to obtain the OÅer to Exchange and other documents Ñled by the
Company with the SEC free of charge from the SEC's website at www.sec.gov.
Description of the Exchange Program
Eligible Options. As of June 19, 2006, options to purchase 39,653,259 shares of our Common Stock were
outstanding under all of our equity compensation plans, including options assumed by the Company in
connection with acquisitions. Of these, options to purchase 15,989,086 shares of Common Stock, having
exercise prices ranging from $47.42 to $65.93, are held by eligible employees and would be eligible for
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