Electronic Arts 2006 Annual Report Download - page 29

We then discounted the resulting estimated fair value of the Eligible Options and grouped them into three
exercise price ranges that also represent a range of associated Black-Scholes values. Finally, we determined
an exchange ratio for each grouping of Eligible Options based on the relationship of the discounted Black-
Scholes value estimate for the most valuable option within the group to an assumed fair market value of
one share of our Common Stock to be made subject to a restricted stock right issued in the Exchange
Program. For this purpose, we assumed a fair market value per share equal to the closing price per share
of our Common Stock reported on the NASDAQ National Market on June 19, 2006. The following table
provides for each of the three option exercise price ranges the number of shares subject to Eligible Options
an employee must surrender in order to receive one restricted stock right in the Exchange Program,
assuming an average closing market price of $41.21 per share for the Ñve business days preceding the
commencement of the Exchange Program:
Table of Example Exchange Ratios
Exchange Ratio: Total Restricted
Total Shares Stock Option Shares Stock Rights
Subject to per Restricted Granted (assuming
Exercise Price Range Eligible Options Stock Right* 100% participation)
$47.39 to $53.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8,211,321 3.0 to 1 2,738,609
$54.00 to $60.99 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4,055,795 3.5 to 1 1,160,150
$61.00 and greater ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3,721,970 4.0 to 1 930,737
* Actual exchange ratios will be subject to change at the discretion of the Compensation Committee if there is a change in the
market price of our Common Stock preceding the commencement of the Exchange Program from the market price used in
determining the exchange ratios set forth in this table or a change to any of the other factors used in the Black-Scholes calculation
used to determine the exchange ratios; provided, however, in no event will the Exchange Program permit the issuance of restricted
stock rights having a value greater than the value of the stock options surrendered, as estimated using the Black-Scholes option
Proxy Statement
valuation model.
The total number of restricted stock rights a participating employee will receive with respect to a
surrendered Eligible Option will be determined by dividing the number of shares subject to the
surrendered option by the applicable exchange ratio and rounding up to the nearest whole share.
The valuation of the Eligible Options and estimate of the number of restricted stock rights that may be
issued in the Exchange Program were made, and the exchange ratios were calculated, on the basis of the
closing price per share of our Common Stock as reported on the NASDAQ National Market on June 19,
2006. The Compensation Committee will retain the discretion to adjust the threshold exercise price of
options eligible to participate in the Exchange Program and the applicable exchange ratios if there is a
change in the market price of our Common Stock preceding the commencement of the Exchange Program
in comparison to the market price used in determining the exchange ratios set forth in the table above or a
change to any of the other factors used in the Black-Scholes calculation used to determine the exchange
ratios. However, in no event will the Exchange Program permit the issuance of restricted stock rights
having a value greater than the value of the stock options surrendered, as estimated using the Black-
Scholes option valuation model as of the Exchange Date.
Election to Participate. Participation in the Exchange Program will be entirely voluntary. Eligible
employees will have an election period of at least 20 business days from the commencement of the
Exchange Program in which to determine whether they wish to participate.
Vesting of Restricted Stock Rights. Restricted stock rights issued in the Exchange Program will be
completely unvested at the time they are granted and will become vested on the basis of the participant's
continued employment with the Company or any of its subsidiaries. The restricted stock rights will have a
minimum vesting period of two years measured from August 1, 2006, regardless of the extent to which the
corresponding Eligible Options were vested upon surrender (even if the corresponding Eligible Options
were already fully vested upon surrender). Eligible Options that are 50% or more vested (or, in the case of
Eligible Options that cliÅ vest in their entirety after a minimum of three years, if at least 50% or more of
the time required to vest has elapsed) on the date on which they are cancelled in the Exchange Program
will be replaced by restricted stock rights vesting over a period of two years measured from August 1,
17