Electronic Arts 2009 Annual Report Download - page 27

Proxy Statement
Exchanging Options for Cash.We considered implementing a program to exchange underwater options for
cash payments. However, an exchange program where options are generally exchanged for cash would
substantially increase our operating expenses and reduce our cash flow from operations, which could adversely
affect our business and operating results. We also did not believe that such a program would have significant
long-term retention value and would not serve to align our employees’ interests as closely to those of our
stockholders in the absence of equity incentives.
Exchanging Options for Options with Lower Exercise Prices.We considered implementing a program to
exchange underwater options for options having an exercise price equal to the market price of our common stock
on the date of the exchange. We believed, however, that implementing an option-for-restricted stock unit
exchange program would have two relative advantages to an option-for-option exchange program. As discussed
above, an option-for-restricted stock unit exchange program would decrease overhang and dilution and require
the grant of fewer restricted stock units than options in an option-for-option exchange program (i.e., fewer shares
would be subject to the replacement restricted stock unit awards granted than replacement option awards). In
addition, granting restricted stock units is consistent with our current compensation philosophy.
Increasing Cash Compensation.We considered increasing base salary and target bonus compensation as a
means to incentivize employees with significantly underwater stock options. However, significant increases in
cash compensation would increase our operating expenses and reduce our cash flow from operations, which
would adversely affect our business and operating results. In addition, we believed that cash compensation
alternatives would not provide as strong a focus on long-term employee retention and the execution of long-term
business strategies as equity compensation.
After weighing each of the alternatives, we believe that issuing restricted stock units to employees in exchange
for underwater stock options will provide our workforce with renewed incentives and motivation, as described in
more detail above.
Implementing the Exchange Program
We have not commenced the Exchange Program, and we will not do so unless our stockholders approve this
proposal and the Compensation Committee determines that the Exchange Program complies with applicable
regulatory requirements (as described in more detail below). If our stockholders approve this proposal, and our
Compensation Committee determines to implement the Exchange Program, we expect the Exchange Program to
commence within 12 months of the date of the Annual Meeting. If the Exchange Program does not commence
within this time frame, we would not conduct another option exchange program without first seeking stockholder
approval. The Exchange Date is currently anticipated to be in November 2009. Even if the Exchange Program is
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 that the Exchange Program will not be amended to permit the issuance of
restricted stock units having a value greater than the fair value of the stock options surrendered, as estimated
using the Black-Scholes option valuation model).
Upon the commencement of the Exchange Program, eligible employees holding Eligible Options will receive
written materials in the form of an “Offer to Exchange” explaining the precise terms and timing of the Exchange
Program. At or before the commencement of the Exchange Program, we will file the Offer to Exchange with the
SEC as part of a tender offer statement on Schedule TO. Eligible employees, as well as stockholders and
members of the public, will be able to obtain the Offer to Exchange and other documents filed by us with the
SEC free of charge from the SEC’s website at www.sec.gov. Employees will be given at least 20 business days to
elect to surrender their Eligible Options in exchange for restricted stock units. The surrendered options will be
cancelled on the first business day following this election period. The new restricted stock units will be granted
under the Equity Plan on the date of cancellation of the surrendered options. The shares of our common stock
subject to surrendered options will not be available for future issuance under our Equity Plan once the
surrendered options are cancelled. Assuming Proposal 3 is approved, one newly issued restricted stock unit shall
reduce the number of shares available for future issuance under our Equity Plan by 1.43 shares.
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