Electronic Arts 2009 Annual Report Download - page 28

Description of the Exchange Program
Eligible Options. The Exchange Program will be offered only with respect to stock options with an exercise price
greater than the 52-week high trading price of our common stock prior to the Exchange Date, and will exclude any
stock options granted within the 12 months preceding the commencement of the Exchange Program. This approach
seeks to remove stock options with intrinsic value in the recent past from being eligible for the Exchange Program,
as they would be considered likely to have intrinsic value in the near future. Because the eligibility of options will
be determined based on the 52-week high of our common stock measured as of the start date of the Exchange
Program, we are unable to determine as of the date of the Annual Meeting the exact number of Eligible Options.
Eligible Employees. The Exchange Program will be open to all of our employees and employees of any of our
subsidiaries designated for participation by the Compensation Committee who hold Eligible Options. However,
members of our Board of Directors and our Named Executive Officers will not be eligible to participate. In
addition, we may exclude employees in certain non-U.S. jurisdictions from the Exchange Program if local tax or
other laws would make their participation infeasible or impractical. To be eligible, an employee must be
employed by us or one of our participating subsidiaries both at the time the Exchange Program commences and
on the date the surrendered options are cancelled and restricted stock units are granted to replace them. Any
employee holding Eligible Options who elects to participate but whose employment terminates for any reason
prior to the grant of the restricted stock units, including voluntary resignation, retirement, involuntary
termination, layoff, death or disability, will not be eligible to participate in the Exchange Program and will
instead retain his or her Eligible Options subject to their existing terms. Assuming the Exchange Program
commences when the 52-week high price of our common stock is under $30 and options that have an exercise
price greater than or equal to $30 are eligible to participate, Eligible Options are currently held by approximately
4,100 eligible employees.
Exchange Ratios. Our objective in determining the exchange ratios under the Exchange Program is to provide
for the grant of replacement restricted stock units to an employee that will have a value no greater than the value
of the stock options surrendered. The exchange ratios (the ratio of the number of shares subject to surrendered
options to the number of shares of restricted stock units to be issued in exchange for such options) will be
established shortly before the start of the Exchange Program. Each stock option grant will be assigned an
exchange ratio based on the grant date and exercise price.
We will estimate the fair value of each Eligible Option using the Black-Scholes option valuation model using
certain reasonable assumptions (the “option value”). Each Eligible Option will be exchanged for a lesser number
of restricted stock units having a value that is approximately equal to the option value of the Eligible Option
(based on the assumed fair market value of one share of our common stock to be made subject to a restricted
stock unit). Note, however, that we expect to incur an accounting charge of approximately $65 million to $85
million over the vesting period of the restricted stock units issued in the Option Exchange, because under
Statement of Financial Accounting Standard No. 123 (revised 2004) (“SFAS No. 123(R)”) Share-Based
Payment, we are required to use different assumptions regarding the Eligible Options for accounting purposes.
Please see the section entitled “Accounting Treatment” below.
Although the exchange ratios cannot be determined now, for illustrative purposes, we assumed a commencement
date where the 52-week high price of our common stock is under $30 and therefore, options that have an exercise
price greater than or equal to $30 are eligible to participate. Based on these assumptions, we expect that the
assumed Eligible Options will cover more than 250 grant dates over a 7.5 year period. For purposes of estimating
the fair value of an Eligible Option under the Black-Scholes model, the following factors have been used:
• the option’s exercise price;
• an assumed market value of $17.09 per share of our common stock (which represents the 90-day average
share price through March 1, 2009);
• the expected volatility of our common stock price (the weighted-average volatility of all assumed Eligible
Options was 57.4% based on the 400 trading days prior to March 1, 2009);
• the expected term of the stock option, which is the assumed remaining contractual life of the stock option;
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