EA argues that the exchange plan would benefit shareholders by reducing some of the prospective options dilution. The company plans to give one share of restricted stock for every three to four shares of options that employees exchange, depending on the exercise price of the options.

And the company won't allow employees to exchange every underwater option for a restricted share. Employees will only be able to exchange options whose strike prices are at least 15% higher than the average closing stock price for the five days preceding the beginning of the exchange program.

Currently, nearly 16 million outstanding options at EA would qualify for the exchange program. Assuming all of those options were exchanged, the company would grant about 4.8 million restricted shares in their place, according to the proxy statement. So, on the surface, the company would reduce its overhang of employee stock grants by about 11.2 million shares, or about 3.6% of the company's outstanding stock.

But the reality is that the reduction won't be near that amount. The program won't be compulsory, so some employees may choose not to participate.

More importantly, though, there are all the additional options and shares the company aims to hand out. First, the company plans to dispense a total of 2.2 million options and 600,000 restricted shares as part of the retention program. And EA could continue to hand out options that could ostensibly be exchanged for restricted shares between now and the time the exchange program begins.

Then, the company is asking shareholders to hand out a raft of new restricted shares in the future. As part of the second proxy proposal, the company wants shareholders to boost the limits on the number of restricted shares it can hand out from 4 million to 11 million.

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