ELECTRONIC ARTS INC. (NASDAQ:EA) Files An 8-K Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Item 5.02 Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
Approval of Performance-Based Incremental Restricted Stock Unit
Awards
Awards
On June 1, 2017, the Compensation Committee (Committee) of the
Board of Directors (the Board) of Electronic Arts Inc. (the
Company) approved the terms of performance-based incremental
restricted stock unit awards (the PIRSUs) to be granted on June
16, 2017 to Chief Executive Officer, Andrew Wilson, Chief
Financial Officer, Blake Jorgensen, Executive Vice President, EA
Studios, Patrick Sderlund, and Chief Technology Officer, Kenneth
Moss. The purpose of the awards is to retain and incentivize
these key executives, who the Board believes are important to the
Companys ability to achieve its long-term strategic plan. The
PIRSUs are intended to be qualified performance-based
compensation to Section 162(m) of the Internal Revenue Code of
1986, as amended.
Board of Directors (the Board) of Electronic Arts Inc. (the
Company) approved the terms of performance-based incremental
restricted stock unit awards (the PIRSUs) to be granted on June
16, 2017 to Chief Executive Officer, Andrew Wilson, Chief
Financial Officer, Blake Jorgensen, Executive Vice President, EA
Studios, Patrick Sderlund, and Chief Technology Officer, Kenneth
Moss. The purpose of the awards is to retain and incentivize
these key executives, who the Board believes are important to the
Companys ability to achieve its long-term strategic plan. The
PIRSUs are intended to be qualified performance-based
compensation to Section 162(m) of the Internal Revenue Code of
1986, as amended.
The number of PIRSUs that vest will be based on EAs cumulative
consolidated non-GAAP net revenue and free cash flow (FCF),
measured over a four-year performance period beginning in fiscal
year 2018 and ending with fiscal year 2021. Non-GAAP net revenue
means net revenue excluding any change in deferred net revenue
for online-enabled games. FCF means operating cash flow less any
capital expenditures. These performance measures were chosen to
emphasize the importance of long-term, sustained strategic growth
for the Company. In addition, the Board believes that FCF
reflects the cash generation capability of the business necessary
to finance its continued growth and investment requirements and
to return value to shareholders.
consolidated non-GAAP net revenue and free cash flow (FCF),
measured over a four-year performance period beginning in fiscal
year 2018 and ending with fiscal year 2021. Non-GAAP net revenue
means net revenue excluding any change in deferred net revenue
for online-enabled games. FCF means operating cash flow less any
capital expenditures. These performance measures were chosen to
emphasize the importance of long-term, sustained strategic growth
for the Company. In addition, the Board believes that FCF
reflects the cash generation capability of the business necessary
to finance its continued growth and investment requirements and
to return value to shareholders.
The Board approved a grant date target award value of $15 million
for Mr. Wilson, and the Committee has approved a grant date
target award value of $12 million for Mr. Sderlund, $10 million
for Mr. Jorgensen and $7 million for Mr. Moss. The target award
value will be converted into PIRSUs over an equivalent number of
shares of EAs common stock rounded down to the nearest whole
share based on EAs closing price on the date of grant, June 16,
2017.
for Mr. Wilson, and the Committee has approved a grant date
target award value of $12 million for Mr. Sderlund, $10 million
for Mr. Jorgensen and $7 million for Mr. Moss. The target award
value will be converted into PIRSUs over an equivalent number of
shares of EAs common stock rounded down to the nearest whole
share based on EAs closing price on the date of grant, June 16,
2017.
The PIRSUs will cliff vest on May 26, 2021, provided the
pre-established non-GAAP net revenue and FCF performance targets
are achieved. To earn any of the shares of common stock subject
to the PIRSUs, at least one of the non-GAAP net revenue or FCF
performance thresholds must be met. Each of the performance
thresholds for non-GAAP net revenue and FCF is independent, and
if either threshold is met, the award is earnable with respect to
that performance measure. If the performance threshold for either
non-GAAP net revenue or FCF is not met, then there is no payout
attributable to that performance measure.
pre-established non-GAAP net revenue and FCF performance targets
are achieved. To earn any of the shares of common stock subject
to the PIRSUs, at least one of the non-GAAP net revenue or FCF
performance thresholds must be met. Each of the performance
thresholds for non-GAAP net revenue and FCF is independent, and
if either threshold is met, the award is earnable with respect to
that performance measure. If the performance threshold for either
non-GAAP net revenue or FCF is not met, then there is no payout
attributable to that performance measure.
The following chart shows the threshold, target, and maximum
levels for non-GAAP net revenue and FCF (linear interpolation
applies to performance between threshold, target and maximum,
with no funding for performance below threshold):
levels for non-GAAP net revenue and FCF (linear interpolation
applies to performance between threshold, target and maximum,
with no funding for performance below threshold):
|
Threshold
|
Target
|
Maximum
|
||||
|
Non-GAAP Net Revenue
|
50% Payout
|
50% Payout
|
200% Payout
|
|||
|
(50% weighting)
|
||||||
|
FCF
|
50% Payout
|
50% Payout
|
200% Payout
|
|||
|
(50% weighting)
|
The threshold performance levels were determined using a multiple
of the Companys record non-GAAP net revenue and FCF performance
in fiscal year 2017. The target performance levels are based on
the Companys current long-term strategic plan reviewed by the
Board. They are intended to be challenging based on anticipated
growth over the performance period and to provide appropriate
incentives for management to continue to grow our business from
the baseline of record financial and operating achievements in
fiscal year 2017. The Committee believes that achievement of the
maximum performance levels would require sustained exceptional
performance over the performance period, as the targets are
significantly above the long-term strategic plan.
of the Companys record non-GAAP net revenue and FCF performance
in fiscal year 2017. The target performance levels are based on
the Companys current long-term strategic plan reviewed by the
Board. They are intended to be challenging based on anticipated
growth over the performance period and to provide appropriate
incentives for management to continue to grow our business from
the baseline of record financial and operating achievements in
fiscal year 2017. The Committee believes that achievement of the
maximum performance levels would require sustained exceptional
performance over the performance period, as the targets are
significantly above the long-term strategic plan.
Subject to certain exceptions described below and/or in the PIRSU
award agreement, recipients of the PIRSUs must be employed by the
Company in order for the PIRSUs to vest. In the event of a
termination due to death or disability, the Committee shall
certify the achievement of the performance metrics based on
performance to date measured over the truncated performance
period in order to determine pro rata vesting. In the event of a
change in control of the Company (as defined in the PIRSU award
agreement), the Committee shall certify the achievement of the
performance metrics as of the date of the change in control based
on the performance to date measured over the truncated
performance period. The resulting vesting percentage will be
applied to determine the number of shares that vest on the May
26, 2021 vest date, if the participant remains employed by the
Company or the Companys successor entity. The vesting of the
PIRSUs may be accelerated upon a double
award agreement, recipients of the PIRSUs must be employed by the
Company in order for the PIRSUs to vest. In the event of a
termination due to death or disability, the Committee shall
certify the achievement of the performance metrics based on
performance to date measured over the truncated performance
period in order to determine pro rata vesting. In the event of a
change in control of the Company (as defined in the PIRSU award
agreement), the Committee shall certify the achievement of the
performance metrics as of the date of the change in control based
on the performance to date measured over the truncated
performance period. The resulting vesting percentage will be
applied to determine the number of shares that vest on the May
26, 2021 vest date, if the participant remains employed by the
Company or the Companys successor entity. The vesting of the
PIRSUs may be accelerated upon a double
trigger event to the earlier of the date on which the
participants employment is terminated without cause (as defined
in the PIRSU agreement) by the Company or is terminated for good
reason (as defined in the PIRSU agreement) by the participant
during the three months immediately preceding the change in
control or eighteen months following the change in control,
provided such termination is made in connection with the change
in control, as determined by the Committee in its sole
discretion.
participants employment is terminated without cause (as defined
in the PIRSU agreement) by the Company or is terminated for good
reason (as defined in the PIRSU agreement) by the participant
during the three months immediately preceding the change in
control or eighteen months following the change in control,
provided such termination is made in connection with the change
in control, as determined by the Committee in its sole
discretion.
The foregoing description of the PIRSUs does not purport to be
complete and is qualified in its entirety by reference to the
form of PIRSU award agreement, a copy of which is filed as
Exhibit 10.1 hereto and is incorporated by reference herein.
complete and is qualified in its entirety by reference to the
form of PIRSU award agreement, a copy of which is filed as
Exhibit 10.1 hereto and is incorporated by reference herein.
Supplemental Equity Award for Patrick Sderlund, Executive Vice
President, EA Studios
President, EA Studios
On June 1, 2017, the Committee also approved a supplemental
equity award for Mr. Sderlund with a grant date award value of
$20 million in recognition of Mr. Sderlunds key role in
delivering award-winning games and services to our players and
deepening player engagement; this award was also intended to
support the longer term retention of Mr. Sderlund.
equity award for Mr. Sderlund with a grant date award value of
$20 million in recognition of Mr. Sderlunds key role in
delivering award-winning games and services to our players and
deepening player engagement; this award was also intended to
support the longer term retention of Mr. Sderlund.
The award shall be comprised of 50% time-based restricted stock
units (RSUs) and 50% performance-based restricted stock units
(PRSUs) with vesting tied to the Companys relative total
stockholder return (TSR). Both the RSUs and PRSUs shall have a
47-month vesting schedule with 50% of the units available to vest
in May 2019 and the remaining 50% available to vest in May 2021.
The award value will be converted into RSUs and PRSUs over an
equivalent number of shares of EAs common stock rounded down to
the nearest whole share based on EAs closing price on the date of
grant, June 16, 2017.
units (RSUs) and 50% performance-based restricted stock units
(PRSUs) with vesting tied to the Companys relative total
stockholder return (TSR). Both the RSUs and PRSUs shall have a
47-month vesting schedule with 50% of the units available to vest
in May 2019 and the remaining 50% available to vest in May 2021.
The award value will be converted into RSUs and PRSUs over an
equivalent number of shares of EAs common stock rounded down to
the nearest whole share based on EAs closing price on the date of
grant, June 16, 2017.
The terms of the RSUs are similar to the RSUs granted as part of
the Companys annual equity awards (as disclosed in the Companys
Current Report on Form 8-K filed on August 1, 2016 in Exhibit
10.2) with the exception of the 47-month vesting schedule
outlined above, since the annual equity awards have a 35-month
pro rata vesting schedule.
the Companys annual equity awards (as disclosed in the Companys
Current Report on Form 8-K filed on August 1, 2016 in Exhibit
10.2) with the exception of the 47-month vesting schedule
outlined above, since the annual equity awards have a 35-month
pro rata vesting schedule.
The terms of the PRSUs are similar to the PRSUs granted as part
of the Companys annual equity awards (as disclosed in the
Companys Current Report on Form 8-K filed on May 22, 2017) with
the exception of the vesting schedule as outlined above and the
vesting measurement periods. The number of shares earned is
adjusted based upon changes in the Companys TSR relative to the
TSR of the companies in the NASDAQ-100 Index (the Relative
NASDAQ-100 TSR Percentile) measured over 24-month and 48-month
cumulative periods (each such period, a Vesting Measurement
Period). The Relative NASDAQ-100 TSR Percentile multiplier, which
can range from 0% to 200%, is based on the change in our stock
price during a Vesting Measurement Period, using a 90-day
trailing average stock price. If the Companys Relative NASDAQ-100
TSR Percentile is at the 60th percentile at the end of a Vesting
Measurement Period, 50% of the target shares will be earned. The
percentage of shares earned will be adjusted upward by 3% or
downward by 2% for each percentile above or below the 60th
percentile, respectively. If the Companys TSR is negative on an
absolute basis, the number of shares that can be earned is capped
at 50% of the target regardless of the Companys Relative
NASDAQ-100 TSR Percentile.
of the Companys annual equity awards (as disclosed in the
Companys Current Report on Form 8-K filed on May 22, 2017) with
the exception of the vesting schedule as outlined above and the
vesting measurement periods. The number of shares earned is
adjusted based upon changes in the Companys TSR relative to the
TSR of the companies in the NASDAQ-100 Index (the Relative
NASDAQ-100 TSR Percentile) measured over 24-month and 48-month
cumulative periods (each such period, a Vesting Measurement
Period). The Relative NASDAQ-100 TSR Percentile multiplier, which
can range from 0% to 200%, is based on the change in our stock
price during a Vesting Measurement Period, using a 90-day
trailing average stock price. If the Companys Relative NASDAQ-100
TSR Percentile is at the 60th percentile at the end of a Vesting
Measurement Period, 50% of the target shares will be earned. The
percentage of shares earned will be adjusted upward by 3% or
downward by 2% for each percentile above or below the 60th
percentile, respectively. If the Companys TSR is negative on an
absolute basis, the number of shares that can be earned is capped
at 50% of the target regardless of the Companys Relative
NASDAQ-100 TSR Percentile.
The foregoing description of the PRSUs does not purport to be
complete and is qualified in its entirety by reference to the
form of Mr. Sderlunds PRSU award agreement, a copy of which is
filed as Exhibit 10.2 hereto and is incorporated by reference
herein.
complete and is qualified in its entirety by reference to the
form of Mr. Sderlunds PRSU award agreement, a copy of which is
filed as Exhibit 10.2 hereto and is incorporated by reference
herein.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
|
Exhibit No.
|
Description
|
|
|
10.1
|
Form of 2017 Performance-Based Incremental Restricted
Stock Unit Agreement* |
|
|
10.2
|
Form of 2017 Supplemental Performance-Based Restricted
Stock Unit Agreement for Patrick Sderlund* |
*Management contract or compensatory plan or arrangement.
About ELECTRONIC ARTS INC. (NASDAQ:EA)
Electronic Arts Inc. develops, markets, publishes and distributes games, content and services that can be played by consumers on a range of platforms, which include consoles, personal computers (PCs), mobile phones and tablets. The Company’s games and services are based on a portfolio of intellectual property that includes established brands, such as FIFA, Madden NFL, Star Wars, Battlefield, the Sims and Need for Speed. The Company markets and sells its games and services through retail channels and through digital distribution channels. The Company’s PC games and additional content can be downloaded directly through its Origin online platform, as well as through third-party online download stores. Its mobile, tablet and PC free-to-download games and additional content are available through third-party application storefronts, such as the Apple Application Store and Google Play.