Electronic Arts 2005 Annual Report Download - page 50

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Restricted Stock Awards
A participant who receives a restricted stock award will include the amount of the award in income as
compensation at the time that any forfeiture restrictions on the shares of stock lapse, unless the participant
makes a timely 83(b) election. If the participant does not timely make an 83(b) election, the participant will
include in income the fair market value of the shares of stock on the date that the restrictions lapse as to those
shares, less any purchase price paid for such shares. The included amount may be treated as ordinary income
by the participant and will be subject to withholding by the Company (either by payment in cash or
withholding out of the participant's award).
If the participant makes a timely 83(b) election, the participant who receives a restricted stock award will
include in income as ordinary income, the fair market value of the shares of stock on the date of receipt of the
award (determined without regard to lapse restrictions), less any purchase price paid for such shares. The
income may be subject to withholding by the Company (either by payment in cash or withholding out of the
participant's award). If the award is subsequently forfeited, the participant will not receive any deduction for
the amount treated as ordinary income.
Restricted Stock Units
Tax consequences to participants receiving restricted stock units are identical to those for awards of restricted
stock, except that for restricted stock units, the amount of the award will be included in income as
compensation at the time restrictions lapse, and the participant is entitled to receive the stock or cash.
Stock Appreciation Rights
Assuming that a stock-settled stock appreciation right (""SAR'') is granted at an exercise price that is not less
than the fair market value of the underlying shares on the grant date, a participant will not recognize any
taxable income at the time a stock-settled SAR is granted. However, upon exercise of a SAR for vested
shares, the participant must include in income as compensation an amount equal to the diÅerence between the
fair market value of the shares on the date of exercise and the participant's exercise price. The included
amount must be treated as ordinary income by the participant and may be subject to withholding by the
Company (either by payment in cash, shares or withholding out of the participant's salary). Upon resale of the
shares issued to the participant at the time of exercise, any subsequent appreciation or depreciation in the
value of the shares will be treated as capital gain or loss, taxable at a rate that depends upon the length of time
the shares were held by the participant.
At the present time, the Company does not intend to grant any cash-settled SARs under the Equity Plan until
the application of Section 409A of the U.S. Internal Revenue Code (the ""Code'') is settled and expects that
any deferrals made with respect to grants of cash-settled SARs or other equity awards under the Equity Plan
will comply with the requirements of Section 409A. The tax treatment of a SAR settled in whole or in part in
cash is unknown at this time due to the uncertainty regarding the application of Section 409A of the Code. If
the requirements of Section 409A are not met, participants may suÅer adverse tax consequences with respect
to a SAR which is settled in whole or in part in cash. Such consequences may include taxation at the time of
the vesting of the award and interest and penalties on any deferred income.
Tax Treatment of the Company
The Company generally will be entitled to a deduction in connection with the exercise of a NQSO or a SAR
by a participant, or the receipt by the participant of restricted stock or restricted stock unit award, to the extent
that the participant recognizes ordinary income and the Company properly reports such income to the Internal
Revenue Service (the ""IRS''). The Company will be entitled to a deduction in connection with the disposition
of ISO Shares only to the extent that the participant recognizes ordinary income on a disqualifying disposition
of the ISO Shares, provided that the Company properly reports such income to the IRS.
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