Electronic Arts 2006 Annual Report Download - page 30

2006. Eligible Options that are less than 50% vested on the date on which they are cancelled in the
Exchange Program will be replaced by restricted stock rights vesting over a period of three years measured
from August 1, 2006. However, Eligible Options granted in 2006 will be replaced by restricted stock rights
vesting over a period of four years measured from August 1, 2006. Restricted stock rights vesting over
periods of two or four years will vest in substantially equal annual installments over the applicable period,
while restricted stock rights vesting over a period of three years will vest at the rate of 25% in each of the
Ñrst two years and 50% in the third year. A participant in the Exchange Program will generally forfeit any
restricted stock rights received that remain unvested at the time his or her employment with us terminates
for any reason.
Other Material Terms and Conditions of Restricted Stock Rights. Restricted stock rights issued in the
Exchange Program will be granted pursuant to the Equity Plan and will be subject to its terms. Each share
of restricted stock issued to a participant in the Exchange Program is a share of our Common Stock that
remains subject to forfeiture upon the participant's termination of employment until it has vested following
a speciÑed period of employment. Each restricted stock unit issued to a participant in the Exchange
Program represents a right to receive one share of our Common Stock on a Ñxed settlement date, which is
the date on which the restricted stock unit vests based on continued employment. A participant is not
required to pay any monetary consideration to receive shares of our Common Stock upon receipt of a
restricted stock award or settlement of restricted stock units. However, subject to the limitations described
below, employees participating in the Exchange Program will recognize taxable income in connection with
their restricted stock rights awards no later than the vesting of the award, although the applicable tax laws
may vary from country to country. For our U.S. employees and many of our non-U.S. employees, this
income is subject to income and employment tax withholding. The Company intends to satisfy its tax
withholding obligations by deducting from the shares of Common Stock that would otherwise be released
to employees upon the vesting of restricted stock or issued in settlement of restricted stock units a number
of whole shares having a fair market value that does not exceed by more than the value of a fractional
share the applicable minimum statutory withholding requirements. All other terms and conditions of the
restricted stock rights issued in the Exchange Program will be substantially the same as those that apply
generally to such awards granted under the Equity Plan, as described in Appendix A to this proxy
statement.
Potential ModiÑcation to Exchange Program Terms to Comply with Governmental Requirements. The
terms of the Exchange Program will be described in an OÅer to Exchange that will be Ñled with the SEC.
Although we do not anticipate that the SEC would require us to materially modify the program's terms, it
is possible that we will need to alter the terms of the Exchange Program to comply with comments from
the SEC. Changes in the terms of the Exchange Program may also be required for tax purposes for
participants in the United States as the tax treatment of the Exchange Program is not entirely certain. In
addition, we intend to make the Exchange Program available to our employees who are located outside of
the United States, where permitted by local law and where we determine it is feasible and practical to do
so. It is possible that we may need to make modiÑcations to the terms oÅered to employees in countries
outside the U.S. to comply with local requirements, or for tax or accounting reasons. The Compensation
Committee of the Board of Directors will retain the discretion to make any such necessary or desirable
changes to the terms of the Exchange Program.
Summary of United States Federal Income Tax Consequences
The following is a summary of the anticipated material United States federal income tax consequences of
participating in the Exchange Program and of holding restricted stock rights. A more detailed summary of
the applicable tax considerations to participants will be provided in the OÅer to Exchange. The tax
consequences of the Exchange Program are not entirely certain, however, and the Internal Revenue
Service is not precluded from adopting a contrary position and the law and regulations themselves are
subject to change. All holders of Eligible Options are urged to consult their own tax advisors regarding the
tax treatment of participating in the Exchange Program under all applicable laws prior to participating in
the Exchange Program. We believe the exchange of Eligible Options for restricted stock rights pursuant to
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