Electronic Arts 2006 Annual Report Download - page 60

cash or withholding out of the participant's salary). If a participant exercises an NQSO before it has fully
vested, the participant may incur a regular income liability as the shares vest and the Company's right to
repurchase the shares at the original issue price lapses, unless the participant makes a timely 83(b)
election. Upon resale of the shares by the participant, 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.
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 or its subsidiary
(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 or its subsidiary (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
A participant will recognize income with respect to restricted stock units at the time that the restrictions
lapse, provided the shares are issued on the date the restrictions lapse. 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 or its subsidiary (either by
payment in cash or withholding out of the participant's award).
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 vested SAR,
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 or its subsidiary (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.
Internal Revenue Code Section 409A
At the present time, the Company intends to grant equity awards to participants which are either outside
the scope of Section 409A of the U.S. Internal Revenue Code or are exempted from the application of
Section 409A. If the equity award is subject to Section 409A and the requirements of Section 409A are
not met, participants may suÅer adverse tax consequences with respect to the equity award. Such
consequences may include taxation at the time of the vesting of the award and interest and penalties on
any deferred income.
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