Electronic Arts 2007 Annual Report Download - page 66

subsidiary (by payment in cash, withholding out of the award 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 suffer adverse tax consequences with respect to the equity award. Such consequences
may include taxation at the time of the vesting of the award, an increased tax rate and interest and penalties
on any deferred income.
Tax Treatment of the Company
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 generally will be entitled to a deduction in
connection with the exercise of a NQSO or a SAR by a participant or upon the lapse of restrictions with
respect to a participant’s restricted stock or restricted stock unit award. 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 and provided that the Company properly
reports such income to the IRS.
ERISA
The Equity Plan is not subject to any of the provisions of the Employee Retirement Income Security Act of
1974 and is not qualified under Section 401(a) of the Code.
Outstanding Equity Awards Granted Under the Equity Plan
As of March 31, 2007, 19,993,932 shares had been issued pursuant to exercises of stock options under the
Equity Plan by award recipients, 5,838 persons held NQSOs under the Equity Plan to purchase an aggregate
of 29,782,810 shares of common stock, with a weighted average exercise price of $44.53 per share,
4,929 persons held restricted stock units to acquire 1,782,809 shares, 337 persons held 348,066 shares of
restricted stock, and there were 15,307,843 shares of common stock available for future awards under the
Equity Plan. An aggregate of 67,400,000 shares of the Company’s authorized common stock have been
reserved for issuance under the Equity Plan.
Proposed Amendments to the Equity Plan
At the 2007 Annual Meeting, stockholders will be asked to approve amendments to the Equity Plan as follows:
• Increase the number of shares authorized and reserved for issuance under the Equity Plan by
9,000,000 shares to a total of 76,400,000 shares;
• Decrease by 4 million shares the limit on the total number of shares underlying awards of restricted
stock and restricted stock units that may be granted under the Equity Plan — from 15 million to
11 million; and
• Revise the amount and nature of annual automatic grants to our non-employee directors by adding
restricted stock units and decreasing the size of stock option grants. As proposed to be revised, non-
employee directors will be eligible to automatically receive an option grant to purchase 17,500 shares
and 2,500 restricted stock units issued under the Equity Plan upon their initial appointment or election
to the Board, and each continuing non-employee director will be eligible to automatically receive an
annual option grant to purchase 8,400 shares and 1,200 restricted stock units upon his or her election or
re-election to the Board.
Proxy Statement
A-7