Electronic Arts 2008 Annual Report Download - page 67

Transferability
Incentive stock options granted under the Equity Plan are not transferable other than by means of a distribution
upon the optionee’s death. Nonqualified stock options, stock appreciation rights, restricted stock, and restricted
stock unit awards are subject to similar restrictions on transfer unless otherwise determined by the Compen-
sation Committee and except that nonqualified stock options may be transferred to family members and trusts
or foundations controlled by, or primarily benefiting, family members of the optionee.
Term of the Equity Plan
As proposed to be amended, the Equity Plan would be extended by ten years to 2020 unless terminated earlier
by the Board.
United States Federal Income Tax Information
THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTIC-
IPANTS UNDER THE EQUITY PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FED-
ERAL, STATE AND LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON
HIS OR HER INDIVIDUAL CIRCUMSTANCES. IN ADDITION, THE INTERNAL REVENUE SERVICE
COULD, AT ANY TIME, TAKE A POSITION CONTRARY TO THE INFORMATION DESCRIBED IN
THE FOLLOWING SUMMARY. ANY TAX EFFECTS THAT ACCRUE TO NON-U.S. PARTICIPANTS AS
A RESULT OF PARTICIPATING IN THE EQUITY PLAN ARE GOVERNED BY THE TAX LAWS OF
THE COUNTRIES IN WHICH SUCH PARTICIPANT RESIDES OR IS OTHERWISE SUBJECT. EACH
PARTICIPANT WILL BE ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE EQUITY PLAN.
Incentive Stock Options
A participant will recognize no income upon grant or vesting of an incentive stock option and will generally
not incur tax on its exercise. Unless the participant is subject to the alternative minimum tax (“AMT”), the
participant will recognize income only when the shares acquired upon the exercise of an incentive stock option
(the “ISO Shares”) are sold or otherwise disposed of. If the participant holds ISO Shares for more than one
year after the date the option was exercised and for more than two years after the date the option was granted,
the participant will realize a long-term capital gain or loss (rather than ordinary income) upon disposition of
the ISO Shares. This long-term capital gain or loss will be equal to the difference between the amount realized
upon such disposition and the amount paid for the ISO Shares.
If the participant disposes of ISO Shares prior to the expiration of either the one-year or two-year required
holding period (a “disqualifying disposition”), the gain realized upon such disposition, up to the difference
between the fair market value of the ISO Shares on the date of exercise (or, if less, the amount realized on a
sale of such shares) and the option exercise price, will be treated as ordinary income. Any additional gain will
be capital gain, taxed at a rate that depends upon the amount of time the ISO Shares were held by the
participant.
Alternative Minimum Tax
The Alternative Minimum Tax (“AMT”) is a separately computed tax which was devised to ensure that at
least a minimum amount of income tax is paid. AMT is imposed only if and to the extent that a participant
would pay more tax if his or her income tax were calculated pursuant to the AMT rules than if calculated in
the regular manner. The difference between the option exercise price and the fair market value of the ISO
Shares on the date of exercise is includable as income for purposes of calculating the AMT for both a (i) a
vested ISO and (ii) an unvested ISO for which the participant makes a timely election under Section 83(b) of
the U.S. Internal Revenue Code (an “83(b) election”). If a participant exercises an ISO before it has fully
vested but does not make an 83(b) election, as the ISO Shares vest and the Company’s right to repurchase the
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