Electronic Arts 2008 Annual Report Download - page 69

those shares, less any purchase price paid for such shares. The included amount will be taxed as ordinary
income to the participant and will be subject to withholding by the Company or its subsidiary (by payment in
cash, withholding out of the participant’s award or withholding out of the participant’s salary).
Stock Appreciation Rights
Assuming that a 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 SAR is granted or when the SAR vests. However, upon exercise of a vested SAR, an amount equal
to the difference between the fair market value of the shares on the date of exercise and the participant’s
exercise price will be included in income as compensation to the participant. The included amount will be
taxed as ordinary income to the participant and will be subject to withholding by the Company or its
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 an 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 additional 20% tax penalty on the non-
compliant deferred income 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 29, 2008, 23,374,164 shares had been issued pursuant to exercises of stock options under the
Equity Plan by award recipients, 5,015 persons held NQSOs under the Equity Plan to purchase an aggregate
of 30,973,391 shares of common stock, with a weighted average exercise price of $46.03 per share,
7,649 persons held restricted stock units to acquire 3,804,002 shares, 285 persons held 206,239 shares of
restricted stock, and there were 17,264,813 shares of common stock available for future awards under the
Equity Plan. An aggregate of 76,400,000 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 2008 Annual Meeting, stockholders will be asked to approve amendments to the Equity Plan as follows:
• Increase the number of shares authorized under the Equity Plan by 2,185,000 shares;
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