Electronic Arts 2010 Annual Report Download - page 70

If a participant has to pay AMT, he or she is entitled to a credit against income tax (but not AMT) in later years
subject to many restrictions. Also, upon a sale of ISO Shares that is not a disqualifying disposition, alternative
minimum taxable income is reduced in the year of sale by the amount that was previously included in alternative
minimum taxable income in the year of exercise, the excess of the fair market value of the ISO Shares at exercise
of the amount paid for the ISO Shares.
Nonqualified Stock Options
A participant will generally not recognize any taxable income at the time a nonqualified stock option (“NQSO”)
is granted or vests provided the exercise price is no less than the fair market value of the underlying shares on the
grant date. Upon exercise of a vested NQSO, the participant will include in income as compensation 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. 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 by the participant, any subsequent appreciation or
depreciation in the value of the shares will be treated as a 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 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).
If the participant makes a timely 83(b) election, the participant will, at the time the award is received, include 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 in income as compensation. The income will be subject
to withholding by the Company or its subsidiary (by payment in cash, withholding out of the participant’s salary
or withholding out of the participant’s award). If the award is subsequently forfeited, the participant will not
receive any deduction for the amount previously taxed as ordinary income.
Restricted Stock Units
A participant will recognize income as compensation with respect to an award of 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 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.
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