Electronic Arts 2006 Annual Report Download - page 162

facilities and will be required to pay any increases over the base year of these expenses on the remainder
of our facilities.
In February 1995, we entered into a build-to-suit lease (""Phase One Lease'') with a third party for our
headquarters facilities in Redwood City, California (""Phase One Facilities''). The Phase One Facilities
comprise a total of approximately 350,000 square feet and provide space for sales, marketing,
administration and research and development functions. In July 2001, we reÑnanced the Phase One Lease
with Keybank National Association through July 2006. We account for the Phase One Lease arrangement
as an operating lease in accordance with SFAS No. 13, ""Accounting for Leases'', as amended.
On May 26, 2006, we extended the Ñnancing under the Phase One Lease through July 2007. Upon
expiration of the Ñnancing in July 2007, we may purchase the Phase One Facilities, request up to two one-
year extensions of the Ñnancing (subject to bank approval), self-fund approximately 90 percent of the
Ñnancing and extend the remainder through July 2009, or arrange for the sale of the Phase One Facilities
to a third party.
The Phase One Lease terminates upon expiration of the Ñnancing in July 2007 unless we have extended
the Ñnancing or elected to self-fund the Ñnancing as described above, in which case the term of the lease
could be extended until as late as July 2009. Subject to certain terms and conditions, upon termination of
the lease, we may purchase the Phase One Facilities, request an extension of the lease or arrange for the
sale of the Phase One Facilities to a third party.
Pursuant to the terms of the Phase One Lease, as amended to date, we have an option to purchase the
Phase One Facilities at any time for a maximum purchase price of $132 million. In the event of a sale to
a third party, if the sale price is less than $132 million, we will be obligated to reimburse the diÅerence
between the actual sale price and $132 million, up to maximum of $117 million, subject to certain
provisions of the Phase One Lease, as amended.
In December 2000, we entered into a second build-to-suit lease (""Phase Two Lease'') with Keybank
National Association for a Ñve and one-half year term beginning in December 2000 to expand our
Redwood City, California headquarters facilities and develop adjacent property (""Phase Two Facilities'').
Construction of the Phase Two Facilities was completed in June 2002. The Phase Two Facilities comprise
a total of approximately 310,000 square feet and provide space for sales, marketing, administration and
research and development functions. We account for the Phase Two Lease arrangement as an operating
lease in accordance with SFAS No. 13, as amended.
On May 26, 2006, we extended the Ñnancing under the Phase Two Lease through July 2007. Upon the
expiration of the Ñnancing in July 2007, we may purchase the Phase Two Facilities, request up to two one-
year extensions of the Ñnancing (subject to bank approval), self-fund approximately 90 percent of the
Ñnancing and extend the remainder through July 2009, or arrange for the sale of the Phase Two Facilities
to a third party.
The Phase Two Lease terminates upon expiration of the Ñnancing in July 2007 unless we have extended
the Ñnancing or elected to self-fund the Ñnancing as described above, in which case the term of the lease
could be extended until as late as July 2009. Subject to certain terms and conditions, upon termination of
the lease, we may purchase the Phase Two Facilities, request an extension of the lease or arrange for the
sale of the Phase Two Facilities to a third party.
Pursuant to the terms of the Phase Two Lease, as amended to date, we have an option to purchase the
Phase Two Facilities at any time for a maximum purchase price of $115 million. In the event of a sale to
a third party, if the sale price is less than $115 million, we will be obligated to reimburse the diÅerence
between the actual sale price and $115 million, up to a maximum of $105 million, subject to certain
provisions of the Phase Two Lease, as amended.
The lease rates of the Phase One and Phase Two Leases Öuctuate and are based upon LIBOR plus a
margin that varies from 0.50% to 1.25% based on our ratio of total consolidated debt to consolidated
tangible net worth. Based on the 3-month LIBOR rate of 5.2% as of May 26, 2006, the annual rent
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