Electronic Arts 2008 Annual Report Download - page 130

January 2008. At the time of the acquisition, Mr. Riccitiello held an indirect financial interest in VGH
resulting from his interest in the entity that controlled Elevation Partners, L.P. and his interest in a limited
partner of Elevation Partners, L.P. Elevation Partners, L.P. was a significant stockholder of VGH. As a result
of the acquisition, Mr. Riccitiello’s financial returns related to these interests, including returns of deemed
capital contributions, have been $2.4 million to date (some of which Mr. Riccitiello could be required to return
depending on the performance of the Elevation entities), and could be up to an additional $1.6 million plus
any interest or other amounts earned thereon. This amount could be reduced, however, by a variety of factors,
including investment losses of Elevation, if any, as well as certain expenses of Elevation that could offset
partnership profits. Upon his separation from Elevation Partners, L.P., Mr. Riccitiello ceased to have any
further control or influence over these factors.
From the commencement of negotiations with VGH, at the direction of EA’s Board of Directors, EA’s Audit
Committee engaged directly with EA management (independently from Mr. Riccitiello) to analyze and
consider the potential benefits, risks and material terms of the acquisition. EA’s Board of Directors approved
the acquisition after reviewing with EA’s management and members of the Audit Committee the terms of the
acquisition and the potential benefits and risks thereof, as well as Mr. Riccitiello’s personal financial interest
in VGH and the acquisition. Mr. Riccitiello recused himself from the Board of Directors meeting during the
Board’s deliberation of the acquisition and he did not vote on the acquisition.
OFF-BALANCE SHEET COMMITMENTS
We lease certain of our current facilities, furniture and equipment under non-cancelable operating lease
agreements. We are required to pay property taxes, insurance and normal maintenance costs for certain of
these 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 lessor 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, the lessor refinanced the Phase One Lease with
Keybank National Association through July 2006. The Phase One Lease expires in January 2039, subject to
early termination in the event the underlying financing between the lessor and its lenders is not extended.
Subject to certain terms and conditions, we may purchase the Phase One Facilities or arrange for the sale of
the Phase One Facilities to a third party.
Pursuant to the terms of the Phase One Lease, we have an option to purchase the Phase One Facilities at any
time for a 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 difference between the actual sale price and $132 million,
up to a maximum of $117 million, subject to certain provisions of the Phase One Lease, as amended.
On May 26, 2006, the lessor extended its loan financing underlying the Phase One Lease with its lenders
through July 2007, and on May 14, 2007, the lenders extended this financing again for an additional year
through July 2008. On April 14, 2008, the lenders extended the financing for another year through July 2009.
At any time prior to the expiration of the financing in July 2009, we may re-negotiate the lease and the related
financing arrangement. We account for the Phase One Lease arrangement as an operating lease in accordance
with SFAS No. 13, “Accounting for Leases”, as amended.
In December 2000, we entered into a second build-to-suit lease (“Phase Two Lease”) with Keybank National
Association for a five 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. Subject to certain terms and conditions, we may purchase the Phase Two Facilities or arrange for
the sale of the Phase Two Facilities to a third party.
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