8-KMaterial AgreementsFinancial EventsExhibits & Filings

ELECTRONIC ARTS INC. 8-K Report, Material Agreement (Jun 1, 2006)

Filed June 1, 2006For Securities:EA

Summary

This 8-K filing from Electronic Arts Inc. (EA) on June 1, 2006, details significant amendments to the leases for its Redwood City, California headquarters facilities (Phase One and Phase Two). The primary focus is the extension of financing for these leases, originally set to expire in July 2006, through July 2007. This extension provides EA with continued operational flexibility for its primary corporate offices. Importantly, the amendments also outline EA's options upon the financing's expiration in July 2007, including purchasing the facilities, seeking lease extensions, or arranging a third-party sale. These options provide potential paths for long-term occupancy or disposition of the significant real estate assets. Investors should note the potential purchase prices and reimbursement obligations related to these options, as well as the financial covenants associated with the leases, which EA was in compliance with as of March 31, 2006.

Key Highlights

  • 1Electronic Arts (EA) amended its leases for its Redwood City, California headquarters facilities (Phase One and Phase Two).
  • 2The financing for both leases has been extended through July 2007.
  • 3EA has multiple options upon the financing expiration in July 2007: purchase the facilities, extend the financing, or arrange a third-party sale.
  • 4The maximum purchase price for Phase One facilities is $132 million, and for Phase Two is $115 million.
  • 5If EA fails to comply with financial covenants, it could face remedies including eviction, a sale of facilities, or must purchase the facilities for a combined maximum of $247 million.
  • 6EA was in compliance with all financial covenants as of March 31, 2006.
  • 7The annual rent obligation under both leases was approximately $14 million based on LIBOR rates as of May 26, 2006, and is subject to fluctuation.

Frequently Asked Questions

EA has extended the financing for its Phase One and Phase Two headquarters leases in Redwood City, California, from July 2006 to July 2007. This filing details the amendments to these lease agreements.

Upon expiration of the extended financing in July 2007, EA has several options: purchase the facilities (with maximum prices of $132 million for Phase One and $115 million for Phase Two), request up to two one-year extensions of the financing (subject to bank approval), or arrange for the sale of the facilities to a third party. EA can also self-fund approximately 90% of the financing and extend the remainder through July 2009.

If EA arranges a sale of the Phase One facilities to a third party for less than $132 million, EA would be obligated to reimburse the difference, up to a maximum of $117 million. For the Phase Two facilities, if sold for less than $115 million, EA would reimburse the difference, up to a maximum of $105 million. In the event of a default on covenants leading to a third-party sale of both facilities, EA could be required to reimburse the difference between the sale price and $247 million, up to a total maximum of $222 million.

The leases include financial covenants such as minimum consolidated net worth, fixed charge coverage ratio, total consolidated debt to capital ratio, and quick ratio. As of March 31, 2006, EA was in compliance with all these covenants.