ELECTRONIC ARTS INC, DEFS14A, 2000-02-28

ELECTRONIC ARTS INC
DEFS14A, 2000-02-28
PREPACKAGED SOFTWARE

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<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_Confidential,]for Use of the
Commission Only (as Permitted by
[_]Preliminary Proxy Statement Rule 14a-6(e)(2))

[X]Definitive Proxy Statement

[_]Definitive Additional Materials

[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

ELECTRONIC ARTS INC.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)

-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X]No Fee Required.

[_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_]$500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[_]Fee paid previously with preliminary materials.

[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

Notes:
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[LOGO OF ELECTRONIC ARTS]

February 28, 2000

DEAR FELLOW STOCKHOLDERS:

You are cordially invited to join us at a Special Meeting of Stockholders
that will be held at Electronic Arts' auditorium, located at 207 Redwood Shores
Parkway in Redwood City, California on March 22, 2000 at 10:00 a.m. At this
meeting the stockholders will be asked to approve our Tracking Stock Proposal
by which we will create a new class of our common stock that is designed to
reflect the performance of our online games business. We are also seeking
stockholder approval of a new equity plan to enable equity awards in the new
class of common stock and of a new equity plan for awards in our existing
common stock.

Enclosed with this Proxy Statement are your voting instructions.

We know that it is not practical for most stockholders to attend the Special
Meeting in person. Whether or not you attend, your vote is important. You can
vote your shares via the Internet, or a toll-free telephone number.
Instructions as to using these services are provided on your proxy card. Of
course you may still vote your shares on the proxy card.

I look forward to seeing you at the meeting.

Sincerely,

/s/ Lawrence F. Probst III

Lawrence F. Probst III
Chairman and Chief Executive Officer

Whether or not you plan to attend the Special Meeting, we strongly encourage
you to designate the proxies shown on the enclosed card to vote your shares. We
are pleased to offer you three options for designating the proxies and
indicating your voting preferences:

(1) you may complete, sign, date and return by mail the enclosed proxy card

(2) you may follow the instructions found on the proxy card and vote by
telephone

(3) you may follow the instructions found on the proxy card and vote via
the Internet

If you choose to vote via telephone or the Internet, you will have a PIN
number assigned to you on the proxy card that you will use to safeguard your
vote.
<PAGE>

NOTICE OF
SPECIAL STOCKHOLDERS MEETING

and PROXY STATEMENT

Please complete, sign, date and return
Your proxy card promptly

[LOGO OF ELECTRONIC ARTS]
<PAGE>

[LOGO OF ELECTRONIC ARTS]

Notice of Special Meeting of Stockholders

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<C> <S>
DATE: March 22, 2000
TIME: 10:00 a.m.
PLACE: ELECTRONIC ARTS HEADQUARTERS
Auditorium--North Pole/South Pole
207 Redwood Shores Parkway
Redwood City, CA 94065
</TABLE>

MATTERS TO BE VOTED UPON:

1. Amendment and restatement of our certificate of incorporation so that it
reads in its entirety as set forth on Appendix II to this Proxy
Statement (the Tracking Stock Proposal).

2. Approval of the Electronic Arts Inc. 2000 Class B Equity Incentive Plan.

3. Approval of the Electronic Arts Inc. 2000 Class A Equity Incentive Plan.

4. Any other matters that may properly come before the meeting.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH PROPOSAL.

Stockholders owning Company shares at the close of business on February 1,
2000 are entitled to attend and vote at the meeting. A complete list of these
stockholders will be available at the Company's headquarters prior to the
meeting.

By Order of the Board of Directors,

/s/ Ruth A. Kennedy
Ruth A. Kennedy
Senior Vice President,
General Counsel and Secretary
<PAGE>

PROXY STATEMENT

TABLE OF CONTENTS

<TABLE>
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Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT OUR SPECIAL MEETING......................... 1
PROXY STATEMENT SUMMARY................................................. 4
RISK FACTORS............................................................ 14
Risk Factors Relating to the Tracking Stock Proposal................... 14
Risk Factors Relating to EA.com........................................ 20
Risk Factors Relating to Electronic Arts............................... 24
Forward Looking Statements............................................. 27
GENERAL................................................................. 28
PROPOSAL 1--THE TRACKING STOCK PROPOSAL................................. 29
Background of and Reasons for the Tracking Stock Proposal.............. 29
Allocation Policies.................................................... 31
Fiduciary Responsibilities and Management.............................. 31
Intercompany Agreements................................................ 31
Dividends.............................................................. 32
Treasury Activities.................................................... 32
Corporate General and Administrative Expense........................... 33
Description of Class A Common Stock and Class B Common Stock........... 33
Certain Other Provisions of the Restated Certificate and By-laws....... 45
Certain Provisions of Delaware Law..................................... 46
No Appraisal Rights.................................................... 46
Stock Transfer Agent and Registrar..................................... 46
Issuance of Class B Common Stock to America Online, Inc. and News
America Incorporated.................................................. 46
Federal Income Tax Considerations...................................... 50
PROPOSAL 2--2000 CLASS B EQUITY INCENTIVE PLAN.......................... 51
General Description of the 2000 Class B Equity Incentive Plan.......... 51
PROPOSAL 3--2000 CLASS A EQUITY INCENTIVE PLAN.......................... 56
General Description of the 2000 Class A Equity Incentive Plan.......... 56
PRINCIPAL STOCKHOLDERS.................................................. 61
EXECUTIVE COMPENSATION.................................................. 62
OTHER INFORMATION....................................................... 65
APPENDIX I--ILLUSTRATION OF CERTAIN TERMS............................... I-1
APPENDIX II--THE TRACKING STOCK PROPOSAL................................ II-1
APPENDIX III--ELECTRONIC ARTS........................................... III-1
Selected Historical Consolidated Financial Data........................ III-1
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... III-2
Description of Business................................................ III-19
Consolidated Financial Statements...................................... III-27
APPENDIX IV--EA.COM..................................................... IV-1
Selected Historical Consolidated Financial Data........................ IV-1
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... IV-2
Description of Business................................................ IV-11
Consolidated Financial Statements...................................... IV-17
APPENDIX V--2000 CLASS B EQUITY INCENTIVE PLAN.......................... V-1
APPENDIX VI--2000 CLASS A EQUITY INCENTIVE PLAN......................... VI-1
</TABLE>

Voting materials, which include the Proxy Statement and proxy card, will be
mailed to stockholders on or about February 28, 2000.

i
<PAGE>

QUESTIONS AND ANSWERS
ABOUT OUR
SPECIAL MEETING

Q: What is the Tracking Stock Proposal?

A: The Tracking Stock Proposal is a proposal approved by our Board of Directors
to create a so-called tracking stock that is intended to reflect the
performance of our online business, EA.com. Our existing common stock will
be reclassified as Class A common stock, and it is intended to reflect both
the value of all of our business other than that of EA.com and the value of
our retained interest in EA.com.

Q: Why am I receiving this proxy statement?

A: The Tracking Stock Proposal is an amendment to our charter to authorize the
Class B common stock and reclassify our existing common stock as Class A
common stock. This amendment cannot be adopted without the approval of a
majority of our outstanding shares, and we have called a Special Meeting of
our stockholders to obtain this approval. This proxy statement explains the
Tracking Stock Proposal and the Class A and Class B equity plans that we
will ask you to approve at the Special Meeting.

Q: When will you implement the Tracking Stock Proposal and what happens to my
Electronics Arts common stock at that time?

A: If it is approved by stockholders, we will implement the Tracking Stock
Proposal promptly after the Special Meeting, which we expect will be within
just a few days. Your Electronic Arts common stock will be automatically
reclassified as Class A common stock at that time, and it will continue to
trade on the Nasdaq Stock Market under the symbol ERTS. Our existing stock
options and stock plans will cover the right to purchase the same number of
shares of Class A common stock as they covered of our common stock prior to
adoption of the Tracking Stock Proposal.

Q: What plans do you have to issue the new Class B common stock that will be
created?

A: We have entered into agreements with America Online, Inc. and News America
Incorporated to sell and issue to them shares of Class B common stock, and
with respect to America Online warrants for the purchase of Class B common
stock, that together will represent approximately 20% of the initial equity
value attributed to EA.com. Up to an additional 20% of the initial equity
value of EA.com has been earmarked for stock option and equity awards (the
Class B equity plan for which we are now seeking your approval will cover a
portion of the interest so reserved). The remaining equity interest in
EA.com will initially be retained by Electronic Arts and, as such, the
Class A stockholders will participate in any future growth in the value of
EA.com.

Q: Who can vote at the Special Meeting?

A: Stockholders who owned Electronic Arts common stock on February 1, 2000 may
attend and vote at the Special Meeting. Each share is entitled to one vote.
This proxy statement and the proxy card are first being sent to stockholders
on, or about, February 28, 2000.

Q: What is the proxy card?

A: The proxy card enables you to appoint Lawrence F. Probst III and E. Stanton
McKee, Jr. as your representatives at the Special Meeting. By completing and
returning the proxy card, you are authorizing Mr. Probst and Mr. McKee to
vote your shares at the meeting, as you have instructed them on the proxy
card. This way, your shares will be voted whether or not you attend the
meeting. Even if you plan to attend the meeting, it is a good idea to
complete and return your proxy card before the meeting date just in case
your plans change.

If a proposal comes up for vote at the meeting that is not on the proxy
card, Mr. Probst and Mr. McKee will vote your shares, under your proxy,
according to their best judgment.

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Q: How do I vote?

A: .You may vote by mail

Complete, date, sign and mail the proxy card in the enclosed postage pre-
paid envelope. If you mark your voting instructions on the proxy card, your
shares will be voted as you instruct.

If you do not mark your voting instructions on the proxy card, your shares
will be voted:

. for the Tracking Stock Proposal

. for the Class B equity plan

. for the Class A equity plan

. You may vote by telephone

You may do this by following the "Vote by Telephone" instructions on
your proxy card. If you vote by telephone, you do not have to mail in
your proxy card.

. You may vote on the Internet

You may do this by following the "Vote by Internet" instructions on your
proxy card. If you vote by Internet, you do not have to mail in your
proxy card.

. You may vote in person at the meeting

You may complete the ballot we will pass out to any stockholder who
wants to vote at the meeting. However, if you hold your shares in street
name, you must request a proxy from your stockbroker in order to vote at
the meeting.

Q: What does it mean if I receive more than one proxy card?

A: It means that you have multiple accounts at the transfer agent or with
stockbrokers. Please complete and return all proxy cards to ensure that all
your shares are voted.

Q: What if I change my mind after I return my proxy?

A: You may revoke your proxy and change your vote at any time before the polls
close at the meeting. You may do this by:

.sending a signed statement to the Company that the proxy is revoked,

.signing another proxy with a later date,

. voting by telephone or on the Internet (your latest telephone or
Internet vote is counted), or voting at the meeting.

Q: If I hold shares through a broker, how do I vote them?

A: Your broker should have forwarded instructions to you regarding the manner
in which you can direct your broker as to how you would like your shares to
be voted. If you have not received these instructions or have questions
about them, you should contact your broker directly.

Q: What is the result of my failing to vote my shares or instruct my broker as
to the voting of my shares?

A: Since the Tracking Stock Proposal requires the approval of a majority of
our outstanding shares, shares that are not voted have the same effect as a
vote against the proposal. Unless you have granted your broker
discretionary voting authority over your account, your broker will not vote
your shares without receiving directions from you.

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Q: Who will count the votes?

A: Employees of Norwest Shareholder Services will tabulate the votes and act as
the inspectors of election.

Q: How many shares must be present to hold the meeting?

A: To hold the meeting and conduct business, a majority of Electronic Arts'
outstanding shares as of February 1, 2000 must be present at the meeting. On
this date the Company had 64,096,353 shares of common stock entitled to vote
and a majority, or 32,048,177 of these shares, must be present. This is
called a quorum.

Shares are counted as present at the meeting if the stockholder either:

. is present and votes in person at the meeting, or

. has properly submitted a proxy card or voted via telephone on the
Internet.

Q: Where do I find the voting results of the meeting?

A: We will announce preliminary voting results at the meeting. We will publish
the final results in our annual report on Form 10-K for fiscal 2000. We will
file that report with the Securities and Exchange Commission, and you can
get a copy by contacting our Investor Relations Hotline at (650) 628-7352 or
the SEC at (800) SEC-0330 for the location of its nearest public reference
room. You can also get a copy on the Internet through the SEC's electronic
data system called EDGAR at www.sec.gov.

Q: Who is soliciting these proxies and how much did this proxy solicitation
cost?

A: This solicitation is being made by the Company's Board of Directors. The
Company has retained Georgeson & Company Inc. to solicit proxies from
stockholders at an estimated fee of $12,000 plus expenses. (Note that this
fee does not include the costs of printing and mailing the proxy
statements.) Some of our officers and other agents may also solicit proxies
personally, by telephone and by mail. Electronic Arts will also reimburse
brokerage houses and other custodians for their reasonable out-of-pocket
expenses for forwarding proxy and solicitation material to the beneficial
owners of common stock.

Q: Whom can I call with any questions?

A: You may call Norwest Bank Minnesota at 1-800-468-9716.

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PROXY STATEMENT SUMMARY

This summary, together with the "Questions and Answers About the Tracking
Stock Proposal and Special Meeting" on the preceding pages, highlights
important information from this document. To understand the Tracking Stock
Proposal fully and for a more complete description of the legal terms of the
proposal, and of the Class B equity plan and Class A equity plan that you are
being asked to approve at the Special Meeting, you should read this proxy
statement and the documents to which you are referred.

Electronic Arts, EA and EA.com

Electronic Arts Inc.

Electronic Arts creates, markets and distributes interactive entertainment
software for a variety of hardware platforms. We have identified important
opportunities for online game play and delivery and have dedicated resources to
pursue this opportunity through our EA.com operations. The Tracking Stock
Proposal will allow us to issue Class B common stock, intended to reflect the
performance of EA.com, and reclassify our common stock as Class A common stock
reflecting EA's performance.

EA.com includes:

. All of the businesses, assets and liabilities for online exploitation of
EA games,

. The right to exploit online playable versions of EA games developed in
the future,

. The right to develop, market and publish other online games,

. The right to develop, market and publish other forms of online content,
and

. The right to sell EA products through the EA.com websites.

EA includes:

. All of the business, assets and liabilities of Electronic Arts other
than the business to be conducted by EA.com,

. A retained interest in EA.com, which will initially represent
approximately 80% of the equity value attributed to EA.com after the
initial issuance of shares of Class B common stock, including shares
subject to warrants, to America Online, Inc. and News America
Incorporated but prior to giving effect to any grants of Class B shares
reserved under the Class B equity plan that you are being asked to
approve.

Electronic Arts includes the combined business, assets and liabilities of EA
and EA.com.

Proposal 1--The Tracking Stock Proposal

At the Special Meeting we will ask you to consider and approve the Tracking
Stock Proposal described in this proxy statement. The Tracking Stock Proposal
is an amendment to our charter that will:

. Increase the number of authorized shares of common stock from
104 million to 500 million, consisting of 400 million Class A shares and
100 million Class B shares, and increase the number of authorized shares
of preferred stock from one million to ten million, and

. Reclassify each outstanding share of our existing common stock into one
share of Class A common stock.

We have prepared financial statements for EA.com and in the future will
prepare financial statements for it as well as the consolidated financial
statements of Electronic Arts.

4
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We have entered into agreements with each of America Online and News America
Incorporated for the sale and issuance of the following shares, or warrants to
purchase shares, of Class B common stock if the Tracking Stock Proposal is
approved:

. Sale of Class B shares to America Online that represent ten percent of
the equity value of EA.com,

. Sale of a warrant to America Online to purchase Class B shares that
represent five percent of the equity value of EA.com,

. Issuance of Class B shares to News America Incorporated that represent
five percent of the equity value of EA.com.

We have also agreed with America Online and News America Incorporated that
Class B shares representing 20% of the equity value of EA.com would be reserved
for issuance as stock option and equity awards, a portion of which is
represented by the Class B equity plan that you are being asked to approve.

Reasons for the Tracking Stock Proposal

We are proceeding with the Tracking Stock Proposal primarily for the
following reasons:

. Reporting the operating results of EA.com will increase the market
understanding of EA.com and of the revenues, costs, earnings or losses
associated with this business.

. The separate investment vehicles represented by the Class A common stock
and the Class B common stock may meet the requirements of distinct
investors--those looking for a more mature software business like EA,
and those looking for the growth potential of a newer Internet business
such as EA.com.

. Equity incentive awards using the tracking stock will assist EA.com in
attracting and retaining key talent in the competitive employee market
in online businesses.

. The Tracking Stock Proposal will facilitate our separation of our online
business from our packaged goods business while retaining ownership of
our online assets.

. Class B common stock will assist the Board in meeting the capital
requirements of EA.com by creating an additional security for use in
raising capital and as currency for acquisitions by EA.com.

If you vote for the Tracking Stock Proposal you may forfeit your right to
challenge the proposal in the future.

5
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The following compares certain terms of our existing common stock to the
proposed terms of Class A common stock and Class B common stock under the
Tracking Stock Proposal. This comparison is not complete and should be read
together with the more detailed information contained in the rest of this Proxy
Statement. In particular, see "Proposal 1--The Tracking Stock Proposal" and
Appendix II, Amended and Restated Certificate of Incorporation.

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<CAPTION>
Existing Common Stock Tracking Stock Proposal
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<C> <C> <S>
Basic Investment Our existing common stock We intend Class A common
Characteristics: reflects the performance of stock to reflect the
all of our businesses, performance of EA. EA
including our entertainment currently includes our
software business and our entertainment software
online business. business, other than our
online business, and our
retained interest in EA.com.
We intend Class B common
stock to reflect the
performance of EA.com, our
online division.
We cannot assure you that
the market value of Class A
common stock will in fact
reflect the performance of
EA, or that the market value
of Class B common stock will
reflect the performance of
EA.com, as we intend.
Holders of each class of
common stock will continue
to be common stockholders of
Electronic Arts Inc. and, as
such, will be subject to all
risks associated with an
investment in Electronic
Arts Inc. and all of our
businesses, assets and
liabilities.
Issuance: Our existing common stock is Before we first issue Class
already outstanding. B common stock, we will re-
classify each outstanding
share of existing common
stock into a share of Class
A common stock. We have
agreed to sell and issue to
America Online and News
America Incorporated,
Class B common stock
intended to represent 20% of
the initial equity value
attributed to EA.com. In
addition, we have agreed to
reserve Class B common stock
intended, initially, to
represent 20% of the equity
value attributed to EA.com
for future stock option and
equity awards, a portion of
which is represented by the
Class B equity plan you are
being asked to approve.
Retained Interest N/A Assuming we issue to America
After Initial Sales Online and News America
of Class B Common Incorporated shares of Class
Stock: B common stock intended to
represent 20% of the initial
equity value attributed to
EA.com, as currently
planned, and, over time,
issue shares pursuant to
stock option and other
equity awards representing
20% of the initial equity
value attributed to EA.com,
this would leave EA with a
retained interest intended
to represent 60% of the
equity value attributed to
EA.com. In the future we
will adjust the retained
interest as appropriate to
reflect other issuances or
repurchases of Class B
common stock and capital
contributions to, or returns
of capital from, EA.com.
</TABLE>

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<TABLE>
<CAPTION>
Existing Common Stock Tracking Stock Proposal
---------------------------- ----------------------------
<C> <C> <S>
Authorized and We are currently authorized The Tracking Stock Proposal
Outstanding Common to issue only one class of will authorize us to issue
Stock: common stock. We are two classes of common
currently authorized to stock--up to 400 million
issue up to 104 million shares of Class A common
shares of common stock and stock and up to 100 million
one million shares of shares of Class B common
preferred stock. stock. The Tracking Stock
Proposal will also authorize
us to issue up to ten
million shares of preferred
stock.
64,096,353 shares of Once the Tracking Stock
existing common stock were Proposal is implemented,
outstanding on February 1, 64,096,353 shares of Class A
2000. These shares count common stock will be
against the total number of outstanding, based on the
shares we are authorized to number of shares of existing
issue. common stock outstanding on
February 1, 2000, and we
intend to issue shares of
Class B common stock to
America Online and News
America Incorporated
pursuant to our agreements
with them. These Class A and
Class B shares will count
against the total number of
shares of common stock we
are authorized to issue.
Dividends: We currently intend to We currently intend to
retain all of our earnings retain all of our earnings
to finance our operations to finance our operations
and fund future growth. We and fund future growth. We
do not expect to pay any do not expect to pay any
dividends on our existing dividends on Class A common
common stock for the stock or Class B common
foreseeable future. stock for the foreseeable
future.
We are permitted to pay We will be permitted to pay
dividends out of the assets dividends on Class A and
of Electronic Arts Inc. Class B common stock out of
legally available for the the assets of Electronic
payment of dividends under Arts Inc. legally available
Delaware law. for the payment of dividends
under Delaware law, but the
total of the amounts paid as
dividends on Class A common
stock cannot exceed the
Available Dividend Amount
for EA and the total of the
amounts paid as dividends on
Class B common stock (and
the corresponding amounts
transferred from EA.com to
EA in respect of its
retained interest) cannot
exceed the Available
Dividend Amount for EA.com.
The Available Dividend
Amounts for EA and EA.com
are based on the amounts
that would be legally
available for the payment of
dividends under Delaware law
if EA and EA.com were each a
separate Delaware
corporation and, in the case
of EA.com, if EA's retained
interest in EA.com were
represented by outstanding
shares.
Mandatory Dividend, None. There is no mandatory
Redemption or dividend, redemption or
Exchange on exchange provision with
Disposition of respect to Class A common
Assets: stock. If we dispose of all
or substantially all of the
assets of EA.com, we would
be required to choose one of
the following three
alternatives:
pay a dividend to holders of
Class B common stock in an
amount equal to their
proportionate interest in
the net proceeds of such
disposition,
redeem from holders of Class
B common stock, for an
amount equal to their
proportionate interest in
the net proceeds of such
disposition, the outstanding
shares of Class B common
stock (or redeem a
</TABLE>

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<TABLE>
<CAPTION>
Existing Common Stock Tracking Stock Proposal
---------------------------- ----------------------------
<C> <C> <S>
portion of the Class B
common stock if EA.com
continues to hold a material
amount of its assets after
such disposition), or
issue Class A common stock
in exchange for outstanding
Class B common stock at a
15% premium.
At any time within one year
after completing a special
dividend or partial redemp-
tion referred to above, we
will have the right to issue
Class A common stock in ex-
change for outstanding Class
B common stock at a 15% pre-
mium.
Exchange of Class A None. Electronic Arts will not
Common Stock for have a right to exchange or
Class B Common redeem Class A common stock.
Stock at Electronic We will have the right, at
Arts Inc.'s Option: any time after the one year
anniversary of an
underwritten initial public
offering of Class B common
stock to issue Class A
common stock in exchange for
outstanding Class B common
stock at a 15% premium.
Exchange of None. At any time after there has
Subsidiary Stock been completed an
for Class B Common underwritten initial public
Stock at Electronic offering of Class B common
Arts Inc.'s Option: stock, we may exchange stock
of our EA.com subsidiary for
all of the outstanding Class
B common stock. There is no
corresponding provision for
the Class A common stock.
Voting Rights: One vote per share. The Class A common stock
will have one vote per
share. Prior to the
completion of an
underwritten initial public
offering of Class B common
stock, each share will have
a number of votes equal to
the market value of a share
of Class B common stock on
the initial issuance date of
Class B common stock divided
by the average market value
of a share of Class A common
stock over a specified 20
trading day period prior to
the initial issuance of
Class B common stock. After
the completion of an
underwritten initial public
offering of Class B common
stock, if any, each share of
Class B common stock will
have a number of votes equal
to the initial public
offering price of the Class
B common stock divided by
the average market value of
the Class A common stock
over a specified 20 trading
day period before the date
of the initial public
offering.
Holders of Class A common
stock and Class B common
stock will vote together as
a single class, except in
certain limited
circumstances.
</TABLE>

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<TABLE>
<CAPTION>
Existing Common Stock Tracking Stock Proposal
---------------------------- ----------------------------
<C> <C> <S>
Liquidation: Upon liquidation of Upon liquidation of
Electronic Arts Inc., Electronic Arts Inc.,
holders of existing common holders of Class A common
stock are entitled to stock and Class B common
receive the net assets of stock will be entitled to
Electronic Arts Inc., if receive the net assets of
any, remaining for Electronic Arts Inc., if
distribution to stockholders any, remaining for
(after payment or provision distribution to stockholders
for all liabilities of (after payment or provision
Electronic Arts Inc. and for all liabilities of
payment of any liquidation Electronic Arts Inc. and
preference payable to any payment of any liquidation
holders of preferred stock). preference payable to any
holders of preferred stock).
Amounts due upon liquidation
in respect of shares of
Class A common stock and
shares of Class B common
stock will be distributed
pro rata in accordance with
the average market value of
Class A common stock over a
specified 20 trading day
period preceding the date of
the first issuance of Class
B common stock compared to
the market value of Class B
common stock on the initial
issuance date of Class B
common stock.
Stock Exchange Nasdaq stock market under Following implementation of
Listings: the symbol "ERTS". the Tracking Stock Proposal
the Class A common stock
will continue to be listed
on the Nasdaq stock market
under the symbol "ERTS." The
Class B common stock will
not initially be listed on
any stock exchange.
</TABLE>

No Appraisal Rights

Under the Delaware General Corporation Law, you will not have appraisal
rights in connection with the Tracking Stock Proposal.

Federal Income Tax Considerations

We believe that neither you nor Electronic Arts Inc. will recognize any
income, gain or loss for federal income tax purposes as a result of the
reclassification of our existing common stock into Class A common stock or the
issuance of Class B common stock. There are, however, no court decisions
bearing directly on similar transactions and the Internal Revenue Service has
announced that it will not issue advance rulings on the federal income tax
consequences of such transactions. Thus, you should consult a tax advisor. For
a more detailed description of possible federal income tax consequences, see
"Proposal 1--The Tracking Stock Proposal--Federal Income Tax Considerations".

9
<PAGE>

Proposals 2 and 3

At the Special Meeting, we will also ask you to consider and approve
proposals to approve the Electronic Arts Inc. 2000 Class B Equity Incentive
Plan (Proposal 2) and the Electronics Arts Inc. 2000 Class A Equity Incentive
Plan (Proposal 3). The Class B equity plan allows the award of stock options or
restricted stock for up to an aggregate of 6,000,000 shares of Class B common
stock. It includes a provision for automatic option grants to our outside
directors. The Class A equity plan allows the grant of options to purchase, or
the award of restricted stock for, up to an aggregate of 3,100,000 shares of
Class A common stock. Like the Class B equity plan it includes automatic option
grants to our outside Directors.

One of the key reasons for separating our online business from our packaged
goods business is to enhance our ability to recruit and retain key talent. The
large equity positions for key employees, and potentially fast stock price
appreciation, of many Internet companies frequently make their compensation
packages attractive to employees working in a more mature market segment. This
has made it more difficult for Electronic Arts to compete in attracting and
retaining key creative, technical and executive talent, both for our online
business and our packaged goods business. By creating the 2000 Class B Equity
Incentive Plan, we hope to be able to more effectively compete for that talent
with the other Internet companies.

Additionally, we are asking for approval of a new 2000 Class A Equity
Incentive Plan. Our current 1991 Stock Option Plan expires in April of 2001.
Rather than wait until our next annual meeting to seek stockholder approval of
a new plan, we are recommending that the stockholders approve the 2000 Class A
Equity Plan at the Special Meeting.

10
<PAGE>

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

Electronic Arts stockholders should read the summary historical consolidated
financial data presented below in conjunction with the consolidated financial
statements and the notes to the consolidated financial statements for
Electronic Arts incorporated by reference herein.

Electronic Arts

INCOME STATEMENT DATA
(In thousands, except per share data)

<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
---------------------- -----------------------------
1999 1998 1999 1998 1997
----------- ---------- ---------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues............ $1,125,698 $944,139 $1,221,863 $908,852 $673,028
Cost of goods sold...... 562,821 497,265 627,823 481,233 328,943
---------- -------- ---------- -------- --------
Gross profit............ 562,877 446,874 594,040 427,619 344,085
Operating expenses:
Marketing and sales.... 147,422 123,618 163,407 128,308 102,072
General and
administrative........ 68,246 55,454 76,219 57,838 48,489
Research and
development........... 187,025 144,358 199,141 145,732 130,755
Charge for acquired in-
process technology.... -- 44,115 44,115 1,500 --
Merger costs........... -- -- -- 10,792 --
Amortization of
intangibles........... 7,800 3,385 5,880 -- --
---------- -------- ---------- -------- --------
Total operating
expenses............. 410,493 370,930 488,762 344,170 281,316
---------- -------- ---------- -------- --------
Operating income........ 152,384 75,944 105,278 83,449 62,769
Interest and other
income, net............ 11,653 10,507 13,180 24,811 13,279
---------- -------- ---------- -------- --------
Income before provision
for income taxes and
minority interest...... 164,037 86,451 118,458 108,260 76,048
Provision for income
taxes.................. 50,852 35,172 45,414 35,726 26,003
---------- -------- ---------- -------- --------
Income before minority
interest............... 113,185 51,279 73,044 72,534 50,045
Minority interest in
consolidated joint
venture................ 134 (321) (172) 28 1,282
---------- -------- ---------- -------- --------
Net income.............. $ 113,319 $ 50,958 $ 72,872 $ 72,562 $ 51,327
========== ======== ========== ======== ========
Net income per share:
Basic................. $ 1.82 $ 0.84 $ 1.20 $ 1.23 $ 0.89
Diluted............... $ 1.72 $ 0.81 $ 1.15 $ 1.19 $ 0.86
Number of shares used
in computation:
Basic................. 62,390 60,621 60,748 58,867 57,544
Diluted............... 65,835 63,210 63,272 60,958 59,557
</TABLE>

11
<PAGE>

BALANCE SHEET DATA AT PERIOD END
(In thousands)

<TABLE>
<CAPTION>
December 31, March 31,
---------------------- --------------------------
1999 1998 1999 1998 1997
----------- ---------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments.... $ 247,170 $201,236 $312,822 $374,560 $268,141
Marketable securities...... 1,447 2,644 4,884 3,721 5,548
Working capital............ 451,757 323,809 333,256 408,098 284,863
Long-term investments...... 18,400 24,200 18,400 24,200 34,478
Total assets............... 1,180,769 936,490 901,873 745,681 584,041
Total liabilities.......... 312,384 292,288 236,209 181,713 136,237
Minority interest.......... 3,052 2,949 2,733 -- 28
Total stockholders'
equity.................... 865,333 641,253 662,931 563,968 447,776
</TABLE>

EA.com

The following table presents summary historical consolidated financial data
for EA.com as of and for the years ended March 31, 1999, 1998 and 1997 and as
of and for the nine months ended December 31, 1999 and 1998. This data was
derived from the audited Consolidated Financial Statements of EA.com as of and
for each of the years in the two-year period ended March 31, 1999; and the
unaudited consolidated financial statements as of and for the year ended March
31, 1997 and as of and for the nine-month period ended December 31, 1999 and
1998, respectively. No historical earnings per share or share data are
presented as EA.com does not consider such data meaningful. This table should
be read in conjunction with the Selected Historical Consolidated Financial Data
and Management's Discussion and Analysis of Financial Condition and Results of
Operations and Consolidated Financial Statements for each of Electronic Arts
Inc. and EA.com in Appendixes III and IV to this Proxy Statement, respectively.

INCOME STATEMENT DATA
(In thousands)

12
<PAGE>

BALANCE SHEET DATA AT PERIOD END
(In thousands)

<TABLE>
<CAPTION>
March 31,
December 31, --------------------------
1999 1999 1998 1997
------------ ------ ----- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments.......................... $ 144 $ -- $ -- $--
Working deficit....................... (5,972) (385) (781) --
Total assets.......................... 53,324 2,968 681 --
Total liabilities..................... 7,139 1,241 1,041 --
Division equity (deficit)............. 46,185 1,727 (360) --
</TABLE>

13
<PAGE>

RISK FACTORS

You should carefully consider the risk factors described below, as well as
the other information included in this Proxy Statement, before you decide how
to vote on the proposals.

Risk Factors Relating to the Tracking Stock Proposal

Holders of Class B Common Stock Will Be Common Stockholders of Electronic
Arts Inc. and Will Be Subject to Risks Associated with an Investment in
Electronic Arts as a Whole

Even though we have allocated our consolidated assets, liabilities, revenue,
expenses and cash flow in order to prepare financial statements of EA.com, the
Tracking Stock Proposal will not change the legal title to any assets or
responsibility for any liabilities and will not affect the rights of any of our
creditors. Further, holders of Class A common stock and Class B common stock
will not have any legal rights related to specific assets of either group, and,
in any liquidation, will receive a share of the net assets of Electronic Arts
based on the trading price of Class A common stock relative to the market value
of Class B common stock on the date of its initial issuance rather than on any
assessment of the actual value of the respective groups. Changes in the
relative value of the Class B common stock after its initial issuance could
result in the Class A and Class B common stocks having liquidation values that
are not reflective of the respective trading values of the two classes. Holders
of Class A common stock and Class B common stock will continue to be common
stockholders of Electronic Arts and, as such, will be subject to all risks
associated with an investment in Electronic Arts Inc. and all of our
businesses, assets and liabilities. For example, if the cash flow of either
group is insufficient to satisfy inter-group loans or other debt owed by that
group, both groups would be adversely affected.

Any Adverse Operating Results of Electronic Arts May Cause the Value of Either
Group's Stock To Decline for Reasons Having Nothing To Do with the Prospects
for That Group

Financial results of either group will affect Electronic Arts' consolidated
results of operations and financial position. This could affect the results of
operations and financial position of the other group or the market price of
shares issued with respect to the other group. In addition, net losses of
either group, and any dividends or distributions on, or repurchases of, either
class of common stock will reduce the assets of Electronic Arts Inc. legally
available for dividends on both classes of common stock.

Having Two Classes of Common Stock Could Create Potential Conflicts of Interest
and the Board of Directors Could Make Decisions That Adversely Affect Holders
of Either Class of Stock

Having two classes of common stock could give rise to occasions when the
interests of holders of one class might diverge or appear to diverge from the
interests of holders of the other. Examples include:

. our decisions as to whether to allocate the proceeds of issuances (or
the costs of repurchases) of Class B common stock to EA in respect of
its retained interest in EA.com or to the equity of EA.com,

. our decisions as to how to allocate consideration received in a merger
involving Electronic Arts between holders of Class A common stock and
Class B common stock,

. our decisions as to whether and when to exchange Class A common stock
for Class B common stock,

. our decisions as to whether and when to approve dispositions of assets
of either EA or EA.com,

. our decisions as to whether to pay dividends on Class A common stock and
Class B common stock, and

. our decisions as to whether and how to make transfers of funds from one
group to another and, more generally, our decisions as to other
operational and financial matters that could be considered detrimental
to one group or the other.

14
<PAGE>

If directors own disproportionate interests (in percentage or value terms)
in Class A common stock and Class B common stock, that disparity could create
or appear to create potential conflicts of interest when they are faced with
decisions that could have different implications for the different classes.

Principles of Delaware Law May Protect Decisions of the Board of Directors That
Have a Disparate Impact upon Holders of Class A Common Stock and Class B Common
Stock

Principles of Delaware law established in cases involving differing
treatment of two classes of common stock provide that a board of directors owes
an equal duty to all common stockholders regardless of class or series and does
not have separate or additional duties to either group of stockholders. We are
not aware of any legislative or judicial precedent involving the fiduciary
duties of directors of a Delaware corporation with two classes of common stock
with separate rights related to specified operations of the corporation.
However, under the principles of Delaware law referred to above and the related
principle known as the "business judgment rule", you may not be able to
challenge decisions that have a disparate impact upon holders of Class A common
stock and Class B common stock if the Board of Directors:

. is disinterested and adequately informed with respect to such decisions,
and

. acts in good faith and in the honest belief that it is acting in the
best interests of Electronic Arts Inc.'s stockholders.

In addition, pursuant to provisions in our charter and bylaws and to
indemnification agreements that we have entered into with our officers and
directors, we are obligated to indemnify these persons to the fullest extent
allowed by Delaware law against claims made against them in their capacity as
officers and directors.

The Board of Directors Has Sole Discretion To Allocate Proceeds Upon Issuances,
or Costs of Repurchases, of Class B Common Stock to EA.com or EA

Proceeds from the issuance of Class B common stock may not necessarily be
allocated to the equity of EA.com. The Board of Directors will determine in its
sole discretion whether to allocate the proceeds of issuances, or the costs of
repurchases, of Class B common stock to EA in respect of its retained interest
in EA.com or to the equity of EA.com.

Stockholders Will Not Vote on How To Allocate Consideration Received in a
Merger Among Holders of Class A Common Stock and Holders of Class B Common
Stock

Our charter will not contain any provisions governing how consideration
received in a merger or consolidation involving Electronic Arts Inc. is to be
allocated between holders of Class A common stock and holders of Class B common
stock. The holders of neither class will have a separate class vote in any
merger or consolidation so long as we divide the type and amount of
consideration between holders of the two classes in a manner we determine, in
our sole discretion, to be fair. In any such merger or consolidation, the
different ways we may divide the consideration might have materially different
results. As a result, the consideration to be received by holders of Class A
common stock or Class B common stock in any such merger or consolidation may be
materially less valuable than the consideration they would have received if
they had a separate class vote on such merger or consolidation.

We Have the Option To Exchange Class A Common Stock for Class B Common Stock
and This Could Prove To Be Disadvantageous to Holders of Either or Both Classes

At any time after the first anniversary date of the underwritten initial
public offering of Class B common stock, we will have the right to issue shares
of Class A common stock in exchange for outstanding shares of Class B common
stock. Because this exchange would be required to be made at a 15% premium over
the then-current Class B common stock trading price, and since we could
determine to effect an exchange at a time

15
<PAGE>

when either or both of Class A common stock and Class B common stock may be
considered to be overvalued or undervalued, any such exchange may be
disadvantageous to holders of one class or the other. In addition, any such
exchange would preclude holders of Class B common stock from retaining their
investment in a security that is intended to reflect separately the performance
of EA.com.

We Will Not Have the Ability To Exchange for or Redeem the Class B Common Stock
Unless We Complete an Initial Public Offering of Class B Common Stock, Which
Could Prevent Us from Eliminating the Dual Common Stock Structure Even if We
Desire To Do So

Following the initial issuance of Class B common stock, our right to
exchange Class A common stock for Class B common stock will be conditioned on
our having completed an underwritten initial public offering of Class B common
stock and one year having passed since that offering was completed. Our ability
to exchange stock of our subsidiary operating the EA.com business for Class B
common stock is also conditioned on the completion of such a public offering,
but there is not a requirement that a one year period has passed. We have
limited contractual rights with AOL and News American Incorporated to
repurchase their Class B common stock, but these rights would not apply to
other Class B holders, if any. We are not required to complete an initial
public offering of the Class B common stock. While we expect that we will
undertake to complete such an offering in the future, we cannot be certain as
to the timing of an offering. Further, we cannot predict whether the securities
markets will be receptive to tracking stocks in general and our Class B common
stock in particular at such future time as we may desire to complete an initial
public offering of Class B shares. If we do not complete an initial public
offering of Class B shares, we may not be able to retire those shares and
return to a single class of common stock even if we determine that it is in the
best interests of Electronic Arts to do so.

We May Dispose of Assets of EA.com without Your Approval

Delaware law requires stockholder approval only for a sale or other
disposition of all or substantially all of the assets of Electronic Arts. The
assets of EA.com will not initially represent, and are unlikely in the future
to represent, all or substantially all of the assets of Electronic Arts. As
long as the assets attributed to EA.com represent less than substantially all
of Electronic Arts' assets, we may approve sales and other dispositions of any
amount of the assets of EA.com without any stockholder approval. If we dispose
of all or substantially all of the assets of EA.com, we would be required, if
the disposition is not an exempt disposition under the terms of our charter, to
choose one of the following three alternatives:

. declare and pay a dividend,

. redeem shares of the Class B common stock or

. exchange shares of Class A common stock for outstanding shares of Class
B common stock at a 15% premium.

In addition, if we elect to complete an exchange in connection with the
disposition of EA.com assets, we could do so at a time when Class B common
stock or Class A common stock may be considered to be overvalued or
undervalued.

The Board of Directors will decide, in its sole discretion, how to proceed
and is not required to select the option that would result in the highest value
to holders of either class. This decision, however, will be subject to the
Board of Directors' general fiduciary duties.

We Do Not Expect To Pay Dividends for the Foreseeable Future

We do not expect to pay any dividends for the foreseeable future on either
class of common stock.

16
<PAGE>

We May Not Pay Dividends Equally on Class A Common Stock and Class B Common
Stock

We have the right to pay dividends on Class A common stock or Class B common
stock, or both, in equal or unequal amounts, without regard to the relative
performance of either EA or EA.com, the Available Dividend Amount for EA and
EA.com, respectively, or the amount of prior dividends declared on either
class. In addition, net losses of either group, and any dividends or
distributions on, or repurchases of, either class, will reduce the assets of
Electronic Arts Inc. legally available for dividends on either class.

The Board of Directors May Make Operational and Financial Decisions Affecting
EA and EA.com Differently

The Board of Directors will make operational and financial decisions and
implement policies that affect the businesses of EA and EA.com differently.
Examples include:

. transfers of funds between EA and EA.com,

. the manner of accounting for transfers between EA and EA.com,

. allocation of funds for capital expenditures,

. other transactions between EA and EA.com,

. the allocation of financing opportunities in public markets, and

. the allocation of business opportunities, resources and personnel.

Decisions of the Board of Directors may favor either EA or EA.com at the
expense of the other. For example, the decision to provide funds for one group
may adversely affect the ability of the other group to raise funds.

Under Its Current Policies, the Board of Directors Has Broad Discretion
Concerning Various Cash Management Matters

The discretion of the Board of Directors in the area of cash management may
enhance the risks of being a holder of Class A common stock or Class B common
stock compared to that of being a holder of our existing common stock.

The Board of Directors will determine, in its sole discretion, whether to
transfer any cash to or from EA and EA.com. Subject to EA's commitment to
contribute a specified amount of cash to EA.com, the Board of Directors has the
sole discretion to determine whether cash transfers between the two groups will
be treated as a revolving credit advance, a capital contribution, a repayment
of debt or a return of capital. The determination of the Board of Directors as
to how to account for a cash transfer will affect the amount of interest
expense and interest income, stockholders' equity and the number of shares of
Class B common stock issuable with respect to EA's retained interest in EA.com.

If either group is unable to repay advances or loans owed to the other, both
groups would be adversely affected. Also, if either group extends an advance or
loan to the other group at an interest rate below the lending group's cost of
funds or opportunity cost, the lending group's results would be adversely
affected to the extent of the difference.

Any cash transfers we determine to account for as capital contributions or
returns of capital will increase or decrease EA's retained interest in EA.com.
Although we would calculate any change in the retained interest by reference to
the then current market value of Class B common stock, the change could come at
a time when Class B common stock is considered to be overvalued or undervalued.
Also, any increase in EA's retained interest in EA.com will reduce the
percentage of EA.com intended to be represented by outstanding Class B common
stock and any decrease in EA's retained interest in EA.com will increase the
percentage of EA.com intended to be represented by outstanding Class B common
stock.

17
<PAGE>

The Board of Directors Has Broad Discretion about a Variety of Allocation
Matters and This May Increase the Risk of Being a Holder of Class A Common
Stock or Class B Common Stock

The Board of Directors will determine, in its sole discretion, how to
allocate issuances of Electronic Arts Inc. debt or preferred stock between EA
and EA.com. Moreover, the Board of Directors will have broad discretion as to
how to allocate Electronic Arts' consolidated assets, liabilities, revenue,
expenses and cash flow between EA and EA.com. The discretion of the Board of
Directors in these areas may make it riskier to be a holder of Class A common
stock or Class B common stock than a holder of our existing common stock.

Holders of Class A and Class B Common Stock Will Vote Together and Will Have
Limited Separate Voting Rights

Holders of Class A and Class B common stock will vote together as a single
class, except in certain limited circumstances provided under the Delaware
General Corporation Law. When the classes vote together as a single class,
holders of the class of common stock having a majority of the votes will be in
a position to control the outcome of the vote even if the matter involves a
conflict of interest between holders of the classes.

Dilution of Class A Common Stock After Issuance of Class B Common Stock

The issuance of Class B common stock, like any issuance of common stock,
would dilute the voting rights and equity interest of holders of Class A common
stock.

We Cannot Predict How the Issuance of Tracking Stock Will Affect the Market
Price of Our Stock

We cannot predict the prices at which either Class A common stock or Class B
common stock will trade and we cannot assure you that the market price of Class
A common stock will equal or exceed the market price of our existing common
stock.

Certain terms of Class A common stock and Class B common stock may adversely
affect the trading price of Class A common stock or Class B common stock. These
terms include:

. the right of the Board of Directors to exchange shares of Class A common
stock for shares of Class B common stock,

. the discretion of the Board of Directors in making various
determinations relating to a variety of cash management and allocation
matters, and

. the relative voting and liquidation rights of Class A and Class B common
stock.

There has been relatively little history concerning the success or the
effect of tracking stock on companies that have adopted tracking stocks.
Therefore, we are not able to predict if the tracking stock will successfully
serve its purpose of tracking the progress of EA.com. Nor are we able to
predict whether the tracking stock will be successful for us.

The Tracking Stock Could Increase Internal Focus on Our Online Business to the
Detriment of Our Existing Entertainment Software Business

Implementation of the Tracking Stock Proposal may increase the internal
focus of our employees on the online business of EA.com relative to the
existing entertainment software business of EA due to employee perceptions
regarding the relative growth opportunities with respect to each business. In
addition, actual or anticipated differences in the changes of the market prices
of our Class A common stock and Class B common stock could result in actual or
perceived differences in compensation among the employees of EA.com and EA.
Such an increase in internal focus on the online business of EA.com and any
perceived differences in compensation among our employees could have a
detrimental effect on the existing entertainment software business of EA and
could make retention and attraction of key employees for such business more
difficult.

18
<PAGE>

The Market Price of Class A Common Stock and Class B Common Stock May Not
Reflect the Performance of EA and EA.com as We Intend

We cannot assure you that the market price of Class A common stock and Class
B common stock will in fact reflect the performance of EA and EA.com as we
intend. Holders of each class will continue to be common stockholders of
Electronic Arts and, as such, will be subject to all risks associated with an
investment in Electronic Arts and all of our businesses, assets and
liabilities.

There Are Many Factors That May Inhibit or Prevent Acquisition Bids for EA.com
and EA

If EA and EA.com were separate companies, any person interested in acquiring
either of them without negotiating with management could seek control of that
entity by obtaining control of its outstanding voting stock by means of a
tender offer or proxy contest. Although we intend Class A common stock and
Class B common stock to reflect the separate performance of EA and EA.com, a
person interested in acquiring only one group without negotiation with
Electronic Arts' management could obtain control of that group only by
obtaining control of the outstanding voting stock of Electronic Arts.

The existence of two classes of common stock could present complexities and
in some circumstances could pose obstacles, financial and otherwise, to an
acquiring person. The existence of two series of common stock could, under
certain circumstances, prevent stockholders from profiting from an increase in
the market value of their shares as a result of a change in control of
Electronics Arts by delaying or preventing such a change in control.

If the Tracking Stock Proposal is implemented, there would be approximately
425 million shares of common stock and ten million shares of preferred stock
available for future issuance without further stockholder approval. One of the
effects of the existence of authorized and unissued common stock and preferred
stock could be to enable the Board of Directors to issue shares to persons
friendly to current management, which could render more difficult or discourage
an attempt to obtain control of Electronic Arts by means of a merger, tender
offer, proxy contest or otherwise, and thereby protect the continuity of our
management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of Electronic Arts.

In addition, certain provisions of our charter and by-laws, and certain
provisions of Delaware law, may inhibit changes of control not approved by the
board of directors.

The Values of Class A Common Stock and Class B Common Stock May Decline Due to
Further Issuances of Either Class

Our charter will allow the Board of Directors, in its sole discretion, to
issue authorized but unissued shares of common stock. The Board of Directors
may issue either class of common stock to, among other things:

. raise capital,

. provide compensation or benefits to employees,

. pay stock dividends, or

. acquire companies or businesses.

Under the Delaware General Corporation Law, the Board of Directors would not
need your approval for these issuances. We do not intend to seek your approval
for any such issuances unless:

. stock market regulations or other applicable law require approval, or

. the Board of Directors deems it advisable.

19
<PAGE>

The Trading Price of Our Common Stock Has Been More Volatile Since We Announced
Our Intent To Pursue the Tracking Stock Proposal, and This Volatility May
Continue if the Proposal Is Adopted

Since we announced the Tracking Stock Proposal, the trading price of our
common stock has been significantly more volatile than it had been previously.
We expect that if the Tracking Stock Proposal is adopted it is likely that our
shares will be subject to greater volatility than had been the case prior to
announcement of the proposal.

The Federal Income Tax Considerations of the Tracking Stock Proposal Are
Uncertain

We believe that neither you nor Electronic Arts will recognize any income,
gain or loss for federal income tax purposes as a result of the
reclassification of our existing common stock into Class A common stock or the
issuance of Class B common stock. There are, however, no court decisions
bearing directly on similar transactions and the Internal Revenue Service has
announced that it will not issue advance rulings on the federal income tax
consequences of such transactions.

Moreover, in 1999 the Clinton administration made a proposal that would
require the recognition of gain on the issuance of certain tracking stock, such
as Class B common stock, and would give the Treasury Department the authority
to treat tracking stock as nonstock or as stock of another entity as
appropriate to prevent tax avoidance. As proposed by the Clinton
administration, this provision would only affect tracking stock issued on or
after the date of its enactment by Congress. Recent federal income tax
legislation has not adopted the Clinton administration proposal. We cannot
predict, however, whether the Clinton administration proposal will in the
future be enacted by Congress and, if enacted, whether it will be in the form
proposed by the Clinton administration. If it were enacted as proposed, it
would affect future issuances of Class B common stock. Under such
circumstances, if we had previously completed an underwritten public offering
of Class B common stock, we might decide to exercise our right to exchange all
of the outstanding shares of Class B common stock for Class A common stock at a
premium, which would be disadvantageous to holders of Class A common stock.

Thus, you should consult your own tax advisor as to the particular tax
consequences of the Tracking Stock Proposal under federal, state, local or
foreign law. See "Proposal 1--The Tracking Stock Proposal--Federal Income Tax
Considerations".

Risk Factors Relating to EA.com

Because of EA.com's Limited Operating History, It Will Be Difficult To Evaluate
its Business and Prospects

EA.com's business is still in the developing stages, so evaluating its
business and prospects will be more difficult than would be the case for a more
mature business. We will continue to encounter the risks and difficulties faced
in launching a new business, and we may not achieve our goals or may be
compelled to change the manner in which we seek to develop the business. These
uncertainties as to the future operations of EA.com will increase the
difficulty we face in completing and pursuing the essential plans for the
development of the business and will also make it more difficult for our
stockholders and securities analysts to predict the operating results of this
business.

EA.com Has a History of Losses and Expects To Continue To Incur Losses and May
Never Achieve Profitability

EA.com has incurred substantial losses to date, including through the
current fiscal year. We expect EA.com to continue to incur losses as it
develops its business. EA.com will be required to maintain the significant
support, service and product enhancement demands of online users, and we cannot
be certain that EA.com will produce sufficient revenues from its operations to
support these costs. Even if profitability is achieved, EA.com may not be able
to sustain it over a period of time.

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Our Agreements with America Online May Not Prove Successful to the Development
of EA.com's Business

We have announced a series of agreements with America Online for the
offering of our games through AOL for online play. These agreements require
that we make substantial guaranteed payments to AOL and that we commit our
resources to pursuit of the online game opportunity. We cannot be assured that
the substantial costs associated with the AOL agreements will be justified by
the revenues generated from that relationship. In addition, restrictions
included in the AOL agreements limiting other channels we may develop for
offering online games may limit our ability to diversify our online
distribution strategies. Further, we are required under our agreement with AOL
to launch our game site within a specified time period or be subject to certain
penalties, including AOL's right to terminate the agreement. We may not be
successful in achieving the specified launch targets. The success for us of the
AOL agreements will also be a result of AOL's performance under the agreements,
a factor over which we will have very little control.

We Have Very Limited Experience with Online Games and May Not Be Able To
Operate This Business Effectively

Offering games solely for online play is a substantial departure from our
traditional business of selling packaged software games. We anticipate
employing various pricing models, including subscription fees, "pay to play
fees" and advertising. We have very little experience with developing optimal
pricing strategies for online games and no experience in "pay to play" pricing
or in securing advertising revenue for online services. Similarly, we are
inexperienced in predicting usage patterns for our games. Because of our
inexperience in this area, we may not be effective in achieving success that
may otherwise be attainable from offering our games online.

Online Games Have Risks That Are Not Associated with Our Traditional Business

Online games, particularly multiplayer games, pose risks to player enjoyment
that do not generally apply to packaged game sales. Players frequently would
not be acquainted with other players, which may adversely affect the playing
experiencing. Social issues raised by a player's conduct may impact the
experience for other players. We have not determined whether or how we might
monitor or proctor player behavior to mitigate behavior that impairs the game
experience. In addition, there are substantial technical challenges to be met
both in the introduction of our games online and in maintaining an effective
game playing environment over time. If these risks are not successfully
controlled and technical challenges resolved, potential customers for our games
may be unwilling to play in sufficient volume to allow us to attain or sustain
profitability.

We May Not be Able To Obtain the Required Licenses To Offer Our Games Online

If we are unable to reach terms with the licensors for our games, we will
not be able to offer many of our games for online play. Many of Electronic
Arts' most popular games feature characters, trademarks, people or concepts for
which we have licenses from third parties. As an example, our EASPORTS products
typically contain content licensed from a sports and players' association. In
many instances the terms of these licenses will not allow us to offer the games
for online play without negotiating an additional license. We cannot be certain
that the licensors will be amenable to a license for online games involving
their content or, even if they are, that we will be able to reach terms with
them for such use. We may be forced to agree to terms that ultimately
materially impair the economic value to us of the online game market.

Proliferation and Assertion of Patents Poses Serious Risks to the Business of
EA.com.

Many patents have been issued that may apply to widely used Internet
technologies. Additionally, many less recently issued patents are now being
asserted against Internet implementations of older technologies. Several such
patents have been asserted against us. For example, we currently have a lawsuit
pending regarding our publication of games that can be played both alone and
with others over the Internet in which the patent

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holder has moved to enjoin the sale of EA personal computer products that can
be played alone and over the Internet. Such claims can harm our business. We
will incur substantial expenses in evaluating and defending against such
claims, regardless of the merits of the claims. In the event that there is a
determination that we have infringed a third party patent, we could incur
significant monetary liability and be prevented from using the rights in the
future.

Development of EA.com's Business Will Require Significant Capital, and We
Cannot Be Assured That It Will Be Available

EA.com will not be successful if it does not receive the very substantial
financing that will be required to launch its business. Electronic Arts has
agreed to provide a limited amount of funding to EA.com, but this financing
alone will not be sufficient for the development of EA.com's business. Any
additional funding that is obtained from EA may either be treated as a
revolving credit advance or would increase EA's retained interest in EA.com and
correspondingly decrease the interest of the holders of outstanding shares of
Class B common stock. The attraction of additional equity or debt financing for
EA.com from third parties may not be possible or may only be possible on terms
that result in significant dilution to Class A and Class B common stockholders
or interest or other costs and debt-related restrictions on the operation of
the business.

Because of the Intense Competition for Qualified Technical, Creative, Marketing
and Other Personnel, We May Not Be Able To Attract and Retain the Personnel
Necessary for EA.com's Business

The market for technical, creative, marketing and other personnel essential
to the development of online businesses is extremely competitive, and EA.com
may not be able to attract and retain the employees it needs. If it cannot do
so, its ability to develop its business will be impaired.

If Use of the Internet Does Not Continue To Develop and Reliably Support the
Demands Placed on It by Electronic Commerce, EA.com's Business Will Be Harmed

EA.com's success depends upon growth in the use of the Internet as a medium
for playing games. Although the Internet is experiencing rapid growth in the
number of users, this growth is a recent phenomenon and may not continue.
Furthermore, despite this growth in usage, the use of the Internet for
sophisticated games like ours is relatively new. Our business would be
seriously harmed if:

. use of the Internet does not continue to increase or increases more
slowly than expected,

. the infrastructure for the Internet does not effectively support online
game play,

. concerns over the secure transmission of confidential information over
public networks inhibit the growth of the Internet as a means of
conducting commercial transactions, or

. government regulations regarding Internet content, privacy or other
conditions impede the effectiveness of the Internet to users.

Capacity Restraints May Restrict the Use of the Internet as a Forum for Game
Play, Resulting in Decreased Demand for Our Products

The Internet infrastructure may not be able to support the demands placed on
it by increased usage or the limited capacity of networks to transmit large
amounts of data. Other risks associated with commercial use of the Internet
could slow its growth, including:

. outages and other delays resulting from the inadequate reliability of
the network infrastructure,

. slow development of enabling technologies and complementary products,
and

. limited availability of cost-effective, high speed access.

Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or
increased governmental regulation, would cause the Internet to fail to

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gain, or lose, viability as a means of game playing. If these or any other
factors cause use of the Internet for commerce to slow or decline, the Internet
may not prove viable as a commercial marketplace. This, in turn, would result
in decreased demand for EA.com's products and services.

To Become and Remain Competitive, EA.com Must Continually Develop and Expand
New Content. This Is Inherently Risky and Expensive.

EA.com's success depends on our ability to develop products and services for
the initial launch of the EA.com site and our ability to continually expand the
content on that site. Our agreement with AOL requires us to develop new games
under our relationship with AOL. We cannot assure you that products will be
developed on time, in a cost effective manner, or that they will be successful.

We May Not Be Able To Respond to Rapid Technological Change.

The market for Internet products and services is characterized by rapid
technological change and evolving industry standards. Both in completing the
design and implementation of our network infrastructure and thereafter, we will
be required to continually improve performance, features, reliability and
capacity of our network infrastructure. We cannot assure you that we will be
successful in responding rapidly or in a cost effective manner to such
developments.

Increasing Governmental Regulation of the Internet Could Limit the Market for
Our Products

As Internet commerce continues to evolve, we expect that federal, state and
foreign governments will adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. It is possible that
legislation could expose companies involved in electronic commerce to
liability, taxation or other increased costs, any of which could limit the
growth of electronic commerce generally. Legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws and regulations could limit the market for
EA.com's products.

If We Do Not Maintain Our Relationship with Outside Consultants Such as
Andersen Consulting, Our Ability To Develop Our Online Business Will Be
Impaired

Because approximately 20% of the staff creating, designing, and developing
the infrastructure for EA.com's website and network interface is being provided
by outside consultants such as Andersen Consulting, losing the business
relationship with such consultants would cause EA.com to lose an important
component of it website implementation team. Given the intense competition for
qualified technical consultants, EA.com may not be able to retain these
consultants or, if necessary, replace them. If it cannot do so, its ability to
develop its business will be impaired.

Our Revenues Have Been Heavily Dependent on a Single Product and Would Be
Adversely Affected if That Product's Popularity Were To Decline

EA.com's revenues to date have consisted primarily of revenues from sales of
our online product Ultima Online, and we would be adversely affected if
revenues from that product were to decline for any reason and not be replaced.
We expect the online game market to become increasingly competitive, and it is
possible that other producer's current or future games could cause our revenue
from Ultima Online to decline. In addition, popularity of Ultima Online could
decline over time simply because of consumer preference for new game
experiences.

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We Invest Very Heavily in Research and Development and Network Development and
Support for EA.com, and We Cannot Be Assured That We Will Achieve Revenues That
Validate This Level of Spending

We have invested, and expect to continue to invest, very heavily in research
and development and network development and support for our website and online
games. We will need to expand EA.com's revenues substantially for it to achieve
profitability with these levels of expenditure being required, and we may not
be able to do so. If we cannot increase revenues to profitable levels, the
value of EA.com will be impaired. In order to develop the broad games offerings
that we envision for our online operations it will be necessary to engage in
significant developmental efforts both to adapt existing EA games to the online
format and to create new online games. Our agreements with AOL require us to
maintain a substantial commitment to online game development and we cannot be
assured that we will realize acceptable returns from this investment.

Risk Factors Relating to Electronic Arts

Electronic Arts' business is subject to many risks and uncertainties which
may affect our future financial performance. Some of those important risks and
uncertainties which may cause our operating results to vary or which may
materially and adversely affect our operating results are as follows:

Product Development Schedules Are Frequently Unreliable and Make Predicting
Quarterly Results Difficult

Product development schedules, particularly for new hardware platforms and
high-end multimedia personal computers, or PCs, are difficult to predict
because they involve creative processes, use of new development tools for new
platforms and the learning process, research and experimentation associated
with development for new technologies. For example, SimCity 3000, the follow on
product to SimCity 2000, was expected to ship in fiscal 1998, at the time of
our acquisition of Maxis. Due to additional development delays, that product
did not ship until the fourth quarter of fiscal year 1999. Also, Tiberian Sun,
which was expected to ship in fiscal 1999 at the time of our acquisition of
Westwood Studios, was not released until the second quarter of fiscal 2000 due
to development delays. Additionally, development risks for CD-ROM products can
cause particular difficulties in predicting quarterly results because brief
manufacturing lead times allow finalizing products and projected release dates
late in a quarter. Our revenues and earnings are dependent on our ability to
meet our product release schedules, and our failure to meet those schedules
could result in revenues and earnings which fall short of analysts'
expectations for any individual quarter and the fiscal year.

New Video Game Platforms Create Additional Technical and Business Model
Uncertainties

A large portion of our revenues are derived from the sale of products for
play on proprietary video game platforms such as the Sony PlayStation and
Nintendo 64. The success of our products is significantly affected by
acceptance of the new video game hardware systems and the life span of older
hardware platforms and our ability to accurately predict which platforms will
be most successful.

Sometimes we will spend development and marketing resources on products
designed for new video game systems that have not yet achieved large installed
bases or will continue product development for older hardware platforms that
may have shorter life cycles than we expected. Conversely, if we do not develop
for a platform that achieves significant market acceptance, or discontinue
development for a platform that has a longer life cycle than expected, our
revenue growth may be adversely affected.

For example, the Sega Dreamcast console launched in Japan in early 1999 and
in the United States in September of 1999. We have no products under
development for this platform. Should this platform achieve wide market
acceptance, our revenue growth may be adversely affected. Similarly, we intend
to launch a variety of products for the new Sony PlayStation platform, the
PlayStation II, expected to be released in the

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United States in the Fall of 2000. Should that platform not achieve wide
acceptance by consumers, we will have spent a disproportionate amount of our
resources for this platform. Additionally, we have not negotiated publishing
agreements with Sony, Sega or Nintendo for their next generation platforms, and
we do not know whether the terms of those agreements will be favorable.

Our Business Is Both Seasonal and Cyclical

Our business is seasonal with a significant percentage of our revenues
occurring in the December quarter. Our business is also cyclical; videogame
platforms have historically had a life cycle of four to six years, and decline
as more advanced platforms are being introduced. As one group of platforms is
reaching the end of its cycle and new platforms are emerging, buying patterns
may change. Purchases of products for older platforms may slow at a faster rate
than sales of new platforms. We are currently beginning such a platform
transition. Sega introduced its latest platform in the United States in
September 1999, and Sony expects to ship its PlayStation II product in the fall
of 2000. Nintendo has also announced that a new system will be released in
calendar year 2000. We expect sales of our products for the current Nintendo
and Sony platforms to slow in anticipation of those new platforms, and to slow
significantly upon market release of those new platforms.

The Impact of e-Commerce and Online Games on Our Business Is Not Known

While we do not currently derive significant revenues from online sales of
our packaged products, we believe that such form of distribution will become a
more significant factor in our business in the future. E-commerce is becoming
an increasingly popular method for conducting business with consumers. How that
form of distribution will affect the more traditional retail distribution, at
which we have historically had success, and over what time period, is
uncertain. In addition, we expect the number and popularity of online games to
increase and become a significant factor in the interactive games business
generally. We do not know how that increase generally, or the emerging business
of EA.com specifically, will affect the sales of packaged goods.

Our Business, Our Products, and Our Distribution Are Subject to Increasing
Regulation in Key Territories

Legislation is increasingly introduced which may affect the content of our
products and their distribution. For example, privacy rules in the United
States and Europe impose various restrictions on our web sites. Those rules
vary by territory while of course the Internet recognizes no geographical
boundaries. Other countries such as Germany have adopted laws regulating
content transmitted over the Internet that are stricter than current United
States laws. In the United States, in response to recent events, the federal
and several state governments are considering content restrictions on products
such as those made by us as well as restrictions on distribution of such
products. Any one or more of these factors could harm our business.

Our Platform Licensors Are Our Chief Competitors and Frequently Control the
Manufacturing of Our Video Game Products

Our agreements with hardware licensors, which are also our chief
competitors, typically give significant control to the licensor over the
approval and manufacturing of our products. This fact could, in certain
circumstances, leave us unable to get our products approved, manufactured and
shipped to customers. In most events, control of the approval and manufacturing
process by the platform licensors increases both our manufacturing lead times
and costs as compared to those we can achieve independently. For example, in
prior years, we experienced delays in obtaining approvals for and manufacturing
of PlayStation products which caused delays in shipping those products. The
potential for additional delay or refusal to approve or manufacture our
products continues with our platform licensors. Such occurrences would harm our
business and adversely affect our financial performance.

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Proliferation and Assertion of Patents Poses Serious Risks to our Business

Many patents have been issued that may apply to widely used game
technologies. Additionally, many less recently issued patents are now being
asserted against Internet implementations of existing games. Several such
patents have been asserted against us. For example, we currently have a lawsuit
pending regarding our publication of games that can be played both alone and
with others over the Internet in which the patent

We Face Intense Competition for Talent from Highly Valued Internet Companies

Competition for employees in the interactive software business continues to
be intense. Recently, the most intense competition for recruiting and retaining
key employees is from Internet companies, including EA.com. The large equity
positions frequently offered to key executives and creative talent in such
companies and the actual or perceived opportunity for rapid stock price
appreciation of these companies make their compensation packages attractive to
those who are already working in more mature companies. This situation creates
difficulty for us to compete for the attraction and retention of executive and
key creative talent.

Foreign Sales and Currency Fluctuations

For fiscal 1999 and the first nine months of fiscal 2000, international net
revenues comprised 42% and 38% respectively of total consolidated net revenues.
We expect foreign sales to continue to account for a significant and growing
portion of our revenues. Such sales are subject to unexpected regulatory
requirements, tariffs and other barriers. Additionally, foreign sales are
primarily made in local currencies which may fluctuate. As a result of current
economic conditions in Asia, we are subject to additional foreign currency
risk. Though we do not currently derive a significant portion of revenues and
operating profits from sales in Asia and other developing countries, our
foreign currency exposure may increase as operations in these countries grow
and if current economic trends in Asia continue. Any of these factors may
significantly harm our business.

Fluctuations in Stock Price

Due to analysts' expectations of continued growth and other factors, any
shortfall in earnings could have an immediate and significant adverse effect on
the trading price of our common stock in any given period. As a result of the
factors discussed in this report and other factors that may arise in the
future, the market price of our common stock historically has been, and may
continue to be subject to significant fluctuations over a short period of time.
These fluctuations may be due to factors specific to us, to changes in
analysts' earnings estimates, or to factors affecting the computer, software,
entertainment, media or electronics industries or the securities markets in
general. For example, since the beginning of fiscal year 2000, the price per
share of our common stock ranged from $45.6250 to $120.9375.

Because of these and other factors affecting our operating results and
financial condition, past financial performance should not be considered a
reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.

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Forward Looking Statements

Some of the information in this Proxy Statement including the appendices,
may constitute forward-looking statements which are subject to various risks
and uncertainties. Such statements can be identified by the use of forwarding-
looking terminology such as "may," "will," "would," "expect," "anticipate,"
"estimate," "continue," "plan" or other similar words. In particular, the
statements of our plans and expectations for the business and opportunities of
EA.com in Appendix IV contain forward looking statements regarding these
matters. These statements discuss future expectations, contain projections of
results of operations or of financial condition or state other "forward-
looking" information. Our actual results could differ materially from those
discussed in or implied by these forward-looking statements. When considering
such forward-looking statements, you should keep in mind the factors described
in "Risk Factors" and other cautionary statements appearing in Management's
Discussion and Analysis of Financial Condition and Results of Operations for
each of Electronic Arts Inc. and EA.com (appearing in Appendices III and IV to
this Proxy Statement) and elsewhere in this Proxy Statement. These factors
could cause actual results or situations to be materially different from those
implied by the forward looking statements.

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GENERAL

Our Board of Directors is soliciting proxies for a Special Meeting of
Stockholders at which you will be asked to approve our Tracking Stock Proposal
and the Class B equity plan and the Class A equity plan. This Proxy Statement
contains important information for you to consider when deciding how to vote on
the matters brought before the meeting. Please read it carefully.

The Board set February 1, 2000, as the record date for the meeting.
Stockholders who owned Company common stock on that date are entitled to vote
at and attend the meeting, with each share entitled to one vote. There were
64,096,353 shares of the Company's common stock outstanding on the record date.

In this Proxy Statement:

. ""We," "Company" and Electronic Arts mean Electronic Arts Inc.

. Holding shares in "street name" means your Company shares are held in an
account at a brokerage firm.

. EA.com means our businesses, assets and liabilities for online
exploitation of EA games (including EA games developed in the future),
for developing, marketing and publishing other games and online content,
and for selling EA products through the EA.com websites.

. EA means our entertainment software business other than the business to
be conducted by EA.com, and our retained interest in EA.com.

Proposals To Be Voted On

1. Tracking Stock Proposal

Amendment and restatement of our certificate of incorporation so that it
reads in its entirety as set forth as Appendix II to this Proxy Statement.

The Board recommends a vote for the Tracking Stock Proposal.

2. Approval of the Electronic Arts Inc. 2000 Class B Equity Incentive Plan.

The Board recommends a vote for the Class B Plan.

3. Approval of the Electronic Arts Inc. 2000 Class A Equity Incentive Plan.

The Board recommends a vote for the Class A Plan.

4. Other Business

The Board knows of no other business for consideration at the meeting. If
other matters are properly presented at the meeting, or any adjournment or
postponement of the meeting, Lawrence F. Probst III and E. Stanton McKee,
Jr. will vote, or otherwise act, in accordance with their judgment on such
matters.

A majority of the shares entitled to vote at the Special Meeting,
represented either in person or by proxy, will be sufficient to establish a
quorum to conduct business at the meeting. If shares that are represented
at the Special Meeting abstain from voting on a proposal, those shares are
counted for the purpose of establishing a quorum, and have the effect of a
vote against each of the proposals to be voted upon. When a brokerage firm
holds shares of its customers in the name of the brokerage firm, the firm
can vote the shares on "routine" matters. We believe that proposals 1 and 2
would not be regarded as routine and that proposal 3 is routine. To the
extent that unvoted shares with respect to any proposal are represented at
the Special Meeting, these shares would be regarded as ineligible to vote
on the matter, rather than as a vote against the proposal. However, because
the Tracking Stock Proposal requires the vote of a majority of our
outstanding shares, such a failure to vote has the effect of a vote against
this proposal. These unvoted shares are counted for the purpose of
establishing a quorum at the Special Meeting.

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PROPOSAL 1--THE TRACKING STOCK PROPOSAL

At the Special Meeting we will ask you to consider and approve the Tracking
Stock Proposal described in this Proxy Statement. The Tracking Stock Proposal
will be approved if it receives the votes of at least 32,048,177 shares, which
total represents a majority of the shares outstanding on the record date of
February 1, 2000.

The Tracking Stock Proposal is an amendment to our charter that will:

. Increase the number of authorized shares of common stock from 104
million to 500 million, consisting of 400 million Class A shares and 100
million Class B shares, and increase the number of authorized shares of
preferred stock from one million to ten million.

. Reclassify each outstanding share of common stock into one share of
Class A common stock.

We have allocated all of Electronic Arts' consolidated assets, liabilities,
revenue, expenses and cash flow between EA and EA.com. We have prepared
financial statements for EA.com and in the future will prepare financial
statements for it, as well as the consolidated financial statements of
Electronic Arts.

We have entered into agreements with each of America Online and News America
Incorporated for the purchase and issuance of the following shares, or warrants
to purchase shares, of Class B common stock if the Tracking Stock Proposal is
approved:

. Sale of Class B shares to America Online that represent ten percent of
the initial equity value of EA.com.

. Sale of a Warrant to America Online to purchase Class B shares that
represent five percent of the initial equity value of EA.com.

. Issuance of Class B shares to News America Incorporated that represent
five percent of the initial equity value of EA.com.

We have also agreed with America Online and News America Incorporated that
Class B shares representing 20% of the equity value of EA.com would be reserved
for stock option and equity awards, a portion of which is represented by the
Class B equity plan that you are being asked to approve.

Background of and Reasons for the Tracking Stock Proposal

We produce entertainment software that we sell as packaged software
products, and in the process have developed a large collection of popular games
and other products. In recent years we have recognized the potential value to
us from offering games for online play as an alternative to our traditional
physical delivery business. We have entered the online market with the
successful Ultima Online product and by providing matching services and product
specific web sites for players.

We have considered a variety of proposals for enhancing our online business,
including separating our online and packaged good businesses. However, a final
decision regarding an online strategy was withheld pending either a firm launch
plan for Electronic Arts' full EA.com website or securing a significant
distribution arrangement, either of which would give the online business
sufficient detail and depth to make its separation from the packaged goods
business viable. In late 1998 we began discussions with America Online, or AOL,
about a possible distribution arrangement. In the course of these discussions,
AOL expressed their strong interest in acquiring an equity stake in our online
business in connection with any such distribution agreement.

In May 1999 our Board of Directors reviewed the alternatives for separating
the online and packaged goods businesses. At that time the Board directed
management to continue to pursue the distribution arrangement with AOL,
including the creation of a tracking stock that could, among other things,
create the ability to provide an equity stake in the online business. The Board
also directed management to engage in acquisition discussions with News America
Incorporated for the acquisition of its Kesmai Corporation subsidiary that is
the leading supplier of online games to AOL.

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In October 1999 the Board approved the transactions with AOL and Kesmai that
are outlined in this Proxy Statement, and also approved the Tracking Stock
Proposal subject to completion of the AOL and Kesmai agreements. The Board
further directed management to submit the Tracking Stock Proposal to the
stockholders as required by Delaware law. On November 19, 1999 EA and EA.com
entered into the inter-company agreements described below for the separation of
the EA and EA.com businesses. At that time we also entered into agreements for
the distribution arrangement with AOL and for the acquisition of Kesmai with
News America Incorporated.

Positive Factors:

We are proceeding with the Tracking Stock Proposal primarily for the
following reasons:

. Reporting the operating results of EA.com will increase the market
understanding of EA.com and of the revenues, costs, earnings or losses
associated with this business.

. Equity incentive awards using the tracking stock will assist EA.com in
attracting and retaining key talent in the competitive employee market
in online businesses.

. The Tracking Stock Proposal will facilitate EA's separation of its
online business from its packaged goods business while retaining
ownership of its online assets.

. Class B common stock will assist the Board in meeting the capital
requirements of EA.com by creating an additional security for use in
raising capital and as currency for acquisitions by EA.com.

Potentially Adverse Factors:

The Board also considered potential adverse consequences of adopting a
tracking stock, including the following:

. The adoption of a second EA stock poses certain corporate governance and
fiduciary duty issues not present for a single security issuer. For
example, while the Board of Directors will have fiduciary duties to both
groups of stockholders, the interests of those groups may diverge,
causing the Board to benefit or appear to benefit one group over the
other.

. There is limited experience in the long term effects of adopting a
tracking stock. There have been insufficient tracking stock issues that
have been outstanding for significant periods to clearly indicate the
likely long term effects of tracking stocks on the overall value of the
combined market capitalization of Electronic Arts.

. There is no direct legal authority regarding the tax treatment of
tracking stock, and we may in the future encounter unanticipated effects
of having adopted a tracking stock.

. The Tracking Stock Proposal will require a complex capital structure and
additional reporting requirements with respect to each group.

The Board did not find it practical to, not did it attempt to, quantify,
rank or otherwise assign relative weight to the specific factors it considered.
Rather, the Board made an overall analysis of the factors described above,
including through discussions with and questioning of Electronic Arts'
management and management's analysis of the proposal based on information
obtained from our legal, financial and accounting advisors. In considering the
factors described above, individual members of the Board may have given
different weight to different factors. The Board considered all of these
factors as a whole, and overall considered the factors to be favorable to and
to support its determination.

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Allocation Policies

We have established a new subsidiary, EA.com Inc., to conduct the business
that the Class B common stock is designed to reflect. While EA.com Inc. is a
separate corporation, it is our wholly owned subsidiary and is completely
controlled by us. We have formulated policies, some of which are contained in
agreements between Electronic Arts and EA.com Inc., that we believe will
further our goal of illustrating the separate performance of each of EA and
EA.com. These policies establish guidelines to help us allocate resources and
charges between the two businesses in a manner consistent with dealings
between independent parties.

In order to prepare separate financial statements for EA.com, Electronic
Arts has allocated all of its consolidated assets, liabilities, revenue,
expenses and cash flows between EA and EA.com.

We are not seeking stockholder approval of the policies established to
govern relations between the EA and EA.com businesses. Because the Electronic
Arts Board of Directors ultimately has the ability to control the operations
of Electronic Arts and all of its subsidiaries, including EA.com, the Board
could in its sole discretion amend or revise any of these policies. Any such
change could have different effects on the holders of Class A common stock and
Class B common stock and could result in a benefit or detriment to one class
to the detriment or benefit of the other. Our Board of Directors would make
any such amendment or change in accordance with its good faith business
judgment that such an action is in the best interests of the stockholders of
the Company taken as a whole. Electronic Arts has agreed with America Online
and News America Incorporated that it will not amend the basic agreements that
implement these policies prior to an initial public offering of Class B common
stock.

Fiduciary Responsibilities and Management

EA and EA.com will continue to be under the sole control of Electronic
Arts, and both the Class A common stock and Class B common stock are classes
of Electronic Arts common stock. As such, our Board of Directors and officers
will have the same fiduciary duties to each class of common stock that they
currently have to the existing common stock. Our Board intends to follow
policies that provide that transactions between EA and EA.com will be
conducted on terms similar to those that would exist between independent third
parties.

The Tracking Stock Proposal will not result in any change in our corporate
structure or management. Lawrence F. Probst III, our Chairman and Chief
Executive Officer, will continue to have the same management responsibilities
with respect to both groups as he had before with respect to the combined
operations of Electronic Arts. We have agreed with America Online that we will
establish a Steering Committee to oversee the EA.com business, and to allow
America Online to appoint an observer to the activities of this Committee.

Intercompany Agreements

To effect the policies discussed above, we have put in place a number of
agreements between Electronic Arts and EA.com. These are:

Contribution Agreement. By this agreement Electronic Arts conveyed cash and
the assets dedicated to its online business to EA.com, and EA.com assumed
responsibility for existing liabilities that had arisen from the online
business. EA agreed to contribute cash to EA.com in the amount of
approximately $100 million, less $22.5 million which is the cash paid for
the purchase of Kesmai Corporation from News America Incorporated. In
addition, the amount of Electronic Arts' cash contribution may be reduced
by the amount, if any, by which the appraised value of EA.com, to be
completed prior to the initial issuance of Class B common stock, exceeds a
specified dollar amount.

License Agreements. These agreements provide EA.com with an exclusive
worldwide license to exploit online playable versions of EA games. They
also contain licenses from EA and EA.com to each other to use software
tools for product development. EA.com is required to pay a royalty for the
EA games it uses, which royalty is to be negotiated on a game by game
basis.

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Tax Sharing Agreement. In general, this agreement provides that the
consolidated tax provision, and related payments or refunds, are allocated
between the businesses based principally upon the financial income, taxable
income, credits, and other amounts directly related to the respective
businesses. EA.com is required to make payments to Electronic Arts under
this agreement only when a calculation on a separate tax return basis
results in a tax liability. Alternatively, Electronic Arts will make
payments to EA.com under this agreement only when EA.com would generate a
tax refund on a separate tax return basis.

Intercompany Agreement. Under this agreement Electronic Arts and EA.com
agree that all transfers of intellectual property and other assets, and
arrangements for the use of space, personnel, supplies and other overhead
matters, would be on an arms length basis. The parties also agree that the
terms of any intercompany borrowings would be consistent with those among
independent parties and no such loan would be for a period of longer than
one year.

Any of these agreements could be amended or terminated by Electronic Arts
if the Board of Directors determines that it is in the best interests of
Electronic Arts and its stockholders taken as a whole to do so. Electronic
Arts has agreed with America Online and News America Incorporated that it will
not amend the Contribution Agreement, the License Agreements or the
Intercompany Agreement prior to the completion of an underwritten initial
public offering of the Class B common stock, but could do so after such an
offering or with their consent.

Dividends

Electronic Arts has not paid cash dividends and does not anticipate doing
so in the foreseeable future. This policy is not expected to change whether or
not the Tracking Stock Proposal is adopted. Nonetheless, the amended charter
document does establish guidelines that would govern if we seek to pay
dividends in the future when Class A and Class B common stock are each
outstanding.

Dividends can be paid on the Class A common stock out of the Available
Dividend Amount for EA and on the Class B common stock out of the Available
Dividend Amount for EA.com. The Available Dividend Amount for EA and for
EA.com is based on the amount that would be legally available for the payment
of dividends if EA or EA.com, as the case may be, were an independent Delaware
corporation. In any event, insofar as Class A and Class B common stock are
classes of the common stock of Electronic Arts, the maximum dividends that may
be paid on either or both classes may not exceed the maximum amount available
for the payment of dividends by Electronic Arts.

Any future dividends will be paid at the discretion of the board of
directors of Electronic Arts. In making any such determination the Board
likely would consider the financial condition of Electronic Arts at such time,
the cash available, commitments or plans for the use of cash in the future and
any contractual restrictions or covenants that impact the payment of cash
dividends. The board may declare dividends on either class of common stock
without regard to whether a corresponding, or any, dividend is paid on the
other class.

Treasury Activities

After the initial issuance of Class B common stock, Electronic Arts will
attribute each future issuance of Class A common stock, and the proceeds of
such issuance, to EA. However Electronic Arts may, after the initial issuance
of Class B common stock, attribute future issuances of Class B common stock
(and the proceeds) to EA, in a manner analogous to a secondary offering by a
parent corporation of a subsidiary's shares. This treatment would have the
effect of directly reducing EA's retained interest in EA.com. Alternatively,
Electronic Arts may elect to treat future issuances of Class B common stock as
an issuance by EA.com, in a manner analogous to a primary offering. In that
event EA and the holders of all of the outstanding shares of Class B common
stock would be diluted proportionately. Dividends on and repurchases of Class
A common stock will be charged against EA. Dividends on and repurchases of
Class B common stock will be charged against EA.com, with Class B dividends
resulting in a corresponding cash transfer from EA.com to EA. See "--
Description of Class A Common Stock and Class B Common Stock--EA's Retained
Interest in EA.com--Dividends on Class B Common Stock."

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EA has agreed to contribute $100 million, less $22.5 million which is the
cash paid for the acquisition of Kesmai from News American Incorporated, to
EA.com to fund EA.com's initial cash needs. In addition, the amount of the
required cash contribution may be reduced by the amount, if any, by which an
appraisal of EA.com prior to the initial issuance of Class B common stock
exceeds a specified amount. These funds will be advanced as needed, over a
period of not to exceed three years. Approximately $36 million of this amount
was advanced to EA.com to fund required up front payments to AOL. See "Issuance
of Class B Common Stock to America Online, Inc. and News America Incorporated--
Sale of AOL Shares and AOL Warrant" regarding the cash purchase price AOL will
pay for the Class B shares and warrants. When EA.com holds cash it will
normally transfer that cash to EA, and when it has a cash need EA will normally
provide the required cash (including pursuant to the cash contribution referred
to above). However, the Electronic Arts Board of Directors will retain the
ultimate discretion to allocate cash availability and needs between EA and
EA.com. Electronic Arts will account for cash transfers between EA and EA.com
as part of EA's required cash contribution to EA.com, to the extent applicable,
and otherwise generally as revolving credit advances between the two. If
transfers are treated as revolving credit balances, they will bear interest at
a rate comparable to that which would be available from an unaffiliated third
party commercial lender.

In some instances the Board may determine that a cash transfer by EA to
EA.com should be treated as a capital investment or that a transfer from EA.com
to EA should be treated as a return of capital, with, in either case, a
corresponding adjustment in EA's retained interest in EA.com. The Board would
likely consider, in making any such decision,

. the source and use of the cash advance,

. the financial condition, including the cash flow needs and sources, of
EA and EA.com,

. the investment objectives of the group making the transfer, and

. the availability and terms of third party financing for the particular
purpose of the advance.

Corporate General and Administrative Expense

Electronic Arts will allocate the cost of most corporate general and
administrative services based on the respective utilization between EA and
EA.com. These shared services include property and equipment rental, legal,
accounting, telecommunications, marketing, public relations, supplies and
corporate overhead. For those situations where an allocation based on
utilization is impracticable, Electronic Arts will undertake the allocation so
as to achieve a reasonable estimate of the cost fairly attributable to each
group.

Description of Class A Common Stock and Class B Common Stock

The following description of the Class A and Class B common stock should be
read with Appendix II to this Proxy Statement. Appendix II contains the full
text of the Amended and Restated Certificate of Incorporation that will be
filed to give effect to the Tracking Stock Proposal.

General

Our current Amended and Restated Certificate of Incorporation (which we call
the Current Certificate of Incorporation) authorizes us to issue 105 million
shares, consisting of 104 million shares of common stock, par value $.01 per
share, and one million shares of preferred stock, par value $.01 per share.
Only the preferred stock is currently issuable in series by the Board. As of
February 1, 2000, we had 64,096,353 shares of common stock and no shares of
Preferred Stock issued and outstanding.

In order to implement the Tracking Stock Proposal, we would file the Amended
and Restated Certificate of Incorporation (which we refer to as the Restated
Certificate) which would amend and restate our Current Certificate of
Incorporation. The Restated Certificate would:

. Increase the number of authorized shares of common stock from 104
million to 500 million, consisting of 400 million shares of Class A
common stock and 100 million shares of Class B common stock,

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. Increase the number of authorized shares of preferred stock from one
million to ten million, and

. Reclassify each outstanding share of common stock into one share of
Class A common stock.

We intend Class A common stock to reflect the performance of EA and the
Class B common stock to reflect the performance of EA.com. We sometimes refer
to each of EA and EA.com as a "group" in this Proxy Statement.

Before we first issue shares of Class B common stock, the Board would
designate the initial Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com. See "--EA's Retained Interest in EA.com," "--Number of
Shares Issuable with Respect to EA's Retained Interest in EA.com" and
Appendix I for additional information about EA's retained interest in EA.com
and the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com.

The Board will have the authority in its sole discretion to issue authorized
but unissued shares of Class A common stock or Class B common stock from time
to time for any proper corporate purpose. The Board will have the authority to
do so without your approval (except as provided by Delaware law or the rules
and regulations of any securities trading market on which any series of
outstanding common stock may then be listed).

Dividends

We currently intend to retain all of our earnings to finance operations and
fund future growth. We do not expect to pay dividends on Class A common stock
or Class B common stock for the foreseeable future.

Although we do not expect to pay any dividends for the foreseeable future on
any class of common stock, we will otherwise be permitted to pay dividends on:

. Class A common stock out of assets of Electronic Arts legally available
for the payment of dividends under Delaware law, but the total amounts
paid as dividends on Class A common stock cannot exceed the Available
Dividend Amount for EA, and

. Class B common stock out of the assets of Electronic Arts legally
available for the payment of dividends under Delaware law (and transfer
corresponding amounts to EA in respect of its retained interest in
EA.com), but the total amounts paid as dividends on Class B common stock
cannot exceed the Available Dividend Amount for EA.com.

The "Available Dividend Amount" means for EA or EA.com, as the case may be,
the amount that would, immediately prior to the payment of such dividends, be
legally available for the payment of dividends on shares of EA's or EA.com's
common stock under Delaware law if (a) EA and EA.com were each a single,
separate Delaware corporation, (b) EA had outstanding (i) a number of shares of
common stock, par value $0.01 per share, equal to the number of shares of Class
A common stock that are then outstanding and (ii) a number of shares of
preferred stock, par value $0.01 per share, equal to the number of shares of
preferred stock that are then outstanding, (c) EA.com had outstanding (i) a
number of shares of common stock, par value $0.01 per share, equal to the
number of shares of Class B common stock that are then outstanding, (ii) no
shares of preferred stock, and (iii) a number of shares of common stock equal
to the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com.

The amount legally available for the payment of dividends on common stock of
a corporation under Delaware law is generally limited to (1) the total assets
of the corporation less its total liabilities less (2) the aggregate par value
of the outstanding shares of its common and preferred stock. However, if that
amount is not greater than zero, the corporation may also pay dividends out of
the net profits for the corporation for the fiscal year in which the dividend
is declared and/or the preceding fiscal year. As mentioned above, these
restrictions will form the basis for calculating the Available Dividend Amounts
for EA and EA.com. These restrictions will also form the basis for calculating
the aggregate amount of dividends that Electronic Arts.

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as a whole can pay on both classes of its common stock. Thus, net losses of
either EA or EA.com, and any dividends and distributions on, or repurchases of,
either Class A common stock or Class B common stock will reduce the assets
legally available for dividends on both classes of common stock.

Subject to the foregoing limitations (and to any other limitations set forth
in any future series of preferred stock or in any agreements binding on
Electronic Arts from time to time), we have the right to pay dividends on both,
one or neither class of common stock in equal or unequal amounts,
notwithstanding the performance of either EA or EA.com, the relative amounts of
the Available Dividend Amount with respect to EA or EA.com, the amount of
dividends previously declared on either class, the respective voting or
liquidation rights of each class or any other factor.

At the time of any dividend or other distribution on the outstanding shares
of Class B common stock (including any dividend or distribution required as a
result of a disposition of All or Substantially All of the Assets of EA.com,
but excluding any dividend payable in shares of Class B common stock) we will
transfer to EA from EA.com, a corresponding amount in respect of EA's retained
interest in EA.com. Specifically, the corresponding amount will equal (1) the
aggregate amount of such dividend times (2) a fraction, the numerator of which
is the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com and the denominator of which is the number of shares of Class B common
stock then outstanding.

Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of The Assets of EA.com

If we dispose of All or Substantially All of the Assets of EA.com to one or
more persons or entities, in one transaction or a series of related
transactions (collectively, referred to as a Disposition), and the Disposition
is not an Exempt Disposition as defined below, we would be required, by the
85th Trading Day after the consummation of such Disposition, to choose one of
the following three alternatives:

. declare and pay a dividend to holders of the Class B common stock (in
cash, securities (other than common stock of Electronic Arts) or other
property, or a combination thereof) in an amount having a Fair Value
equal to the product of the Outstanding Interest Fraction with respect
to EA.com and the Fair Value of the Net Proceeds of such Disposition;

. redeem from holders of the Class B common stock, for cash, securities
(other than common stock of Electronic Arts) or other property, or a
combination thereof, in an amount having a Fair Value equal to the
product of the Outstanding Interest Fraction with respect to EA.com and
the Fair Value of the Net Proceeds of such Disposition, all of the
outstanding shares of the Class B common stock (or, if EA.com continues
after such Disposition to own any material assets other than the
proceeds of such Disposition, a number of shares of Class B common stock
having an aggregate average Market Value, during the 20 consecutive
Trading Day period beginning on the 16th Trading Day immediately
following the date on which the Disposition is consummated, equal to
such Fair Value); or

. issue shares of Class A common stock in exchange for all of the
outstanding shares of the Class B common stock at a 15% premium (based
on the average Market Value of each class of common stock during the 20
consecutive Trading Day period beginning on the 16th Trading Day
immediately following the date on which the Disposition is consummated).

In connection with any special dividend on, or redemption of, Class B common
stock as described above, we will transfer to EA from EA.com, a corresponding
amount in respect of EA's retained interest in EA.com. Specifically, the
corresponding amount will equal (1) the aggregate Fair Value of such dividend
or redemption times (2) a fraction, the numerator of which is the Number of
Shares Issuable with Respect to EA's Retained Interest in EA.com and the
denominator of which is the number of shares of Class B common stock then
outstanding. In addition, in connection with any redemption of Class B common
stock as described above, we will decrease the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com by a number

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equal to the number of shares of Class B common stock having a Market Value
equal to the Fair Value of the amount transferred to EA from EA.com.

At any time within one year after completing any dividend or partial
redemption of the sort referred to above, we will have the right to issue
shares of Class A common stock in exchange for outstanding shares of the Class
B common stock at a 15% premium (based on the average Market Value of each
class of common stock during the 20 consecutive Trading Day period ending on
the fifth Trading Day immediately preceding the date on which Electronic Arts
mails the notice of exchange to holders of the Class B common stock). In
determining whether to effect any such exchange following such a dividend or
partial redemption, we would, in addition to other matters, consider whether
the remaining assets of EA.com continue to constitute a viable business, the
number of shares of Class B common stock remaining issued and outstanding, the
per share market price of the Class B common stock and the ongoing cost of
continuing to have multiple classes of common stock outstanding.

The following terms used in this Proxy Statement have the meanings specified
in our Restated Certificate and are set forth below:

"All or Substantially All of the Assets" of either group means a portion of
such assets that represents at least 80% of the then-current Fair Value of the
assets of such group.

"EA" means (1) all of the businesses, assets and liabilities of Electronic
Arts and its subsidiaries, other than the businesses, assets and liabilities of
EA.com, and (2) a proportionate interest in EA.com (after giving effect to any
options, other securities or debt issued or incurred by Electronic Arts and
attributed to EA.com), equal to the Retained Interest Fraction (which term is
defined under "--EA's Retained Interest in EA.com"); provided, however, that:
(a) Electronic Arts may re-allocate assets from one group to another group in
return for other assets or services rendered by that other group in the
ordinary course of business or in accordance with policies established by the
Board from time to time, and (b) if Electronic Arts transfers cash, other
assets or securities to holders of shares of Class B common stock as a dividend
or other distribution on shares of Class B common stock (other than a dividend
or distribution payable in shares of Class B common stock), or as payment in a
redemption of shares of Class B common stock effected as a result of a
Disposition of All or Substantially All of the Assets of EA.com, then the Board
shall transfer from EA.com to EA cash or other assets having a Fair Value equal
to the aggregate Fair Value of the cash, other assets or securities so
transferred to holders of the Class B common stock times the Retained Interest
Proportion (as defined in the Restated Certificate) with respect to EA.com as
of the record date for such dividend or distribution, or on the date of such
redemption, as the case may be.

"EA.com" means all of the businesses, assets and liabilities of EA.com Inc.,
a Delaware corporation and its subsidiaries including (1) any businesses,
assets or liabilities of Electronic Arts or any of its subsidiaries that
Electronic Arts has, as of the date on which the Restated Certificate becomes
effective under Delaware law (the "Effective Date"), transferred to EA.com, (2)
any businesses, assets or liabilities acquired or incurred by Electronic Arts
or any of its subsidiaries after the Effective Date that Electronic Arts
transfers to EA.com or that Electronic Arts otherwise transfers to EA.com in
accordance with policies established from time to time by the Board and (3) the
rights and obligations of EA.com under any inter-group debt deemed to be owed
to or by EA.com (as such rights and obligations are defined in accordance with
policies established from time to time by the Board); provided, however, that
Electronic Arts may transfer assets from one group to the other group as
provided in the definition of EA above.

"Exempt Disposition" means any of the following:

. a Disposition in connection with the liquidation, dissolution or
winding-up of Electronic Arts and the distribution of assets to
stockholders,

. a Disposition to any person or entity controlled by Electronic Arts (as
determined by the Board in its sole discretion),

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. a dividend, out of EA.com's assets, to holders of Class B common stock
(and a transfer of a corresponding amount to EA in respect of its
retained interest in EA.com),

. a dividend, out of EA's assets, to holders of Class A common stock, and

. any other Disposition, if (1) at the time of the Disposition there are
no shares of Class A common stock outstanding, (2) at the time of the
Disposition there are no shares of Class B common stock outstanding, or
(3) before the 30th Trading Day following the Disposition we have mailed
a notice stating that we are exercising our right to exchange all of the
outstanding shares of Class B common stock for newly issued shares of
Class A common stock as contemplated under "--Optional Exchange of Class
B Common Stock for Class A Common Stock."

"Fair Value" means (1) in the case of cash, the amount thereof, (2) in the
case of capital stock that is Publicly Traded, the Market Value thereof and (3)
in the case of other assets or securities, the fair market value thereof as
determined in good faith by the Board in consultation with outside valuation or
appraisal experts selected by the Board in good faith. Any such good faith
determination of Fair Value by the Board shall be conclusive and binding on all
stockholders.

"Market Value" of a share of any class or series of capital stock on any
Trading Day generally means the average of the high and low reported sales
prices of a share of such class or series on such Trading Day, or, if shares of
such class or series are not publicly traded, the Fair Value of a share of such
class or series on such Trading Day, subject in either case to certain
exceptions as described in our Restated Certificate.

The "Net Proceeds" of a Disposition of a group means the positive amount, if
any, remaining from the gross proceeds of such Disposition after any payment
of, or reasonable provision (as determined in good faith by the Board at the
time of the Disposition, which determination will be conclusive and binding on
all stockholders) for, (1) any taxes payable by Electronic Arts or any
subsidiary in respect of such Disposition or which would have been payable but
for the utilization of tax benefits attributable to the group not the subject
of the Disposition, (2) any taxes payable by Electronic Arts in respect of any
resulting dividend or redemption, (3) any transaction costs, including, without
limitation, any legal, investment banking and accounting fees and expenses and
(4) any liabilities (contingent or otherwise) of, attributed to or related to,
such group, including, without limitation, any liabilities for deferred taxes,
any indemnity or guarantee obligations which are outstanding or incurred in
connection with the Disposition or otherwise, any liabilities for future
purchase price adjustments and any obligations with respect to outstanding
securities (other than common stock of Electronic Arts) attributed to such
Group as determined in good faith by the Board.

"Number of Shares Issuable with Respect to EA's Retained Interest" means
32,000,000 shares of Class B common stock that could be issued by the Company
for the account of EA in respect of its retained interest in EA.com; provided,
however, that such number as in effect from time to time shall automatically be
adjusted for changes in such number as provided in the Restated Certificate.

"Outstanding Interest Fraction" means, (i) with respect to EA, at any time
of determination, 1 and (ii) with respect to EA.com, at any time of
determination, a fraction the numerator of which shall be the number of shares
of Class B common stock outstanding on such date and the denominator of which
shall be the sum of the number of shares of Class B common stock outstanding on
such date and the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com.

"Publicly Traded" with respect to any security means (1) registered under
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (or any successor provision of law), and (2) listed for trading on the
New York Stock Exchange (or any other national securities exchange registered
under Section 7 of the Exchange Act (or any successor provision of law)) or
listed on the Nasdaq National Market ("Nasdaq NM") (or any successor market
system).

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"Qualified Public Offering" means the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, covering the offer and sale of Class B
common stock.

"Trading Day" means each weekday on which the relevant security (or, if
there are two relevant securities, each relevant security) is traded on the
principal national securities exchange on which it is listed or admitted to
trading or on the Nasdaq NM or, if such security is not listed or admitted to
trading on a national securities exchange or quoted on the Nasdaq NM, traded in
the principal over-the-counter market in which it trades.

Exchange of Stock of a Subsidiary for Class B Common Stock

At any time after a Qualified Public Offering at which all of the assets and
liabilities of EA.com (and no other assets or liabilities of Electronic Arts
Inc. or any subsidiary thereof) are held directly or indirectly by one or more
wholly owned subsidiaries of Electronic Arts (the "EA.com Subsidiaries"), we
will have the right to declare that all of the outstanding shares of the Class
B common stock shall be exchanged, as of the exchange date described below, for
the number of fully paid and nonassessable shares of common stock of each of
such EA.com Subsidiaries as is equal to the product of the Outstanding Interest
Fraction with respect to EA.com (determined as of the exchange date) and the
number of shares of common stock of each such EA.com Subsidiary as will be
outstanding immediately following such exchange. Such shares of common stock of
such EA.com Subsidiaries (i) may be delivered directly or indirectly through
the delivery of shares of one or more of such EA.com Subsidiaries that own
directly or indirectly all of the other shares that are deliverable pursuant to
the preceding sentence, and (ii) shall be listed for trading on a national
securities exchange or the Nasdaq NM if the Class B common stock exchanged
therefore is (at such time) so listed. If the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com is greater than zero (so that less
than all of the shares of common stock of the EA.com Subsidiaries are being
delivered to the holders of Class B common stock), the Company may retain the
remaining shares of common stock of the EA.com Subsidiaries or distribute those
shares as a dividend on Class A common stock.

Optional Exchange of Class B Common Stock for Class A Common Stock

At any time after the first anniversary of a Qualified Public Offering, we
will have the right to issue shares of Class A common stock in exchange for all
of the outstanding shares of Class B common stock at a 15% premium (based on
the average Market Value of each class of common stock during the 20
consecutive Trading Day period ending on the fifth Trading Day immediately
preceding the date on which we mail the notice of exchange to holders of the
Class B common stock).

General Dividend, Exchange and Redemption Provisions

If we complete a Disposition of All or Substantially All of the Assets of
EA.com (other than an Exempt Disposition), we would be required, not more than
the 10 Trading Days after the consummation of such Disposition, to issue a
press release specifying (1) the Net Proceeds of such Disposition, (2) the
number of shares of Class B common stock then outstanding, (3) the number of
shares of Class B common stock issuable upon conversion, exchange or exercise
of any convertible or exchangeable securities, options or warrants and the
conversion, exchange or exercise prices thereof and (4) the Number of Shares
Issuable with Respect to EA's Retained Interest in EA.com. Not more than 40
Trading Days after such consummation, we would be required to announce by press
release which of the actions specified in the first paragraph under "--
Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of the Assets of EA.com" we have determined to take, and upon
making that announcement, that determination would become irrevocable.

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In addition, we would be required, not more than 40 Trading Days after such
consummation and not less than 10 Trading Days before the applicable payment
date, redemption date or exchange date, to send a notice by first-class mail,
postage prepaid, to holders of the relevant class of common stock at their
addresses as they appear on our transfer books as follows:

. If we determine to pay a special dividend, we would be required to
specify in the notice (1) the record date for such dividend, (2) the
payment date of such dividend (which cannot be more than 85 Trading Days
after such consummation) and (3) the aggregate amount and type of
property to be paid in such dividend (and the approximate per share
amount thereof).

. If we determine to undertake a redemption, we would be required to
specify in the notice (1) the date of redemption (which cannot be more
than 85 Trading Days after such consummation), (2) the aggregate amount
and type of property to be paid as a redemption price (and the
approximate per share amount thereof), (3) if less than all shares of
Class B common stock are to be redeemed, the number of shares to be
redeemed and (4) the place or places where certificates for shares of
Class B common stock, properly endorsed or assigned for transfer (unless
we waive such requirement), should be surrendered in return for delivery
of the cash, securities or other property to be paid by Electronic Arts
in such redemption.

. If we determine to undertake an exchange, we would be required to
specify in the notice (1) the date of exchange (which cannot be more
than 85 Trading Days after such consummation), (2) the number of shares
of Class A common stock to be issued in exchange for each outstanding
share of Class B common stock and (3) the place or places where
certificates for shares of Class B common stock, properly endorsed or
assigned for transfer (unless we waive such requirement), should be
surrendered in return for delivery of the Class A common stock to be
issued by Electronic Arts in such exchange.

If we are redeeming less than all of the outstanding shares of the Class B
common stock as described above, we would redeem such shares pro rata or by lot
or by such other method as the Board determines to be equitable.

If we determine to complete any exchange described under "--Exchange of
Stock of a Subsidiary for Class B Common Stock" or "--Optional Exchange of
Class B Common Stock for Class A Common Stock," we would be required, between
10 to 30 Trading Days before the exchange date or redemption date, to send a
notice by first-class mail, postage prepaid, to holders of the Class B common
stock at their addresses as they appear on our transfer books, specifying (1)
the exchange date and the other terms of the exchange and (2) the place or
places where certificates for shares of such class of common stock, properly
endorsed or assigned for transfer (unless we waive such requirement), should be
surrendered for delivery of the stock to be issued or delivered by Electronic
Arts in such exchange.

Neither the failure to mail any required notice to any particular holder nor
any defect therein would affect the sufficiency thereof with respect to any
other holder or the validity of any dividend, redemption or exchange.

No holder of shares of Class B common stock being exchanged or redeemed will
be entitled to receive any cash, securities or other property to be distributed
in such exchange or redemption until such holder surrenders certificates for
such shares, properly endorsed or assigned for transfer, at such place as we
specify (unless we waive such requirement). As soon as practicable after our
receipt of certificates for such shares, we would deliver to the person for
whose account such shares were so surrendered, or to the nominee or nominees of
such person, the cash, securities or other property to which such person is
entitled, together with any fractional payment referred to below, in each case
without interest. If less than all of the shares represented by any one
certificate were to be exchanged or redeemed, we would also issue and deliver a
new certificate for the shares of such common stock not exchanged or redeemed.

We would not be required to issue or deliver fractional shares of any
capital stock or any other fractional securities to any holder of Class B
common stock upon any exchange, redemption, dividend or other

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distribution described above. If more than one share of Class B common stock
were held at the same time by the same holder, we may aggregate the number of
shares of any capital stock that would be issuable or any other securities that
would be distributable to such holder upon any such exchange, redemption,
dividend or other distribution. If there are fractional shares of any capital
stock or any other fractional securities remaining to be issued or distributed
to any holder, we would, if such fractional shares or securities were not
issued or distributed to such holder, pay cash in respect of such fractional
shares or securities in an amount equal to the Fair Value thereof (without
interest).

From and after the date of closing any exchange or redemption, all rights of
a holder of shares of common stock that were exchanged or redeemed would cease
except for the right, upon surrender of the certificates representing such
shares, to receive the cash, securities or other property for which such shares
were exchanged or redeemed, together with any fractional payment as provided
above, in each case without interest (and, if such holder was a holder of
record as of the close of business on the record date for a dividend not yet
paid, the right to receive such dividend). A holder of shares of common stock
being exchanged would not be entitled to receive any dividend or other
distribution with respect to shares of the other series of common stock until
after the shares being exchanged are surrendered as contemplated above. Upon
such surrender, we would pay to the holder the amount of any dividends or other
distributions (without interest) which theretofore became payable with respect
to a record date occurring after the exchange, but which were not paid by
reason of the foregoing, with respect to the number of whole shares of the
other series of common stock represented by the certificate or certificates
issued upon such surrender. From and after the date set for any exchange, we
would, however, be entitled to treat the certificates for shares of Class B
common stock being exchanged that were not yet surrendered for exchange as
evidencing the ownership of the number of whole shares of the other capital
stock for which the shares of such common stock should have been exchanged,
notwithstanding the failure to surrender such certificates.

We would pay any and all documentary, stamp or similar issue or transfer
taxes that might be payable in respect of the issue or delivery of any shares
of capital stock and/or other securities on any exchange or redemption
described herein. We would not, however, be required to pay any tax that might
be payable in respect of any transfer involved in the issue or delivery of any
shares of capital stock and/or other securities in a name other than that in
which the shares so exchanged or redeemed were registered, and no such issue or
delivery will be made unless and until the person requesting such issue pays to
Electronic Arts the amount of any such tax or establishes to our satisfaction
that such tax has been paid.

We may, subject to applicable law, establish such other rules, requirements
and procedures to facilitate any dividend, redemption or exchange contemplated
as described above as the board may determine to be appropriate under the
circumstances.

Voting Rights

Currently, holders of existing common stock have one vote per share on all
matters submitted to a vote of stockholders. Once the Tracking Stock Proposal
is implemented, holders of Class A common stock and Class B common stock would
generally vote together as one class on all matters as to which common
stockholders are entitled to vote, unless a separate class vote is required by
applicable law. On all such matters for which no separate vote is required,

. each outstanding share of Class A common stock entitles the holder to
one vote and

. each outstanding share of Class B common stock entitles the holder (i)
at any time prior to a Qualified Public Offering, to a number of votes
(calculated to the nearest five decimal places) equal to the Market
Value of a share of Class B common stock on the date the Company first
issues shares of Class B common stock divided by the average Market
Value of a share of Class A common stock during the 20 consecutive
Trading Day period ending on (and including) the fifth Trading Day
before such date, and (ii) at any time after a Qualified Public
Offering, to a number of votes (calculated to the nearest five decimal
places) equal to the initial public offering price of Class B common
stock in

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the Qualified Public Offering divided by the average Market Value of a
share of Class A common stock during the 20 consecutive Trading Day
period ending on (and including) the fifth Trading Day before the date
of such Qualified Public Offering.

The following illustration demonstrates the calculation of the number of
votes to which each share of Class B common stock would be entitled on all
matters on which holders of the Class A common stock and Class B common stock
vote as a single class. If shares of Class B common stock are first issued at
a price per share equal to $4.00 and the average Market Value of our common
stock (which will be reclassified as Class A common stock prior to the initial
issuance of Class B common stock) for the relevant 20 Trading Day period is
$80.00, then each share of Class A common stock would have one vote and each
share of Class B common stock would have 0.05 votes. If shares of Class B
common stock were then sold in a Qualified Public Offering at a price of
$12.00 and the average Market Value of the Class A common stock for the
relevant 20 Trading Day period increased to $120.00, then each share of Class
A common stock would thereafter have one vote and each share of Class B common
stock would have 0.1 votes.

The voting formula is intended to initially equate the proportionate voting
rights of each class of common stock to their respective Market Values (i) at
the time of the initial issuance of Class B common stock and (ii) pursuant to
a one-time adjustment, at the time of a Qualified Public Offering. However,
the relative voting rights of Class A common stock and Class B common stock
otherwise will not fluctuate based on fluctuations of the respective Market
Values of the two classes of common stock. Thus, an investor in one class of
the common stock may acquire, for the same consideration, relatively more or
less votes per share than investors in the other class.

When holders of Class A common stock and Class B common stock vote together
as a single class, the holders of the class of common stock having a majority
of the votes will be in a position to control the outcome of the vote even if
the matter involves a conflict of interest between the holders of Class A
common stock and holders of Class B common stock. We expect that, upon initial
implementation of the tracking stock proposal, the Class A common stock will
have a very substantial majority of the voting power because we expect that
the aggregate market value of the outstanding shares of Class A common stock
will be substantially greater than the aggregate market value of the
outstanding shares of Class B common stock.

So long as any shares of Class B common stock remain outstanding, the
approval of a majority of the Class B common stock then outstanding, voting
separately as a class, would be required to: (i) amend the Restated
Certificate in any manner that would alter or change the rights, preferences,
privileges or restrictions of the Class B common stock so as to adversely
affect the Class B common stock but not the Class A common stock, or (ii)
increase or decrease (other than by redemption, conversion or exchange) the
total number of authorized shares of Class B common stock.

After Class B common stock is issued, we would set forth the number of
outstanding shares of Class A common stock and Class B common stock in our
annual and quarterly reports filed pursuant to the Exchange Act, and disclose
in any proxy statement for a stockholder meeting the number of outstanding
shares and per share voting rights of Class A common stock and Class B common
stock.

Liquidation

Currently, holders of common stock are entitled, upon voluntary or
involuntary liquidation, dissolution or winding-up of Electronic Arts to
receive their proportionate interest in the net assets of Electronic Arts, if
any, remaining for distribution to stockholders (after payment of or provision
for all liabilities, including contingent liabilities, of Electronic Arts and
payment of any liquidation preference payable to any holders of our preferred
stock).

Once the Tracking Stock Proposal is implemented, holders of Class A common
stock and holders of Class B common stock will be entitled, upon voluntary or
involuntary liquidation, dissolution or winding-up of

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Electronic Arts, to receive in respect of shares of Class A common stock and
shares of Class B common stock their proportionate interest in the net assets
of Electronic Arts., if any, remaining for distribution to stockholders (after
payment of or provision for all liabilities, including contingent liabilities,
of Electronic Arts and payment of the liquidation preference payable to any
holders of our preferred stock). Each share of each class of common stock will
be entitled to a share of net liquidation proceeds in proportion to the
respective liquidation units per share of such class. Each share of Class A
common stock shall have one liquidation unit and each share of Class B common
stock shall have a number of liquidation units (including a fraction of one
liquidation unit) equal to the quotient (rounded to the nearest five decimal
places) of the Market Value of a share of Class B common stock on the date the
Company first issues shares of Class B common stock divided by the average
Market Value of a share of our common stock (which will be reclassified as
Class A common stock prior to the initial issuance of Class B common stock)
during the 20 consecutive Trading Day period ending on (and including) the
fifth Trading Day before such date.

After the number of liquidation units to which each share of Class B common
stock is entitled has been calculated in accordance with the above formula,
that number will not be changed without the approval of the class of common
stock adversely affected except as described below. As a result, after the date
of the calculation of the number of liquidation units to which the Class B
common stock is entitled, the liquidation rights of the holders of the
respective classes of common stock may not bear any relationship to the
relative market values or the relative voting rights of the two classes.

If we subdivide (by stock split, reclassification or otherwise) or combine
(by reverse stock split, reclassification or otherwise) the outstanding shares
of Class A common stock or Class B common stock, or declare a dividend in
shares of either class to holders of such class, the per share liquidation
units of either class shall be appropriately adjusted as determined by the
Board, so as to avoid dilution (in the aggregate) of the relative liquidation
rights of the shares of any class of common stock.

Neither the merger nor consolidation of Electronic Arts with any other
entity, nor a sale, transfer or lease of all or any part of the assets of
Electronic Arts, would alone be deemed a liquidation, dissolution or winding-up
for these purposes.

EA's Retained Interest in EA.com

In this document, we call the percentage interest in EA.com intended to be
represented at any time by the outstanding shares of Class B common stock the
"Outstanding Interest Fraction", and we call the remaining percentage interest
in EA.com intended to be represented at any time by EA's Retained Interest in
EA.com the "Retained Interest Fraction". At any time, the Outstanding Interest
Fraction equals the number of shares of Class B common stock outstanding
divided by the sum of the number of shares of Class B common stock outstanding
plus the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com. The Retained Interest Fraction equals the Number of Shares Issuable
with Respect to EA's Retained Interest in EA.com divided by the sum of the
number of shares of Class B common stock outstanding plus the Number of Shares
Issuable with Respect to EA's Retained Interest in EA.com. The sum of the
Outstanding Interest Fraction and the Retained Interest Fraction always equals
100%.

At the time that we file the Restated Certificate of Incorporation, the
Retained Interest Fraction will be 100% and the Outstanding Interest Fraction
will be 0%, subject to the immediately ensuing issuances of Class B common
stock to News America Incorporated and AOL as further described below.

Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com. We have determined to designate 32,000,000 as the initial Number of
Shares Issuable with Respect to EA's Retained Interest in EA.com and to reserve
6,000,000 of these shares for issuance under the 2000 Class B Equity Incentive
Plan that is the subject of Proposal No. 2. Immediately thereafter, we will (i)
issue 2,000,000 shares of Class B common stock to News America Incorporated in
exchange for 103,227 shares of Class A common stock that had previously been
issued to it in connection with an acquisition of Kesmai Corporation, and (ii)
consummate

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the sale of 4,000,000 shares of Class B common stock to AOL for cash and sell
AOL a warrant for an additional 2,000,000 shares of Class B common stock. See
"-Issuance of Class B Common Stock to America Online, Inc. and News America
Incorporated." Assuming we consummate the above transactions, we intend to
attribute the net proceeds of all of the shares to be issued to News America
Incorporated and AOL to the equity of EA.com. Thus, the issuance of these
shares will have no effect on the Number of Shares Issuable with Respect to
EA's Retained Interest in EA.com. After giving effect to such issuances, we
currently expect that:

. there would be 6,000,000 shares of Class B common stock outstanding
assuming no exercise of the AOL Warrant, or 8,000,000 shares of Class B
common stock outstanding assuming a full exercise of the AOL Warrant;

. the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would remain at 32,000,000;

. the Outstanding Interest Fraction would be approximately 15.79% assuming
no exercise of the AOL Warrant, or 20.00% assuming a full exercise of
the AOL Warrant; and

. the Retained Interest Fraction would be approximately 84.21% assuming no
exercise of the AOL Warrant, or 80.00% assuming a full exercise of the
AOL Warrant.

We will reduce the Number of Shares Issuable with Respect to EA's Retained
Interest by up to 8,000,000 shares for stock option and equity awards by
EA.com, including the 6,000,000 shares reserved under the Class B equity plan
if it is approved by the stockholders.

Attribution of Issuances of Class B Common Stock. Whenever we decide to
issue shares of Class B common stock, we would determine, in our sole
discretion, whether to attribute that issuance (and the proceeds thereof) to EA
in respect of its retained interest in EA.com (in a manner analogous to a
secondary offering of common stock of a subsidiary owned by a corporate parent)
or to EA.com (in a manner analogous to a primary offering of common stock). If
we issue any shares of Class B common stock and attribute that issuance (and
the proceeds thereof) to EA in respect of its retained interest in EA.com, the
Number of Shares Issuable with Respect to EA's Retained Interest in EA.com
would be reduced by the number of shares so issued, the number of outstanding
shares of Class B common stock would be increased by the same amount, the
Retained Interest Fraction would be reduced and the Outstanding Interest
Fraction would be correspondingly increased. If we instead attribute that
issuance (and the proceeds thereof) to EA.com, the Number of Shares Issuable
with Respect to EA's Retained Interest in EA.com would remain unchanged, the
number of outstanding shares of Class B common stock would be increased by the
number of shares so issued, the Retained Interest Fraction would be reduced and
the Outstanding Interest Fraction would be correspondingly increased.

Issuances of Class B Common Stock as Distributions on Class A Common
Stock. We reserve the right to issue shares of Class B common stock as a
distribution on Class A common stock, although we do not currently intend to do
so. Such distribution would be limited to a number shares of Class B common
stock less than or equal to the then Number of Shares Issuable with Respect to
EA's Retained Interest in EA.com. If we effected such a distribution, we would
attribute that distribution to EA in respect of its retained interest in
EA.com. As a result, the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com would be reduced by the number of shares so
distributed, the number of outstanding shares of Class B common stock would be
increased by the same amount, the Retained Interest Fraction would be reduced
and the Outstanding Interest Fraction would be correspondingly increased.

Issuances of Class B Common Stock as Distributions on Class B Common
Stock. If instead we issued shares of Class B common stock as a distribution on
Class B common stock, we would attribute that distribution to EA.com, in which
case we would proportionately increase the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com. As a result, the Number of Shares
Issuable with Respect to EA's Retained Interest in EA.com would be increased by
the same percentage as the number of outstanding shares of Class B common stock
is increased and the Retained Interest Fraction and Outstanding Interest
Fraction would remain unchanged.

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Dividends on Class B Common Stock. At the time of any dividend or other
distribution on the outstanding shares of Class B common stock (including any
dividend or distribution required as a result of a disposition of All or
Substantially All of the Assets of EA.com, but excluding any dividend payable
in shares of Class B common stock) we will transfer to EA from EA.com, a
corresponding amount in respect of EA's retained interest in EA.com.
Specifically, the corresponding amount will equal (1) the aggregate amount of
such dividend times (2) a fraction, the numerator of which is the Number of
Shares Issuable with Respect to EA's Retained Interest in EA.com and the
denominator of which is the number of shares of Class B common stock then
outstanding.

Repurchases of Class B Common Stock. If we decide to repurchase shares of
Class B common stock, we would determine, in our sole discretion, whether to
attribute that repurchase (and the cost thereof) to EA (in a manner analogous
to a purchase of common stock of a subsidiary by a corporate parent) or to
EA.com (in a manner analogous to an issuer repurchase). If we repurchase shares
of Class B common stock and attribute that repurchase (and the cost thereof) to
EA, the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would be increased by the number of shares so purchased, the number of
outstanding shares of Class B common stock would be decreased by the same
amount, the Retained Interest Fraction would be increased and the Outstanding
Interest Fraction would be correspondingly decreased. If we instead attribute
that repurchase (and the cost thereof) to EA.com, the Number of Shares Issuable
with Respect to EA's Retained Interest in EA.com would remain unchanged, the
number of outstanding shares of Class B common stock would be decreased by the
number of shares so repurchased, the Retained Interest Fraction would be
increased and the Outstanding Interest Fraction would be correspondingly
reduced.

Transfers of Cash or Other Property Between EA and EA.com. We may, in our
sole discretion, determine to transfer cash or other property of EA.com to EA
in return for a decrease in EA's Retained Interest in EA.com (in a manner
analogous to a return of capital) or to transfer cash or other property of EA
to EA.com in return for an increase in EA's retained interest in EA.com (in a
manner analogous to a capital contribution). If we determine to transfer cash
or other property of EA.com to EA in return for a decrease in EA's retained
interest in EA.com, the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com would be decreased by an amount equal to the Fair Value of
such cash or other property divided by the Market Value of a share of Class B
common stock on the day of transfer, the number of outstanding shares of Class
B common stock would remain unchanged, the Retained Interest Fraction would be
decreased and the Outstanding Interest Fraction would be correspondingly
increased. Alternatively, if we determine to transfer cash or other property of
EA to EA.com in return for an increase in EA's Retained Interest in EA.com, the
Number of Shares Issuable with Respect to EA's Retained Interest in EA.com
would be increased by an amount equal to the Fair Value of such cash or other
property divided by the Market Value of a share of Class B common stock on the
day of transfer, the number of outstanding shares of Class B common stock would
remain unchanged, the Retained Interest Fraction would be increased and the
Outstanding Interest Fraction would be correspondingly decreased.

We may not attribute issuances of Class B common stock to EA, transfer cash
or other property of EA.com to EA in return for a decrease in its retained
interest in EA.com or take any other action to the extent that doing so would
cause the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com to decrease below zero.

For illustrations showing calculations of the Retained Interest Fraction,
the Outstanding Interest Fraction, and the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com after giving effect to certain
hypothetical issuances, repurchases and transfers, see Appendix I --
"Illustrations of Certain Terms."

Effectiveness of Certain Terms

The terms described under "--Dividends", "--Mandatory Dividend, Redemption
or Exchange on Disposition of All or Substantially All of The Assets of
EA.com", "--Exchange of Stock of a Subsidiary for Class B Common Stock", "--
Optional Exchange of Class B Common Stock for Class A Common Stock", "--Voting
Rights" and "--Liquidation" above apply only when there are shares of both
classes of common stock outstanding.

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Determinations by the Board

The Restated Certificate provides that, subject to applicable law, any
determinations made by the Board in good faith under the Restated Certificate
or in any certificate of designation filed pursuant thereto would be final and
binding on all stockholders of Electronic Arts.

Preemptive Rights

Holders of Class A common stock and Class B common stock will not have any
preemptive rights to subscribe for any additional shares of capital stock or
securities that we may issue in the future. However, AOL and News America
Incorporated have been granted contractual rights to participate in some types
of future issuances of Class B common stock that occur prior to a Qualified
Public Offering. See "--Issuance of Class B Common Stock to America Online,
Inc. and News America Incorporated."

Limitations on Potential Unsolicited Acquisitions; Anti-Takeover
Considerations

If EA and EA.com were separate independent companies, any person interested
in acquiring either group without negotiating with management could seek
control of that entity by obtaining control of its outstanding voting stock by
means of a tender offer or proxy contest. Although we intend Class A common
stock and Class B common stock to reflect the separate performance of EA and
EA.com, a person interested in acquiring only one group without negotiation
with Electronic Arts management could obtain control of that group only by
obtaining control of the outstanding voting stock of Electronic Arts

The existence of two classes of common stock could present complexities and
could in certain circumstances pose obstacles, financial and otherwise, to an
acquiring person. The existence of two classes of common stock could, under
certain circumstances, prevent stockholders from profiting from an increase in
the market value of their shares as a result of a change in control of
Electronic Arts by delaying or preventing such a change in control.

If the Tracking Stock Proposal is implemented, there would be an additional
396 million shares of common stock and an additional nine million shares of
preferred stock available for future issuance without further stockholder
approval. One of the effects of the existence of authorized and unissued common
stock and preferred stock could be to enable the Board to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of Electronic Arts by means of a
merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of our management. Such additional shares also could be used to
dilute the stock ownership of persons seeking to obtain control of Electronic
Arts.

For additional anti-takeover considerations, see "--Certain Other Provisions
of the Restated Certificate and By-laws" and "--Certain Provisions of Delaware
Law".

Certain Other Provisions of the Restated Certificate and By-laws

Preferred Stock

The Restated Certificate, like the Current Certificate of Incorporation,
provides that the Board may issue shares of preferred stock in one or more
series from time to time. The Restated Certificate increases the number of
authorized shares of preferred stock from one million to ten million shares.
The Board has the authority to fix by resolution or resolutions the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof, and to increase or
decrease the shares of any such series (but not below the number of shares of
such series then outstanding). The Board's ability to issue such authorized but
unissued shares could be used to render more difficult or discourage an attempt
to gain control of Electronic Arts by means of a merger, tender offer, proxy
contest or otherwise.

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No Stockholder Action By Written Consent; Special Meetings

Any action required or permitted to be taken by the stockholders of
Electronic Arts must be taken at a duly called annual or special meeting of
such holders and may not be taken by written consent by such holders, except
that until such time as there has been a Qualified Public Offering matters
subject solely to a vote of the holders of the Class B common stock may be
taken by consent in writing by such holders. Currently, stockholders of
Electronic Arts would be allowed to take action by written consent. Except as
otherwise provided for herein or required by law, special meetings of
stockholders of the Company for any purpose or purposes may be called only by
the Chairman of the Board pursuant to a resolution stating the purpose or
purposes thereof, and stockholders shall not have any power to call a special
meeting. Currently, special meetings may be called by the Chairman, the
President, a majority of the Board or the holders of not less than 10% of
outstanding shares of Electronic Arts. These provisions have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the Chairman of the Board for
consideration of such proposal.

Certain Provisions of Delaware Law

Electronic Arts is subject to the business combination provisions of Section
203 of the Delaware General Corporation Law (the "DGCL"). In general, such
provisions prohibit a publicly-held Delaware corporation from engaging in
various business combination transactions with any interested stockholder for a
period of three years following the time of the transaction in which the person
became an interested stockholder unless: (1) the business combination
transaction, or the transaction in which the interested stockholder became an
interested stockholder, is approved by the Board prior to the time that the
interested stockholder obtained such status, (2) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
by (a) persons who are directors and also officers and (b) employee stock plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer or (3) at or subsequent to such time the business
combination is approved by the Board and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. In general, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to Electronic Arts
and, accordingly, may discourage attempts to acquire Electronic Arts.

No Appraisal Rights

Under the DGCL, you will not have appraisal rights in connection with the
Tracking Stock Proposal.

Stock Transfer Agent and Registrar

The registrar and transfer agent for our existing common stock is Norwest
Bank Minnesota, N.A., 161 North Concord Exchange, P.O. Box 738, So. St. Paul,
MN, 55075. Norwest Bank Minnesota will continue to serve as registrar and
transfer agent for the Class A common stock.

Issuance of Class B Common Stock to America Online, Inc. and News America
Incorporated

America Online Interactive Services Agreement

On November 19, 1999, Electronic Arts, EA.com Inc. and America Online, Inc.
("AOL") entered into an Interactive Services Agreement. This agreement
establishes the basis for EA.com's production of a games site

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on the world wide web that will be available, primarily, to AOL subscribers and
to users of other branded AOL properties. Under this agreement, EA.com is
required to launch its site not later than June 1, 2000, although under
circumstances described in the agreement this date can be extended to September
1, 2000. If the site is not launched within the specified time frame, and if
prescribed additions to the site are not achieved within a specified subsequent
time frame, then AOL may have the ability to terminate the agreement.

The agreement provides for EA.com's ability to control the games site it
creates and the terms upon which we have programming control over the games
areas of AOL. The agreement also covers the rights to sell advertising spaces
in the games areas, which right will be held by AOL, and the parties' sharing
of the advertising revenues. Pursuant to the agreement, the parties are
required to undertake specified promotional activities regarding the game
sites. The agreement further provides that EA.com may establish a site or sites
on the world wide web independent of the AOL site, but AOL is provided with
exclusive rights to a number of EA.com games for limited periods of time. In
addition, the agreement provides for AOL's sharing in the revenues EA.com may
earn from its other sites.

EA.com is required to pay $50 million to AOL as a carriage fee (including
certain advertising fees) under the agreement. Of this amount, $25 million was
paid upon signing the agreement and the remainder is due in four equal annual
installments on the first four anniversaries of the initial payment. EA.com is
also required to pay to AOL $31 million as an advance of a minimum guaranteed
revenue share for revenues generated by subscriptions and other commercial
transactions on the EA.com site. Of this amount, $11 million was paid upon
signing of the agreement.

EA.com also committed to spend $15 million in offline media advertisements
promoting its games on AOL during the term of the agreement.

The effective date of the agreement is November 19, 1999. Unless earlier
terminated, the initial term of the agreement expires on April 1, 2005. AOL has
the unilateral right to extend the agreement on a non-exclusive basis for three
successive two year periods. Either party may terminate the agreement at any
time in the event of a material breach by the other party which remains uncured
for 45 days after written notice thereof is provided to the breaching party.

The agreement contains limitations on either party's ability to assign their
rights under the agreement without the other's consent.

Sale of AOL Shares and AOL Warrant

We have agreed with AOL, subject to the approval of the Tracking Stock
Proposal, to issue and sell a number of shares of Class B common stock to AOL
(the "AOL Shares") that is equal to the Number of Shares Issuable with respect
to EA's Retained Interest in EA.com that we initially designate (including
shares to be reserved for issuance under stock option and equity awards)
divided by eight. We have agreed with AOL to obtain an independent third party
appraisal of the value of EA.com Inc. as of the date of the sale of such shares
to AOL. In the event that the appraised valuation is greater than $168,300,000,
then, at AOL's option, we may reduce EA's commitment to provide cash to EA.com
by the amount that the appraised valuation exceeds $168,300,000. After taking
any such adjustment into account, AOL's aggregate purchase price for the AOL
Shares will equal such adjusted appraised valuation divided by nine.

We expect that this appraised valuation will be the basis for establishing
the Market Value of a share of Class B common stock on the date of first
issuance of Class B common stock. This per share value is, in turn, used to
determine the liquidation rights of the Class B common stock and the voting
rights of Class B common stock that would be in effect prior to a Qualified
Public Offering of Class B common stock.

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In addition to the AOL Shares, we have agreed to sell AOL a warrant (the
"AOL Warrant") to purchase a number of shares of Class B common stock equal to
50% of the number of AOL Shares purchased by AOL. AOL's purchase price for the
AOL Warrant would be $1,300,000 and the aggregate exercise price of the AOL
Warrant will be $40,000,000. The AOL Warrant expires upon the earliest to occur
of (a) five years from the date of its issuance, (b) the date three years after
the closing date of a Qualified Public Offering, (c) immediately prior to the
effective date of an acquisition of AOL by certain of our competitors, (d) the
effective date of any merger, redemption or other transaction in which all of
the outstanding shares of Class B common stock are converted into or exchanged
solely for cash, or (e) the payment date of any dividend we elect to pay to the
holders of outstanding shares of Class B common stock, or the date of any
redemption we elect with respect to the outstanding shares of Class B common
stock, in either case, following a Disposition of All or Substantially All of
the Assets of EA.com.

We have determined to initially designate 32,000,000 shares as the initial
Number of Shares Issuable with Respect to EA's Retained Interest in EA.com. As
such, we will sell 4,000,000 shares of Class B common stock to AOL pursuant to
our agreement with AOL. Assuming that the appraised valuation equals
$168,300,000, AOL's purchase price for the AOL Shares would be an aggregate of
$18,700,000, or approximately $4.68 per share. If, for example, the appraised
valuation equals $198,000,000, then, at AOL's option, either (i) AOL's
aggregate purchase price for the shares would equal $22,000,000 (or
approximately $5.50 per share), or (ii) AOL's aggregate purchase price for the
shares would equal $18,700,000 and Electronic Arts Inc.'s obligation to provide
cash to EA.com would be reduced by $29,700,000 (without any adjustment to the
Number of Shares Issuable with respect to EA's Retained Interest in EA.com). In
either case, the AOL Warrant would be exercisable for 2,000,000 shares of Class
B common stock with an exercise price of $20.00 per share.

The proceeds from the sale of the AOL Shares and the AOL Warrant will be
attributed to EA.com and, accordingly, the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com will remain unaffected by such sale
and any subsequent exercise of the AOL Warrant.

AOL Exchange Rights

If a Qualified Public Offering does not occur within 12 months following the
initial sale of the AOL Shares to AOL, then at any time within four years
thereafter (but before the closing of any Qualified Public Offering), (a) AOL
has the right to cause EA to exchange (an "AOL Exchange") all shares of Class B
common stock then owned by AOL for that number of shares of Class A common
stock equal to the product of (x) the number of shares of Class B common stock
then owned by AOL and (y) the quotient of (i) the price per share paid by AOL
for the AOL shares and (ii) $83.7958, appropriately adjusted for any subsequent
stock splits or dividends (such quotient, the "Exchange Ratio"), and (b) we
also have the right to cause an AOL Exchange if we lose programming control
across the AOL games area, in accordance with the provisions of the Interactive
Services Agreement. In the event of any AOL Exchange, the AOL Warrant shall
also be cancelled and exchanged for Class A common stock in accordance with the
terms of the AOL Warrant based on the same Exchange Ratio.

AOL Back-up Warrant

In the event that the Tracking Stock Proposal is not approved by our
stockholders, and, as a result, we fail to sell the AOL Shares and the AOL
Warrant to AOL by May 17, 2000, then a separate warrant that we have issued to
AOL (the "AOL Back-up Warrant") shall become exercisable for the purchase of
238,675 shares of our existing common stock (such number being equal to
$20,000,000 divided by the average closing price of our existing common stock
during the fifteen day period ending two days prior to the date of the
Interactive Services Agreement) at an aggregate exercise price of $20,000,000.
Such warrant will expire 90 days after it becomes exercisable. In the event
that such Back-up Warrant becomes exercisable, we will no longer have any
obligation to sell the AOL Shares or the AOL Warrant to AOL.

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Acquisition of Kesmai from News America Incorporated

On February 7, 2000, we acquired Kesmai Corporation from News America
Incorporated in exchange for $22,500,000 in cash and 103,227 shares of our
existing common stock valued at $8,650,000 (the "News America Incorporated
Common Shares"). See Appendix IV--"Description of Business."

Exchange of News America Incorporated Common Shares for Class B Common Stock

We have agreed with News America Incorporated that, if the Tracking Stock
Proposal is approved and the Restated Certificate is filed prior to August 18,
2000, then all of the News America Incorporated Common Shares will be
automatically exchanged for 2,000,000 shares (the "News Class B Shares") of the
Class B common stock. The Class B Shares are intended to represent five percent
of the initial equity value attributable to EA.com (after giving effect to the
issuance of the AOL Shares and the AOL Warrant described above). The issuance
of the News Class B Shares will be attributed to EA.com and, accordingly, the
Number of Shares Issuable with respect to EA's Retained Interest in EA.com will
remain unaffected by such issuance. In the event that the Tracking Stock
Proposal is not approved by our stockholders, and we fail to exchange the News
Class B Shares for the News America Common Shares by August 18, 2000, then we
are obligated to pay News America Incorporated cash in the amount of
$9,650,000.

Subsequent Exchange Rights of News America Incorporated

If (i) a Qualified Public Offering does not occur within the 24 month period
after the initial issuance of the News Class B Shares, (ii) we have used
commercially reasonable efforts to effect a Qualified Public Offering within
such 24 month period, and (iii) all then outstanding shares, if any, of Class B
common stock held by parties other than News America Incorporated or its
affiliates (except for shares issued under equity incentive plans) have been or
are simultaneously being converted to, or exchanged for, newly issued shares of
Class A common stock, then all News Class B Shares, shall automatically be
exchanged (an "Automatic Exchange to Class A") for an aggregate of 103,227
shares of newly issued Class A common stock.

If (i) a Qualified Public Offering does not occur within 18 months after the
initial issuance of the News Class B Shares, (ii) we have used commercially
reasonable efforts to effect a Qualified Public Offering within such 18 month
period, (iii) all then outstanding shares, if any, of Class B common stock held
by parties other than News America Incorporated or its affiliates (except for
shares issued under the Class B equity plan) have been or are simultaneously
being converted to, or exchanged for, shares of Class A common stock, and (iv)
we lose programming control across the entire AOL games area of AOL pursuant to
the terms of the Interactive Services Agreement with AOL, then we will have the
right at any time thereafter (prior to any Automatic Exchange to Class A and
before the closing of a Qualified Public Offering), to cause all News Class B
Shares to be exchanged (a "Company Optional Exchange") for an aggregate of
103,227 shares of newly issued Class A common stock.

If an Automatic Exchange to Class A or a Company Optional Exchange occurs,
then we are also obligated to pay News America Incorporated cash in the amount
of $9,650,000.

Other Rights

In connection with the sale of the AOL Shares and the AOL Warrant and the
issuance of the News Class B Shares, we have granted AOL and News America
Incorporated demand, piggyback, and S-3 registration rights with respect to the
AOL Shares, the shares issuable upon exercise of the AOL Warrant and the News
Class B Shares. These rights will give AOL and News America Incorporated the
ability to cause us to register our stock that they receive for resale under
provisions of the Securities Act of 1933. The registration rights applicable to
the Class B common stock will also be applicable to any shares of Class A
common stock issued to AOL or News America Incorporated pursuant to the
transactions described above.

We have also granted each of AOL and News America Incorporated a right or
first refusal to purchase a proportionate share of certain subsequent offerings
of the Class B common stock (or rights, options or warrants

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therefore) that may occur prior to a Qualified Public Offering of the Class B
common stock. For such purposes, each such party's proportionate share shall
equal the ratio of (a) the number of shares of Class B common stock then held
by such party plus, in the case of AOL, the number of shares of Class B common
stock subject to the AOL Warrant, to (b) the sum of (1) the total number of
shares of Class B common stock then outstanding, plus (2) the Number of Shares
Issuable with Respect to EA's Retained Interest in EA.com, plus (3) the shares
of Class B common stock initially reserved for issuance under our stock option
and stock purchase plans, plus (4) the number of shares of Class B common stock
issuable upon exercise of outstanding warrants (including the AOL Warrant). In
addition, in the event that the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com is increased prior to a Qualified Public Offering
by virtue of a transfer of cash or other assets of EA to EA.com, News America
Incorporated shall have the right to purchase a number of shares of Class B
common stock equal to its proportionate share multiplied by such increase in
the Number of Shares Issuable with Respect to EA's Retained Interest in EA.com.

We have also granted each of AOL and News America Incorporated certain anti-
dilution rights in the event that, prior to a Qualified Public Offering, we
issue shares of Class B common stock for the account of EA.com at a per share
price that is less than the per share price paid by such parties for their
shares of Class B common stock. In the event of such an issuance, subject to
certain exceptions, we have agreed to issue additional shares of Class B common
stock to AOL and/or News America Incorporated according to a broad-based,
weighted average antidilution formula.

Restrictions on Transfer

Prior to a Qualified Public Offering, (a) each of AOL and News America
Incorporated has agreed not to sell or transfer any shares of the Class B
common stock (except to controlled affiliates) during the 12 month period
following their initial acquisition of shares of Class B common stock, and (b)
with respect to any proposed sale or transfer of shares of Class B common stock
by such parties after such 12 month period, such parties have granted us a
right of first refusal to purchase such shares.

Certain Other Agreements

Prior to a Qualified Public Offering, we have agreed that, without the prior
consent of AOL (so long as AOL holds all of the AOL Shares) and News America
Incorporated (so long as News America Incorporated holds all of the News Class
B Shares originally issued), we will not (a) create another class or series of
stock designed to track the performance of EA.com, (b) in the event of a
Disposition of All or Substantially All of the Assets of EA.com, exercise our
right to elect to declare and pay a dividend on, or redeem, the Class B common
stock unless such dividend or redemption is made solely with cash, (c) amend
certain provisions of the agreements between EA.com and Electronics Arts
entered into a connection with the formation of EA.com or (d) transfer any of
the EA.com assets initially contributed to EA.com Inc. back to Electronic Arts
except in the ordinary course of business or in accordance with the terms of
the Intercompany Agreement.

Federal Income Tax Considerations

The following summary of the federal income tax consequences of the Tracking
Stock Proposal and the ownership of Class A common stock and Class B common
stock is based on the Internal Revenue Code of 1986, as amended to the date
hereof (the "Code"), Treasury Department regulations, published positions of
the Internal Revenue Service (the "IRS") and court decisions now in effect, all
of which are subject to change.

You should consult your own tax advisors with regard to the application of
the federal income tax laws to your particular situation, as well as to the
applicability and effect of any state, local, or foreign tax laws to which you
may be subject.

We believe that for federal income tax purposes Class A common stock and
Class B common stock will be considered common stock of Electronic Arts.
Accordingly, we believe that for federal income tax purposes, neither you nor
Electronic Arts will recognize any income, gain or loss as a result of the
reclassification of our existing common stock into Class A common stock or the
issuance of Class B common stock.

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There are, however, no court decisions or other authorities bearing directly
on the classification of instruments with characteristics similar to those of
Class A common stock and Class B common stock. In addition, the IRS has
announced that it will not issue advance rulings on the classification of an
instrument that has certain voting and liquidation rights in an issuing
corporation but whose dividend rights are determined by reference to the
earnings of a segregated portion of the issuing corporation's assets, including
assets held by a subsidiary.

In 1999 the Clinton administration made a proposal that would require the
recognition of gain on the issuance of certain tracking stock, such as Class B
common stock, and give the Treasury Department the authority to treat tracking
stock as nonstock or as stock of another entity as appropriate to prevent tax
avoidance. The Treasury Department's explanation expresses the view that the
use of tracking stock "is clearly outside the contemplation of" the Code and
says that "no inference regarding the tax treatment of [such stock] under
current law is intended by [the] proposal". As proposed by the Clinton
administration, this provision would only affect tracking stock issued on or
after the date of its enactment by Congress. Recent federal income tax
legislation has not adopted the Clinton administration proposal. We cannot
predict, however, whether the Clinton administration proposal will, in the
future, be enacted by the U.S. Congress and, if enacted, whether it will be in
the form proposed by the Clinton administration. If it were enacted as
proposed, it would affect future issuances of Class B common stock. Under such
circumstances, we might decide to exercise our right to all of the outstanding
shares of Class B common stock for Class A common stock at a premium, which
would be disadvantageous to holders of Class A common stock. We could only
effect such an exchange if we had completed an underwritten initial public
offering of the Class B common stock at least one year prior to the exchange
date.

The Board of Directors Recommends a Vote FOR Approval of The Tracking Stock
Proposal

PROPOSAL 2--2000 CLASS B EQUITY INCENTIVE PLAN

At the Special Meeting we will also ask you to approve the Electronic Arts
Inc. 2000 Class B Equity Incentive Plan, which is further described below. The
Board of Directors has approved the Electronic Arts Inc. 2000 Class B Equity
Incentive Plan, and the Electronic Arts Inc. 2000 Class B Equity Incentive Plan
will be approved by stockholders if it receives the votes of a majority of the
shares present and entitled to vote at the Special Meeting. Even if it is
approved by stockholders, the Electronic Arts Inc. 2000 Class B Equity
Incentive Plan will not be made effective unless the Tracking Stock Proposal is
approved and the Class B common stock, which is the subject of the plan, is
authorized.

General Description of the 2000 Class B Equity Incentive Plan

Our Board of Directors has adopted the Electronic Arts Inc. 2000 Class B
Equity Incentive Plan, subject to stockholder approval and the adoption of the
Tracking Stock Proposal. Below is a summary of the principal provisions of the
Class B Plan, the full text of which is attached to this Proxy Statement as
Appendix V.

Shares Subject to the Class B Plan

The stock subject to issuance under the Class B Plan will consist of shares
of the Company's authorized but unissued Class B common stock. The Class B Plan
authorizes the issuance of up to 6,000,000 shares of Class B common stock
pursuant to awards of stock options and restricted stock under such Class B
Plan. In addition, shares will again be available for grant and issuance under
the Class B Plan that:

. were subject to an option granted under the Class B Plan that
terminated, to the extent then unexercised

. were subject to an award granted pursuant to a restricted stock purchase
agreement under the Class B plan that are subsequently forfeited or
repurchased by us at the original issue price or

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. are subject to an award granted pursuant to a restricted stock purchase
agreement under the Class B plan that otherwise terminates without
shares being issued.

The number of shares issuable under the Class B Plan, and under outstanding
options and restricted stock awards, is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.

Eligibility

The Class B Plan provides for the issuance of incentive stock options,
nonqualified stock options and restricted stock awards. The Class B Plan
provides that employees (including officers and directors who are also
employees) of Electronic Arts or any parent or subsidiary of Electronic Arts
may receive incentive stock options under the Class B Plan. Nonqualified stock
options and restricted stock awards may be granted to employees and directors
of Electronic Arts or any parent or subsidiary of Electronic Arts. As of
February 1, 2000, approximately 3,000 people were in the class of persons who
would be eligible to participate in the Class B Plan. No person will be
eligible to receive more than 750,000 shares of Class B common stock in any
calendar year other than new employees who will be eligible to receive
1,500,000 shares of Class B common stock in the calendar year in which they
commence employment. No options or awards of restricted stock have been granted
or made to date under the Class B Plan.

Administration

The Class B Plan will be administered by our Compensation Committee. All of
the members of the Compensation Committee are "non-employee Directors" under
applicable federal securities laws and "outside Directors" as defined under
applicable federal tax laws. The Compensation Committee will have the authority
to construe and interpret the Class B Plan, grant awards and make all other
determinations necessary or advisable for the administration of the plan.

Stock Options

Stock options granted under the Class B Plan may be either incentive stock
options or nonqualified stock options. The option exercise price for each
incentive stock option share must be no less than 100% of the "fair market
value" (as defined in the Class B Plan) of a share of Class B common stock at
the time the incentive stock option is granted. In the case of an incentive
stock option granted to a stockholder that owns more than 10% of the total
combined voting power of all classes of stock of Electronic Arts or of any
parent or subsidiary of Electronic Arts, the exercise price for each such
incentive stock option share must be no less than 110% of the fair market value
of a share of Class B common stock at the time the incentive stock option is
granted. The option exercise price for each nonqualified stock option share
must be no less than 85% of the fair market value of a share of Class B common
stock at the time of grant. With respect to options issued to a stockholder
that owns more than 10% of the total combined voting power of all classes of
stock of Electronic Arts or of any parent or subsidiary of Electronic Arts
before the Class B common stock is listed on a national securities exchange or
designated as a national market system security, the exercise price must be no
less than 110% of the fair market value of a share of Class B common stock at
the time the option is granted.

The exercise price of options granted under the Class B Plan may be paid as
approved by the Committee at the time of grant: (1) in cash (by check); (2) by
cancellation of indebtedness of the Company to the optionee; (3) by surrender
of shares of our common stock obtained by the optionee in the public market or
owned by the optionee for at least six months and having a fair market value on
the date of surrender equal to the aggregate exercise price of the option; (4)
by tender of a full recourse promissory note; (5) by waiver of compensation due
to or accrued by the optionee for services rendered; (6) by a "same-day sale"
commitment from the optionee and a National Association of Securities Dealers,
Inc. ("NASD") broker; (7) by a "margin" commitment from the optionee and a NASD
broker; or (8) by any combination of the foregoing.

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Outside Directors

Our non-employee Directors are entitled to receive automatic annual grants
of options to purchase shares of our Class B common stock under the Class B
Plan. Each non-employee Director who first becomes a member of the Board of
Directors on or after the Effective Date of the Class B Plan (as defined below)
and each non-employee Director who is a member of the Board on the date the
Class B Plan is approved by the stockholders will be granted an option to
purchase 10,000 shares of Class B common stock on the later of the date the
non-employee Director becomes a member of the Board of Directors and the date
the stockholders approve the Class B Plan. Upon re-election to our Board of
Directors following each annual meeting of our stockholders, each non-employee
Director will automatically be granted an additional option to purchase 2,500
shares of Class B common stock. If a non-employee Director has not served on
our Board of Directors for a full year at the time of the annual meeting of our
stockholders, such Director will receive a pro-rated annual grant. The options
will have 10 year terms. All options issued to outside Directors under the
Class B Plan will be exercisable as to 2% of the shares on the date of grant
and as to an additional 2% of the shares on the first day of each calendar
month after the date of grant so long as the outside Director continues as a
member of our Board or as a consultant. In the event of our dissolution or
liquidation or a "change in control" transaction, options granted to our non-
employee Directors under the Class B Plan will become 100% vested and
exercisable in full.

In addition, our non-employee Directors may elect to receive all or a
portion of their cash compensation in shares of Class B common stock. Directors
making this election are entitled to receive shares having a value equal to
110% of the amount of the cash compensation foregone.

Restricted Stock Awards

The Committee may grant restricted stock awards to purchase stock either in
addition to, or in tandem with, other awards under the Class B Plan under such
terms, conditions and restrictions as the Committee may determine. A restricted
stock award is an offer by Electronic Arts to sell shares of Class B common
stock that are subject to restrictions established by the Committee. These
restrictions may be based upon completion by the award holder of a specified
number of years of service or by the attainment of certain performance goals
established by the Committee including (a) net revenue and/or net revenue
growth; (b) earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth; (c) operating income and/or
operating income growth; (d) net income and/or net income growth; (e) earnings
per share and/or earnings per share growth; (f) total stockholder return and/or
total stockholder return growth; (g) return on equity; (h) operating cash flow
return on income; (i) adjusted operating cash flow return on income;
(j) economic value added; and (k) individual confidential business objectives.
The purchase price for each such award is determined by the Committee at the
time of grant and may be less than the fair market value of the Electronic Arts
Class B common stock on the date of the award except that the purchase price
for awards granted before the Class B common stock is listed on a national
securities exchange or designated as a national market system security must be
no less than 85% of the fair market value of the Electronic Arts Class B common
stock on the date of the award or at the time the purchase is consummated. In
the case of an award to a 10% stockholder, the purchase price will be 100% of
fair market value. The purchase price may be paid for in any of the forms of
consideration listed in items (1) through (5) in "Stock Options" above, as are
approved by the Committee at the time of grant.

Mergers, Consolidations, Change of Control

Except for automatic grants to non-employee Directors, in the event of a
merger, consolidation, dissolution or liquidation of Electronic Arts, the sale
of substantially all of our assets or any other similar corporate transaction,
the successor corporation may assume, replace or substitute equivalent awards
in exchange for those granted under the Class B Plan or provide substantially
similar consideration, shares or other property as was provided to our
stockholders (after taking into account provisions of the awards). In the event
that the successor corporation does not assume, replace or substitute awards,
such awards will accelerate and all options

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will become exercisable in full prior to the consummation of the transaction
at the time and upon the conditions as the Committee determines. Any options
not exercised prior to the consummation of the transaction will terminate.

Transferability

Incentive stock options granted under the Class B Plan and any awards
granted before the Class B common stock is listed on a national securities
exchange or designated as a national market system security are not
transferable other than upon a distribution on the recipient's death.
Nonqualified stock options and restricted stock awards are subject to similar
restrictions on transfer unless otherwise determined by the Committee and
except that nonqualified stock options may be transferred to family members
and trusts or foundations controlled by, or primarily benefiting, family
members.

Effective Date of the Class B Plan

The Class B Plan will be effective on the date it is approved by the
stockholders (the "Effective Date").

Amendment of the Class B Plan

The Board may, at any time, terminate or amend the Class B Plan, including
amending any form of award agreement or instrument to be executed pursuant to
the Class B Plan. The Board will not, without the approval of the
stockholders, amend the Class B Plan in any manner that requires stockholder
approval pursuant to the rules of the Nasdaq Stock Market or any national
securities exchange on which our common stock may then trade or to any
applicable tax or securities laws or regulations.

Term of the Class B Plan

Unless terminated earlier as provided in the Class B Plan, the Class B Plan
will expire ten (10) years from the date it was adopted by the Board of
Directors.

Federal Income Tax Information

THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT
OF THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER
THE CLASS B PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND
LOCAL TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER
INDIVIDUAL CIRCUMSTANCES. ANY TAX EFFECTS THAT ACCRUE TO FOREIGN PARTICIPANTS
AS A RESULT OF PARTICIPATING IN THE INCENTIVE PLAN ARE GOVERNED BY THE TAX
LAWS OF THE COUNTRIES IN WHICH SUCH PARTICIPANT RESIDES. EACH PARTICIPANT WILL
BE ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE INCENTIVE PLAN.

Incentive Stock Options. A participant will recognize no income upon grant
of an incentive stock option and incur no tax on its exercise, unless the
participant is subject to the alternative minimum tax ("AMT"). If the
participant holds shares acquired upon exercise of an incentive stock option
(the "ISO Shares") for more than one year after the date the option was
exercised and for more than two years after the date the option was granted,
the participant generally will realize capital gain or loss (rather than
ordinary income or loss) upon disposition of the ISO Shares. This gain or loss
will be equal to the difference between the amount realized upon such
disposition and the amount paid for the ISO Shares.

If the participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized
upon such disposition, up to the difference between the fair market value of
the ISO Shares on the date of exercise (or, if less, the amount realized on a
sale of such shares) and the option exercise price, will be treated as
ordinary income. Any additional gain will be capital gain, taxed at a rate
that depends upon the amount of time the ISO Shares were held by the
participant.

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Alternative Minimum Tax. The difference between the option exercise price
and the fair market value of the ISO Shares that are vested on the date of
exercise is an adjustment to income for purposes of the AMT. If a participant
exercises an ISO before it has fully vested, the participant may incur an AMT
liability as the ISO Shares vest and the right of repurchase in the Company to
purchase the ISO Shares lapses, unless the participant makes a timely election
under Code Section 83(b) (an "83(b) election"). The AMT (imposed to the extent
it exceeds the taxpayer's regular income tax) is 26% of an individual
taxpayer's alternative minimum taxable income (28% in the case of alternative
minimum taxable income in excess of $175,000). Alternative minimum taxable
income is determined by adjusting regular taxable income for certain items,
increasing that income by certain items (including the difference between the
fair market value of the ISO Shares on the date of exercise and the exercise
price) and reducing this amount by the applicable exemption amount ($45,000 in
case of a joint return, subject to reduction under certain circumstances). If a
disqualifying disposition of the ISO Shares occurs in the same calendar year as
exercise of the ISO, there is no AMT adjustment with respect to those ISO
Shares. 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 excess of the fair market value of the ISO Shares at exercise over the
amount paid for the ISO Shares.

Nonqualified Stock Options. A participant will not recognize any taxable
income at the time a nonqualified stock option ("NQSO") is granted. However,
upon exercise of an NQSO for vested shares, the participant must 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 must be treated as ordinary income by the
participant and may be subject to withholding by the Company (either by payment
in cash or withholding out of the participant's salary). If a participant
exercises an NQSO before it has fully vested, the participant may incur a
regular income liability as the shares vest and the right of repurchase in the
Company to purchase the shares at the original issue price lapses, unless the
participant makes a timely 83(b) election. Upon resale of the shares by the
participant, 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.

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
may be treated as ordinary income by the participant and will be subject to
withholding by the Company (either by payment in cash or withholding out of the
participant's award).

If the participant makes a timely 83(b) election, the participant who
receives a restricted stock award will include in income as ordinary income,
the fair market value of the shares of stock on the date of receipt of the
award, less any purchase price paid for such shares. The income may be subject
to withholding by the Company (either by payment in cash or withholding out of
the participant's award). If the award is subsequently forfeited, the
participant will not receive any deduction for the amount treated as ordinary
income.

Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. In order to
receive long-term capital gain treatment, the shares acquired pursuant to the
Class B Plan must be held for more than twelve months. Capital gains may be
offset by capital losses and up to $3,000 of capital losses may be offset
annually against ordinary income.

Tax Treatment of the Company. The Company generally will be entitled to a
deduction in connection with the exercise of an NQSO by a participant or the
receipt by the participant of restricted stock 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 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, provided that the Company properly
reports such income to the IRS.

55
<PAGE>

ERISA. The Class B 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.

Information About Awards. The Class B Plan does not require that awards be
made to any particular person or persons, other than the annual awards provided
for non-employee directors. If the Class B Plan and the Tracking Stock Proposal
are approved, each of our non-employee directors will receive nonqualified
stock options to purchase 10,000 shares of Class B common stock with an
exercise price equal to the then-prevailing market price of the Class B common
stock. Information about awards granted during fiscal 1999 under Electronic
Arts' existing stock plan to our most highly compensated executive officers is
set forth under "Executive Compensation--Options Granted in Fiscal 1999."

The Board of Directors Recommends a Vote FOR Approval of the Class B Plan.

PROPOSAL 3--2000 CLASS A EQUITY INCENTIVE PLAN

At the Special Meeting we will also ask you to approve the Electronic Arts
Inc. 2000 Class A Equity Incentive Plan, which is further described below. The
Board of Directors has approved the Electronic Arts Inc. 2000 Class A Equity
Incentive Plan, and the Electronic Arts Inc. 2000 Class A Equity Incentive Plan
will be approved by stockholders if it receives the votes of a majority of the
shares present and entitled to vote at the Special Meeting.

General Description of the 2000 Class A Equity Incentive Plan

Our Board of Directors has adopted the Electronic Arts 2000 Class A Equity
Incentive Plan (which we refer to as the "Class A Plan") subject to stockholder
approval. Below is a summary of the principal provisions of the Class A Plan,
the full text of which is attached to this Proxy Statement as Appendix VI.

Shares Subject to the Class A Plan

The stock subject to issuance under the Class A Plan will consist of shares
of the Company's authorized but unissued Class A common stock. The Class A Plan
authorizes the issuance of up to 3,100,000 shares of Class A common stock
pursuant to awards of stock options and restricted stock under such Class A
Plan. In addition, shares will again be available for grant and issuance under
the Class A Plan that:

. were subject to an option granted under the Class A Plan that
terminated, to the extent then unexercised

. were subject to an award granted pursuant to a restricted stock purchase
agreement under the Class A Plan that are subsequently forfeited or
repurchased by us at the original issue price or

. are subject to an award granted pursuant to a restricted stock purchase
agreement under the Class A Plan that otherwise terminates without
shares being issued.

The number of shares issuable under the Class A Plan, and under outstanding
options and restricted stock awards, is subject to proportional adjustment to
reflect stock splits, stock dividends and other similar events.

Eligibility

The Class A Plan provides for the issuance of incentive stock options,
nonqualified stock options and restricted stock awards. The Class A Plan
provides that employees (including officers and directors who are also
employees) of Electronic Arts or any parent or subsidiary of Electronic Arts
may receive incentive stock options under the Class A Plan. Nonqualified stock
options and restricted stock awards may be granted to employees and directors
of Electronic Arts or any parent or subsidiary of Electronic Arts. As of
February 1, 2000, approximately 3,000 persons were in the class of persons who
would be eligible to participate in the

56
<PAGE>

Class A Plan. No person will be eligible to receive more than 350,000 shares of
Class A common stock in any calendar year other than new employees who will be
eligible to receive 700,000 shares of Class A common stock in the calendar year
in which they commence employment. No options or awards of restricted stock
have been granted or made to date under the Class A Plan.

Administration

The Class A Plan will be administered by our compensation committee. All of
the members of the compensation committee are "non-employee Directors" under
applicable federal securities laws and "outside Directors" as defined under
applicable federal tax laws. The compensation committee will have the authority
to construe and interpret the Class A Plan, grant awards and make all other
determinations necessary or advisable for the administration of the plan.

Stock Options

Stock options granted under the Class A Plan may be either incentive stock
options or nonqualified stock options. The option exercise price for each
incentive stock option share must be no less than 100% of the "fair market
value" (as defined in the Class A Plan) of a share of Class A common stock at
the time the incentive stock option is granted. In the case of an incentive
stock option granted to a stockholder that owns more than 10% of the total
combined voting power of all classes of stock of Electronic Arts or any parent
or subsidiary of Electronic Arts, the exercise price for each such incentive
stock option share must be no less than 110% of the fair market value of a
share of Class A common stock at the time the incentive stock option is
granted. The option exercise price for each nonqualified stock option share
must be no less than 85% of the fair market value of a share of Class A common
stock at the time of grant.

The exercise price of options granted under the Class A Plan may be paid as
approved by the Committee at the time of grant: (1) in cash (by check); (2) by
cancellation of indebtedness of the Company to the optionee; (3) by surrender
of shares of the our common stock obtained by the optionee in the public market
or owned by the optionee for at least six months and having that have a fair
market value on the date of surrender equal to the aggregate exercise price of
the option; (4) by tender of a full recourse promissory note; (5) by waiver of
compensation due to or accrued by the optionee for services rendered; (6) by a
"same-day sale" commitment from the optionee and a National Association of
Securities Dealers, Inc. ("NASD") broker; (7) by a "margin" commitment from the
optionee and a NASD broker; or (8) by any combination of the foregoing.

Outside Directors

Our non-employee Directors are entitled to receive automatic annual grants
of options to purchase shares of our Class A common stock under the Class A
Plan. Each non-employee Director who first becomes a member of the Board of
Directors on or after the Effective Date of the Class A Plan (as defined below)
will be granted an option to purchase 25,000 shares of Class A common stock.
Upon re-election to our Board of Directors following each annual meeting of our
stockholders, each non-employee Director will automatically be granted an
additional option to purchase 8,000 shares of Class A common stock. If a non-
employee Director has not served on our Board of Directors for a full year at
the time of the annual meeting of our stockholders, such Director will receive
a pro-rated annual grant. The options will have 10 year terms. All options
issued to outside Directors under the Class A Plan will be exercisable as to 2%
of the shares on the date of grant and as to an additional 2% of the shares on
the first day of each calendar month after the date of grant so long as the
outside Director continues as a member of our Board or as a consultant. In the
event of our dissolution or liquidation or a "change in control" transaction,
options granted to our non-employee Directors under the Class A Plan will
become 100% vested and exercisable in full.

In addition, our non-employee Directors may elect to receive all or a
portion of their cash compensation in shares of Class A common stock. Directors
making this election are entitled to receive shares having a value equal to
110% of the amount of the cash compensation foregone.

57
<PAGE>

Restricted Stock Awards

The Committee may grant restricted stock awards to purchase stock either in
addition to, or in tandem with, other awards under the Class A Plan under such
terms, conditions and restrictions as the Committee may determine. A
restricted stock award is an offer by Electronic Arts to sell shares of Class
A common stock that are subject to restrictions established by the Committee.
These restrictions may be based upon completion by the award holder of a
specified number of years of service or by the attainment of certain
performance goals established by the Committee including (a) net revenue
and/or net revenue growth; (b) earnings before income taxes and amortization
and/or earnings before income taxes and amortization growth; (c) operating
income and/or operating income growth; (d) net income and/or net income
growth; (e) earnings per share and/or earnings per share growth; (f) total
stockholder return and/or total stockholder return growth; (g) return on
equity; (h) operating cash flow return on income; (i) adjusted operating cash
flow return on income; (j) economic value added; and (k) individual
confidential business objectives. The purchase price for each such award is
determined by the Committee at the time of grant and may be less than the fair
market value of the Electronic Arts Class A common stock on the date of the
award. In the case of an award to a 10% stockholder, the purchase price will
be 100% of fair market value. The purchase price may be paid for in any of the
forms of consideration listed in items (1) through (5) in "Stock Options"
above, as are approved by the Committee at the time of grant.

Mergers, Consolidations, Change of Control

Except for automatic grants to non-employee Directors, in the event of a
merger, consolidation, dissolution or liquidation of Electronic Arts, the sale
of substantially all of our assets or any other similar corporate transaction,
the successor corporation may assume, replace or substitute equivalent awards
in exchange for those granted under the Class A Plan or provide substantially
similar consideration, shares or other property as was provided to our
stockholders (after taking into account provisions of the awards). In the
event that the successor corporation does not assume, replace or substitute
awards, such awards will accelerate and all options will become exercisable in
full prior to the consummation of the transaction at the time and upon the
conditions as the Committee determines. Any options not exercised prior to the
consummation of the transaction will terminate.

Transferability

Incentive stock options granted under the Class A Plan are not transferable
other than upon a distribution on the optionee's death. Nonqualified stock
options and restricted stock awards are subject to similar restrictions on
transfer unless otherwise determined by the Committee and except that
nonqualified stock options may be transferred to family members and trusts or
foundations controlled by, or primarily benefiting, family members.

Effective Date of the Class A Plan

The Class A Plan will be effective on the date it is approved by its
stockholders (the "Effective Date").

Amendment of the Class A Plan

The Board may, at any time, terminate or amend the Class A Plan, including
amending any form of award agreement or instrument to be executed pursuant to
the Class A Plan. The Board will not, without the approval of the
stockholders, amend the Class A Plan in any manner that requires stockholder
approval pursuant to the rules of the Nasdaq Stock Market or any national
securities exchange on which our common stock may then trade or to any
applicable tax or securities laws or regulations.

Term of the Class A Plan

Unless terminated earlier as provided in the Class A Plan, the Class A Plan
will expire ten (10) years from the date it was adopted by the Board of
Directors.

58
<PAGE>

Federal Income Tax Information

THE FOLLOWING IS A GENERAL SUMMARY AS OF THE DATE OF THIS PROXY STATEMENT OF
THE FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY AND PARTICIPANTS UNDER THE
CLASS A PLAN. THE FEDERAL TAX LAWS MAY CHANGE AND THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES FOR ANY PARTICIPANT WILL DEPEND UPON HIS OR HER INDIVIDUAL
CIRCUMSTANCES. ANY TAX EFFECTS THAT ACCRUE TO FOREIGN PARTICIPANTS AS A RESULT
OF PARTICIPATING IN THE INCENTIVE PLAN ARE GOVERNED BY THE TAX LAWS OF THE
COUNTRIES IN WHICH SUCH PARTICIPANT RESIDES. EACH PARTICIPANT WILL BE
ENCOURAGED TO SEEK THE ADVICE OF A QUALIFIED TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE INCENTIVE PLAN.

If the participant disposes of ISO Shares prior to the expiration of either
required holding period (a "disqualifying disposition"), the gain realized upon
such disposition, up to the difference between the fair market value of the ISO
Shares on the date of exercise (or, if less, the amount realized on a sale of
such shares) and the option exercise price, will be treated as ordinary income.
Any additional gain will be capital gain, taxed at a rate that depends upon the
amount of time the ISO Shares were held by the participant.

Alternative Minimum Tax. The difference between the option exercise price
and the fair market value of the ISO Shares that are vested on the date of
exercise is an adjustment to income for purposes of the AMT. If a participant
exercises an ISO before it has fully vested, the participant may incur an AMT
liability as the ISO Shares vest and the right of repurchase in the Company to
purchase the ISO Shares at the original issue price lapses, unless the
participant makes a timely election under Code Section 83(b) (an "83(b)
election"). The AMT (imposed to the extent it exceeds the taxpayer's regular
income tax) is 26% of an individual taxpayer's alternative minimum taxable
income (28% in the case of alternative minimum taxable income in excess of
$175,000). Alternative minimum taxable income is determined by adjusting
regular taxable income for certain items, increasing that income by certain tax
preference items (including the difference between the fair market value of the
ISO Shares on the date of exercise and the exercise price) and reducing this
amount by the applicable exemption amount ($45,000 in case of a joint return,
subject to reduction under certain circumstances). If a disqualifying
disposition of the ISO Shares occurs in the same calendar year as exercise of
the ISO, there is no AMT adjustment with respect to those ISO Shares. 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 excess of the fair
market value of the ISO Shares at exercise over the amount paid for the ISO
Shares.

59
<PAGE>

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.

Maximum Tax Rates. The maximum tax rate applicable to ordinary income is
39.6%. Long-term capital gain will be taxed at a maximum of 20%. In order to
receive long-term capital gain treatment, the shares acquired pursuant to the
Class A Plan must be held for more than twelve months. Capital gains may be
offset by capital losses and up to $3,000 of capital losses may be offset
annually against ordinary income.

ERISA. The Class A 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.

Information About Awards. The Class A Plan does not require that awards be
made to any particular person or persons, other than the annual awards provided
for non-employee Directors. If the Class A Plan is approved, each of our non-
employee Directors will receive nonqualified stock options to purchase 8,000
shares of Class A common stock with an exercise price equal to the then-
prevailing market price of the Class A common stock upon their election to the
Board at our 2000 Annual Meeting. Information about awards granted during
fiscal 1999 under Electronic Arts' existing stock plan to our most highly
compensated executive officers is set forth under "Executive Compensation--
Options Granted in Fiscal 1999."

The Board of Directors Recommends a Vote FOR Approval of the Class A Plan.

60
<PAGE>

PRINCIPAL STOCKHOLDERS

This table shows how much Electronic Arts Inc. common stock is owned by the
Directors, certain executive officers and owners of more than 5% of our
outstanding common stock, as of February 14, 2000.

Amount and Nature of Shares Beneficially Owned

<TABLE>
<CAPTION>
Number of Percent of
Shares Right to Outstanding
Name Owned(1) Acquire(2) Shares
---- --------- ---------- -----------
<S> <C> <C> <C>
Putnam Investment Management Company (3).. 8,450,230 -- 13.2
Janus Capital Corporation (4)............. 7,624,465 11.9
Montag & Caldwell, Inc. (5)............... 8,672,675 -- 13.5
Morgan Stanley Dean Witter & Co. (6)...... 3,677,472 -- 5.7
Lawrence F. Probst III.................... 39,975 759,000 1.2
John Riccitiello.......................... 3,222 53,400 *
E. Stanton McKee, Jr...................... 140,856 107,300 *
Don A. Mattrick........................... 5,337 168,833 *
Timothy Mott.............................. 70,164 48,664 *
M. Richard Asher.......................... 85,204 44,864 *
Nancy Smith............................... 2,387 136,800 *
William J. Byron.......................... 25,245 61,531 *
Daniel H. Case III........................ 0 44,664 *
Gary M. Kusin............................. 514 12,364 *
All executive officers and Directors
as a group (14 persons) (7).............. 409,347 1,746,200 2.7%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated in the footnotes, includes shares for which the
named person:
. has sole voting and investment power, or
. has shared voting and investment power with his or her spouse
Excludes shares that may be acquired through stock option exercises.

(2) Shares subject to options exercisable within 60 days of February 14, 2000.

(3) Based on information contained in a report on Schedule 13-G filed with the
SEC on February 7, 2000. Certain Putnam Investment managers (together with
their parent corporations, Putnam Investments, Inc. and Marsh & McLennan
Companies, Inc.), are considered "beneficial owners" in the aggregate of
the number of shares, which shares were acquired for investment purposes by
such investment managers for certain of their advisory clients.
The Address for Putnam Investment Management Company is One Post Office
Square, Boston, Massachusetts 02109.
(4) Based on information contained in a report on Schedule 13-G filed with the
SEC on January 11, 2000.

The address for Janus Capital Corporation is 100 Fillmore Street, Denver,
Colorado 80206-4923.

(5) Based on information contained in a report on Schedule 13-G filed with the
SEC on January 10, 2000.

The Address for Montag & Caldwell, Inc. is 3455 Peachtree Road, NE Suite
1200, Atlanta, Georgia 30326-3248.

(6) Based on information contained in a report on Schedule 13-G filed with the
SEC on February 4, 2000.

The address for Morgan Stanley Dean Witter & Co. is 1585 Broadway, New
York, NY 10036.
(7) In addition to the officers and Directors named in this table, four other
executive officers are members of the group.

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<PAGE>

EXECUTIVE COMPENSATION

Compensation Of Executive Officers

This table shows compensation information for our Chief Executive Officer
and the next four most highly compensated executive officers for the fiscal
years 1999, 1998 and 1997. We refer to all of these officers as the "Named
Executive Officers".

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------ ----------------------------
Securities
Name and Principal Other Annual Underlying All Other
Position Year Salary (1) Bonus (2) Compensation Options (#) Compensation (3)
- ------------------ ---- ---------- --------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III.. 1999 $572,347 $522,620 -- 85,000 $ 912
Chairman and 1998 537,616 408,400 -- 250,000 594
Chief Executive Officer 1997 500,186 322,013 -- 60,000 594

John Riccitiello........ 1999 431,886 437,325 -- 60,000 567
President and 1998 184,731 446,890(4) -- 300,000 209,929(5)
Chief Operating Officer

Don A. Mattrick......... 1999 429,991 386,325 -- 70,000 --
President, Worldwide
Studios 1998 316,194 283,522 -- 150,000 41,361(6)
1997 286,431 209,808 -- 0 110,146(7)

E. Stanton McKee, Jr.... 1999 370,561 287,245 -- 40,000 567
Executive Vice
President, 1998 340,443 243,103 -- 150,000 594
Chief Financial and 1997 300,585 186,704 -- 30,000 594
Administrative Officer

Nancy L. Smith.......... 1999 360,020 295,113 -- 25,000 566
Executive Vice
President and 1998 300,140 230,361 -- 105,000 593
General Manager of 1997 262,453 160,123 -- 30,000 594
North American
Publishing
</TABLE>
- --------
(1) Includes salary actually received during fiscal year, pre-tax health care
contributions, and for U.S. officers deferred compensation for Section 125
Flexible Spending Account and Dependent Care Account (if elected) and
Electronic Arts' Section 401(k) Plan contributions and employer matching
contributions.
(2) Represents bonuses earned during the fiscal year.
(3) Represents Electronic Arts paid term life insurance premiums for the
benefit of executive officers.
(4) Mr. Riccitiello joined Electronic Arts during the 1998 fiscal year and
received a $250,000 one time signing bonus.
(5) Represents $209,582 relocation expenses and $347 Electronic Arts paid term
life insurance premiums paid to Mr. Riccitiello in 1998.
(6) Represents $41,064 relocation expenses and $297 Electronic Arts paid term
life insurance premiums paid to Mr. Mattrick in 1998.
(7) Represents $109,849 relocation expenses and $297 Electronic Arts paid term
life insurance premiums paid to Mr. Mattrick in 1997.

62
<PAGE>

Stock Option Grants

This table shows stock option grants to the Named Executive Officers during
fiscal 1999. All the grants listed below were made pursuant to the Electronic
Arts 1991 Plan. In accordance with the rules of the Securities and Exchange
Commission, the table sets forth the hypothetical gains or "option spreads"
that would exist for the options at the end of their respective 10 year terms.
This hypothetical gain is based on assumed annualized rates of compound stock
price appreciation of 5% and 10% from the dates the options were granted to the
end of the respective ten-year option terms. Actual gains, if any, on option
exercises are dependent on the future performance of Electronic Arts' common
stock. The hypothetical gains shown in this table are not intended to forecast
possible future appreciation, if any, of the stock price.

Options Granted in Fiscal 1999

<TABLE>
<CAPTION>
Potential Realized Value
Percent of at Assumed Annual Rates of
Number of Total Options Exercise Stock Price Appreciation
Securities Granted to Price for Option Term (3)
Underlying Employees Per Expiration ---------------------------
Options Granted in FY1999 (1) Share Date 5% 10%
--------------- ------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III.. 85,000 2.736 $43.625(2) 9/24/08 2,332,020 5,909,796
Don Mattrick............ 70,000 2.253 $43.625(2) 9/24/08 1,920,487 4,866,891
John Riccitiello........ 60,000 1.931 $43.625(2) 9/24/08 1,646,132 4,171,621
E. Stanton McKee, Jr.... 40,000 1.287 $43.625(2) 9/24/08 1,097,421 2,781,081
Nancy L. Smith.......... 25,000 .805 $43.625(2) 9/24/08 685,888 1,738,175
</TABLE>
- --------
(1) Electronic Arts granted 3,106,919 options to employees in fiscal 1999.
(2) Stock options were granted at an exercise price equal to the closing bid
price of the Electronic Arts' common stock on September 24, 1998 on the
Nasdaq National Market. The options became exercisable as to 6% on
November 1, 1998 and thereafter at a rate of 2% per month for the next 47
months.
(3) Based on 60,831,845 shares of Electronic Arts' common stock outstanding as
of September 24, 1998 and a closing bid price of common stock that day of
$43.625, the following gains for all stockholders, assuming a ten-year
term, would be:

<TABLE>
<CAPTION>
5% stock price appreciation 10% stock price appreciation
--------------------------- ----------------------------
<S> <C>
$1,668,953,792 $4,229,456,589
</TABLE>

63
<PAGE>

This table shows stock option exercises and the value of unexercised stock
options held by the Named Executive Officers during the last fiscal year.

1999 Aggregated Option Exercises and March 26, 1999 Option Values

<TABLE>
<CAPTION>
Number of Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value(1) Options at March 26, 1999 at March 26, 1999(2)
on ---------- ------------------------- -------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence F. Probst III.. 4,500 $ 200,250 767,000 343,500 $28,374,438 $5,057,063
John Riccitiello........ 0 0 62,400 297,600 698,850 3,253,650
Don Mattrick............ 42,400 1,470,157 178,566 283,034 4,308,012 4,790,088
E. Stanton McKee, Jr.... 65,000 2,441,070 219,600 185,400 6,171,388 2,712,363
Nancy L. Smith.......... 0 0 97,200 125,400 2,359,263 1,382,088
</TABLE>
- --------
(1) This number is calculated by:
. The market value on the date of exercise,
. Subtracting the option exercise price from the market value on the date
of exercise to get the realized value per share, and
. Multiplying the realized value per share by the number of options
exercised.
(2) This number is calculated by:
. Subtracting the option exercise price from the fair market value of our
common stock at the close of business on March 26, 1999 ($48.875) to get
the value per option, and
. Multiplying the value per option by the number of exercisable and
unexercisable options.

Director Compensation

Mr. Probst, our Chief Executive Officer, is not paid additional compensation
for his services as a Director. During fiscal 1999, compensation for non-
employee Directors included the following stock and cash elements:

Cash Compensation

. $16,000 annual retainer

. $1,200 for each Board meeting attended

. $950 for each telephone Board meeting attended

. $1,000 for each Committee meeting attended

. $750 for each telephone Committee meeting attended

. $1,000 per day, with the approval of the Board of Directors to
individual Directors for special assignments

Stock Compensation

Under the Directors' Plan, non-employee Directors receive an automatic grant
of options to purchase 8,000 shares upon re-election and new directors receive
a grant of 25,000 shares.

Under the Board Stock Ownership Guidelines, each non-employee Director is
also required, by May of 2001, to own Electronic Arts common shares having a
value of at least 3 years annual retainer.

The annual option grant to non-employee Directors of 8,000 shares was made
on July 30, 1998, on the date of their re-election to the Board, at an exercise
price of $51.375 per share.

Non-employee Directors may elect to receive all or part of their cash
compensation in Electronic Arts common stock.

64
<PAGE>

If Proposal 2 is adopted, non-employee Directors will initially receive
options to purchase 10,000 shares of Class B common stock, with additional
options to purchase 2,500 shares of Class B common stock upon re-election to
the Board of Directors.

If Proposal 3 is adopted, non-employee Directors will continue to receive
options to purchase 8,000 shares of Class A common stock.

Employment And Severance Agreements

Electronic Arts currently has no employment contracts with any Named
Executive Officer or severance arrangements with respect to their resignation
or termination of employment, except:

. Outstanding options under the 1991 Plan, including those held by
executive officers, may immediately vest in connection with certain
changes in control or ownership of Electronic Arts, unless the successor
company assumes or replaces those options; and

. Mr. Riccitiello's employment agreement provides that if Electronic Arts
terminates his employment without cause prior to March 31, 1998 or March
1, 1999, he would have received three years and two years, salary,
respectively, and if it terminates without cause before March 31, 2000,
he will receive one years salary. In addition, Mr. Riccitiello has a
purchase option for property he leases from Electronic Arts which is
affected by a termination of his employment by Electronic Arts.
Mr. Riccitiello's lease is for a five year term and provides for monthly
payments of $7,500.

OTHER INFORMATION

Independent Certified Public Auditors

Our Board has selected KPMG as the Company's independent public auditors for
the current fiscal year. They have served the Company since 1987.
Representatives of KPMG are expected to attend the Special Meeting in order to
respond to appropriate questions from stockholders and will have the
opportunity to make a statement if they desire to do so.

Stockholder Proposals

If you want us to consider including a proposal in the Proxy Statement for
our 2000 Annual Meeting, you must deliver it to our Corporate Secretary at our
principal executive office no later than March 30, 2000. In addition, if you
intend to present a proposal at the 2000 Annual Meeting, but not include it in
the Proxy Statement for that meeting, your proposal must be delivered to our
Corporate Secretary by May 15, 2000. If you do not deliver notice of a proposal
by this time, the proxy holders named by the Board of Directors for such
meeting may exercise their discretionary voting power with respect to your
proposal.

Other Business

The Board does not know of any other matter that will be presented for
consideration at the Special Meeting except as specified in the notice of the
Special Meeting. If any other matter does properly come before the Special
Meeting, it is intended that the proxies will be voted in respect thereof in
accordance with the judgment of the persons voting the proxies.

By Order of the Board of Directors

Ruth A. Kennedy
Senior Vice President, General Counsel
and Secretary

65
<PAGE>

APPENDIX I

ILLUSTRATION OF CERTAIN TERMS

The following illustrations show how to calculate the Retained Interest
Fraction, the Outstanding Interest Fraction, and the Number of Shares Issuable
with Respect to EA's Retained Interest in EA.com after giving effect to certain
hypothetical dividends, issuances, repurchases and transfers, in each case
based on the assumptions set forth herein. In these illustrations, the Number
of Shares Issuable with Respect to EA's Retained Interest in EA.com is
initially assumed to be 32,000,000. Unless otherwise specified, each
illustration below should be read independently as if none of the other
transactions referred to below had occurred. Actual calculations may be
slightly different due to rounding.

At any time, the percentage interest in EA.com intended to be represented by
the outstanding shares of Class B common stock (i.e., the Outstanding Interest
Fraction) equals the number of shares of Class B common stock outstanding
divided by the sum of the number of shares of Class B common stock outstanding
plus the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com. The remaining percentage interest in EA.com intended to be represented
at any time by EA's Retained Interest in EA.com (i.e. the Retained Interest
Fraction) equals the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com divided by the sum of the number of shares of Class B common
stock outstanding plus the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com. The sum of the Outstanding Interest Fraction and
the Retained Interest Fraction always equals 100%.

In our example, before the first issuance of Class B common stock the Number
of Shares Issuable with Respect to EA's Retained Interest in EA.com is equal to
32,000,000, the Retained Interest Percentage is 100% and the Outstanding
Interest Percentage is 0%.

Offering of Class B Common Stock

The following illustrations reflect an assumed issuance and sale by
Electronic Arts of 8,000,000 shares of Class B common stock.

Offering for Account of EA.com

Assume the issuance is attributed to EA.com as an increase in its equity,
with the net proceeds credited solely to EA.com (as is currently intended with
respect to the initial issuance of shares of Class B common stock to AOL and
News America Incorporated, for example).
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding........................... 0
Newly issued shares for account of EA.com......................... 8,000,000
---------
Total issued and outstanding after the Offering................. 8,000,000
=========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com (32,000,000) would remain unchanged.

. As a result, the issued and outstanding shares (8,000,000) would
represent an Outstanding Interest Fraction of 20%, calculated as
follows:

8,000,000
----------------
8,000,000 + 32,000,000

The Retained Interest Fraction would accordingly be about 80%.

I-1
<PAGE>

. In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Class B common stock (other than a dividend or
other distribution payable in shares of Class B common stock), we would
transfer to EA from EA.com an amount equal to 400% (representing the
ratio of the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com (32,000,000) to the total number of shares of Class B
common stock issued and outstanding (8,000,000)) of the aggregate amount
of such dividend or distribution.

Offering for Account of EA

Assume the issuance is attributed to EA in respect of its Retained Interest,
with the net proceeds credited solely to EA.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding........................... 0
Newly issued shares for account of EA............................. 8,000,000
---------
Total issued and outstanding after the Offering................. 8,000,000
=========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would decrease by the number of shares of Class B common stock
sold for the account of EA.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to such issuance................... 32,000,000
Shares issued................................................ 8,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after such issuance...................... 24,000,000
==========
</TABLE>

. As a result, the issued and outstanding shares (8,000,000) would
represent an Outstanding Interest Fraction of 25%, calculated as
follows:

8,000,000
----------------
8,000,000 + 24,000,000

The Retained Interest Percentage would accordingly be 75%.

. In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Class B common stock (other than a dividend or
other distribution payable in shares of Class B common stock), we would
transfer to EA from EA.com an amount equal to 300% (representing the
ratio of the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com (24,000,000) to the total number of shares of Class B
common stock issued and outstanding (8,000,000)) of the aggregate amount
of such dividend or distribution. If, for example, a dividend of $0.20
per share were declared and paid on the 8,000,000 shares of Class B
common stock outstanding (an aggregate of $1,600,000), EA.com would
transfer $4,800,000 to EA.

Additional Offering of Class B Common Stock

The following illustrations reflect an assumed issuance of an additional
8,000,000 shares of Class B common stock after the assumed initial issuance of
8,000,000 shares for the account of EA.com.

Additional Offering for Account of EA

Assume the issuance is attributed to EA in respect of its Retained Interest,
with the net proceeds credited solely to EA.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding.......................... 8,000,000
Newly issued shares for account of EA............................ 8,000,000
----------
Total issued and outstanding after the Offering................ 16,000,000
==========
</TABLE>

I-2
<PAGE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would decrease by the number of shares of Class B common stock
issued for the account of EA.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to the Offering.................... 32,000,000
Shares issued in the Offering................................ 8,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after the Offering....................... 24,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (16,000,000) would
in the aggregate represent an Outstanding Interest Fraction of 40%,
calculated as follows:

16,000,000
-----------------
16,000,000 + 24,000,000

The Retained Interest Fraction would accordingly be reduced to 60%.

. In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Class B common stock (other than a dividend or
other distribution payable in shares of Class B common stock), we would
transfer to EA from EA.com an amount equal to 150% (representing the
ratio of the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com (24,000,000) to the total number of shares of Class B
common stock issued and outstanding (16,000,000)) of the aggregate
amount of such dividend or distribution.

Additional Offering for Account of EA.com

Assume the issuance is attributed to EA.com as an increase in its equity,
with the net proceeds credited solely to EA.com.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding.......................... 8,000,000
Newly issued shares for account of EA.com........................ 8,000,000
----------
Total issued and outstanding after the Offering................ 16,000,000
==========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com (32,000,000) would remain unchanged.

. As a result, the total issued and outstanding shares (16,000,000) would
in the aggregate represent an Outstanding Interest Fraction of about
33.3%, calculated as follows:

16,000,000
-----------------
16,000,000 + 32,000,000

The Retained Interest Percentage would accordingly be reduced to about
66.7%.

. In this case, in the event of any dividend or other distribution paid on
the outstanding shares of Class B common stock (other than a dividend or
other distribution payable in shares of Class B common stock), we would
transfer to EA from EA.com an amount equal to 200% (representing the
ratio of the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com (32,000,000) to the total number of shares of Class B
common stock issued and outstanding (16,000,000)) of the aggregate
amount of such dividend or distribution.

Offerings of Convertible Securities

If we were to issue any securities convertible into or exercisable for
shares of Class B common stock, the Outstanding Interest Fraction and the
Retained Interest Fraction would be unchanged at the time of such issuance. If
any shares of Class B common stock were issued upon conversion or exercise of
such securities,

I-3
<PAGE>

however, then the Outstanding Interest Fraction and the Retained Interest
Fraction would be affected as shown above under "Additional Offering for
Account of EA", if such securities were attributed to EA, or under "Additional
Offering for Account of EA.com", if such securities were attributed to EA.com.

Repurchases of Class B Common Stock

The following illustrations reflect an assumed repurchase by Electronic Arts
of 4,000,000 shares of Class B common stock after the assumed initial issuance
of 8,000,000 shares of Class B common stock for the account of EA.com.

Repurchase for the Account of EA

Assume the repurchase is attributed to EA as an increase in its Retained
Interest in EA.com, with the cost charged solely against EA.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding........................... 8,000,000
Shares repurchased for account of EA.............................. 4,000,000
---------
Total issued and outstanding after repurchase................... 4,000,000
=========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would be increased by the number of any shares of Class B common
stock repurchased for the account of EA.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to repurchase...................... 32,000,000
Number of shares repurchased for the account of EA........... 4,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after repurchase......................... 36,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (4,000,000) would
in the aggregate represent an Outstanding Interest Fraction of 10%,
calculated as follows:

4,000,000
----------------
4,000,000 + 36,000,000

The Retained Interest Percentage would accordingly be increased to 90%.

Repurchase for Account of EA.com without Participation by EA

Assume the repurchase is attributed to EA.com, with the cost being charged
solely against EA.com. Further assume that the Board does not determine to
transfer assets from EA.com to EA to hold constant the Outstanding Interest
Fraction and Retained Interest Fraction.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding........................... 8,000,000
Shares repurchased for account of EA.com.......................... 4,000,000
---------
Total issued and outstanding after repurchase................... 4,000,000
=========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com (32,000,000) would remain unchanged.

. As a result, the total issued and outstanding shares (4,000,000) would
in the aggregate represent an Outstanding Interest Fraction of about
11%, calculated as follows:

4,000,000
----------------
4,000,000 + 32,000,000

The Retained Interest Percentage would accordingly be increased to about
89%.

I-4
<PAGE>

Repurchase for Account of EA.com with Participation by EA

Assume the repurchase is attributed to EA.com, with the cost being charged
solely against EA.com. Further assume that the repurchase is made in connection
with a tender offer for 4,000,000, or 50%, of the then outstanding shares at a
price of $10.00 per share, and that the Board determines to transfer cash or
other assets from EA.com to EA to hold constant the Outstanding Interest
Fraction and Retained Interest Fraction.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding........................... 8,000,000
Shares repurchased for account of EA.com.......................... 4,000,000
---------
Total issued and outstanding after repurchase................... 4,000,000
=========
</TABLE>

. In order to hold constant the Outstanding Interest Fraction and Retained
Interest Fraction, the Board could determine that the Market Value of a
share of Class B common stock in this context is $10.00 and transfer
from EA.com to EA an amount of cash or other assets equal to 400%
(representing the ratio of the Number of Shares Issuable with Respect to
EA's Retained Interest in EA.com (32,000,000) to the total number of
shares of Class B common stock issued and outstanding (8,000,000), in
each case immediately prior to the repurchase) of the aggregate amount
of the cash paid in the tender offer to holders of outstanding shares of
Class B common stock ($40,000,000), or a total of $160,000,000.

. In that case, the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com (32,000,000) would decrease by the amount of
cash so transferred ($160,000,000) divided by the Market Value per share
of Class B common stock ($10.00).
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to transfer.......................... 32,000,000
Adjustment in respect of EA's Retained Interest to reflect
transfer to EA of funds theretofore allocated to EA.com....... 16,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after transfer............................. 16,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (4,000,000) would
in the aggregate continue to represent an Outstanding Interest Fraction
of 20%, calculated as follows:

4,000,000
----------------
4,000,000 + 16,000,000

The Retained Interest Percentage would accordingly continue to be 80%.

. Assuming that the Board transferred only half of the $160,000,000
amount, or $80,000,000, from EA.com to EA, the Number of Shares Issuable
with Respect to EA's Retained Interest in EA.com (32,000,000) would
decrease by the amount of cash so transferred ($80,000,000) divided by
the Market Value per share of Class B common stock ($10.00).
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to transfer.......................... 32,000,000
Adjustment in respect of EA's Retained Interest to reflect
transfer to EA of cash theretofore allocated to EA.com........ 8,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after transfer............................. 24,000,000
==========
</TABLE>

I-5
<PAGE>

. In that case, as a result, the total issued and outstanding shares
(4,000,000) would in the aggregate represent an Outstanding Interest
Fraction of about 14%, calculated as follows:

4,000,000
----------------
4,000,000 + 24,000,000

The Retained Interest Percentage would accordingly be increased to about
86%.

Class B Common Stock Dividends

The following illustrations reflect assumed dividends of Class B common
stock on outstanding shares of Class A common stock and outstanding shares of
Class B common stock, respectively, after the assumed initial issuance of
8,000,000 shares of Class B common stock for the account of EA.com.

Class B Common Stock Dividend on Class A Common Stock

Assume 80,000,000 shares of Class A common stock are outstanding and
Electronic Arts declares a dividend of 1/20 of a share of Class B common stock
on each outstanding share of Class A common stock.
<TABLE>
<CAPTION>
<S> <C>
Shares previously issued and outstanding......................... 8,000,000
Newly issued shares for account of EA............................ 4,000,000
----------
Total issued and outstanding after dividend.................... 12,000,000
==========
</TABLE>

. Any dividend of shares of Class B common stock to the holders of shares
of Class A common stock would be treated as a reduction in the Number of
Shares Issuable with Respect to EA's Retained Interest in EA.com.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to dividend........................ 32,000,000
Number of shares distributed on outstanding shares of Class A
common stock for account of EA.............................. 4,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after dividend........................... 28,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (12,000,000) would
in the aggregate represent an Outstanding Interest Fraction of 30%,
calculated as follows:

12,000,000
----------------
12,000,000 + 28,000,000

The Retained Interest Fraction would accordingly be reduced to 70%.
Note, however, that after the dividend, the holders of Class A common
stock would also hold 4,000,000 shares of Class B common stock, which
would be intended to represent a 10% interest in the value attributable
to EA.com.

Class B Common Stock Dividend on Class B Common Stock

Assume Electronic Arts declares a dividend of 1/4 of a share of Class B
common stock on each outstanding share of Class B common stock.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding.......................... 8,000,000
Newly issued shares for account of EA.com........................ 2,000,000
----------
Total issued and outstanding after dividend.................... 10,000,000
==========
</TABLE>

I-6
<PAGE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would be increased proportionately to reflect the stock dividend
payable in shares of Class B common stock to holders of shares of Class
B common stock. That is, the Number of Shares Issuable with Respect to
EA's Retained Interest in EA.com would be increased by a number equal to
400% (representing the ratio of the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com (32,000,000) to the number
of shares of Class B common stock issued and outstanding (8,000,000), in
each case immediately prior to such dividend) of the aggregate number of
shares issued in connection with such dividend (2,000,000), or
8,000,000.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to dividend.......................... 32,000,000
Adjustment in respect of EA's Retained Interest to reflect
shares distributed on outstanding shares of EA.com Stock...... 8,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after dividend............................. 40,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (10,000,000) would
in the aggregate continue to represent an Outstanding Interest Fraction
of 20%, calculated as follows:

10,000,000
----------------
10,000,000 + 40,000,000

The Retained Interest Fraction would accordingly continue to be 80%.

Capital Transfers of Cash or Other Assets between EA and EA.com

Capital Contribution of Cash or Other Assets from EA to EA.com

The following illustration reflects the assumed contribution by EA to
EA.com, after the assumed initial issuance of 8,000,000 shares of Class B
common stock for the account of EA.com, of $80,000,000 of assets allocated to
EA at a time when the Market Value of the Class B common stock is $10.00 per
share.
<TABLE>
<CAPTION>
<S> <C>
Share previously issued and outstanding........................... 8,000,000
Newly issued shares............................................... 0
---------
Total issued and outstanding after contribution................. 8,000,000
=========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would be increased to reflect the contribution to EA.com of
assets theretofore allocated to EA by a number equal to the value of the
assets contributed ($80,000,000) divided by the Market Value of Class B
common stock at that time ($10.00), or 8,000,000 shares.
<TABLE>
<CAPTION>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to contribution.................... 32,000,000
Increase to reflect contribution to EA.com of assets
allocated to EA............................................. 8,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after contribution....................... 40,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (8,000,000) would
in the aggregate represent an Outstanding Interest Fraction of about
16.7%, calculated as follows:

8,000,000
----------------
8,000,000 + 40,000,000

The Retained Interest Fraction would accordingly be increased to about
83.3%.

I-7
<PAGE>

Return of Capital Transfer of Cash or Other Assets from EA.com to EA

The following illustration reflects the assumed transfer by EA.com to EA,
after the assumed initial issuance of 8,000,000 shares of Class B common stock
for the account of EA.com, of $40,000,000 of assets allocated to EA.com on a
date on which the Market Value of Class B common stock is $10.00 per share.

<TABLE>
<S> <C>
Share previously issued and outstanding........................... 8,000,000
Newly issued shares............................................... 0
---------
Total issued and outstanding after contribution................. 8,000,000
=========
</TABLE>

. The Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com would be decreased to reflect the transfer to EA of assets
theretofore allocated to EA.com by a number equal to the value of the
assets transferred ($40,000,000) divided by the Market Value of Class B
common stock at that time ($10.00), or 4,000,000 shares.

<TABLE>
<S> <C>
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com prior to contribution.................... 32,000,000
Decrease to reflect transfer to EA of assets allocated to
EA.com...................................................... 4,000,000
----------
Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com after contribution....................... 28,000,000
==========
</TABLE>

. As a result, the total issued and outstanding shares (8,000,000) would
in the aggregate represent an Outstanding Interest Fraction of about
22.2%, calculated as follows:

8,000,000
----------------
8,000,000 + 28,000,000

The Retained Interest Fraction would accordingly be decreased to about
77.8%.

I-8
<PAGE>

APPENDIX II

PROPOSAL 1--THE TRACKING STOCK PROPOSAL

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

ELECTRONIC ARTS INC.

Electronic Arts Inc., a Delaware corporation, hereby certifies that:

1. The name of the corporation is Electronic Arts Inc. The date of filing
its original Certificate of Incorporation with the Secretary of State was May
8, 1991.

2. This Amended and Restated Certificate of Incorporation of the corporation
attached hereto as Exhibit "A," which is incorporated herein by this reference,
and which restates, integrates and further amends the provisions of the
Certificate of Incorporation of this corporation as heretofore amended or
supplemented, has been duly adopted by the corporation's Board of Directors and
a majority of the stockholders in accordance with Sections 242 and 245 of the
Delaware General Corporation Law.

IN WITNESS WHEREOF, said corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by its duly authorized officer and
the foregoing facts stated herein are true and correct.

Dated: __________________________ ELECTRONIC ARTS INC.

By: _________________________________

Name: _______________________________

Title: ______________________________

II-1
<PAGE>

EXHIBIT "A"

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

ELECTRONIC ARTS INC.

ARTICLE I

The name of the corporation is Electronic Arts Inc. (the "Company").

ARTICLE II

The address of the registered office of the Company in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at that address is The Company Trust Company.

ARTICLE III

The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV

The total number of shares of stock of all classes which the Company is
authorized to issue is 510,000,000 shares, consisting of 400,000,000 shares of
Class A Common Stock, par value $0.01 per share ("Class A Common Stock"),
100,000,000 shares of Class B Common Stock, par value $0.01 per share ("Class B
Common Stock"), and 10,000,000 shares of Preferred Stock, par value $0.01 per
share. Effective upon the filing of this Amended and Restated Certificate of
Incorporation, each share of common stock outstanding immediately prior thereto
shall thereupon automatically be re-classified as one share of Class A Common
Stock (and outstanding certificates that had theretofore represented shares of
common stock shall thereupon represent an equivalent number of shares of Class
A Common Stock despite the absence of any indication thereon to that effect).

The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of Preferred
Stock in one or more series, to establish from time to time the number of
shares to be included in each such series, to fix the designation, powers,
preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof, and to increase or
decrease the shares of any such series (but not below the number of shares of
such series then outstanding).

ARTICLE V

The rights, preferences, privileges and restrictions granted to and imposed
on the Class A Common Stock and the Class B Common Stock are as follows:

1. Definitions. For purposes of this Article V, the following definitions
apply:

1.1 "All or Substantially All of the Assets" of either Group means a
portion of such assets that represents at least 80% of the then-current Fair
Value of the assets of such Group.

II-2
<PAGE>

1.2 "Available Dividend Amount" shall mean for EA or EA.com, as the
case may be, on any day on which dividends are paid on shares of Class A Common
Stock or Class B Common Stock, respectively, the amount that would, immediately
prior to the payment of such dividends, be legally available for the payment of
dividends on shares of EA's or EA.com's common stock under Delaware law if (a)
EA and EA.com were each a single, separate Delaware corporation, (b) EA had
outstanding (i) a number of shares of common stock, par value $0.01 per share,
equal to the number of shares of Class A Common Stock that are then outstanding
and (ii) a number of shares of preferred stock, par value $0.01 per share,
equal to the number of shares of Preferred Stock that are then outstanding, (c)
EA.com had outstanding (i) a number of shares of common stock, par value $0.01
per share, equal to the number of shares of Class B Common Stock that are then
outstanding plus the Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com and (ii) no shares of preferred stock, and (d) EA owned a
number of shares of such common stock of EA.com equal to the Number of Shares
Issuable with Respect to EA's Retained Interest in EA.com.

1.3 "Board" shall mean the Board of Directors of the Company.

1.4 "Class A Common Stock" shall mean the Class A Common Stock, par
value $0.01 per share, of the Company. For purposes of this Article V the Class
A Common Stock is deemed to relate to EA.

1.5 "Class B Common Stock" shall mean the Class B Common Stock, par
value $0.01 per share, of the Company. For purposes of this Article V the Class
B Common Stock is deemed to relate to EA.com.

1.6 "common stock" shall mean the Class A Common Stock and the Class B
Common Stock of the Company.

1.7 "Company" shall mean this corporation.

1.8 "Disposition" shall mean a sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or otherwise) of All or
Substantially All of the Assets of a Group to one or more persons or entities,
in one transaction or a series of related transactions.

1.9 "EA" shall mean (a) all of the businesses, assets and liabilities of
the Company and its subsidiaries, other than the businesses, assets and
liabilities of EA.com, and (b) a proportionate interest in EA.com (after giving
effect to any options, other securities or debt issued or incurred by the
Company and attributed to EA.com) equal to the Retained Interest Fraction;
provided, however, that: (i) the Company may transfer assets from one Group to
another Group in return for other assets or services rendered by that other
Group in the ordinary course of business or in accordance with policies
established by the Board from time to time, and (ii) if the Company transfers
cash, other assets or securities to holders of shares of Class B Common Stock
as a dividend or other distribution on shares of the Class B Common Stock
(other than a dividend or distribution payable in shares of Class B Common
Stock), or as payment in a redemption required by Section 3 of this Article V,
then the Board shall transfer from EA.com to EA cash or other assets having a
Fair Value equal to the aggregate Fair Value of the cash, other assets or
securities so transferred to holders of the Class B Common Stock times the
Retained Interest Proportion with respect to EA.com as of the record date for
such dividend or distribution, or on the date of such redemption, as the case
may be.

1.10 "EA.com" means all of the businesses, assets and liabilities of
EA.com Inc., a Delaware corporation ("EA.com") and its subsidiaries, including
(a) any businesses, assets or liabilities of the Company or any of its
subsidiaries that the Company has, as of the Effective Date, transferred to
EA.com, (b) any businesses, assets or liabilities acquired or incurred by the
Company or any of its subsidiaries after the Effective Date that the Company
transfers to EA.com or that the Company otherwise transfers to EA.com in
accordance with policies established from time to time by the Board and (c) the
rights and obligations of EA.com under any inter-Group debt deemed to be owed
to or by EA.com (as such rights and obligations are defined in accordance with
policies established from time to time by the Board); provided, however, that
the

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Company may transfer assets from one Group to the other Group as provided in
clauses (i) and (ii) in Section 1.9 above.

1.11 "Effective Date" shall mean the date on which this Amended and
Restated Certificate of Incorporation becomes effective under Delaware law.

1.12 "Exempt Disposition" shall mean any of the following: (a) a
Disposition in connection with the liquidation, dissolution or winding-up of
the Company and the distribution of assets to stockholders, (b) a Disposition
to any person or entity controlled by the Company (as determined by the Board
in its sole discretion), (c) a dividend, out of EA.com's assets, to holders of
Class B Common Stock (and a transfer of a corresponding amount of EA.com's
assets to EA as required pursuant to clause (ii) of the proviso to the
definition of EA above), (d) a dividend, out of EA's assets, to holders of
Class A Common Stock and (e) any other Disposition, if (i) at the time of the
Disposition there are no shares of Class A Common Stock outstanding, (ii) at
the time of the Disposition there are no shares of Class B Common Stock
outstanding, or (iii) before the 30th Trading Day following the Disposition the
Company has mailed a notice stating that it is exercising its right to exchange
all of the outstanding shares of Class B Common Stock for newly issued shares
of Class A Common Stock as contemplated under Section 3.2 of this Article V.

1.13 "Fair Value" shall mean (a) in the case of cash, the amount
thereof, (b) in the case of capital stock that is Publicly Traded, the Market
Value thereof and (c) in the case of other assets or securities, the fair
market value thereof as determined in good faith by the Board in consultation
with outside valuation or appraisal experts selected by the Board in good faith
(which determination shall be conclusive and binding on all stockholders).

1.14 "Group" shall mean EA or EA.com.

1.15 "Market Value" of a share of any class or series of capital stock
on any Trading Day means the average of the high and low reported sales prices
of a share of such class or series on such Trading Day or, in case no such
reported sale takes place on such Trading Day, the average of the reported
closing bid and asked prices of a share of such class or series on such Trading
Day, in either case as reported on the New York Stock Exchange ("NYSE")
Composite Tape or, if the shares of such class or series are not listed or
admitted to trading on the NYSE on such Trading Day, on the principal national
securities exchange on which the shares of such class or series are listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange on such Trading Day, on the Nasdaq National Market ("Nasdaq
NM") or, if the shares of such class or series are not listed or admitted to
trading on any national securities exchange or quoted on the Nasdaq NM on such
Trading Day, the average of the closing bid and asked prices of a share of such
class or series in the over-the-counter market on such Trading Day as furnished
by any NYSE member firm selected from time to time by the Company or, if such
closing bid and asked prices are not made available by any such NYSE member
firm on such Trading Day, the Fair Value of a share of such class or series;
provided, that, for purposes of determining the average Market Value of a share
of any class or series of capital stock for any period, (a) the "Market Value"
of a share of any class or series of capital stock on any day prior to any "ex-
dividend" date or any similar date occurring during such period for any
dividend or distribution (other than any dividend or distribution contemplated
by clause (b)(ii) of this sentence) paid or to be paid with respect to such
capital stock shall be reduced by the Fair Value of the per share amount of
such dividend or distribution and (b) the "Market Value" of a share of any
class or series of capital stock on any day prior to (i) the effective date of
any subdivision (by stock split or otherwise) or combination (by reverse stock
split or otherwise) of outstanding shares of such class or series of capital
stock occurring during such period or (ii) any "ex-dividend" date or any
similar date occurring during such period for any dividend or distribution with
respect to such capital stock to be made in shares of such class or series of
capital stock or convertible securities that are convertible, exchangeable or
exercisable for such class or series of capital stock shall be appropriately
adjusted, as determined by the Board, to reflect such subdivision, combination,
dividend or distribution; and provided further, if (a) the Company repurchases
outstanding shares of Class B Common Stock (other than by virtue of a

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<PAGE>

pro rata distribution on all outstanding shares of Class B Common Stock) and
the Board attributes that repurchase (and the consideration therefore) to
EA.com and (b) the Company determines to transfer to EA cash or other assets of
EA.com in order to avoid a change in the Retained Interest Fraction, the
"Market Value" of a share of Class B Common Stock used to compute the
corresponding reduction in the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com will equal the Fair Value of the consideration paid
per share of Class B Common Stock so repurchased; and provided further, if the
Company redeems a portion of the outstanding shares of Class B Common Stock
(and the Company transfers to EA cash or other assets of EA.com in the manner
required by clause (ii) of the proviso to the definition of EA above), the
"Market Value" of a share Class B Common Stock used to compute the
corresponding reduction in the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com will equal the Fair Value of the consideration paid
per share of Class B Common Stock so redeemed.

1.16 "Net Proceeds" of a Disposition of a Group means the positive
amount, if any, remaining from the gross proceeds of such Disposition after any
payment of, or reasonable provision (as determined in good faith by the Board
at the time of the Disposition, which determination will be conclusive and
binding on all stockholders) for, (a) any taxes payable by the Company or any
subsidiary in respect of such Disposition or which would have been payable but
for the utilization of tax benefits attributable to the Group not the subject
of the Disposition, (b) any taxes payable by the Company in respect of any
resulting dividend or redemption, (c) any transaction costs, including, without
limitation, any legal, investment banking and accounting fees and expenses and
(d) any liabilities (contingent or otherwise) of, attributed to or related to,
such Group, including, without limitation, any liabilities for deferred taxes
or any indemnity or guarantee obligations which are outstanding or incurred in
connection with the Disposition or otherwise, any liabilities for future
purchase price adjustments and any obligations with respect to outstanding
securities (other than common stock) attributed to such Group as determined in
good faith by the Board.

1.17 "Number of Shares Issuable with Respect to EA's Retained Interest"
shall mean, with respect to EA.com, initially the number the Board designates
(prior to the time the Company first issues shares of the Class B Common Stock)
as the number of shares of Class B Common Stock that could be issued by the
Company for the account of EA in respect of its retained interest in EA.com, as
authorized by Article IV; provided, however, that such number as in effect from
time to time shall automatically be adjusted as required by Section 6 of this
Article V.

1.18 "Outstanding Interest Fraction" shall mean, (i) with respect to EA,
at any time of determination, 1 and (ii) with respect to EA.com, at any time of
determination, a fraction the numerator of which shall be the number of shares
of the series of Class B Common Stock outstanding on such date and the
denominator of which shall be the sum of the number of shares of Class B Common
Stock outstanding on such date and the Number of Shares Issuable with Respect
to EA's Retained Interest in EA.com.

1.19 "Publicly Traded" with respect to any security means (a) registered
under Section 12 of the Securities Exchange Act of 1934, as amended (or any
successor provision of law), and (b) listed for trading on the NYSE (or any
other national securities exchange registered under Section 7 of the Securities
Exchange Act of 1934, as amended (or any successor provision of law)) or listed
on the Nasdaq NM (or any successor market system).

1.20 "Qualified Public Offering" shall mean the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, covering the
offer and sale of the Class B Common Stock.

1.21 "Retained Interest Proportion" shall mean with respect to EA.com,
at any time of determination, a fraction the numerator of which shall be the
Number of Shares Issuable with Respect to EA's Retained Interest in EA.com and
the denominator of which shall be the number of shares of the Class B Common
Stock outstanding on such date.

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<PAGE>

1.22 "Retained Interest Fraction" shall mean with respect to EA.com, at
any time of determination, a fraction the numerator of which shall be the
Number of Shares Issuable with Respect to EA's Retained Interest in EA.com and
the denominator of which shall be the sum of the number of shares of the Class
B Common Stock outstanding on such date and the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com.

1.23 "Trading Day" shall mean each weekday on which the relevant
security (or, if there are two relevant securities, each relevant security) is
traded on the principal national securities exchange on which it is listed or
admitted to trading or on the Nasdaq NM or, if such security is not listed or
admitted to trading on a national securities exchange or quoted on the Nasdaq
NM, traded in the principal over-the-counter market in which it trades.

2. Dividend Rights.

2.1 Dividends Payable at Discretion of Board. Subject to any preferences
and relative, participating, optional or other special rights of any
outstanding class or series of preferred stock of the Company and any
qualifications or restrictions on any class of common stock created thereby,
dividends may be declared and paid upon any class of common stock, upon the
terms with respect to each such class, and subject to the limitations provided
for below in this Section 2, as the Board may determine.

2.2 Limitations. Dividends on any class of common stock may be declared
and paid only out of the lesser of (i) the funds of the Company legally
available therefore and (ii) in the case of the Class A Common Stock, the
Available Dividend Amount for EA, and, in the case of Class B Common Stock, the
Available Dividend Amount for EA.com.

2.3 Discrimination in Dividends Between Classes of common stock. The
Board, subject to the provisions of Section 2.1, may at any time declare and
pay dividends exclusively on a single class of common stock, or on both classes
of common stock, in equal or unequal amounts, notwithstanding the relative
amounts of the Available Dividend Amount with respect to EA or EA.com, the
amount of dividends previously declared on any class, the respective voting or
liquidation rights of any class or any other factor.

2.4 Share Distributions. Except as permitted by Section 3, the Board may
declare and pay dividends or distributions of shares of any class of common
stock (or securities convertible into or exchangeable or exercisable for shares
of any class of common stock) on shares of a class of common stock or on shares
of a class or series of preferred stock of the Company only as follows: (i)
dividends or distributions of shares of a class of common stock (or securities
convertible into or exchangeable or exercisable for shares of a class of common
stock) on shares of the same class of common stock or on shares of preferred
stock convertible into the same class of common stock; and (ii) dividends or
distributions of shares of Class B Common Stock (or securities convertible into
or exchangeable or exercisable for shares of Class B Common Stock) on shares of
Class A Common Stock or on shares of preferred stock convertible into Class A
Common Stock, but only if the sum of (1) the number of shares of Class B Common
Stock to be so issued (or the number of such shares which would be issuable
upon conversion, exchange or exercise of any securities to be so issued) and
(2) the number of shares of Class B Common Stock which are issuable upon
conversion, exchange or exercise of any securities then outstanding that are
held by EA is less than or equal to the Number of Shares Issuable with Respect
to EA's Retained Interest in EA.com at such time, and provided that in such
event the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com shall be decreased by the number of shares of Class B Common Stock so
issued. For purposes of this Section 2.4, any outstanding securities that are
convertible into or exchangeable or exercisable for any other securities which
are themselves convertible into or exchangeable or exercisable for Class B
Common Stock (or other securities that are so convertible, exchangeable or
exercisable) shall be deemed to have been converted, exchanged or exercised in
full for such securities.

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3. Mandatory Dividend, Redemption or Exchange on Disposition of All or
Substantially All of the Assets; Exchange of Class B Common Stock for Class A
Common Stock or for Stock of a Subsidiary at the Company's Option; Optional
Redemption of Class B Common Stock.

3.1 Mandatory Dividend, Redemption or Exchange.

3.1.1 In the event of a Disposition of All or Substantially All of
the Assets of EA.com (other than an Exempt Disposition), the Company shall, on
or prior to the 85th Trading Day after the consummation of such Disposition,
either: (x) declare and pay a dividend to holders of the Class B Common Stock
(in cash, securities (other than common stock) or other property, or a
combination thereof), subject to the limitations on dividends set forth under
Section 2 of this Article V, in an amount having a Fair Value equal to the
product of the Outstanding Interest Fraction with respect to such EA.com and
the Fair Value of the Net Proceeds of such Disposition; (y) redeem from holders
of the Class B Common Stock, for cash, securities (other than common stock) or
other property (or a combination thereof) in an amount equal to the product of
the Outstanding Interest Fraction with respect to EA.com and the Fair Value of
the Net Proceeds of such Disposition, all of the outstanding shares of the
Class B Common Stock (or, if EA.com continues after such Disposition to own any
material assets other than the proceeds of such Disposition, a number of shares
of Class B Common Stock (rounded, if necessary, to the nearest whole number)
having an aggregate average Market Value, during the 20 consecutive Trading Day
period beginning on (and including) the 16th Trading Day immediately following
the date on which the Disposition is consummated, equal to such Fair Value); or
(z) issue, in exchange for all of the outstanding shares of the Class B Common
Stock, a number of shares of the Class A Common Stock (rounded, if necessary,
to the nearest whole number) having an aggregate value equal to 115% of the
aggregate value of all of the outstanding shares of the Class B Common Stock
(where in each case value is based on the average Market Value of a share of
the relevant series of common stock during the 20 consecutive Trading Day
period beginning on (and including) the 16th Trading Day immediately following
the date on which the Disposition is consummated).

3.1.2 At any time within one year after completing any dividend or
partial redemption pursuant to (x) or (y) of the preceding sentence, the
Company may issue, in exchange for all of the remaining outstanding shares of
the Class B Common Stock, a number of shares of the Class A Common Stock
(rounded, if necessary, to the nearest whole number) having an aggregate value
equal to 115% of the aggregate value of all of the outstanding shares of the
Class B Common Stock (where in each case value is based on the average Market
Value of a share of the relevant series of common stock during the 20
consecutive Trading Day period ending on (and including) the 5th Trading Day
immediately preceding the date on which the Company mails the notice of
exchange to holders of the relevant series).

3.1.3 For purposes of this Section 3, if a Disposition is consummated
in a series of related transactions, such Disposition shall not be deemed to
have been completed until consummation of the last of such transactions.

3.2 Exchange of Stock of a Subsidiary for Class B Common Stock at
Company's Option. At any time after a Qualified Public Offering at which all of
the assets and liabilities of EA.com (and no other assets or liabilities of the
Company or any subsidiary thereof) are held directly or indirectly by one or
more wholly owned subsidiaries of the Company (the "EA.com Subsidiaries"), the
Board may, provided that there are funds of the Company legally available
therefore, declare that all of the outstanding shares of the Class B Common
Stock shall be exchanged, as of the exchange date described below, for the
number of fully paid and nonassessable shares of common stock of each of such
EA.com Subsidiaries as is equal to the product of the Outstanding Interest
Fraction with respect to EA.com (determined as of the exchange date) and the
number of shares of common stock of each such EA.com Subsidiary as will be
outstanding immediately following such exchange. Such shares of common stock of
such EA.com Subsidiaries (i) may be delivered directly or indirectly through
the delivery of shares of one or more of such EA.com Subsidiaries that own
directly or indirectly all of the other shares that are deliverable pursuant to
the preceding sentence, and (ii) shall be listed for trading on a national
securities exchange or the Nasdaq NM if the Class B Common Stock exchanged

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therefore is (at such time) so listed. If the Number of Shares Issuable with
Respect to EA's Retained Interest in EA.com is greater than zero (so that less
than all of the shares of common stock of the EA.com Subsidiaries are being
delivered to the holders of Class B Common Stock), the Company may retain the
remaining shares of common stock of the EA.com Subsidiaries or distribute those
shares as a dividend on Class A Common Stock.

3.3 Exchange of Class A Common Stock for Class B Common Stock at
Company's Option. The Company may, at any time after the first anniversary of a
Qualified Public Offering, issue, in exchange for all of the outstanding shares
of Class B Common Stock, a number of shares of Class A Common Stock (rounded,
if necessary, to the nearest whole number) having an aggregate value equal to
115% of the aggregate value of all of the outstanding shares of Class B Common
Stock (where in each case value is based on the average Market Value of a share
of the relevant class of common stock during the 20 consecutive Trading Day
period ending on (and including) the 5th Trading Day immediately preceding the
date on which the Company mails the notice of exchange to holders of the Class
B Common Stock).

3.4 General Dividend, Exchange and Redemption Provisions.

3.4.1 If the Company completes a Disposition of All or Substantially
All of the Assets of EA.com (other than an Exempt Disposition), the Company
shall, not more than 10 Trading Days after the consummation of such
Disposition, issue a press release specifying (w) the Net Proceeds of such
Disposition, (x) the number of shares of the Class B Common Stock then
outstanding, (y) the number of shares of Class B Common Stock issuable upon
conversion, exchange or exercise of any convertible or exchangeable securities,
options or warrants and the conversion, exchange or exercise prices thereof and
(z) the Number of Shares Issuable with Respect to EA's Retained Interest in
EA.com. The Company shall, not more than 40 Trading Days after such
consummation, announce by press release which of the actions specified in
Section 3.1.1 of this Article V it has determined to take, and upon making that
announcement, that determination will be irrevocable. In addition, the Company
shall, not more than 40 Trading Days after such consummation and not less than
10 Trading Days before the applicable payment date, redemption date or exchange
date, send a notice by first-class mail, postage prepaid, to holders of the
relevant class of common stock at their addresses as they appear on the
transfer books of the Company, specifying:

(1) if the Company has determined to pay a special dividend, (A)
the record date for such dividend, (B) the payment date of such dividend (which
cannot be more than 85 Trading Days after such consummation) and (C) the
aggregate amount and type of property to be paid in such dividend (and the
approximate per share amount thereof);

(2) if the Company has determined to undertake a redemption, (A)
the date of redemption (which cannot be more than 85 Trading Days after such
consummation), (B) the aggregate amount and type of property to be paid as a
redemption price (and the approximate per share amount thereof), (C) if less
than all shares of the Class B Common Stock are to be redeemed, the number of
shares to be redeemed and (D) the place or places where certificates for shares
of Class B Common Stock, properly endorsed or assigned for transfer (unless the
Company waives such requirement), should be surrendered in return for delivery
of the cash, securities or other property to be paid by the Company in such
redemption; and

(3) if the Company has determined to undertake an exchange, (A)
the date of exchange (which cannot be more than 85 Trading Days after such
consummation), (B) the number of shares of Class A Common Stock to be issued in
exchange for each outstanding share of Class B Common Stock and (C) the place
or places where certificates for shares of Class B Common Stock, properly
endorsed or assigned for transfer (unless the Company waives such requirement),
should be surrendered in return for delivery of the Class A Common Stock to be
issued by the Company in such exchange.

3.4.2 If the Company is redeeming less than all of the outstanding
shares of the Class B Common Stock pursuant to Section 3.1.1 of this Article V,
the Company shall redeem such shares pro rata or by lot or by such other method
as the Board determines to be equitable.

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3.4.3 If the Company has determined to complete any exchange
described in Section 3.2 or 3.3 of this Article V, the Company shall, not less
than 10 Trading Days and not more than 30 Trading Days before the exchange
date, send a notice by first-class mail, postage prepaid, to holders of the
relevant class of common stock at their addresses as they appear on the
transfer books of the Company, specifying (x) the exchange date and the other
terms of the exchange and (y) the place or places where certificates for shares
of such class of common stock, properly endorsed or assigned for transfer
(unless the Company waives such requirement), should be surrendered for
delivery of the stock to be issued or delivered by the Company in such
exchange.

3.4.4 Neither the failure to mail any notice required by this Section
3.4 to any particular holder nor any defect therein would affect the
sufficiency thereof with respect to any other holder or the validity of any
dividend, redemption or exchange contemplated hereby.

3.4.5 No holder of shares of a class of common stock being exchanged
or redeemed shall be entitled to receive any cash, securities or other property
to be distributed in such exchange or redemption until such holder surrenders
certificates for such shares, properly endorsed or assigned for transfer, at
such place as the Company shall specify (unless the Company waives such
requirement). As soon as practicable after the Company's receipt of
certificates for such shares, the Company shall deliver to the person for whose
account such shares were so surrendered, or to the nominee or nominees of such
person, the cash, securities or other property to which such person shall be
entitled, together with any fractional payment referred to below, in each case
without interest. If less than all of the shares of common stock represented by
any one certificate is exchanged or redeemed, the Company shall also issue and
deliver a new certificate for the shares of such common stock not exchanged or
redeemed.

3.4.6 The Company shall not be required to issue or deliver
fractional shares of any capital stock or any other fractional securities to
any holder of common stock upon any exchange, redemption, dividend or other
distribution described above. If more than one share of common stock shall be
held at the same time by the same holder, the Company may aggregate the number
of shares of any capital stock that would be issuable or any other securities
that would be distributable to such holder upon any such exchange, redemption,
dividend or other distribution. If there are fractional shares of any capital
stock or any other fractional securities remaining to be issued or distributed
to any holder, the Company shall, if such fractional shares or securities are
not issued or distributed to such holder, pay cash in respect of such
fractional shares or securities in an amount equal to the Fair Value thereof
(without interest).

3.4.7 From and after the date of closing any exchange or redemption
contemplated by this Section 3, all rights of a holder of shares of common
stock being exchanged or redeemed shall cease except for the right, upon
surrender of the certificates theretofore representing such shares, to receive
the cash, securities or other property for which such shares were exchanged or
redeemed, together with any fractional payment as provided above, in each case
without interest (and, if such holder was a holder of record as of the close of
business on the record date for a dividend not yet paid, the right to receive
such dividend). A holder of shares of common stock being exchanged shall not be
entitled to receive any dividend or other distribution with respect to shares
of the other class of common stock until after certificates theretofore
representing the shares being exchanged are surrendered as contemplated above.
Upon such surrender, the Company shall pay to the holder the amount of any
dividends or other distributions (without interest) which theretofore became
payable with respect to a record date occurring after the exchange, but which
were not paid by reason of the foregoing, with respect to the number of whole
shares of the other class of common stock represented by the certificate or
certificates issued upon such surrender. From and after the date set for any
exchange, the Company shall, however, be entitled to treat the certificates for
shares of a series of common stock being exchanged that were not yet
surrendered for exchange as evidencing the ownership of the number of whole
shares of the other class of common stock for which the shares of such common
stock should have been exchanged, notwithstanding the failure to surrender such
certificates.

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3.4.8 The Company shall pay any and all documentary, stamp or similar
issue or transfer taxes that might be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on any exchange
or redemption contemplated by this Section 3; provided, however, that the
Company shall not be required to pay any tax that might be payable in respect
of any transfer involved in the issue or delivery of any shares of capital
stock and/or other securities in a name other than that in which the shares so
exchanged or redeemed were registered, and no such issue or delivery will be
made unless and until the person requesting such issue pays to the Company the
amount of any such tax, or establishes to the satisfaction of the Company that
such tax has been paid.

3.4.9 The Company may, subject to applicable law, establish such
other rules, requirements and procedures to facilitate any dividend, redemption
or exchange contemplated by this Section 3 as the Board may determine to be
appropriate under the circumstances.

4. Voting Rights.

4.1 General. Subject to section 4.2, at every meeting of stockholders,
the holders of Class A Common Stock and the holders of Class B Common Stock
shall vote together as a single class on all matters as to which common
stockholders generally are entitled to vote, unless a separate vote is required
by applicable law. On all such matters for which no separate vote is required,
(a) holders of Class A Common Stock shall be entitled to one vote per share of
Class A Common Stock held and (b) holders of Class B Common Stock shall be
entitled (i) at any time prior to a Qualified Public Offering, to a number of
votes per share of Class B Common Stock held (calculated to the nearest five
decimal places) equal to the Market Value of a share of Class B Common Stock on
the date the Company first issues shares of Class B Common Stock divided by the
average Market Value of a share of Class A Common Stock during the 20
consecutive Trading Day period ending on (and including) the 5th Trading Day
before such date, and (ii) at any time after a Qualified Public Offering, to a
number of votes per share of Class B Common Stock held (calculated to the
nearest five decimal places) equal to the initial public offering price of
Class B Common Stock in the Qualified Public Offering divided by the average
Market Value of a share of Class A Common Stock during the 20 consecutive
Trading Day period ending on (and including) the 5th Trading Day before the
date of such Qualified Public Offering.

4.2 Class B Protective Provisions. So long as any shares of Class B
Common Stock remain outstanding, the Company shall not, without the approval of
a majority of the Class B Common Stock then outstanding, voting separately as a
class: (i) amend its Certificate of Incorporation in any manner that would
alter or change the rights, preferences, privileges or restrictions of the
Class B Common Stock so as to materially adversely affect the Class B Common
Stock, or (ii) increase or decrease (other than by redemption, conversion or
exchange) the total number of authorized shares of Class B Common Stock.

5. Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, holders of Class A
Common Stock and holders of Class B Common Stock shall be entitled to receive
in respect of shares of Class A Common Stock and shares of Class B Common Stock
their proportionate interests in the net assets of the Company, if any,
remaining for distribution to stockholders (after payment of or provision for
all liabilities, including contingent liabilities of the Company). Each share
of each class of common stock will be entitled to a share of net liquidation
proceeds in proportion to the respective liquidation units per share of such
class. Each share of Class A Common Stock shall have one liquidation unit and
each share of Class B Common Stock shall have a number of liquidation units
(including a fraction of one liquidation unit) equal to the quotient (rounded
to the nearest five decimal places) of the Market Value of a share of Class B
Common Stock on the date the Company first issues shares of Class B Common
Stock divided by the average Market Value of a share of Class A Common Stock
during the 20 consecutive Trading Day period ending on (and including) the 5th
Trading Day before such date. Neither the merger nor consolidation of the
Company with any other entity, nor a sale, transfer or lease of all or any part
of the assets of the Company, would, alone, be deemed a liquidation,
dissolution or winding-up for purposes of this

II-10
<PAGE>

Section 5. If the Company shall in any manner subdivide (by stock split,
reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of Class A Common Stock
or Class B Common Stock, or declare a dividend in shares of either class to
holders of such class, the per share liquidation units of either class shall be
appropriately adjusted as determined by the Board, so as to avoid dilution (in
the aggregate) of the relative liquidation rights of the shares of any class of
common stock.

6. Adjustments to Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com. The Number of Shares Issuable with Respect to EA's Retained
Interest in EA.com, as in effect from time to time, shall, automatically
without action by the Board or any other person, be: (a) adjusted in proportion
to any changes in the number of outstanding shares of Class B Common Stock
caused by subdivisions (by stock split, reclassification or otherwise) or
combinations (by reverse stock split, reclassification or otherwise) of shares
of Class B Common Stock or by dividends or other distributions of shares of
Class B Common Stock on shares of Class B Common Stock (and, in each such case,
rounded, if necessary, to the nearest whole number); (b) decreased by (i) if
the Company issues any shares of Class B Common Stock and the Board attributes
that issuance (and the proceeds thereof) to EA, the number of shares of Class B
Stock so issued, and (ii) if the Board transfers to EA any cash or other assets
of EA.com in connection with a redemption of shares of Class B Common Stock (as
required pursuant to clause (ii) of the proviso to the definition of EA) or in
return for a decrease in the Number of Shares Issuable with Respect to EA's
Retained Interest in EA.com, the number (rounded, if necessary, to the nearest
whole number) equal to (x) the aggregate Fair Value of such cash or other
assets divided by (y) the Market Value of one share of Class B Common Stock as
of the date of such transfer; and (c) increased by (i) if the Company
repurchases any shares of Class B Common Stock and the Board attributes that
repurchase (and the consideration therefore) to EA, the number of shares of
Class B Common Stock so repurchased and (ii) if the Board transfers to EA.com
any cash or other assets of EA in return for an increase in the Number of
Shares Issuable with Respect to EA's Retained Interest in EA.com, the number
(rounded, if necessary, to the nearest whole number) equal to (x) the Fair
Value of such cash or other assets divided by (y) the Market Value of one share
of Class B Common Stock as of the date of such transfer. Neither the Company
nor the Board shall take any action that would, as a result of any of the
foregoing adjustments, reduce the Number of Shares Issuable with Respect to
EA's Retained Interest in EA.com to below zero. Subject to the preceding
sentence, the Board may attribute the issuance of any shares of Class B Common
Stock (and the proceeds therefrom) or the repurchase of Class B Common Stock
(and the consideration therefore) to EA or to EA.com, as the Board determines
in its sole discretion; provided, however, that the Board must attribute to EA
the issuance of any shares of Class B Common Stock that are issued (1) as a
dividend or other distribution on, or as consideration for the repurchase of,
shares of Class A Common Stock or (2) as consideration to acquire any assets or
satisfy any liabilities attributed to EA.

7. Determinations by the Board. Subject to applicable law, any
determinations made by the Board in good faith under this Amended and Restated
Certificate of Incorporation or in any certificate of designation filed
pursuant hereto, including without limitation any such determinations with
respect to the businesses, assets and liabilities of either Group, transactions
between the Groups or the rights of holders of any class of common stock or
Preferred Stock made pursuant to or in the furtherance hereof or thereof, shall
be final and binding on all stockholders of the Company. A record of all formal
determinations of the Board made as contemplated hereby shall be filed with the
records of the actions of the Board.

ARTICLE VI

The stockholders of the Company shall have the power to adopt, amend or
repeal the Bylaws. The Board of Directors of the Company shall also have the
power to adopt, amend or repeal Bylaws of the Company, except insofar as Bylaws
adopted by the stockholders shall otherwise provide.

II-11
<PAGE>

ARTICLE VII

Election of Directors need not be by written ballot unless a stockholder
demands election by written ballot at a stockholder meeting and before voting
begins, or unless the Bylaws of the Company shall so provide.

ARTICLE VIII

A Director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the Director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv)
for any transactions from which the Director derived an improper personal
benefit.

If the Delaware General Corporation Law is hereafter amended to authorize
the further elimination or limitation of the liability of a Director, then the
liability of a director of the Company shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so
amended.

Neither any amendment nor repeal of this Article VIII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VIII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the Company existing at
the time of such amendment, repeal or adoption of an inconsistent provision.

ARTICLE IX

Any action required or permitted to be taken by the stockholders of the
Company must be taken at a duly called annual or special meeting of such
holders and may not be taken by consent in writing by such holders, except that
until such time as there has been a Qualified Public Offering matters subject
solely to a vote of the holders of the Class B Common Stock may be taken by
consent in writing by such holders. Except as otherwise provided for herein or
required by law, special meetings of stockholders of the Company for any
purpose or purposes may be called only by the Chairman of the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof, and
stockholders shall not have any power to call a special meeting.

II-12
<PAGE>

APPENDIX III

ELECTRONIC ARTS INC.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Electronic Arts stockholders should read the selected historical financial
data presented below in conjunction with the consolidated financial statements
and the notes to the consolidated financial statements for Electronic Arts.

Electronic Arts

The following table presents summary historical consolidated financial data
for Electronic Arts as of and for the years ended March 31, 1999, 1998 and 1997
and as of and for the nine months ended December 31, 1999 and 1998. This data
was derived from the Consolidated Financial Statements of Electronic Arts. This
table should be read in conjunction with the Selected Historical Consolidated
Financial Data and Management's Discussion and Analysis of Financial Condition
and Results of Operations and Consolidated Financial Statements for each of
Electronic Arts and EA.com included in Appendixes III and IV to this Proxy
Statement, respectively.
<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
----------------------- -----------------------------
1999 1998 1999 1998 1997
----------- ----------- ---------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(In thousands, except per
share data)
Net revenues............. $1,125,698 $944,139 $1,221,863 $908,852 $673,028
Cost of goods sold....... 562,821 497,265 627,823 481,233 328,943
---------- -------- ---------- -------- --------
Gross profit............. 562,877 446,874 594,040 427,619 344,085
Operating expenses:
Marketing and sales..... 147,422 123,618 163,407 128,308 102,072
General and
administrative......... 68,246 55,454 76,219 57,838 48,489
Research and
development............ 187,025 144,358 199,141 145,732 130,755
Charge for acquired in-
process technology..... -- 44,115 44,115 1,500 --
Merger costs............ -- -- -- 10,792 --
Amortization of
intangibles............ 7,800 3,385 5,880 -- --
---------- -------- ---------- -------- --------
Total operating
expenses............... 410,493 370,930 488,762 344,170 281,316
---------- -------- ---------- -------- --------
Operating income......... 152,384 75,944 105,278 83,449 62,769
Interest and other
income, net............. 11,653 10,507 13,180 24,811 13,279
---------- -------- ---------- -------- --------
Income before provision
for income taxes and
minority interest....... 164,037 86,451 118,458 108,260 76,048
Provision for income
taxes................... 50,852 35,172 45,414 35,726 26,003
---------- -------- ---------- -------- --------
Income before minority
interest................ 113,185 51,279 73,044 72,534 50,045
Minority interest in
consolidated joint
venture................. 134 (321) (172) 28 1,282
---------- -------- ---------- -------- --------
Net income............... $ 113,319 $ 50,958 $ 72,872 $ 72,562 $ 51,327
========== ======== ========== ======== ========
Net income per share:
Basic................... $ 1.82 $ 0.84 $ 1.20 $ 1.23 $ 0.89
Diluted................. $ 1.72 $ 0.81 $ 1.15 $ 1.19 $ 0.86
Number of shares used in
computation:
Basic................... 62,390 60,621 60,748 58,867 57,544
Diluted................. 65,835 63,210 63,272 60,958 59,557
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31,
----------------------- --------------------------
1999 1998 1999 1998 1997
----------- ----------- -------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA AT
PERIOD END
(In thousands)
Cash, cash equivalents and
short-term investments.... $ 247,170 $201,236 $312,822 $374,560 $268,141
Marketable securities...... 1,447 2,644 4,884 3,721 5,548
Working capital............ 451,757 323,809 333,256 408,098 284,863
Long-term investments...... 18,400 24,200 18,400 24,200 34,478
Total assets............... 1,180,769 936,490 901,873 745,681 584,041
Total liabilities.......... 312,384 292,288 236,209 181,713 136,237
Minority interest.......... 3,052 2,949 2,733 -- 28
Total stockholders'
equity.................... 865,333 641,253 662,931 563,968 447,776
</TABLE>

III-1
<PAGE>

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations and Description of Business in this Appendix III
contain forward-looking statements about circumstances that have not yet
occurred. All statements, trend analysis and other information contained below
relating to markets, our products and trends in revenue, as well as other
statements including words such as "anticipate", "believe" or "expect" and
statements in the future tense are forward-looking statements. These forward-
looking statements are subject to business and economic risks, and actual
events or our actual future results could differ materially from those set
forth in the forward-looking statements due to such risks and uncertainties. We
will not necessarily update information if any forward looking statement later
turns out to be inaccurate. Risk and uncertainties that may affect our future
results and performance include, but are not limited to those discussed under
the heading "Risk Factors" in the Proxy statement to which this Appendix is
attached.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

We derive revenues primarily from shipments of entertainment software, which
includes EA Studio CD products for dedicated entertainment systems (that we
call CD-video games), EA Studio CD personal computer products (or PC-CD), EA
Studio cartridge products and Affiliated Label products that are published by
third parties and distributed or co-published by us. We also derive revenues
from licensing of EA Studio products and Affiliated Label products through
hardware companies (or OEMs) and online subscription revenues.

Results of Operations

Comparison of the nine months ended December 31, 1999 to the nine months
ended December 31, 1998:

Revenues

Information about our net revenues for North America and foreign areas for
the nine months ended December 31, 1999 and 1998 is summarized below (in
thousands):

<TABLE>
<CAPTION>
December 31, December 31, Increase/ %
Net revenues for the nine months 1999 1998 (Decrease) change
ended: ------------ ------------ ---------- ------
<S> <C> <C> <C> <C>
North America.................... $ 694,125 $558,255 $135,870 24.3 %
---------- -------- -------- -----
Europe........................... 372,559 328,382 44,177 13.5 %
Asia Pacific..................... 37,520 30,235 7,285 24.1 %
Japan............................ 21,494 27,267 (5,773) (21.2)%
---------- -------- -------- -----
International.................... 431,573 385,884 45,689 11.8 %
---------- -------- -------- -----
Consolidated Net Revenues........ $1,125,698 $944,139 $181,559 19.2 %
---------- -------- -------- -----
</TABLE>

North America Net Revenues

The increase in North America net revenues for the nine months ended
December 31, 1999, compared to the same period last year was attributed to:

. A 55% increase in PC-CD revenues due to strong sales of Sim City 3000
and Command and Conquer: Tiberian Sun.

. A 25% increase in PlayStation revenues due to the release of titles such
as NBA 2000 and Tomorrow Never Dies in the third fiscal quarter and
Madden NFL 2000 in the second fiscal quarter of the current year.

. As well as a 16% increase in Affiliated Label revenues primarily due to
the distribution of titles published by Square EA offset by the
acquisition of an affiliate, Accolade, by a third party.

III-2
<PAGE>

International Net Revenues

The increase in international revenues for the nine months ended December
31, 1999, compared to the same period last year was due to:

. A 52% increase in Europe PC-CD revenues due to sales of Command and
Conquer: Tiberian Sun, Sim City 3000, Dungeon Keeper 2 and Theme Park
World, which were offset by a decrease in N64 revenues due to a weak
market for N64 products.

. A 78% increase in Asia Pacific PC-CD revenues also due to the success of
Command and Conquer: Tiberian Sun and Sim City 3000.

. Offset by a 68% decline in Japan PlayStation revenue primarily due to
strong sales of FIFA: Road to the World Cup 98 and World Cup 98 in the
prior year.

Information about our net revenues by product line for the nine months ended
December 31, 1999 and 1998 is presented below (in thousands):

<TABLE>
<CAPTION>
December 31, December 31, Increase/ %
Net revenues for the nine months 1999 1998 (Decrease) change
ended: ------------ ------------ ---------- ------
<S> <C> <C> <C> <C>
EA Studio:
PlayStation...................... $ 471,690 $416,118 $ 55,572 13.4 %
PC-CD............................ 289,154 186,473 102,681 55.1 %
N64.............................. 114,873 121,702 (6,829) (5.6)%
License, OEM, Online and Other... 27,447 20,158 7,289 36.2 %
---------- -------- -------- ----
903,164 744,451 158,713 21.3 %
Affiliated Label:................ 222,534 199,688 22,846 11.4 %
---------- -------- -------- ----
Consolidated Net Revenues........ $1,125,698 $944,139 $181,559 19.2 %
========== ======== ======== ====
</TABLE>

PlayStation Product Net Revenues

The increase in Playstation net revenues for the nine months ended December
31, 1999 was due to more products released compared to the same period last
year. For the nine months ended December 31, 1999 we released 20 PlayStation
products compared to 16 in the same period last year. Key releases for the year
include FIFA 2000, Tomorrow Never Dies, Madden NFL 2000, NBA 2000 and Knockout
Kings 2000.

We expect revenues from PlayStation products to grow in fiscal 2000, but as
revenues for these products increase, we do not expect to maintain the same
growth rates as in prior years. Sony has announced the release of PlayStation
II in the United States and Europe in the fall of 2000. Although our
PlayStation products will be playable on the PlayStation II, we expect sales of
current PlayStation products to decline in the coming fiscal year.

Under the terms of a licensing agreement entered into with Sony Computer
Entertainment of America in July 1994 (the "Sony Agreement"), as amended, we
are authorized to develop and distribute CD-based software products compatible
with the PlayStation. Pursuant to the Sony Agreement, we engage Sony to supply
PlayStation CDs for distribution by us. Accordingly, we have limited ability to
control our supply of PlayStation CD products or the timing of their delivery.
See Risk Factors--"Our platform licensors are our chief competitors and
frequently control the manufacturing of our video game products".

Personal Computer CD Product Net Revenues

We released 21 PC-CD products during the nine months ended December 31,
1999, compared to 20 in the same period last year. The increase in PC-CD net
revenues for the nine months ended December 31, 1999 was primarily due to the
success of Command and Conquer: Tiberian Sun, released in the second quarter of
fiscal 2000 and catalog sales of Sim City 3000, released in the fourth quarter
of fiscal 1999. Other key titles released in the current year included FIFA
2000 and Need For Speed IV.

III-3
<PAGE>

We expect net revenues from PC-CD products to grow in fiscal 2000, but as
revenues for these products increase, we do not expect to maintain the same
growth rates as in prior periods.

N64 Product Net Revenues

The decrease in N64 revenues for the nine months ended December 31, 1999, as
compared to the same period last year, was due to the weak market for N64
products as well as strong comparisons of World Cup 98 in the prior year. Key
releases for the year included WCW Mayhem and Knockout Kings 2000. We expect
revenues from N64 products to continue to decline in fiscal 2000.

Under the terms of the N64 Agreement, we engage Nintendo to manufacture our
N64 cartridges for distribution by us. Accordingly, we have little ability to
control our supply of N64 cartridges or the timing of their delivery. A
shortage of microchips or other factors outside our control could impair our
ability to obtain an adequate supply of cartridges.

In connection with our purchases of N64 cartridges for distribution in North
America, Nintendo requires us to provide irrevocable letters of credit prior to
Nintendo's acceptance of purchase orders from us for purchases of these
cartridges. For purchases of N64 cartridges for distribution in Japan and
Europe, Nintendo requires us to make cash deposits. Furthermore, Nintendo
maintains a policy of not accepting returns of N64 cartridges. Because of these
and other factors, the carrying of an inventory of cartridges entails
significant capital and risk. See Risk Factors--"Our platform licensors are our
chief competitors and frequently control the manufacturing of our video game
products".

Affiliated Label Product Net Revenues

Affiliated Label revenues increased for the nine months ended December 31,
1999, as compared to the same period last year, due to the distribution of
titles by Square EA, including Final Fantasy VIII, partially offset by the
termination of our distribution agreement with Accolade, which was acquired by
a third party.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income

Information about our costs and expenses, interest and other income, net,
income taxes and net income for the nine months ended December 31, 1999 and
1998 is presented below:

<TABLE>
<CAPTION>
Percent of Net Revenues
------------------------
Nine Months Ended
December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cost of goods sold................................. 50.0% 52.7%
Marketing and sales................................ 13.1 13.1
General and administrative......................... 6.1 5.9
Research and development........................... 16.6 15.3
Charge for acquired in-process technology.......... -- 4.7
Amortization of intangibles........................ 0.7 0.4
Interest and other income, net..................... 1.0 1.1
Income taxes--effective tax rate................... 31.0 40.7
Net income......................................... 10.1% 5.4%
</TABLE>

Cost of Goods Sold. Cost of goods sold as a percentage of net revenues
decreased for the nine months ended December 31, 1999 compared to the same
period last year due to:

. Increased sales of higher margin PC-CD titles.

. Higher sales of higher margin Affiliated Label co-published titles.

III-4
<PAGE>

. A decrease in sales of lower margin N64 titles.

. Higher sales of internally developed titles including Command and
Conquer: Tiberian Sun and Sim City 3000.

Marketing and Sales. Marketing and sales expenses increased in absolute
dollars for the nine months ended December 31, 1999 compared to the same period
last year due to increased television, print and Internet advertising to
support higher revenues. The increase was also due to additional headcount
expenses related to the continued expansion of our worldwide distribution
business.

General and Administrative. General and administrative expenses increased
for the nine months ended December 31, 1999 compared to the same period last
year primarily due to an increase in payroll and occupancy costs to support the
increased growth in North America and Europe operations.

Research and Development. Research and development expenses increased for
the nine months ended December 31, 1999 compared to the same period last year
due to:

. Additional headcount related expenses attributable to increased in-house
development capacity due to a higher number of SKU's to be released in
fiscal 2000.

. An increase in online development spending, including the acquisition
and integration of PlayNation, an online software developer, in the
second quarter of the current fiscal year.

. An increase in development spending for next generation console products
including development for the PlayStation II.

Charge for Acquired In-Process Technology. In connection with the
acquisition of Westwood in September 1998, we allocated and expensed
$41,836,000 of the purchase price to acquired in-process technology.
Additionally, in connection with the acquisition of two software development
companies, in the first quarter of fiscal 1999, we incurred a total charge of
$2,279,000 for acquired in-process technology. These charges were made after we
concluded that the in-process technology had not reached technological
feasibility and had no alternative future use after taking into consideration
the potential for usage of the software in different products and resale of the
software.

Amortization of Intangibles. The increase in amortization of intangibles for
the nine months ended December 31, 1999 compared to the same period last year
resulted primarily from the acquisition of Westwood in September 1998.

Interest and Other Income, Net. Interest and other income, net, increased
for the nine months ended December 31, 1999 compared to the same period last
year primarily due to realized gains on sales of marketable securities and the
sale of our interest in an affiliate. These gains were partially offset by a
write-off of a note receivable from an affiliate in the current year as well as
a gain on sale of land recognized in the prior year.

Income Taxes. Electronic Arts' effective tax rate for the nine months ended
December 31, 1999 was lower than the comparable prior year period (excluding
the effect of the one-time charges in the prior year) primarily as a result of
a projected higher portion of international income for fiscal 2000 subject to a
lower foreign tax rate as compared to the prior year. The tax rate for the nine
months ended December 31, 1998 was negatively affected as there was no tax
benefit recorded for a portion of the charges related to the acquired in-
process technology. Excluding the effect of these charges, the effective tax
rate for the nine months ended December 31, 1998 would have been 32.0%.

Net Income. The increase in net income for the nine months ended December
31, 1999 is related to higher revenues and gross profits as compared to the
same period last year partially offset by higher operating expenses. The
increase was also due to one-time charges for purchased in process technology
in the prior year.

III-5
<PAGE>

Excluding the one-time charges relating to acquired in-process technology of
$37,506,000, net of taxes, in the prior year, net income would have been
$88,464,000 for the nine months ended December 31, 1998. The increase in net
income, excluding the prior year one-time charges, was $24,855,000 or 28%.

Liquidity and Capital Resources

As of December 31, 1999, our working capital was $451,757,000 compared to
$333,256,000 at March 31, 1999. Cash, cash equivalents and short-term
investments decreased by approximately $65,652,000 during the nine months ended
December 31, 1999 as we used $84,103,000 of cash in operations and $85,023,000
in capital expenditures, offset by $68,477,000 provided through the sale of
equity securities under our stock plans, proceeds from the sale of an
affiliate, and the sale of marketable securities.

Reserves for bad debts and sales returns increased from $72,850,000 at March
31, 1999 to $83,300,000 at December 31, 1999. Reserves have been charged for
returns of product and price protection credits issued for products sold in
prior periods. Management believes these reserves are adequate based on
historical experience and its current estimate of potential returns and
allowances.

Our principal source of liquidity is $247,170,000 in cash, cash equivalents
and short-term investments. Management believes the existing cash, cash
equivalents, short-term investments, marketable securities and cash generated
from operations will be sufficient to meet cash and investment requirements on
both a short-term and long-term basis.

Comparison of Fiscal 1999 to 1998:

Revenues

Information about our net revenues for North America and foreign areas for
fiscal 1999 and 1998 is summarized below (in thousands):

<TABLE>
<CAPTION>
Increase/ %
1999 1998 (Decrease) change
---------- -------- ---------- ------
<S> <C> <C> <C> <C>
North America......................... $ 704,998 $519,423 $185,575 35.7 %
---------- -------- -------- ----
Europe................................ 443,937 325,938 117,999 36.2 %
Asia Pacific.......................... 39,560 41,494 (1,934) (4.7)%
Japan................................. 33,368 21,997 11,371 51.7 %
---------- -------- -------- ----
International......................... 516,865 389,429 127,436 32.7 %
---------- -------- -------- ----
Consolidated Net Revenues............. $1,221,863 $908,852 $313,011 34.4 %
========== ======== ======== ====
</TABLE>

North America Net Revenues

The increase in North America net revenues was mainly attributable to:

. Strong growth in N64 and PlayStation systems. Net revenues from
PlayStation and N64 increased 51% due to a larger market and greater
installed base for these platforms as well as more title releases for
N64 in comparison to the prior year.

. AL sales increased 53% compared to the prior year primarily due to the
distribution of products published by Square EA.

. PC-CD revenues increased 11% due to key title releases during the year.

III-6
<PAGE>

International Net Revenues

The increase in international net revenues for fiscal 1999 compared to
fiscal 1998 was attributable to the following:

. Europe's net revenues increased primarily due to an increase in sales of
PlayStation and Affiliated Label products.

. Japan's net revenues increased primarily due to the sales of FIFA: Road
to World Cup 98.

. Offset by a decrease in Asia Pacific net revenues due to the weakness in
Asian currencies. In local currency, in spite of weak economies, net
revenues for Asia Pacific increased compared to the prior year.

Information about our net revenues by product line for fiscal 1999 and 1998
is presented below (in thousands):

<TABLE>
<CAPTION>
Increase/
1999 1998 (Decrease) % change
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
EA Studio:
PlayStation........................ $ 519,830 $380,299 $139,531 36.7 %
PC-CD.............................. 270,793 231,034 39,759 17.2 %
N64................................ 152,349 56,677 95,672 168.8 %
License, OEM, Online and Other..... 30,786 54,977 (24,191) (44.0)%
---------- -------- -------- -----
973,758 722,987 250,771 34.7 %
Affiliated Label: ................. 248,105 185,865 62,240 33.5 %
---------- -------- -------- -----
$1,221,863 $908,852 $313,011 34.4 %
========== ======== ======== =====
</TABLE>

PlayStation Product Net Revenues

We released 21 new PlayStation titles in fiscal 1999 compared to 25 in
fiscal 1998. The increase in PlayStation product sales was attributable to the
greater installed base of PlayStation game consoles and the releases of key
titles for this platform including FIFA 99, World Cup 98 and Madden NFL 99.

Personal Computer CD Product Net Revenues

We released 29 PC-CD titles in fiscal 1999 compared to 30 PC-CD titles in
fiscal 1998. The worldwide increase in sales of PC-CD products was primarily
attributable to an increase in sales in Europe and North America due to the
related releases of key titles for this platform including Sim City 3000.

N64 Product Net Revenues

The increase in N64 revenues was primarily due to more title releases for
this platform compared to last year and a larger N64 market. We released nine
titles in fiscal 1999, including NASCAR 99, compared to two titles in fiscal
1998.

Affiliated Label Product Net Revenues

AL product sales increased due to higher sales in North America and Europe.
This increase was primarily attributable to the distribution of products
published by Square EA in North America and the acquisition of ABC Software in
Switzerland.

III-7
<PAGE>

License, OEM, Online and Other Revenues

The decrease in license, OEM, online and other revenues was primarily due to
the following:

. Net revenues derived from 32-bit products other than PlayStation
decreased primarily due to lower sales of Saturn products. We released
no new Saturn titles in fiscal 1999 compared to eight in fiscal 1998.

. Net revenues generated by 16-bit video game cartridge-based products
decreased in fiscal 1999 as compared to fiscal 1998. As the 16-bit video
game market has been replaced by 32-bit and 64-bit systems, we did not
release any new titles in fiscal 1999.

. Licensing of EA Studio products increased primarily as a result of an
increase in the revenues generated by licensing of our products in
Europe.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income

Information about our costs and expenses, interest and other income, net,
income taxes and net income for fiscal 1999 and 1998 is presented below:

<TABLE>
<CAPTION>
Percent of
Net Revenues
--------------
1999 1998
------ ------
<S> <C> <C>
Cost of goods sold........................................... 51.4% 52.9%
Marketing and sales.......................................... 13.4 14.1
General and administrative................................... 6.2 6.4
Research and development..................................... 16.3 16.0
Charge for acquired in-process technology.................... 3.6 0.2
Amortization of intangibles.................................. 0.5 --
Merger costs................................................. -- 1.2
Interest and other income, net............................... 1.1 2.7
Income taxes--effective tax rate............................. 38.3 33.0
Minority interest in consolidated joint venture.............. -- --
Net income................................................... 6.0% 8.0%
</TABLE>

Cost of Goods Sold. Cost of goods sold as a percentage of revenues decreased
in fiscal 1999 primarily due to lower artist royalties, including savings
related to an acquisition of a software development company during fiscal 1999,
partially offset by higher sales of lower margin N64 products.

Marketing and Sales. Marketing and sales expenses increased 27% primarily
attributed to:

. Increased print, Internet and television advertising to support new
releases.

. Increased cooperative advertising associated with higher revenues in
North America and Europe as compared to the prior year.

. Additional headcount related to the continued expansion of our worldwide
distribution business.

. The acquisitions of ABC Software and Westwood Studios.

General and Administrative. General and administrative expenses increased
32% primarily due to an increase in headcount and occupancy costs to support
the increase in growth in North America and Europe operations, including the
opening of additional international offices in Europe and the acquisition of
ABC Software.

III-8
<PAGE>

Research and Development. The increase in absolute dollars for research and
development expenses was due to:

. Additional headcount related expenses attributable to the acquisition of
Westwood Studios, Inc. and certain assets of the Irvine, California-
based Virgin Studio (collectively "Westwood") in September 1998 and
Tiburon Entertainment, Inc. in April 1998.

. Higher development costs per title, as products are including more
content and are more complex and time consuming to develop.

. An increase in development costs for Ultima Online.

We released a total of 59 new products in fiscal 1999 compared to 71 in
fiscal 1998.

Charge for Acquired In-Process Technology. In connection with the purchase
of Westwood in September 1998, we allocated and expensed $41,836,000 of the
$122,688,000 purchase price to in-process research and development projects.
This allocation represents the estimated fair value based on risk-adjusted cash
flows related to the incomplete research and development projects. At the date
of acquisition, this amount was expensed as a non-recurring charge as the in-
process technology had not yet reached technological feasibility and had no
alternative future uses. Westwood had three major PC-CD projects in progress at
the time of the acquisition including two in the best-selling franchise Command
and Conquer and one in the critically acclaimed Lands of Lore series. As of the
acquisition date, costs to complete the Westwood projects acquired were
expected to be approximately $9.1 million in fiscal 1999, $10.6 million in
fiscal 2000 and $1.0 million in fiscal 2001. We believe there have been no
significant changes to these estimates. We currently expect to complete the
development of these projects at various dates through fiscal 2001 and to
publish the products upon completion.

The nature of the efforts required to develop the acquired in-process
technology into commercially viable products principally relate to the
completion of all planning, designing and testing activities necessary to
establish that the product can be produced to meet our design requirements
including functions, features and technical performance requirements. Though we
currently expect that the acquired in-process technology will be successfully
developed, there can be no assurance that commercial or technical viability of
these products will be achieved. Furthermore, future developments in the
entertainment software industry, changes in computer or video game console
technology, changes in other product offerings or other developments may cause
us to alter or abandon these plans.

The value assigned to purchased in-process technology was determined by
estimating the completion percentage of research and development efforts at the
acquisition date, forecasting risk adjusted revenues considering the completion
percentage, estimating the resulting net cash flows from the projects and
discounting the net cash flows to their present values. The completion
percentages were estimated based on cost incurred to date, importance of the
completed development tasks and the elapsed portion of the total project time.
The revenue projection used to value the in-process research and development is
based on unit sales forecasts for worldwide sales territories and adjusted to
consider only the revenue related to development achievements completed at the
acquisition date. Net cash flow estimates include cost of goods sold and sales,
marketing and general and administrative expenses and taxes forecasted based on
historical operating characteristics. In addition, net cash flow estimates were
adjusted to allow for fair return on working capital and fixed assets, charges
for franchise and technology leverage and return on other intangibles.
Appropriate risk adjusted discount rates ranging from 20% to 22.5% were used to
discount the net cash flows back to their present value. The remaining
identified intangibles will be amortized on a straight-line basis over two to
twelve years based on expected useful lives of franchise tradenames, existing
products and technologies, retention of workforce, and other intangible assets.
If these projects are not successfully developed, we may not realize the value
assigned to the in-process research and development projects. In addition, the
value of other acquired intangible assets may also become impaired.

III-9
<PAGE>

In conjunction with the merger of Westwood, we accrued approximately
$1,500,000 related to direct transaction costs and other related accruals. At
March 31, 1999, there were $725,000 in accruals remaining related to these
items.

Additionally, for fiscal 1999, the charge for in-process research and
development also included write-offs of $2,279,000 associated with the
acquisition of two software development companies in the first quarter.

For fiscal 1998, we incurred a charge of $1,500,000 for acquired in-process
technology in connection with the acquisition of the remaining 35% minority
ownership interest in Electronic Arts Victor, Inc. in December 1997. This
charge was made after we concluded that the in-process technology had no
alternative future use after taking into consideration the potential for usage
of the software in different products and resale of the software.

Amortization of Intangibles. Amortization of intangibles results from the
acquisitions of Westwood and ABC Software in the second quarter of fiscal 1999.

Merger Costs. On July 25, 1997, we completed a merger with Maxis, Inc.
("Maxis"). In conjunction with the merger, we recorded costs of $10,792,000
which included direct transaction fees and costs associated with integrating
the operations of the two companies. At March 31, 1999, there were no accruals
remaining related to these merger costs.

Operating Income. Operating income increased 26% due to:

. Higher net revenues and related gross profit partially offset by
increased operating expenses including the charges for acquired in-
process technology of $44,115,000 in the current fiscal year.

. Partially offset by merger costs of $10,792,000 and a charge for
acquired in-process technology of $1,500,000 related to the acquisitions
in the prior fiscal year.

Interest and Other Income, Net. The decrease in interest and other income,
net, was primarily attributable to the sale of our 50% ownership interest in
Creative Wonders, LLC in December 1997. The sale resulted in a gain in the
prior year of $12,625,000.

Income Taxes. Electronic Arts' effective tax rate was 38.3% for fiscal 1999
and 33.0% for fiscal 1998. Our effective tax rate for fiscal 1999 was
negatively affected as there was no tax benefit recorded for a portion of the
charges related to the acquired in-process technology. Excluding the effect of
these charges, the effective tax rate for the current fiscal year would have
been 32.0% as compared to a 33.0% tax rate in the corresponding prior year
periods. The lower rate of 32.0% results primarily from a higher portion of
international income subject to a lower foreign tax rate as compared to the
prior year and an increase in the federal research and experimental credit.

Minority Interest in Consolidated Joint Venture.

. In the first quarter of fiscal 1999, we formed EA Square KK which is
seventy percent owned by us and thirty percent owned by Square Co., Ltd.
("Square"), a leading developer and publisher of entertainment software
in Japan. Minority interest for fiscal 1999 represents Square's 30%
interest in the net income of EA Square KK.

. For fiscal 1998, the minority interest represented the 35% interest in
Electronic Arts Victor, Inc. ("EAV") owned by Victor Entertainment
Industries, Inc. ("VEI"). We acquired the remaining 35% minority
ownership interest in EAV held by VEI in December 1997.

III-10
<PAGE>

Net Income. In absolute dollars, reported net income was flat due to the
one-time charges related to acquisitions offsetting significantly higher
operating income. The increase in net income, excluding one-time charges, was
due to higher revenues and gross profits, offset by higher operating expenses.

. For fiscal 1998, net income included a one-time gain on sale of Creative
Wonders, LLC in the amount of $8,459,000, net of taxes, offset by Maxis
merger costs and a charge for acquired in-process developments of
$8,236,000, net of taxes.

. For fiscal 1999, net income included one-time charges for acquired in-
process technology of $37,506,000, net of taxes.

Excluding one-time items in both years, as noted above, net income increased
to $110,378,000 from $72,339,000, or 53% over the prior year.

Comparison of Fiscal 1998 to 1997:

Revenues

Information about our net revenues for North America and foreign areas for
fiscal 1998 and 1997 is summarized below (in thousands):

<TABLE>
<CAPTION>
Increase/ %
1998 1997 (Decrease) change
-------- -------- --------- ------
<S> <C> <C> <C> <C>
North America.......................... $519,423 $372,616 $146,807 39.4 %
-------- -------- -------- -----
Europe................................. 325,938 233,614 92,324 39.5 %
Asia Pacific........................... 41,494 28,072 13,422 47.8 %
Japan.................................. 21,997 38,726 (16,729) (43.2)%
-------- -------- -------- -----
International.......................... 389,429 300,412 89,017 29.6 %
-------- -------- -------- -----
Consolidated Net Revenues.............. $908,852 $673,028 $235,824 35.0 %
======== ======== ======== =====
</TABLE>

North America Net Revenues

The increase in North America net revenues was mainly attributable to strong
growth in PlayStation and N64 systems as well as Affiliated Label product
revenues partially offset by the decline in 16-bit cartridge and Saturn product
sales. Net revenues from PlayStation and N64 products increased 149% while
sales of 16-bit cartridge and Saturn products decreased 75% in comparison to
the prior year. North America Affiliated Label sales increased 84% compared to
the prior year.

International Net Revenues

The increase in international revenues was due to:

. Higher worldwide sales of PlayStation products and increased sales of
PC-CD, N64 and Affiliated Label products in Europe and Asia Pacific.

. This increase was partially offset by a decrease in 32-bit product sales
in Japan, international 16-bit video game cartridge revenues and
licensing of our products.

III-11
<PAGE>

Information about our net revenues by product line for fiscal 1998 and 1997
is presented below (in thousands):

<TABLE>
<CAPTION>
Increase/ %
1998 1997 (Decrease) change
-------- -------- --------- ------
<S> <C> <C> <C> <C>
EA Studio:
PlayStation............................ $380,299 $187,531 $192,768 102.8 %
PC-CD.................................. 231,034 216,338 14,696 6.8 %
N64.................................... 56,677 17,804 38,873 218.3 %
License, OEM, Online and Other......... 54,977 154,659 (99,682) (64.5)%
-------- -------- -------- -----
722,987 576,332 146,655 25.4 %
Affiliated Label:...................... 185,865 96,696 89,169 92.2 %
-------- -------- -------- -----
$908,852 $673,028 $235,824 35.0 %
======== ======== ======== =====
</TABLE>

PlayStation Product Net Revenues

We released 25 new PlayStation titles in fiscal 1998 compared to 14 in
fiscal 1997. The increase in sales was attributable to the greater installed
base of PlayStation game consoles and related releases of key titles for this
platform during the year.

Affiliated Label Product Net Revenues

The increase in net revenues from Affiliated Label products was due to
higher sales of Affiliated Label products in North America, Europe and Asia
Pacific. This increase was attributable to:

. Product releases under a worldwide exclusive distribution agreement with
DreamWorks Interactive, including The Lost World: Jurassic Park.

. Continued distribution of products from Accolade, Inc. which began in
the fourth quarter of fiscal 1997.

. As well as our exclusive distribution agreement with Twentieth Century
Fox Home Entertainment outside North America.

N64 Product Net Revenues

We released two N64 titles in fiscal 1998 compared to one title in fiscal
1997.

Personal Computer CD Product Net Revenues

We released 30 PC-CD titles in fiscal 1998 compared to 32 PC-CD titles in
fiscal 1997. The increase in sales of PC-CD products was attributable to:

. The worldwide growth in the PC market.

. The expansion of our direct distribution worldwide.

. Partially offset by a decline in titles published by Maxis. Maxis' PC-CD
revenues for fiscal 1998 decreased by $17,010,000 or 45% compared to
fiscal 1997.

License, OEM, Online and Other Revenues

The decrease in license, OEM, online and other revenues was primarily due to
the following:

. A decrease in net revenues generated by 16-bit video game cartridge-
based products.

. Net revenues derived from the sales of 32-bit products other than
PlayStation decreased, primarily due to sales of Saturn products. As the
installed base of Saturn consoles did not achieve the growth rates of
PlayStation consoles, our revenues from sales of Saturn products
declined. We released eight new Saturn titles in fiscal 1998 compared to
12 in fiscal 1997.

III-12
<PAGE>

. Licensing of EA Studio products decreased primarily as a result of a
decrease in the revenues generated by the licensing of our products in
Europe and Japan.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income

Information about our costs and expenses, interest and other income, net,
income taxes and net income for fiscal 1998 and 1997 is presented below:

<TABLE>
<CAPTION>
Percent of
Net Revenues
--------------
1998 1997
------ ------
<S> <C> <C>
Cost of goods sold........................................... 52.9% 48.9%
Marketing and sales.......................................... 14.1 15.2
General and administrative................................... 6.4 7.2
Research and development..................................... 16.0 19.4
Charge for acquired in-process technology.................... 0.2 --
Amortization of intangibles.................................. -- --
Merger costs................................................. 1.2 --
Interest and other income, net............................... 2.7 2.0
Income taxes--effective tax rate............................. 33.0 34.2
Minority interest in consolidated joint venture.............. -- 0.2
Net income................................................... 8.0% 7.6%
</TABLE>

Cost of Goods Sold. Cost of goods sold as a percentage of revenues in fiscal
1998 was higher than fiscal 1997 due to:

. Increased product costs associated with increased sales of lower margin
Affiliated Label and N64 titles and a decrease in higher margin PC-CD
sales as a proportion of total net revenues.

. Higher professional and celebrity royalties on CD-video game and PC-CD
titles.

. As well as higher manufacturing royalties on CD-video game titles.

Marketing and Sales. Marketing and sales expenses increased 26% primarily
attributable to:

. Increased television and print advertising to support new releases.

. Increased cooperative advertising associated with higher revenues as
compared to the prior year.

. As well as additional headcount related to the continued expansion of
our worldwide distribution business.

. Partially offset by savings attributable to the integration of Maxis in
the second quarter of fiscal 1998.

General and Administrative. General and administrative expenses increased
19% primarily due to an increase in payroll and occupancy costs due to the
opening of additional international offices and additional depreciation related
to the installation of new management information systems worldwide. This
increase was partially offset by lower spending in Japan and savings
attributable to the integration of Maxis in the second quarter of fiscal 1998.

Research and Development. Research and development expenses increased 11%
due to additional headcount related expenses in North America and Europe
attributable to increased in-house development capacity, higher development
costs per title and additional depreciation of computer equipment.

We released a total of 71 new products in fiscal 1998 compared to 68 in
fiscal 1997.

Charge for Acquired In-Process Technology. In connection with the
acquisition of the remaining 35% minority ownership interest in EAV in December
1997, we incurred a charge of $1,500,000 for acquired in-process technology.
This charge was made after we concluded that the in-process technology had no
alternative

III-13
<PAGE>

future use after taking into consideration the potential for usage of the
software in different products and resale of the software.

Merger Costs. On July 25, 1997, we completed a merger with Maxis. In
conjunction with the merger, we recorded costs of $10,792,000 which included
direct transaction fees and costs associated with integrating the operations of
the two companies.

Operating Income. Operating income increased due to higher net revenues and
related gross profit partially offset by increased operating expenses including
the charge for acquired in-process technology as well as merger costs related
to the acquisition of Maxis.

Interest and Other Income, Net. The increase in other income is primarily
due to:

. Higher interest income attributable to higher cash balances as compared
to the previous year.

. The sale of our 50% ownership interest in Creative Wonders, LLC in
December 1997. The sale of Creative Wonders resulted in a gain of
$12,625,000.

. Partially offset by lower gains on sales of marketable securities in the
amount of $4,098,000 compared to $8,393,000 in the prior year.

Income Taxes. Electronic Arts' effective tax rate was 33.0% for fiscal 1998
and 34.2% for fiscal 1997. Our effective tax rate was lower for the year as a
result of a higher proportion of international income subject to a lower
foreign tax rate as compared to the prior year and the reinstatement of the
federal research and development tax credit for the full fiscal year 1998.

Minority Interest in Consolidated Joint Venture. As discussed above, we
acquired the remaining minority ownership interest in EAV in December 1997.
Prior to the acquisition, EAV was sixty-five percent owned by us and thirty-
five percent owned by VEI. Minority interest for the year reflected only a
portion of reported losses for EAV as the net equity of EAV fell below zero in
the first quarter of fiscal 1998.

Net Income. The increase in net income was due to:

. The growth in revenues and gross margins offset by higher operating
expenses.

. The impact of the gain on sale of Creative Wonders, LLC was offset by
the charge for acquired in-process technology and merger costs.

YEAR 2000 DISCLOSURE

Background of Year 2000 Issues

Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because such systems may have been developed using two digits rather than four
to determine the applicable year. For example, computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software
and computer systems may need to be upgraded or replaced to comply with such
"Year 2000" requirements.

State of Readiness

Our business is dependent on the operation of numerous systems that could
potentially be impacted by Year 2000 related problems. Those systems include,
among others: hardware and software systems used to deliver products to our
customers; communications networks such as the Internet and private intranets,
upon which we depend to receive orders from our customers; the internal systems
of our customers and suppliers; products sold to customers; the hardware and
software systems used internally in the management of our business; and non-
information technology systems and services used in the management of our
business, such as power, telephone, telephone systems and building systems.

III-14
<PAGE>

As a third party providing software products, we are dependent on the
hardware and software products used to deliver such products and services. If
such products are inoperable due to Year 2000 issues, our business, financial
condition and results of operations could be adversely affected. An inventory
of our internal business systems, and software and hardware upgrades have been
completed to ensure Year 2000 compliance.

Costs

To date we have not incurred significant costs directly related to Year 2000
issues, even in cases where non-compliant information technology systems were
redeployed or replaced.

We believe that future expenditures to upgrade internal systems and
applications will not have a material adverse effect on our business, financial
conditions and results of operations and are primarily included within our
ongoing system development plan. In addition, while the potential costs of
redeploying personnel and of any delays in implementing other projects are not
known, the costs are anticipated to be immaterial.

Risk of the Year 2000 Issues

Our financial information systems include an integrated suite of business
applications developed and supported by Oracle Corporation. These applications
systems are in place and currently support daily operations in North America
and in Europe. Based on representations made by Oracle Corporation and upon our
experience to date, we believe these systems to be Year 2000 compliant.

We believe our software products are Year 2000 compliant; however, success
of our Year 2000 compliance efforts may depend on the success of our customers
dealing with their Year 2000 issues. Customer difficulties with Year 2000
issues might require us to devote additional resources to resolve underlying
problems. Failures of our computer systems or third parties' computer systems
could have a material adverse impact on our ability to conduct business. For
example, a significant percentage of purchase orders received from our
customers are computer generated and electronically transmitted. In addition,
the Year 2000 could affect the ability of consumers to use our PC based
products. If the computer systems on which the consumers use our products are
not Year 2000 compliant, such noncompliance could affect the consumers' ability
to use such products.

Year 2000 Status

As of the date of this filing, we have not incurred any significant business
disruptions as a result of Year 2000 issues. However, while no such occurrence
has developed, Year 2000 issues that may arise related to key suppliers and
service providers may not become apparent immediately. We have received
assurances of Year 2000 compliance from key suppliers. We have also received
assurances from key service providers such as financial institutions, our
payroll service provider, and our retirement plan administrator as to their
Year 2000 readiness. We will continue to monitor our own systems and our
business partners to identify and address any potential risk situation related
to the Year 2000.We can provide no assurance that we will not be adversely
affected by these suppliers and service providers due to noncompliance in the
future.

EURO CONVERSION

On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing currencies (the
"legacy currency") and the one common legal currency known as the "Euro". From
January 1, 1999 through June 30, 2002 the countries will be able to use their
legacy currencies or the Euro to transact business. By July 1, 2002, at the
latest, the conversion to the Euro will

III-15
<PAGE>

be complete at which time the legacy currencies will no longer be legal tender.
The fixed conversion rates between their existing currencies have eliminated
exchange rate risk between the member countries.

The conversion to the Euro has reduced the number of forward contracts that
we use to hedge the exchange rate risk. The forward contracts that were used to
hedge the individual legacy currencies have been replaced by a single Euro
hedge contract and the intercompany transactions among subsidiaries within the
European Union are no longer subject to exchange rate risk.

We do not anticipate any material impact from the Euro conversion on our
financial information systems which currently accommodate multiple currencies.
Computer software changes necessary to comply with the Year 2000 issues are
generally compliant to the Euro conversion issue. Due to numerous
uncertainties, we cannot reasonably estimate the effect that the Euro
conversion issue will have on our pricing or market strategies, and the impact,
if any, it will have on our financial condition and results of operations.

III-16
<PAGE>

Quantitative and Qualitative Disclosures About Market Risk

Market Risk

We are exposed to various market risks, including the changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from changes in market rates and prices. Foreign exchange contracts
used to hedge foreign currency exposures and short-term investments are subject
to market risk. We do not consider our cash and cash equivalents to be subject
to interest rate risk due to their short maturities. We do not enter into
derivatives or other financial instruments for trading or speculative purposes.

Foreign Currency Exchange Rate Risk

We utilize foreign exchange contracts to hedge foreign currency exposures of
underlying assets and liabilities, primarily certain intercompany receivables
that are denominated in foreign currencies, thereby, limiting our risk. Gains
and losses on foreign exchange contracts are reflected in the income statement.
At December 31, 1999, we had foreign exchange contracts, all with maturities of
less than three months to purchase and sell approximately $285,575,000 in
foreign currencies, primarily British Pounds, European Currency Units ("Euro"),
Canadian Dollars, Japanese Yen and other currencies.

Fair value represents the difference in value of the contracts at the spot
rate and the forward rate, plus the unamortized premium or discount. The
counterparties to these contracts are substantial and creditworthy
multinational commercial banks. The risks of counterparty nonperformance
associated with these contracts are not considered to be material.
Notwithstanding our efforts to manage foreign exchange risks, there can be no
assurances that our hedging activities will adequately protect us against the
risks associated with foreign currency fluctuations.

The table below provides information about our foreign currency forward
exchange contracts at December 31, 1999. The information is provided in U.S.
dollar equivalents and presents the notional amount (forward amount), the
weighted average contractual foreign currency exchange rates and fair value.
All contracts mature within three months.

<TABLE>
<CAPTION>
Contract Weighted-Average
Amount Contract Rate Fair Value
------------- ---------------- -------------
(in thousands) (in thousands)
<S> <C> <C> <C>
Foreign currency to be sold
under contract:
British Pound.............. $115,158 1.6151 $ (27)
Euro....................... 77,580 1.0141 246
Canadian Dollar............ 20,424 1.4689 (9)
Japanese Yen............... 11,650 105.3600 (272)
Swiss Franc................ 1,902 1.5777 8
Australian Dollar.......... 6,711 .6391 (41)
Brazilian Real............. 1,891 1.8510 (21)
South African Rand......... 5,018 9.9795 (24)
Sweden Krona............... 3,997 13.7420 (26)
Denmark Krone.............. 2,991 11.8810 (4)
Norway Krone............... 2,501 12.9198 5
-------- -------- -----
Total....................... $249,823 $(165)
======== =====
Foreign currency to be
purchased under contract:
British Pound.............. $ 35,752 1.6155 $ (34)
-------- -------- -----
Total....................... $ 35,752 $ (34)
======== =====
Grand total................. $285,575 $(199)
======== =====
</TABLE>

III-17
<PAGE>

While the contract amounts provide one measurement of the volume of these
transactions, they do not represent the amount of our exposure to credit risk.
The amounts (arising from the possible inabilities of counterparties to meet
the terms of their contracts) are generally limited to the amounts, if any, by
which the counterparties' obligations exceed our obligations as these contracts
can be settled on a net basis at our option. We control credit risk through
credit approvals, limits and monitoring procedures.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We do not use derivative financial
instruments in our investment portfolio. We manage our interest rate risk by
maintaining an investment portfolio primarily consisting of debt instruments of
high credit quality and relatively short average maturities. We also manage our
interest rate risk by maintaining sufficient cash and cash equivalent balances
such that we are typically able to hold our investments to maturity. At
December 31, 1999, our cash equivalents, short-term and long-term investments
included debt securities of $186,612,000. Notwithstanding our efforts to manage
interest rate risks, there can be no assurances that we will be adequately
protected against the risks associated with interest rate fluctuations.

The table below presents the amounts and related weighted average interest
rates of our investment portfolio at December 31, 1999:

<TABLE>
<CAPTION>
Average
Interest Rate Cost Fair Value
------------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Cash equivalents
Fixed rate................................. -- $ -- $ --
Variable rate.............................. 4.60% $78,454 $78,454
Short-term investments
Fixed rate................................. 3.96% $83,820 $83,958
Variable rate.............................. 6.27% $ 5,800 $ 5,799
Long-term investments
Fixed rate................................. -- $ -- $ --
Variable rate.............................. 6.34% $18,400 $18,179
</TABLE>

Maturity dates for short-term investments range from 6 months to 3 years.

III-18
<PAGE>

DESCRIPTION OF BUSINESS

Overview

Electronic Arts was initially incorporated in California in 1982. In
September 1991, we were reincorporated under the laws of Delaware. Our
principal executive offices are located at 209 Redwood Shores Parkway, Redwood
City, California 94065 and our telephone number is (650) 628-1500.

We create, market and distribute interactive entertainment software for a
variety of hardware platforms. As of March 31, 1999, our business was comprised
of the following:

. Distribution of approximately 111 titles that we developed and/or
published under one of our brand names in North America, including older
titles marketed as "Classics" or "Publisher's Choice."

. Distribution of localized versions of our products in the rest of the
world.

. Distribution of approximately 21 additional titles developed by other
software publishers (that we refer to as Affiliated Labels) in North
America

. Distribution of over 1,000 Affiliated Label titles in the rest of the
world.

Since our inception, we have developed products for 38 different hardware
platforms, including the following:

. IBM PC-CD and compatibles

. 16-bit Sega Genesis video game system

. 16-bit Super Nintendo Entertainment System

. 32-bit Sony PlayStation

. 64-bit Nintendo N64

Our product development methods and organization are modeled on those used
in the entertainment industry. We also market our products with techniques
borrowed from other entertainment companies such as record producers, magazine
publishers and video distributors. Employees whom we call "producers", who are
responsible for the development of one or more products, oversee product
development and direct teams comprised of both our employees and outside
contractors. Our designers regularly work with celebrities and organizations in
sports, entertainment and other areas to develop products that provide gaming
experiences that are as realistic and interactive as possible. Celebrities and
organizations with whom we have contracts include: FIFA, NASCAR, John Madden,
the National Basketball Association, the PGA TOUR, Tiger Woods, the National
Hockey League, World Championship Wrestling Inc., Football Association Premier
League and Formula One. We maintain development studios in California, Canada,
United Kingdom, Florida, Texas, Japan, Washington, Maryland and Nevada.

We invest in the creation of state-of-the-art software tools and utilities
that are then used in product development. These tools allow for more cost-
effective product development and the ability to more efficiently convert
products from one hardware platform to another. We have also made investments
in facilities and equipment to facilitate the creation and editing of digital
forms of video and audio recordings and product development efforts for new
hardware platforms.

We distribute our products and those of our Affiliated Labels primarily by
direct sales to retail chains and outlets in the United States and Europe. In
Japan and the Asia Pacific region, we distribute products both directly to
retailers and through third party distributors. Our products are available in
over 58,000 retail locations worldwide. In fiscal 1999, approximately 42% of
our net revenues were generated by international operations, compared to 43% in
fiscal 1998 and 45% in fiscal 1997.

III-19
<PAGE>

Investments and Joint Ventures

Acquisitions

Westwood Studios

In September 1998, we completed the acquisition of Westwood Studios, Inc.
and certain assets of the Irvine, California-based Virgin Studios (collectively
"Westwood") for approximately $122,688,000 in cash, including transaction
expenses. The transaction was accounted for under the purchase method. Westwood
is best known for its successful PC-CD franchises, Command and Conquer and
Lands of Lore. See note 11 of the Notes to the Consolidated Financial
Statements of Electronic Arts.

ABC Software

In July 1998, we acquired ABC Software AG, in Switzerland, and ABC Software
GmbH, in Austria (collectively "ABC"), independent distributors of
entertainment, edutainment and application software, for approximately
$9,466,000 in cash (net of cash acquired of $5,099,000) and $570,000 in other
consideration. The transaction has been accounted for under the purchase
method. See note 11 of the Notes to the Consolidated Financial Statements of
Electronic Arts.

Joint Ventures

In May 1998, Electronic Arts and Square Co., Ltd. ("Square"), a leading
developer and publisher of entertainment software in Japan, completed the
formation of two new joint ventures, in North America and Japan. In North
America, the companies formed Square Electronic Arts, LLC ("Square EA"), which
has exclusive publishing rights in North America for future interactive
entertainment PlayStation titles created by Square. We own a 30% minority
interest in this joint venture while Square owns 70%. Additionally, we have the
exclusive right to distribute in North America products published by this joint
venture.

In Japan, the companies established Electronic Arts Square KK ("EA
Square KK"), which localizes and publishes in Japan our properties originally
created in North America and Europe, as well as develops and publishes original
video games in Japan. We own a 70% majority interest, while Square owns 30%.
See note 11 of the Notes to the Consolidated Financial Statements of Electronic
Arts.

Investments

We have made investments as part of our overall strategy and currently hold
minority equity interests in several companies. As of December 31, 1999, our
minority equity investments include investments in NovaLogic, Inc., Firaxis
Software, Inc., Kodiak Inc. and Bottle Rocket.

Market

Historically, no hardware platform or video game system has achieved long-
term dominance in the interactive entertainment market. In fiscal 1999, Sony's
PlayStation was the dominant hardware platform in our industry. In addition,
the installed base of multimedia-enabled home computers, including those with
Internet accessibility, has continued to grow as personal computer, or PC,
prices have declined and the quality and choices of software have increased
dramatically. We develop and publish products for multiple platforms, and this
diversification continues to be a cornerstone of our strategy.

The following table details select information on a sample of the hardware
platforms for which we have published titles:

<TABLE>
<CAPTION>
Video Game Console/ Date Introduced Medium/
Manufacturer Platform Name in North America Product Base Technology
- ------------ --------------------------- ---------------- ------------ ----------
<S> <C> <C> <C> <C>
Sega.................... Genesis 1989 Cartridge 16-bit
Nintendo................ SNES 1991 Cartridge 16-bit
Matsushita.............. 3DO Interactive Multiplayer 1993 Compact Disk 32-bit
Sega.................... Saturn 1995 Compact Disk 32-bit
Sony.................... PlayStation 1995 Compact Disk 32-bit
Nintendo................ Nintendo N64 1996 Cartridge 64-bit
</TABLE>

III-20
<PAGE>

Sega launched Dreamcast(TM) in Japan in December 1998 and in North America
in September 1999. Sega designed Dreamcast to combine features from the console
and PC platforms. We currently have no products in development for the Sega
Dreamcast. See Risk Factors--"New video game platforms create additional
technical and business model uncertainties".

Sony is scheduled to launch PlayStation II in Japan in March 2000 and the
rest of the world starting in the fall of 2000. PlayStation II specifications
have been announced by Sony to be a 128-bit, Digital Video Disk ("DVD") based
system that is Internet and cable ready, as well as backward compatible with
PlayStation I software. We currently have various products under development
for the Sony PlayStation II. See Risk Factors--"New video game platforms create
additional technical and business model uncertainties".

Nintendo announced that it will release a next generation system. Nintendo's
new system will also offer a DVD drive.

New entrants into the interactive entertainment and multimedia industries,
such as cable television, telephone, and diversified media and entertainment
companies, in addition to a proliferation of new technologies, such as online
networks and the Internet, have increased the competition in our markets. We
are scheduled to release one or more online network gaming products during
fiscal 2000. See Risk Factors--"New video game platforms create additional
technical and business model uncertainties" and "The impact of e-Commerce and
online games on our business is not known".

The early investment in products for the 32-bit market, including both
Compact Disk personal computer ("PC-CD") and Compact Disk-dedicated video game
("CD-video game") platforms, has been strategically important in positioning us
for the current generation of 32-bit and 64-bit machines. We believe that such
investment continues to be important. PlayStation has achieved significant
market acceptance in all geographical territories. However, as the PlayStation
console market matures, we believe that its growth will not continue at the
present rates. In addition, our revenues and earnings are dependent on our
ability to meet our product release schedule and our failure to meet those
schedules could result in revenues and earnings which fall short of analysts'
expectations in any individual quarter. See Risk Factors--"Product development
schedules are frequently unreliable and make predicting quarterly results
difficult".

Competition

See Risk Factors--"Our platform licensors are our chief competitors and
frequently control the manufacturing of our video game products".

Relationships with Significant Hardware Platform Companies

Sony

In fiscal 1999, approximately 43% of our net revenues were derived from
sales of software for the PlayStation compared to 42% in fiscal 1998. During
fiscal 1999, we released 21 PlayStation games compared to 25 in fiscal 1998.
Among these releases were FIFA 99, World Cup 98 and Madden NFL 99. The volume
of sales of our PlayStation products significantly increased in fiscal 1999 due
to the increase in the installed base of PlayStation consoles worldwide and the
quality and timely release of our key franchise titles.

For the nine months ended December 31, 1999, approximately 42% of our net
revenues were derived from PlayStation software sales, compared to 44% for the
nine months ended December 31, 1998. We released 20 PlayStation titles during
the nine months ended December 31, 1999 compared to 16 during the nine months
ended December 31, 1998, including Madden NFL. PlayStation revenues increased
for the nine months ended December 31, 1999 due to more products released
compared to the same period last year. We expect revenues from PlayStation
products to grow in fiscal 2000, but as revenues for these products increase,
we do not expect to maintain the same growth rates as those in prior years.
Sony has announced the release of PlayStation II in the United States and
Europe in the fall of 2000. Although Playstation products will be playable on
the

III-21
<PAGE>

PlayStation II, we expect sales of current PlayStation products to decline in
the coming fiscal year. See Risk Factors--"Product development schedules are
frequently unreliable and make predicting quarterly results difficult".

Under the terms of a licensing agreement entered into with Sony Computer
Entertainment of America in July 1994 (the "Sony Agreement"), as amended, we
are authorized to develop and distribute CD-based software products compatible
with the PlayStation. Pursuant to the Sony Agreement, we engage Sony to supply
its PlayStation CDs for distribution by us. Accordingly, we have limited
ability to control our supply of PlayStation CD products or the timing of their
delivery. See Risk Factors--"Our platform licensors are our chief competitors
and frequently control the manufacturing of our video game products".

Nintendo

During fiscal 1999, we released nine new titles for the N64 compared to two
titles in fiscal 1998. In fiscal 1999, approximately 12% of our net revenues
were derived from the sale of N64 products compared to 6% in 1998. In March
1997, we signed a licensing agreement with Nintendo (the "N64 Agreement") to
develop, publish and market certain sports and other products for the N64.

For the nine months ended December 31, 1999 and 1998, we released seven N64
titles. For the first nine months of fiscal 2000, approximately 10% of our net
revenues were derived from sales of N64 products compared to 13% in the first
nine months of fiscal 1999. The decrease in sales of N64 products for the first
nine months of fiscal 2000 was due to the weak market for N64 products as well
as the release of World Cup 98 in fiscal 1999. Revenues for N64 products have
declined thus far and we expect revenues to continue to decline for the fiscal
year 2000.

Under the terms of the N64 Agreement, we engage Nintendo to manufacture our
N64 cartridges for distribution by us. Accordingly, we have limited ability to
control our supply of N64 cartridges or the timing of their delivery. A
shortage of microchips or other factors outside our control could impair our
ability to obtain an adequate supply of cartridges.

Products and Product Development

In fiscal 1999, we generated approximately 65% of our revenues from products
released during the year. See Risk Factors--"Product development schedules are
frequently unreliable and make predicting quarterly results difficult". As of
March 31, 1999, we were actively marketing approximately 111 titles, comprising
approximately 193 stock keeping units, or sku's, that were published by our
development divisions and subsidiaries, EA Studios. During fiscal 1999, we
introduced over 39 EA Studios titles, representing over 59 sku's, compared to
44 EA Studios titles, comprising over 71 sku's, in fiscal 1998.

The products published by EA Studios are designed and created by our in-
house designers and artists and by independent software developers
("independent artists"). We typically pay the independent artists royalties
based on the sales of the specific products, as defined in the related
independent artist agreements.

For fiscal 1999 and 1998, no title represented revenues greater than 10% of
the total fiscal 1999 and 1998 net revenues. For fiscal 1997, we had one title,
Madden Football 97, published on five platforms, which represented
approximately 10% of the total fiscal 1997 net revenues.

III-22
<PAGE>

We publish products in a number of categories such as sports, action and
interactive movies, strategy, simulations, role playing and adventure, each of
which is becoming increasingly competitive. Our sports-related products,
marketed under the EA Sports brand name, accounted for a significant percentage
of net revenues in fiscal years 1999 and 1998. There can be no assurance that
we will be able to maintain our market share in the sports category.

The front line retail selling prices in North America of our products,
excluding older titles (marketed as "Classics" and "Publisher's Choice"),
typically range from $35.00 to $55.00. "Classics" and "Publisher's Choice"
titles have retail selling prices that range from $10.00 to $30.00. The retail
selling prices of EA titles outside of North America vary based on local market
conditions.

We currently develop or publish products for five different hardware
platforms. In fiscal 1999, our product releases were predominantly for PC-CD,
32-bit and 64-bit video game systems. Our planned product introductions for
fiscal 2000 were predominantly for the PC-CD, PlayStation, N64 as well as for
online Internet play. See Risk Factors--"Product development schedules are
frequently unreliable and make predicting quarterly results difficult" and "New
video game platforms create additional technical and business model
uncertainties".

As compact disks have emerged as the preferred medium for interactive
entertainment, education, and information software, we are continuing our
investment in the development of CD-ROM tools and technologies in fiscal 1999.
PlayStation has achieved significant market acceptance in all geographic
territories, however, as the PlayStation console market matures, we believe
that its growth will not continue at the present rates. Most of the CD-video
game products will be convertible for use on multiple advanced hardware
systems. We had research and development expenditures of $199.1 million in
fiscal 1999, $145.7 million in fiscal 1998, and $130.8 million in fiscal 1997.
We had research and development expenditures of $187.0 million for the nine
months ended December 31, 1999 and $144.4 million for the nine months ended
December 31, 1998. See Risk Factors--"Product development schedules are
frequently unreliable and make predicting quarterly results difficult".

Marketing and Distribution

We distribute both EA Studio products and products developed and published
by other software publishers, that we refer to as Affiliated Labels.

In most cases, Affiliated Label products are delivered to us as completed
products. As of March 31, 1999, we distributed 21 Affiliated Label titles in
North America and over 1,000 Affiliated Label titles in the rest of the world.
No single Affiliated Label Publisher has accounted for more than 10% of our net
revenue in any of the last three fiscal years.

In May 1998, Electronic Arts and Square Co., Ltd. formed a new joint venture
in North America, creating Square Electronic Arts, LLC ("Square EA") as
discussed in note 11 in the Notes to the Consolidated Financial Statements of
Electronic Arts Inc. In conjunction with the formation of this joint venture,
we will have the exclusive right in North America to distribute products
published by this joint venture. In fiscal 1999, Square EA published Parasite
Eve for the PlayStation, which was a top ten selling title for Electronic Arts
and it published Final Fantasy VIII in fiscal 2000.

We generated approximately 90% of our North American net revenues from
direct sales to retailers through a field sales organization of professionals
and a group of telephone sales representatives. The remaining 10% of our North
American sales were made through a limited number of specialized and regional
distributors and rack jobbers in markets where we believe direct sales would
not be economical. For the fiscal year ended March 31, 1999, we had sales to
one customer, Wal-Mart Stores, Inc., which represented 12% of total net
revenues. We had no sales to any one customer in excess of 10% of total net
revenues for the fiscal years ended March 31, 1998 and 1997.

III-23
<PAGE>

We are using the Internet to market our products, build brand equity and
increase our understanding of our customers' expectations. We have various EA
websites offering game tips, user bulletin boards and matching service for head
to head competition and tournaments.

The video game and PC businesses have become increasingly "hits" driven,
requiring significantly greater expenditures for marketing and advertising,
particularly for television advertising. There can be no assurance that we will
continue to produce "hit" titles, or that advertising for any product will
increase sales sufficiently to recoup those advertising expenses.

We have stock-balancing programs for our personal computer products that,
under certain circumstances and up to a specified amount, allow for the
exchange of personal computer products by resellers. We also typically provide
for price protection for our personal computer and video game system products
that, under certain conditions, allows the reseller a price reduction from us
for unsold products. We maintain a policy of exchanging products or giving
credits, but do not give cash refunds. Moreover, the risk of product returns
may increase as new hardware platforms become more popular or market factors
force us to make changes in our distribution system. We monitor and manage the
volume of our sales to retailers and distributors and their inventories as
substantial overstocking in the distribution channel can result in high returns
or the requirement for substantial price protection in subsequent periods. We
believe that we provide adequate reserves for returns and price protection
which are based on estimated future returns of products, taking into account
promotional activities, the timing of new product introductions, distributor
and retailer inventories of our products and other factors. We believe our
current reserves will be sufficient to meet return and price protection
requirements for current in-channel inventory. However, there can be no
assurance that actual returns or price protection will not exceed our reserves.

We also have a fulfillment group that sells product directly to consumers
through a toll-free number and through our websites listed in advertising by us
and our Affiliated Labels. This group is also responsible for targeted direct
mail marketing and sells product backups and accessories to registered
customers.

The distribution channels through which consumer software products are sold
have been characterized by change, including consolidations and financial
difficulties of certain distributors and retailers and the emergence of new
retailers such as general mass merchandisers. The development of remote and
electronic delivery systems will create further changes. The bankruptcy or
other business difficulties of a distributor or retailer could render our
accounts receivable from such entity uncollectible, which could have an adverse
effect on our operating results and financial condition. In addition, an
increasing number of companies are competing for access to these channels. Our
arrangements with our distributors and retailers may be terminated by either
party at any time without cause. Distributors and retailers often carry
products that compete with ours. Retailers of our products typically have a
limited amount of shelf space and promotional resources for which there is
intense competition. There can be no assurance that distributors and retailers
will continue to purchase our products or provide our products with adequate
levels of shelf space and promotional support.

International Operations

We have wholly owned subsidiaries throughout the world, including offices in
the United Kingdom, France, Spain, Germany, Australia, Canada, South Africa,
Singapore, Sweden, Japan, Malaysia, Brazil, Austria, Switzerland and Holland.
The amounts of net revenues, operating profit and identifiable assets
attributable to each of our geographic regions for the nine months ended
December 31, 1999 and 1998 as well as the fiscal years ended March 31, 1999,
1998, and 1997 are set forth in note 16 of the Notes to the Consolidated
Financial Statements of Electronic Arts Inc.

International net revenues increased by 33% to $516,865,000, or 42% of
consolidated fiscal 1999 net revenues, compared to $389,429,000, or 43% of
consolidated fiscal 1998 net revenues due to the following:

. Europe's net revenues increased by $117,999,000 primarily due to an
increase in sales of PlayStation and Affiliated Label products.

III-24
<PAGE>

. Japan's net revenues increased by $11,371,000 primarily due to the sales
of FIFA: Road to World Cup 98.

. Asia Pacific net revenues decreased by $1,934,000 due to the weaknesses
in Asian currencies. In local currency, in spite of weak economies, net
revenues for Asia Pacific increased compared to the prior year.

The increase in international revenues for the nine months ended December
31, 1999, compared to the same period last year was due to:

. A 78% increase in Asia Pacific PC-CD revenues also due to the success of
Command and Conquer: Tiberian Sun and Sim City 3000.

. Offset by a 68% decline in Japan PlayStation revenue primarily due to
strong sales of FIFA: Road to the World Cup and World Cup 98 in the
prior year.

Though international revenues are expected to grow in fiscal 2000,
international revenues may not grow at as high a rate as in prior years. See
Risk Factors--"Our business, our products, and our distribution are subject to
increasing regulation in key territories" and "Foreign Sales and Currency
Fluctuations".

Manufacturing

In many instances, we are able to acquire materials on a volume-discount
basis. We have multiple potential sources of supply for most materials, except
with respect to our PlayStation and N64 products, as previously mentioned. We
also have alternate sources for the manufacture and assembly of most of our
products. To date, we have not experienced any material difficulties or delays
in production of our software and related documentation and packaging. However,
a shortage of components or other factors beyond our control could impair our
ability to manufacture, or have manufactured, our products. See Risk Factors--
"Our platform licensors are our chief competitors and frequently control the
manufacturing of our video game products".

Backlog

We normally ship products within a few days after receipt of an order.
However, a backlog may occur for EA Studio and Affiliated Label products that
have been announced for release but not yet shipped. We do not consider backlog
to be an indicator of future performance.

Seasonality

Our business is highly seasonal. We typically experience our highest
revenues and profits in the calendar year-end holiday season and a seasonal low
in revenues and profits in the quarter ending in June.

Employees

As of March 31, 1999, we employed approximately 2,500 people, of whom over
1,200 were outside the United States. We believe that our ability to attract
and retain qualified employees is an important factor in our growth and
development and that our future success will depend, in large measure, on our
ability to continue to attract and retain qualified employees. To date, we have
been successful in recruiting and retaining sufficient numbers of qualified
personnel to conduct our business successfully. See Risk Factors--"We face
intense competition for talent from highly valued Internet companies".

III-25
<PAGE>

Properties

Our principal administrative, sales and marketing, research and development,
and support facility is located in two modern buildings in Redwood City,
California, 20 miles south of San Francisco. We moved into this facility in
October 1998. We presently occupy approximately 350,000 sq. ft. in these
buildings under an operating lease for the buildings and certain adjoining land
that will expire on December 1, 2001. Monthly lease payments vary based upon
the London InterBank Offered Rate. We have the option to purchase the property
for the unamortized financed balance at any time after the non-cancelable lease
term, or we may terminate the lease at any time after the non-cancelable term
by arranging a third party sale or by making a termination payment. In April
1999, we exercised our option to purchase a parcel of land under the lease and
sold it to a third party. The proceeds will mitigate a portion of the occupancy
costs for this facility. Should we elect to terminate the lease, we will
guarantee a residual value of up to 85% of the unamortized value of the
property. As part of the agreement, we must also comply with certain financial
covenants.

Our North American distribution is supported by a 54,000 sq. ft. leased
facility used as an office and warehouse in Hayward, California, and an
84,000 sq. ft. warehouse facility in Louisville, Kentucky. Effective April
1999, we entered into a lease agreement that increases the Kentucky warehouse
facility's square footage to 250,000 sq. ft. We also occupy sales offices in
the metropolitan areas of Toronto, Chicago, Dallas and New York.

In addition to our Redwood City development studio, we own a 206,000 sq. ft.
development facility in Burnaby, British Columbia, Canada and rent a
33,000 sq. ft. facility in Seattle, Washington. The move to the new Canadian
offices was completed in June 1999. We also own a 180,000 sq. ft. development
facility in Austin, Texas and lease a 42,400 sq. ft. development facility in
Walnut Creek, California.

Our United Kingdom subsidiary occupies administrative and sales facilities
in Langley, England, under a lease for a total of 44,000 sq. ft. and a
22,000 sq. ft. development facility in Surrey, England. In Europe, we also
lease a distribution hub in Heerlen, Holland and two administrative and sales
facilities in Germany, as well as sales and distribution facilities in: Madrid,
Spain; Lyon, France; Johannesberg, South Africa; Neudorf, Austria and Zurich,
Switzerland. Additionally, we have sales offices throughout Europe.

In Asia and the South Pacific, we maintain a 5,500 sq. ft. sales and
distribution facility in Brisbane, Australia. We also have sales and
distribution facilities in Singapore, Malaysia and Taiwan, and representative
offices in Beijing, Hong Kong and Shanghai, China. We also maintain a
27,000 sq. ft. sales and development office in Tokyo, Japan. See notes 3 and 9
of the Notes to the Consolidated Financial Statements of Electronic Arts Inc.

We believe that these facilities are adequate for our current needs. We
believe that suitable additional or substitute space will be available as
needed to accommodate our future needs.

III-26
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Electronic Arts Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Electronic
Arts Inc. and subsidiaries as of March 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the financial
statements of Maxis, Inc., a company acquired by Electronic Arts Inc. in a
business combination accounted for as a pooling of interests as described in
Note 11 to the consolidated financial statements, which statements reflect
total revenues constituting 7% for the year ended March 31, 1997, of the
related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Maxis, Inc., is based solely on the report of the
other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Electronic Arts Inc. and
subsidiaries as of March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1999, in conformity with generally accepted accounting principles.

KPMG LLP

Mountain View, California
April 30, 1999

III-27
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

<TABLE>
<CAPTION>
March 31
December 31, ------------------
1999 1999 1998
------------ -------- --------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and short-term
investments................................. $ 247,170 $312,822 $374,560
Marketable securities........................ 1,447 4,884 3,721
Receivables, less allowances of $83,300,
$72,850 and $51,575, respectively........... 377,920 149,468 139,374
Inventories, net............................. 22,838 22,376 19,626
Other current assets......................... 114,766 79,915 52,530
---------- -------- --------
Total current assets........................ 764,141 569,465 589,811

Property and equipment, net................... 243,795 181,266 105,095
Long-term investments......................... 18,400 18,400 24,200
Investment in affiliates...................... 20,938 25,864 20,541
Goodwill and other intangibles................ 83,542 90,682 1,585
Other assets.................................. 49,953 16,196 4,449
---------- -------- --------
$1,180,769 $901,873 $745,681
========== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 89,973 $ 63,881 $ 56,233
Accrued liabilities.......................... 222,411 172,328 125,480
---------- -------- --------
Total current liabilities................... 312,384 236,209 181,713

Minority interest in consolidated joint
venture...................................... 3,052 2,733 --

Stockholders' equity:
Preferred stock, $0.01 par value. Authorized
1,000,000 shares............................ -- -- --
Common stock, $0.01 par value. Authorized
104,000,000 shares; issued 63,937,354,
61,291,849 and 60,159,601 shares;
outstanding 63,937,354, 61,169,286 and
60,159,601 shares, respectively............. 639 613 602
Paid-in capital.............................. 358,516 267,699 234,294
Treasury stock, at cost; 122,563 shares at
March 31, 1999.............................. -- (4,926) --
Retained earnings............................ 512,936 402,112 330,540
Accumulated other comprehensive loss ........ (6,758) (2,567) (1,468)
---------- -------- --------
Total stockholders' equity.................. 865,333 662,931 563,968
---------- -------- --------
$1,180,769 $901,873 $745,681
========== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

III-28
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

See accompanying notes to consolidated financial statements.

III-29
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended March 31, 1999, 1998 and 1997 and the Nine Months Ended December
31, 1999
(In thousands)

<TABLE>
<CAPTION>
Accumulated Treasury
Common Stock Other Stock
------------- Paid-In Retained Comprehensive -------------
Shares Amount Capital Earnings Income (Loss) Shares Amount Total
------ ------ -------- -------- ------------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March 31,
1996................... 56,747 $567 $158,144 $206,651 $14,189 -- $ -- $379,551
Net income.............. 51,327 51,327
Change in unrealized
appreciation of
investments, net....... (8,176) (8,176)
Reclassification
adjustment for gains
realized in net income,
net.................... (5,497) (5,497)
Translation adjustment.. 152 152
--------
Comprehensive income.... 37,806
Proceeds from sales of
shares through stock
plans.................. 1,516 16 20,985 21,001
Tax benefit related to
stock options.......... 9,210 9,210
Repayment of notes
receivable............. 101 101
Amortization of deferred
compensation........... 107 107
------ ---- -------- -------- ------- ---- ------ --------
Balances at March 31,
1997................... 58,263 583 188,547 257,978 668 -- -- 447,776
Net income.............. 72,562 72,562
Change in unrealized
appreciation of
investments, net....... 1,882 1,882
Reclassification
adjustment for gains
realized in net income,
net.................... (2,745) (2,745)
Translation adjustment.. (1,273) (1,273)
--------
Comprehensive income.... 70,426
Proceeds from sales of
shares through stock
plans.................. 1,897 19 37,729 37,748
Tax benefit related to
stock options.......... 7,931 7,931
Repayment of notes
receivable............. 87 87
------ ---- -------- -------- ------- ---- ------ --------
Balances at March 31,
1998................... 60,160 602 234,294 330,540 (1,468) -- -- 563,968
Net income.............. 72,872 72,872
Change in unrealized
appreciation of
investments, net....... 2,533 2,533
Reclassification
adjustment for gains
realized in net income,
net.................... (989) (989)
Translation adjustment.. (2,643) (2,643)
--------
Comprehensive income.... 71,773
Proceeds from sales of
shares through stock
plans.................. 1,132 11 27,791 (1,300) 100 4,075 30,577
Purchase of treasury
stock.................. (223) (9,001) (9,001)
Tax benefit related to
stock options.......... 5,614 5,614
------ ---- -------- -------- ------- ---- ------ --------
Balances at March 31,
1999................... 61,292 613 267,699 402,112 (2,567) (123) (4,926) 662,931
Net income.............. 113,319 113,319
Change in unrealized
appreciation of
investments, net
(unaudited)............ 1,103 1,103
Reclassification
adjustment for gains
realized in net income,
net (unaudited)........ (4,123) (4,123)
Translation adjustment
(unaudited)............ (1,171) (1,171)
--------
Comprehensive income
(unaudited)............ 109,128
Proceeds from sales of
shares through stock
plans (unaudited)...... 2,645 26 66,020 (2,495) 123 4,926 68,477
Tax benefit related to
stock options
(unaudited)............ 24,797 24,797
------ ---- -------- -------- ------- ---- ------ --------
Balances at December 31,
1999 (unaudited)....... 63,937 $639 $358,516 $512,936 $(6,758) -- $ -- $865,333
====== ==== ======== ======== ======= ==== ====== ========
</TABLE>

See accompanying notes to consolidated financial statements.

III-30
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
----------------------- -----------------------------
1999 1998 1999 1998 1997
----------- ----------- --------- -------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............. $113,319 $ 50,958 $ 72,872 $ 72,562 $ 51,327
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Minority interest in
consolidated joint
venture.............. (134) 321 172 (28) (1,282)
Equity in net (income)
loss of affiliates... (625) 110 155 1,162 1,566
Gain on sale of
affiliate............ (842) -- -- (12,625) --
Depreciation and
amortization......... 31,430 31,145 40,461 26,907 22,986
(Gain) loss on sale of
fixed assets......... 402 (3,871) 729 1,813 164
Loss on disposition of
assets related to
merger............... -- -- -- 5,607 --
Gain on sale of
marketable
securities........... (6,063) (1,454) (1,454) (4,098) (8,393)
Provision for doubtful
accounts............. 6,427 5,428 6,027 4,302 4,840
Charge for acquired
in-process
technology........... -- 44,115 44,115 1,500 --
Change in assets and
liabilities, net of
acquisitions:
Receivables.......... (234,879) (176,546) (11,702) (40,432) (28,018)
Inventories.......... (462) (6,591) 1,282 (1,753) (1,626)
Other assets......... (71,249) (13,434) (24,266) (5,660) 8,142
Accounts payable..... 26,092 8,322 1,622 12,783 4,824
Accrued liabilities.. 53,016 83,749 32,797 29,217 24,307
Deferred income
taxes............... (535) 478 (12,042) (12,264) 1,165
-------- -------- --------- -------- --------
Net cash (used in)
provided by
operating
activities......... (84,103) 22,730 150,768 78,993 80,002
-------- -------- --------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale of
property and
equipment............ 56 8,234 8,281 25 171
Proceeds from sales of
marketable
securities........... 7,037 1,818 1,818 7,276 21,152
Purchase of marketable
securities........... -- -- -- (2,762) --
Proceeds from sale of
affiliate............ 8,842 -- -- -- --
Capital expenditures.. (85,023) (95,697) (115,820) (45,238) (39,124)
Investment in
affiliates, net...... (2,949) (5,128) (5,478) 16,579 (11,271)
Purchase of held-to-
maturity securities.. -- -- -- (1,008) (23,627)
Proceeds from maturity
of securities........ -- 17,271 17,306 13,338 20,598
Change in short-term
investments, net..... (20,630) 117,551 76,755 (34,504) (62,132)
Acquisition of
Westwood Studios,
Inc.................. -- (122,688) (122,688) -- --
Acquisition of other
subsidiaries, net of
cash acquired........ (582) (11,805) (11,805) (3,225) --
-------- -------- --------- -------- --------
Net cash used in
investing
activities......... (93,249) (90,444) (151,631) (49,519) (94,233)
-------- -------- --------- -------- --------
FINANCING ACTIVITIES:
Proceeds from sales of
shares through
employee stock plans
and other plans...... 68,477 21,374 30,577 37,748 21,001
Purchase of treasury
shares............... -- -- (9,001) -- --
Repayment of notes
receivable........... -- -- -- 87 101
Tax benefit from
exercise of stock
options.............. 24,797 4,063 5,614 7,931 9,210
Proceeds from minority
interest investment
in consolidated
joint venture........ -- 2,109 2,109 -- --
-------- -------- --------- -------- --------
Net cash provided by
financing
activities......... 93,274 27,546 29,299 45,766 30,312
-------- -------- --------- -------- --------
Translation
adjustment............ (718) 1,666 (2,191) (1,273) 185
-------- -------- --------- -------- --------
Increase (decrease) in
cash and cash
equivalents........... (84,796) (38,502) 26,245 73,967 16,266
Beginning cash and cash
equivalents........... 242,208 215,963 215,963 141,996 125,730
-------- -------- --------- -------- --------
Ending cash and cash
equivalents........... 157,412 177,461 242,208 215,963 141,996
Short-term
investments........... 89,758 23,775 70,614 158,597 126,145
-------- -------- --------- -------- --------
Ending cash, cash
equivalents and short-
term investments...... $247,170 $201,236 $ 312,822 $374,560 $268,141
======== ======== ========= ======== ========
Supplemental cash flow
information:
Cash paid during the
year for income
taxes................ $ 9,711 $ 22,325 $ 43,050 $ 32,888 $ 15,323
======== ======== ========= ======== ========
Non-cash investing
activities:
Change in unrealized
appreciation of
investments and
marketable
securities........... $ (4,441) $ (384) $ 1,805 $ (1,411) $(19,562)
======== ======== ========= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

III-31
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL INFORMATION

The unaudited consolidated financial statements for the nine months ended
December 31, 1999 and 1998 and as of December 31, 1999 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation have been
reflected. Certain amounts have been reclassified to conform to fiscal 2000
presentation. Operating results for the nine months ended December 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending March 31, 2000.

TRACKING STOCK PROPOSAL (UNAUDITED)

The stockholders of Electronic Arts Inc. ("Electronic Arts") are scheduled
to vote on a proposal (the "Tracking Stock Proposal") to authorize the issuance
of a new series of common stock to be designated as Class B common stock
("Tracking Stock"), intended to reflect the performance of Electronic Arts'
online and e-Commerce business divisions ("EA.com"). At the time of
authorization of the Tracking Stock, Electronic Arts' existing common stock
will be re-classified as Class A common stock ("Class A Stock") and that stock
will be intended to reflect the performance of Electronic Arts' other
businesses ("EA") which includes a "Retained Interest" in EA.com.

Pursuant to agreements with America Online, Inc. ("AOL") and News America
Corporation ("News Corp."), upon authorization of the Tracking Stock,
Electronic Arts will sell shares to AOL and News Corp. representing 10 percent
and 5 percent, respectively, of the initial equity value attributable to
EA.com. The Company will also issue a warrant to AOL which represents 5 percent
of the initial equity attributable to EA.com.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The accompanying consolidated financial statements include the accounts of
Electronic Arts Inc. and its wholly-owned and majority-owned subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation.

A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements of the Company follows:

(a) Fiscal Year

The Company's fiscal year is reported on a 52/53-week period that ends on
the Saturday nearest to March 31 in each year. The results of operations for
fiscal 1999, 1998 and 1997 contain 52 weeks. Since the results of an additional
week are not material, and for clarity of presentation herein, all fiscal
periods are treated as ending on a calendar month end.

(b) Revenue Recognition

The Company's revenue recognition policies are in compliance with American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,
"Software Revenue Recognition", and SOP 98-4 "Deferral of the Effective Date of
a Provision of SOP 97-2", which provide guidance on generally accepted
accounting

III-32
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

principles for recognizing revenue on software transactions. SOP 97-2 requires
that revenue recognized from software arrangements be allocated to each element
of the arrangement based on the relative fair values of the elements. The
Company has adopted the provisions of these SOPs as of April 1, 1998. The
adoption has, in certain circumstances, resulted in the deferral of certain
revenues associated with the Company's sales promotions and products with
multiple deliverable elements. Neither the changes in certain business
practices nor the deferral of certain revenues have resulted in a material
impact on the Company's operating results, financial position or cash flows for
the period ended March 31, 1999. Total deferred revenue at March 31, 1999 and
1998 was $8,206,000, and $2,797,000, respectively.

Product Sales: Revenue is generally recognized when the product is shipped.
Subject to certain limitations, the Company permits customers to obtain
exchanges within certain specified periods and provides price protection on
certain unsold merchandise. Revenue is recognized net of an allowance for
returns and price protection.

Online Subscription Revenues: Monthly online subscription revenues are
recognized over the period in which the services are provided.

Software Licenses: For those agreements which provide the customers the
right to multiple copies in exchange for guaranteed minimum royalty amounts,
revenue is recognized at delivery of the product master or the first copy. Per
copy royalties on sales that exceed the guarantee are recognized as earned.

Revenue from the licensing of software was $17,788,000, $15,431,000, and
$26,749,000 for the fiscal years ended March 31, 1999, 1998 and 1997,
respectively.

Cash equivalents consist of highly liquid investments with insignificant
rate risk and with maturities of three months or less at the date of purchase.
Short-term investments include securities with maturities greater than three
months and less than one year, except for certain investments with stated
maturities greater than one year. Long-term investments consist of securities
with maturities greater than one year.

The Company accounts for investments under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," ("SFAS 115"). The Company's policy is to protect the value of its
investment portfolio and to minimize principal risk by earning returns based on
current interest rates. Management determines the appropriate classification of
its debt and equity securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Securities classified as held-to-maturity are
carried at amortized cost, which is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Debt securities, not classified as held-to-maturity, are classified as
available-for-sale and are stated at fair value. Securities sold is based on
the specific identification method.

(d) Prepaid Royalties

Prepaid royalties consist primarily of prepayments for manufacturing
royalties, original equipment manufacturer (OEM) fees and license fees paid to
celebrities and professional sports organizations for use of their trade name.
Also included in prepaid royalties are prepayments made to independent software
developers under development arrangements that have alternative future uses.
Prepaid royalties are expensed at the contractual royalty rate as cost of goods
sold based on actual net product sales. Management evaluates the future
realization of prepaid royalties quarterly and charges to income any amounts
that management deems unlikely to be realized

III-33
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

through product sales. Royalty advances are classified as current and non-
current assets based upon estimated net product sales for the following year.
The current portion of prepaid royalties, included in other current assets, was
$50,801,000 (unaudited), $35,057,000 and $20,470,000 at December 31, 1999,
March 31, 1999 and 1998, respectively. The long-term portion of prepaid
royalties, included in other assets, was $13,948,000 (unaudited), $7,602,000
and $2,289,000 at December 31, 1999, March 31, 1999 and 1998, respectively.

(e) Software Development Costs

Research and development costs, which consist primarily of software
development costs, are expensed as incurred. SFAS No. 86 provides for the
capitalization of certain software development costs incurred after
technological feasibility of the software is established or for development
costs that have alternative future uses. Under the Company's current practice
of developing new products, the technological feasibility of the underlying
software is not established until substantially all product development is
complete, which generally includes the development of a working model. The
software development costs that have been capitalized to date have been
insignificant.

(f) Inventories

Inventories are stated at the lower of cost or market. Inventories at
December 31, 1999, March 31, 1999 and 1998 consisted of (in thousands):

<TABLE>
<CAPTION>
March 31,
December 31, ---------------
1999 1999 1998
------------ ------- -------
(unaudited)
<S> <C> <C> <C>
Raw materials and work in process........... $ 1,848 $ 2,983 $ 2,392
Finished goods.............................. 20,990 19,393 17,234
------- ------- -------
$22,838 $22,376 $19,626
======= ======= =======
</TABLE>

(g) Advertising Costs

The Company generally expenses advertising costs as incurred, except for
production costs associated with media campaigns which are deferred and charged
to expense at the first run of the ad. Cooperative advertising with
distributors and retailers is accrued when revenue is recognized. Cooperative
advertising credits are reimbursed when qualifying claims are submitted. For
the fiscal years ended March 31, 1999, 1998 and 1997, advertising expenses
totaled approximately $72,437,000, $55,090,000 and $36,159,000, respectively.

(h) Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated using
the accelerated and straight-line methods over the following useful lives:

<TABLE>
<S> <C>
Buildings..................... 20 to 25 years
Computer equipment............ 3 to 7 years
Furniture and equipment....... 3 to 7 years
Leasehold improvements........ Lesser of the lease terms or the
estimated useful lives of the improvements
</TABLE>

(i) Intangible Assets

Intangible assets net of amortization at March 31, 1999 and 1998, of
$90,682,000, and $2,148,000, respectively, include goodwill, costs of obtaining
product technology and noncompete covenants which are

III-34
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

amortized using the straight-line method over the lesser of their estimated
useful lives or the agreement terms, typically from two to twelve years.
Amortization expense for fiscal years ended March 31, 1999, 1998 and 1997 was
$5,880,000, $692,000, and $654,000, respectively. The Company assesses the
recoverability of goodwill by determining whether the carried value of the
assets may be recovered through estimated future cash flows.

(j) Income Taxes

Income tax expense is based on reported earnings before income taxes.
Deferred income taxes reflect the impact of temporary differences between
assets and liabilities recognized for financial reporting purposes and such
amounts recognized for tax purposes.

(k) Foreign Currency Translation

For each of the Company's foreign subsidiaries the functional currency is
its local currency. Assets and liabilities of foreign operations are translated
into U.S. dollars using current exchange rates, and revenues and expenses are
translated into U.S. dollars using average exchange rates. The effects of
foreign currency translation adjustments are deferred and included as a
component of accumulated other comprehensive income (loss) in stockholders'
equity.

Foreign currency transaction gains and losses are a result of the effect of
exchange rate changes on transactions denominated in currencies other than the
functional currency. Included in interest and other income in the statements of
income are foreign currency transaction losses of $1,168,000, $517,000 and
$1,024,000, for the fiscal years ended March 31, 1999, 1998 and 1997,
respectively.

(l) Net Income Per Share

The following summarizes the computations of Basic Earnings Per Share
("EPS") and Diluted EPS. Basic EPS is computed as net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur from common shares
issuable through stock-based compensation plans including stock options,
restricted stock awards, warrants and other convertible securities using the
treasury stock method.

(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
----------------------- -----------------------
1999 1998 1999 1998 1997
----------- ----------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net income ................... $113,319 $50,958 $72,872 $72,562 $51,327
-------- ------- ------- ------- -------
Shares used to compute net
income per share:
Weighted-average common
shares....................... 62,390 60,621 60,748 58,867 57,544
Dilutive stock options........ 3,445 2,589 2,524 2,091 2,013
-------- ------- ------- ------- -------
Dilutive potential common
shares....................... 65,835 63,210 63,272 60,958 59,557
-------- ------- ------- ------- -------
Net income per share:
Basic........................ $ 1.82 $ 0.84 $ 1.20 $ 1.23 $ 0.89
Diluted...................... $ 1.72 $ 0.81 $ 1.15 $ 1.19 $ 0.86
</TABLE>

Excluded from the above computation of weighted-average shares for diluted
EPS for the nine months ended December 31, 1999 and 1998 and the fiscal years
ended March 31, 1999, 1998 and 1997 were options to

III-35
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

purchase 146,728 (unaudited), 391,693 (unaudited), 645,000, 137,000 and 623,000
shares of common stock, respectively, as the options' exercise price was
greater than the average market price of the common shares. For the nine months
ended December 31, 1999, the weighted-average exercise price of the respective
options was $75.13 (unaudited). For the fiscal year ended March 31, 1999, the
weighted-average exercise price of the respective options was $47.33.

(m) Employee Benefits

The Company has a 401(k) Plan covering substantially all of its U.S.
employees. The 401(k) Plan permits the Company to make discretionary
contributions to employees' accounts based on the Company's financial
performance. The Company contributed $2,092,000, $902,000 and $925,000 to the
Plan in fiscal 1999, fiscal 1998 and fiscal 1997, respectively.

(n) Stock-based Compensation

The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").

(o) Impact of Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting
for Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 is effective as of the beginning of the first quarter of
the fiscal year beginning after June 15, 2000. The Company is determining the
effect of SFAS 133 on its financial statements.

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. SOP 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The adoption of SOP 98-1 did not have a material impact on
the Company's results of operations.

In December 1998, the Accounting Standards Executive Committee of the AICPA
issued SOP 98-9, "Software Revenue Recognition, with Respect to Certain
Arrangements," which required recognition of revenue using the "residual
method" in a multiple element arrangement when fair value does not exist for
one or more of the undelivered elements in the arrangement. SOP 98-9 is
effective for transactions entered into after March 15, 1999. Under the
"residual method", the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2. The adoption of SOP
98-9 in fiscal year 2000 did not have a material change on the accounting for
revenues for the Company.

(p) Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates include provisions for doubtful accounts,
sales returns and allowances, warranty provisions, and estimates regarding the
recoverability of prepaid royalty advances and inventories. Actual results
could differ from those estimates.

III-36
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(q) Reclassifications

Certain amounts have been reclassified to conform to fiscal 1999
presentation.

(r) Long-Lived Assets

The Company evaluates long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the asset exceeds its fair value.

(2) FINANCIAL INSTRUMENTS

(a) Cash and Investments

<TABLE>
<CAPTION>
March 31,
-----------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Cash and cash equivalents:
Cash.................................................. $106,641 $ 88,241
Municipal securities.................................. -- 16,272
Money market funds.................................... 135,567 111,450
-------- --------
Cash and cash equivalents............................. 242,208 215,963
-------- --------
Short-term investments:
Available-for-sale
Commercial paper..................................... -- 15,452
Municipal securities................................. 21,700 24,601
Money market preferreds.............................. 43,114 101,438
Held-to-maturity
Municipal securities................................. -- 17,106
U.S. Treasury securities............................. 5,800 --
-------- --------
Short-term investments................................ 70,614 158,597
-------- --------
Cash, cash equivalents and short-term investments...... $312,822 $374,560
======== ========
Long-term investments:
U.S. Treasury securities.............................. $ 18,400 $ 24,200
======== ========
</TABLE>

Long-term and short-term held-to-maturity investments include commercial
notes with original maturities of five to eight years secured by U.S. Treasury
Notes which enable the Company to take advantage of certain tax incentives from
its Puerto Rico operation. These investments are treated as held-to-maturity
for financial reporting purposes.

The fair value of held-to-maturity securities at March 31, 1999 was
$24,353,000 which included gross unrealized gains of $153,000. The fair value
of held-to-maturity securities at March 31, 1998 was $41,326,000 which included
gross unrealized gains of $27,000 and gross unrealized losses of $7,000.

III-37
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(b) Marketable Securities

Marketable securities are comprised of equity securities. The Company has
accounted for investments in equity securities as "available-for-sale" and has
stated applicable investments at fair value, with net unrealized appreciation
reported as a separate component of accumulated other comprehensive income
(loss) in stockholders' equity. Marketable securities had an aggregate cost of
$585,000 and $1,143,000 at March 31, 1999 and 1998, respectively. At March 31,
1999, marketable securities included gross unrealized gains of $4,299,000. At
March 31, 1998 marketable securities included gross unrealized gains of
$2,771,000 and gross unrealized losses of $193,000.

For the fiscal years ended March 31, 1999 and 1998, the fair value of
marketable securities sold was $1,818,000 and $7,276,000, respectively. The
gross realized gains from these sales totaled $1,454,000 and $4,098,000 for
fiscal 1999 and 1998, respectively. The gain on sale of investments is based on
the specific identification method.

The Company utilizes foreign currency forward exchange contracts to hedge
foreign currency market exposures of underlying assets, liabilities and other
obligations, primarily certain intercompany receivables that are denominated in
foreign currencies. The Company does not use forward exchange contracts for
speculative or trading purposes. The Company's accounting policies for these
instruments are based on the Company's designation of such instruments as
hedging transactions. The criteria the Company uses for designating an
instrument as a hedge include the instrument's effectiveness in risk reduction
and one-to-one matching of forward exchange contracts to underlying
transactions. Gains and losses on currency forward contracts that are
designated and effective as hedges of firm commitments are deferred and
recognized in income in the same period that the underlying transactions are
settled. Gains and losses on currency forward contracts that are designated and
effective as hedges of existing transactions are recognized in income in the
same period as losses and gains on the underlying transactions are recognized
and generally offset. Gains and losses on any instruments not meeting the above
criteria would be recognized in income in the current period. The Company
transacts business in various foreign currencies. At March 31, 1999, the
Company had foreign exchange contracts, all with maturities of less than nine
months, to purchase and sell approximately $178,178,000 in foreign currencies,
primarily in British Pounds, Canadian Dollars, German Deutschmarks, Japanese
Yen and other European currencies.

Fair value represents the difference in value of the contracts at the spot
rate and the forward rate, plus the unamortized premium or discount. At March
31, 1999, fair value of these contracts is not significant. The counterparties
to these contracts are substantial and creditworthy multinational commercial
banks. The risks of counterparty nonperformance associated with these contracts
are not considered to be material.

(3) COMMITMENTS

Lease Obligations

The Company leases certain of its current facilities and certain equipment
under non-cancelable operating lease agreements. The Company is required to pay
property taxes, insurance and normal maintenance costs for certain of its
facilities and will be required to pay any increases over the base year of
these expenses on the remainder of the Company's facilities.

In February 1995, the Company entered into a master operating lease, as
subsequently amended, for land and a building to be constructed in Redwood
City, California. The initial term of the lease is for a period of

III-38
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

three years from November 30, 1998. Monthly lease payments are based upon the
London InterBank Offered Rate. The Company has the option to purchase the
property for the unamortized financed balance at any time after the non-
cancelable lease term, or it may terminate the lease at any time after the non-
cancelable term by arranging a third party sale or by making a termination
payment. Should the Company elect to terminate the lease, it will guarantee a
residual value of up to 85% of the unamortized value of the property. As part
of the agreement, the Company must also comply with certain financial
covenants.

Total future minimum lease commitments as of March 31, 1999 are:

<TABLE>
<CAPTION>
Year Ended March 31: (in thousands)
-------------------- --------------
<S> <C>
2000..................................................... $18,284
2001..................................................... 13,758
2002..................................................... 6,144
2003..................................................... 4,709
2004..................................................... 3,770
Thereafter............................................... 5,024
-------
$51,689
=======
</TABLE>

Total rent expense for all operating leases was $19,480,000, $13,842,000 and
$11,430,000, for the fiscal years ended March 31, 1999, 1998 and 1997,
respectively.

(4) CONCENTRATION OF CREDIT RISK

The Company extends credit to various companies in the retail and mass
merchandising industry. Collection of trade receivables may be affected by
changes in economic or other industry conditions and may, accordingly, impact
the Company's overall credit risk. Although the Company generally does not
require collateral, the Company performs ongoing credit evaluations of its
customers and reserves for potential credit losses are maintained.

Short-term investments are placed with high credit-quality financial
institutions or in short-duration high quality securities. The Company limits
the amount of credit exposure in any one institution or type of investment
instrument.

(5) LITIGATION

The Company is subject to pending claims and litigation. Management, after
review and consultation with counsel, believes that such lawsuits would not
have a material adverse effect upon the consolidated financial condition of the
Company.

(6) PREFERRED STOCK

At March 31, 1999 and 1998, the Company had 1,000,000 shares of Preferred
Stock authorized but unissued. The rights, preferences, and restrictions of the
Preferred Stock may be designated by the Board of Directors without further
action by the Company's stockholders.

(7) TREASURY STOCK

In February 1999, the Board of Directors approved a plan to purchase up to
two million shares of the Company's common stock. For the year ended March 31,
1999, the Company repurchased 222,500 shares for

III-39
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

approximately $9,001,000 under this program. Of these, 99,937 shares were
reissued under the Company's Stock Plans as of March 31, 1999.

When treasury shares are reissued, any excess of the average acquisition
cost of the shares over the proceeds from reissuance is charged to retained
earnings.

(8) STOCK PLANS

(a) Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan program whereby eligible
employees may authorize payroll deductions of up to 10% of their compensation
to purchase shares at 85% of the lower of the fair market value of the Common
Stock on the date of commencement of the offering or on the last day of the
six-month purchase period. The program commenced in September 1991. In fiscal
1999, 241,514 shares were purchased by the Company and distributed to employees
at prices ranging from $26.19 to $36.60. In fiscal 1998, 199,680 shares were
purchased by the Company and distributed to employees at prices ranging from
$26.14 to $26.19. In fiscal 1997, 184,596 shares were purchased by the Company
and distributed to employees at prices ranging from $21.25 to $25.18 per share.
The weighted average fair value of the fiscal 1999, fiscal 1998 and fiscal 1997
awards was $18.27, $9.43, and $10.41, respectively. Under the Employee Stock
Purchase Plan 30,928 shares were distributed from reissued treasury stock in
fiscal 1999. No shares were distributed from reissued treasury stock in fiscal
1998 or fiscal 1997. At March 1999, the Company had 237,444 shares of its
Common Stock reserved for future issuance under the Plan.

Prior to the Maxis merger in July 1997, Maxis employees were eligible to
participate in an employee stock purchase plan. In fiscal 1998 and 1997, Maxis
purchased 7,684, and 18,220 shares, respectively, under this plan which were
distributed to participating employees. Shares were purchased at prices ranging
from $27.70 to $27.99 in fiscal 1998, and $28.56 to $46.08 in fiscal 1997.

(b) Stock Option Plans

The Company's 1991 Stock Option Plan, 1993 Stock Option Plan, 1995 Stock
Option Plan and Directors' Plan ("Option Plans") provide stock options for
employees, officers and independent contractors, and for directors,
respectively. Pursuant to these Option Plans, the Board of Directors may grant
non-qualified and incentive stock options to employees and officers and non-
qualified options to celebrities, employees of certain companies in which the
Company has an equity investment, and directors, at not less than the fair
market value on the date of grant.

Under the Company's stock option plans, 69,009 shares were reissued from
treasury stock in fiscal 1999. No shares were distributed from reissued
treasury stock in fiscal 1998 or fiscal 1997.

The options generally expire ten years from the date of grant and are
generally exercisable in monthly increments over 50 months. Certain options
assumed in connection with the Maxis merger in fiscal 1998 expire ten years
from the date of grant, and vest and become exercisable at a rate of 25% on the
first anniversary of the date of grant and 25% of the shares each year
thereafter.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123"). Accordingly, no compensation expense has been
recognized for options granted under the Company's employee-based stock option
plans. Had compensation expense been determined based on the fair value at the
grant dates for awards under those plans

III-40
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

in accordance with the provisions of SFAS 123, the Company's pro forma net
income and net income per share for fiscal 1999, 1998 and 1997 would have been:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In thousands, except
per share data)
<S> <C> <C> <C>
Net Income
As reported...................................... $72,872 $72,562 $51,327
Pro forma........................................ $45,886 $52,892 $37,343
Earnings per Share
As reported--basic............................... $ 1.20 $ 1.23 $ 0.89
Pro forma--basic................................. $ 0.77 $ 0.91 $ 0.66
As reported--diluted............................. $ 1.15 $ 1.19 $ 0.86
Pro forma--diluted............................... $ 0.74 $ 0.88 $ 0.64
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions are used for grants made in 1999, 1998 and 1997 under the stock
plans: risk-free interest rates of 4.39% to 5.55% in 1999, 5.31% to 6.42% in
1998; and 5.48% to 6.36% in 1997; expected volatility of 59% in fiscal 1999 and
58% in both fiscal 1998 and fiscal 1997; expected lives of 2.27 years in fiscal
1999 and 2.25 years in fiscal 1998 and fiscal 1997 under the Option Plans and
one year for the Employee Stock Purchase Plan. No dividends are assumed in the
expected term. The Company's calculations are based on a multiple option
valuation approach and forfeitures are recognized when they occur. The above
disclosures include options granted under the former Maxis option plans as if
they were initially granted by the Company.

Because SFAS 123 is applicable only to options granted subsequent to March
31, 1995, the impact of non-vested stock options granted prior to this date has
been excluded from the pro forma calculation. Accordingly, pro forma
adjustments are not indicative of future period pro forma adjustments as the
pro forma effect will not be fully reflected until subsequent years.

Additional information regarding options outstanding as of March 31, 1999 is
as follows:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Number of Remaining Exercise Number of Exercise
Range of Exercise Prices Shares Contractual Life Price Shares Price
------------------------ ---------- ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.720--$13.500........ 1,226,919 3.32 $ 8.41 1,226,919 $ 8.41
$13.625--$23.500........ 1,987,338 5.91 20.46 1,434,963 19.36
$23.750--$27.500........ 1,133,743 7.59 25.00 555,025 25.18
$27.625--$29.875........ 1,150,460 7.15 29.73 688,097 29.72
$30.000--$34.875........ 1,169,984 7.53 33.30 580,610 32.96
$35.000--$36.750........ 1,198,743 8.48 35.44 210,790 35.46
$37.000--$43.125........ 1,363,386 9.18 40.54 169,835 40.03
$43.625--$45.063........ 1,228,737 9.47 43.82 160,660 43.71
$45.500--$54.250........ 979,949 9.33 47.53 67,176 47.18
---------- ---- ------ --------- ------
$ 0.720--$54.250........ 11,439,259 7.42 $30.65 5,094,075 $22.79
========== ==== ====== ========= ======
</TABLE>

III-41
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following summarizes the activity under the Company's stock option plans
during the fiscal years ended March 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
Options Outstanding
--------------------------
Weighted-
Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Balance at March 31, 1996........................ 7,922,159 $17.46
Granted.......................................... 2,501,965 31.64
Canceled......................................... (779,514) 23.57
Exercised........................................ (1,321,042) 12.19
---------- ------
Balance at March 31, 1997 (3,748,864 shares were
exercisable at a weighted average price of
$15.20)......................................... 8,323,568 21.97
Granted.......................................... 3,833,539 32.92
Canceled......................................... (616,275) 37.96
Exercised........................................ (1,688,702) 18.92
---------- ------
Balance at March 31, 1998 (3,961,559 shares were
exercisable at a weighted average price of
$18.83)......................................... 9,852,130 25.76
Granted.......................................... 3,147,216 44.18
Canceled......................................... (568,983) 34.74
Exercised........................................ (991,104) 22.73
---------- ------
Balance at March 31, 1999........................ 11,439,259 $30.65
========== ======
Options available for grant at March 31, 1999.... 787,427
</TABLE>

(9) PROPERTY AND EQUIPMENT

Property and equipment at March 31, 1999 and 1998 consisted of:

<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Computer equipment....................................... $127,330 $105,183
Buildings................................................ 62,413 31,239
Land..................................................... 50,570 14,885
Office equipment, furniture and fixtures................. 21,296 18,670
Leasehold improvements................................... 5,749 12,071
Warehouse equipment and other............................ 3,813 4,414
-------- --------
271,171 186,462
Less accumulated depreciation and amortization........... (89,905) (81,367)
-------- --------
$181,266 $105,095
======== ========
</TABLE>

Depreciation and amortization expenses associated with property and
equipment amounted to $34,581,000, $26,215,000 and $22,332,000, for the fiscal
years ended March 31, 1999, 1998 and 1997, respectively.

III-42
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(10) ACCRUED LIABILITIES

Accrued liabilities at December 31, 1999, March 31, 1999 and 1998 consisted
of (in thousands):

<TABLE>
<CAPTION>
March 31,
December 31, -----------------
1999 1999 1998
------------ -------- --------
(unaudited)
<S> <C> <C> <C>
Accrued expenses............................. $ 53,058 $ 46,595 $ 25,872
Accrued compensation and benefits............ 53,269 46,541 29,318
Accrued royalties............................ 69,601 36,429 36,830
Accrued income taxes......................... 34,612 23,724 26,095
Deferred revenue............................. 2,277 8,206 2,797
Warranty reserve............................. 9,594 7,900 3,462
Deferred income taxes........................ -- 2,933 1,106
-------- -------- --------
$222,411 $172,328 $125,480
======== ======== ========
</TABLE>

(11) BUSINESS COMBINATIONS AND DIVESTITURE

(a) Westwood Studios

In September 1998, the Company completed the acquisition of Westwood
Studios, Inc. and certain assets of the Irvine, California-based Virgin Studio
(collectively "Westwood") for approximately $122,688,000 in cash, including
transaction expenses. The adjusted allocation of the excess purchase price over
the net tangible liabilities assumed was $128,573,000 of which, based on
management's estimates prepared in conjunction with a third party valuation
consultant, $41,836,000 was allocated to purchased in-process research and
development and $86,737,000 was allocated to other intangible assets. Amounts
allocated to other intangibles include franchise trade names of $32,357,000,
existing technology of $6,510,000, workforces of $1,680,000 and other goodwill
of $46,190,000 and are being amortized over lives ranging from two to twelve
years. Purchased in-process research and development includes the value of
products in the development stage that are not considered to have reached
technological feasibility or to have alternative future use. Accordingly, this
non-recurring item was expensed in the Consolidated Statement of Income upon
consummation of the acquisition. The non-recurring charge for in-process
research and development reduced diluted earnings per share by approximately
$0.59 in the fiscal year 1999. The results of the operations of Westwood and
the estimated fair value of assets acquired and liabilities assumed are
included in the Company's financial statements from the date of acquisition.

In conjunction with the merger of Westwood, the Company accrued
approximately $1,500,000 related to direct transaction costs and other related
accruals. At March 31, 1999, there were $725,000 in accruals remaining related
to these items.

In connection with the Westwood acquisition, the purchase price has been
allocated to the assets and liabilities assumed based upon the fair values on
the date of acquisition, as follows (in thousands):

<TABLE>
<S> <C>
Current assets..................................................... $ 4,500
Property and equipment............................................. 3,257
In-process technology.............................................. 41,836
Other intangible assets............................................ 86,737
Current liabilities................................................ (13,642)
--------
Total purchase price............................................... $122,688
========
</TABLE>

III-43
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table reflects unaudited pro forma combined results of
operations of the Company and Westwood on the basis that the acquisition had
taken place at the beginning of the fiscal year for each of the periods
presented (in thousands, except per share data):

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revenues.............................................. $1,229,055 $1,011,234
Net income............................................ $ 111,308 $ 64,604
Net income per share--basic........................... $ 1.83 $ 1.10
Net income per share--diluted......................... $ 1.76 $ 1.06
Number of shares used in computation--basic........... 60,748 58,867
Number of shares used in computation--diluted......... 63,272 60,958
</TABLE>

In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred
had the acquisition been consummated at the beginning of fiscal 1998 or at the
beginning of fiscal 1999 or of future operations of the combined companies
under the ownership and management of the Company.

(b) ABC Software

In July 1998, the Company acquired ABC Software AG and ABC Software GmbH
(collectively "ABC"), independent distributors of entertainment, edutainment
and application software in Switzerland and Austria, respectively, for
approximately $9,466,000 in cash (net of cash acquired of $5,099,000) and
$570,000 in other consideration. The transaction has been accounted for under
the purchase method. The excess purchase price over the fair value of the net
tangible assets acquired of approximately $7,377,000 was allocated to goodwill
and is being amortized over 7 years.

In May 1998, the Company and Square Co., Ltd. ("Square"), a leading
developer and publisher of entertainment software in Japan, completed the
formation of two new joint ventures in North America and Japan. In North
America, the companies formed Square Electronic Arts, LLC ("Square EA"), which
has exclusive publishing rights in North America for future interactive
entertainment titles created by Square. Additionally, the Company has the
exclusive right to distribute in North America products published by this joint
venture. The Company contributed $3,000,000 and owns a 30% minority interest in
this joint venture while Square owns 70%. This joint venture is accounted for
under the equity method.

In Japan, the companies established Electronic Arts Square KK ("EA Square
KK"), which will localize and publish in Japan the Company's properties
originally created in North America and Europe, as well as develop and publish
original video games in Japan. The Company contributed cash and has a 70%
majority ownership interest, while Square contributed cash and owns 30%.
Accordingly, the assets, liabilities and results of operations for EA Square KK
are included in the Company's Consolidated Balance Sheets and Results of
Operations since June 1, 1998, the date of formation. Square's 30% interest in
EA Square KK has been reflected as "Minority interest in consolidated joint
venture" on the Company's Consolidated Financial Statements.

(d) Maxis, Inc.

On July 25, 1997, the Company completed a merger with Maxis, Inc. ("Maxis"),
a California-based interactive software developer. Under the transaction,
approximately 4.1 million shares of Electronic Arts' stock were exchanged for
all outstanding Maxis common stock. The transaction was accounted for as a
pooling of interests. The accompanying financial statements, notes and analyses
have been restated for all periods presented to reflect this transaction.

III-44
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In conjunction with the merger of Maxis, the Company recorded costs of
$10,792,000. This charge included direct transaction fees for investment
bankers, attorneys, accountants, and other related costs of approximately
$2,781,000 and costs associated with integrating the operations of the two
companies of approximately $8,011,000. Included in the integration costs were
redundant facility costs, severance payments, equipment abandonment costs and
other asset write downs, contract termination charges and other related
expenses. Of the total merger costs, approximately $5,185,000 related to cash
expenditures while approximately $5,607,000 related to noncash charges. At
March 31, 1999, there were no accruals remaining related to these merger
related costs.

Total net revenue and net income (loss) for the individual entities for the
fiscal year ended March 31, 1997 is as follows (in thousands):

<TABLE>
<CAPTION>
Electronic
Arts Maxis Combined
---------- ------- --------
1997
<S> <C> <C> <C>
Net revenue..................................... $624,766 $48,262 $673,028
Net income (loss)............................... 53,002 (1,675) 51,327
</TABLE>

(e) Creative Wonders, LLC

In December 1997, the Company completed the sale of its 50% ownership
interest in Creative Wonders, LLC, a joint venture company formed with the Walt
Disney Company for $16,750,000 in cash. The Company recognized a gain of
$12,625,000, which is included in interest and other income. Prior to the sale,
the Company distributed children's interactive titles published and sold by the
joint venture into the retail channel. The investment was accounted for under
the equity method prior to sale.

(f) Other Business Combinations

Additionally, during the quarter ended June 30, 1998, the Company acquired
two software development companies. In connection with these acquisitions, the
Company incurred a charge of $2,279,000 for acquired in-process technology. The
charge was made after the Company concluded that the in-process technology had
not reached technological feasibility and had no alternative future use after
taking into consideration the potential for usage of the software in different
products and resale of the software.

(12) INCOME TAXES

The Company's pretax income from operations for the fiscal years ended March
31, 1999, 1998 and 1997 consisted of the following components:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
Domestic........................................... $ 79,789 $ 51,620 $27,614
Foreign............................................ 38,669 56,640 48,434
-------- -------- -------
Total pretax income................................ $118,458 $108,260 $76,048
======== ======== =======
</TABLE>

III-45
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income tax expense (benefit) for the fiscal years ended March 31, 1999, 1998
and 1997 consisted of:

<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
(in thousands)
<S> <C> <C> <C>
1999:
Federal............................................. $31,204 $(10,340) $20,864
State............................................... 4,401 (2,590) 1,811
Foreign............................................. 15,715 1,410 17,125
Charge in lieu of taxes from employee stock plans... 5,614 -- 5,614
------- -------- -------
$56,934 $(11,520) $45,414
======= ======== =======
1998:
Federal............................................. $14,751 $ (7,585) $ 7,166
State............................................... 1,361 (727) 634
Foreign............................................. 18,561 1,434 19,995
Charge in lieu of taxes from employee stock plans... 7,931 -- 7,931
------- -------- -------
$42,604 $ (6,878) $35,726
======= ======== =======
1997:
Federal............................................. $ 3,145 $ (3,472) $ (327)
State............................................... 804 (674) 130
Foreign............................................. 16,543 447 16,990
Charge in lieu of taxes from employee stock plans... 9,210 -- 9,210
------- -------- -------
$29,702 $ (3,699) $26,003
======= ======== =======
</TABLE>

The components of the net deferred tax assets as of March 31, 1999 and 1998
consist of:

<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accruals, reserves and other expenses..................... $ 76,015 $ 50,096
Maxis Federal and State loss carryforwards................ -- 2,088
Foreign loss and credit carryforwards..................... -- 11,514
-------- --------
Total gross deferred tax assets.......................... 76,015 63,698
Less: valuation allowance................................ -- (11,514)
-------- --------
Net deferred tax assets.................................. $ 76,015 $ 52,184
-------- --------

Deferred tax liabilities:
Undistributed earnings of DISC............................ (1,784) (2,081)
Prepaid royalty expenses.................................. (43,681) (32,422)
Unrealized gains on marketable securities................. (1,395) (848)
Other..................................................... (949) (147)
-------- --------
Total gross deferred tax liabilities..................... $(47,809) $(35,498)
-------- --------
Net deferred tax asset................................... $ 28,206 $ 16,686
======== ========
</TABLE>

At March 31, 1999, deferred tax assets of $25,406,000 were included in other
current assets.

III-46
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The differences between the statutory income tax rate and the Company's
effective tax rate, expressed as a percentage of income before provision for
income taxes, for the years ended March 31, 1999, 1998 and 1997 were as
follows:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory Federal tax rate............................ 35.0 % 35.0 % 35.0 %
State taxes, net of Federal benefit................... 1.5 1.0 0.8
Differences between statutory rate and foreign
effective tax rate................................... (2.5) (2.2) (1.0)
Foreign loss without tax benefit...................... -- -- 1.7
Research and development credits...................... (2.1) (0.6) --
Nondeductible acquisition costs....................... 7.4 -- --
Other................................................. (1.0) (0.2) (2.3)
---- ---- ----
38.3 % 33.0 % 34.2 %
==== ==== ====
</TABLE>

The Company provides for U.S. taxes on an insignificant portion of the
undistributed earnings of its foreign subsidiaries and does not provide taxes
on the remainder. At March 31, 1999, the undistributed foreign earnings of the
foreign subsidiaries amounted to approximately $122,000,000. If these earnings
were distributed to the parent company, foreign tax credits available under
current law would substantially eliminate the resulting Federal tax liability.

The Company's U.S. income tax returns for the years 1992 through 1995 have
been examined by the Internal Revenue Service (IRS). In 1998, the Company
received a notice of deficiencies from the IRS. These deficiencies relate
primarily to operations in Puerto Rico, which the Company is contesting in Tax
Court. The Company believes that any additional liabilities, if any, that arise
from the outcome of this examination will not be material to the Company's
consolidated financial statements.

(13) INTEREST AND OTHER INCOME, NET

Interest and other income, net for the years ended March 31, 1999, 1998 and
1997 consisted of:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Interest income................................... $12,625 $13,649 $ 9,699
Gain on disposition of assets, net................ 725 14,910 8,229
Foreign currency losses........................... (1,168) (517) (1,024)
Equity in net loss of affiliates.................. (155) (1,162) (1,566)
Other income (expense), net....................... 1,153 (2,069) (2,059)
------- ------- -------
$13,180 $24,811 $13,279
======= ======= =======
</TABLE>

(14) COMPREHENSIVE INCOME

In fiscal 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in financial
statements. SFAS 130 requires classification of other comprehensive income in a
financial statement and display of other comprehensive income separately from
retained earnings and additional paid-in capital. Other comprehensive income
includes primarily foreign currency translation adjustments and unrealized
gains (losses) on investments.

III-47
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The change in the components of accumulated other comprehensive income, net
of taxes, is summarized as follows (in thousands):

<TABLE>
<CAPTION>
Foreign Unrealized Accumulated
currency gains other
translation (losses) on comprehensive
adjustments investments income (loss)
----------- ----------- -------------
<S> <C> <C> <C>
Balance at March 31, 1996............ $(2,077) $ 16,266 $ 14,189
Other comprehensive income (loss).... 152 (13,673) (13,521)
------- -------- --------
Balance at March 31, 1997............ (1,925) 2,593 668
Other comprehensive income (loss).... (1,273) (863) (2,136)
------- -------- --------
Balance at March 31, 1998............ (3,198) 1,730 (1,468)
Other comprehensive income (loss).... (2,643) 1,544 (1,099)
------- -------- --------
Balance at March 31, 1999............ (5,841) 3,274 (2,567)
Other comprehensive loss
(unaudited)......................... (1,171) (3,020) (4,191)
------- -------- --------
Balance at December 31, 1999
(unaudited)......................... $(7,012) $ 254 $ (6,758)
======= ======== ========
</TABLE>

Change in unrealized gains (losses) on investments, net are shown net of
taxes of $(1,421,000)(unaudited), $727,000, $(426,000) and $(7,202,000) for the
nine months ended December 31, 1999 and fiscal 1999, 1998 and 1997,
respectively.

The currency translation adjustments are not adjusted for income taxes as
they relate to indefinite investments in non-U.S. subsidiaries.

(15) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash, cash equivalents, short-term investments, receivables, accounts
payable and accrued liabilities--the carrying amount approximates fair value
because of the short maturity of these instruments.

Long-term investments, investments classified as held-to-maturity and
marketable securities--fair value is based on quoted market prices.

(16) SEGMENT INFORMATION

In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
product lines, geographic areas and major customers. The method for determining
what information to report is based on the way that management organizes the
operating segments within the Company for making operational decisions and
assessments of financial performance. The Company's chief operating decision
maker is considered to be the Company's Chief Executive Officer ("CEO"). The
CEO reviews financial information presented on a consolidated basis accompanied
by disaggregated information about revenues by geographic region and by product
lines for purposes of making operating decisions and assessing financial
performance. The Company has four reportable segments: North America, Europe,
Asia Pacific and Japan, which are organized, managed and analyzed
geographically and operate in one industry segment: the creation, marketing and
distribution of entertainment software. Information about the Company's
operations in the North America

III-48
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and foreign areas for the nine months ended December 31, 1999 and 1998 and the
fiscal years ended March 31, 1999, 1998 and 1997 is presented below (in
thousands):

<TABLE>
<CAPTION>
Asia Pacific
North America Europe (excluding Japan) Japan Eliminations Total
------------- -------- ----------------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Nine months ended
December 31, 1999
(unaudited)
Net revenues from
unaffiliated
customers.............. $694,125 $372,559 $37,520 $21,494 $ -- $1,125,698
Intersegment sales...... 23,751 22,414 4,661 -- (50,826) --
-------- -------- ------- ------- -------- ----------
Total net revenues..... 717,876 394,973 42,181 21,494 (50,826) 1,125,698
======== ======== ======= ======= ======== ==========
Operating income
(loss)................. 114,520 35,416 4,035 (222) (1,365) 152,384
Interest income......... 8,676 1,104 123 -- -- 9,903
Depreciation and
amortization........... 22,216 8,099 396 719 -- 31,430
Identifiable assets..... 751,490 389,001 26,460 13,818 -- 1,180,769
Capital expenditures.... 36,700 46,883 1,024 416 -- 85,023
Nine months ended
December 31, 1998
(unaudited)
Net revenues from
unaffiliated
customers.............. $558,255 $328,382 $30,235 $27,267 $ -- $ 944,139
Intersegment sales...... 14,008 9,643 716 12 (24,379) --
-------- -------- ------- ------- -------- ----------
Total net revenues..... 572,263 338,025 30,951 27,279 (24,379) 944,139
======== ======== ======= ======= ======== ==========
Operating income........ 17,289 52,372 3,430 2,853 -- 75,944
Interest income......... 7,412 1,535 110 -- -- 9,057
Depreciation and
amortization........... 21,594 8,196 230 1,125 -- 31,145
Identifiable assets..... 569,275 326,544 20,234 20,437 -- 936,490
Capital expenditures.... 43,901 50,400 399 997 -- 95,697
Fiscal 1999:
Net revenues from
unaffiliated
customers.............. $704,998 $443,937 $39,560 $33,368 $ -- $1,221,863
Intersegment sales...... 32,216 15,062 2,800 12 (50,090) --
-------- -------- ------- ------- -------- ----------
Total net revenues..... 737,214 458,999 42,360 33,380 (50,090) 1,221,863
======== ======== ======= ======= ======== ==========
Operating income........ 78,826 21,052 3,208 2,192 -- 105,278
Interest income......... 9,931 2,551 143 -- -- 12,625
Depreciation and
amortization........... 29,272 9,399 506 1,284 -- 40,461
Identifiable assets..... 596,357 268,152 20,938 16,426 -- 901,873
Capital expenditures.... 54,029 58,383 418 2,990 -- 115,820
Fiscal 1998:
Net revenues from
unaffiliated
customers.............. $519,423 $325,938 $41,494 $21,997 $ -- $ 908,852
Intersegment sales...... 45,913 21,613 513 133 (68,172) --
-------- -------- ------- ------- -------- ----------
Total net revenues..... 565,336 347,551 42,007 22,130 (68,172) 908,852
======== ======== ======= ======= ======== ==========
Operating income
(loss)................. 31,852 51,807 6,995 (7,205) -- 83,449
Interest income......... 10,931 2,471 247 -- -- 13,649
Depreciation and
amortization........... 20,826 4,541 661 879 -- 26,907
Identifiable assets..... 515,728 201,988 17,347 10,618 -- 745,681
Capital expenditures.... 25,423 18,035 669 1,111 -- 45,238
Fiscal 1997:
Net revenues from
unaffiliated
customers.............. $372,616 $233,614 $28,072 $38,726 $ -- $ 673,028
Intersegment sales...... 54,530 6,938 603 122 (62,193) --
-------- -------- ------- ------- -------- ----------
Total net revenues..... 427,146 240,552 28,675 38,848 (62,193) 673,028
======== ======== ======= ======= ======== ==========
Operating income
(loss)................. 17,035 43,295 5,652 (3,213) -- 62,769
Interest income......... 7,820 1,662 217 -- -- 9,699
Depreciation and
amortization........... 17,450 4,609 252 675 -- 22,986
Identifiable assets..... 430,055 121,673 12,820 19,493 -- 584,041
Capital expenditures.... 29,627 7,370 399 1,728 -- 39,124
</TABLE>

For the fiscal year ended March 31, 1999, the Company had sales to one
customer which represented 12% of total net revenues. The Company had no sales
to any one customer in excess of 10% of total net revenues for fiscal years
ended March 31, 1998 and 1997.

III-49
<PAGE>

ELECTRONIC ARTS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Information about the Company's net revenues by product line for the nine
months ended December 31, 1999 and 1998, and the fiscal years ended March 31,
1999, 1998 and 1997 is presented below (in thousands):

<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
------------------- ----------------------------
1999 1998 1999 1998 1997
---------- -------- ---------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
PlayStation.................. $ 471,690 $416,118 $ 519,830 $380,299 $187,531
PC-CD........................ 289,154 186,473 270,793 231,034 216,338
Affiliated label............. 222,534 199,688 248,105 185,865 96,696
N64.......................... 114,873 121,702 152,349 56,677 17,804
License, OEM, Online and
Other....................... 27,447 20,158 30,786 54,977 154,659
---------- -------- ---------- -------- --------
$1,125,698 $944,139 $1,221,863 $908,852 $673,028
========== ======== ========== ======== ========
</TABLE>

(17) AMERICA ONLINE, INC. ("AOL") AGREEMENT

Electronic Arts Inc., EA.com. and AOL entered into a five year agreement
which establishes the basis for EA.com's production of a games site on the
world wide web that will be available to AOL subscribers and to users of other
branded AOL properties. Under this agreement, EA.com is required to launch its
site no later than June 1, 2000, although under circumstances described in the
agreement this date can be extended to September 1, 2000. If the site is not
launched within the specified time frame, and if prescribed additions to the
site are not achieved within a specified subsequent time frame or the site does
not contain content as required under the agreement, then, under certain
circumstances, AOL would have the ability to terminate the agreement.

The Company is required to pay $50 million to AOL as a carriage fee
(including certain advertising fees of which $604 thousand was expensed in the
nine months ended December 31, 1999) under the AOL agreement. Of this amount,
$25 million was paid upon signing the agreement and the remainder is due in
four equal annual installments on the first four anniversaries of the initial
payment. The Company is also required to pay to AOL $31 million as an advance
of a minimum guaranteed revenue share for revenues generated by subscriptions
and other certain commercial transactions on the EA.com site. Of this amount,
$11 million was paid upon signing of the agreement and the remainder is due in
four equal annual installments on the first anniversary of the initial payment.
The fair value of the payments made under the AOL agreement will be determined
by an independent valuation and the resulting amounts will be amortized
(beginning with the site launch) over the remaining term of the five year
agreement.

(18) SUBSEQUENT EVENT

Acquisition of Kesmai

In February 2000, the Company acquired Kesmai, a Virginia-based company that
develops and publishes online games, in exchange for $22,500,000 in cash and
103,227 shares of the Company's common stock valued at $8,650,000. The
transaction is expected to be accounted for under the purchase method.

III-50
<PAGE>

APPENDIX IV

EA.COM

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Electronic Arts Inc. stockholders should read the selected historical
financial data presented below in conjunction with the consolidated financial
statements and the notes to the consolidated financial statements for
Electronic Arts incorporated herein.

EA.com

<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
------------------- -------------------------
1999 1998 1999 1998 1997
--------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
(In thousands)
Net revenues................... $ 14,100 $ 12,367 $17,174 $10,975 $ --
Costs and expenses:
Cost of goods sold............ 5,441 3,230 4,556 2,804 --
Marketing and sales........... 2,005 1,772 2,378 2,597 --
General and administrative.... 2,322 913 1,224 188 --
Research and development...... 22,877 5,569 8,050 5,352 2,604
Network development and sup-
port......................... 12,071 6,861 9,846 3,020 --
Amortization of intangibles... 58 -- -- -- --
--------- -------- ------- ------- -------
Total costs and expenses..... 44,774 18,345 26,054 13,961 2,604
--------- -------- ------- ------- -------
Net loss....................... $ (30,674) $ (5,978) $(8,880) $(2,986) $(2,604)
========= ======== ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
March 31,
December 31, -------------------
1999 1999 1998 1997
------------ ------ ----- ----
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
(In thousands)
Cash, cash equivalents and short-term
investments................................. $ 144 $ -- $ -- $--
Working capital (deficit).................... (5,972) (385) (781) --
Total assets................................. 53,324 2,968 681 --
Total liabilities............................ 7,139 1,241 1,041 --
Division equity (deficit).................... 46,185 1,727 (360) --
</TABLE>

IV-1
<PAGE>

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations and Description of Business in this Appendix IV
contains forward-looking statements about circumstances that have not yet
occurred. All statements, trend analysis and other information contained below
relating to markets, our products and trends in revenue, as well as other
statements including words such as "anticipate", "believe" or "expect" and
statements in the future tense are forward-looking statements. These forward-
looking statements are subject to business and economic risks, and actual
events or our actual future results could differ materially from those set
forth in the forward-looking statements due to such risks and uncertainties. We
will not necessarily update information if any forward looking statement later
turns out to be inaccurate. Risk and uncertainties that may affect our future
results and performance include, but are not limited to, those discussed under
the heading "Risk Factors" in the Proxy Statement to which this Appendix is
attached.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Overview

EA.com, a division of Electronic Arts Inc. ("Electronic Arts"), represents
Electronic Arts' online and e-Commerce business. EA.com was originally
incorporated in August 1999 in the state of Delaware under the name EASV Inc.
In November 1999, the name of the company was changed to EA.com. EA.com
develops, publishes and distributes online interactive games. EA.com's online
business includes subscription revenues collected for Internet game play on our
websites, sales of Internet-based games and sales of Electronic Arts games sold
through EA.com websites. Electronic Arts began development of its initial
online product, Ultima Online during fiscal year 1996. We shipped Ultima Online
during fiscal year 1998, and began development of our online business during
the same year. EA.com's websites include individual sites for Electronic Arts'
games and will also include the Games Channel on America Online. Our goal is to
be the leading online games site.

. Revenues. We currently derive online revenues from subscription revenues
collected for online play, product revenues from certain shipments of CD
personal computer products ("PC-CD"), which are solely intended for
online play, and shipments of Electronic Arts' products sold via our web
sites (e-Commerce). To date, all of our subscription revenues and
packaged goods revenues for online only games have been generated by
Ultima Online and Ultima Online: The Second Age, (collectively referred
to as Ultima Online).

. Cost of Goods Sold. Cost of goods sold for our subscription business
consists primarily of variable personnel expenses associated with the
supervision of online play and the operation of Ultima Online. For
product revenues, cost of goods sold consists of actual product costs
for the packaged PC-CD goods component of the online only games, freight
and handling, intercompany royalties for usage of the Ultima Online name
and characters and costs associated with the distribution agreement
between us and Electronic Arts. For e-Commerce, cost of goods sold
consists of games purchased from Electronic Arts at their wholesale
prices.

. Marketing and Sales. Marketing and sales expenses consist of personnel
related costs, advertising, marketing and promotional expenses, as well
as allocated marketing expenses from Electronic Arts.

. General and Administrative. General and administrative expenses consist
of personnel and related expenses of executive and administrative staff,
fees for professional services such as legal, allowances for bad debts,
and an allocation of corporate services provided by Electronic Arts.
During fiscal year 1998, all corporate services, such as accounting,
legal, human resources and information systems were provided by
Electronic Arts. In fiscal year 1999, we began building the general and
administrative team for EA.com and the capability to provide some of
these functions within EA.com. Accordingly, direct general and
administrative spending will significantly increase in future periods.

. Research and Development. Research and development expenses consist of
personnel related costs, consulting and equipment depreciation.
Electronic Arts' studios develop and produce many of our online games.
We reimburse Electronic Arts for all direct development costs and
related overhead

IV-2
<PAGE>

costs (facilities, network and development management and supervision).
In the future, we may pay Electronic Arts a development royalty. Should
we agree to pay development royalties in the future, the royalty rate
will be determined on a product-by-product basis, based upon comparable
industry standards.

. Network Development and Support. Network development and support costs
consist of expenses associated with development of web content,
depreciation on server equipment to support online games, network
infrastructure, bandwidth costs, software maintenance and facilities,
network and management overhead.

Future Revenues and Expenses from the Alliance with America Online, Inc.
("AOL"). In November 1999, EA.com entered into a five-year agreement with AOL
to become exclusively responsible for game content on the AOL Games Channel in
North America and for content in the games channels on these four AOL brands:
AOL.com, CompuServe, Netcenter/Netscape and ICQ. Under terms of the agreement,
we guaranteed payments to AOL of $81 million as follows:

. $50 million for carriage payments (including certain advertising
fees) for rights to program the Games Channel on AOL and the game
channels on AOL's four other internet properties. We paid $25 million
upon signing. We will pay AOL $6.25 million at launch of the EA.com
web site, which we expect to occur in the summer of fiscal year 2001,
and $6.25 million for each of three successive annual anniversaries
commencing in fiscal year 2002.

. $31 million as an advance of minimum guaranteed revenue share for
revenues generated by subscriptions and other commercial transactions
on the EA.com site. We paid AOL $11 million upon signing and will pay
them four annual installments of $5 million.

We also made a commitment to spend $15 million in offline media
advertisements promoting our online games, including those on the AOL
service, during the term of the agreement.

EA.com expects to generate three main revenue sources due to our agreement
with AOL as follows:

. Subscriptions. We will provide visitors with free games and activities,
while also encouraging them to subscribe to our "premium" and pay-to-
play services. The premium and pay-to-play games will most likely be
priced in two tiers: The first tier will be comprised of individual
subscriptions to premium interactive games and specific event or contest
driven pay-to-play games. We will charge individual subscriptions to
hybrid games, such as persistent state world games, episodic games, and
persistent character games. In a hybrid game, the customer purchases
packaged game software (typically through a retail outlet) and then pays
a subscription fee to participate in the online game. This is comparable
to our current revenue model for Ultima Online. The second tier will be
based on subscription offerings that will provide customers with access
to a suite of browser-based games, offering easy and quick game play
experiences, as well as tournaments and player match-ups.

. Advertising. We will offer a wide array of free games, community
support, match-making services, game tips, celebrity chat and
appearances, as well as product and interest related information.
Products and services offered at no charge will build site traffic,
establishing the foundation for advertising sales. AOL's sales force
will sell the advertising within our game sites.

. e-Commerce. We intend to expand our current online store, which will be
redesigned with improved transaction processing and customer
personalization features. The expansion of the online store will be
accomplished by leveraging our access to AOL traffic and by marketing
our online games to Electronic Arts' existing consumers.

Seasonality

We expect to experience some seasonality in our business, with lower user
traffic during the summer and higher overall traffic during the holiday
season. Holiday related traffic may also be influenced by the sales of the
packaged goods component for our online only games and their related
subscriptions.

IV-3
<PAGE>

Because the Internet is an emerging entertainment medium, additional
seasonality and other unpredictable user patterns may develop in the future.
Any seasonality is likely to cause quarterly fluctuations in our operating
results, and these patterns could harm our business, results of operations and
financial condition.

Results of Operations

Comparison of the nine months ended December 31, 1999 to the nine months ended
December 31, 1998:

Net Revenues
(In thousands):

<TABLE>
<CAPTION>
December 31, December 31, Increase/ %
Net revenues for the nine 1999 1998 (Decrease) change
months ended: ------------ ------------ ---------- ------
<S> <C> <C> <C> <C>
Online revenues.............. $10,915 $ 8,862 $ 2,053 23.2 %
Product revenues............. 1,764 3,230 (1,466) (45.4)%
e-Commerce revenues.......... 1,421 275 1,146 416.7 %
------- ------- ------- -----
Total net revenues........... $14,100 $12,367 $ 1,733 14.0 %
======= ======= ======= =====
</TABLE>

The increase in net revenues was attributable to the following:

. Higher online revenues from increased subscriptions to Ultima Online.

. Higher internet-based e-Commerce revenues.

. Partially offset by lower Ultima Online product revenues.

Online Revenues. The increase in online revenues for the nine months ended
December 31, 1999 as compared to the nine months ended December 31, 1998 was
attributable to the following:

. The average number of paying customers for Ultima Online increased to
over 122,000 for the nine months ended December 31, 1999 as compared to
over 98,000 for the nine months ended December 31, 1998.

. The increase in paying customers was due to continued strong sales of
Ultima Online and the release of Ultima Online: The Second Age in
October 1998. Ultima Online: The Second Age added features including new
worlds, monsters and an in-game chat feature.

. We established servers for Ultima Online in Europe in June 1999 and in
Japan in October 1998, which resulted in new customers for the nine
months ended December 31, 1999, as compared to the nine months ended
December 31, 1998. This local dial in capability attracted new customers
in these territories.

Product Revenues. The decrease in product revenues for the nine months ended
December 31, 1999 as compared to the nine months ended December 31, 1998 was
attributable to the following:

. Ultima Online and Ultima Online : The Second Age packaged goods products
were reduced in price, which is consistent with the life cycle pricing
of packaged goods products.

. We established servers for Ultima Online in Japan in October 1998, which
increased product revenues for Ultima Online, in the third quarter of
fiscal 1999.

. We released Ultima Online: The Second Age in October 1998, which
increased product revenues in the third quarter of fiscal 1999, as
compared to fiscal 2000. Many units we sold were upgrades to existing
Ultima Online customers and therefore priced at a significant discount
from the standard retail price.

e-Commerce Revenues.

. Internet-based e-Commerce revenues increased due to the growing
acceptance of web-based purchases of games.

IV-4
<PAGE>

Net Revenues By Territory
(In thousands):

<TABLE>
<CAPTION>
December 31, December 31, Increase/ %
Net revenues for the nine 1999 1998 (Decrease) change
months ended: ------------ ------------ ---------- ------
<S> <C> <C> <C> <C>
North America................ $ 9,510 $10,515 $(1,005) (9.6)%
Japan........................ 3,428 1,348 2,080 154.3 %
Europe....................... 417 158 259 163.9 %
Asia Pacific................. 745 346 399 115.3 %
------- ------- ------- -----
Net revenues................. $14,100 $12,367 $ 1,733 14.0 %
======= ======= ======= =====
</TABLE>

Our subscription revenues by territory are based on the location of the game
servers accessed by our customers.

North America Net Revenues. The decrease for the nine months ended December
31, 1999 as compared to the nine months ended December 31, 1998 was due to the
following:

. We had lower product revenues, resulting from the price reduction on the
Ultima packaged goods products. In addition, subscription revenues were
slightly lower as international subscribers who previously logged on to
North American servers began logging on to newly established servers
located in Japan and the United Kingdom.

International Net Revenues. The increase for the nine months ended December
31, 1999 as compared to the nine months ended December 31, 1998 was due to:

. Higher product revenues generated by the release of Ultima Online: The
Second Age

. Higher subscription revenues due to newly established servers for Ultima
Online in Europe in June 1999 and Japan in October 1998. The local dial-
in capability in these territories attracted new customers.

Costs and Expenses
(In thousands):

<TABLE>
<CAPTION>
December 31, December 31, Increase/ %
Cost and expenses for the nine 1999 1998 (Decrease) change
months ended: ------------ ------------ ---------- ------
<S> <C> <C> <C> <C>
Cost of goods sold............ $ 5,441 $ 3,230 $ 2,211 68.5%
Marketing and sales........... 2,005 1,772 233 13.1%
General and administrative.... 2,322 913 1,409 154.3%
Research and development...... 22,877 5,569 17,308 310.8%
Network development and
support...................... 12,071 6,861 5,210 75.9%
Amortization of intangibles... 58 -- 58 --
------- ------- ------- -----
Total cost and expenses....... $44,774 $18,345 $26,429 144.1%
======= ======= ======= =====
</TABLE>

Cost of Goods Sold. Cost of goods sold as a percentage of revenues increased
to 38.6% for the nine months ended December 31, 1999, as compared to 26.1% for
the nine months ended December 31, 1998 primarily due to the following:

. Higher costs related to increased personnel and infrastructure for
support of the Ultima Online worlds.

. Ultima Online packaged goods products were reduced in price, which is
consistent with the life cycle pricing of packaged goods products.

IV-5
<PAGE>

Marketing and Sales. The increase in marketing and sales expenses was
primarily attributable to the following:

. Higher marketing and advertising spending to support the international
release of Ultima Online.

. Advertising on the AOL service.

. Higher direct sales spending to support the increase in our e-Commerce
business.

In future periods, we intend to further increase our marketing and advertising
spending in order to promote our game site and the Games Channel on AOL.

General and Administrative. General and administrative costs increased
significantly for the nine months ended December 31, 1999, as compared to the
nine months ended December 31, 1998. General and administrative expenses
increased in absolute dollars as we expanded our staff and incurred additional
administrative related costs required to support the growth of our business. We
anticipate a continued increase in the absolute dollars spent on general and
administrative related expenses.

Research and Development. The increase in research and development expenses
was due to an increase in the number of online projects in development and
increased development staff. We believe that continued spending for game
development is critical to growing our business and to meeting our targeted
launch commitments. We intend to increase the number of online games in
development, and significantly increase our development and production staff.
As a result, we expect research and development expenses to increase
significantly in absolute dollars.

Network Development and Support. The increase in network development and
support expenses was due to higher infrastructure costs and increased server
capacity for Ultima Online, allowing us to serve a higher number of active
subscribers. In addition, we increased our spending for our network
infrastructure in preparation for new online products and our game site on the
AOL service. As a result, we expect network development and support expenses to
increase significantly in absolute dollars in the future.

Net Loss. Net loss increased due to the following:

. Higher spending on development of online projects.

. Higher infrastructure costs for Ultima Online and Ultima Online: The
Second Age.

. Higher infrastructure costs for our network infrastructure build.

Comparison of Fiscal Year Ended March 31, 1999 to Fiscal Year Ended March 31,
1998:

Net Revenues
(In thousands):
<TABLE>
<CAPTION>
March 31, March 31, Increase/ %
1999 1998 (Decrease) change
Net revenues for the year ended: --------- --------- ---------- ------
<S> <C> <C> <C> <C>
Online revenues.................... $12,570 $ 4,451 $ 8,119 182.4 %
Product revenues................... 3,969 6,237 (2,268) (36.4)%
e-Commerce revenues................ 635 287 348 121.3 %
------- ------- ------- -----
Net revenues....................... $17,174 $10,975 $ 6,199 56.5 %
======= ======= ======= =====
</TABLE>

The increase in net revenues was mainly attributable to:

. Higher online revenues from subscriptions for Ultima Online: The Second
Age, the upgrade to Ultima Online.

. Mitigated by lower product revenues from Ultima Online for fiscal 1999
as compared to fiscal 1998; this is consistent with the life cycle of
packaged goods products.

IV-6
<PAGE>

Online Revenues. The increase in online revenues for fiscal 1999 as compared
to fiscal 1998 was attributable to the following:

. The average paying customers for Ultima Online increased to over 105,000
for the fiscal year ended March 31, 1999 as compared to over 74,000 for
the fiscal year ended March 31, 1998. This was due to continued strong
sales of Ultima Online and the release of Ultima Online: The Second Age
in the third quarter of fiscal 1999. Ultima Online: The Second Age added
features including new worlds, monsters and in-game chat features.

. We established servers providing local dial-in capability for Ultima
Online in Japan in the third quarter of fiscal 1999. We only had servers
in North America in fiscal 1998.

Product Revenues. The decrease in product revenues for fiscal year 1999 as
compared to fiscal year 1998 was attributable to the following:

. We launched Ultima Online in the second quarter of fiscal year 1998.
Therefore, fiscal year 1998 had higher product revenues associated with
the initial launch.

. We released Ultima Online: The Second Age in the third quarter of fiscal
1999 and we sold it to existing Ultima Online customers at a significant
discount.

e-Commerce Revenues.

. Internet-based e-Commerce revenues increased due to the growing
acceptance of web-based purchases of games.

Net Revenues By Territory
(In thousands):

<TABLE>
<CAPTION>
March 31, March 31, Increase/ %
Net revenues for the fiscal year 1999 1998 (Decrease) change
ended: --------- --------- ---------- ------
<S> <C> <C> <C> <C>
North America...................... $13,011 $ 9,261 $3,750 40.5 %
Japan.............................. 3,395 694 2,701 389.2 %
Europe............................. 187 639 (452) (70.7)%
Asia Pacific....................... 581 381 200 52.5 %
------- ------- ------ -----
Net revenues....................... $17,174 $10,975 $6,199 56.5 %
======= ======= ====== =====
</TABLE>

North America Net Revenues. The increase in North America net revenues for
fiscal year 1999 as compared to fiscal year 1998 was attributable to the
following:

. The higher number of average paying subscribers for Ultima Online.

. Continued strong sales of Ultima Online and the release of Ultima
Online: The Second Age in the third quarter of fiscal 1999.

International Net Revenues. The increase in International net revenues for
fiscal year 1999 as compared to fiscal year 1998 was attributable to the
following:

. We established servers for Ultima Online in Japan in the third quarter
of fiscal 1999. We only had servers in North America in fiscal 1998.
This resulted in significantly higher subscription revenues for Japan in
fiscal 1999.

This was partially offset by a decrease in Europe. We did not release Ultima
Online: The Second Age in Europe until June, 1999, when we established servers
in that region.

IV-7
<PAGE>

Costs and Expenses (in thousands):
<TABLE>
<CAPTION>
March 31, March 31, Increase/ %
Cost and expenses for the fiscal year 1999 1998 (Decrease) change
ended: --------- --------- ---------- ------
<S> <C> <C> <C> <C>
Cost of goods sold..................... $ 4,556 $ 2,804 $ 1,752 62.5 %
Marketing and sales.................... 2,378 2,597 (219) (8.4)%
General and administrative............. 1,224 188 1,036 551.1 %
Research and development............... 8,050 5,352 2,698 50.4 %
Network development and support........ 9,846 3,020 6,826 226.0 %
------- ------- ------- -----
Total cost and expenses................ $26,054 $13,961 $12,093 86.6 %
======= ======= ======= =====
</TABLE>

Cost of Goods Sold. Cost of goods sold as a percentage of revenues was 26.5%
in fiscal year 1999, as compared to 25.5% in fiscal year 1998. The increase in
cost of goods sold, as a percentage of net revenues, was due to higher support
costs of the Ultima Online worlds. In addition, we released Ultima Online: The
Second Age in the third quarter of fiscal 1999 and sold it to existing Ultima
Online customers at a significant discount.

Marketing and Sales. The decrease in marketing and sales expenses was
primarily attributable to higher marketing and advertising spending to support
the launch of Ultima Online in the second quarter of fiscal year 1998.

General and Administrative. The increase in general and administrative
expenses was primarily due to a significant increase in headcount and occupancy
costs associated with our growing online business.

Research and Development. The increase in research and development expenses
was due to a higher number of online projects in development in fiscal year
1999.

Network Development and Support. The increase in network development and
support expenses was due to higher design, engineering and software maintenance
costs associated with the Ultima Online worlds.

Net Loss. Net loss increased due to the following:

. Higher spending on development of online projects.

. Higher support costs for Ultima Online and Ultima Online: The Second
Age.

. Higher network infrastructure costs associated with the Ultima Online
worlds.

Liquidity and Capital Resources

To date we have been funded solely by Electronic Arts. This funding has been
accounted for as capital contributions from Electronic Arts. Accordingly, no
interest charge has been reflected in the accompanying financial statements.
Excess cash generated from operations is transferred to Electronic Arts, and
has been accounted for as a return of capital. We anticipate these funding
procedures will continue in the near-term. However, Electronic Arts may, at its
discretion, provide funds to EA.com under a debt arrangement, instead of
treating such funding as a capital contribution.

We used $59,608,000 of cash in operations (including payments to AOL of
approximately $36 million), $13,307,000 in capital expenditures for computer
equipment, network infrastructure and related software, $1,499,000 for an
investment and $574,000 for the acquisition of PlayNation, offset by
$75,132,000 provided through the capital contribution from Electronic Arts
during the nine months ended December 31, 1999.

We used $9,086,000 of cash in operations and $1,881,000 in capital
expenditures for computer equipment, network infrastructure and related
software, offset by $10,967,000 provided through the capital contribution from
Electronic Arts during the fiscal year ended March 31, 1999.

EA.com has capitalized consulting, hardware and software costs associated
with the implementation of customized internal-use software, which will provide
customer account management, billing and profiling as well as e-Commerce
functionality and interfaces. As of December 31, 1999 we have capitalized
approximately $13.8 million of these costs. We expect to incur additional costs
in the next year in connection with our effort to build and support the game
sites at launch.

IV-8
<PAGE>

EA.com is required to pay $50 million to AOL as a carriage fee (including
certain advertising fees of which $604 thousand was expensed in the nine months
ended December 31, 1999) under the AOL agreement. Of this amount, $25 million
was paid upon signing the agreement and the remainder is due in four equal
annual installments on the first four anniversaries of the initial payment.
EA.com is also required to pay to AOL $31 million as an advance of a minimum
guaranteed revenue share for revenues generated by subscriptions and other
certain commercial transactions on the EA.com site. Of this amount, $11 million
was paid upon signing of the agreement and the remainder is due in four equal
annual installments on the first anniversary of the initial payment. The fair
value of the payments made under the AOL agreement will be determined by an
independent valuation and the resulting amounts will be amortized (beginning
with the site launch) over the remaining term of the five year agreement

We also made a committment to spend $15 million in offline media
advertisements promoting our online games, including those on the AOL service,
during the term of the AOL agreement.

In accordance with the agreements with AOL and News Corp., Electronic Arts
committed to provide funding of up to $100 million to EA.com, less the $22.5
million paid to News Corp. for the Kesmai acquisition and less any adjustments
to the EA.com valuation under the AOL securities purchase agreement.

Future liquidity needs of EA.com will be met by the $100 million contracted
commitment from Electronic Arts to support EA.com operations. In addition, an
intercompany agreement between Electronic Arts and EA.com allows loans at
market rates for terms up to one year, or Electronic Arts may make additional
capital contributions to EA.com at its discretion.

Acquisitions

In July 1999, Electronic Arts acquired PlayNation (hereafter known as
"EA San Diego"), a developer of online entertainment, for approximately
$574,000 in cash (net of cash acquired.) The transaction was accounted for
under the purchase method. The excess of the purchase price over the fair value
of the net tangible assets acquired was allocated to goodwill and assembled
workforce. Electronic Arts contributed the EA San Diego business to EA.com. We
will utilize EA San Diego's development resources for the creation of online
games.

On February 7, 2000, EA.com acquired Kesmai. Kesmai is a Virginia-based
company that develops and publishes online games. Kesmai specializes in the
design and development of multiplayer games delivered directly to consumers
over the Internet and is a major provider of game content to the Games Channel
on the AOL service. Kesmai also provides game content to various other online
communities including Excite, EarthLink, GolfWeb, Fox World and Fujitsu. We
paid News Corp $22,500,000 in cash and issued 103,227 shares of Electronic Arts
stock valued at $8,650,000 for the acquisition. If the Tracking Stock proposal
is approved, News Corp.'s 103,227 shares of Electronic Arts Inc. common stock
will automatically convert to shares of the Class B common stock representing
5% of the initial equity value attributed to EA.com. If the Tracking Stock
proposal is not approved by August 18, 2000, Electronic Arts Inc. is obligated
to pay News Corp $9,650,000. The transaction will be accounted for under the
purchase method.

EA.com also committed to spend $5 million in advertising with News
Corporation Limited or any of its affiliates.

Year 2000 Disclosure

As of the date of this filing, EA.com has not incurred any significant
business disruptions as a result of Year 2000 issues. However, while no such
occurrence has developed, Year 2000 issues that may arise related to key
suppliers and service providers may not become apparent immediately. We have
received assurances of Year 2000 compliance from key suppliers. As part of the
shared services provided to us by Electronic Arts, we have received assurances
from Electronic Arts' their key service providers, such as financial
institutions, payroll service provider, and the retirement plan administrators
are in compliance with Year 2000 readiness. We will continue to monitor our own
systems and our business partners to identify and address any potential

IV-9
<PAGE>

risk situation related to the Year 2000. We can provide no assurance that we
will not be adversely affected by these suppliers and service providers due to
noncompliance in the future.

New Accounting Pronouncements

Impact of Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting
for Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 is effective as of the beginning of the first quarter of
the fiscal year beginning after June 15, 2000. EA.com is determining the effect
of SFAS 133 on its financial statements. As Electronic Arts provides all cash
management services, EA.com does not anticipate any impact on its financial
statements as a result of the adoption of SFAS 133.

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" . SOP 98-1 requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. SOP 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The adoption of SOP 98-1 did not have a material impact on
EA.com's results of operations.

The Emerging Issues Task Force currently has on its agenda an issue that
discusses the effect on revenue recognition of a software vendor's obligation
to host its software that previously was licensed to a customer. The EITF has
reached a tentative conclusion that, if the customer is unable to utilize the
software on the customer's hardware or contract with another party unrelated to
the vendor to host the software, then the arrangement with the customer should
be treated as a service contract. If the EITF reaches a final consensus that is
consistent with its tentative conclusion, EA.com may be required to change the
timing of its revenue recognition related to product revenues. Under the EITF's
tentative conclusion, EA.com may be required to defer the gross margin on the
sale of products intended solely for online play and recognize that gross
margin over the customer's expected subscription period to the online service.
Management of EA.com believes that the EITF issue mentioned above may not be
applicable to EA.com's revenue recognition policies. If it is determined that
the EITF issue mentioned above is applicable, we will review and determine the
impact on our revenue recognition policy for product revenues.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk

Electronic Arts provides the cash management for EA.com. Cash generated from
and required to support the EA.com business operations prior to the nine months
ended December 31, 1999 was deposited and received through Electronic Arts
Inc.'s corporate operating cash accounts. As a result, there were no separate
bank accounts for the EA.com business. As such, EA.com's Quantitative and
Qualitative Disclosures About Market Risk should be read in conjunction with
the financial statements of Electronic Arts. EA.com is exposed to various
market risks. Market risk is the potential loss arising from changes in market
rates and prices. EA.com does not consider its cash and cash equivalents to be
subject to interest rate risk due to their short maturities. EA.com did not
enter into derivatives or other financial instruments for trading or
speculative purposes.

IV-10
<PAGE>

DESCRIPTION OF BUSINESS

Overview

EA.com's objective is to become the leading online games site. We believe
that EA.com's access to the intellectual properties and experienced development
resources of Electronic Arts' positions EA.com to deliver online gaming
experiences that consumers will enjoy. In addition, as the exclusive online
games provider to AOL, EA.com's website, when launched, will have immediate
reach to over 20 million AOL subscribers, providing EA.com with opportunities
for revenue from advertising, subscription and e-Commerce.

With a single entry point and intuitive navigation throughout the site,
EA.com will be an easily accessed destination for consumers. Additionally,
EA.com intends to offer a broad range of other compelling interactive
activities and site features, such as chat and match-making, intended to foster
a sense of community on the site. Based upon customer provided preferences,
EA.com will tailor each user experience on the site, delivering relevant
information, games, product opportunities or other interactive experiences.

EA.com intends to aggressively promote and market its games site. In
addition to traditional media programs, such as television and print
advertising, EA.com will employ cross-marketing programs with Electronic Arts'
packaged goods franchises to promote the site and reach Electronic Arts'
existing customer base.

EA.com's online business includes subscription revenues collected for
Internet game play on our websites, sales of Internet-based games and sales of
Electronic Arts products sold through EA.com websites. Electronic Arts began
development of its initial online product, Ultima Online during fiscal year
1996. We shipped Ultima Online during fiscal year 1998, and began development
of our online business during the same year. EA.com's websites include EA.com,
individual sites for Electronic Arts' games and also will include the Games
Channel on America Online. Our goal is to be the leading online games site. To
date, all of our subscription revenues and packaged goods revenues for online
only games have been generated by Ultima Online and Ultima Online: The Second
Age, (collectively referred to as Ultima Online). The packaged good product is
sold through our traditional distribution channel to various retailers. The
Ultima Online product is then sold by the retail channel to the end customer
who must sign up for EA.com's online service to enjoy online play on a month-
to-month subscription basis.

The Industry

General. The Internet has become an important medium for communications,
content and commerce. According to International Data Corporation ("IDC"), the
number of Web users worldwide will grow from 97 million at the end of 1998 to
320 million by the year 2002. Industry analysts believe that the Internet
represents the fastest growing form of media in history. We believe the rapid
growth of the Internet offers multimedia entertainment companies substantial
revenue opportunities in the form of advertising, subscriptions and e-Commerce.

Online Games. According to the market research firm Jupiter Communications,
online gamers (defined as individuals who have played online games within the
past year) are expected to grow to 26.8 million Internet users by 2002 up from
3.7 million Internet users in 1998. Jupiter expects total online gaming market
revenue to grow to $1.1 billion in 2002 from $41 million in 1997. We believe
the expected increases in online gaming will be primarily attributable to the
following factors:

. Increasing popularity of PC gaming,

. Growing interest in multiplayer games,

. Growth in the number of households with PCs and Internet connections,

IV-11
<PAGE>

. General growth in internet usage including, the number of users,
communities and increased frequency of use by consumers,

. Rapid innovation of new online entertainment experiences,

. Mass market adoption of broadband technologies, and

. Decreasing costs of Internet access.

Impact of Broadband Access. Broadband internet access providers, including
telephone companies offering Direct Subscription Lines, or DSL, cable companies
and satellite companies are currently competing aggressively to establish and
increase the installed base of broadband connections. Estimates of the numbers
of broadband households by the end of calendar 1999 are 2.0 million, and this
number is expected to grow to 15.3 million by 2003. We expect that the
increased ability to rapidly deliver data and graphics will increase the appeal
of online games as an entertainment experience by enabling increases in the
complexity and breadth of such online games, as well as reducing download times
and other latency related effects. As broadband services increase the ability
to deliver highly immersive online games over the Internet, we expect that
demand for such games will increase.

EA.com Strategy

EA.com's objective is to become the leading online games site. Key elements
of our strategy include:

Continually Provide Consumers with High Quality Online Games. EA.com will
provide high quality gaming experiences on the Internet by capitalizing on its
access to Electronic Arts' intellectual property and over 1,500 game developers
at eight different Electronic Arts studios experienced in the development of
interactive entertainment products. In many ways, development of online games
for the Internet is comparable to creating content for a new platform.
Electronic Arts' development resources have experience developing products for
over 20 different game platforms. EA.com will be able to leverage these
development resources and skill sets to create high quality online games.

We pioneered massively multi-player online games by launching Ultima Online
over two years ago. Today there are over 130,000 unique monthly subscribers
playing Ultima Online. Under the direction of EA.com, Electronic Arts'
worldwide studios have already embarked on creating many innovative new online
games for EA.com's website. In addition, recent acquisitions of two online
development studios (PlayNation and Kesmai), provide EA.com with additional
experienced developers and management. EA.com has also established development
relationships with several third-party online game companies, including Bottle
Rocket and Digital Addiction, to make additional products available on EA.com's
website.

Leverage Existing Brands, Trademarks and Franchises. EA.com also intends to
capitalize on its access to Electronic Arts' interactive game brands, such as
EA SPORTS, Command & Conquer, SimCity, Ultima and Need for Speed, by offering
online products linked to these franchises. Such products will have immediate
recognition by customers of Electronic Arts' packaged goods products, and are
expected to generate significant traffic for EA.com in the future.

Provide a Simple, Personalized User Interface. EA.com will create an easily
accessed gaming site with intuitive navigation throughout the entire site for
consumers interested in gaming. The site will have consumer friendly
interfaces, with easy navigation throughout the entire web site, enabling
consumers to more easily find the games and areas of interest that suit their
preference. EA.com will treat each user individually with personalization tools
that will tailor onsite content and deliver specific information, games,
product opportunities and other interactive experiences for each user based on
such user's prior experiences and any indicated preferences. In addition,
EA.com will provide direct entry points into pay-to-play and other online only
or hybrid subscription games, such as Ultima Online.

Provide a Broad Range of Interactive Activities. In addition to online
games, EA.com will offer a broad range of interactive activities and site
features for site visitors, including player match-up services, product

IV-12
<PAGE>

news and reviews, chat features, message boards, e-Commerce sales of packaged
goods and online game support.

Aggressively Market the EA.com Game Site. In order to capitalize on its
access to over 54 million unique monthly visitors to the AOL services, and
expand its reach, EA.com intends to aggressively and opportunistically employ
cross-marketing programs with Electronic Arts' established packaged goods
franchises. Electronic Arts' products currently have presence in thousands of
retail outlets domestically and abroad. Electronic Arts spends millions of
dollars advertising these products through television and print advertising, in
addition to unique promotional events such as the Jane's(R) College Tour, Pros
Who Play and the Madden Bowl. EA.com can both derive traffic from sales of
Electronic Arts' retail products, and leverage Electronic Arts' offline
advertising and promotional opportunities to create awareness of EA.com's
online properties. When appropriate, Electronic Arts can provide direct links
to EA.com on each of its PC-CD products, promoting added game features or
promotions of other online games. In addition, EA.com will aggressively market
its web site using traditional media programs, such as television and print
advertising, and will pursue other marketing relationships such as anchor
tenancy arrangements with major online portals.

EA.com Web Site

Content. Once launched, EA.com intends to offer games within three broad
categories of interest, or "channels": sports, family entertainment, and avid
gaming. Each channel will focus on targeting and serving its specific consumer
group by:

. Offering engaging and accessible online games;

. Building a community in which consumers can interact with one another
via chat, bulletin boards, events, and match-making services for multi-
player games and other contests;

. Delivering innovative content that continually entertains; and

. Establishing a direct relationship with each audience member through
personalization and customization of user experiences.

In addition, the product offering of each channel will include existing
Electronic Arts franchises adapted for game play on the Internet, as well as
additional original games for online play. The intended offerings for each
channel include:

. Sports. EA.com intends to leverage existing Electronic Arts' franchises,
such as PGA(R) Tour/Tiger Woods Golf(R) and Knockout Kings(TM), to
develop a community of sports gamers. In addition, EA.com will offer
unique, original online sports gaming experiences, sports game shows and
support of existing EA packaged goods products with services such as
matchmaking, game updates, product downloads and game tips.

. Family Entertainment. The EA.com family games offering will consist of
card games, board games, casino games, trivia games, game shows and
other products with mass-market appeal. This channel will leverage cash
prizes, merchandise prizes, tournaments and community.

. Avid Gaming. The general gaming offering will be directed at teens and
adults looking to participate in games made up of fantastic worlds,
characters, adventures or activities--big or small, real or imagined.
This offering will feature immersive experiences and sophisticated game
play appealing to dedicated gamers, as well as new forms of cutting-edge
Internet entertainment. This offering will capitalize on the success of
our existing Ultima Online product as well as Electronic Arts' existing
packaged goods franchises.

Subscriptions. EA.com will provide visitors to each of the channels with
some free games and activities, while also encouraging customers to subscribe
to premium offerings providing deep and engaging interactive

IV-13
<PAGE>

games, such as our existing Ultima Online and Ultima Online: the Second Age
games. These premium offerings may include subscriptions to a suite of browser-
based online subscription games offering quick and exciting game play
experiences, as well as tournaments, matching services and other features. They
will also include hybrid subscription games, such as persistent state worlds
games, episodic games, and persistent character games. In the case of such
hybrid subscription games, the customer purchases client software (typically
through a retail outlet) and then pays a subscription fee to participate in the
online world. In addition to such premium subscriptions, we may also offer
specific event or contest driven pay-to-play games.

Advertising. EA.com intends to offer an array of free games, community
support, match making services, game tips, celebrity chat and appearances, as
well as product and interest related information such as sports news. These
traffic building products and services will provide AOL's sales force, which
will be representing EA.com for advertisement sales, with the foundation for
advertising offerings to third parties on EA.com. AOL's sales force will
leverage existing advertising models, such as banners, on EA.com. In addition,
EA.com and AOL will exploit advertising opportunities uniquely suited to gaming
environments, such as in-game sponsorship, prize-related product promotion, and
sponsored email notifications.

e-Commerce. In addition to online gaming, EA.com will include an online
store that will offer games and game related merchandise of Electronic Arts to
leverage EA.com traffic and consumer relationships. Our online store will be
designed with sophisticated transaction processing and personalization
features.

EA.com Distribution

Our agreement with AOL establishes the basis for EA.com's production of a
games site on the world wide web that will be available, primarily, to AOL
subscribers via the Games Channel on the AOL Service. In addition, we will
provide content for the game channels on AOL.com, CompuServe,
Netcenter/Netscape and ICQ. Within any of these AOL properties, users will be
able to find a games channel or area, which will provide the user access to
EA.com games. According to the November 1999 Media Metrix reports, the total
number of unique monthly visitors to the AOL branded properties that will have
access to the EA.com games site, was 54 million. Via an anchor location EA.com
will also be a non-exclusive provider of games on AOL's Digital City property,
the leading branded local content network and community guide on the AOL
service and the Internet.

Under this agreement, EA.com is required to launch its site not later than
June 1, 2000, although under circumstances described in the agreement this date
can be extended to September 1, 2000. If the site is not launched within the
specified time frame, and if prescribed game additions to the site are not
achieved within a specified subsequent time frame, then AOL may have the
ability to terminate the agreement.

The agreement with AOL provides for EA.com's ability to control the games
site it creates and the terms upon which we have programming control over the
games areas within AOL and the AOL branded Internet properties. EA.com will not
have programming control of any advertising areas of Digital City. The
agreement also covers the rights to sell advertising spaces in the games areas,
which right will be held by AOL, and the parties' sharing of the advertising
revenues. Pursuant to the agreement, the parties are required to undertake
specified promotional activities regarding the game sites. The agreement
further provides that EA.com may establish a site or sites on the world wide
web independent of the AOL site, but AOL is provided with exclusive rights to a
limited number of EA.com games for a limited period of time. In addition, the
agreement provides for AOL's sharing in the revenues EA.com may earn from its
other sites.

EA.com is required to pay $50 million to AOL as a carriage fee (including
certain advertising fees) under the agreement. Of this amount, $25 million was
paid on the effective date and the remainder is due in equal installments on
the first four anniversaries of the effective date. EA.com is also required to
pay to AOL $31 million as an advance of a minimum guaranteed revenue share due
to AOL in the future for its share, as specified in the agreement, of carriage
fees that EA.com receives from advertising revenues, e-Commerce revenues,
subscriptions revenues, revenues and other revenues received by EA.com. Of this
amount, $11 million has already been paid.

IV-14
<PAGE>

For a description of certain related transactions entered into with AOL, see
"Proposal 1--The Tracking Stock Proposal-- Issuance of Class B Common Stock to
America Online, Inc. and News America Incorporated" in the Proxy Statement to
which this Appendix is attached.

Competition

We believe EA.com faces substantial competition from a number of existing
and potential competitors including:

. Console & PC Game Publishers. Other game publishers including Sony
Computer Entertainment of America ("Sony"), Nintendo, Sega, Hasbro,
Mattel, Acclaim, GT Interactive, Microsoft, Interplay and Eidos, are
each developing individual online games and games with online
components. Currently, Sony (including the online divisions of Sony
Entertainment) may have the broadest collection of online game
offerings, which includes the online game, Everquest, a virtual world
that directly competes with EA.com's Ultima Online game. In addition,
Sony operates the Sony Station, a site that offers family-oriented game
shows. Each of these competitors may compete with EA.com for
advertising, subscription and e-Commerce sales.

. Portals. With respect to advertising and e-Commerce sales, EA.com will
also compete with general purpose consumer web sites such as Yahoo!,
Excite, Lycos, and Microsoft Network. In addition, many of these
Internet portals offer gaming sites such as Yahoo Games Channel, Excite
Games Channel, Lycos Games Channel, and Microsoft Gaming Zone. Although
most of the game areas of these portals have attained modest reach,
their key placement on powerful portals makes them potentially
significant competitors for gaming subscriptions as well.

. Family Oriented Game Sites. A number of sites such as Uproar.com,
Gamesville.com, Disney's go.com and Pogo.com (formerly TEN), have driven
significant amounts of traffic to their sites by offering frequent
prizes with easy to play "gamettes," and are capitalizing on such
traffic by selling advertising.

. Aggregators. Aggregators such as Hearme.com, Pogo.com, Microsoft Gaming
Zone and Heat.net, provide an aggregation of various types of online
games, including aggregation of games developed by independent third
parties. While these sites have been primarily focused on serving the
gaming community, they have since adjusted their strategy to include
games, such as parlor games, that reach a broader audience.

. Sports Sites. Sports content sites such as ESPN.com, Sportsline.com and
Foxsports.com typically feature fantasy league games and easy to play
sports "gamettes" in addition to their editorial content. Such fantasy
league games and sports "gamettes" typically appeal to the overall
sports fan, rather than the sports gamer. However, these sites have
significant financial and content resources at their disposal and will
provide competition for advertising and e-Commerce sales.

. Microsoft Gaming Zone ("MGZ"). Microsoft falls into a number of the
foregoing categories, as it is a portal, an aggregator, and a publisher
of PC Software Products, including game products. As such, Microsoft's
offerings are the closest parallel to the proposed offerings of EA.com.
MGZ currently offers both family games and games directed towards the
more serious gamer and, at the same time, has the opportunity to
leverage these experiences with games sold at retail. At present MGZ
offers matchmaking for about 80 games and offers approximately 20
playable online games, which consist primarily of card and parlor games.

Employees and Consultants

EA.com currently has approximately 300 full time employees, including the
employees of Kesmai and EA San Diego. Approximately thirty percent of EA.com
employees work in the online engineering group,

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<PAGE>

approximately twenty-five percent work in the online product development group,
and approximately 10% percent are employed in the network design and
development group. In addition to EA.com employees, approximately twenty-five
percent of the staff for creating the infrastructure for EA.com's web site and
developing the web site design and network interface prior to the launch of the
web site is being provided by outside consultants.

Facilities

EA.com occupies approximately 49,000 square feet in our facility in Redwood
City, California. In addition, EA.com occupies small offices in England and in
San Diego, as well as the Kesmai facilities in Virginia.

Legal Proceedings

EA.com is not currently subject to any legal proceedings. However,
Electronic Arts is subject to various legal proceedings that may affect its
online business. After review, however, Electronic Arts does not believe any
pending proceedings are likely to have a material impact on the business of
EA.com.

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<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Electronic Arts Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of EA.com and
subsidiary, (as defined in Note 1) as of March 31, 1999 and 1998, and the
related consolidated statements of operations, changes in division equity
(deficit), and cash flows for each of the years in the two-year period ended
March 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EA.com and
subsidiary as of March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the two-year period ended March
31, 1999, in conformity with generally accepted accounting principles.

KPMG LLP

Mountain View, California
February 8, 2000

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<PAGE>

EA.com
(A division of Electronic Arts Inc.)

CONSOLIDATED BALANCE SHEETS
(In thousands)

<TABLE>
<CAPTION>
March 31,
December 31, -----------------
1999 1999 1998
------------ -------- -------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 144 $ -- $ --
Receivables, less allowances of $187, $239 and
$235, respectively........................... 493 488 146
Inventories................................... 147 58 114
Prepaids and other current assets............. 383 310 --
-------- -------- -------
Total current assets......................... 1,167 856 260
Property and equipment, net.................... 14,724 2,112 421
Investment in affiliates....................... 1,499 -- --
Goodwill and other intangibles, net............ 519 -- --
Prepaid AOL fees and other deposits ........... 35,415 -- --
-------- -------- -------
$ 53,324 $ 2,968 $ 681
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Deferred revenues............................. $ 1,001 $ 627 $ 597
Accounts payable.............................. 3,263 -- --
Accrued liabilities........................... 2,875 614 444
-------- -------- -------
Total current liabilities.................... 7,139 1,241 1,041
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $.01 par value. Authorized 100
shares, issued 100 shares.................... -- -- --
Net capital contribution from Electronic
Arts......................................... 91,482 16,350 5,383
Accumulated deficit........................... (45,297) (14,623) (5,743)
-------- -------- -------
Total shareholders' equity (deficit)......... 46,185 1,727 (360)
-------- -------- -------
$ 53,324 $ 2,968 $ 681
======== ======== =======
</TABLE>

See accompanying notes to consolidated financial statements.

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<PAGE>

EA.com
(A division of Electronic Arts Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)

<TABLE>
<CAPTION>
Nine Months Ended
December 31 Years Ended March 31
---------------------- ----------------------------
1999 1998 1999 1998 1997
----------- ---------- ------- ------- ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues............. $ 14,100 $12,367 $17,174 $10,975 $ --
Costs and expenses:
Cost of goods sold...... 5,441 3,230 4,556 2,804 --
Marketing and sales..... 2,005 1,772 2,378 2,597 --
General and
administrative......... 2,322 913 1,224 188 --
Research and
development............ 22,877 5,569 8,050 5,352 2,604
Network development and
support................ 12,071 6,861 9,846 3,020 --
Amortization of
intangibles............ 58 -- -- -- --
-------- ------- ------- ------- -------
Total costs and
expenses................ 44,774 18,345 26,054 13,961 2,604
-------- ------- ------- ------- -------
Net loss................. $(30,674) $(5,978) $(8,880) $(2,986) $(2,604)
======== ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

IV-19
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

Years ended March 31, 1999, 1998 and 1997; Nine months ended December 31, 1999

(In thousands)

<TABLE>
<CAPTION>
Paid-In Accumulated Total Division
Capital Deficit Equity (Deficit)
------- ----------- ----------------
<S> <C> <C> <C>
Balances at March 31, 1996 (unaudited)... $ 153 $ (153) $ --
Net capital contribution from Electronic
Arts (unaudited)........................ 2,604 -- 2,604
Net loss (unaudited)..................... -- (2,604) (2,604)
------- -------- --------
Balances at March 31, 1997 (unaudited)... 2,757 (2,757) --
Net capital contribution from Electronic
Arts.................................... 2,626 -- 2,626
Net loss................................. -- (2,986) (2,986)
------- -------- --------
Balances at March 31, 1998............... 5,383 (5,743) (360)
Net capital contribution from Electronic
Arts.................................... 10,967 -- 10,967
Net loss................................. -- (8,880) (8,880)
------- -------- --------
Balances at March 31, 1999............... 16,350 (14,623) 1,727
Net capital contribution from Electronic
Arts (unaudited)........................ 75,132 -- 75,132
Net loss (unaudited)..................... -- (30,674) (30,674)
------- -------- --------
Balances at December 31, 1999
(unaudited)............................. $91,482 $(45,297) $ 46,185
======= ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

IV-20
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
---------------------- ----------------------------
1999 1998 1999 1998 1997
----------- ---------- ------- ------- ----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............... $(30,674) $(5,978) $(8,880) $(2,986) $(2,604)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 750 134 190 102 --
Provision for doubtful
accounts............. 16 16 22 32 --
Change in assets and
liabilities, net of
acquisitions:
Receivables.......... (21) (147) (364) (178) --
Inventories.......... (89) (18) 56 (114) --
Other assets......... (35,488) -- (310) -- --
Deferred revenues.... 374 (146) 30 597 --
Accounts payable..... 3,263 -- -- -- --
Accrued liabilities.. 2,261 8 170 444 --
-------- ------- ------- ------- -------
Net cash used in
operating
activities......... (59,608) (6,131) (9,086) (2,103) (2,604)
-------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Capital expenditures.. (13,307) (107) (1,881) (523) --
Investment in
affiliates........... (1,499) -- -- -- --
Acquisition of
subsidiary........... (574) -- -- -- --
-------- ------- ------- ------- -------
Net cash used in
investing
activities......... (15,380) (107) (1,881) (523) --
-------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Net capital
contribution from
Electronic Arts...... 75,132 6,238 10,967 2,626 2,604
-------- ------- ------- ------- -------
Net cash provided by
financing
activities......... 75,132 6,238 10,967 2,626 2,604
-------- ------- ------- ------- -------
Increase in cash....... 144 -- -- -- --
Beginning cash......... -- -- -- -- --
-------- ------- ------- ------- -------
Ending cash............ $ 144 $ -- $ -- $ -- $ --
======== ======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

IV-21
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of the Business

EA.com, a division of Electronic Arts Inc. ("Electronic Arts"), represents
Electronic Arts' online and e-Commerce businesses. EA.com develops, publishes
and distributes content for online services intended for entertainment
purposes. EA.com's online business includes subscription revenues collected for
Internet game play on its websites as well as sales of products of Internet-
based games. EA.com's e-Commerce business consists of revenues associated with
products sold through the EA.com websites and to traditional retailers.
EA.com's websites include EA.com, individual sites for Electronic Arts games
and also will include the Games Channel on America Online Inc. ("AOL") (see
Note 10).

Incorporation of EA.com

EA.com was originally incorporated on August 9, 1999 in the state of
Delaware under the name EASV Inc. There were 100 shares, with a par value of
$.01, authorized and issued to Electronic Arts Inc. which is the sole
shareholder. On November 10, 1999, EASV's name was changed to EA.com.

Tracking Stock Proposal

The stockholders of Electronic Arts are scheduled to vote on a proposal (the
"Tracking Stock Proposal") to authorize the issuance of a new series of common
stock to be designated as Class B common stock ("Tracking Stock"), intended to
reflect the performance of EA.com. At the time of authorization of the Tracking
Stock, Electronic Arts' existing common stock will be re-classified as Class A
common stock ("Class A Stock") and that stock will be intended to reflect the
performance of Electronic Arts' other businesses ("EA") which includes a
"Retained Interest" in EA.com.

Pursuant to agreements with AOL and News America Corporation ("News Corp."),
upon authorization of the Tracking Stock, Electronic Arts will sell shares to
AOL and News Corp. representing 10 percent and 5 percent, respectively, of the
initial equity value attributable to EA.com (see Notes 10 and 11).

Basis of Presentation

In order to prepare separate financial statements for EA.com, Electronic
Arts has allocated certain of its consolidated assets, liabilities, revenues,
expenses and cash flows to EA.com. These financial statements present the
assets, liabilities, changes in division equity (deficit), results of
operations and cash flows applicable to the operations of EA.com.

Although Electronic Arts has allocated a portion of its consolidated assets,
liabilities, revenues, expenses and cash flows to EA.com, that allocation will
not change the legal title to any assets or responsibility for any liabilities
and will not affect the rights of any creditors. Holders of Class B Common
Stock will continue to be common stockholders of Electronic Arts and, as such,
will be subject to all the risks associated with an investment in Electronic
Arts as a whole and all of its businesses, assets and liabilities.

The statement of operations includes all revenues and costs directly and
indirectly attributable to EA.com, including charges for shared facilities,
functions and services used by EA.com and provided by Electronic Arts. Certain
costs and expenses have been allocated based on management's estimates of the
cost of services provided to EA.com by Electronic Arts. Such costs include
corporate research and development expenses,

IV-22
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

corporate selling, marketing and distribution expenses and corporate general
and administrative expenses. Such allocations and charges are based on either a
direct cost pass-through or a percentage of total costs for the services
provided based on factors such as headcount or activity based allocations
directly related to the services provided. Management believes that these
allocations are based on assumptions that are reasonable under the
circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses which would have resulted if EA.com had
been operated as a separate entity.

Electronic Arts' results of operations or financial condition for its
businesses, other than EA.com, could affect the results of operations or
financial condition of EA.com or the market price of Class B common stock.
Accordingly, EA.com should be read in conjunction with Electronic Arts'
consolidated financial statements.

EA.com has incurred recurring losses from operations through the nine months
ended December 31, 1999, with the funds required for the conduct of the
operations being provided by Electronic Arts, per agreement with AOL and News
Corp. Electronic Arts has committed to provide funding of up to $100 million to
EA.com less $22.5 million for the acquisition of Kesmai and less any
adjustments to the EA.com valuation under the America Online securities
purchase agreement (see Notes 10 and 11). Electronic Arts has committed to
provide this funding until November 2002. EA.com and Electronic Arts have also
entered into an agreement whereby any funding above and beyond the $100 million
commitment would be consistent with those among independent parties and would
not be for a period longer than one year.

Interim Financial Information

The unaudited consolidated financial statements for the nine months ended
December 31, 1999 and 1998 and as of December 31, 1999 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
reflected. Operating results for the nine months ended December 31, 1999 period
are not necessarily indicative of the results that may be expected for the year
ending March 31, 2000.

Summary of Significant Accounting Policies

A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements of EA.com follows:

(a) Principles of Consolidation

The consolidated financial statements include the financial statements of
EA.com and EA San Diego (see Note 2). All significant transactions within the
businesses have been eliminated on consolidation.

(b) Fiscal Year

EA.com's fiscal year is reported on a 52/53-week period that ends on the
Saturday nearest to March 31 in each year. The results of operations for fiscal
1999, 1998 and 1997 contain 52 weeks. For clarity of presentation herein, all
fiscal periods are treated as ending on a calendar month end.

IV-23
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Such estimates include provisions for doubtful
accounts, sales returns and allowances, warranty provisions, allocation of
costs from Electronic Arts and estimates regarding the recoverability of
inventories. Actual results could differ from those estimates.

(d) Concentration of Products

During the periods presented, EA.com derived all of its product revenues
from the sale of Ultima Online and Ultima Online: The Second Age (collectively
referred to as "Ultima Online") and corresponding subscription revenues. The
Ultima Online product and its corresponding subscription revenues are expected
to continue to account for a significant portion of EA.com's revenues. Any
negative developments materially affecting the sales of Ultima Online or its
corresponding subscription revenues may have a material adverse effect on
EA.com's results of operations and financial position. Revenues for Ultima
Online and its corresponding subscription revenues for the nine months ended
December 31, 1999, the nine months ended December 31, 1998 and the fiscal years
ended March 31, 1999 and March 31, 1998 were 12,679,000, 12,092,000,
$16,749,000 and $10,688,000, respectively. Accounts receivable from the sales
of Ultima Online and its corresponding subscription revenues comprised 100% of
gross accounts receivable as of March 31, 1999 and 1998.

For the fiscal year ended March 31, 1999, 1998 and 1997, EA.com had no sales
to any one customer in excess of 10% of total net revenues.

(e) Business Risk

The EA.com business is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet as an entertainment medium, dependence on
third-party technology, new service introduction and other activities of
competitors, dependence on key personnel, international expansion, and limited
operating history.

(f) Concentration of Credit Risk

EA.com extends credit to various companies in the retail and mass
merchandising industry for the purchase of packaged goods. Collection of trade
receivables may be affected by changes in economic or other industry conditions
and may, accordingly, impact EA.com's overall credit risk. Although EA.com
generally does not require collateral, EA.com performs ongoing credit
evaluations of its customers and reserves for potential credit losses are
maintained.

EA.com's receivables do not represent significant concentration of credit
risk at March 31, 1999 due to its diverse customer base.

(g) Cash and Investments

Cash generated from and required to support EA.com's operations prior to the
nine months ended December 31, 1999 were deposited and received through
Electronic Arts' corporate operating cash accounts. As a result, there were no
separate bank accounts for the EA.com business, and the amounts recorded as Net
Contribution from Electronic Arts in the EA.com consolidated statement of cash
flows represents the net effect of all cash transactions between Electronic
Arts and EA.com. Subsequently, EA.com has established separate bank accounts
with all funding and cash management continuing to be provided by Electronic
Arts.

(h) Disclosures About Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

IV-24
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Cash, receivables and accrued liabilities: the carrying amount approximates
fair value because of the short maturity of these instruments.

(i) Inventories

Inventories consist of finished goods for the Ultima Online PC-CD products.
Inventories are stated at the lower of cost or market. Market is considered to
be the current replacement cost either by purchase or by reproduction.

(j) Property and Equipment

Property and equipment are stated at cost. Minor replacements, maintenance
and repairs are charged to current operations. Depreciation is calculated using
the accelerated and straight-line methods over the following useful lives:

<TABLE>
<CAPTION>
Computer equipment.............. 3 to 7 years
<S> <C>
Furniture and equipment......... 3 to 7 years
</TABLE>

(k) Intangible Assets

Intangible assets include goodwill and assembled work force which is
amortized on a straight-line method over the estimated useful life of 5 years.

(l) Long-Lived Assets

EA.com evaluates long-lived assets, including intangibles, for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows
expected to be generated by the asset and its eventual disposition. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds its
fair value.

(m) Investments

EA.com obtained an equity interest in a privately held company in September
1999. This investment was recorded using the cost method. For this investment
as well as any other future investments, EA.com's policy is to regularly review
the assumptions underlying the operating performance and cash flow forecast in
assessing the carrying values. EA.com records impairment losses on investments
when events and circumstances indicate that such assets might be impaired and
it is determined that the investment has suffered an other than temporary
decline in value. To date, no such impairment has been recorded.

(n) Comprehensive Income

In fiscal 1999, EA.com adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in financial
statements. SFAS 130 requires classification of other comprehensive income in a
financial statement and display of other comprehensive income separately from
retained earnings and additional paid-in capital.

To date, EA.com does not have other comprehensive income and thus,
comprehensive loss is the same as net loss for all periods presented.

(o) Revenue Recognition

EA.com's revenue recognition policies are in compliance with American
Institute of Certified Public Accountants Statement of Position ("SOP") 97-2,
"Software Revenue Recognition". SOP 97-2 requires that

IV-25
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

revenue recognized from software arrangements be allocated to each element of
the arrangement based on the company specific fair values of the elements.
EA.com has adopted the provisions of these SOPs as of April 1, 1998. The
adoption has, in certain circumstances, resulted in the deferral of certain
revenues associated with EA.com's products with multiple deliverable elements.
Neither the changes in certain business practices nor the deferral of certain
revenues have resulted in a material impact on EA.com's operating results,
financial position or cash flows for the period ended March 31, 1999. Total
deferred revenue at March 31, 1999 and 1998 was $627,000, and $597,000,
respectively.

Online Revenues:

EA.com's revenues are derived principally from subscription revenues
collected from customers for online play, who are only contractually obligated
for play on a month-to-month basis. Prepaid monthly subscription revenues,
including revenues collected from credit card sales as well as sales of
Gametime subscription cards, are deferred and subsequently recognized ratably
over the period for which the hosting services are provided by EA.com.

Product revenues for EA.com's online business consist of revenues from sales
of products solely intended for online play. For the periods reported, all of
EA.com's product revenues were for Ultima Online. Ultima Online is a two
element product: the game and free online game time. Revenue for the game
portion which was designed solely for online play is recognized upon shipment
to various wholesale and retail customers (with limited rights of return), net
of an allowance for returns. The free game time is deferred and recognized
ratably over the period directly following the sale of the product for which
this time is offered.

e-Commerce:

e-Commerce revenues consists of Electronic Arts' products sold through
EA.com's website. EA.com recognizes the full sales amount for such transactions
at the time EA.com ships the product to the customer as EA.com bears full
customer credit risk and merchandise return risk following vendor shipment.
EA.com provides an allowance for sales returns based on historical experience.
To date, EA.com's sales returns have not been material. EA.com is also
responsible for setting the retail price.

(p) Software Development Costs

Research and development costs relate to the development of new online games
services and consist primarily of employee compensation, as well as costs for
content, facilities and equipment. Research and development costs are expensed
as incurred. Development expenses prior to the establishment of technological
feasibility are charged to research and development as incurred and amounted to
$8,050,000, $5,352,000 and $2,604,000 in fiscal 1999, 1998 and 1997
(unaudited), respectively. SFAS No. 86 provides for the capitalization of
certain software development costs incurred after technological feasibility of
the software is established or for development costs that have alternative
future uses. Under EA.com's current practice of developing new products, the
technological feasibility of the underlying software is not established until
substantially all product development is complete, which generally includes the
development of a working model. No software development costs have been
capitalized.

(q) Network Development and Support

Network development and support includes spending associated with web
content, server depreciation, network infrastructure, bandwidth costs, software
maintenance and management overhead. For the fiscal years ended March 31, 1999
and 1998, network development and support expenses incurred and amounted to
approximately $9,846,000 and $3,020,000, respectively. There were no network
operation expenses incurred for fiscal year ended March 31, 1997.

IV-26
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(r) Advertising Costs

EA.com expenses advertising costs as incurred. Cooperative advertising with
distributors and retailers is accrued when revenue is recognized. Cooperative
advertising credits are reimbursed when qualifying claims are submitted. For
the fiscal years ended March 31, 1999 and 1998, advertising expenses totaled
approximately $500,000 and $551,000, respectively. There was no advertising
expense for the fiscal year ended March 31, 1997.

(s) Employee Benefits

Electronic Arts has a 401(k) Plan covering substantially all of its U.S.
employees including those employees associated with EA.com. The 401(k) Plan
permits Electronic Arts to make discretionary contributions to employees'
accounts based on Electronic Arts' financial performance. Electronic Arts
contributed $37,000 and $13,000 to the Plan in fiscal 1999 and fiscal 1998,
respectively, for the benefit of EA.com employees. Electronic Arts made no
contributions to the plan in fiscal 1997 for the benefit of EA.com employees.

(t) Stock-based Compensation

Electronic Arts accounts for stock-based awards to EA.com employees using
the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").

(u) Income Taxes

EA.com was not a separate taxable entity for federal, state or local income
tax purposes and its operations are included in the consolidated Electronic
Arts tax returns. EA.com accounts for income taxes under the separate return
method in accordance with SFAS No. 109, "Accounting for Income Taxes." Under
the separate return method, deferred tax assets generated from operating losses
required a full valuation allowance because the history of operating losses,
realizability of such tax benefit is not probable.

(v) Net Income Per Share

As EA.com does not have its own class of stock, basic and diluted net income
or loss per share data is not applicable and therefore has been omitted.

(w) Impact of Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133") "Accounting
for Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS 133 is effective as of the beginning of the first quarter of
the fiscal year beginning after June 15, 2000. EA.com is determining the effect
of SFAS 133 on its financial statements. As Electronic Arts provides all cash
management services, EA.com does not anticipate any impact on its financial
statements as a result of the adoption of SFAS 133.

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" . SOP 98-1 requires that certain costs
related to the development or purchase of internal-use software be capitalized
and amortized over the estimated useful life of the software. SOP 98-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 1998. The adoption of SOP 98-1 did not have a material impact on
EA.com's results of operations.

IV-27
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(2) ACQUISITION

PlayNation

In July 1999, Electronic Arts acquired PlayNation (now referred to as "EA
San Diego"), a developer of online entertainment, for approximately $574,000 in
cash (net of cash acquired). The transaction has been accounted for under the
purchase method. The results of operations of the acquired entity and the
estimated fair market values of the acquired assets and liabilities have been
included in EA.com's consolidated financial statements from the date of
acquisition. The aggregate purchase price including liabilities assumed has
been allocated to the assets acquired consisting primarily of goodwill of
approximately $470,000 and assembled workforce of approximately $104,000. The
allocation to goodwill and the assembled workforce is being amortized on a
straight-line basis over 5 years.

The purchase price for the EA San Diego transaction was allocated to assets
acquired and liabilities assumed as set forth below:

<TABLE>
<CAPTION>
Current assets (net of cash acquired)............................ $ 46,000
<S> <C>
Fixed assets..................................................... 14,000
Goodwill and assembled workforce................................. 574,000
Liabilities...................................................... (60,000)
--------
Total cash paid................................................. $574,000
========
</TABLE>

The following unaudited proforma consolidated amounts give effect to the
EA.com acquisition of EA San Diego as if it had occurred on April 1, 1998:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
December 31, 1999 March 31, 1999 March 31, 1998
----------------- -------------- --------------
(In thousands)
<S> <C> <C> <C>
Net revenues................. $ 14,100 $17,174 $11,000
Net loss..................... $(30,878) $(9,284) $(3,107)
</TABLE>

(3) CERTAIN CASH AND MANAGEMENT ALLOCATION POLICIES

The accompanying financial statements reflect the application of certain
cash management and allocation policies summarized below. The Board may
rescind, modify or add to any of these policies without shareholder approval.
Management believes that these allocations are based on assumptions that are
reasonable under the circumstances. However, these allocations and estimates
are not necessarily indicative of the costs and expenses which would have
resulted if the business had been operated as a separate entity. Where
determinations based on utilization alone are impracticable, Electronic Arts
uses other methods and criteria that management believes to be equitable and to
provide a reasonable estimate of the cost attributable to EA.com.

IV-28
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Marketing and sales

Electronic Arts allocates the costs of certain marketing including
international advertising and promotional costs based upon a percentage of
total direct advertising costs. Sales commissions and direct sales department
salaries and facilities costs were allocated based upon e-Commerce revenues as
a percentage of total direct sales department revenues.

General and administrative

Electronic Arts allocates the cost of certain corporate general and
administrative services including legal, accounting, human resource costs and
facilities based upon estimated headcount utilization.

Research and development

Electronic Arts allocates the cost of certain research and development costs
including facilities, network, and production development and management based
upon a percentage of total direct research and development costs.

Network development support

Electronic Arts allocates the cost of certain network development and
support costs including facilities, network infrastructure and management
overhead based upon a percentage of total direct network and development
support costs.

Allocated Costs

The amounts allocated to EA.com by Electronic Arts included in the
accompanying statements of operations are as follows:

<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
----------------------- -------------------------
1999 1998 1999 1998 1997
----------- ----------- ------ ------ -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
(In thousands)
Marketing and sales......... $ 290 $ 556 $ 688 $ 706 $ --
General and administrative.. 648 267 356 156 --
Research and development.... 4,512 1,349 1,951 1,297 630
Network development and
support.................... 1,924 1,359 2,034 449 --
------ ------ ------ ------ -----
Total indirect charges...... $7,374 $3,531 $5,029 $2,608 $ 630
====== ====== ====== ====== =====
</TABLE>

(4) STOCK PLANS

(a) Employee Stock Purchase Plan

Electronic Arts has an Employee Stock Purchase Plan program whereby eligible
employees may authorize payroll deductions of up to 10% of their compensation
to purchase shares at 85% of the lower of the fair market value of the Common
Stock on the date of commencement of the offering or on the last day of the
six-month purchase period. The program commenced in September 1991. In fiscal
1999, 2,911 shares were purchased by Electronic Arts and distributed to EA.com
employees at prices ranging from $26.19 to $36.60. In fiscal 1998, 2,493 shares
were purchased by Electronic Arts and distributed to employees at prices
ranging

IV-29
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

from $26.14 to $26.19. The weighted average fair value of the fiscal 1999 and
fiscal 1998 awards were $18.27 and $9.43, respectively.

(b) Stock Option Plans

Eligible employees of EA.com participate in various Electronic Arts' option
plans. Electronic Arts' 1991 Stock Option Plan, 1993 Stock Option Plan, 1995
Stock Option Plan and Directors' Plan ("Option Plans") provide stock options
for employees, officers and independent contractors, and for directors,
respectively. Pursuant to these Option Plans, the Board of Directors may grant
non-qualified and incentive stock options to employees and officers and non-
qualified options to celebrities, employees of certain companies in which
Electronic Arts has an equity investment, and directors, at not less than the
fair market value on the date of grant.

The options generally expire ten years from the date of grant and are
generally exercisable in monthly increments over 50 months.

EA.com has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). Accordingly, no compensation expense has been recognized for options
granted under Electronic Arts employee-based stock option plans. Had
compensation expense been determined based on the fair value at the grant dates
for awards under those plans in accordance with the provisions of SFAS 123,
EA.com's pro forma net loss for fiscal years ended March 31, 1999, 1998 and
1997 (unaudited) would have been:

<TABLE>
<CAPTION>
March 31, March 31, March 31,
1999 1998 1997
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Net Loss
As reported................................ $(8,880) $(2,986) $(2,604)
Pro forma.................................. $(9,283) $(3,294) $(2,604)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted-average
assumptions are used for grants made in 1999 and 1998 under the stock plans:
risk-free interest rates of 4.39% to 5.55% in 1999 and 5.31% to 6.42% in 1998;
expected volatility of 59% and 58%; expected lives of 2.29 years and 2.44 years
in fiscal 1999 and 1998, respectively, under the Option Plans and one year for
the Employee Stock Purchase Plan. No dividends are assumed in the expected
term. EA.com's calculations are based on a multiple option valuation approach
and forfeitures are recognized when they occur. Options generally vest over 50
months, accordingly, pro forma adjustments are not indicative of future period
pro forma adjustments as the pro forma effect will not be fully reflected until
subsequent years.

IV-30
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Additional information regarding options outstanding as of March 31, 1999
granted to EA.com employees is as follows:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number of Contractual Exercise Number of Exercise
Range of Exercise Prices Shares Life Price Shares Price
------------------------ --------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$13.625--$23.500........ 18,724 5.67 $20.62 15,073 $19.93
$23.750--$33.250........ 10,136 7.55 29.76 4,870 29.80
$34.000--$34.000........ 31,826 8.59 34.00 11,634 34.00
$34.563--$35.000........ 16,888 8.51 34.87 5,779 34.88
$35.063--$42.000........ 22,564 9.30 40.28 2,303 37.65
$43.125--$43.125........ 5,430 9.07 43.13 1,288 43.13
$43.625--$43.625........ 30,000 9.50 43.63 4,200 43.63
$44.375--$47.500........ 13,300 9.48 46.92 683 46.13
$49.188--$49.188........ 4,000 9.99 49.19 -- --
$54.250--$54.250........ 800 9.27 54.25 -- --
------- ---- ------ ------ ------
$13.625--$54.250........ 153,668 8.57 $36.93 45,830 $30.54
======= ==== ====== ====== ======
</TABLE>

The following summarizes the activity under the stock option plans during
the fiscal years ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
Options
Outstanding
------------------
Weighted-
Average
Exercise
Shares Price
------- ---------
<S> <C> <C>
Balance at March 31, 1997............................... -- $ --
Granted................................................. 63,050 35.14
Canceled................................................ -- --
Exercised............................................... (6,959) 38.08
------- ------
Balance at March 31, 1998 (16,683 shares were
exercisable
at a weighted average price of $22.45)................. 56,091 34.77
Balance for employees transferred to EA.com in fiscal
1999................................................... 72,697 30.03
Granted................................................. 68,800 44.14
Canceled................................................ (26,697) 34.45
Exercised............................................... (17,223) 33.46
------- ------
Balance at March 31, 1999............................... 153,668 $36.93
======= ======
</TABLE>

IV-31
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(5) PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1999, March 31, 1999 and 1998
consisted of:

<TABLE>
<CAPTION>
December 31, March 31, March 31,
1999 1999 1998
------------ --------- ---------
(unaudited)
(In thousands)
<S> <C> <C> <C>
Computer software and equipment........... $15,680 $2,404 $523
Office equipment, furniture and fixtures.. 31 -- --
------- ------ ----
15,711 2404 523
Less accumulated depreciation and
amortization............................. (987) (292) (102)
------- ------ ----
$14,724 $2,112 $421
======= ====== ====
</TABLE>

Depreciation and amortization expenses associated with property and
equipment amounted to $695,000, $190,000 and $102,000, for the nine months
ended December 31, 1999 and the fiscal years ended March 31, 1999 and March 31,
1998, respectively. There was no depreciation and amortization expense recorded
for the fiscal year ended March 31, 1997.

(6) INTER-GROUP ACTIVITIES

The terms of all material transactions, relationships and other matters
between Electronic Arts and EA.com, including those as to which Electronic Arts
and EA.com may have potential divergent interest, are determined on a basis
that Electronic Arts' Board or management, following guidance or principles
established by Electronic Arts' Board, considers to be in the best interest of
Electronic Arts and its stockholders as a whole. It is not a requirement that
any such material transaction, relationship or other matter be on terms that
would be considered commercially reasonable in the context of a transaction
between unrelated parties, or that would be considered comparable to terms that
could be obtained through negotiations between unrelated parties, or that would
be considered satisfactory under any other similar standard of review.

Electronic Arts has provided all necessary funding for the operations and
investments of EA.com since inception, and such funding has been accounted for
as capital contributions from Electronic Arts (see Note 3). The Consolidated
Statement of Cash Flows shows the cash contributed by Electronic Arts and the
respective uses of the contribution. Net capital contributions for the nine
months ended December 31, 1999 and the years ended March 31, 1999, 1998 and
1997 were $75,132,000, $10,967,000, $2,626,000 and $2,604,000, respectively.

Sales and Distribution License:

Internet Based Consumer Orders:

EA.com has entered into a distribution agreement with Electronic Arts. Under
the terms of the agreement, EA.com will have the right to sell and distribute
Electronic Arts' packaged goods products direct to consumers via the Internet.
EA.com receives orders via the web from third-party customers, processes the
orders, and assumes all credit risk associated with the sale. EA.com processes
the order, purchasing the packaged goods products from Electronic Arts at the
wholesale price, with Electronic Arts fulfilling the order, charging EA.com
actual shipping and handling fees incurred for the order for fulfillment
process. EA.com is responsible for risk of loss and sales returns and therefore
recognizes 100% of revenue generated for sales to end customers. Cost

IV-32
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of packaged goods sold paid by EA.com to Electronic Arts was $1,080,000
(unaudited), $209,000 (unaudited), $483,000 and $218,000 for the nine months
ended December 31, 1999, the nine months ended December 31, 1998 and the fiscal
years ended March 31, 1999 and 1998, respectively. There were no payments made
for the cost of packaged goods by EA.com to Electronic Arts for the fiscal year
ended March 31, 1997.

Online Games:

EA.com has entered into an Affiliated Label sales and distribution agreement
with Electronic Arts for the sale of packaged goods solely for Internet based
games, such as Ultima Online. Under the terms of the agreement, EA.com pays
Electronic Arts 18% of sales, as defined, for sales, distribution and other
related services provided by Electronic Arts. The 18% sales and distribution
fee is allocated by EA.com to cost of goods sold (for the distribution related
costs) and to marketing and sales. EA.com is responsible for credit and
inventory risk associated with the products covered by the agreement.
Accordingly, EA.com recognizes 100% of the revenue, less applicable reserves
for returns, markdowns and credits, generated for sales to retailers, as well
as all applicable costs related to the sale, warehousing and distribution of
those packaged goods. Distribution fees paid by EA.com to Electronic Arts and
charged to cost of goods sold were $160,000 (unaudited), $168,000 (unaudited),
$208,000 and $202,000 for the nine months ended December 31, 1999, the nine
months ended December 31, 1998 and the fiscal years ended March 31, 1999 and
1998, respectively. The portion charged to sales and marketing expenses were
$158,000 (unaudited), $414,000 (unaudited), $506,000 and $921,000 for the nine
months ended December 31, 1999, the nine months ended December 31, 1998 and the
fiscal years ended March 31, 1999 and 1998, respectively.

Research and Development:

Under the terms of intercompany agreements ("ICA") between Electronic Arts
and EA.com, dated November 17, 1999, Electronic Arts may develop and produce
online playable games for EA.com. EA.com will reimburse Electronic Arts for all
direct development costs incurred (including, but not limited to, engineering,
art, audio, video and production costs) as well as related overhead costs for
such items as facilities, network and production and development management. In
addition, EA.com will pay Electronic Arts a development royalty, which royalty
rate will be determined on a product-by-product basis, based upon comparable
industry standards. Royalties will not be earned by Electronic Arts until
EA.com has recouped the funded development costs for the associated product.
There were no research and development royalty payments made by EA.com to
Electronic Arts for all periods presented.

License of Intellectual Property Rights:

Under the terms of the ICA, Electronic Arts has licensed to EA.com the
exclusive online related rights to use certain of Electronic Arts' intellectual
properties, including trademarks, tools, technology and copyrights, in the
conduct of its Internet business, as defined, for which royalties will be set
on a product-by-product basis. EA.com is to pay Electronic Arts royalties on
revenues generated by the games utilizing Electronic Arts' intellectual
properties. The royalty rate for the intellectual property associated with
Ultima Online is 3% of defined net revenues. Development royalties paid by
EA.com to Electronic Arts under this arrangement were $385,000 (unaudited),
$362,000 (unaudited), $502,000 and $320,000 for the nine months ended December
31, 1999, the nine months ended December 31, 1998 and the fiscal years ended
March 31, 1999 and 1998, respectively. There were no development royalties paid
by EA.com for the fiscal year ended March 31, 1997.

Tax Sharing Agreement

In general, this agreement provides that the consolidated tax provision, and
related payments or refunds, are allocated between the businesses based
principally upon the financial income, taxable income, credits, and

IV-33
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

other amounts directly related to the respective businesses. EA.com is required
to make payments to Electronic Arts under this agreement only when a
calculation on a separate tax return basis results in a tax liability.
Alternatively, Electronic Arts will make payments to EA.com under this
agreement only when EA.com would generate a tax refund on a separate tax return
basis.

(7) INCOME TAXES

EA.com has not presented separate components of current and deferred income
taxes nor the expected tax expense reconciliation due to its net operating loss
position and the recognition of a full valuation allowance on its net deferred
tax assets.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below:

<TABLE>
<CAPTION>
March 31,
----------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accruals and reserves.................................... $ 97 $ 96
Federal and state loss carryforwards..................... 5,463 2,098
Research credit carryforwards............................ 654 216
------- -------
Total gross deferred tax assets......................... 6,214 2,410
Less valuation allowance................................ (6,197) (2,397)
------- -------
Net deferred tax assets.................................. $ 17 $ 13
------- -------
Deferred tax liabilities:
Depreciation............................................. $ (17) $ (13)
------- -------
Total gross deferred tax liabilities.................... (17) (13)
------- -------
Net deferred tax asset................................... $ -- $ --
------- -------
</TABLE>

The net change in the total valuation allowance for the fiscal years ended
March 31, 1999, 1998 and 1997 (unaudited) were increases of $3,800,000,
$1,310,000 and $1,000,000, respectively.

Given the recent history of operating losses, deferred tax assets generated
required a full valuation allowance because realizability of such tax benefit
is not probable.

(8) SEGMENT INFORMATION

In 1999, EA.com adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
product lines, geographic areas and major customers. The method for determining
what information to report is based on the way that management organizes the
operating segments within EA.com for making operational decisions and
assessments of financial performance. EA.com's chief operating decision maker
is considered to be Electronic Arts' Chief Executive Officer ("CEO"). The CEO
reviews financial information presented on a consolidated basis as EA.com has
organized its operations in a single operating segment providing the creation,
marketing and distribution of entertainment software which can be played or
sold online.

IV-34
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Information about EA.com's net revenues in the North America and foreign
areas for the nine months ended December 31, 1999 and 1998 and the fiscal years
ended March 31, 1999, 1998 and 1997 is presented below:

Substantially all assets of EA.com are located in the United States.

Information about EA.com's revenues by revenue sources for the nine months
ended December 31, 1999 and 1998 and the fiscal years ended March 31, 1999,
1998 and 1997 is presented below:

<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
----------------------- ---------------------------
1999 1998 1999 1998 1997
----------- ----------- ------- ------- -----------
(unaudited) (unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Online revenues.......... $10,915 $ 8,862 $12,570 $ 4,451 $ --
Product revenues......... 1,764 3,230 3,969 6,237 --
e-Commerce revenues...... 1,421 275 635 287 --
------- ------- ------- ------- -----
Total net revenues....... $14,100 $12,367 $17,174 $10,975 $ --
======= ======= ======= ======= =====
</TABLE>

(9) COMMITMENTS AND CONTINGENCIES

Lease Obligations

Electronic Arts leases certain of its current facilities and certain
equipment under non-cancelable operating lease agreements, including leases for
the EA.com facilities in San Diego, California. Electronic Arts is required to
pay property taxes, insurance and normal maintenance costs for certain of its
facilities and will be required to pay any increases over the base year of
these expenses on the remainder of its facilities. Costs for facilities and
related services have been allocated to EA.com (see Note 3), and such amounts
have been reported as rent expense. However, EA.com is not obligated to
Electronic Arts under any formal lease agreements. In addition, EA.com occupies
facilities under terms of non-cancelable operating leases, subject to
extensions in certain cases at EA.com's option. Electronic Arts' future minimum
lease payments on EA.com occupied facilities totaled $1,141,000 at March 31,
1999, payable as follows:

<TABLE>
<CAPTION>
Year Ended March 31: (In thousands)
-------------------- --------------
<S> <C>
2000....................................................... $ 137
2001....................................................... 236
2002....................................................... 246
2003....................................................... 256
2004....................................................... 266
Thereafter................................................. --
------
$1,141
======
</TABLE>

IV-35
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Litigation

EA.com is subject to pending claims and litigation. Management, after review
and consultation with outside counsel, considers that any liability from the
disposition of such lawsuits would not have a material adverse effect upon the
consolidated financial condition or results of operations of EA.com.

(10) AMERICA ONLINE, INC. ("AOL") AGREEMENT

EA.com also committed to spend $15 million in offline media advertisements
promoting its games on AOL during the term of the agreement.

Sale of Class B Common Stock and Warrant to AOL

In connection with the agreement with AOL, EA.com has agreed, subject to the
approval of the Tracking Stock Proposal, to sell shares of Class B common stock
to AOL (the "AOL Shares") representing 10% of the initial equity value
attributable to EA.com.

In addition to the AOL Shares, EA.com has agreed to sell AOL a warrant (the
"AOL Warrant") to purchase shares of Class B common stock representing an
additional 5% of the initial equity value attributable to EA.com for
$1,300,000. The aggregate exercise price of the AOL Warrant will be
$40,000,000. The AOL Warrant expires at the latest at the fifth anniversary of
its date of issuance, and under certain conditions may expire at an earlier
date.

AOL Exchange Rights

If a Qualified Public Offering (as defined in the AOL Agreement) does not
occur within 12 months following the initial sale of the AOL Shares to AOL,
then AOL may exchange their Class B common stock shares for a number of Class A
common stock based on the ratio of the per share price paid by AOL for the
Class B common stock relative to $83.7958.

IV-36
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

AOL Back-up Warrant

AOL received a warrant for the purchase 238,675 shares of existing
Electronic Arts common stock which becomes exercisable in the event the
Tracking Stock proposal is not approved by Electronic Arts shareholders.

(11) SUBSEQUENT EVENT

Acquisition of Kesmai from News America Incorporated ("News Corp.")

On February 7, 2000, we acquired Kesmai Corporation from News Corp in
exchange for $22,500,000 in cash and 103,227 shares of Electronic Arts'
existing common stock valued at $8,650,000. Kesmai specializes in the design
and development of multiplayer games delivered directly to consumers over the
Internet and is a major provider of game content to the Games Channel on the
AOL service. As a result of the acquisition, EA.com is in the process of
allocating the purchase price to the fair value of assets acquired and
liabilities assumed.

Exchange of News Corp. Common Stock for Electronic Arts Class B Common Stock

If the Tracking Stock proposal is approved, News Corp.'s 103,227 shares of
Electronic Arts Inc. common stock will automatically convert to shares of the
Class B common stock representing 5% of the initial equity value attributed to
EA.com. If the Tracking Stock proposal is not approved by August 18, 2000,
Electronic Arts Inc. is obligated to pay News Corp $9,650,000.

EA.com also committed to spend $5 million in advertising with News
Corporation Limited or any of its affiliates.

Subsequent Exchange Rights of News America Incorporated

If a qualified public offering of Class B common stock does not occur within
twenty four months of News Corp's purchase of such shares, then News Corp has
the right to (1) exchange Class B common stock for 103,227 shares of Class A
common stock, and (2) receive cash from Electronic Arts in the amount of
$9,650,000.

IV-37
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(12) UNAUDITED CONSOLIDATING STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Nine Months Ended December 31, 1999
----------------------------------------------
Adjustments
and Electronic
EA EA.com Eliminations Arts
---------- -------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues from unaffiliated
customers...................... $1,111,598 $ 14,100 $ -- $1,125,698
Group sales..................... 1,465 -- (1,465)(a) --
---------- -------- -------- ----------
Total net revenues............ 1,113,063 14,100 (1,465) 1,125,698
Cost of goods sold from
unaffiliated customers......... 558,845 3,976 -- 562,821
Group cost of goods sold........ -- 1,465 (1,465) --
---------- -------- -------- ----------
Total cost of goods sold...... 558,845 5,441 (1,465) 562,821
---------- -------- -------- ----------
Gross profit.................... 554,218 8,659 -- 562,877
Operating expenses:
Marketing and sales............ 145,417 2,005 -- 147,422
General and administrative..... 65,924 2,322 -- 68,246
Research and development....... 152,077 22,877 12,071 (b) 187,025
Network development and sup-
port.......................... -- 12,071 (12,071) --
Amortization of intangibles.... 7,742 58 -- 7,800
---------- -------- -------- ----------
Total operating expenses........ 371,160 39,333 -- 410,493
---------- -------- -------- ----------
Operating income (loss)......... 183,058 (30,674) -- 152,384
Interest and other income, net.. 11,653 -- -- 11,653
---------- -------- -------- ----------
Income (loss) before provision
for income taxes and
minority interest.............. 194,711 (30,674) -- 164,037
Provision for income taxes...... 50,852 -- -- 50,852
---------- -------- -------- ----------
Income (loss) before minority
interest....................... 143,859 (30,674) -- 113,185
Minority interest in
consolidated joint venture..... 134 -- -- 134
---------- -------- -------- ----------
Net income (loss)............... $ 143,993 $(30,674) $ -- $ 113,319
========== ======== ======== ==========
</TABLE>
- --------
(a) Represents elimination of intercompany sales of Electronic Arts packaged
goods products to EA.com; and represents elimination of royalties paid to
Electronic Arts by EA.com for intellectual property rights.
(b) Represents reclassification of Network Development and Support to Research
and Development.

IV-38
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Nine Months Ended December 31, 1998
--------------------------------------------
Adjustments
and Electronic
EA EA.com Eliminations Arts
-------- ------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues from unaffiliated
customers......................... $931,772 $12,367 $ -- $944,139
Group sales........................ 571 -- (571)(a) --
-------- ------- ------- --------
Total net revenues............... 932,343 12,367 (571) 944,139
Cost of goods sold from
unaffiliated customers............ 494,606 2,659 -- 497,265
Group cost of goods sold........... -- 571 (571) --
-------- ------- ------- --------
Total cost of goods sold......... 494,606 3,230 (571) 497,265
-------- ------- ------- --------
Gross profit....................... 437,737 9,137 -- 446,874
Operating expenses:
Marketing and sales............... 121,846 1,772 -- 123,618
General and administrative........ 54,541 913 -- 55,454
Research and development.......... 131,928 5,569 6,861 (b) 144,358
Network development and support... -- 6,861 (6,861) --
Charge for acquired in-process
technology....................... 44,115 -- -- 44,115
Amortization of intangibles....... 3,385 -- -- 3,385
-------- ------- ------- --------
Total operating expenses........... 355,815 15,115 -- 370,930
-------- ------- ------- --------
Operating income (loss)............ 81,922 (5,978) -- 75,944
Interest and other income, net..... 10,507 -- -- 10,507
-------- ------- ------- --------
Income (loss) before provision for
income taxes and
minority interest................. 92,429 (5,978) -- 86,451
Provision for income taxes......... 35,172 -- -- 35,172
-------- ------- ------- --------
Income (loss) before minority
interest.......................... 57,257 (5,978) -- 51,279
Minority interest in consolidated
joint venture..................... (321) -- (321)
-------- ------- ------- --------
Net income (loss).................. $ 56,936 $(5,978) $ -- $ 50,958
======== ======= ======= ========
</TABLE>
- --------
(a) Represents elimination of intercompany sales of Electronic Arts packaged
goods products to EA.com; and represents elimination of royalties paid to
Electronic Arts by EA.com for intellectual property rights.
(b) Represents reclassification of Network Development and Support to Research
and Development.

IV-39
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Year Ended March 31, 1999
----------------------------------------------
Adjustments
and Electronic
EA EA.com Eliminations Arts
---------- ------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues from unaffiliated
customers.................... $1,204,689 $17,174 $ -- $1,221,863
Group sales................... 985 -- (985)(a) --
---------- ------- ------- ----------
Total net revenues.......... 1,205,674 17,174 (985) 1,221,863
Cost of goods sold from
unaffiliated customers....... 624,252 3,571 -- 627,823
Group cost of goods sold...... -- 985 (985) --
---------- ------- ------- ----------
Total cost of goods sold.... 624,252 4,556 (985) 627,823
---------- ------- ------- ----------
Gross profit.................. 581,422 12,618 -- 594,040
Operating expenses:
Marketing and sales.......... 161,029 2,378 -- 163,407
General and administrative... 74,995 1,224 -- 76,219
Research and development..... 181,245 8,050 9,846 (b) 199,141
Network development and
support..................... -- 9,846 (9,846) --
Charge for acquired in-
process technology.......... 44,115 -- -- 44,115
Amortization of intangibles.. 5,880 -- -- 5,880
---------- ------- ------- ----------
Total operating expenses...... 467,264 21,498 -- 488,762
---------- ------- ------- ----------
Operating income (loss)....... 114,158 (8,880) -- 105,278
Interest and other income,
net.......................... 13,180 -- -- 13,180
---------- ------- ------- ----------
Income (loss) before provision
for income taxes and minority
interest..................... 127,338 (8,880) -- 118,458
Provision for income taxes.... 45,414 -- -- 45,414
---------- ------- ------- ----------
Income (loss) before minority
interest..................... 81,924 (8,880) -- 73,044
Minority interest in
consolidated joint venture... (172) -- -- (172)
---------- ------- ------- ----------
Net income (loss)............. $ 81,752 $(8,880) $ -- $ 72,872
========== ======= ======= ==========
</TABLE>
- --------
(a) Represents elimination of intercompany sales of Electronic Arts packaged
goods products to EA.com; and represents elimination of royalties paid to
Electronic Arts by EA.com for intellectual property rights.
(b) Represents reclassification of Network Development and Support to Research
and Development.

IV-40
<PAGE>

EA.com
(A division of Electronic Arts Inc.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
Year Ended March 31, 1998
-------------------------------------------
Adjustments
and Electronic
EA EA.com Eliminations Arts
-------- ------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues from unaffiliated
customers.......................... $897,877 $10,975 $ -- $908,852
Group sales......................... 538 -- (538)(a) --
-------- ------- ------- --------
Total net revenues................ 898,415 10,975 (538) 908,852
Cost of goods sold from unaffiliated
customers.......................... 478,967 2,266 -- 481,233
Group cost of goods sold............ -- 538 (538) --
-------- ------- ------- --------
Total cost of goods sold.......... 478,967 2,804 (538) 481,233
-------- ------- ------- --------
Gross profit........................ 419,448 8,171 -- 427,619
Operating expenses:
Marketing and sales................ 125,711 2,597 -- 128,308
General and administrative......... 57,650 188 -- 57,838
Research and development........... 137,360 5,352 3,020 (b) 145,732
Network development and support.... -- 3,020 (3,020) --
Charge for acquired in-process
technology........................ 1,500 -- -- 1,500
Merger costs....................... 10,792 -- -- 10,792
-------- ------- ------- --------
Total operating expenses............ 333,013 11,157 -- 344,170
-------- ------- ------- --------
Operating income (loss)............. 86,435 (2,986) -- 83,449
Interest and other income, net...... 24,811 -- -- 24,811
-------- ------- ------- --------
Income (loss) before provision for
income taxes and
minority interest.................. 111,246 (2,986) -- 108,260
Provision for income taxes.......... 35,726 -- -- 35,726
-------- ------- ------- --------
Income (loss) before minority
interest........................... 75,520 (2,986) -- 72,534
Minority interest in consolidated
joint venture...................... 28 -- -- 28
-------- ------- ------- --------
Net income (loss)................... $ 75,548 $(2,986) $ -- $ 72,562
======== ======= ======= ========
</TABLE>
- --------
(a) Represents elimination of intercompany sales of Electronic Arts packaged
goods products to EA.com; and represents elimination of royalties paid to
Electronic Arts by EA.com for intellectual property rights.
(b) Represents reclassification of Network Development and Support to Research
and Development.

IV-41
<PAGE>

APPENDIX V

ELECTRONIC ARTS INC.

2000 CLASS B EQUITY INCENTIVE PLAN

As Adopted , 2000

1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of EA.com, a subsidiary of the Company, its Parent
and Subsidiaries by offering them an opportunity to participate in the
Company's future performance through awards of Options and Restricted Stock.
Capitalized terms not defined in the text are defined in Section 22.

2. SHARES SUBJECT TO THE PLAN.

2.1 Number of Shares Available. Subject to Sections 2.2 and 17, the
total number of Shares reserved and available for grant and issuance pursuant
to this Plan will be 6,000,000 Shares plus Shares that are subject to: (a)
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option; (b) an Award granted hereunder
but are forfeited or are repurchased by the Company at the original issue
price; and (c) an Award that otherwise terminates without Shares being issued.
At all times the Company shall reserve and keep available a sufficient number
of Shares as shall be required to satisfy the requirements of all outstanding
Options granted under this Plan and all other outstanding but unvested Awards
granted under this Plan.

2.2 Adjustment of Shares. In the event that the number of outstanding
shares is changed by a stock dividend, recapitalization, stock split, reverse
stock split, subdivision, combination, reclassification or similar change in
the capital structure of the Company without consideration, then (a) the number
of Shares reserved for issuance under this Plan, (b) the number of Shares that
may be granted pursuant to Sections 3 and 8 below, (c) the Exercise Prices of
and number of Shares subject to outstanding Options, and (d) the number of
Shares subject to other outstanding Awards will be proportionately adjusted,
subject to any required action by the Board or the stockholders of the Company
and compliance with applicable securities laws; provided, however, that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.

3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees and directors of the Company or any Parent or Subsidiary
of the Company. No person will be eligible to receive more than 750,000 Shares
in any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 1,500,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.

4. ADMINISTRATION.

4.1 Committee Authority. This Plan will be administered by the Committee
or by the Board acting as the Committee. Except for automatic grants to Outside
Directors pursuant to Section 8 hereof, and subject to the general purposes,
terms and conditions of this Plan, and to the direction of the Board, the
Committee will have full power to implement and carry out this Plan. Except for
automatic grants to Outside Directors pursuant to Section 8 hereof, the
Committee will have the authority to:

(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;

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(d) determine the form and terms of Awards;

(e) determine the number of Shares or other consideration subject
to Awards;

(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;

(g) grant waivers of Plan or Award conditions;

(h) determine the vesting, exercisability and payment of Awards;

(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;

(j) determine whether an Award has been earned; and

(k) make all other determinations necessary or advisable for the
administration of this Plan.

4.2 Committee Discretion. Except for automatic grants to Outside
Directors pursuant to Section 8 hereof, any determination made by the Committee
with respect to any Award will be made in its sole discretion at the time of
grant of the Award or, unless in contravention of any express term of this Plan
or Award, at any later time, and such determination will be final and binding
on the Company and on all persons having an interest in any Award under this
Plan. The Committee may delegate to one or more officers of the Company the
authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.

5. OPTIONS. The Committee may grant Options to eligible persons and will
determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:

5.1 Form of Option Grant. Each Option granted under this Plan will be
evidenced by an Award Agreement which will expressly identify the Option as an
ISO or an NQSO ("Stock Option Agreement"), and, except as otherwise required by
the terms of Section 8 hereof, will be in such form and contain such provisions
(which need not be the same for each Participant) as the Committee may from
time to time approve, and which will comply with and be subject to the terms
and conditions of this Plan.

5.2 Date of Grant. The date of grant of an Option will be the date on
which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.

5.3 Exercise Period. Options may be exercisable within the times or upon
the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or
by attribution owns more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary of
the Company ("Ten Percent Stockholder") will be exercisable after the
expiration of five (5) years from the date the ISO is granted. The Committee
also may provide for Options to become exercisable at one time or from time to
time, periodically or otherwise, in such number of Shares or percentage of
Shares as the Committee determines. With respect to Options granted before the
Shares are listed on a national securities exchange or designated as a national
market system security, and subject to earlier termination of the Option as
provided herein, each Participant who is not an officer, director or consultant
of the Company or of a Parent or Subsidiary of the Company shall have the right
to exercise an Option granted hereunder at the rate of no less than twenty
percent (20%) per year over five (5) years from the date such Option is
granted.

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5.4 Exercise Price. The Exercise Price of an Option will be determined
by the Committee when the Option is granted and may be not less than 85% of the
Fair Market Value of the Shares on the date of grant; provided that: (i) the
Exercise Price of an ISO will be not less than 100% of the Fair Market Value of
the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted
to a Ten Percent Stockholder will not be less than 110% of the Fair Market
Value of the Shares on the date of grant. Payment for the Shares purchased may
be made in accordance with Section 7 of this Plan. With respect to Options
granted before the Shares are listed on a national securities exchange or
designated as a national market system security, the Exercise Price of any
Option granted to a Ten Percent Stockholder will not be less than 110% of the
Fair Market Value of the Shares on the date of grant.

5.5 Method of Exercise. Options may be exercised only by delivery to the
Company of a written stock option exercise agreement (the "Exercise Agreement")
in a form approved by the Committee (which need not be the same for each
Participant), stating the number of Shares being purchased, the restrictions
imposed on the Shares purchased under such Exercise Agreement, if any, and such
representations and agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be required or
desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.

5.6 Termination. Notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option will always be subject to the
following:

(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such
shorter period, not less than thirty (30) days, or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no
later than the expiration date of the Options.

(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter period, not less than six
(6) months, or longer time period not exceeding five (5) years
as may be determined by the Committee, with any such exercise
beyond (a) three (3) months after the Termination Date when the
Termination is for any reason other than the Participant's
death or Disability, or (b) twelve (12) months after the
Termination Date when the Termination is for Participant's
death or Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.

(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant,
the Participant's estate nor such other person who may then
hold the Option shall be entitled to exercise any Option with
respect to any Shares whatsoever, after termination of service,
whether or not after termination of service the Participant may
receive payment from the Company or Subsidiary for vacation
pay, for services rendered prior to termination, for services
rendered for the day on which termination occurs, for salary in
lieu of notice, or for any other benefits. In making such
determination, the Board shall give the Participant an
opportunity to present to the Board evidence on his behalf. For
the purpose of this paragraph, termination of service shall be
deemed to occur on the date when the Company dispatches notice
or advice to the Participant that his service is terminated.

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5.7 Limitations on Exercise. The Committee may specify a reasonable
minimum number of Shares that may be purchased on any exercise of an Option,
provided that such minimum number will not prevent Participant from exercising
the Option for the full number of Shares for which it is then exercisable.

5.8 Limitations on ISO. The aggregate Fair Market Value (determined as
of the date of grant) of Shares with respect to which ISO are exercisable for
the first time by a Participant during any calendar year (under this Plan or
under any other incentive stock option plan of the Company, Parent or
Subsidiary of the Company) will not exceed $100,000. If the Fair Market Value
of Shares on the date of grant with respect to which ISO are exercisable for
the first time by a Participant during any calendar year exceeds $100,000, then
the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit
will be automatically incorporated herein and will apply to any Options granted
after the effective date of such amendment.

5.9 Modification, Extension or Renewal. The Committee may modify, extend
or renew outstanding Options and authorize the grant of new Options in
substitution therefor, provided that any such action may not, without the
written consent of a Participant, impair any of such Participant's rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered will be treated in accordance with Section 424(h)
of the Code. The Committee may reduce the Exercise Price of outstanding Options
without the consent of Participants affected by a written notice to them;
provided, however, that the Exercise Price may not be reduced below the minimum
Exercise Price that would be permitted under Section 5.4 of this Plan for
Options granted on the date the action is taken to reduce the Exercise Price.

5.10 No Disqualification. Notwithstanding any other provision in this
Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.

6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the Company
to sell to an eligible person Shares that are subject to restrictions. The
Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:

6.1 Form of Restricted Stock Award. All purchases under a Restricted
Stock Award made pursuant to this Plan will be evidenced by an Award Agreement
("Restricted Stock Purchase Agreement") that will be in such form (which need
not be the same for each Participant) as the Committee will from time to time
approve, and will comply with and be subject to the terms and conditions of
this Plan. The offer of Restricted Stock will be accepted by the Participant's
execution and delivery of the Restricted Stock Purchase Agreement and full
payment for the Shares to the Company within thirty (30) days from the date the
Restricted Stock Purchase Agreement is delivered to the person. If such person
does not execute and deliver the Restricted Stock Purchase Agreement along with
full payment for the Shares to the Company within thirty (30) days, then the
offer will terminate, unless otherwise determined by the Committee.

6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted and, with respect to Restricted Stock Awards
granted before the Shares are listed on a national securities exchange or
designated as a national market system security, will be at least eighty-five
(85%) of the Fair Market Value of the Shares on the date the Restricted Stock
Award is granted or at the time the purchase is consummated. Notwithstanding
the foregoing, in the case of a sale to a Ten Percent Stockholder, the Purchase
Price will be 100% of the Fair Market Value. Payment of the Purchase Price may
be made in accordance with Section 7 of this Plan.

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6.3 Terms of Restricted Stock Awards. Restricted Stock Awards shall be
subject to such restrictions as the Committee may impose. These restrictions
may be based upon completion of a specified number of years of service with the
Company or upon completion of the performance goals as set out in advance in
the Participant's individual Restricted Stock Purchase Agreement. Restricted
Stock Awards may vary from Participant to Participant and between groups of
Participants. Prior to the grant of a Restricted Stock Award, the Committee
shall: (a) determine the nature, length and starting date of any Performance
Period for the Restricted Stock Award; (b) select from among the Performance
Factors to be used to measure performance goals, if any; and (c) determine the
number of Shares that may be awarded to the Participant. Prior to the payment
of any Restricted Stock Award, the Committee shall determine the extent to
which such Restricted Stock Award has been earned. Performance Periods may
overlap and Participants may participate simultaneously with respect to
Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.

6.4 Termination During Performance Period. If a Participant is
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.

7. PAYMENT FOR SHARE PURCHASES.

7.1 Payment. Payment for Shares purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:

(a) by cancellation of indebtedness of the Company to the
Participant;

(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares); or (2)
were obtained by Participant in the public market;

(c) by tender of a full recourse promissory note having such terms
as may be approved by the Committee and bearing interest at a
rate sufficient to avoid imputation of income under Sections
483 and 1274 of the Code;

(d) by waiver of compensation due or accrued to the Participant for
services rendered;

(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:

(1) through a "same day sale" commitment from the Participant
and a broker-dealer that is a member of the National
Association of Securities Dealers (an "NASD Dealer")
whereby the Participant irrevocably elects to exercise the
Option and to sell a portion of the Shares so purchased to
pay for the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward
the Exercise Price directly to the Company; or

(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the Exercise Price
directly to the Company; or

(f) by any combination of the foregoing.

7.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.

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8. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.

8.1 Types of Options and Shares. Options granted under this Plan and
subject to this Section 8 shall be NQSOs.

8.2 Eligibility. Options subject to this Section 8 shall be granted only
to Outside Directors. Outside Directors shall also be eligible to receive
option grants pursuant to Section 5 hereof at such times and on such conditions
as determined by the Committee.
8.3 Initial Grant. Each Outside Director who first becomes a member of
the Board on or after the Effective Date, and each Outside Director who is in
office at the time of approval by the Stockholders of this Plan, will
automatically be granted an Option for 10,000 Shares (an "Initial Grant") on
the later of the date such Outside Director first becomes a member of the Board
and the date the Stockholders approve this Plan.

8.4 Succeeding Grants. Upon re-election to the Board at each Annual
Meeting of Stockholders, each Outside Director will automatically be granted an
Option for 2,500 Shares (a "Succeeding Grant"); provided, however, that any
such Outside Director who received an Initial Grant since the last Annual
Meeting of Stockholders will receive a prorated Succeeding Grant to purchase a
number of shares equal to 2,500 multiplied by a fraction whose numerator is the
number of calendar months or portions thereof that the Outside Director has
served since the date of the Initial Grant and whose denominator is twelve.

8.5 Vesting. The date an Outside Director receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "Start Date" for such
Option.

(a) Initial Grants. Each Initial Grant will vest as to 2% of the
Shares on the Start Date for such Initial Grant, and as to an
additional 2% of the Shares on the first day of each calendar
month after the Start Date, so long as the Outside Director
continuously remains a director or a consultant of the Company.

(b) Succeeding Grants. Each Succeeding Grant will vest as to 2% of
the Shares on the Start Date for such Succeeding Grant, and as
to an additional 2% of the Shares on the first day of each
calendar month after the Start Date, so long as the Outside
Director continuously remains a director or a consultant of the
Company.

Notwithstanding any provision to the contrary, in the event of a corporate
transaction described in Section 17.1, the vesting of all options granted to
Outside Directors pursuant to this Section 8 will accelerate and such options
will become exercisable in full prior to the consummation of such event at such
times and on such conditions as the Committee determines, and must be
exercised, if at all, within three months of the consummation of said event.
Any options not exercised within such three-month period shall expire.

8.6 Exercise Price. The exercise price of an Option pursuant to an
Initial Grant or Succeeding Grant shall be the Fair Market Value of the Shares
at the time that the Option is granted.

8.7 Deferral of Cash Compensation. Each Outside Director may elect to
reduce all or part of the cash compensation otherwise payable for services to
be rendered by him as a director (including the annual retainer and any fees
payable for serving on the Board or a Committee of the Board) and to receive in
lieu thereof Shares. Any such election shall be in writing and must be made
before the services are rendered giving rise to such compensation, and may not
be revoked or changed thereafter during the Outside Director's term. On such
election, the cash compensation otherwise payable will be increased by 10% for
purposes of determining the number of Shares to be credited to such Outside
Director.

If an Outside Director so elects to defer, there shall be credited to such
Outside Director a number of Shares equal to the amount of the deferral
(increased by 10% as described in the preceding sentence) divided by the fair
market value as determined by the closing price on the Nasdaq National Market
on the day in which the compensation would have been paid in the absence of a
deferral election.

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9. WITHHOLDING TAXES.

9.1 Withholding Generally. Whenever Shares are to be issued in
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding
tax requirements.

9.2 Stock Withholding. When, under applicable tax laws, a Participant
incurs tax liability in connection with the exercise or vesting of any Award
that is subject to tax withholding and the Participant is obligated to pay the
Company the amount required to be withheld, the Committee may in its sole
discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be
issued that number of Shares having a Fair Market Value equal to the minimum
amount required to be withheld, determined on the date that the amount of tax
to be withheld is to be determined. All elections by a Participant to have
Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee and be in writing in a form
acceptable to the Committee.

10. TRANSFERABILITY.

10.1 Except as otherwise provided in this Section 10, Awards granted
under this Plan, and any interest therein, will not be transferable or
assignable by Participant, and may not be made subject to execution, attachment
or similar process, otherwise than by will or by the laws of descent and
distribution or as determined by the Committee and set forth in the Award
Agreement with respect to Awards that are not ISOs.

10.2 All Awards other than NQSO's. All Awards other than NQSO's shall be
exercisable: (i) during the Participant's lifetime, only by (A) the
Participant, or (B) the Participant's guardian or legal representative; and
(ii) after Participant's death, by the legal representative of the
Participant's heirs or legatees.

10.3 NQSOs. Unless otherwise restricted by the Committee, an NQSO shall
be exercisable: (i) during the Participant's lifetime only by (A) the
Participant, (B) the Participant's guardian or legal representative, (C) a
Family Member of the Participant who has acquired the NQSO by "permitted
transfer;" and (ii) after Participant's death, by the legal representative of
the Participant's heirs or legatees. "Permitted transfer" means, as authorized
by this Plan and the Committee in a Stock Option Agreement, any transfer
effected by the Participant during the Participant's lifetime of an interest in
such NQSO but only such transfers which are by gift or domestic relations
order. A permitted transfer does not include any transfer for value and neither
of the following are transfers for value: (a) a transfer under a domestic
relations order in settlement of marital property rights or (b) a transfer to
an entity in which more than fifty percent of the voting interests are owned by
Family Members or the Participant in exchange for an interest in that entity.

10.4 Notwithstanding any provision in this Section 10 to the contrary,
any Award issued before the Shares are listed on a national securities exchange
or designated as a national market system security will not be transferable or
assignable by Participant, other than by will or by the laws of descent and
distribution, and may not be made subject to execution, attachment or similar
process. During the lifetime of the Participant such Awards will be exercisable
only by the Participant or Participant's legal representative and any elections
with respect to such Awards may be made only by the Participant or
Participant's legal representative.

11. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.

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Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as
the Restricted Stock; provided, further, that the Participant will have no
right to retain such stock dividends or stock distributions with respect to
Shares that are repurchased at the Participant's Purchase Price or Exercise
Price pursuant to Section 11.3.

11.2 Financial Statements. The Company will provide financial statements
to each Participant prior to such Participant's purchase of Shares under this
Plan, and to each Participant annually during the period such Participant has
Awards outstanding; provided, however, the Company will not be required to
provide such financial statements to Participants whose services in connection
with the Company assure them access to equivalent information.

11.3 Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase
money indebtedness, at the Participant's Exercise Price or Purchase Price, as
the case may be; provided that with respect to Awards granted before the Shares
are listed on a national securities exchange or designated as a national market
system security, unless the Participant is an officer, director or consultant
of the Company or of a Parent or Subsidiary of the Company, such right of
repurchase lapses at the rate of no less than twenty percent (20%) per year
over five (5) years from: (a) the date of grant of the Option or (b) in the
case of Restricted Stock, the date the Participant purchases the Shares.

12. CERTIFICATES. All certificates for Shares or other securities delivered
under this Plan will be subject to such stock transfer orders, legends and
other restrictions as the Committee may deem necessary or advisable, including
restrictions under any applicable federal, state or foreign securities law, or
any rules, regulations and other requirements of the SEC or any stock exchange
or automated quotation system upon which the Shares may be listed or quoted.

13. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause
a legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will
be required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to
the Company under the promissory note; provided, however, that the Committee
may require or accept other or additional forms of collateral to secure the
payment of such obligation and, in any event, the Company will have full
recourse against the Participant under the promissory note notwithstanding any
pledge of the Participant's Shares or other collateral. In connection with any
pledge of the Shares, Participant will be required to execute and deliver a
written pledge agreement in such form as the Committee will from time to time
approve. The Shares purchased with the promissory note may be released from the
pledge on a pro rata basis as the promissory note is paid.

14. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or from
time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and
cancellation of any or all outstanding Awards. The Committee may at any time
buy from a Participant an Award previously granted with payment in cash, Shares
(including Restricted Stock) or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.

15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and

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regulations of any governmental body, and the requirements of any stock
exchange or automated quotation system upon which the Shares may then be listed
or quoted, as they are in effect on the date of grant of the Award and also on
the date of exercise or other issuance. Notwithstanding any other provision in
this Plan, the Company will have no obligation to issue or deliver certificates
for Shares under this Plan prior to: (a) obtaining any approvals from
governmental agencies that the Company determines are necessary or advisable;
and/or (b) completion of any registration or other qualification of such Shares
under any state or federal law or ruling of any governmental body that the
Company determines to be necessary or advisable. The Company will be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration, qualification or listing requirements of any state securities
laws, stock exchange or automated quotation system, and the Company will have
no liability for any inability or failure to do so.

16. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award granted
under this Plan will confer or be deemed to confer on any Participant any right
to continue in the employ of, or to continue any other relationship with, the
Company or any Parent or Subsidiary of the Company or limit in any way the
right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.

17. CORPORATE TRANSACTIONS.

17.1 Assumption or Replacement of Awards by Successor. Except for
automatic grants to Outside Directors pursuant to Section 8 hereof, in the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative
stock holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to such
merger (other than any stockholder that merges, or which owns or controls
another corporation that merges, with the Company in such merger) cease to own
their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale,
or transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participants, substantially similar shares or other
property subject to repurchase restrictions no less favorable to the
Participant. In the event such successor corporation (if any) refuses to assume
or substitute Awards, as provided above, pursuant to a transaction described in
this Subsection 17.1, such Awards will accelerate and all Options will become
exercisable in full prior to the consummation of such transaction at such time
and on such conditions as the Committee will determine, and if such Options are
not exercised prior to the consummation of the corporate transaction, they
shall terminate at such time as determined by the Committee.

17.2 Other Treatment of Awards. Subject to any greater rights granted to
Participants under the foregoing provisions of this Section 17, in the event of
the occurrence of any transaction described in Section 17.1, any outstanding
Awards will be treated as provided in the applicable agreement or plan of
merger, consolidation, dissolution, liquidation, or sale of assets.

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<PAGE>

terms of such assumed award could be applied to an Award granted under this
Plan. Such substitution or assumption will be permissible if the holder of the
substituted or assumed award would have been eligible to be granted an Award
under this Plan if the other company had applied the rules of this Plan to such
grant. In the event the Company assumes an award granted by another company,
the terms and conditions of such award will remain unchanged (except that the
exercise price and the number and nature of Shares issuable upon exercise of
any such option will be adjusted appropriately pursuant to Section 424(a) of
the Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.

18. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become effective on
the date that it is adopted by the Board (the "Effective Date"). This Plan
shall be approved by the stockholders of the Company (excluding Shares issued
pursuant to this Plan), consistent with applicable laws, within twelve (12)
months before or after the date this Plan is adopted by the Board. Upon the
Effective Date, the Committee may grant Awards pursuant to this Plan; provided,
however, that: (a) no Option may be exercised prior to initial stockholder
approval of this Plan; (b) no Option granted pursuant to an increase in the
number of Shares subject to this Plan approved by the Board will be exercised
prior to the time such increase has been approved by the stockholders of the
Company; (c) in the event that initial stockholder approval is not obtained
within the time period provided herein, all Awards granted hereunder shall be
cancelled, any Shares issued pursuant to any Awards shall be cancelled and any
purchase of Shares issued hereunder shall be rescinded; and (d) in the event
that stockholder approval of such increase is not obtained within the time
period provided herein, all Awards granted pursuant to such increase will be
cancelled, any Shares issued pursuant to any Award granted pursuant to such
increase will be cancelled, and any purchase of Shares pursuant to such
increase will be rescinded.

19. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.

20. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan in any respect, including without limitation amendment of
any form of Award Agreement or instrument to be executed pursuant to this Plan;
provided, however, that the Board will not, without the approval of the
stockholders of the Company, amend this Plan in any manner that requires such
stockholder approval.

21. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by the
Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.

22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:

"Award" means any award under this Plan, including any Option or
Restricted Stock.

"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.

"Board" means the Board of Directors of the Company.

"Cause" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.

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<PAGE>

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the Compensation Committee of the Board.

"Company" means Electronic Arts Inc. or any successor corporation.

"Disability" means a disability, whether temporary or permanent, partial
or total, as determined by the Committee.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.

"Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;

(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as reported
in The Wall Street Journal;

(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
Street Journal; or

(d) if none of the foregoing is applicable, by the Committee in good
faith.

"Family Member" includes any of the following:

(a) child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law of the Participant, including any such person with
such relationship to the Participant by adoption;

(b) any person (other than a tenant or employee) sharing the
Participant's household;

(d) a foundation in which the persons in (a) and (b) or the Participant
control the management of assets; or

(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.

"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.

"Option" means an award of an option to purchase Shares pursuant to
Section 5.

"Outside Director" means a member of the Board who is not an employee of
the Company or any Parent or Subsidiary of the Company.

"Parent" means any corporation (other than the Company) in an unbroken
chain of corporations ending with the Company if each of such corporations
other than the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.

"Participant" means a person who receives an Award under this Plan.

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"Performance Factors" means the factors selected by the Committee from
among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:

(a) Net revenue and/or net revenue growth;

(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;

(d) Net income and/or net income growth;

(e) Earnings per share and/or earnings per share growth;

(f) Total stockholder return and/or total stockholder return growth;

(g) Return on equity;

(h) Operating cash flow return on income;

(i) Adjusted operating cash flow return on income;

(j) Economic value added; and

(k) Individual confidential business objectives.

"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards.

"Plan" means this Electronic Arts Inc. 2000 Class B Equity Incentive
Plan, as amended from time to time.

"Restricted Stock Award" means an award of Shares pursuant to Section 6.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means shares of the Company's Class B Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17, and any
successor security.

"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.

"Termination" or "Terminated" means, for purposes of this Plan with
respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case
of (i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not
more than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").

"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.

"Vested Shares" means "Vested Shares" as defined in the Award Agreement.

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<PAGE>

APPENDIX VI
ELECTRONIC ARTS INC.

2000 CLASS A EQUITY INCENTIVE PLAN

As Adopted , 2000

1. PURPOSE. The purpose of this Plan is to provide incentives to attract,
retain and motivate eligible persons whose present and potential contributions
are important to the success of the Company, its Parent and Subsidiaries by
offering them an opportunity to participate in the Company's future performance
through awards of Options and Restricted Stock. Capitalized terms not defined
in the text are defined in Section 22.

2. SHARES SUBJECT TO THE PLAN.

2.1 Number of Shares Available. Subject to Sections 2.2 and 17, the
total number of Shares reserved and available for grant and issuance pursuant
to this Plan will be 3,100,000 Shares plus Shares that are subject to: (a)
issuance upon exercise of an Option but cease to be subject to such Option for
any reason other than exercise of such Option; (b) an Award granted hereunder
but are forfeited or are repurchased by the Company at the original issue
price; and (c) an Award that otherwise terminates without Shares being issued.
At all times the Company shall reserve and keep available a sufficient number
of Shares as shall be required to satisfy the requirements of all outstanding
Options granted under this Plan and all other outstanding but unvested Awards
granted under this Plan.

3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted only
to employees (including officers and directors who are also employees) of the
Company or of a Parent or Subsidiary of the Company. All other Awards may be
granted to employees and directors of the Company or any Parent or Subsidiary
of the Company. No person will be eligible to receive more than 350,000 Shares
in any calendar year under this Plan pursuant to the grant of Awards hereunder,
other than new employees of the Company or of a Parent or Subsidiary of the
Company (including new employees who are also officers and directors of the
Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 700,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.

4. ADMINISTRATION.

(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;

(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;

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(d) determine the form and terms of Awards;

(e) determine the number of Shares or other consideration subject
to Awards;

(g) grant waivers of Plan or Award conditions;

(h) determine the vesting, exercisability and payment of Awards;

(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;

(j) determine whether an Award has been earned; and

(k) make all other determinations necessary or advisable for the
administration of this Plan.

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<PAGE>

the Shares on the date of grant; and (ii) the Exercise Price of any ISO granted
to a Ten Percent Stockholder will not be less than 110% of the Fair Market
Value of the Shares on the date of grant. Payment for the Shares purchased may
be made in accordance with Section 7 of this Plan.

5.6 Termination. Notwithstanding the exercise periods set forth in the
Stock Option Agreement, exercise of an Option will always be subject to the
following:

(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such
Participant's Options only to the extent that such Options
would have been exercisable upon the Termination Date no later
than three (3) months after the Termination Date (or such
shorter or longer time period not exceeding five (5) years as
may be determined by the Committee, with any exercise beyond
three (3) months after the Termination Date deemed to be an
NQSO), but in any event, no later than the expiration date of
the Options.

(b) If the Participant is Terminated because of Participant's death
or Disability (or the Participant dies within three (3) months
after a Termination other than for Cause or because of
Participant's Disability), then Participant's Options may be
exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be
exercised by Participant (or Participant's legal representative
or authorized assignee) no later than twelve (12) months after
the Termination Date (or such shorter or longer time period not
exceeding five (5) years as may be determined by the Committee,
with any such exercise beyond (a) three (3) months after the
Termination Date when the Termination is for any reason other
than the Participant's death or Disability, or (b) twelve (12)
months after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but
in any event no later than the expiration date of the Options.

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<PAGE>

Company) will not exceed $100,000. If the Fair Market Value of Shares on the
date of grant with respect to which ISO are exercisable for the first time by a
Participant during any calendar year exceeds $100,000, then the Options for the
first $100,000 worth of Shares to become exercisable in such calendar year will
be ISO and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code or
the regulations promulgated thereunder are amended after the Effective Date of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISO, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.

6.2 Purchase Price. The Purchase Price of Shares sold pursuant to a
Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten
Percent Stockholder, in which case the Purchase Price will be 100% of the Fair
Market Value. Payment of the Purchase Price may be made in accordance with
Section 7 of this Plan.

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<PAGE>

Stock Award has been earned. Performance Periods may overlap and Participants
may participate simultaneously with respect to Restricted Stock Awards that are
subject to different Performance Periods and having different performance goals
and other criteria.

7. PAYMENT FOR SHARE PURCHASES.

7.1 Payment. Payment for Shares purchased pursuant to this Plan may be
made in cash (by check) or, where expressly approved for the Participant by the
Committee and where permitted by law:

(a) by cancellation of indebtedness of the Company to the
Participant;

(d) by waiver of compensation due or accrued to the Participant for
services rendered;

(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:

(2) through a "margin" commitment from the Participant and a
NASD Dealer whereby the Participant irrevocably elects to
exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the Exercise
Price, and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the Exercise Price
directly to the Company; or

(f) by any combination of the foregoing.

7.2 Loan Guarantees. The Committee may help the Participant pay for
Shares purchased under this Plan by authorizing a guarantee by the Company of a
third-party loan to the Participant.

8. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.

8.1 Types of Options and Shares. Options granted under this Plan and
subject to this Section 8 shall be NQSOs.

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8.3 Initial Grant. Each Outside Director who first becomes a member of
the Board on or after the Effective Date will automatically be granted an
Option for 25,000 Shares (an "Initial Grant") on the date such Outside Director
first becomes a member of the Board.

8.4 Succeeding Grants. Upon re-election to the Board at each Annual
Meeting of Stockholders, each Outside Director will automatically be granted an
Option for 8,000 Shares (a "Succeeding Grant"); provided, however, that any
such Outside Director who received an Initial Grant since the last Annual
Meeting of Stockholders will receive a prorated Succeeding Grant to purchase a
number of shares equal to 8,000 multiplied by a fraction whose numerator is the
number of calendar months or portions thereof that the Outside Director has
served since the date of the Initial Grant and whose denominator is twelve.

8.5 Vesting. The date an Outside Director receives an Initial Grant or a
Succeeding Grant is referred to in this Plan as the "Start Date" for such
Option.

8.6 Exercise Price. The exercise price of an Option pursuant to an
Initial Grant or Succeeding Grant shall be the Fair Market Value of the Shares
at the time that the Option is granted.

9. WITHHOLDING TAXES.

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<PAGE>

allow the Participant to satisfy the minimum withholding tax obligation by
electing to have the Company withhold from the Shares to be issued that number
of Shares having a Fair Market Value equal to the minimum amount required to be
withheld, determined on the date that the amount of tax to be withheld is to be
determined. All elections by a Participant to have Shares withheld for this
purpose will be made in accordance with the requirements established by the
Committee and be in writing in a form acceptable to the Committee.

10. TRANSFERABILITY.

11. PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES.

11.1 Voting and Dividends. No Participant will have any of the rights of
a stockholder with respect to any Shares until the Shares are issued to the
Participant. After Shares are issued to the Participant, the Participant will
be a stockholder and have all the rights of a stockholder with respect to such
Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as
the Restricted Stock; provided, further, that the Participant will have no
right to retain such stock dividends or stock distributions with respect to
Shares that are repurchased at the Participant's Purchase Price or Exercise
Price pursuant to Section 11.3.

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<PAGE>

15. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not be
effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior
to: (a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register the
Shares with the SEC or to effect compliance with the registration,
qualification or listing requirements of any state securities laws, stock
exchange or automated quotation system, and the Company will have no liability
for any inability or failure to do so.

17. CORPORATE TRANSACTIONS.

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<PAGE>

other transaction in which there is no substantial change in the stockholders
of the Company or their relative stock holdings and the Awards granted under
this Plan are assumed, converted or replaced by the successor corporation,
which assumption will be binding on all Participants), (c) a merger in which
the Company is the surviving corporation but after which the stockholders of
the Company immediately prior to such merger (other than any stockholder that
merges, or which owns or controls another corporation that merges, with the
Company in such merger) cease to own their shares or other equity interest in
the Company, (d) the sale of substantially all of the assets of the Company, or
(e) the acquisition, sale, or transfer of more than 50% of the outstanding
shares of the Company by tender offer or similar transaction, any or all
outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement will be
binding on all Participants. In the alternative, the successor corporation may
substitute equivalent Awards or provide substantially similar consideration to
Participants as was provided to stockholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue,
in place of outstanding Shares of the Company held by the Participants,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant. In the event such successor
corporation (if any) refuses to assume or substitute Awards, as provided above,
pursuant to a transaction described in this Subsection 17.1, such Awards will
accelerate and all Options will become exercisable in full prior to the
consummation of such transaction at such time and on such conditions as the
Committee will determine, and if such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the Committee.

17.3 Assumption of Awards by the Company. The Company, from time to
time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been
granted under this Plan if the terms of such assumed award could be applied to
an Award granted under this Plan. Such substitution or assumption will be
permissible if the holder of the substituted or assumed award would have been
eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an award granted by another company, the terms and conditions of such award
will remain unchanged (except that the exercise price and the number and nature
of Shares issuable upon exercise of any such option will be adjusted
appropriately pursuant to Section 424(a) of the Code). In the event the Company
elects to grant a new Option rather than assuming an existing option, such new
Option may be granted with a similarly adjusted Exercise Price.

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<PAGE>

22. DEFINITIONS. As used in this Plan, the following terms will have the
following meanings:

"Award" means any award under this Plan, including any Option or
Restricted Stock.

"Award Agreement" means, with respect to each Award, the signed written
agreement between the Company and the Participant setting forth the terms and
conditions of the Award.

"Board" means the Board of Directors of the Company.

"Cause" means the commission of an act of theft, embezzlement, fraud,
dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the Compensation Committee of the Board.

"Company" means Electronic Arts Inc. or any successor corporation.

"Disability" means a disability, whether temporary or permanent, partial
or total, as determined by the Committee.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exercise Price" means the price at which a holder of an Option may
purchase the Shares issuable upon exercise of the Option.

"Fair Market Value" means, as of any date, the value of a share of the
Company's Common Stock determined as follows:

(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;

(d) if none of the foregoing is applicable, by the Committee in good
faith.

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<PAGE>

"Family Member" includes any of the following:

(b) any person (other than a tenant or employee) sharing the
Participant's household;

(d) a foundation in which the persons in (a) and (b) or the Participant
control the management of assets; or

(e) any other entity in which the persons in (a) and (b) or the
Participant own more than fifty percent of the voting interest.

"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.

"Option" means an award of an option to purchase Shares pursuant to
Section 5.

"Outside Director" means a member of the Board who is not an employee of
the Company or any Parent or Subsidiary of the Company.

"Participant" means a person who receives an Award under this Plan.

(a) Net revenue and/or net revenue growth;

(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;

(d) Net income and/or net income growth;

(e) Earnings per share and/or earnings per share growth;

(f) Total stockholder return and/or total stockholder return growth;

(g) Return on equity;

(h) Operating cash flow return on income;

(i) Adjusted operating cash flow return on income;

(j) Economic value added; and

(k) Individual confidential business objectives.

"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards.

"Plan" means this Electronic Arts Inc. 2000 Class A Equity Incentive
Plan, as amended from time to time.

"Restricted Stock Award" means an award of Shares pursuant to Section 6.

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"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means shares of the Company's Class A Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 17, and any
successor security.

"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.

"Vested Shares" means "Vested Shares" as defined in the Award Agreement.

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[LOGO OF ELECTRONIC ARTS]

Electronic Arts Inc. . 209 Redwood Shores Parkway, Redwood City, California
94065
(650) 628-1500 . www.ea.com . Nasdaq Stock Symbol: ERTS
<PAGE>

ELECTRONIC ARTS INC.
PROXY FOR 2000 SPECIAL MEETING OF STOCKHOLDERS

The undersigned stockholder of Electronic Arts Inc., a Delaware corporation (the
"Company"), hereby appoints Lawrence F. Probst III and E. Stanton McKee, Jr.,
and each of them, proxies and attorneys-in-fact, with full power of substitution
to each, on behalf of and in the name of the undersigned, to represent the
undersigned at the 2000 Special Meeting of Stockholders of the Company to be
held at the Company headquarters, 209 Redwood Shores Parkway, Redwood City, CA
94065 on March 22, 2000, at 10:00 a.m., and at any postponement or adjournment
thereof, and to vote all shares the undersigned would be entitled to vote if
personally present at the meeting on the following matters:

1. AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION (TRACKING
STOCK PROPOSAL)

[_] FOR [_] AGAINST [_] ABSTAIN

2. APPROVAL OF ELECTRONIC ARTS INC. 2000 CLASS B EQUITY PLAN

[_] FOR [_] AGAINST [_] ABSTAIN

3. APPROVAL OF ELECTRONIC ARTS INC. 2000 CLASS A EQUITY PLAN

[_] FOR [_] AGAINST [_] ABSTAIN

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS, 1, 2 AND 3.

(Continued and to be signed on reverse side)

---------------------------

COMPANY

CONTROL
---------------------------

There are three ways to vote your Proxy

Your telephone or internet vote authorizes the Named Proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.

VOTE BY PHONE - TOLL FREE - 1-800-240-6326 - QUICK *** EASY *** IMMEDIATE

. Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days
a week, until 12:00 p.m. (noon) on March 21, 2000.

. You will be prompted to enter your 3-digit Company Number and your
7-digit Control Number which are located above.

. Follow the simple instructions the Voice provides you.

VOTE BY INTERNET - http://www.eproxy.com/erts/-QUICK***EASY***IMMEDIATE

. Use the internet to vote your proxy 24 hours a day, 7 days
a week, until 12:00 p.m. (noon) on March 21, 2000.

. You will be prompted to enter your 3-digit Company Number and your
7-digit Control Number which are located above to obtain your records and
create an electronic ballot.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to Electronic Arts Inc., c/o Shareowner
Services/TM/, P.O. Box 64873, St. Paul, MN 55164-0873 .
<PAGE>

(Continued from other side)

THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 THROUGH 3. In their discretion, the proxy
holders are authorized to vote upon such other business as may properly come
before the meeting or any postponement or adjournment thereof to the extent
authorized by Rule 14a-4(c) promulgated by the Securities and Exchange
Commission.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE URGED TO SIGN
AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN ENVELOPE SO THAT YOUR SHARES
MAY BE REPRESENTED AT THE MEETING.

The undersigned hereby acknowledges receipt of (a) the Notice of 2000 Special
Meeting of Stockholders of the Company; and (b) the accompanying Proxy
Statement.

Please sign exactly as your name(s) appears on your
stock certificate. If shares are held in the names of
two or more persons (including husband and wife, as
joint tenants or otherwise) all persons must sign. If
shares are held by a corporation, the proxy should be
signed by the president or vice president and the
secretary or assistant secretary. Fiduciaries who
execute the proxy should give their full title.

---------------------------------------
Signature

Dated: , 2000