Electronic Arts, Inc. Form 10-K (3/31/2003)


x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES x NO o

The aggregate market value of the Registrant’s Class A common stock, $.01 par value, held by non-affiliates of the Registrant as of September 27, 2002, the last business day of the second fiscal quarter, was $7,678,525,243.

As of June 4, 2003 there were 145,608,716 shares of Registrant’s Class A common stock, $.01 par value, outstanding, and 225,130 shares of Registrant’s Class B common stock, $.01 par value, outstanding.

Portions of Registrant’s definitive proxy statement for its 2003 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

This Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Report are forward looking. We use words such as “anticipate”, “believe”, “expect”, “intend”, “estimate” (and the negative of any of these terms), “future” and similar expressions to help identify forward-looking statements. These forward-looking statements are subject to business and economic risk and reflect management’s current expectations, and are inherently uncertain and difficult to predict. Our actual results could differ materially. We will not necessarily update information if any forward-looking statement later turns out to be inaccurate. Risks and uncertainties that may affect our future results include, but are not limited to, those discussed under the heading “Risk Factors” on pages 55 to 58.

Electronic Arts develops, markets, publishes and distributes interactive software games that are playable by consumers on the following platforms:


•	home videogame machines (such as the PlayStation 2, Microsoft Xbox, Nintendo GameCube and PlayStation consoles),
•	personal computers,
•	hand-held game machines (such as the Game Boy Advance) and
•	online, over the Internet.

One of our strengths is our ability to publish interactive software games for multiple platforms, which provides cost efficiencies in developing and marketing our products. Our products designed to play on consoles and handhelds are published under license from the manufacturers of these platforms (for example, Sony for the PlayStation and PlayStation 2, Microsoft for the Xbox and Nintendo for the GameCube and Game Boy Advance) and we pay a fee to these console manufacturers for the right to publish products on their platforms. Since our inception, we have published games for over 42 different platforms.


•	EA SPORTS – examples of some of our recent products published under the EA SPORTS brand are Madden NFL™ 2003 (professional football), NCAA® Football 2003, FIFA Soccer 2003, NBA Live 2003 (professional basketball), NHL® 2003 (hockey), MVP Baseball™ 2003 and NASCAR Thunder™ 2003
•	EA GAMES – examples of some of our recent products published under the EA GAMES brand are Harry Potter and the Chamber of Secrets™, The Lord of the Rings™, The Two Towers™, James Bond 007™: Nightfire™, The Sims™ Superstar, SimCity™ 4, Need for Speed™ Hot Pursuit 2 and Command & Conquer™ Generals
•	EA SPORTS BIG — examples of some of our recent products published under the EA SPORTS BIG brand are Def Jam Vendetta (wrestling) and NBA Street Volume 2 (basketball).

Another strength of our business is that we have developed many of our products to become franchise titles that can be regularly iterated. For example, every year we release new versions of most of our EA SPORTS titles. Likewise, several of the EA GAMES products listed above are part of new or continuing product franchises. We also release products called “expansion packs” that provide additional content (characters, storylines, settings, missions) for games that we have previously published. For example, we have published several expansion packs for The Sims, including The Sims Unleashed Expansion Pack and The Sims Vacation Expansion Pack, each of which expands the characters, settings and gameplay of the original The Sims game. We consider titles that iterate, sequel or spawn expansion packs to be franchise titles.

Our product development methods and organization are modeled on those used in other sectors of the entertainment industry. Employees whom we call “producers” are responsible for overseeing the development of one or more products. The interactive software games that we publish under our brands are developed by:


•	EA Studios, our own development and production studios located near San Francisco, Los Angeles, Orlando (Florida), Vancouver, London and Tokyo, which develop games internally and also engage third-parties to develop games on our behalf,
•	other game developers who develop their own interactive software games with our assistance, which products we then publish, market and distribute, referred to as “co-publishing products”. An example of a recent co-publishing product is Battlefield 1942™, which was developed by Digital Illusions, C.E.

We invest in the creation of state-of-the-art software tools that we use in product development. These tools allow for more cost-effective product development and the ability to more efficiently convert products from one platform to another. We have also made investments in facilities and equipment that allow us to create and edit video and audio recordings that are used in our games.

We also distribute interactive software games that are published by other companies, which we refer to as “distribution products”. An example of a recent distribution product is Kingdom Hearts, which is published by Square Co. Ltd.

The console, PC and hand-held games that we publish are made available to consumers on a disk (usually a CD or DVD format) or a cartridge that is packaged and typically sold in retail stores and through our own online store. We refer to these as packaged goods products. In North America and Europe, our largest markets, these packaged goods products are sold primarily to retailers that may be mass market retailers (such as Wal-Mart), electronics specialty stores (such as Best Buy) or game software specialty stores (such as Electronics Boutique). In Japan, we also sell a significant volume of our products through a distributor, who in turn sells them to retailers. Our products are available in approximately 80,000 retail locations worldwide. We also maintain a smaller business in which we license to manufacturers of products in related industries (for example, makers of personal computers or computer accessories) rights to include certain of our products with the manufacturer’s product, or offer our products to consumers who have purchased the manufacturer’s product. We call these combined products “OEM bundles”.

There are three ways in which we publish games that are playable online by consumers. First, we include online features in our PC and PlayStation 2 products, for example by enabling consumers to play against one another over the Internet. We also publish games that are playable only online. One type of these online-only games is called “persistent state worlds” or massively multiplayer games. Consumers experience these games as interactive virtual worlds where thousands of other consumers can interact with one another. Examples of our persistent state world products are Ultima Online, Earth & Beyond and The Sims Online. These persistent state world games are often sold to consumers in the form of a CD or DVD that contains much of the software necessary to play the game online. The other type of online-only games that we publish are electronic card games, puzzle games and word games (marketed under the “Pogo” brand) that we make available to consumers on our website, www.ea.com, and on certain online services provided by America Online, Inc.


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

As of April 1, 2003, we are no longer managing these segments separately. We consider online functionality to be integral to our existing and future products.


•	Publishing approximately 70 titles that we developed and/or published under one of our brands in North America, including older titles marketed as Classics.
•	Publishing localized versions of our products in the rest of the world.
•	Distribution of co-publishing and distribution titles. In North America, we distributed approximately 34 co-publishing and distribution titles.

Of the titles shipped in fiscal 2003, there were 22 titles that sold over one million units (aggregated across all platforms). In fiscal 2003, approximately 42 percent of our net revenue was generated by international operations, compared to approximately 37 percent in both fiscal 2002 and 2001.

We were 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 file various reports with, or furnish them to, the SEC. These reports are available free of charge on our website, www.ea.com, as soon as reasonably practicable after we electronically file the reports with, or furnish them to, the SEC.

Like other entertainment companies, our business is based on the creation, acquisition, exploitation and protection of intellectual property. Each of our products embodies a number of separately protected intellectual properties: our products are copyrighted both as software and as audiovisual works; our product names are trademarks of ours or others; our products may contain voices and likenesses of third parties and the musical compositions and performances of third parties. Our products may also contain other content licensed from third parties, such as trademarks, fictional characters, storylines and software code.

We acquire intellectual property rights to include in our products through license agreements such as those with the sports leagues and player associations, with movie studios and performing talent, with music labels and musicians. These licenses are typically limited to use of the licensed rights in specific products for specific time periods. In addition, our products for play on videogame platforms such as the Sony PlayStation 2 console include intellectual properties owned by the platform company and licensed non-exclusively to us for use. While we may have renewal rights for some licenses, our business is significantly dependent on our ability to continue to obtain the intellectual property rights from third parties needed for many of our products.

Our products are susceptible to unauthorized copying. Our primary protection against unauthorized use, duplication and distribution of our products is copyright and trademark. We typically own the copyright to the software code as well as the brand or title name trademark under which our products are marketed. We register our copyrights in the United States, and register our significant trademarks in multiple countries including the United States. In addition, console manufacturers such as Sony typically incorporate security devices in their consoles in an effort to prevent unlicensed use of products.


•	In Japan, the companies had established Electronic Arts Square KK (“EA Square KK”), which localized and published in Japan our games that were originally created in North America and Europe, as well as original video games developed specifically for the Japanese market. We owned a 70 percent majority interest in EA Square KK, while Square owned the remaining 30 percent.
•	In North America, the companies formed Square Electronic Arts, LLC (“Square EA”), which had exclusive publishing rights in North America for future interactive entertainment titles created by Square. Additionally, we obtained the exclusive right to distribute in North America products published by this joint venture. We owned a 30 percent minority interest in Square EA while


	Square owned the remaining 70 percent. This joint venture was accounted for under the equity method.

Our joint venture agreements with Square expired as of March 31, 2003. As provided in the EA Square KK joint venture agreement, we have purchased Square’s 30 percent interest in EA Square KK for $2.5 million representing the return of their capital contribution and renamed the entity Electronic Arts KK. Electronic Arts KK is now a wholly owned subsidiary of Electronic Arts. See Note 13 of the Notes to Consolidated Financial Statements, included in Item 8 hereof. As a further result of the termination of the joint venture agreements, our distribution of Square products in North America will terminate on June 30, 2003. We generated $84.5 million, $80.8 million and $106.6 million in net revenue from sales of Square products in North America during fiscal 2003, 2002 and 2001, respectively.

Historically, there have been multiple consoles available in the market and vigorous competition between console manufacturers. While Sony has for the past several years been the clear market leader (with its PlayStation and PlayStation 2 consoles), Microsoft and Nintendo are large and viable competitors, and PCs continue to be strong interactive game platform. 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 console platforms for which we have published titles:

Our early investment in products designed for play on 32-bit PCs and consoles (such as the PlayStation), has been strategically important in positioning us for the current generation of 128-bit machines. We believe that such investment continues to be important. During fiscal years 2003, 2002 and 2001, the video and computer games industry has experienced a platform transition from 32-bit CD-based and 64-bit cartridge-based consoles to the current generation of 128-bit, DVD-based game consoles and related software. The transition to the current generation systems was initiated by the launch of Sony’s PlayStation 2 in fiscal 2001, and continued with the launches of the Nintendo GameCube and Microsoft’s Xbox in fiscal 2002. As the market continues to shift to the current generation systems, our sales of 32-bit and 64-bit products have been declining and we expect a continued significant decline in fiscal 2004.

The market for online games is still in its early stages. To date, we have had limited success in finding ways of generating revenue and profits from online games, including subscription fees, “pay-to-play fees” and advertising. In addition, we have had limited experience with developing optimal pricing strategies or predicting usage patterns for our online games. In our history, we have launched five persistent state world products with mixed results. While we have achieved success with Ultima Online, the launch of our other persistent state world products, most notably The Sims Online and Earth & Beyond, have been below our expectations. In fiscal 2003, we also launched a free EA SPORTS online offering in connection with seven of our PC sports titles. Despite our limited success to date, we believe that online functionality is integral to our existing and future products. The continued growth of the online sector of our industry will depend on the following key factors:


•	Increasing popularity of PC games;
•	Growing interest in multiplayer games;
•	Willingness by consumers to pay for online content;
•	Rapid innovation of new online entertainment experiences;
•	Mass market adoption of broadband technologies; and
•	Convergence of online capabilities in next-generation consoles.

The interactive entertainment software business is highly competitive. It is characterized by the continuous introduction of new titles and the development of new technologies. Our competitors vary in size from very small companies with limited resources to very large, diversified corporations with greater financial and marketing resources than ours. Our business is driven by hit titles, which require ever-increasing budgets for development and marketing. Therefore, the availability of significant financial resources has become a major competitive factor in our industry, primarily as a result of the costs associated with the development and marketing of game software. Competition in our industry is also based on product quality and features, timing of product releases, brand-name recognition, access to distribution channels, effectiveness of marketing, and price.

We compete with Sony, Microsoft and Nintendo, which each publish software for their respective console platforms. We also compete with numerous companies which are, like us, licensed by the console manufacturers to develop and publish software games that operate on their consoles. These competitors include Acclaim Entertainment, Activision, Capcom, Eidos, Infogrames, Konami, Lucas Arts, Midway, Namco, Sega, Take-Two Interactive, THQ, 3DO, Ubi Soft and Vivendi Universal Games, among others. In addition, we believe that large software companies and media companies are increasing their focus in the interactive entertainment software market. Our titles also compete with other forms of entertainment, such as motion pictures, television and music for the leisure time and discretionary spending of consumers.

In addition, the market for our products is characterized by significant price competition, and we face increasing pricing pressures from our competitors. These pressures have, from time to time, required us to reduce our prices on certain products. The experience of our industry is that software game prices decline once a generation of consoles have been in the market for a significant period of time, because of the increasing number of software titles competing for acceptance by consumers. Accordingly, we expect lower overall pricing of games for the PlayStation 2, Xbox and Nintendo GameCube during fiscal 2004, in comparison to fiscal 2003. However, we believe that highly-anticipated “hit” titles, based on popular sports and entertainment properties, will maintain premium pricing in the market in fiscal 2004, as they have done in fiscal 2003.

During calendar 2002, we were a market leader in sales of interactive entertainment software products for the Sony PlayStation 2, the Nintendo GameCube, the Microsoft Xbox and personal computers (in the aggregate), in the U.S. and European markets. In the U.S., together with our affiliates, we published three of the top-10-selling titles for play on videogame consoles, and five of the top-10 PC titles (according to NPDFunworld and NPD Techworld). Our nearest competitors had two of the top-10 videogame and PC titles for the same period (according to NPDFunworld and NPD Techworld). While similar comprehensive data are not available for Europe, we believe that our titles had similar chart strength for the PlayStation 2 and PC in that territory in calendar year 2002.

In fiscal 2003, approximately 37 percent of our net revenue was derived from sales of EA Studio software for the PlayStation 2, compared to 28 percent in fiscal 2002. We released 19 titles worldwide in fiscal 2003 for the PlayStation 2, compared to 18 titles in fiscal 2002. Key releases for the year included Medal of Honor Frontline™, The Lord of the Rings™, The Two Towers™, Harry Potter and the Chamber of Secrets™ and The Sims. PlayStation 2 product revenue increased for fiscal 2003 due to the higher installed base of PlayStation 2 hardware, net revenue on key titles released in multiple territories during the current fiscal year and higher net revenue on current year franchise title releases versus prior year releases of these titles. We expect revenue from PlayStation 2 products to continue to grow in fiscal 2004, but as revenue for these products increase, we expect our growth rates to decrease. We expect that hit titles will continue to hold their current price points, however, we expect lower price points for other titles. Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America as of April 2000, as amended, we are authorized to develop and distribute DVD-based software products compatible with the PlayStation 2. Pursuant to this agreement, we engage Sony to supply PlayStation 2 DVDs for our products.

We also announced in May 2003 that we would make many of our sports games available for the PlayStation 2 online service. Through that service, customers who have any online adaptor for their PlayStation 2 consoles will be able to play our PlayStation 2 sports products online.

In fiscal 2003, approximately four percent of our net revenue was derived from sales of EA Studio software for the PlayStation, compared to 11 percent in fiscal 2002. During fiscal 2003, we released six PlayStation games, compared to five in fiscal 2002. As expected, PlayStation product sales decreased for fiscal 2003 compared to the prior year primarily attributable to the market transition to next generation console systems. Although our PlayStation products are playable on the PlayStation 2 console, we expect sales of current PlayStation products to continue to decline in fiscal 2004. Under the terms of a licensing agreement entered into with Sony Computer Entertainment of America in July 1994, as amended, we are authorized to develop and distribute CD-based software products compatible with the PlayStation. Pursuant to this agreement, we engage Sony to supply PlayStation CDs for our products.

for the year included Harry Potter and the Chamber of Secrets, Medal of Honor Frontline, Need for Speed: Hot Pursuit 2, and The Lord of the Rings, The Two Towers. Revenue from Nintendo GameCube products increased for fiscal 2003 due to the higher installed base of the Nintendo GameCube platform, which is now available in every major market in which we operate. In the prior fiscal year, the Nintendo GameCube platform was only available in North America beginning in November 2001 and in Japan beginning in September 2001. We expect revenue from Nintendo GameCube products to continue to grow in fiscal 2004, but as revenue for these products increases, we expect our growth rates to decrease. We expect that hit titles will continue to hold their current price points, however, we expect lower price points for other titles.

Under the terms of a licensing agreement entered into with Nintendo of America (effective as of November 1, 2001), we are authorized to develop and distribute proprietary optical format disk products compatible with the Nintendo GameCube. Pursuant to this agreement, we engage Nintendo to supply Nintendo GameCube proprietary optical format disk products for our products.

In fiscal 2003, approximately nine percent of our net revenue was derived from sales of EA Studio software for the Xbox, compared to five percent in fiscal 2002. We released 16 titles worldwide in fiscal 2003 for the Xbox, compared to ten titles in fiscal 2002. Key releases for the year included Medal of Honor Frontline, NCAA Football 2003, The Lord of the Rings, The Two Towers and FIFA 2003. Revenue from Xbox products increased for fiscal 2003 due to the higher installed base of the Xbox platform, which was available for a full twelve months versus five months in fiscal 2002. We expect net revenue from Xbox products to continue to grow in fiscal 2004, but as net revenue for these products increases, we expect our growth rates to decrease. We expect that hit titles will continue to hold their current price points, however we expect lower price points for other titles.

Under the terms of a licensing agreement entered into with Microsoft as of December 8, 2000, as amended, we are authorized to develop and distribute DVD-based software products compatible with the Xbox.

In May 2003, we announced that we have no plans to support the online service for Xbox. It is unclear whether the absence of online functionality in our Xbox products will be important enough to consumers to affect sales of our Xbox products.

Our carriage agreement with AOL establishes the basis for our creation and distribution of game sites on the world wide web that are available to AOL subscribers via the Games Channel on AOL’s flagship ISP service and to other consumers who use other AOL portals (AOL.com, CompuServe, Netscape/ Netcenter and ICQ). Users can also access our online games website directly from the world wide web at www.ea.com. We are AOL’s exclusive provider of a broad aggregation of online games and programs and we manage all of the Games Channel content within AOL’s flagship ISP service and other AOL portals in the United States. Within any of these AOL properties, users will be able to find a games channel or area which will provide the user access to our online games. See Note 5 of the Notes to Consolidated Financial Statements, included in Item 8 hereof, for a discussion of the significant terms of our relationship with AOL.

In fiscal 2003, we generated approximately 68 percent of our revenue from EA Studio-produced products released during the year. As of March 31, 2003, we were actively marketing approximately 70 titles, comprising over 135 stock keeping units, or SKUs, that were produced by EA Studios. During fiscal 2003, we introduced 31 EA Studios titles, representing 86 SKUs, compared to 32 EA Studios titles, comprising 64 SKUs, in fiscal 2002. In fiscal 2003, we had 22 titles that sold over one million units (aggregated across all platforms). In fiscal 2002, we had 16 titles and in fiscal 2001, we had 14 titles that

For fiscal 2003, we had one title, Harry Potter and the Chamber of Secrets, published on seven different platforms, which represented approximately 10 percent of our total fiscal 2003 net revenue. For fiscal 2002, Harry Potter and the Sorcerer’s Stone™, published on four different platforms, represented approximately 12 percent of our total fiscal 2002 net revenue. For fiscal 2001, no title represented more than 10 percent of our total fiscal 2001 net revenue.

We publish products in a number of categories such as sports, action, 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 revenue in fiscal years 2003, 2002 and 2001. 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”, typically range from $30.00 to $50.00. “Classics” titles have retail selling prices that range from $10.00 to $30.00. The retail selling prices of our titles outside of North America vary widely based on local market conditions.

We currently develop or publish products for six different hardware platforms. In fiscal 2003, our product releases were for PlayStation 2, PC, Xbox, PlayStation, Nintendo GameCube, Game Boy Advance, Game Boy Color and online Internet play. Our planned product introductions for fiscal 2004 are for the PlayStation 2, PC, Nintendo GameCube, Xbox, PlayStation and Game Boy Advance.

Our goal is to be the market leader of games played on the current generation of 128-bit video game consoles. We are investing in the development of tools and technologies designed to facilitate development of our products for these platforms. We had research and development expenditures of $401.0 million in fiscal 2003, $380.6 million in fiscal 2002 and $376.2 million in fiscal 2001.


•	Pogo. We currently offer approximately 37 free online games under this brand. The games offering, geared towards family entertainment, includes card games, board games, casino games, word games, trivia games, puzzles and Bingo. This category leverages prizes, tournaments, community and Pogo’s strength and popularity in free, familiar games to significantly increase the appeal of our online games service to the broad consumer market.
•	EA GAMES. We currently offer 17 free online games under this brand. The EA Games offering consists of original arcade-style games and other original games designed solely for online play, such as Hammerhead Pool, Tank Hunter and Need for Speed.
•	EA SPORTS and EA SPORTS BIG. We currently offer eight free online games under this brand. In this category, SSX Snowdreams leverages the EA SPORTS BIG franchise to form a community of sports gamers. In addition, there are original games designed solely for online play such as Pebble Beach, 3-Point Showdown and It’s Outta Here 2!.

Paid Content. In addition to free online games, we offer premium pay-to-play persistent state world games. In order to access these premium games, the player must purchase a CD-ROM through retail stores or through our online store. After an initial free trial period, the player must pay a subscription fee in order to continue playing. These persistent state world games are designed to appeal to avid gamers: teens and adults looking to participate in multi-player online games made up of fantastic worlds, characters, adventures or activities – big or small, real or imagined – as well as new forms of cutting-edge online entertainment targeted to mass market gamers. Current persistent state world game offerings include Ultima Online, The Sims Online and Earth & Beyond.

We launched both Earth & Beyond and The Sims Online in fiscal 2003. The Sims Online was expected to be our flagship online subscription offering. Through March 31, 2003, however, the number of units sold and number of subscribers for The Sims Online and Earth & Beyond have been below our expectations. See Note 19 of the Notes to Consolidated Financial Statements for a discussion of the restructuring and asset impairment charges, included in Item 8 hereof.

Each of the categories above focuses 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.

Co-Publishing and Distribution Products. Co-publishing products are games that are conceived and developed by independent developers and for which we provide production assistance and marketing and distribution services. We publish some of these products under an EA brand. Distribution products are titles that are published by another publisher and delivered to us as completed products, for which we provide distribution services. As of March 31, 2003, we distributed approximately 34 co-publishing and distribution titles in North America.

Our largest relationship relating to distribution products is with Square. In May 1998, Electronic Arts and Square formed a joint venture in North America, creating Square EA, as discussed in Note 13 of the Notes to Consolidated Financial Statements, included in Item 8 hereof. In conjunction with the formation of this joint venture, we have since that time had the exclusive right in North America to distribute products published by this joint venture. Our joint venture agreements with Square expired as of March 31, 2003, and our distribution of Square products in North America will cease on June 30, 2003. In fiscal 2003, Square EA published Kingdom Hearts for the PlayStation 2, which was a top-ten selling SKU, selling over one million units.

The interactive software game business has become increasingly “hits” driven, requiring significantly greater expenditures for marketing and advertising of our products, 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 generated approximately 95 percent of our North American net revenue from direct sales to retailers through a field sales organization of professionals and a group of telephone sales representatives. The remaining 5 percent of our North American sales were made through a limited number of specialized

Outside of North America, we derive revenues primarily from direct sales to retailers. Our largest distributor relationship is with Sony in Japan. Sales of our PlayStation and PlayStation 2 products through Sony make up approximately 60 percent of our net revenue in Japan. Under the terms of our distribution agreement with Sony, we are not required to accept returns or grant price protection. In a few of our smaller markets we also sell our products through distributors with whom we have written agreements or informal arrangements, depending on the business customs of the territories.

In North America, we have stock-balancing programs for our PC products, which allow for the exchange of PC products by resellers under certain circumstances. In all of our major geographical markets (other than Japan), we may decide to provide price protection under certain circumstances for both our PC and console products after we analyze: inventory remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on hand. It is our policy to exchange products or give credits, rather than give cash refunds. Moreover, the risk of product returns for our products on mature platforms (such as the PlayStation) may increase as newer hardware platforms, such as the Xbox, Nintendo GameCube and PlayStation 2, become more popular. 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 historical returns, current sell-through of distributor and retailer inventory of our products, current trends in the interactive game market and the overall economy, changes in customer demand and acceptance of our products and other related factors. We believe our current reserves will be sufficient to meet return and price protection requirements for current in-channel inventory. However, we cannot be certain that actual returns or price protection will not exceed our reserves.

The distribution channels through which our games are sold have been characterized by change, including consolidations and financial difficulties of certain distributors and retailers. 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 January 2002, one of our retail customers, Kmart, declared bankruptcy. We believe we have adequately reserved for our exposure to Kmart. In addition, an increasing number of companies are competing for access to our distribution 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 that they are willing to devote to the software games category, and there is intense competition for these resources. 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.

Within our website, we offer visitors the opportunity to purchase our packaged goods software products directly from us. We use our existing distribution network to fulfill consumers’ online orders. 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 co-publishing and distribution affiliates. This group is also responsible for targeted direct-mail marketing and sells product backups and accessories to registered customers.

Our management focuses considerable attention to managing our inventories and other working-capital-related items. We manage inventories by communicating with our customers prior to the release of our products, and then using our industry experience to forecast demand on a product-by-product and territory-by-territory basis. We then place manufacturing orders for our products that match this forecasted

demand. We do not maintain substantial inventories of our products because (1) historically, most of the sales of a particular product occur within the first 60 – 90 days after the product’s release, and (2) the lead times on re-orders of our products are generally short, approximately two to three weeks. Further, as discussed in “Marketing and Distribution”, we have practices in place with our customers (such as stock balancing and price protection) that reduce product returns.

As shown in our Consolidated Balance Sheets included in this Report, we had approximately $950.0 million in cash and cash equivalents and $637.6 million in short-term investments as of March 31, 2003. We believe that this amount is sufficient to meet our working capital needs for the coming year.


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

As of April 1, 2003, we are no longer managing these segments separately. We consider online functionality to be integral to our existing and future products. Please see the discussion regarding segment reporting in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 18 of the Notes to Consolidated Financial Statements, included in Items 7 and 8 hereof.

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 and Holland. Our joint venture in Japan has recently been converted to a wholly owned subsidiary as a result of our buy-out of our joint venture partner (see the discussion under “Joint Ventures and Investments” included above). The amounts of net revenue, operating profit and identifiable assets attributable to each of our geographic regions for each of the last three fiscal years are set forth in Note 18 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

International net revenue increased by 66 percent to $1,046.5 million, or 42 percent of consolidated fiscal 2003 net revenue, compared to $631.4 million, or 37 percent of consolidated fiscal 2002 net revenue due to the following:


•	Net revenue from sales in Europe increased by 69 percent compared to the prior year due to higher PlayStation 2, Nintendo GameCube, Xbox and PC net revenue, partially offset by the expected decrease of net revenue from Sony PlayStation. PlayStation 2 net revenue increased by 181 percent due to strong sales of titles released in the current year, most notably Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims, as well as a higher installed base of the PlayStation 2 hardware, due in part to Sony’s hardware price cut in Europe in August 2002. Nintendo GameCube and Xbox net revenue increased due to a higher installed base of the platforms, which both launched in Europe in the spring of 2002. PC net revenue increased due to higher net revenue for The Sims franchise titles. Net revenue from sales in Europe comprised 35 percent, 30 percent and 29 percent of our total net revenue for fiscal 2003, 2002 and 2001, respectively, and has been a significant region in our business.
•	Net revenue from sales in the Asia Pacific region increased by 64 percent compared to the prior year due to higher PlayStation 2, co-publishing and distribution and Xbox net revenue. PlayStation 2 net revenue increased by 244 percent due to strong current year releases including The Lord of the Rings, The Two Towers, Medal of Honor Frontline and Harry Potter and the Chamber of Secrets. Co-publishing and distribution net revenue increased due to net revenue from Final Fantasy X and Battlefield 1942. Xbox net revenue increased due to a higher installed base of the platform


	with 20 titles available in fiscal 2003 versus three titles in fiscal 2002. Net revenue from sales in Asia Pacific comprised four percent, three percent and four percent of our total net revenue for fiscal 2003, 2002 and 2001, respectively.
•	Net revenue from sales in Japan increased by 37 percent compared to the prior year due to a higher installed base and strong sales of titles associated with the PlayStation 2, most notably Medal of Honor Frontline, 2002 FIFA World Cup and Project FIFA World Cup, and also due to an increase in co-publishing and distribution titles, partially offset by the expected decrease in PlayStation net revenue. Net revenue from sales in Japan comprised three percent of our total net revenue for fiscal 2003, and four percent of our total net revenue for each of fiscal 2002 and 2001.

Although we expect international revenue to grow in fiscal 2004, we do not believe it will continue to grow at the same rate as in the prior year.

The suppliers we use for manufacture of our games can be characterized in three types:


•	the manufacturing entities that press our game disks,
•	the entities that print our game instruction booklets, and
•	the entities that package the disks and printed game instruction booklets into the jewel cases and boxes for shipping to customers.

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, PlayStation 2, Xbox and Nintendo GameCube products, as discussed in “Relationships with Significant Hardware Platform Companies” above. 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.

We typically ship orders immediately upon receipt. To the extent that any backlog may or may not exist at the end of a reporting period, it would be both coincidental and an unreliable indicator of future results of any period.

Our business is highly seasonal. We typically experience our highest revenue and profits in the calendar year-end holiday season and a seasonal low in revenue and profits in the quarter ending in June.

As of March 31, 2003, we employed approximately 4,000 people, of whom over 1,700 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. We believe that our relationships with our employees are good. None of our employees are represented by a union, guild or other collective bargaining organization.

On March 22, 2000, the stockholders of Electronic Arts authorized the issuance of a new series of common stock, designated as Class B Common Stock (“Tracking Stock”). The Tracking Stock was intended to reflect the performance of our online and e-Commerce business segment. When we adopted the Tracking Stock, our intention was to provide liquidity for our online business through access to the

public markets. However, as a result of the disappointing performance of our online business, we have no plans, nor do we see meaningful prospects, for the creation of a public market for our Class B Common Stock. Therefore, we will discontinue separate reporting of our Tracking Stock in future reporting periods. We expect this decision to simplify our reporting and enable us to provide our online products and services more efficiently. Maintaining separate reporting for the Tracking Stock and managing our online business as a separate reporting business segment required a complex organization and management structure. In addition, a variety of intercompany agreements between Electronic Arts Inc. and EA.com Inc. (a wholly owned subsidiary of Electronic Arts Inc. that is the holder of all of our online business related assets) have required us to maintain duplicate functions, to routinely charge each organization for goods and services that it provided to the other organization, and to manage our online business in a manner that is generally unlike the way in which we manage our other businesses. We now consider online functionality to be integral to our existing and future products. Accordingly, as of April 1, 2003, we have consolidated the reporting related to our online products and services into that of our core business and now manage these online products and services as part of the overall development and publication of our other products. We believe that this better reflects the way in which our chief operating decision maker reviews and manages our business and the importance of our online products and services relative to the rest of our business. At the same time, in light of the disappointing launch of The Sims Online, we evaluated our online products and services, and the assets associated with EA.com, for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144. In the fourth quarter of fiscal 2003 we recorded a restructuring and asset impairment charge of $72.1 million, (which included charges related to studio consolidation that were unrelated to our online business). See Note 19 of the Notes to Consolidated Financial Statements, included in Item 8 hereof, for a discussion of the restructuring charges.

The following table sets forth information regarding our executive officers, who are appointed by and serve at the discretion of the Board of Directors:

Mr. Probst has been a director of Electronic Arts since January 1991 and currently serves as Chairman and Chief Executive Officer. He was elected as Chairman in July 1994. Mr. Probst has previously served as President of Electronic Arts; as Senior Vice President of EA Distribution, Electronic Arts’ distribution division, from January 1987 to January 1991; and from September 1984, when he joined

Mr. Mattrick has served as President of worldwide EA Studios since September 1997. Prior to this, he served as Executive Vice President, North American Studios, since October 1996. From July 1991 to October 1996, he served as Senior Vice President, North American Studios, Vice President of Electronic Arts and Executive Vice President/ General Manager for EA Canada. Mr. Mattrick was founder and former chairman of Distinctive Software Inc. from 1982 until it was acquired by us in 1991.

Mr. Riccitiello has served as President and Chief Operating Officer since October 1997. Prior to joining Electronic Arts, Mr. Riccitiello served as President and Chief Executive Officer of the worldwide bakery division at Sara Lee Corporation. Before joining Sara Lee, he served as President and CEO of Wilson Sporting Goods Co. and has also held executive management positions at Haagen-Dazs, PepsiCo, Inc. and The Clorox Company. Mr. Riccitiello holds a B.S. degree from the University of California, Berkeley.

Mr. Gordon has served as Executive Vice President and Chief Creative Officer since March 1998. Prior to this, he served as Executive Vice President, Marketing since October 1995. From August 1993 to October 1995, he served as Executive Vice President of EA Studios and as Senior Vice President of Entertainment Production since February 1992. He also served as Senior Vice President of Marketing, as General Manager of EA Studios, as Vice President of Marketing, as Director of Advertising and as Vice President of our former entertainment division while employed by us. Mr. Gordon holds a B.A. degree from Yale University and an M.B.A. degree from Stanford University.

Mr. Jenson joined Electronic Arts in June 2002 as Executive Vice President and Chief Financial and Administrative Officer. Before joining Electronic Arts, he was the Senior Vice President and Chief Financial Officer for Amazon.com from 1999 to 2002. From 1998 to 1999, he was the Chief Financial Officer and Executive Vice President for Delta Air Lines. Prior to that, he worked in several positions as part of the General Electric Company. Most notably, he served as Chief Financial Officer and Senior Vice President for the National Broadcasting Company, a subsidiary of General Electric. Mr. Jenson earned his Masters of Accountancy-Business Taxation, and B.S. in Accounting from Brigham Young University.

Ms. Kennedy has been employed by Electronic Arts since February 1990. She served as Corporate Counsel until March 1991 and is currently Executive Vice President, General Counsel and Secretary. From October 1996 to August 2002, she was Senior Vice President, General Counsel and Secretary. Prior to October 1996, she served as Vice President, General Counsel and Secretary. Ms. Kennedy was elected Secretary in September 1994. Ms. Kennedy is a member of the State Bars of California and New York and received her B.A. degree from William Smith College and her Juris Doctor from the State University of New York.

Mr. Lee has served as Executive Vice President and Chief Operating Officer, Worldwide Studios since August 2002. From 1998 to August 2002, he was Senior Vice President and Chief Operating Officer, Worldwide Studios. Prior to this, he served as General Manager of EA Canada, Chief Operating Officer of EA Canada, Chief Financial Officer of EA Sports and Vice President, Finance and Administration of EA Canada. Mr. Lee was a principal of Distinctive Software Inc. until it was acquired by EA in 1991. Mr. Lee holds a Bachelor of Commerce degree from the University of British Columbia and is a Chartered Financial Analyst.

Mr. McMillan was named Executive Vice President of EA’s worldwide studios in June 2002. From September 1999, he served as Senior Vice President, Worldwide Studios. From 1991 to 1999, he held various senior positions within EA’s Studios. Mr. McMillan was an employee of Distinctive Software Inc. until it was acquired by EA in 1991.

Mr. Rueff has served as Executive Vice President of Human Resources since August 2002. From October 1998 to August 2002, he served as Senior Vice President of Human Resources. Prior to joining Electronic Arts, Mr. Rueff held various positions with the PepsiCo companies for over 10 years, including: Vice President, International Human Resources; Vice President, Staffing and Resourcing at Pepsi-Cola

Ms. Smith has served as Executive Vice President and General Manager, North American Publishing since March 1998. Prior to this, she served as Executive Vice President, North American Sales since October 1996. She previously held the position of Senior Vice President of North American Sales and Distribution from July 1993 to October 1996 and as Vice President of Sales from 1988 to 1993. Ms. Smith has also served as Western Regional Sales Manager and National Sales Manager since she joined Electronic Arts in 1984. Ms. Smith holds a B.S. degree in management and organizational behavior from the University of San Francisco.

Mr. Carbone has served as Senior Vice President, Finance since December 2000. Prior to this, he served as Vice President, Finance since February 1991. He was elected Assistant Secretary of the Company in March 1991. Mr. Carbone holds a B.S. degree in accounting from King’s College and is a Certified Public Accountant.

Dr. Florin has served as Senior Vice President and Managing Director, European Publishing since April 2003. Prior to this, he served as Vice President, Managing Director for European countries since 2001. From the time he joined Electronic Arts in 1996 to 2001, he was the Managing Director for German speaking countries. Prior to joining Electronic Arts, Dr. Florin held various positions at BMG, the global music division of Bertelsmann AG, and worked as a consultant with McKinsey. Dr. Florin holds Masters and Ph.D. degrees in Economics from the University of Augsburg, Germany.

We own or lease the following facilities. 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.

In February 1995, we entered into a build-to-suit lease with Keybank National Association on our headquarters facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. We have an option to purchase the property (land and facilities) for $145.0 million, or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $128.9 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

In December 2000, we entered into a second build-to-suit lease with Keybank National Association for a five-year term beginning December 2000 to expand our Redwood Shores, California headquarters facilities and develop adjacent property adding approximately 310,000 square feet to our campus. Construction was completed in June 2002. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities provide space for marketing, sales and research and development. We have an option to purchase the property for $127.0 million or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $118.8 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

Lease rates are based upon the Commercial Paper Rate. The two lease agreements described above require us to maintain certain financial covenants related to consolidated net worth, fixed charge coverage ratio, total consolidated debt to total consolidated capital and quick ratio, all of which we were in compliance with as of March 31, 2003.


•	we own a 206,000 sq. ft. product development studio facility in Burnaby, British Columbia, Canada,
•	we own a 173,500 sq. ft. development facility in Austin, Texas and
•	we lease product development studio facilities in Walnut Creek, California, Los Angeles, California, Maitland, Florida and Vancouver, British Columbia.

We are subject to pending claims and litigation. Management, after review and consultation with legal counsel, considers that any liability from the disposition of such lawsuits would not have a material adverse effect on our consolidated financial condition or results of operations.

There were no matters submitted to a vote of security holders during the quarter ended March 31, 2003.

Item 5: Market for Registrant’s Common Equity and Related Stockholder Matters

Our Class A Common Stock is traded on the Nasdaq National Market under the symbol “ERTS”. The following table sets forth the quarterly high and low price per share of our Class A Common Stock from April 1, 2001 through March 31, 2003. Such prices represent prices between dealers and does not include retail mark-ups, mark-downs or commissions and may not represent actual transactions.



	Prices

	High		Low

Fiscal Year Ended March 31, 2002:

First Quarter	$	63.73	$	45.38
Second Quarter		61.06		40.99
Third Quarter		66.90		41.20
Fourth Quarter		63.65		50.51

Fiscal Year Ended March 31, 2003:

First Quarter	$	66.96	$	53.50
Second Quarter		68.96		52.45
Third Quarter		72.43		49.49
Fourth Quarter		60.41		47.50

There were approximately 1,787 holders of record of our Common Stock as of June 4, 2003. In addition, we believe that a significant number of beneficial owners of our Class A Common Stock hold their shares in street name.

We have not paid any cash dividends and do not anticipate paying cash dividends in the foreseeable future.

ELECTRONIC ARTS AND SUBSIDIARIES
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA
Years Ended March 31, (In thousands, except per share data)

ELECTRONIC ARTS AND SUBSIDIARIES
SELECTED FIVE-YEAR CONSOLIDATED FINANCIAL DATA (Continued)
Years Ended March 31, (In thousands)


(1)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. See Note 1(l), included in Item 8 hereof.

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting period. The policies discussed below are considered by management to be critical because they are not only important to the portrayal of our financial condition and results of operations but also because application and interpretation of these policies requires both judgment and estimates of matters that are inherently uncertain and unknown. As a result, actual results may differ materially from our estimates.

We principally derive revenue from sales of packaged interactive software games designed for play on videogame consoles (such as the PlayStation 2, Xbox and Nintendo GameCube), PCs and hand-held game machines (such as the Nintendo Game Boy Advance). Product revenue is recognized net of sales allowances. We also have stock-balancing programs for our personal computer products, which allow for the exchange of personal computer products by resellers under certain circumstances. We may decide to provide price protection for both our personal computer and video game system products. In making this determination we evaluate: inventory remaining in the channel, the rate of inventory sell-through in the channel, and our remaining inventory on hand. It is our policy to exchange products or give credits, rather than give cash refunds.

We estimate potential future product returns, price protection and stock-balancing programs related to current period product revenue. We analyze historical returns, current sell-through of distributor and retailer inventory of our products, current trends in the video game market and the overall economy, changes in customer demand and acceptance of our products and other related factors when evaluating the adequacy of the sales returns and price protection allowances. In addition, management monitors and manages 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. In the past, actual returns have not generally exceeded our reserves. However, actual returns and price protections may materially exceed our estimates as unsold products in the distribution channels are exposed to rapid changes in consumer preferences, market conditions or technological obsolescence due to new platforms, product updates or competing products. For example, the risk of product returns for our products may increase as the Xbox, Nintendo GameCube and PlayStation 2 consoles pass the midpoint of their lifecycle and an increasing number and aggregate amount of competitive products heighten pricing and competitive pressures. While management believes it can make reliable estimates for these matters, if we changed our assumptions and estimates, our returns reserves would change, which would impact the net revenue we report. For example, if actual returns were significantly greater than the reserves we have established, the actual results would decrease our reported revenue. Conversely, if actual returns were significantly less than our reserves, this would increase our reported revenue.

Similarly, significant judgment is required to estimate our allowance for doubtful accounts in any accounting period. We determine our allowance for doubtful accounts by evaluating customer creditworthiness in the context of current economic trends. Depending upon the overall economic climate and the financial condition of our customers, the amount and timing of our bad debt expense could change significantly.

We cannot predict customer bankruptcies or an inability of any of our customers to meet their financial obligations to us. Therefore, our estimates could differ materially from actual results.

Our gross accounts receivable balance was $246.7 million and our allowance for product returns, pricing allowances and doubtful accounts was $164.6 million as of March 31, 2003. As of March 31, 2002, our gross accounts receivable balance was $306.4 million and our allowance for product returns, pricing

allowances and doubtful accounts was $115.9 million. Reserves for bad debts and sales allowances increased 42 percent from $115.9 million at March 31, 2002 to $164.6 million at March 31, 2003. The increase in the overall reserves as of March 31, 2003 is due to the increase in gross revenue in the six and 12 months ended March 31, 2003 compared to the same periods in the prior fiscal year. Net revenue increased 44 percent during fiscal 2003 due to the higher installed base of PlayStation 2 consoles and having a full year of sales of games for the Xbox and Nintendo GameCube. The increase in price protection and sales returns is directly attributable to the increase in sales that occurred during fiscal 2003. Sales return and price protection requirements as a percentage of gross revenue in the six and 12 months ended March 31, 2003 have remained relatively constant compared to the same periods in the prior fiscal year. We have recorded reserves for returns of product and price protection credits issued for products sold in prior periods. We believe these reserves are adequate based on historical experience and our current estimate of potential returns and allowances.

Prepaid royalties consist primarily of prepayments we make for manufacturing royalties, advances paid to our co-publishing and/or distribution affiliates and license fees paid to celebrities, professional sports organizations and other organizations for our use of their trade name and content. 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 or effective royalty rate as cost of goods sold based on actual net product sales. We evaluate the future realization of prepaid royalties quarterly and charge to cost of goods sold any product post-launch amounts we deem unlikely to be realized through product sales. Any impairments on pre-launch advances are charged to research and development expense. We rely on forecasted revenue to evaluate the future realization of prepaid royalties. If actual revenue, or revised sales forecasts, fall below the initial forecasted sales, the charge may be larger than anticipated in any given quarter. Once the charge has been taken, that amount will not be expensed in future quarters when the product has shipped. The current portion of prepaid royalties, included in other current assets, was $39.9 million at March 31, 2003 and $65.5 million at March 31, 2002. The long-term portion of prepaid royalties, included in other assets, was $7.4 million at March 31, 2003 and $1.2 million at March 31, 2002.

Valuation of long-lived assets, including goodwill and other intangible assets

Under current accounting standards, we make judgments about the remaining useful lives of purchased intangible assets and other long-lived assets whenever events or changes in circumstances indicate an other-than-temporary impairment in the remaining value of the assets recorded on our balance sheet. In order to determine if an other-than-temporary impairment has occurred, management makes various assumptions about the future value of the asset, by evaluating future business prospects and estimated cash flows. Our future net cash flows are primarily dependent on the sale of products for play on proprietary video game platforms. The success of our products is affected by our ability to accurately predict which platforms and which products we develop will be successful. Also, our revenue and earnings are dependent on our ability to meet our product release schedules. Due to product sales shortfalls, we may not realize the future net cash flows necessary to recover our long-lived assets, which may result in an impairment charge recorded in the future. We recorded asset impairment charges of $66.3 million during fiscal 2003 and $12.8 million during fiscal 2002. See Note 19 of the Notes to Consolidated Financial Statements, included in Item 8 hereof, for a discussion of the asset impairment charges recorded.

On April 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. As a result of adopting this standard, we will continue to amortize finite-lived intangibles, but no longer amortize certain other intangible assets, most notably goodwill. In

lieu of amortization, SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. The first step, which was required to be completed by September 30, 2002, tests for impairment by applying fair value-based tests at the Company’s reporting unit level. The second step (if necessary), required to be completed by March 31, 2003, measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. We completed the first step of transitional goodwill impairment testing during the first quarter of fiscal 2003 and found no indicators of impairment of our recorded goodwill. As a result, we have recognized no transitional impairment loss in fiscal 2003 in connection with the adoption of SFAS No. 142. We completed the annual impairment test in the fourth quarter of fiscal 2003 with a measurement date of January 1, 2003 and found no indicators of impairment of our recorded goodwill. Future impairment tests may result in a charge to earnings and there is a potential for a write down of goodwill in connection with the annual impairment test. Following adoption of SFAS No. 142, we continue to evaluate whether any event has occurred which might indicate that the carrying value of an intangible asset is not recoverable.

In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate tax determination is uncertain. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax exposures in each jurisdiction including the impact, if any, of additional taxes resulting from tax examinations and making judgments regarding the recoverability of deferred tax assets. A valuation allowance is established to the extent recovery of deferred tax assets is not likely based on our estimation of future taxable income in each jurisdiction. Tax exposures can involve complex issues and may require an extended period to resolve. To determine the quarterly tax rate, we are required to estimate full-year income and the related income tax expense in each jurisdiction. The estimated effective tax rate is adjusted for the tax related to significant unusual items. Changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective tax rate.

Geographically, our net revenue for the fiscal years ended March 31, 2003 and 2002 break down as follows (in thousands):

Net Revenue for fiscal 2003 increased by 44 percent as compared to fiscal 2002. The increase in net revenue was driven by the following:


•	Increase in PlayStation 2 net revenue of $427.8 million driven by strong sales of key titles released in multiple territories including Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims.
•	Higher installed base of game consoles, most notably the PlayStation 2. Net revenue from sales associated with the PlayStation 2 platform increased 89 percent to $910.7 million versus $482.9 million in the prior fiscal year.
•	Higher installed base of the Xbox console, which is now available in every major market in which we operate. Fiscal 2003 contains 12 months of revenue from Xbox titles versus five months in fiscal 2002 due to the launch of this platform in November 2001. In fiscal 2003, we generated $219.4 million in net revenue from Xbox titles versus $78.4 million a year ago.
•	Higher installed base of the Nintendo GameCube console, which is now available in every major market in which we operate. In fiscal 2002, Nintendo GameCube was only available in North America and Japan. In addition, fiscal 2003 contains 12 months of revenue from GameCube titles versus seven months in fiscal 2002 due to the launch of this platform in September 2001 in Japan and November 2001 in North America. In fiscal 2003, we generated $176.7 million in net revenue from Nintendo GameCube titles versus approximately $51.7 million a year ago.
•	Net revenue from co-publishing and distribution products increased by 40 percent to $375.8 million versus $269.0 million in the prior fiscal year. The increase was due in large part to sales of Kingdom Hearts, 1503 A.D. The New World and higher Battlefield 1942 franchise net revenue for an aggregate increase of $105.0 million in fiscal 2003.
•	Net revenue from PC products increased by nine percent, mainly due to an increase in sales of The Sims franchise titles and new net revenue from SimCity 4, released in the fourth quarter of fiscal


	2003, for an aggregate increase of $71.0 million in net revenue. This increase was partially offset by lower net revenue on prior year releases Black and White and Dune Emperor totaling $32.2 million.
•	Net revenue for the older generation PlayStation declined year over year as customers migrated to newer consoles.

For fiscal 2003, net revenue from sales in North America increased by 31 percent to $1.4 billion versus $1.1 billion in fiscal 2002. Growth in North American net revenue was driven by:


•	Higher installed base of the PlayStation 2, resulting in an increase of $208.0 million in revenue from PlayStation 2 products, due in part to Sony’s price cut of the hardware in North America in May 2002. This was reflected in strong sales of Medal of Honor Frontline, The Lord of the Rings, The Two Towers, The Sims, Harry Potter and the Chamber of Secrets and Need for Speed: Hot Pursuit 2 which generated a total of $201.2 million in net revenue in North America.
•	Higher installed base of Xbox consoles resulting in an increase in revenue from Xbox titles of $89.2 million. The launch of the Xbox platform in North America occurred in November 2001. Consequently, fiscal 2002 contained only five months of Xbox revenue versus 12 months of revenue in fiscal 2003.
•	Higher installed base of Nintendo GameCube consoles resulting in increased revenue from Nintendo GameCube titles of $64.7 million. Fiscal 2003 contains 12 months of revenue from Nintendo GameCube titles versus five months in fiscal 2002 due to the launch of this platform in November 2001. Additionally, in 2003 we released 17 games on the Nintendo GameCube platform compared to five releases in the prior year.
•	Revenue from co-publishing and distribution revenue increased by $37.3 million in fiscal 2003. The increase was primarily due to sales of Kingdom Hearts, Ty the Tasmanian Tiger and higher current year net revenue for the Battlefield 1942 franchise titles, for an aggregate increase of $89.8 million, partially offset by a decrease in revenue on Final Fantasy franchise titles, $59.8 million.
•	Net revenue from titles associated with PlayStation declined $49.4 million year over year as customers migrated to newer consoles.

Our agreement to distribute Square products in North America will terminate on June 30, 2003 (see Joint Ventures and Investments, included in Item 1 hereof). We recorded $84.5 million in net revenue in fiscal 2003 and $80.8 million in net revenue in fiscal 2002 from sales of Square products in North America.

For fiscal 2003, net revenue from sales in Europe increased by 69 percent to $878.9 million versus $519.5 million in fiscal 2002. Net revenue growth in Europe was driven by:


•	Increase of $185.8 million from sales of titles for the PlayStation 2, most notably Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims for an aggregate of $145.3 million in net revenue, as well as a higher installed base of the PlayStation 2 hardware, due in part to Sony’s hardware price cut in Europe in August 2002.
•	Revenue from sales of titles designed for the Nintendo GameCube and Xbox platforms. We released 17 titles worldwide for the Nintendo GameCube, which launched in May 2002 in Europe, resulting in revenues of $57.7 million. Revenue from sales of Xbox products increased by $46.5 million with 19 Xbox titles available in Europe in fiscal 2003 versus three in 2002. The launch of Xbox in Europe occurred in March 2002. Consequently, our fiscal 2002 results contained only one month of revenue from sales of Xbox products versus 12 months in fiscal 2003.


•	Increase of $52.4 million in sales of PC titles primarily due to higher current year net revenue for The Sims franchise titles, and current year sales of SimCity 4 and 2002 FIFA World Cup for an aggregate increase of $47.9 million.

For fiscal 2003, net revenue from sales in the Asia Pacific region, excluding Japan, increased by 64 percent to $87.6 million versus $53.4 million in fiscal 2002. Growth in net revenue in Asia Pacific was driven by:


•	Sales of PlayStation 2 titles increased by $15.7 million, due to strong sales of The Lord of the Rings, The Two Towers, Medal of Honor Frontline and Harry Potter and the Chamber of Secrets totaling $10.9 million in net revenue.
•	Sales of co-publishing and distribution titles increased $11.1 million mainly due to sales of Final Fantasy X and Battlefield 1942 totaling $4.2 million in the current fiscal year.
•	Additionally, revenue from sales of Xbox titles increased $6.3 million due to higher installed base and 20 Xbox titles available in the Asia Pacific region in 2003 versus three in 2002. Significant Xbox titles released in fiscal 2003 included Medal of Honor Frontline, Harry Potter and the Chamber of Secrets, Need for Speed: Hot Pursuit 2 and FIFA 2003 which generated a total of $3.2 million in net revenue.

For fiscal 2003, net revenue from sales in Japan increased by 37 percent to $80.1 million versus $58.6 million in fiscal 2002. Growth in net revenue in Japan was driven by:


•	Higher PlayStation 2 installed base and strong sales of PlayStation 2 titles, most notably Medal of Honor Frontline, 2002 FIFA World Cup and Project FIFA World Cup, which generated a total of $15.7 million in net revenue in fiscal 2003.
•	Increase in revenues from co-publishing and distribution products of $11.0 million due in large part to sales of Final Fantasy 11.
•	These increases were offset by the expected decrease in PlayStation revenue of $5.7 million.

Information about our worldwide net revenue by product line for fiscal 2003 and 2002 is presented below (in thousands):

Net revenue from PlayStation 2 titles increased in fiscal 2003 by 89 percent to $910.7 million versus $482.9 million in the prior fiscal year. The increase was primarily due to the following:


•	Strong consumer acceptance of the PlayStation 2 game console in every major market in which we operate.
•	Higher installed base of the PlayStation 2 console due in part to Sony’s hardware price cut in North America in May 2002 and in Europe in August 2002.
•	Sales of Medal of Honor Frontline, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets and The Sims which generated a total of $343.7 million of net revenue in multiple territories.
•	Strength of other PlayStation 2 franchise titles with higher net revenue on current year releases versus prior year releases including: James Bond 007, FIFA, Madden NFL, Tiger PGA Tour and NCAA Football for an aggregate increase of $96.0 million.

We expect revenue from PlayStation 2 products to continue to grow in fiscal 2004, but not at the same rate as in fiscal 2003.

Net revenue from sales of titles for the PC increased in fiscal 2003 by nine percent to $499.6 million versus $456.3 million in the prior fiscal year. The increase was primarily due to strong sales of The Sims franchise titles, and the release of SimCity 4, for a combined increase of $71.0 million, partially offset by lower net revenue on prior year releases Black and White and Dune Emperor totaling $32.2 million. We expect revenue from PC products to be relatively flat in fiscal 2004.

Net revenue from sales of Xbox products increased in fiscal 2003 by 180 percent to $219.4 million versus $78.4 million in the prior fiscal period. The increase was primarily due to the following:


•	The Xbox was launched in the United States in November 2001 and in Europe in March 2002. Therefore, in fiscal 2002, there was only a short period (five months in the United States and one month in Europe) during which we were able to release Xbox titles. We released fewer Xbox titles (10 in fiscal 2002 versus 16 in fiscal 2003) and the installed base of Xbox hardware was significantly smaller in fiscal 2002 than in fiscal 2003.
•	Sales of Medal of Honor Frontline, NCAA Football 2003 and The Lord of the Rings, The Two Towers, which generated an aggregate of $41.2 million of net revenue in North America.
•	Sales of FIFA 2003, James Bond 007: Nightfire, Medal of Honor Frontline and Harry Potter and the Chamber of Secrets, which generated an aggregate of $27.4 million of net revenue in Europe.

We expect net revenue from Xbox products to continue to grow in fiscal 2004, but for the rate of growth to decrease.

Net revenue from sales of Nintendo GameCube titles increased in fiscal 2003 by 241 percent to $176.7 million versus $51.7 million in the prior fiscal year. The increase was primarily due to the following:


•	Higher installed base of the Nintendo GameCube platform, which is now available in every major market in which we operate. The Nintendo GameCube was launched in North America in November 2001 and in Japan in September 2001. The Nintendo GameCube was not launched in Europe until May 2002.
•	In total, we released 17 Nintendo GameCube titles during fiscal 2003 versus five Nintendo GameCube titles a year ago. Significant titles released in fiscal 2003 were Harry Potter and the Chamber of Secrets, Medal of Honor Frontline, Need for Speed: Hot Pursuit 2 and Lord of the Rings, The Two Towers which generated an aggregate of $68.7 million in net revenue. Significant titles in the prior year were Madden NFL 2002 and James Bond 007 in . . . Agent Under Fire^TM.

We expect net revenue from Nintendo GameCube products to continue to grow in fiscal 2004, but for the rate of growth to decrease.

As we expected, the decrease in revenue from sales of PlayStation titles in fiscal 2003 compared to fiscal 2002 was attributable to the market transition to newer generation console systems. Although our PlayStation products are playable on the PlayStation 2 console, we expect sales of current PlayStation products to continue to decline in fiscal 2004.


•	Net revenue from sales of Game Boy Advance titles increased in fiscal 2003 by 81 percent to $79.1 million versus $43.7 million in the prior fiscal year primarily due to an increased number of Game Boy Advance titles available in fiscal 2003. In fiscal 2003, seven titles were released on the Game Boy Advance platform compared to three in 2002. Also due to strong current year sales of The Lord of the Rings, The Two Towers and higher net revenue on the fiscal 2003 release of the Harry Potter franchise title, generating an aggregate increase of $30.8 million.
•	Net revenue from sales of Game Boy Color titles decreased 31 percent in fiscal 2003 compared to the prior fiscal year primarily due to the release of the hit title last year, Harry Potter and the Sorceror’s Stone, as well as revenues from The World is Not Enough and Madden NFL 2002, versus only one new title released in the current year, Harry Potter and the Chamber of Secrets. Additionally, the decrease in Game Boy Color net revenue for fiscal year ended March 31, 2003 compared to the prior year was attributable to the market transition to next generation console systems. We expect sales of current Game Boy Color products to continue to decline in fiscal 2004.


•	Net revenue from subscription fees for our online games increased 22 percent in fiscal 2003 compared to the prior fiscal year primarily due to the launch in fiscal 2003 of Earth & Beyond, and The Sims Online, and higher subscription revenue from Motor City Online, generating an aggregate increase of $8.6 million. These increases were partially offset by $1.1 million in Platinum and Sports subscription offerings, which we discontinued in November 2001.
•	Revenue derived from advertising on our online games sites decreased 16 percent in fiscal 2003 compared to the prior fiscal year primarily due to $3.8 million in lower advertising revenue generated from AOL and co-branded AOL online properties, and a $1.8 million decrease in online advertising purchased by online game companies who link their games sites to ours. We expect advertising revenue to decline in fiscal 2004 as we have been advised by AOL to expect significant declines in future advertising-related revenue.

We expected The Sims Online to be our flagship online subscription offering. Through March 31, 2003, however, the number of units sold and number of subscribers for The Sims Online and Earth & Beyond have been below our expectations. As a result, we canceled most of our plans to develop similar online products and have consolidated the operations of our online games business into our core business. See Note 19 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

Net revenue from co-publishing products and distribution products increased 40 percent to $375.8 million in fiscal 2003 compared to $269.0 million in the prior fiscal year primarily due to strong sales of hit titles including Kingdom Hearts, 1503 A.D. The New World and higher Battlefield 1942 franchise net revenue, for an aggregate increase of $105.0 million in fiscal 2003.

In fiscal 2003 and 2002, we operated and reported our business in two business segments:


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

The EA.com business segment represented our online and e-Commerce businesses. The EA.com business segment included subscription revenue collected for Internet game play on our websites, website advertising, sales of packaged goods for Internet-only games and sales of our packaged goods games sold through the our web store. The Consolidated Statements of Operations includes all revenue and costs directly and indirectly attributable to the EA.com business segment, including charges for shared facilities, functions and services. Certain costs and expenses are subjective and allocations were based on management’s estimates. See Note 18 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

In March 2003, we consolidated the operations of the EA.com business segment into our core business. We now consider online functionality to be integral to our existing and future products. Accordingly,

beginning April 1, 2003, we no longer manage our online products and services as a separate business segment, and we will consolidate the reporting related to our online products and services into reporting for the overall development and publication of our core products for all reporting periods ending after that date. We believe that this will better reflect the way in which our Chief Operating Decision Maker reviews and manages our business and reflects the importance of our online products and services relative to the rest of our business. We believe we will only have one reportable segment in fiscal 2004 as a result of restructuring the EA.com business. Concurrently, we will also eliminate separate reporting for our Class B Common Stock for all reporting periods ending after April 1, 2003.

Our view and reporting of business segments may change due to changes in the underlying business facts and circumstances and the evolution of our reporting to our Chief Operating Decision Maker.

Information about our operations by segment for fiscal 2003 and 2002 is presented below (in thousands):


(a)	EA.com Marketing and Sales includes $17.9 million of Carriage Fee in fiscal 2003 and fiscal 2002.

(b)	EA.com Research and Development includes $43.0 million of Network Development and Support for fiscal 2003 and $59.5 million in fiscal 2002; and includes $10.0 million of Customer Relationship Management for fiscal 2003 and $10.6 million in fiscal 2002.

(c)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. Amortization of intangibles for fiscal 2002 includes goodwill amortization of $7.4 million for EA Core and $5.7 million for EA.com.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income (Loss) for both EA Core and EA.com Segments

Cost of Goods Sold. Cost of goods sold for our disk-based and cartridge-based products consists of actual product costs, royalties expense for celebrities, professional sports and other organizations and independent software developers, manufacturing royalties, net of volume discounts, expense for defective products, write-off of post-launch prepaid royalty costs, and operations expense. Cost of goods sold for our online product subscription business consists primarily of data center and bandwidth costs associated with hosting our websites, credit card fees and royalties for use of EA and third party properties. Cost of goods sold for our website advertising business consists primarily of ad serving costs.

Marketing and Sales. Marketing and sales expenses consist of personnel-related costs, advertising and marketing and promotional expenses, net of coop advertising expense reimbursements. In addition, marketing and sales includes the amortization of the fees payable under our agreement with AOL for the distribution, or “carriage”, of our online games on their network, which began with the launch of our online games service in October 2000. See Note 5 of the Notes to Consolidated Financial Statements, included in Item 8 hereof.

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 and accounting, and allowances for bad debts.

Research and Development. Research and development expenses consist of personnel-related costs, consulting, equipment depreciation, customer relationship management expenses associated with our products and write-offs of pre-launch prepaid royalties. Research and development expenses for the EA.com business segment include expenses incurred by EA Studios consisting of direct development costs and related overhead costs in connection with the development and production of our online games. Research and development expenses also include network development and support costs directly incurred by the EA.com business segment. Network development and support costs consist of expenses associated with development of website content, depreciation on server equipment to support online games, network infrastructure direct expenses, software licenses and maintenance, and network and management overhead.

Cost of goods sold as a percentage of revenue decreased by 4 percentage points to 43.2 percent in fiscal 2003 from 47.2 percent in fiscal 2002 primarily due to:


•	Higher PC margins contributing a 1.7 percentage point increase to the total gross margins, due to higher sales of wholly-owned intellectual properties such as SimCity 4 and Command & Conquer Generals, lower developer royalties in general and higher average sales prices.
•	Higher margins on co-publishing and distribution products contributing 0.9 percent to the total gross margins, due to higher volume of co-publishing products, which have a higher gross margin than distribution products, released in fiscal 2003, such as Battlefield 1942, Ty the Tasmanian Tiger and The Simpsons Road Rage.
•	Higher margins on PlayStation 2 products contributing 0.8 percent to the total gross margins due to volume discounts received from Sony and lower average manufacturing royalty rates.

Marketing and sales expenses increased by 37.9 percent in fiscal 2003 compared to fiscal 2002 primarily due to:


•	The release of 86 SKUs in fiscal 2003 versus 64 SKUs last year. The primary increase in marketing and sales expense in fiscal 2003 related to higher advertising spending of $46.1 million to support product releases on multiple platforms and across multiple territories including Madden NFL 2003, NBA Live 2003, The Lord of the Rings, The Two Towers, Harry Potter and the Chamber of Secrets, The Sims franchise titles and The Sims Online.
•	Increase in headcount and related expenses of $20.5 million to support the growth of our marketing and sales functions worldwide.

As a percentage of net revenue, marketing and sales expenses declined from 14.0 percent of net revenue in fiscal 2002 to 13.4 percent of revenue in fiscal 2003. Marketing and sales includes vendor reimbursements for advertising expenses of $28.2 million in fiscal 2003 and $8.9 million in fiscal 2002 to support key titles.

General and administrative expenses increased by 22.2 percent in fiscal 2003 compared to fiscal 2002 primarily due to an increase in payroll costs of $26.9 million to support the increased growth of these functions worldwide.

As a percentage of net revenue, general and administrative expenses declined from 6.2 percent of net revenue in fiscal 2002 to 5.3 percent of net revenue.

Research and development expenses increased by 5.4 percent in fiscal 2003 compared to fiscal 2002 primarily due to:


•	Higher EA Core business segment expenses, which increased by $48.7 million, or 19 percent, due to additional headcount-related expenses, offset by lower advance write-offs of $27.2 million in fiscal 2003.
•	Partially offset by lower EA.com business segment spending, which decreased by $28.3 million, or 22 percent, as a result of lower salary expense and development spending on discontinued products. The decrease in spending was partially offset by higher development spending associated with The Sims Online.

As a percentage of revenue, research and development expenses declined from 22.0 percent of net revenue in fiscal 2002 to 16.1 percent of net revenue in fiscal 2003. Research and development includes vendor reimbursements for development expenses of $15.0 million in fiscal 2003 and $17.0 million in fiscal 2002 to support key titles.

We expect research and development spending to increase in fiscal 2004 due to an increase in development spending for next generation console products including the PlayStation 2, Xbox and Nintendo GameCube, as well as extending our investment in the PC platform.

Amortization of intangibles results primarily from our acquisitions of Westwood, Kesmai, DreamWorks Interactive, ABC Software, Pogo and other acquisitions. Amortization of intangibles was $3.5 million for the EA Core business segment and $4.0 million for the EA.com business segment for fiscal 2003. Amortization of intangibles was $12.9 million for the EA Core business segment and $12.5 million for the EA.com business segment for fiscal 2002.


•	Adoption of SFAS No. 142 in fiscal 2003. For fiscal 2002, amortization of goodwill totaled $13.1 million.


•	Certain identifiable intangible assets related to Westwood and DreamWorks were amortized in fiscal 2002 resulting in a decrease of $3.5 million.
•	Impairment of Pogo and Kesmai finite-lived intangible assets as a result of the restructuring of the EA.com segment in fiscal 2003 and 2002 resulting in a decrease of $2.9 million.

In addition, we recorded intangible impairment charges relating to our restructuring of the EA.com business segment of $12.4 million in fiscal 2003 and $1.6 million in fiscal 2002 (see our discussion under “Restructuring and Asset Impairment Charges” below).



*Restructuring and Asset Impairment Charges* (in thousands)

			% of net				% of net
	2003		revenue		2002		revenue		% change


Restructuring Charges		$15,102		0.6%		$7,485		0.4%		101.8%

Asset Impairment Charges		$66,329		2.7%		$12,818		0.8%		417.5%

During fiscal 2003, we closed our office located in San Francisco, California and our studio located in Seattle, Washington. The office and studio closures were a result of our strategic decision to consolidate local development efforts in Redwood City, California and Vancouver, Canada. We recorded total pre-tax restructuring charges of $7.9 million and asset impairment charges of $1.5 million. This charge consists of $7.3 million for consolidation of facilities, $1.5 million for the write-off of non-current assets and $0.6 million for workforce reductions. The facilities charge was net of a reduction in deferred rent of $0.5 million.

The exit plans resulted in a workforce reduction of approximately 33 personnel in development and administrative departments. The estimated costs for consolidation of facilities included contractual rental commitments under the real estate lease for vacated office space, offset by estimated future sub-lease income. In addition, the exit plans resulted in the write-off of certain non-current fixed assets, primarily leasehold improvements.

Additionally, during fiscal 2003, we consolidated our Los Angeles, Irvine and Las Vegas studios into one major game development studio in Los Angeles. These measures were taken in order to maximize efficiencies and streamline the creative development process and operations of our studios. In connection with these consolidation activities, we recorded a total pre-tax restructuring charge of $3.1 million and asset impairment charges of $2.0 million. This charge includes $1.6 million for the shutdown of facilities related to non-cancelable lease payments for permanently vacated properties and associated costs, $2.0 million for the write-off of abandoned equipment and leasehold improvements at facilities that were permanently vacated and $1.5 million for employee severance expenses related to involuntary terminations.

During fiscal 2003, we consolidated the operations of the EA.com business segment into our core business, and have eliminated separate reporting for our Class B common stock for all future reporting periods after fiscal 2003. As a result of this restructuring, we recorded a pre-tax charge of $67.0 million in fiscal 2003, consisting of $1.8 million for workforce reductions, $2.3 million for consolidation of facilities and other administrative charges, and $62.9 million for the write-off of non-current assets. We will make adjustments to the restructuring reserves in future periods, if necessary, based upon the then-current events and circumstances.

The restructuring plan resulted in the termination of approximately 50 employees, mostly in research and development. The estimated costs for consolidation of facilities and other administrative charges included contractual rental commitments under real estate leases for unutilized office space offset by estimated future sub-lease income and costs to close the facilities.

We performed an evaluation of asset impairment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to adjust the depreciable assets and remaining finite-lived identifiable intangibles utilized in the EA.com business segment to their estimated fair value. This test was performed in the fourth quarter of fiscal 2003 and the measurement date was January 1, 2003. In February 2003, our only outside holder of Class B common stock, AOL, exercised its right to exchange its Class B shares for shares of Class A common stock. In late December 2002, we launched The Sims Online, an online game based on our very popular The Sims line of PC games, which have sold over 20 million units worldwide. The Sims Online was expected to be our flagship online subscription offering. Through March 31, 2003, the number of units sold and number of subscribers for The Sims Online, along with other EA.com business segment revenue, were significantly below our expectations. As a result of these triggering events in the fourth quarter of fiscal 2003, we canceled most of our plans to develop similar online products and substantially reduced our expected future undiscounted cash flows related to these long-lived assets. We recorded impairment charges on long-lived assets of $62.9 million, including $24.9 million relating to impaired customized internal-use software systems for our online games and website infrastructure, $25.6 million for other long-lived assets and $12.4 million of finite-lived intangibles impairment charges relating to our Kesmai and Pogo online game studios. There are no assurances that the impairment factors evaluated by management will not change in subsequent periods and accordingly, we may record additional impairment charges in future periods.

In conjunction with our annual policy to reassess the remaining useful lives of goodwill and certain indefinite-lived intangibles and to test the recoverability of these long-lived assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, as of January 1, 2003, we also performed fair-value-based tests to evaluate impairment of assets included in the EA.com reporting unit. Under this test, the fair-value-based tests did not indicate an impairment of our recorded goodwill and certain indefinite-lived intangibles at the EA.com reporting unit level. However, future impairment tests could result in a charge to earnings and a corresponding write down of goodwill and certain indefinite-lived intangibles.

The following table reflects our unaudited pro forma consolidated basic earnings (loss) per share for the years ended 2003, 2002 and 2001 as if the consolidation of the operations of our EA.com business segment into our core business had occurred at the beginning of each of the periods presented (in thousands, except per share data):



*Consolidated*

	2003		2002		2001


Net income (loss):
As reported		$317,097		$101,509	$	(11,082	)
Pro forma		$317,097		$101,509	$	(11,082	)
Earnings (loss) per share:
As reported — basic		$2.34		$0.91	$	0.09
Pro forma — basic		$2.24		$0.74	$	(0.08	)
Number of shares used in computation:
As reported		140,989		136,832		131,404
Add: conversion of AOL and News Corp Class B		514		684		684
Pro forma		141,503		137,516		132,088

During fiscal 2002, we announced a restructuring plan for our EA.com business segment to reduce its workforce and consolidate facilities. These restructuring and resulting asset impairment charges were necessary in order to focus on key online priorities and reduce the EA.com business segment’s operating cost structure. As a result of this restructuring, we recorded a pre-tax charge of $20.3 million in fiscal 2002, consisting of $4.2 million for workforce reductions, $3.3 million for consolidation of facilities and other administrative charges and $12.8 million for the write-off of non-current assets. We will make

The restructuring plan resulted in the termination of approximately 270 employees, or one-third of the EA.com business segment workforce, which affected all departments across the organization. The estimated costs for consolidation of facilities are comprised of contractual rental commitments under real estate leases for vacated office space offset by estimated future sub-lease income. Included in these costs are estimated costs to close offices or consolidate facilities in various locations and costs to write off a portion of the assets from these facilities.

In addition, our restructuring efforts required an evaluation of asset impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, to adjust these depreciable assets and certain intangibles to their estimated fair value. We evaluated the impact of consolidating or abandoning certain online technologies and processes and reviewed the effect of changes to our subscription online product offerings in relation to the asset base of the EA.com business segment. As a result, it was determined that certain long-lived assets would be abandoned or were related to products or services that had been discontinued and would therefore be written-down to their estimated net disposal value. Impairment charges on long-lived assets amounted to $12.8 million, including $11.2 million relating to abandoned technologies consisting of customized internal-use software systems for our online infrastructure, $1.0 million of intangibles impairment charges related to our Kesmai online development studio resulting from discontinuing associated products and services and $0.6 million of goodwill charges relating to our San Diego online game studio closure. We may change these impairment factors in subsequent periods and accordingly, we could record additional impairment charges in future periods.

Interest and other income, net, in fiscal 2003 decreased from fiscal 2002 primarily due to:


•	Other-than-temporary impairment of investments in affiliates of $10.6 million in fiscal 2003.
•	Partially offset by higher interest income in fiscal 2003 of $5.1 million, as a result of higher average cash balances in the current year.

Reported net income increased in fiscal 2003 compared to fiscal 2002 primarily related to:


•	Higher revenues and gross profits.
•	Partially offset by an increase in expenses compared to fiscal 2002. The increase in expenses was primarily due to increases in marketing and advertising costs to support a higher number of key releases in multiple territories and spending on our products for the Xbox and Nintendo GameCube consoles which, in fiscal 2003, have been available in all of our significant geographical markets. In


	addition, there was an increase in expenses due to higher charges for restructuring and asset impairment in fiscal 2003 as compared to fiscal 2002.

Although the dollar amount of expenses rose in fiscal 2003 versus fiscal 2002, net income as a percentage of sales increased to 12.8 percent versus 5.9 percent as expenses grew at a slower rate than did our revenues.

Geographically, our net revenue for the fiscal years ended March 31, 2002 and 2001 break down as follows: (in thousands):

The increase in North America net revenue for fiscal 2002 compared to fiscal 2001 was primarily attributable to:


•	A 111 percent increase in PlayStation 2 revenue for the year due to the shipment of key titles such as Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, NBA Street, NBA Live 2002 and SSX Tricky, a higher installed base of hardware and a strong catalogue business. PlayStation 2 launched in October 2000. Consequently, fiscal 2001 includes six months of PlayStation 2 product revenue as compared to 12 months of revenue for PlayStation 2 titles in fiscal 2002.
•	The launch of the Xbox platform in North America in November 2001, which generated $73.6 million in revenue from Xbox titles such as Madden NFL 2002, NBA Live 2002, James Bond 007 in . . . Agent Under Fire, NASCAR Thunder 2002, NHL 2002 and SSX Tricky.
•	The launch of Nintendo GameCube in North America in November 2001, which generated $48.7 million for the year from key GameCube titles such as Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, SSX Tricky, NBA Street and FIFA Soccer 2002.
•	Revenue was generated for the first time in fiscal 2002 by Game Boy Advance titles, amounting to $26.0 million for the year from key titles including Harry Potter and the Sorcerer’s Stone, Madden NFL and NHL 2002. Also, revenue was generated for the first time in fiscal 2002 by Game Boy Color titles, amounting to $16.9 million for the year from titles such as Harry Potter and the Sorcerer’s Stone, Madden NFL 2002 and The World Is Not Enough.
•	Advertising revenue increased by $31.8 million for fiscal 2002, because we had 12 months of advertising revenue in fiscal 2002 compared to only six months of advertising revenue in fiscal 2001. This was because we commenced generating advertising revenue immediately following the launch of our online games website in October 2000. In addition, subsequent to our February 2001 acquisition of Pogo Corporation, advertising revenue generated from Pogo websites was included in our revenues.
•	These increases were partially offset by the continued expected decreases in revenue for PlayStation and Nintendo 64 titles due to the declining markets for those platforms and fewer titles shipped in fiscal 2002 compared to fiscal 2001.

The increase in international net revenue for fiscal 2002 compared to fiscal 2001 was attributable to the following:


•	Net revenue from operations in Europe increased by 34 percent compared to fiscal 2001 primarily due to higher sales of PlayStation 2, PC, co-publishing and distribution products, partially offset by the expected decrease of revenue from Sony PlayStation products. PlayStation 2 launched in November 2000. Consequently, fiscal 2001 includes five months of revenue from PlayStation 2 titles as compared to 12 months of revenue from PlayStation 2 titles in fiscal 2002, resulting in an 80 percent increase in revenues from PlayStation 2 titles.
•	Net revenue in our Asia Pacific territory, excluding Japan, increased by five percent compared to fiscal 2001 primarily due to higher sales of PlayStation 2, Game Boy Color and PC titles, partially offset by the expected decrease in PlayStation and Nintendo 64 title sales, and an unfavorable exchange rate comparison of approximately 10 percent. Revenue from PlayStation 2 titles increased by 46 percent, partially offset by a 34 percent decrease in revenue from PlayStation titles in fiscal 2002 compared to fiscal 2001.
•	Net revenue from operations in Japan increased by 11 percent compared to fiscal 2001 primarily due to higher revenue from our co-publishing and distribution titles, and revenue generated from sales of PlayStation, Nintendo GameCube and Xbox products, offset by the strong sales of our first PlayStation 2 title, FIFA Soccer World Championship, in the prior year and weakness in the Yen currency during fiscal 2002 resulting in a rate decrease of approximately 14 percent from fiscal 2001. Also, our operations in Japan did not benefit from our primary PlayStation 2 releases during fiscal 2002, which had more appeal to the North American market. Revenue from PlayStation 2 titles decreased by 50 percent in fiscal 2002 as compared to fiscal 2001.

Information about our worldwide net revenue by product line for fiscal 2002 and 2001 is presented below (in thousands):

Net revenue increased in fiscal 2002 due to the higher installed base of PlayStation 2 consoles and more titles, including catalogue titles, available on the platform compared to fiscal 2001. Major releases in fiscal 2002 included Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, FIFA 2002, NBA Street, NBA

The increase in sales of PC products in fiscal 2002 compared to the prior fiscal year was primarily due to the continued strong sales of The Sims, which shipped in fiscal 2000. Key fiscal 2002 product releases were Harry Potter and the Sorcerer’s Stone, The Sims Hot Date Expansion Pack, Medal of Honor: Allied Assault™, Command & Conquer Renegade™ and Madden NFL 2002. We released 16 PC titles in the fiscal 2002 compared to 18 in the prior fiscal year.

We released five PlayStation titles in fiscal 2002 compared to 17 titles in the prior fiscal year. As expected, PlayStation sales decreased in fiscal 2002 compared to the prior year primarily due to the transition to 128-bit console systems (such as the PlayStation 2) and fewer titles released for the PlayStation during fiscal 2002.

Following the launch of the Xbox console in North America in November 2001, we released our first ten Xbox titles during fiscal 2002. Titles released included Madden NFL 2002, NBA Live 2002, James Bond 007 in . . . Agent Under Fire, NASCAR Thunder 2002, NHL 2002, Triple Play™ 2002, SSX Tricky, Knockout Kings 2002 and F1 2001.

We released our first five Nintendo GameCube titles, Madden NFL 2002, James Bond 007 in . . . Agent Under Fire, SSX Tricky, NBA Street and FIFA Soccer 2002, during fiscal 2002 following the platform’s launch in Japan in September 2001 and in North America in November 2001.


•	We released our first three Game Boy Advance titles, Harry Potter and the Sorcerer’s Stone, Madden NFL 2002 and NHL 2002 during fiscal 2002.


•	We released three Game Boy Color titles, Harry Potter and the Sorcerer’s Stone, Madden NFL 2002 and The World is Not Enough during fiscal 2002.

Online Subscription and Advertising Net Revenue (in thousands)




			% of net				% of net
	2002		revenue		2001		revenue		% change


Online Subscription	$	30,940		2%	$	28,878		2%		7%

Advertising	$	38,024		2%	$	6,175		1%		516%


•	The increase in online subscription revenue in fiscal 2002 as compared to fiscal 2001 was primarily due to the continued strong sales of Ultima Online Third Dawn, the release of Ultima Online Lord Blackthorn’s Revenge in February 2002 and the launch of Motor City Online in October 2001, which contributed $1.5 million in subscription revenue for fiscal 2002. This increase was offset by a decrease in subscription revenue of $5.0 million for Gamestorm, Kesmai Corporation (“Kesmai”) and Worldplay online games (most of which were transferred to our free service when the EA/ AOL site went live in October 2000) in fiscal 2002 as compared to fiscal 2001.
•	We began generating advertising revenue in the third quarter of fiscal 2001 following the launch of our online games site on the world wide web and on the AOL Games Channel in October 2000. In addition, we generated advertising revenue from games websites operated by Pogo Corporation after our purchase of Pogo Corporation in February 2001. Because we launched our ad business in late fiscal 2001, we experienced significant revenue growth in fiscal 2002 as compared to fiscal 2001.

Co-publishing and Distribution Product Net Revenue (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	269,010		16%	$	222,278		17%		21%

Co-publishing and distribution product sales increased for fiscal 2002 compared to the prior fiscal year primarily due to strong sales in fiscal 2002 of hit titles including Devil May Cry, Resident Evil: Code Veronica and The Simpsons™ Road Rage. This was partially offset by lower revenue from shipment of Square EA products due to fewer titles released in fiscal 2002 compared to fiscal 2001.

In fiscal 2002 and 2001, we operated and reported our business in two business segments:


•	EA Core business segment: creation, marketing and distribution of interactive entertainment software.
•	EA.com business segment: creation, marketing and distribution of interactive entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

The Consolidated Statements of Operations break out all revenue and costs directly and indirectly attributable to the EA.com business segment, including charges for shared facilities, functions and services. Certain costs and expenses were determined on a subjective basis and allocations were based on our estimates. See Note 18 of Notes to Consolidated Financial Statements, included in Item 8 hereof

Information about our operations by segment for fiscal 2002 and 2001 is presented below (in thousands):


(a)	EA.com Marketing and Sales includes $17.9 million of Carriage Fee for fiscal 2002 and $8.9 million of Carriage Fee for fiscal 2001. “Carriage Fee” is the amount paid to AOL for the right to distribute our online games site on their online services and thereby reach AOL’s subscribers and users.

(b)	EA.com Research and Development includes $59.5 million of Network Development and Support for fiscal 2002 and $51.8 million in fiscal 2001; and includes $10.6 million of Customer Relationship Management for fiscal 2002 and $11.4 million in fiscal 2001.

Costs and Expenses, Interest and Other Income, Net, Income Taxes and Net Income (Loss) for both
EA Core and EA.com Segments

Cost of Goods Sold (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	814,783		47.2%	$	664,991		50.3%		22.5%

Cost of goods sold as a percentage of revenue decreased in fiscal 2002 compared to fiscal 2001 due to:


•	Revenue from Xbox and Nintendo GameCube titles with lower cost of goods sold as a percentage of revenue.
•	Higher revenue from PlayStation 2 titles in fiscal 2002.
•	Higher advertising revenue, which has low cost of goods sold as a percentage of revenue.


•	Lower revenue on Nintendo 64 products with high cost of goods sold as a percentage of revenue.
•	Higher margins in our co-publishing and distribution business due to a higher number of co-publishing titles with lower cost of goods sold as a percentage of revenue.
•	Higher average margins on our PC products.


•	Higher cost of goods sold as a percentage of revenue on our PlayStation and PlayStation 2 products as compared to fiscal 2001.
•	Revenue from Nintendo Game Boy Advance and Game Boy Color titles with higher cost of goods sold as a percentage of revenue.
•	Lower revenues from high-margin PC titles in fiscal 2002.

Marketing and Sales (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	241,109		14.0%	$	185,336		14.0%		30.1%

As a percent of revenue, marketing and sales expense in fiscal 2002 was 14 percent, that same percentage as fiscal 2001. Marketing and sales expenses for fiscal 2002 increased 30.1 percent, primarily attributed to:


•	Higher marketing and advertising in North America and Europe for programs to support Madden NFL 2002, James Bond 007 in Agent Under Fire, SSX Tricky, Harry Potter and the Sorcerer’s Stone, FIFA Soccer 2002 and NBA Live 2002.
•	Higher marketing and sales expenses for our online business due to increased consumer promotions and advertising media placement costs to promote new game offerings, particularly Majestic and Motor City Online, and higher expenditures associated with selling advertising on both the EA.com and Pogo games websites.
•	The amortization of the AOL Carriage Fee, which began with the launch of the online games site in October 2000.

These items were partially offset by vendor reimbursements for advertising expenses of $8.9 million in fiscal 2002 to support key titles. There were no vendor reimbursements received in fiscal 2001.

General and Administrative (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	107,059		6.2%	$	104,041		7.9%		2.9%

General and administrative expenses increased 2.9 percent in fiscal 2002 compared to fiscal 2001, primarily attributed to:


•	$1.0 million contribution to charity organizations providing support for the September 11th tragedy.
•	Increase in payroll and occupancy costs to support the increased growth in North America.
•	Increase in bad debt expense of $1.8 million due to higher product sales.

Research and Development (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	380,564		22.0%	$	376,179		28.4%		1.2%

Research and development expenses increased slightly in fiscal 2002 as compared to fiscal 2001, primarily attributable to:


•	Increased payroll costs due to higher headcount in EA Studios, net of co-development arrangements.
•	Increased spending on online projects in development, primarily The Sims Online and Earth & Beyond™.
•	Increased depreciation related to both hardware and internally developed software that began when our online games site went live in October 2000.
•	Increased headcount and network-related costs associated with our Pogo development studio and online games site.


•	Headcount reductions in our online business in October 2001 (see Charge for Restructuring and Impairment discussion below).
•	Replacement of the free online games channel, that had been on our online games site, with Pogo free games acquired as part of our acquisition of Pogo Corporation in February 2001.
•	Vendor reimbursements for development expenses of $17.0 million in fiscal 2002 to support key titles. There were no vendor reimbursements received in fiscal 2001.

Amortization of intangibles results primarily from amortizing purchased goodwill and intangibles associated with acquisitions, including Westwood, Kesmai, DreamWorks Interactive, ABC Software and Pogo Corporation. Amortization of purchased goodwill and intangibles was $12.9 million for the EA Core business segment and $12.5 million for the EA.com business segment for fiscal 2002. Amortization of intangibles was $12.8 million for the EA Core business segment and $6.5 million for the EA.com business segment for fiscal 2001. The increase in amortization of intangibles in fiscal 2002 for the EA.com business segment, compared to the prior year, was due to our acquisition of Pogo Corporation in February 2001. In addition, we recorded intangible impairment charges of $1.6 million in fiscal 2002 relating to our restructuring of our online business.

In connection with the acquisition of Pogo Corporation in the fourth quarter of fiscal 2001, we allocated and expensed $2.7 million of the $43.3 million purchase price to acquired in-process technology. At the date of the closing of the 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. Pogo had various projects in progress at the time of the acquisition. As of the acquisition date, costs to complete Pogo projects acquired were expected to be approximately $1.2 million in future periods. During fiscal 2002, all of these development projects were completed and launched on our Pogo online games sites. In conjunction with the acquisition of Pogo, we accrued approximately $0.1 million related to direct transaction and other related costs.

We recorded this charge after concluding 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.

Restructuring and Asset Impairment Charges (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	20,303		1.2%	$	—		N/A		N/M

During fiscal 2002, we announced a restructuring plan for the EA.com business segment to reduce its workforce and consolidate facilities. The restructuring and resulting asset impairment charges were necessary in order to focus on key online priorities and reduce the EA.com segment’s operating cost structure. A pre-tax charge of $20.3 million was recorded in fiscal 2002, consisting of $4.2 million for workforce reductions, $3.3 million for consolidation of facilities and other administrative charges and $12.8 million for the write-off of non-current assets as a direct result of the restructuring. We will make adjustments to the restructuring reserves in future periods, if necessary, based upon events and circumstances that we encounter in the future.

The restructuring plan resulted in the termination of approximately 270 employees, or one-third of the workforce of the EA.com business segment, which affected all departments across the organization. The estimated costs for consolidation of facilities are comprised of contractual rental commitments under real estate leases for unutilized office space offset by estimated future sub-lease income. Included in these costs are estimated costs to close offices or consolidate facilities in various locations and costs to write off a portion of the assets from these facilities.

In addition, the restructuring efforts required an evaluation of asset impairment in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of”, to adjust these depreciable assets and certain intangibles to their estimated fair value. Management evaluated the impact of consolidating or abandoning certain online technologies and processes and reviewed the effect of changes to our subscription online product offerings in relation to the EA.com segment’s asset base. As a result, it was determined that certain long-lived assets would be abandoned or were related to products or services that had been discontinued and would therefore be written-down to their estimated net disposal value. We recorded impairment charges on long-lived assets of $12.8 million, including $11.2 million relating to consolidated or abandoned technologies for our online game site infrastructure and $1.6 million of goodwill and intangibles impairment charges relating to our San Diego and Kesmai online games development studios. These impairment factors may change in subsequent periods and accordingly, we may record additional impairment charges in future periods.

Interest and Other Income, Net (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	12,848		0.7%	$	16,886		1.3%		(23.9%)

Interest and other income, net, decreased by 23.9 percent primarily due to lower interest income as a result of lower interest rates in fiscal 2002 and an increase in the cost of utilizing foreign exchange hedge contracts.

Income Taxes (in thousands)




		Effective				Effective
2002		tax rate		2001		tax rate		% change


$	45,969		31.0%	$	(4,163)		31.0%		N/M

Our effective tax rate was 31.0 percent for fiscal 2002 and fiscal 2001. At March 31, 2002, we generated a federal income tax net operating loss. This loss will be carried forward to future tax years. At March 31, 2001, we also generated a federal income tax net operating loss. We used a substantial portion of this loss in a carryback claim with the remainder being carried forward. The net operating losses for both fiscal 2002 and fiscal 2001 resulted from losses from our EA.com business segment operations as well as stock

Net Income (loss) (in thousands)




		% of net				% of net
2002		revenue		2001		revenue		% change


$	101,509		5.9%	$	(11,082)		(0.8%)		N/M

Reported net income (loss) increased in fiscal 2002 primarily due to higher net revenue, partially offset by higher expenses compared to fiscal 2001. The increase in expenses was primarily due to increases in marketing and advertising costs to support a higher number of franchise titles. Expenses were also higher in fiscal 2002 due to restructuring and asset impairment charges discussed above.

As of March 31, 2003, our working capital was $1.34 billion compared to $699.6 million at March 31, 2002. Cash, cash equivalents and short-term investments increased by $790.7 million in fiscal 2003. We generated $714.5 million of cash from operations, $131.7 million of cash through the sale of equity securities under our stock plans, and used $59.1 million of cash in capital expenditures during fiscal 2003.

Our principal source of liquidity is $1.59 billion in cash, cash equivalents and short-term investments and $1.1 million in marketable securities at March 31, 2003. We believe the existing cash, cash equivalents, short-term investments and cash generated from operations will be sufficient to meet cash and investment requirements for at least the next 12 months. However, our ability to maintain sufficient liquidity could be affected by various risks and uncertainties, including but not limited to, those related to customer demand and acceptance of titles on new platforms and new title versions on existing platforms, our ability to collect our accounts receivable as they become due, successfully achieving our product release schedules and attaining our forecasted sales objectives, the impact of competition, the economic conditions in the domestic and international markets, seasonality in operating results, risks of product returns and the other risks listed in the “Risk Factors” section.


•	The EA.com business segment has been funded solely by Electronic Arts, with the exception of $20.0 million in proceeds from the sale of equities to AOL in fiscal 2000. This funding has been accounted for as capital contributions from Electronic Arts. Excess cash generated from EA.com business segment operations has been transferred to Electronic Arts, and has been accounted for as a return of capital. In March 2003, we consolidated the operations of EA.com into our core business. As such, our online products and services will no longer have separate funding needs in the foreseeable future. We do not expect this consolidation to have a material impact on our future liquidity and capital resource needs. The majority of outstanding Class B options, shares and warrants were retired or exchanged for Class A shares and warrants during the fourth quarter of fiscal 2003.
•	During fiscal 2003, the EA.com business segment used $35.9 million of cash in operations, $0.8 million in capital expenditures for computer equipment, offset by $35.1 million in capital contributions received from Electronic Arts. As a result of the $157.5 million net operating loss generated in the EA.com business segment, we realized a tax benefit of approximately $48.8 million.
•	During fiscal 2002, the EA.com business segment used $99.7 million of cash in operations, $13.1 million in capital expenditures for computer equipment, internal-use software and third-party technology licenses, offset by $114.8 million in capital contributions received from Electronic Arts. As a result of the $151.6 million net operating loss generated in the EA.com business segment, we realized a tax benefit of approximately $47.0 million.

Under our carriage agreement with AOL entered into in November 1999, we are required to pay $81.0 million to AOL over the life of the five-year agreement. Of this amount, $36.0 million was paid upon signing the agreement with the remainder due in four equal annual installments beginning with the first anniversary of the initial payment. We made carriage payments to AOL of $11.25 million in each of the fiscal years 2003, 2002 and 2001. As of March 31, 2003, we have $11.25 million remaining on this commitment. See Note 5 of Notes to Consolidated Financial Statements, included in Item 8 hereof, for additional information.


•	$10.0 million on television, radio, print and outdoor advertising that promotes the availability of our online games on certain AOL online services; and
•	$5.0 million ($1.0 million per year over the five year agreement) on television, radio, print and outdoor advertising that promotes the availability of a specific category of our online games (so- called “parlor games”) on certain AOL online services.

As of March 31, 2003, we have spent approximately $4.3 million against this commitment. We are not required to purchase any of the advertising from AOL or its affiliates.

We lease certain of our current facilities and certain equipment under non-cancelable capital and operating lease agreements. We are required to pay property taxes, insurance and normal maintenance costs for certain of our facilities and will be required to pay any increases over the base year of these expenses on the remainder of our facilities.

In February 1995, we entered into a build-to-suit lease with Keybank National Association on our headquarter’s facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. We have an option to purchase the property (land and facilities) for $145.0 million or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $128.9 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

In December 2000, we entered into a second build-to-suit lease with Keybank National Association for a five-year term beginning December 2000 to expand our Redwood City, California headquarters facilities and develop adjacent property adding approximately 310,000 square feet to our campus. Construction was completed in June 2002. We accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities provide space for marketing, sales and research and development. We have an option to purchase the property for $127.0 million or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with us retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $118.8 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

In connection with our purchases of optical disks for our Nintendo GameCube titles distributed 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 optical disks. For purchases of optical disks for our Nintendo GameCube products distributed in Japan and Europe, Nintendo typically requires us to make cash deposits.

In July 2002, we provided an irrevocable standby letter of credit to Nintendo of Europe. The standby letter of credit guarantees performance of our obligations to pay Nintendo of Europe for trade payables of up to 8.0 million Euros. The standby letter of credit expires in July 2005. At March 31, 2003, we had $0.3 million of payables to Nintendo of Europe covered by this standby letter of credit.

Development, Celebrity, League and Content Licenses: Payments and Commitments

The products produced by EA Studios are designed and created by our employee designers and artists and by non-employee software developers (“independent artists”). We typically advance development funds to the independent artists during development of our games, usually in installment payments made upon the completion of specified development milestones, which payments are considered advances against subsequent royalties based on the sales of the products. These terms are typically set forth in written agreements entered into with the independent artists. In addition, we have certain celebrity, league and content license contracts that contain minimum guarantee payments and marketing commitments that are not dependent on any deliverables. Celebrities and organizations with whom we have contracts include: FIFA (soccer), NASCAR (stock car racing), John Madden (professional football), National Basketball Association, PGA TOUR (golf), Tiger Woods (golf), National Hockey League, Warner Bros. (Harry Potter), MGM/ Danjaq (James Bond), National Football League, Collegiate Licensing Company (collegiate football and basketball), ISC (stock car racing), Major League Baseball Properties, MLB Players Association (baseball) and Island Def Jam (wrestling). These developer and content license commitments represent the sum of (1) the cash payments due under non-royalty-bearing licenses and services agreements, and (2) the minimum payments and advances against royalties due under royalty-bearing licenses and services agreements. These minimum guarantee payments and marketing commitments are included in the table below.

The following table summarized our minimum contractual obligations and commercial commitments as of March 31, 2003 (in thousands), and the effect we expect them to have on our liquidity and cash flow in future periods:

As of March 31, 2003, we had $1.59 billion in cash, cash equivalents and short-term investments. We believe that the existing cash, cash equivalents, short-term investments and cash generated by our business

On February 7, 2000, we acquired Kesmai from News America Corporation (“News Corp”) in exchange for $22.5 million in cash and approximately 206,000 shares of our existing common stock valued at $8.65 million. Under the original agreements, we agreed to spend $12.5 million through the period ended June 1, 2002 in advertising with News Corp or any of its affiliates. In addition, under these agreements if certain conditions were met, including that a qualified public offering of Class B common stock did not occur within twenty-four months of News Corp’s purchase of such shares and all of the Class B outstanding shares had been converted to Class A common stock, then (1) News Corp would have the right to (i) exchange Class B common stock for approximately 206,000 shares of Class A common stock, and (ii) receive cash from us in the amount of $9.65 million, and (2) we would agree to spend an additional $11.675 million in advertising with News Corp and its affiliates.

On August 30, 2002, we entered into a new agreement with News Corp under which (i) News Corp exchanged its 2,000,000 shares of Class B common stock for 206,454 shares of Class A common stock and (ii) we paid News Corp $1.0 million in cash and committed to spend an additional $17.0 million in advertising with News Corp and its affiliates through the period ended December 31, 2006. All of our other obligations to News Corp under the original agreements were terminated.

In November 1999, we entered into a five-year carriage agreement which gave us the exclusive right to provide online games and interactive entertainment content on the “Games” channels/areas of certain AOL online services and gain access to and sell our products to AOL subscribers and users. As part of this agreement, we sold to AOL 4,000,000 shares of Class B common stock for $20.0 million and a warrant to purchase an additional 2,000,000 shares of Class B common stock for $1.3 million. These shares were issued upon the authorization of the Class B common stock in March 2000. If a qualified public offering did not occur within one year following the initial sale of the shares to AOL, then at any time within four years thereafter, AOL had the right to exchange all shares of Class B common stock then owned for shares of Class A common stock. The exchange ratio was set at the ratio of the consideration paid for each share of Class B common stock and the average closing price of Class A common stock during the fifteen day period ending two days prior to execution of the carriage fee agreement with us. In the event of an exchange, the AOL warrant would be cancelled and exchanged for Class A common stock based on the price paid by AOL for the warrant divided by the average closing price of Class A common stock as described above.

In February 2003, AOL exchanged its 4 million shares of Class B common stock for 446,323 shares of Class A common stock. As a result, the warrant issued to AOL to purchase an additional 2,000,000 shares of Class B common stock was automatically exchanged for 31,027 shares of Class A common stock. In total, AOL received 477,350 shares of Class A common stock in this exchange.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS No. 143 to have a material impact on our consolidated financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities (“VIEs”) that either: (i) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (ii) the equity investors lack an essential characteristic of a controlling financial interest. This interpretation applies immediately to VIEs created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 requires disclosure of VIEs in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (i) the company will be the primary beneficiary of an existing VIE that will require consolidation or, (ii) the company will hold a significant variable interest in, or have significant involvement with, an existing VIE. We do not believe that we will have any entities that will require disclosure or new consolidation as a result of adopting the provisions of FIN 46.

In January 2003, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF 00-21 provides guidance on how to determine whether an arrangement involving multiple deliverables requires that such deliverables be accounted for separately. EITF 00-21 allows for prospective adoption for arrangements entered into after June 15, 2003 or adoption via a cumulative effect of a change in accounting principal. We are currently evaluating the impact the adoption of EITF 00-21 will have on our consolidated results of operations and financial position.

Electronic Arts’ business is subject to many risks and uncertainties which may affect our future financial performance. These risks and uncertainties are discussed below. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material. If any of the events or circumstances described below occurs, our business and financial performance could be harmed and the market value of our securities could decline.

If we do not develop products for widely-accepted new video game platforms, our business will suffer.

We derive most of our revenue from the sale of products for play on proprietary video game platforms of third parties, such as Sony’s PlayStation 2. Therefore, the success of our products is driven in large part by the success of new video game hardware systems and our ability to accurately predict which platforms will be most successful in the marketplace. We must make product development decisions and commit significant resources well in advance of the anticipated introduction of a new platform. A new platform for which we are developing products may be delayed, may not succeed or may have a shorter life cycle than anticipated. If the platforms for which we are developing products are not released when anticipated or do not attain wide market acceptance, our revenue growth will suffer.

If we do not accurately predict the importance to consumers of online game play for different console products, our sales may be limited in the future.

Sony and Microsoft have introduced online game play for their respective PlayStation 2 and Xbox consoles. We anticipate that Nintendo will do so for its GameCube console. We have agreed to support online game features for our Sony PlayStation 2 products but do not currently offer similar capability for our Xbox products. We currently cannot predict the importance to consumers of these features. If consumers consider online play capability to be a significant component of games for the Xbox, our sales of products for the Xbox would decline.

Our business is both seasonal and cyclical. If we fail to deliver our products at the right times, our sales will suffer.

Our business is highly seasonal, with the highest levels of consumer demand, and a significant percentage of our revenue, occurring in the December quarter. The timing of hardware platform introduction is often tied to the year-end holiday season and is not within our control. If we miss this key selling period, due to product delays or delayed introduction of a new platform for which we have developed products, our sales will suffer disproportionately. Our industry is also cyclical. Video game platforms have historically had a life cycle of four to six years. As one group of platforms is reaching the end of its cycle and new platforms are emerging, consumers often defer game software purchases until the new platforms are available, causing sales to decline. This decline may not be offset by increased sales of products for the new platform. For example, the market for products for Sony’s older PlayStation game console has dropped faster than expected since the launch of the PlayStation 2 platform.

Our business is intensely competitive and increasingly “hit” driven. If we do not continue to deliver “hit” products, our success will be limited.

Competition in our industry is intense, and new products are regularly introduced. During calendar year 2002, approximately 22 percent of the sales of videogames in North America consisted of only 20 “hit” products out of thousands published. These “hit” titles are increasingly expensive to produce. If our competitors develop more successful products, or if we do not continue to develop consistently high-quality products, our revenue will decline.

If we are unable to maintain or acquire licenses to intellectual property, we will publish fewer hit titles and our revenue will decline.

Many of our products are based on or incorporate intellectual property owned by others. For example, our EA SPORTS products include intellectual property licenses from the major sports leagues and players associations. Similarly, many of our hit EA Games titles such as James Bond, Harry Potter and Lord of the Rings, are based on key film and literary licenses. Competition for these licenses is intense. If we are unable to maintain these licenses and obtain additional licenses with significant commercial value, we will be unable to increase our revenue in the future.

If patent claims continue to be asserted against us, we may be unable to sustain our current business models or profits.

Many patents have been issued that may apply to widely used game technologies. Additionally, infringement claims under many recently issued patents are now being asserted against Internet implementations of existing games. Several such claims have been asserted against us. Such claims can harm our business. We 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.

Other intellectual property claims may increase our product costs or require us to cease selling affected products.

Many of our products include extremely realistic graphical images, and we expect that as technology continues to advance, images will become even more realistic. Some of the images and other content are based on real-world examples that may inadvertently infringe upon the intellectual property rights of others. Although we believe that we make reasonable efforts to ensure that our products do not violate the intellectual property rights of others, it is possible that third parties still may claim infringement. From time to time, we receive communications from third parties regarding such claims. Existing or future infringement claims against us, whether valid or not, may be time consuming and expensive to defend. Such claims or litigations could require us to stop selling the affected products, redesign those products to avoid infringement, or obtain a license, all of which would be costly and harm our business.

Our business, our products and our distribution are subject to increasing regulation in key territories of content, consumer privacy and online delivery. If we do not successfully respond to these regulations, our business may suffer.

Legislation is continually being introduced that may affect both the content of our products and their distribution. For example, privacy laws in the United States and Europe impose various restrictions on our web sites. Those rules vary by territory although the Internet recognizes no geographical boundaries. Other countries, such as Germany, have adopted laws regulating content both in packaged goods and those transmitted over the Internet that are stricter than current United States laws. In the United States, the federal and several state governments are considering content restrictions on products such as ours, as well as restrictions on distribution of such products. Any one or more of these factors could harm our business by limiting the products we are able to offer to our customers and by requiring additional differentiation between products for different territories to address varying regulations. This additional product differentiation would be costly.

If we do not consistently meet our product development schedules, we will experience fluctuations in our operating results.

Product development schedules, particularly for new hardware platforms, high-end multimedia PCs and the Internet, 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

Technology changes rapidly in our business, and if we fail to anticipate new technologies, the quality, timeliness and competitiveness of our products will suffer.

Rapid technology changes in our industry require us to anticipate, sometimes years in advance, which technologies our products must take advantage of in order to make them competitive in the market at the time they are released. Therefore, we usually start our product development with a range of technical development goals that we hope to be able to achieve. We may not be able to achieve these goals, or our competition may be able to achieve them more quickly than we can. In either case, our products may be technologically inferior to competitive products, or less appealing to consumers, or both. If we cannot achieve our technology goals within the original development schedule of our products, then we may delay products until these technology goals can be achieved, which may delay or reduce revenue and increase our development expenses. Alternatively, we may increase the resources employed in research and development in an attempt to accelerate our development of new technologies, either to preserve our product launch schedule or to keep up with our competition, which would increase our development expenses.

If we do not continue to attract and retain key personnel, we will be unable to effectively conduct our business.

The market for technical, creative, marketing and other personnel essential to the development of our products and management of our businesses is extremely competitive. In the last fiscal year, notwithstanding the downturn of the economy generally, competitive recruiting efforts aimed at our employees and executives continued. For example, in fiscal 2003, a team of employees that developed one of our hit Medal of Honor products left the company to develop products for a competitor. Our leading position within the interactive entertainment industry makes us a prime target for recruiting of executives and key creative talent. In addition, the cost of real estate in the San Francisco Bay area – the location of our headquarters and one of our largest studios – remains high, and has made recruiting from other areas and relocating employees to our headquarters more difficult. If we cannot successfully recruit and retain the employees we need, our ability to develop and manage our businesses will be impaired.

Our platform licensors are our chief competitors and frequently control the manufacturing of and/or access to our video game products. If they do not approve our products, we will be unable to ship to our customers.

Our agreements with hardware licensors (such as Sony for the PlayStation 2, Microsoft for the Xbox and Nintendo for the GameCube), who are also our chief competitors, typically give significant control to the licensor over the approval and manufacturing of our products, which 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. While we believe that our relationships with our hardware licensors are currently good, the potential for delay or refusal to approve or manufacture our products exists. Such occurrences would harm our business and our financial performance.

In addition, as online capabilities for videogame platforms emerge, our platform licensors will control our ability to provide online game capabilities for our console platform products. Currently, both Microsoft and Sony provide online capabilities for Xbox and PlayStation 2 products, respectively. In each case, compatibility code and the consent of the licensor are required for us to include online capabilities in our products. In addition, the business model for Microsoft’s and Sony’s online businesses for their videogame

For the year ended March 31, 2003 international net revenue comprised 42 percent of total consolidated net revenue. For the fiscal year ended March 31, 2002, international net revenue comprised 37 percent of total consolidated net revenue. We expect foreign sales to continue to account for a significant and growing portion of our revenue. Such sales are subject to unexpected regulatory requirements, tariffs and other barriers. Additionally, foreign sales are primarily made in local currencies, which may fluctuate against the dollar. While we hedge against foreign currency fluctuations, we cannot control translation issues.

Our reported financial results could be affected if significant changes in current accounting principles are adopted.

Recent actions and public comments from the SEC have focused on the integrity of financial reporting generally. Similarly, Congress has considered a variety of bills that could affect certain accounting principles. The FASB and other regulatory accounting agencies have recently introduced several new or proposed accounting standards, such as accounting for stock options, some of which represent a significant change from current practices. Changes in our accounting for stock options could materially increase our reported expenses.

Our stock price has been volatile and may continue to fluctuate significantly.

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 we expect will continue to be, subject to significant fluctuations. These fluctuations may be due to factors specific to us, to changes in analysts’ earnings estimates, or to factors affecting the computer, software, Internet, entertainment, media or electronics businesses.

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.

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. Our foreign exchange contracts are accounted for as derivatives whereby the gains and losses on these contracts are reflected in the Consolidated Statements of Operations. Gains and losses on open contracts at the end of each accounting period resulting from changes in the forward rate are recognized in earnings and are designed to offset gains and losses on the underlying foreign currency denominated assets and liabilities. At March 31, 2003, we had foreign exchange contracts, all with maturities of less than one month to purchase and sell approximately $155.5 million in foreign currencies, primarily British Pounds, Swedish Krona, European Currency Units (“Euro”) and other currencies.

Fair value represents the difference in value of the contracts at the spot rate and the forward rate. 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 following table below provides information about our foreign currency forward exchange contracts at March 31, 2003. 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.

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.

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 March 31, 2003, our cash equivalents and short-term investments included debt securities of $1,270.2 million. 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 March 31, 2003:


(1)	See definition in Note 1 of the Notes to Consolidated Financial Statements.
(2)	Maturity dates for short-term investments range from 4 months to 36 months with call dates ranging from 0 months to 12 months.

The Report of Independent Auditors, Consolidated Financial Statements and Notes to Consolidated Financial Statements follow below on pages 61 through 103.

We have audited the accompanying consolidated balance sheets of Electronic Arts Inc. and subsidiaries (the Company) as of March 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2003. 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 conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 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, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the Consolidated Financial Statements, the Company changed its method of accounting for goodwill, effective April 1, 2002.

See accompanying Notes to Consolidated Financial Statements, including segment information in Note 18.

ELECTRONIC ARTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

Years Ended March 31, 2003, 2002 and 2001
(In thousands)

ELECTRONIC ARTS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) (continued)

Years Ended March 31, 2003, 2002 and 2001
(In thousands)

A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements of Electronic Arts Inc. and its wholly-owned and majority-owned subsidiaries (the “Company”) follows:

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”, as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions”, which provide guidance on generally accepted accounting principles for recognizing revenue on software transactions and Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the SEC.

Product Sales: The Company recognizes revenue upon shipment of its packaged goods products based on “FOB Shipping” terms. Under FOB Shipping terms, title and risk of loss are transferred when the products are delivered to the customer. In order to recognize revenue, the Company must not have any continuing obligations and it must also be probable that the Company will collect the accounts receivable. 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.

Shipping and Handling: In accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs”, the Company recognizes as revenue amounts billed to customers for shipping and handling. Additionally, shipping and handling costs incurred by the Company are included in cost of goods sold.

Online Subscription Revenue: Online subscription revenue is derived principally from subscription revenue collected from customers for online play, who are only contractually obligated to pay on a month-to-month basis. Prepaid monthly subscription revenue, including revenue 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.

Advertising Revenue and Revenue Sharing: Advertising revenue is derived principally from the sale of banner and in-game advertisements. Banner and in-game advertising is typically generated from contracts in which either the Company or AOL provides a minimum number of impressions over the term of the agreed upon commitment. Revenue is recognized as the impressions are delivered, provided that no significant obligations remain and collection of the related receivable is probable. Advertising revenue

The Company’s carriage agreement with AOL provides that AOL will pay the Company 50 percent of all revenues collected by AOL from the sale of advertisements on the Company’s online games sites, until revenue reaches $16.0 million in a year (measured from October 1 through the following September 30). Thereafter, the agreement provides that AOL will pay the Company 70 percent of all revenues collected by AOL from the sale of advertisements on the Company’s online games sites.

The Company records net revenue as earned (i.e. when the advertisements are displayed on the Company’s game sites) in accordance with EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”. AOL maintains the primary relationship with the customer, manages advertising placement and billing processes and maintains responsibility for ad fulfillment for joint advertising properties. In addition, the Company earns a fixed amount per advertising transaction. Accordingly, the Company records these advertising revenues on a net basis.

The Company recorded net AOL advertising revenue in fiscal 2003, 2002 and 2001 of $25.1 million, $27.8 million and $5.4 million, respectively.

Because AOL is responsible under the carriage fee agreement for collecting all revenue from third-party advertisers, the Company did not owe AOL any advertising revenue for any of the periods mentioned above. Total gross advertising revenue, including AOL’s share of the revenue, in fiscal 2003, 2002 and 2001 was $40.5 million, $46.3 million and $10.7 million, respectively.

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.

The Company estimates potential future product returns, price protection and stock-balancing programs related to current period product revenue. The Company analyzes historical returns, current sell-through of distributor and retailer inventory of the Company’s products, current trends in the video game market and the overall economy, changes in customer demand and acceptance of the Company’s products and other related factors when evaluating the adequacy of the sales returns and price protection allowances. In addition, the Company monitors and manages the volume of sales to retailers and distributors and monitors their inventories as substantial overstocking in the distribution channel can result in high returns or the requirement for substantial price protection in subsequent periods.

Similarly, significant judgment is required to estimate the Company’s allowance for doubtful accounts in any accounting period. The Company analyzes customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts.

In January 2003, the EITF reached a final consensus on EITF No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor”, which addresses how a reseller of a vendor’s products should account for cash consideration received from a vendor. The EITF issued guidance on the following two issues: (1) cash consideration received from a vendor should be recognized as a reduction of cost of sales in the reseller’s income statement, unless the consideration is a reimbursement for selling costs or payment for assets or services delivered to the vendor, and (2) performance-driven vendor rebates or refunds (e.g., minimum purchase or sales volumes) should be recognized as a reduction of cost of sales only if the payment is considered probable, and the method of allocating such payments in the financial statements should be systematic and rational based on the reseller’s progress in achieving the underlying performance targets. During fiscal 2003, the Company adopted the recognition and measurement provisions of EITF No. 02-16. The adoption did not have a material effect on the Company’s results of operations or financial position.

The Company accounts for investments under Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. 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. Unrealized gains and losses are included as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity, net of any tax related effect. Realized gains and losses are calculated based on the specific identification method.

Prepaid royalties consist primarily of prepayments for manufacturing royalties, advances paid to co-publishing and/or distribution affiliates and license fees paid to celebrities, professional sports organizations and other organizations for use of their trade name and content. 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 or effective 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 costs of goods sold any post-launch amounts (expenses incurred after the product has been released for general sales) that management deems unlikely to be realized through product sales. Any impairments on product pre-launch advances are charged to research and development expense. Once the charge has been taken, that amount will not be expensed in future quarters when the product has shipped. 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 $39.9 million and $65.5 million at March 31, 2003 and 2002, respectively. The long-term portion of prepaid royalties, included in other assets, was $7.4 million and $1.2 million at March 31, 2003 and 2002, respectively.

Research and development costs, which consist primarily of software development costs, are expensed as incurred. SFAS No. 86, “Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed”, 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.

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 and such amounts are included in sales and marketing expense to the extent that qualifying claims are submitted. Cooperative advertising credits are reimbursed when qualifying claims are submitted. The Company has adopted the provisions of EITF No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products”. The adoption of EITF No. 01-09 did not have a material impact in the Company’s consolidated financial position or results of operations. For the fiscal years ended March 31, 2003, 2002 and 2001, advertising expenses totaled approximately $151.6 million, $105.7 million and $75.4 million, respectively.

Under the provisions of SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”, the Company capitalizes costs associated with customized internal-use software systems that have reached the application stage and meet recoverability tests. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related expenses for employees who are directly associated with the applications. Capitalization of such costs begins when the preliminary project stage is complete and ceases at the point in which the project is substantially complete and ready for its intended purpose. Capitalized costs associated with internal-use software amounted to $87.4 million and $121.0 million at March 31, 2003 and 2002, respectively, and are being depreciated on a straight-line basis over each project’s estimated useful life that ranges from four to seven years.

Effective April 1, 2002, the Company adopted the provisions of SFAS No. 141, “Business Combinations”, which requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and acquired intangible assets meeting certain criteria to be recorded apart from goodwill. The Company evaluated its goodwill and intangibles acquired prior to June 30, 2001 using the criteria of SFAS No. 141, which resulted in $41.5 million of other intangibles to be recorded separately from goodwill and $4.0 million of acquired workforce intangibles being subsumed into goodwill at April 1, 2002. In addition, effective April 1, 2002, the Company adopted the provisions of SFAS No. 142,

“Goodwill and Other Intangible Assets”. SFAS No. 142 requires that purchased goodwill and certain indefinite-lived intangibles no longer be amortized; rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. SFAS No. 142 also requires, among other things, reassessment of the useful lives of existing recognized intangibles and the testing for impairment of existing goodwill and other indefinite-lived intangibles. The Company evaluated the estimated useful lives of existing recognized intangibles and determined that the estimated useful lives of all such assets were appropriate.

In accordance with SFAS No. 142, the Company has ceased to amortize goodwill (see goodwill information in table below). In lieu of amortization, SFAS No. 142 requires a two-step approach to testing goodwill for impairment for each reporting unit. The first step, required to be completed by September 30, 2002, tests for impairment by applying fair value-based tests at the Company’s reporting unit level. The second step (if necessary), required to be completed by March 31, 2003, measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. The Company completed the first step of transitional goodwill impairment testing during the quarter ended June 30, 2002 and found no indicators of impairment of its recorded goodwill. As a result, the Company has recognized no transitional impairment loss in fiscal 2003 in connection with the adoption of SFAS No. 142. The Company completed its annual impairment test in the fourth quarter of fiscal 2003 with a measurement date of January 1, 2003 and found no indicators of impairment of its recorded goodwill. There can be no assurance that future impairment tests will not result in a charge to earnings and there is a potential for a write down of goodwill in connection with the annual impairment test.

The following table presents comparative information showing the effects that non-amortization of goodwill would have had on the Consolidated Statements of Operations for fiscal 2002 and 2001 (in thousands, except per share amounts):



Class B common stock – Basic and Diluted



	Year Ended March 31,
	2002			2001


Reported net loss		$(22,747	)		$(23,026	)
Goodwill amortization, net of tax		852			485

Adjusted net loss		$(21,895	)		$(22,541	)

Reported basic and diluted loss per share		$(3.77	)		$(3.83	)
Goodwill amortization, net of tax		0.14			0.08

Adjusted basic and diluted loss per share		$(3.63	)		$(3.75	)

During fiscal 2003, the Company recorded an additional $16.1 million of goodwill as a result of an acquisition of a software development company. The Company operated in two business segments, EA Core and EA.com (see Note 18 of the Notes to Consolidated Financial Statements). Goodwill information for each business segment is as follows (in thousands):




			Effects of
			Foreign
	As of	Goodwill	Currency	As of
	March 31, 2002	Acquired	Translation	March 31, 2003


EA Core	$39,335	$16,139	$842	$56,316
EA.com	29,715	—	—	29,715

	$69,050	$16,139	$842	$86,031

Intangible assets net of accumulated amortization at March 31, 2003 and 2002, of $21.3 million and $41.5 million, respectively, include costs such as costs of obtaining product technology and noncompete covenants. Amortization expense for fiscal years ended March 31, 2003, 2002 and 2001 was $7.5 million, $12.3 million and $10.1 million, respectively. Other intangible assets are amortized using the straight-line method over the lesser of their estimated useful lives or the agreement terms, typically from two to twelve years.

As part of the restructuring efforts, the Company performed impairment tests under SFAS No. 144 to evaluate the recoverability of its long-lived assets and remaining finite-lived identifiable intangibles utilized in the EA.com business. This test was performed in the fourth quarter of fiscal 2003 in conjunction with the overall valuation of the EA.com legal entity and its Class B common stock. The Company assessed the recoverability of its long-lived assets related to the EA.com business by determining whether the carrying amount of the assets was recoverable through estimated future undiscounted net cash flows expected to be generated by the group of assets attributable to the EA.com business. The Company measured the impairment loss as the amount that the carrying value of these long-lived assets exceeded the discounted future cash flows for individual asset groups. Due to significant interdependencies of the operating activities among the asset base, there are not specific identifiable cash flows and thus, the long-lived assets were combined into one asset grouping for the purposes of the test. The Company utilized a present value technique in determining the fair value of the asset grouping over the disposition period, which was determined to be four years. As a result, the Company recorded $12.4 million of finite-lived intangibles impairment charges relating to EA.com’s Kesmai and Pogo studios. As of March 31, 2003, there were no finite-lived intangible balances remaining related to Kesmai and Pogo studios. There are no assurances that the impairment factors evaluated by management will not change in subsequent periods and accordingly, this could result in additional impairment charges in future periods. See Note 19 of the Notes to Consolidated Financial Statements.

As of March 31, 2003, future intangible asset amortization expense is estimated as follows (in thousands):




Fiscal Year Ended March 31,


2004	$	2,623
2005		2,601
2006		2,489
2007		2,489
2008		2,489
Thereafter		8,610

	$	21,301

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 undiscounted net cash flows expected to be generated by the asset. This may include assumptions about future prospects for the business that the asset relates to and typically involves computations of the estimated future cash flows to be generated by these businesses. Based on these judgments and assumptions, the Company determines whether it needs to take an impairment charge to reduce the value of the asset stated on the balance sheet to reflect its actual fair value. Judgments and assumptions about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including but not limited to, significant negative industry or economic trends, significant changes in the manner of the Company’s use of the acquired assets or the strategy of the Company’s overall business and significant under-performance relative to expected historical or projected future operating results. 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.

In April 2002, the Company adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. During fiscal 2003, the Company recorded a $66.3 million asset impairment charge in accordance with SFAS No. 144. See Note 1(l) of the Notes to Consolidated Financial Statements.

The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred tax assets and liabilities are based on temporary differences resulting from differing treatment of items for tax and accounting purposes. The Company records a valuation allowance to reduce tax assets to an amount whose realization is more likely than not. The valuation allowance is

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 consolidated statements of operations are foreign currency transaction losses of $3.3 million, $0.4 million and $0.9 million for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

On April 1, 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities and requires the Company to recognize these as either assets or liabilities on the balance sheet and measure them at fair value. As described in Note 3 of the Notes to Consolidated Financial Statements, gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting. The adoption of this accounting standard did not have a material impact on the Company’s consolidated financial position or results of operations.

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.

Net income (loss) per share is computed individually for Class A common stock and Class B common stock. Please see the discussion regarding segment reporting in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Diluted EPS calculation for Class A common stock, presented above, includes the potential dilution from the conversion of Class B common stock to Class A common stock in the event that the initial public offering for Class B common stock does not occur. Net income used for the calculation of Diluted EPS for Class A common stock is $317.1 million and $101.5 million for the fiscal years ended March 31, 2003 and 2002, respectively. This net income includes the remaining interest in EA.com (100 percent of EA.com losses) which is directly attributable to outstanding Class B shares owned by third parties, which would be included in the Class A common stock EPS calculation in the event that an initial public offering for Class B common stock does not occur.

Due to the net loss attributable for the twelve months ended March 31, 2001 on a diluted basis to Class A Stockholders, stock options have been excluded from the Diluted EPS calculation as their inclusion would have been antidilutive. Had net income been reported for this period, an additional 5,971,000 shares would have been added to diluted potential common shares for Class A common stock for the twelve months ended March 31, 2001.

Excluded from the above computation of weighted-average shares for Class A Diluted EPS for the fiscal years ended March 31, 2003, 2002 and 2001 were options to purchase 3,152,000, 1,515,000 and 2,705,000

Due to the net loss attributable for the twelve months ended March 31, 2003, 2002 and 2001 on a diluted basis to Class B Stockholders, stock options have been excluded from the Diluted EPS calculation as their inclusion would have been antidilutive. Had net income been reported for these periods, an additional 1,405,000, 842,000 and 472,000 shares would have been added to diluted potential common shares for Class B common stock for the twelve months ended March 31, 2003, 2002 and 2001, respectively.

The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, “Accounting for Stock Issued to Employees” and Financial Accounting Standards Board Interpretation No. 44 (“FIN 44”), “Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25)”. The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. Accordingly, no compensation expense has been recognized for options granted under the Company’s employee-based stock option plans.

In fiscal 2003, the Company adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an Amendment of FASB Statement No. 123”, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the methods used on reported results.

Had compensation cost for the Company’s stock option plans and employee stock purchase plans been determined based on the fair value at the grant dates in accordance with the provisions of SFAS No. 123, the Company’s reported net income (loss) and net earnings (loss) per share would have been the amounts indicated below. 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 2003, 2002 and 2001 under the stock plans: risk-free interest rates of 1.23 percent to 3.86 percent in 2003; 2.22 percent to 4.51 percent in 2002; and 4.59 percent to 6.55 percent in 2001; expected volatility of 62 percent in fiscal 2003, 72 percent in fiscal 2002 and 74 percent in fiscal 2001; expected lives of 2.27 years in fiscal 2003, 2.25 years in fiscal 2002 and 2.32 years in fiscal 2001 under the Option Plans and six months for the Employee Stock Purchase Plan. No dividends are assumed in the expected term. The

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to (i) include disclosure of certain obligations, and (ii) if applicable, at the inception of the guarantee, recognize a liability for the fair value of other certain obligations undertaken in issuing a guarantee. The disclosure provisions of the Interpretation are effective for financial statements of interim or annual reports that end after December 15, 2002 and the Company has adopted those requirements in its Consolidated Financial Statements included in Note 20 of the Notes to Consolidated Financial Statements and in the Liquidity and Capital Resources section of the MD&A, included in Item 7 hereof. However, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002, irrespective of the guarantor’s year-end. The adoption of FIN 45 did not have a material impact on the Company’s consolidated financial position or results of operations.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, and revenue and expenses during the reporting period. Such estimates include provisions for doubtful accounts, sales returns and allowances, long-lived assets, deferred income taxes, warranty provisions, and estimates regarding the recoverability of prepaid royalty advances and inventories. Actual results could differ from those estimates.

On March 22, 2000, the stockholders of Electronic Arts authorized the issuance of a new series of common stock, designated as Class B common stock (“Tracking Stock”). The Tracking Stock was intended to reflect the performance of the EA.com business segment. As a result of the approval of the Tracking Stock Proposal, Electronic Arts’ existing common stock has been re-classified as Class A common stock (“Class A Stock”) and was intended to reflect the performance of the EA Core business segment. With the authorization of the Class B common stock, the Company transferred a portion of its consolidated assets, liabilities, revenue, expenses and cash flows to EA.com Inc., a wholly-owned subsidiary of Electronic Arts.

In March 2003, the Company consolidated the operations of EA.com into the Company’s core operations in order to increase efficiency, simplify the Company’s reporting structure and more directly integrate the Company’s online activities into its core console and PC business. As a result, the Company will eliminate dual class reporting starting in fiscal 2004. The majority of outstanding Class B options and warrants not directly held by the Company have been acquired or converted to Class A shares and warrants.

In fiscal 2002, short-term held-to-maturity investments include commercial notes with original maturities of less than one year secured by U.S. Treasury Notes which enabled the Company to take advantage of certain tax incentives from its Puerto Rico operation. These investments were treated as held-to-maturity for financial reporting purposes and matured in March 2003.

The fair value of held-to-maturity securities at March 31, 2002 was $8.7 million, which included gross unrealized gains of $0.3 million.

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 (depreciation) reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Marketable securities had an aggregate cost of $1.1 million and $7.0 million at March 31, 2003 and 2002, respectively. At March 31, 2003, marketable securities included gross unrealized losses of $28,000. At March 31, 2002, marketable securities included gross unrealized losses of $85,000. The sale of marketable securities produced a gain of $2.1 million in fiscal 2003. There were no sales of marketable securities in fiscal 2002.

The Company utilizes 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 its risk. 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

Net Loss Recognized in Other Income Relating to Fair Value Hedging of the Balance Sheet (in thousands):





	Year Ended March 31,
	2003			2002			2001


Gain (loss) on foreign currency assets and liabilities	$	21,651		$	(2,041	)	$	(26,104	)
Gain (loss) on hedges of foreign currency assets and liabilities		(24,976	)		1,629			25,216

Net loss recognized in other income	$	(3,325	)	$	(412	)	$	(888	)

The Company transacts business in various foreign currencies. At March 31, 2003, the Company had foreign exchange contracts, all with maturities of less than three months, to purchase and sell approximately $155.5 million in foreign currencies, primarily in British Pounds, Swedish Krona, European Currency Units (“Euros”) and other currencies.

Fair value represents the difference in value of the contracts at the contract rate and the forward rate. At March 31, 2003, 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. Notwithstanding the Company’s efforts to manage foreign exchange risk, there can be no assurances that its hedging activities will adequately protect against the risks associated with foreign currency fluctuations.

The Company leases certain of its current facilities and certain equipment under non-cancelable capital and 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 build-to-suit lease with Keybank National Association on its headquarter’s facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. The Company accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. The Company has an option to purchase the property (land and facilities) for $145.0 million or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sales price and the guaranteed residual value of up to $128.9 million if the sales price is less than this amount. The lease also provides that a sale of the property to a third party is subject to remarketing conditions including marketing assistance, requisite repairs and maintenance, appropriate notice and seller’s indemnities and warranties.

In December 2000, the Company entered into a second build-to-suit lease with Keybank National Association for a five-year term beginning December 2000 to expand its Redwood City, California headquarters facilities and develop adjacent property adding approximately 310,000 square feet to its campus. Construction was completed in June 2002. The Company accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities provide space for marketing, sales and research and development. The Company has an option to purchase the property for $127.0 million or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with the Company retaining an obligation to the owner for the difference between

Lease rates are based upon the Commercial Paper Rate. The two lease agreements described above require the Company to maintain certain financial covenants related to consolidated net worth, fixed charge coverage ratio, total consolidated debt to total consolidated capital and quick ratio, all of which the Company was in compliance with as of March 31, 2003.

Total future minimum lease commitments as of March 31, 2003 are (in thousands):



Year Ended March 31,
	2004	$15,149
	2005	19,504
	2006	19,623
	2007	11,351
	2008	7,952
	Thereafter	8,102

		$81,681

Total rent expense for all operating leases was $19.1 million, $25.2 million and $27.5 million, for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

In November 1999, Electronic Arts Inc., EA.com and AOL entered into a five-year $81.0 million carriage fee agreement which gave EA.com the exclusive right to provide online games and interactive entertainment content on the “Games” channels/areas of certain AOL online services and gain access to and sell its products to AOL subscribers and to users of AOL properties. This agreement provides for carriage, advertising commitments, advertising revenue sharing and other fees.


•	Carriage In establishing the fair value of the carriage, the Company used a discounted cash flow model based on forecasted revenue and cost assumptions of its online games service on AOL properties. Based on this assessment, the Company determined that the fair value of the agreement was $81.0 million and negotiated with AOL on an arms-length basis to pay this amount over the life of the five-year agreement.

	Of this amount, $36.0 million was paid upon signing the agreement with the remainder due in four equal annual installments of $11.25 million beginning with the first anniversary of the initial payment. The Company made carriage payments to AOL of $11.25 million in each of the fiscal years 2003, 2002 and 2001.

	Carriage fee amounts have been capitalized as a prepaid asset as payments were made to AOL. The total carriage fee of $81.0 million is being expensed using the straight-line method over the remaining life of the agreement subsequent to EA.com’s site launch in October 2000. As the carriage fee is expensed, the Company applies the portion that has been paid against the prepaid asset and records the remaining amount as a liability. Amortization expense is classified as “marketing and sales” expense in the Company’s consolidated statement of operations. The prepaid asset and liability balances are classified as “other assets” and “accrued and other liabilities” on the Company’s consolidated balance sheet. As of March 31, 2003, the Company has included advances of $30.7 million in other long-term assets and $6.25 million in accrued and other liabilities. As of March 31, 2002, the Company has included advances of $38.6 million in other long-term assets and $7.5 million in accrued and other liabilities.


•	Advertising Commitment In conjunction with the carriage fee agreement with AOL, the Company also made a commitment to spend $15.0 million in offline media advertisements prior to March 31, 2005 consisting of:


•	$10.0 million on television, radio, print and outdoor advertising that promotes the availability of EA.com games on certain AOL online services; and
•	$5.0 million ($1.0 million per year over the five year agreement) on television, radio, print and outdoor advertising that promotes the availability of a specific category of EA.com games (so-called “parlor games”) on certain AOL online services.

The Company is free to purchase this advertising from any television, radio, print or outdoor media property that it chooses, not necessarily from any AOL-affiliated media property. To date, the Company has not purchased any advertisements from AOL, though it has purchased some qualifying advertising from AOL affiliates. In accordance with SOP No. 93-7, “Reporting on Advertising Costs”, the Company expenses the advertising as it is incurred. These costs are classified as “marketing and sales” expense in the Company’s consolidated statement of operations. As of March 31, 2003, the Company has spent approximately $4.3 million against this commitment. See Note 1(c) for additional discussion regarding AOL revenues.


•	Advertising Revenue and Revenue Sharing Advertising revenue is derived principally from the sale of banner and in-game advertisements. Banner and in-game advertising is typically generated from contracts in which either the Company or AOL provides a minimum number of impressions over the term of the agreed upon commitment. Revenue is recognized as the impressions are delivered, provided that no significant obligations remain and collection of the related receivable is probable. Advertising revenue generated on the AOL Games Channel is recorded net of the applicable revenue share owed to AOL under the AOL carriage fee agreement. See Note 1(c) for additional discussion regarding advertising revenues.

•	Other Fee Arrangements In accordance with the carriage fee agreement, the Company is also required to pay AOL a percentage of its subscription, e-commerce and anchor tenancy revenue that exceed certain amounts. To date, these amounts have been approximately $0.3 million, $0.5 million and $46,000 in fiscal 2003, 2002 and 2001, respectively. These costs are expensed as incurred and are classified as “cost of goods sold” in the Company’s consolidated statement of operations. In accordance with EITF No. 99-19, the Company does not net these costs against revenue because it maintains responsibility for providing e-commerce products and subscription services directly to the consumer and retains the primary inventory risk for its products and games service.

In addition to the AOL Shares, the Company sold AOL a warrant (the “AOL Warrant”) to purchase an additional 2,000,000 shares of Class B common stock representing an additional 5 percent of the initial equity value attributable to EA.com for $1.3 million. The aggregate exercise price of the AOL Warrant was $40.0 million. The AOL Warrant was to expire at the latest at the fifth anniversary of its date of issuance, and under certain conditions may expire at an earlier date.

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. As of the fiscal year ended March 31, 2003 and 2001, there were no customers with receivable balances greater than 10 percent of total gross accounts receivables. As of the fiscal year ended March 31, 2002, the Company had receivable balances from one customer which represented 13 percent of total gross accounts receivables.

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 financial institution or type of investment instrument.

The Company is subject to pending claims and litigation. Management, after review and consultation with legal 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 the Company.

At March 31, 2003 and 2002, the Company had 10,000,000 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.

In September 2001, the Board of Directors approved a plan to repurchase up to two million shares of the Company’s Class A common stock. For the fiscal year ended March 31, 2002, the Company repurchased 280,000 shares for approximately $11.9 million under the program. In February 2002, all of the 280,000 shares were retired.

The Company has an Employee Stock Purchase Plan program whereby eligible employees may authorize payroll deductions of up to 10 percent of their compensation to purchase shares at 85 percent of the lower of the fair market value of the Class A 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. A new Employee Stock Purchase Plan program, the “2000 Class A Employee Stock Purchase Plan” was approved by the Board of Directors in May 2000 and commenced in August 2000. In addition, the Company had a stock purchase plan which was adopted without stockholder approval, the International Employee Stock Purchase Plan, which was terminated by the Board of Directors in connection with the amendment of the stockholder-approved Plan discussed below as of February 2003.

The International Employee Stock Purchase Plan was adopted by the Board of Directors in June 1996 and amended in October 1998, February 1999 and February 2002 and is in all material respects identical to the 2000 Class A Employee Stock Purchase Plan approved by the stockholders for U.S. employees. In February 2003, the Board of Directors approved an amendment to the 2000 Class A Employee Stock Purchase Plan to segregate provisions of the Plan for purchases intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”) for participants residing in the U.S., from

those that are not intended to qualify under Section 423 of the Code for participants residing outside of the U.S. Accordingly, the Company will no longer issue Class A Common Stock under the International Employee Stock Purchase Plan. At March 31, 2003, the Company had 91,760 shares of Class A Common Stock reserved for future issuance under the International Employee Stock Purchase Plan. In fiscal 2003, 348,948 shares were purchased by the Company and distributed to employees at prices ranging from $44.87 to $45.74. In fiscal 2002, 313,240 shares were purchased by the Company and distributed to employees at prices ranging from $42.45 to $45.05. In fiscal 2001, 350,164 shares were purchased by the Company and distributed to employees at prices ranging from $29.14 to $42.50. The weighted average fair value of the fiscal 2003, 2002 and 2001 awards was $19.57, $18.88 and $18.31, respectively, as estimated on the date of grant using the Black-Scholes option-pricing model assumptions described in Note 1(r) of the Notes to Consolidated Financial Statements. At March 31, 2003, the Company had 568,965 shares of Class A Common Stock reserved for future issuance under the 2000 Class A Employee Stock Purchase Plan.

At the Company’s Annual Meeting of Stockholders, held on August 1, 2002, the stockholders elected to amend the 2000 Class A Equity Incentive Plan to increase by 5,500,000 the number of shares of the Company’s Class A common stock reserved for issuance under the Plan.

Together with the Tracking Stock Proposal, the stockholders approved the Electronic Arts Inc. 2000 Class B Equity Incentive Plan. 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. The Class B equity plan included a provision for automatic option grants to the Company’s outside directors. In February 2003, the Board of Directors amended the Class B equity plan to eliminate automatic grants to directors and to preclude any further awards under the Class B equity plan. As of March 31, 2003 there were 225,130 restricted shares issued and no shares available for future issuance under the Class B equity plan. See Note 2 of the Notes to Consolidated Financial Statements.

The options generally expire ten years from the date of grant and are generally exercisable in monthly increments over 50 months. Class B common stock grants will generally vest over 50 months with 2 percent vesting per month.

In fiscal year 2001, the Board of Directors approved the Key Partner Class B Equity Incentive Program which allows for the issuance of warrants to key business partners to purchase up to 750,000 shares of Class B common stock. As of March 31, 2002, there were 121,000 warrants outstanding under this program. These warrants expire not later than five years from issuance. In February 2003, the Company caused a “Warrant Holder Exchange” of the Class B warrant stock and terminated the program. Accordingly, all of the 121,000 Class B warrants were exchanged for 30,504 Class A warrants, and there are no shares allocated for issuance under the program.

The Company has an equity compensation stock plan which was adopted without stockholder approval, the Celebrity and Artist Stock Option Plan. The Celebrity and Artist Stock Option Plan was adopted by the Board of Directors in July 1994 and amended in May 1997, October 1997, September 1998 and July 1999. The terms under this plan are substantially similar to the terms of the 2000 Class A Equity Incentive Plan.

The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, “Accounting for Stock Issued to Employees” and FIN 44, “Accounting for Certain Transactions Involving Stock Compensation (an interpretation of APB Opinion No. 25)”. In fiscal 2003, the Company adopted SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and

Disclosure – an Amendment of FASB Statement No. 123”, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Statement also amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the methods used on reported results.

The Company has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”. Accordingly, no compensation expense has been recognized for options granted under the Company’s employee-based stock option plans. Pursuant to SFAS No. 123, the Company discloses the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements. See Note 1(r) of the Notes to Consolidated Financial Statements for the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements.

Additional information regarding options outstanding for Class A as of March 31, 2003 is as follows:

Additional information regarding options outstanding for Class B as of March 31, 2003 is as follows:

The following summarizes the activity under the Company’s Class A stock option plans during the fiscal years ended March 31, 2003, 2002 and 2001:

The following summarizes the activity under the Company’s Class B stock option plan during the fiscal years ended March 31, 2003, 2002 and 2001:


(a)	In February 2003, the Board of Directors amended the Class B plan to preclude any further awards under the Class B plan.

Depreciation and amortization expenses associated with property and equipment amounted to $66.3 million, $67.6 million and $50.3 million for the fiscal years ended March 31, 2003, 2002 and 2001, respectively.

Accrued and other liabilities at March 31, 2003 and 2002 consisted of (in thousands):

The acquisition has been accounted for under the purchase method. The results of operations of Pogo and the estimated fair market values of the acquired assets and liabilities have been included in the consolidated financial statements from the date of acquisition. The adjusted allocation of the excess purchase price over the net tangible assets acquired was $40.5 million, of which, based on management’s estimates, $2.7 million was allocated to purchased in-process research and development and $37.8 million was allocated to other intangible assets. Amounts allocated to other intangibles include goodwill of $16.9 million, existing technology of $12.5 million, and other intangibles of $8.4 million. The allocation of intangible assets is being amortized on a straight-line basis over lives ranging from three to seven years.

As part of the restructuring plan announced in fiscal 2003 for EA.com, the Company evaluated its finite-lived identifiable intangible assets for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” as of January 1, 2003. The Company assessed the recoverability of its intangibles by determining whether the carrying amount of the assets were recoverable through estimated future undiscounted net cash flows. The Company calculated the impairment loss as the amount that the carrying value of the asset exceeded the discounted future cash flows. Included in asset

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 Operations upon consummation of the acquisition. The non-recurring charge for in-process research and development increased diluted loss per share by approximately $0.01 and $0.07 in the fiscal year 2001 for Class A and Class B, respectively.

Pogo had various projects in progress at the time of the acquisition. As of the acquisition date, costs to complete Pogo projects acquired were expected to be approximately $1.2 million in future periods. During fiscal 2002, all of these development projects were completed and launched on Pogo gamesites. In conjunction with the acquisition of Pogo, the Company accrued approximately $0.1 million related to direct transaction costs and other related costs.

The purchase price for the Pogo transaction was allocated to assets acquired and liabilities assumed as set forth below (in thousands):



Current assets	$	3,048
Fixed assets		4,998
Other long-term assets		1,969
In-process technology		2,719
Goodwill and other intangibles		37,797
Liabilities		(7,198	)

Total cash paid	$	43,333

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 had exclusive publishing rights in North America for future interactive entertainment titles created by Square. Additionally, the Company had the exclusive right to distribute in North America products published by this joint venture. The Company contributed $3.0 million and owned a 30 percent minority interest in this joint venture while Square owned 70 percent. This joint venture was accounted for under the equity method. The joint venture agreements with Square expired as of March 31, 2003. Our distribution of Square products in North America will terminate on June 30, 2003.

In Japan, the companies established Electronic Arts Square KK (“EA Square KK”), which localized and published in Japan the Company’s properties originally created in North America and Europe, as well as developed and published original video games in Japan. The Company contributed cash and had a 70 percent majority ownership interest, while Square contributed cash and owned 30 percent. Accordingly, the assets, liabilities and results of operations for EA Square KK were included in the Company’s Consolidated Balance Sheets and Results of Operations since June 1, 1998, the date of formation. Square’s 30 percent interest in EA Square KK has been reflected as “Minority interest in consolidated joint venture” on the Company’s consolidated financial statements.

Effective March 31, 2003, the Company and Square terminated their joint venture agreement and reached agreement for the Company to purchase Square’s 30 percent interest in Electronic Arts Square KK. In May, 2003, the Company acquired such 30 percent ownership interest in Electronic Arts Square KK from Square for approximately $2.5 million in cash. As a result of the acquisition, Electronic Arts Square KK has become a wholly-owned subsidiary of the Company and has been renamed Electronic Arts KK. The acquisition was accounted for as a step acquisition purchase and the excess purchase price over fair value of the net tangible assets acquired of $1.2 million was allocated to goodwill.

The Company’s pretax income (loss) from operations for the fiscal years ended March 31, 2003, 2002 and 2001 consisted of the following components:

Income tax expense (benefit) for the fiscal years ended March 31, 2003, 2002 and 2001 consisted of:

The components of the net deferred tax assets as of March 31, 2003 and 2002 consist of:

At March 31, 2003, deferred tax assets of $117.2 million and $13.5 million were classified as current assets and long-term assets, respectively.

The Company has research and experimental tax credit carryforwards aggregating approximately $42.0 million and $21.0 million for federal and California purposes, respectively. The federal credit carryforwards expire from 2006 to 2023. The California credits carry over indefinitely until utilized. The Company also has foreign tax credit carryforwards of approximately $11.0 million, which expire from 2004 to 2008.

The differences between the statutory income tax rate and the Company’s effective tax rate, expressed as a percentage of income (loss) before provision for (benefit from) income taxes, for the years ended March 31, 2003, 2002 and 2001 were as follows:

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. The Company has not provided for Federal income tax on approximately $494.0 million of undistributed earnings of its foreign subsidiaries, since the Company intends to reinvest this amount in foreign subsidiary operations indefinitely.

At March 31, 2003, the Company believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

During the fiscal year ended March 31, 2003, the Company successfully prevailed in Tax Court proceedings with respect to previously-contested deficiencies issued by the Internal Revenue Service in conjunction with its audit of the Company’s US income tax returns for the years 1992 through 1995. The

Interest and other income, net for the years ended March 31, 2003, 2002 and 2001 consisted of (in thousands):




	2003			2002			2001


Interest income	$	21,476		$	16,691		$	17,903
Gain (loss) on disposition of assets, net		1,559			(131	)		(1,778	)
Impairment of investment in affiliates		(10,590	)		—			—
Foreign currency losses		(3,325	)		(412	)		(888	)
Foreign currency cost of hedging		(5,103	)		(3,032	)		—
Equity in net gain of affiliates		5,467			2,999			820
Other income (expense), net		(4,262	)		(3,267	)		829

	$	5,222		$	12,848		$	16,886

SFAS No. 130, “Reporting Comprehensive Income”, 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.

The change in the components of comprehensive income, net of tax, is summarized as follows (in thousands):




				Unrealized
	Foreign			gains			Accumu-
	currency			(losses) on			lated other
	translation			investments,			comprehen-
	adjustments			net			sive loss


Balance at March 31, 2000	$	(6,180	)	$	(181	)	$	(6,361	)
Other comprehensive income (loss)		(9,439	)		3,097			(6,342	)

Balance at March 31, 2001		(15,619	)		2,916			(12,703	)
Other comprehensive income (loss)		1,453			(3,474	)		(2,021	)

Balance at March 31, 2002		(14,166	)		(558	)		(14,724	)
Other comprehensive income (loss)		14,540			1,718			16,258

Balance at March 31, 2003	$	374		$	1,160		$	1,534

Change in unrealized gains (losses) on investments, net are shown net of taxes of $1.3 million, $(1.6) million and $1.4 million in fiscal 2003, 2002 and 2001, respectively.

The currency translation adjustments are not adjusted for income taxes as they relate to indefinite investments in non-U.S. subsidiaries.

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.

SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information”, 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 revenue by geographic region and by product lines for purposes of making operating decisions and assessing financial performance.

In fiscal 2003, 2002 and 2001, the Company operated and reviewed its business in two business segments:


•	EA Core business segment: creation, marketing and distribution of entertainment software.
•	EA.com business segment: creation, marketing and distribution of entertainment software which can be played or sold online, ongoing management of subscriptions of online games and website advertising.

In March 2003, the Company consolidated the operations of EA.com into its core business, and has eliminated separate reporting for its Class B common stock for all future reporting periods after fiscal 2003. The Company now considers online functionality to be integral to its existing and future products. Accordingly, in fiscal 2004, the Company will no longer manage EA.com as a separate business segment. As of April 1, 2003, the Company will consolidate the reporting related to its online products and services as part of the overall development and publication of its other products. The Company believes that this will better reflect the way in which the Company’s Chief Operating Decision Maker reviews and manages its business and the importance of its online products and services relative to the rest of its business. Based on the Company’s preliminary assessment of this intended consolidation, management believes that it will only have one reportable segment in fiscal 2004 as a result of restructuring the EA.com business.

In order to prepare the segment information for EA.com, the Company has allocated certain of its consolidated assets, liabilities, revenue, expenses and cash flows to EA.com. The Consolidated Statements of Operations includes all revenue 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 consistently 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, corporate selling, marketing and distribution expenses and corporate general and administrative expenses. Such allocations and charges are based on direct cost pass-through or percentage of total costs for the services provided based on factors such as headcount or activity-based allocation. The Company does not allocate interest charges between EA Core and EA.com. Management believes that these allocations have been consistently applied and are based on assumptions that are reasonable.

The Company’s view and reporting of business segments may change due to changes in the underlying business facts and circumstances and the evolution of the Company’s reporting to its Chief Operating Decision Maker. Please see the discussion regarding segment reporting in the MD&A.

Information about Electronic Arts business segments is presented below for the fiscal years ended March 31, 2003, 2002 and 2001 (in thousands):


(a)	EA.com Marketing and Sales includes $17.9 million, $17.9 million and $8.9 million of Carriage Fee for fiscal 2003, 2002 and 2001, respectively.

(b)	EA.com Research and Development includes $43.0 million, $59.5 million and $51.8 million of Network Development and Support for fiscal 2003, 2002 and 2001, respectively; and includes $10.0 million, $10.6 million and $11.4 million of Customer Relationship Management for fiscal 2003, 2002 and 2001, respectively.

(c)	Results for fiscal 2003 do not include amortization of goodwill as a result of adopting SFAS No. 142. Amortization of intangibles for fiscal 2002 includes goodwill amortization of $7.4 million for EA Core and $5.7 million for EA.com. Amortization of intangibles for fiscal 2001 includes goodwill amortization of $5.9 million for EA Core and $3.2 million for EA.com.

Information about Electronic Arts’ operations in the North America and foreign areas for the fiscal years ended March 31, 2003, 2002 and 2001 is presented below (in thousands):

Electronic Arts had sales to one customer which represented 12 percent of total net revenue in fiscal 2003 and 2001, respectively, and 14 percent of total net revenue in fiscal 2002.

Information about Electronic Arts’ net revenue by product line for the fiscal years ended March 31, 2003, 2002 and 2001 is presented below (in thousands):

During the third quarter of fiscal 2003, the Company closed its office located in San Francisco, California and its studio located in Seattle, Washington. The office and studio closures were a result of the Company’s strategic decision to consolidate local development efforts in Redwood City, California and Vancouver, Canada. The Company recorded total pre-tax charges of $9.4 million, consisting of $7.3 million for consolidation of facilities, $1.5 million for the write-off of non-current assets and $0.6 million for workforce reductions. The facilities charge was net of a reduction in deferred rent of $0.5 million.

The exit plans resulted in a workforce reduction of approximately 33 personnel in development and administrative departments. The estimated costs for consolidation of facilities included contractual rental commitments under the real estate lease for unutilized office space, offset by estimated future sub-lease income. In addition, the exit plans resulted in the write-off of certain non-current fixed assets, primarily leasehold improvements.

Additionally, during the fourth quarter of fiscal 2003, the Company approved a plan to consolidate its Los Angeles, Irvine and Las Vegas studios into one major game studio in Los Angeles. These measures were taken in order to maximize efficiencies and streamline the creative development process and operations of the Company’s studios. In connection with these consolidation activities, the Company recorded a total pre-tax restructuring charge of $5.1 million. This charge includes $1.6 million for the shutdown of facilities related to non-cancelable lease payments for permanently vacated properties and associated costs, $2.0 million for the write-off of abandoned equipment and leasehold improvements at facilities that were permanently vacated and $1.5 million for employee severance expenses related to involuntary terminations. The consolidation of the studios discussed above, as well as other activities related to this plan, was completed by the end of March 2003.

The following table summarizes the restructuring accrual activity related to EA Core during fiscal 2003 (in thousands):

The Company expects the remaining accrued restructuring balance of $7.5 million to be fully utilized by December 31, 2006.

During fiscal 2003, the Company recorded restructuring charges, including asset impairment, of $67.0 million, consisting of $1.8 million for workforce reductions, $2.3 million for consolidation of facilities and other administrative charges, and $62.9 million for the write-off of non-current assets. The estimated costs for workforce reduction included severance charges for terminated employees, costs for certain outplacement service contracts and costs associated with the tender offer to retire employee Class B options. The consolidation of facilities resulted in the closure of EA.com’s Chicago and Virginia facilities and an adjustment for the closure of EA.com’s San Diego studio in fiscal 2002. The estimated costs for consolidation of facilities and other administrative charges included contractual rental commitments under real estate leases for unutilized office space reduced by estimated future sub-lease income and costs to close the facilities.

The Company recorded restructuring charges for EA.com in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. Adjustments to the restructuring reserves will be made in future periods, if necessary, based upon the then current events and circumstances.

As part of the restructuring efforts, the Company performed impairment tests under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, to evaluate the recoverability of its long-lived assets and remaining finite-lived identifiable intangibles utilized in the EA.com business. This test was performed in the fourth quarter of fiscal 2003 in conjunction with the overall valuation of the EA.com legal entity and its Class B common stock. In February 2003, the Company’s only outside holder of Class B common stock, AOL, exercised its right to exchange its Class B shares for shares of Class A common stock. In late December 2002, EA.com launched The Sims Online, an online game based on the Company’s very popular “The Sims” line of PC games, which have sold over 20 million units worldwide. The Sims Online was expected to be EA.com’s flagship online subscription offering. Through mid-March 31, 2003, the number of units sold and subscribers for this product along with other EA.com revenue were significantly below the Company’s expectations. The Company considered these developments in the fourth quarter of fiscal 2003 to be a triggering event under SFAS No. 144, which caused the Company to cancel most of its plans to develop similar online products that would have utilized long-lived assets associated with the EA.com business. As a result, the Company substantially reduced its expected future undiscounted cash flows related to these long-lived assets. These assets were not impaired in earlier

The Company assessed the recoverability of its long-lived assets by comparing the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the group of assets attributable to the EA.com business. The Company measured the impairment loss as the amount that the carrying value of these long-lived assets exceeded the discounted future cash flows for individual asset groups. Due to significant interdependencies of the operating activities among the asset base, there were not specific identifiable cash flows and thus, the long-lived assets were combined into one asset grouping for the purposes of the test. The Company utilized a present value technique in determining the fair value of the asset grouping over the disposition period, which was determined to be four years. In evaluating the reasonableness of the discounted cash flow approach, the liquidation value of individual long-lived assets was also assessed. Impairment charges on long-lived assets amounted to $62.9 million and included $24.9 million relating to impaired customized internal-use software systems for the EA.com infrastructure, $25.6 million for other long-lived assets and $12.4 million of finite-lived intangibles impairment charges relating to EA.com’s Kesmai and Pogo studios. (See other intangibles table in Note 1(l) for additional detail.) As of March 31, 2003, there were no finite-lived intangible balances remaining related to Kesmai and Pogo studios. There are no assurances that the impairment factors evaluated by management will not change in subsequent periods and accordingly, this could result in additional impairment charges in future periods.

In conjunction with the Company’s annual policy to reassess the remaining useful lives of goodwill and certain indefinite-lived intangibles and test the recoverability of these long-lived assets in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, as of January 1, 2003, the Company also performed fair value based tests to evaluate impairment of the EA.com reporting unit. This test was performed after the Company tested for impairment under SFAS No. 144 as described above. Under this test, the fair value based tests did not indicate an impairment of the Company’s recorded goodwill and certain indefinite-lived intangibles at the EA.com reporting unit level. The remaining portion of Kesmai goodwill assets at March 31, 2003 was $13.8 million. The remaining portion of Pogo goodwill assets at March 31, 2003 was $15.9 million. There are no assurances that future impairment tests will not result in a charge to earnings and a corresponding write down of goodwill and certain indefinite-lived intangibles.

During fiscal 2002, the Company recorded restructuring charges of $20.3 million, consisting of $4.2 million for workforce reductions, $3.3 million for consolidation of facilities and other administrative charges, and $12.8 million for the write-off of non-current assets and facilities. The estimated costs for workforce reduction included severance charges for terminated employees and costs for certain outplacement service contracts. The consolidation of facilities resulted in the closure of EA.com’s San Diego studio and consolidation of its San Francisco and Virginia facilities. The estimated costs for consolidation of facilities included contractual rental commitments under real estate leases for unutilized office space offset by estimated future sub-lease income, costs to close or consolidate facilities, and costs to write off a portion of the assets from these facilities.

The Company recorded restructuring charges for EA.com in accordance with Emerging Issues Task Force No. 94-03, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)”, Emerging Issues Task Force No. 95-03, “Recognition of Liabilities in Connection with a Purchase Business Combination”, and Staff Accounting Bulletin No. 100, “Restructuring and Impairment Charges”. Adjustments to the restructuring reserves will be made in future periods, if necessary, based upon the then current events and circumstances.

As part of the restructuring efforts, the Company assessed the remaining useful lives of goodwill, purchased intangible assets and other long-lived assets and tested the recoverability of its long-lived assets in accordance with SFAS No. 121. Management evaluated the impact of consolidating or abandoning certain EA.com technologies and processes and reviewed the effect of changes to EA.com’s subscription product offerings in relation to EA.com’s asset base. As a result, it was determined that certain long-lived assets would be abandoned or were related to products or services that had been discontinued and would therefore be written-down to their estimated net disposal value. Impairment charges on long-lived assets amounted to $12.8 million and included $11.2 million relating to abandoned technologies consisting of customized internal-use software systems for the EA.com infrastructure, $1.0 million of Kesmai intangibles impairment because associated products and services were discontinued and $0.6 million of goodwill charges relating to EA.com’s San Diego studio closure. The remaining portion of Kesmai assets at March 31, 2002 was $15.9 million, consisting of $13.1 million of goodwill and $2.8 million of intangibles relating to Kesmai’s developed and core technology and acquired workforce. There are no assurances that the impairment factors evaluated by management will not change in subsequent periods and accordingly, this could result in additional impairment charges in future periods.

The following table summarizes the activity in the accrued restructuring account for EA.com in fiscal 2002 and 2003 (in thousands):

For fiscal 2003, the pre-tax restructuring charge of $67.0 million, consisted of $4.1 million in cash outlays and $62.9 million in non-cash charges related to the write-off of non-current assets. For fiscal 2002, the pre-tax restructuring charge of $20.3 million consisted of $6.9 million in cash outlays and $13.4 million in non-cash charges related to the write-offs of non-current assets and facilities.

As of March 31, 2003, an aggregate of $7.1 million in cash had been paid out under the restructuring plan. In addition, there have been subsequent adjustments of approximately $0.6 million relating to future cash outlays under the fiscal 2002 restructuring plan. Of the remaining cash outlay of $3.2 million, $2.5 million is expected to occur in fiscal 2004 while the remaining $0.7 million will occur in fiscal years 2005 and beyond.

The restructuring accrual is included in accrued expenses in Note 12 of the Notes to Consolidated Financial Statements.

In February of 1995, the Company entered into a build-to-suit lease with Keybank National Association on its headquarter’s facility in Redwood City, California, which was extended in July 2001 and expires in July 2006. The Company accounted for this arrangement as an operating lease in accordance with SFAS No. 13, “Accounting for Leases”, as amended. Existing campus facilities developed in phase one comprise a total of 350,000 square feet and provide space for sales, marketing, administration and research and development functions. The Company has an option to purchase the property (land and facilities) for $145.0 million or, at the end of the lease, to arrange for (1) an additional extension of the lease or (2) sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $128.9 million if the sales price is less than this amount, subject to certain provisions of the lease.

In December 2000, the Company entered into a second build-to-suit lease with Keybank National Association for a five year term from December 2000 to expand its headquarter’s facilities and develop adjacent property adding approximately 310,000 square feet to its campus. Construction was completed in June 2002. The Company accounted for this arrangement as an operating lease in accordance with SFAS No. 13, as amended. The facilities will provide space for marketing, sales and research and development. The Company has an option to purchase the property for $127.0 million or, at the end of the lease, to arrange for (1) an extension of the lease or (2) sale of the property to a third party with the Company retaining an obligation to the owner for the difference between the sale price and the guaranteed residual value of up to $118.8 million if the sales price is less than this amount, subject to certain provisions of the lease. The Company believes the estimated fair value of the properties under the operating leases are in excess of the guaranteed residual values as of March 31, 2003, based in part on an independent third party appraisal.

The Company has entered into an indemnification agreement with the members of its Board of Directors to indemnify its Directors to the extent permitted by law against any and all liabilities, costs, expenses, amounts paid in settlement and damages incurred by the Directors as a result of any lawsuit, or any judicial, administrative or investigative proceeding in which the Directors are sued as a result of their service as members of the Board of Directors of the Company.

See the Liquidity and Capital Resources section of the MD&A, included in item 7 hereof, for a schedule of the Company’s contractual obligations and commitments.

In accordance with APB No. 18, “The Equity Method Of Accounting For Investments In Common Stock”, management evaluates equity and cost investments to determine if events or changes in circumstances indicate an other-than-temporary impairment in value. The Company has cost and equity investments in affiliates. Based on several factors, such as the financial performance of the affiliate, the Company’s decision to no longer acquire or continue investing in these affiliates, the limited cash flow from future business arrangements and other information available during fiscal 2003, the Company determined that some of its investments in affiliates contained an other-than-temporary impairment and recorded a charge in the amount of $10.6 million to write-down these investments to their estimated fair market value. This write-down was recorded in interest and other income, net in the Consolidated Statements of Operations.

On June 24, 2002, the Company hired Warren Jenson as its Executive Vice President and Chief Financial Officer and agreed to loan Mr. Jenson $4.0 million, to be forgiven over fours years based on his continuing

In May and June 2000, the following executive officers entered into secured full recourse promissory notes to purchase EA’s Class B common stock under Restricted Stock Purchase Agreements: Mr. Riccitiello, $449,500; Mr. Mattrick, $224,750; Mr. McKee, $134,850; Mr. J. Russell (Rusty) Rueff, Jr., $134,850, and Mr. David Carbone, $44,950. The term of the notes is five years and the interest, set at a market rate as determined under guidelines set forth in the Internal Revenue Code and state statutes, was due and payable quarterly. In December 2002 and January 2003, Mr. Riccitiello, Mr. Mattrick, Mr. McKee, Mr. Rueff and Mr. Carbone paid in full all principal and accrued interest owed under these notes.

On February 7, 2000, the Company acquired Kesmai from News America Corporation (“News Corp”) in exchange for $22.5 million in cash and approximately 206,000 shares of our existing common stock valued at $8.65 million. Under the original agreements, the Company agreed to spend $12.5 million through the period ended June 1, 2002 in advertising with News Corp or any of its affiliates. In addition, under these agreements if certain conditions were met, including that a qualified public offering of Class B common stock did not occur within twenty-four months of News Corp’s purchase of such shares and all of the Class B outstanding shares had been converted to Class A common stock, then (1) News Corp would have the right to (i) exchange Class B common stock for approximately 206,000 shares of Class A common stock, and (ii) receive cash from the Company in the amount of $9.65 million, and (2) the Company would agree to spend an additional $11.675 million in advertising with News Corp and its affiliates.

On August 30, 2002, the Company entered into a new agreement with News Corp under which (i) News Corp exchanged its 2,000,000 shares of Class B common stock for 206,454 shares of Class A common stock and (ii) the Company paid News Corp $1.0 million in cash and committed to spend an additional $17.0 million in advertising with News Corp and its affiliates through the period ended December 31, 2006. All of the Company’s other obligations to News Corp under the original agreements were terminated.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company does not expect the adoption of SFAS No. 143 to have a material impact on its consolidated financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities (“VIEs”) that either: (i) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (ii) the equity investors lack an essential characteristic of a controlling financial interest. This interpretation applies immediately to VIEs created after January 31, 2003. It applies in the first fiscal year or interim period beginning after June 15, 2003, to VIEs in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 requires disclosure of VIEs in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date: (i) the company will be the primary beneficiary of an existing VIE that will require consolidation or, (ii) the company will hold a significant variable interest in, or have significant involvement with, an existing VIE. The Company does not believe that it will have any entities that will require disclosure or new consolidation as a result of adopting the provisions of FIN 46.

In January 2003, the EITF reached consensus on Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables”. EITF 00-21 provides guidance on how to determine whether an arrangement involving multiple deliverables requires that such deliverables be accounted for separately. EITF 00-21 allows for prospective adoption for arrangements entered into after June 15, 2003 or adoption via a cumulative effect of a change in accounting principal. The Company is currently evaluating the impact the adoption of EITF 00-21 will have on its consolidated results of operations and financial position.

ELECTRONIC ARTS AND SUBSIDIARIES
QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED)


(a)	Net income includes amortization of intangibles of $1.6 million, net of taxes.
(b)	Net income includes restructuring charges of $5.4 million, net of taxes, and asset impairment charges of $1.0 million, net of taxes, as well as amortization of intangibles of 1.5 million, net of taxes.
(c)	Net income includes restructuring charges of $5.0 million, net of taxes, and asset impairment charges of $44.8 million, net of taxes, as well as amortization of intangibles of 0.5 million, net of taxes.
(d)	Net loss includes amortization of intangibles of $4.5 million, net of taxes.
(e)	Net income includes restructuring charges of $5.2 million, net of taxes, and asset impairment charges of $4.5 million, net of taxes, as well as amortization of intangibles of $4.3 million, net of taxes.


(f)	Net income includes asset impairment charges of $4.3 million, net of taxes, as well as amortization of intangibles of $4.2 million, net of taxes.

The Company’s common stock is traded in the over-the-counter market under the Nasdaq Stock Market symbol ERTS. The prices for the common stock in the table above represent the high and low prices as reported on the Nasdaq National Market.

Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

The information regarding directors who are nominated for election required by Item 10 is incorporated herein by reference to the information in our definitive Proxy Statement for the 2003 Annual Meeting of Stockholders (the “Proxy Statement”) under the caption “Proposal No. 1 – Election of Directors”. The information regarding executive officers required by Item 10 is included in Item 1 hereof. The information regarding Section 16 compliance is incorporated herein by reference to the information in the Proxy Statement under the caption “Section 16 (a) Beneficial Ownership Reporting Compliance”.

The information required by Item 11 is incorporated herein by reference to the information in the Proxy Statement under the caption “Compensation of Executive Officers” specifically excluding the “Compensation Committee Report on Executive Compensation”.

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is incorporated herein by reference to the information in the Proxy Statement under the captions “Principal Stockholders” and “Equity Compensation Plan Information”.

The information required by Item 13 is incorporated herein by reference to the information in the Proxy Statement under the caption “Certain Transactions”.

(a) Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this annual report, have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

(b) Changes in internal controls. There were no significant changes in the Company’s internal controls or, to our knowledge in other factors that could significantly affect the Company’s disclosure controls and procedures subsequent to the Evaluation Date. However, in the last several months, in response to the certification requirements of the Sarbanes-Oxley Act and new Securities and Exchange Commission Regulations, the Company has enhanced its internal controls and disclosure systems, through various measures including: detailing its internal accounting policies; establishing a formal disclosure committee for preparation of all periodic reports; and requiring certifications from various trial balance controllers and other financial personnel responsible for the Company’s financial statements.


(*)	Management contract or compensatory plan or arrangement.
(1)	Incorporated by reference to Exhibit 4.01 to Registrant’s Registration Statement on Form S-4 filed on March 3, 1994 (File No. 33-75892).
(2)	Incorporated by reference to Exhibit 4.04 to S-8 Amendment No. 2.
(3)	Incorporated by reference to Exhibit 4.01 to the Registrant’s Registration Statement on Form S-8 filed on July 29, 1993 (File No. 33-66836) (the “1993 Form S-8”).


(4)	Incorporated by reference to Exhibit 10.09 to the Form S-1.
(5)	Incorporated by reference to Exhibit 4.02 to 1993 Form S-8.
(6)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 1994 (the “1994 Form 10-K”).
(7)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 1995 (the “1995 Form 10-K”).
(8)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 1997 (the “1997 Form 10-K”).
(9)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 1999 (the “1999 Form 10-K”).


(10)	Incorporated by reference to similarly numbered exhibits to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
(11)	Incorporated by reference to similarly numbered exhibits to Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2000.
(12)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 2000 (the “2000 Form 10-K”).
(13)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 2001 (the “2001 Form 10-K”).
(14)	Incorporated by reference to similarly numbered exhibits to Registrant’s Annual Report on Form 10-K for the year ended March 31, 2002 (the “2002 Form 10-K”).
(15)	Incorporated by reference to similarly numbered exhibits to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
(16)	Incorporated by reference to similarly numbered exhibits to Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2002.

On February 11, 2003, the Company furnished a current report on Form 8-K, attaching under Item 9 certifications made by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 to accompany the Company’s Form 10-Q for the quarterly period ended December 31, 2002.

Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ Lawrence F. Probst III _______________________________________ (Lawrence F. Probst III, Chairman of the Board and Chief Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons, on behalf of the Registrant in the capacities indicated and on the 10th of June 2003.


	1.	I have reviewed this annual report on Form 10-K of Electronic Arts Inc.;

	2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6.	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


	1.	I have reviewed this annual report on Form 10-K of Electronic Arts Inc.;

	2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

	4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):


	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and


	6.	The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


(1)	Primarily the translation effect of using the average exchange rate for expense items and the year-ended exchange rate for the balance sheet item (allowance account) and other reclassification adjustments.

Target annual bonuses are set for each executive officer based upon a percentage of base salary. Bonuses for executive officers reporting to the Chief Executive Officer are generally paid in two parts, one of which relates only to the Company’s earnings results, and one of which is discretionary and is measured against each individual’s contributions. Other executive officers have a third part which relates to a specific business unit’s or product’s financial performance. Bonuses are paid after the end of the fiscal year. If profits in any period are less than 85 percent of the Company’s plan, no bonus based on the Company’s performance may be paid for that period. If profits exceed plan during a period, the bonus rate is accelerated for the incremental profits above plan, with a maximum of 200 percent payout of the bonus target.

THIS AMENDMENT NO. 2 TO LEASE (“Amendment No. 2”) is made to be effective as of January 7, 2003 (“Effective Date”), by and between CALIFORNIA PLAZA AT WALNUT CREEK, INC., a Florida not-for-profit corporation (“Landlord”), and ELECTRONIC ARTS, INC., a Delaware corporation (“Tenant”). All terms and phrases which are capitalized in this Amendment No.2 shall have the same meaning and definition as those set forth in the Lease unless otherwise stated in this Amendment No.2.

A. Landlord and Tenant entered into that certain Office Lease dated February 1, 2001, pursuant to which Tenant leased Suite 600 and Suite 700 in that certain office building (“Building”) located at 2121 North California Boulevard, Walnut Creek, California 94956 and commonly known and referred to as CALIFORNIA PLAZA. The Lease is amended by that certain Amendment No.1 to Lease dated May 20, 2002 (together, “Lease”), pursuant to which Tenant leased Suite 685 in the Building. Suites 600, 700 and 685 are hereinafter referred to as the “Premises.”

B. Tenant desires to expand the Premises to include approximately eighteen thousand five hundred twenty-five (18,525) rentable square feet of space on the fourth (4th) floor (“Suite 400”) in the Building.

C. Subject to the terms and conditions set forth below, Landlord and Tenant have agreed to amend the Lease as follows.

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned hereby agree as follows:

1. Recitals. The foregoing Recitals are incorporated by reference as if fully set forth herein.

2. Amendment of Lease. Landlord and Tenant hereby amend the Lease as follows:


	2.1 Lease of Suite 400. New Article 30 entitled “Lease of Suite 400” is hereby added to the Lease:


	(B) Effective on the Suite 400 Commencement Date and during the Suite 400 Initial Term, the term “Premises” shall mean Suites 600, 700, 685 and 400, and the floor plan attached as Exhibit “A-1” to the Lease shall be deemed replaced in its entirety by the floor plan attached as and incorporated herein by this reference as Exhibit “A-2” to this Amendment No.2.


	2.2.2 Net Rentable Area of the Premises. The following new Section 1.03(D) is hereby added to the Lease:

Effective on the Suite 400 Commencement Date and during the Suite 400 Initial Term, the phrase “Net Rentable Area of the Premises” shall mean a total of one hundred one thousand one hundred fifty-seven (101,157) rentable square feet as follows: (i) Suite 600, which consists of forty- two thousand three hundred ninety-eight (42,398) rentable square feet, (ii) Suite 700, which consists of thirty-six thousand eight hundred thirty-four (36,834) rentable square feet, (iii) Suite 685, which consists of three thousand four hundred (3,400) rentable square feet; and (iv) Suite 400, which consists of eighteen thousand five hundred twenty- five (18,525) rentable square feet.


	2.2.3 Base Rent. Section 1.07 is hereby amended so that Monthly Base Rent shall be as follows, effective on the Suite 400 Commencement Date:


	2.2.4 Tenant’s Percentage Share. Sections 1.08(D) and (E) are hereby deleted and replaced with the following new Sections 1.08(D), (E) and (F):


	(D) Suite 400. In connection with Suite 400 only, the phrase “Tenant’s Percentage Share (Suite 400)” shall mean five and three hundredths percent (5.03%) with respect to Property Taxes and Operating Expenses for the Building.


	(i) Starting on January 1, 2004 and during each and every month thereafter during the Suite 400 Initial Term, Tenant shall pay Tenant’s Percentage Share (Suite 400) of Property Taxes and Operating Expenses in excess of the Property Taxes and Operating Expenses paid or incurred by Landlord during the Suite 400 Base Year (as defined in Section 4.01 (A)(iv) of this Lease).


	(E) All references in this Lease to “Tenant’s Percentage Share” shall mean either Tenant’s Percentage Share (Suite 600), Tenant’s percentage Share (Suite 700), Tenant’s Percentage Share (Suite 685) or Tenant’s Percentage Share (Suite 400) as determined during the applicable period set forth above.


	(F) Landlord may redetermine Tenant’s Percentage Share from time to time to reflect reconfigurations, additions or modifications to the Building.


	2.3 Acceptance of Premises. Section 2.02(B) of the Lease is hereby deleted and replaced with the following new Section 2.02 (B):

(B) Except as is expressly set forth in this Section 2.02, the Work Letter Agreement attached hereto as Exhibit “B,” the Suite 400 Work Letter attached hereto as Exhibit “B-1,” the Suite Acceptance Letter attached hereto as Exhibit “D,” the Suite 685 Acceptance Letter attached hereto as Exhibit “D-l” and the Suite 400 Acceptance Letter attached hereto as Exhibit “D-2” Tenant agrees to accept the Premises and the Building in their respective “as is” physical condition without any agreements, representations, understandings or obligations on the part of Landlord to perform any alterations, repairs or improvements (or to provide any allowance for same) except for Landlord’s obligations pursuant to Section 8.1 and Article 11 of this Lease.


	2.4 Option to Extend Suite 400 Initial Term.New Sections 3.03 and 3.04 are hereby added to the Lease:

3.03 Qption to Extend Suite 400 Term. With regard to Suite 400 only, Tenant is hereby granted the one-time right and option to extend the Suite 400 Initial Term (“Option to Extend Suite 400 Term”) on a month-to-month basis from and after the Suite 400 Expiration Date through and including April 30, 2004 (“Suite 400 Extension Period”). The terms and conditions applicable to the Suite 400 Extension Period shall be the same terms and conditions in effect under the Lease immediately prior to the Suite 400 Extension Period. In order to timely exercise the Option to Extend Suite 400 Term, Tenant must deliver

unequivocal and unconditional written notice thereof to Landlord at least one hundred eighty (180) calendar days prior to the Suite 400 Expiration Date. However, any attempt by Tenant to exercise the Option To Extend Suite 400 Term shall, at Landlord’s election, be null and void if Tenant is in default under the Lease (which default remains uncured following expiration of any applicable notice and cure period) as of the date of attempted exercise or at any time thereafter and prior to commencement of the Suite 400 Extension Period.

3.04 Right to Terminate Suite 400 Extension Period. Each party is hereby granted the one-time right and option to terminate the Suite 400 Extension Period (“Early Termination Option”). In order to timely exercise the Early Termination Option, Landlord or Tenant must deliver unequivocal and unconditional written notice thereof to the other party at any time after the first day of the Suite 400 Extension Period. The Suite 400 Extension Period will terminate ninety (90) days following receipt by the other party of such written termination notice.


	(iv) Suite 400. For Suite 400, the phrase “Suite 400 Base Year” shall mean calendar year 2003.


	2.5.2 The last paragraph of Section 4.01(A) is hereby deleted and replaced with the following:


	All references in this Lease to “Base Year” shall mean either the Suite 600 Base Year, the Suite 700 Base Year, the Suite 685 Base Year or the Suite 400 Base Year, as the context dictates.

(E) Suite 400. Starting on January 1, 2004 and ending on April 30,2004 (or, if applicable, on the last day of the Suite 400 Extension Period), the Monthly Base Rent for Suite 400 payable by Tenant to Landlord, as adjusted pursuant to Section 1.07 above, shall be increased by (a) Tenant’s Percentage Share (Suite 400) of the total dollar increase, if any, in Property Taxes for such year over Property Taxes for the Suite 400 Base Year; and (b) Tenant’s Percentage Share (Suite 400) of the total dollar increase, if any, in Operating Expenses paid or incurred by Landlord during such year over Operating Expenses paid or incurred by Landlord during the Suite 400 Base Year. A decrease in Property Taxes or Operating Expenses below the Suite 400 Base Year amounts shall not


	decrease the amount of the Monthly Base Rent due hereunder or give rise to a credit in favor of Tenant.

(B) Suite 400 Parking. During the Suite 400 Initial Term, as may be extended, and so long as Tenant has not committed an event of default under this Lease which remains uncured following expiration of all applicable cure periods, Landlord shall lease to Tenant and Tenant shall have the right to lease from Landlord up to a total of fifty (50) unreserved parking spaces, and five (5) reserved parking spaces (“Suite 400 Parking”). The Suite 400 Parking shall be in addition to the parking spaces allocated to Tenant under Section 27.01(A) of this Lease and shall be subject to the same parking charges, terms and conditions as set forth in Section 27.01(A).


	2.8 Exhibits. The following sentence is hereby added to the end of Section 28.15:


	Exhibit “A-2” (Floor Plan), which shall replace Exhibit “A-1”, Exhibit “B-1” (Suite 400 Work Letter) and Exhibit “D-2” (Suite 400 Acceptance Letter) are incorporated into this Lease by reference and made a part hereof.


	2.9 Tenant Improvement Work. Landlord agrees to cause the completion of certain improvements to Suite 400 as set forth in the Suite 400 Work Letter attached hereto and incorporated herein as Exhibit “B-1”.

3. Representations. Each party represents to the other that it has full power and authority to execute this Amendment No.2. Each party represents to the other that it has not made any assignment, sublease, transfer, conveyance or other disposition of the Lease or any interest in the Lease or the Leased Premises, and has no knowledge of any existing or threatened claim, demand, obligation, liability, action or cause of action arising from or in any manner connected with the Lease or the Premises by any other party.

4. Not Binding Until Signed By Both Parties. This Amendment No.2 shall not be binding until executed and delivered by both parties. This Amendment No.2 shall not be relied upon by any other party, individual, corporation, partnership or other entity as a basis for terminating its lease with Landlord.

5. Miscellaneous. Warranties, representations. agreements, and obligations contained in this Amendment No.2 shall survive the execution and delivery of this Amendment No.2 and shall survive any and all performances in accordance with this Amendment No.2. This Amendment No.2 may be executed in any number of counterparts which together shall constitute the Amendment No.2. If any party obtains a judgment against any other party by reason of breach of this Amendment No.2. reasonable attorneys’ fees as fixed by the court shall

be included in such judgment. This Amendment No. 2 and the terms and provisions hereof shall inure to the benefit of and be binding upon the heirs, successors and assigns of the parties. This Amendment No.2 shall be construed and enforced in accordance with the laws of the State of California.

IN WITNESS WHEREOF, the Landlord and Tenant have duly executed this Amendment No. 2 as of the date set forth below, in Walnut Creek, California. Notwithstanding the actual date of execution, this Amendment No. 2 shall for all purposes be deemed effective as of the Effective Date first above written.

This Suite 400 Work Letter (“Suite 400 Work Letter”) is executed simultaneously with that certain Office Lease (the “Lease”) is deemed dated January 7, 2003 between ELECTRONIC ARTS, INC., a Delaware corporation, as “Tenant,” and CALIFORNIA PLAZA AT WALNUT CREEK, INC., a Florida not-for-profit corporation as “Landlord,” relating to Suite 400 (“Suite 400”) in the building (“Building”) located at 2121 North California Bou1evard, Walnut Creek, California 94956 and commonly known as CALIFORNIA PLAZA, which Premises are more fully identified in the Lease. Capitalized terms used herein, unless otherwise defined in this Suite 400 Work Letter, shall have the respective meanings ascribed to them in the Lease.

For and in consideration of the agreement to lease the Premises and the mutual covenants contained herein and in the Lease, Landlord and Tenant hereby agree as follows:

1. The Work. Landlord agrees to cause the removal of the internal stairwell and the wall shown on the attached drawing attached hereto as Schedule “1, and (b) performance of attendant repair work including “touch-up” painting. (“Landlord’s Work.”) Tenant shall cause steam-clean of the carpeting in Suite 400 and installation of electrical circuits for computer workstations in Suite 400 (“Tenant’s Work”). Landlord’s Work and Tenant’s Work shall together be referred to as the “Work.”

(a) Except as hereinafter provided to the contrary, the Work shall be performed with good faith, reasonable diligence, using building standard materials, quantities and procedures then in use by Landlord (“Building Standard ”).

(b) Landlord shall pay, at its sole cost, for (i) the demolition and repair of the internal stairwell and (ii) the touch-up painting. Landlord shall pay for a portion of the cost of the remaining Work in an amount not to exceed Twelve Thousand Three Hundred Fifty and No/00 dollars ($12,350.00) (the” Allowance”), and Tenant shall pay for the entire cost of the Work in excess of the Allowance. For purposes of this Agreement, the term “Cost of the Work” shall mean and include any and all costs and expenses of the Work, including, without limitation, the cost of any construction drawings and of all labor (including overtime) and materials constituting the Work; and a charge payab1e to Landlord in the amount of five percent (5%) of the total Allowance as compensation to Landlord’s for monitoring the Work and for administration, overhead and field supervision of the Work.

3. Exculpation of Landlord. Notwithstanding anything to the contrary contained in this Suite 400 Work Letter, it is expressly understood and agreed by and between the parties hereto that:

(a) The recourse of Tenant or its successors or assigns against Landlord with respect to the alleged breach by or on the part of Landlord of any representation, warranty, covenant, undertaking or agreement contained in this Suite 400 Work Letter (collectively, “Landlord’s Work Letter Undertakings”) shall extend only to Landlord’s interest in the Building and real estate of which Suite 400 are a part (hereinafter, “Landlord’s Real Estate”) and not to any other assets of Landlord or its officers, directors or shareholders; and

(b) Except to the extent of Landlord’s interest in Landlord’s Real Estate, no personal liability or personal responsibility of any sort with respect to any of Landlord’s Work Letter Undertakings or any alleged breach thereof is assumed by, or shall at any time be asserted or enforceable against, Landlord, its property manager, its asset manager, its leasing broker, or against any of their respective directors, officers, employees, agents, constituent partners, beneficiaries, trustees or representatives.

4. Tenant Access. Landlord, in Landlord’s reasonable discretion and upon request by Tenant, may grant to Tenant a license to have access to Suite 400 prior to the Suite 400 Commencement Date designed in the Lease to allow Tenant to do Tenant’s Work and other work required by Tenant to make Suite 400 ready for Tenant’s use and occupancy (the “Tenant’s Pre-Occupancy Work”). It shall be a condition to the grant by Landlord and continued effectiveness of such license that:

(a) Tenant shall give to Landlord a written request to have such access to Suite 400 on the date of full execution of this Amendment No. 2 which written request shall contain or shall be accompanied by each of the following items, all in form and substance reasonably acceptable to Landlord: (i) a detailed description of and schedule for Tenant’s Pre-Occupancy Work; (ii) the names and addresses of all contractors, subcontractors and material suppliers and all other representatives of Tenant who or which will be entering Suite 400 on behalf of Tenant to perform Tenant’s Pre-Occupancy Work or will be supplying materials for such work, and the approximate number of individuals, itemized by trade, who will be present in Suite 400; (iii) copies of all contracts and subcontracts pertaining to Tenant’s Pre-Occupancy Work; (iv) copies of all plans and specifications pertaining to Tenant’s Pre-Occupancy Work; (v) copies of all licenses and permits required in connection with the performance of Tenant’s Pre-Occupancy Work; and (vi) certificates of insurance (in amounts satisfactory to Landlord and with the parties identified in, or required by, the Lease named as additional insureds) and instruments of indemnification against all claims, costs, expenses, damages and liabilities which may arise in connection with Tenant’s Pre-Occupancy Work.

(b) Such pre-Term access by Tenant and its representatives shall be subject to scheduling by Landlord.

(c) Tenant’s employees, agents, contractors, workmen, mechanics, suppliers and invitees shall work in harmony and not interfere with Landlord or Landlord’s agents in performing the Work and any Additional Work in Suite 400, Landlord’s work in other premises and in common areas of the Building, or the general operation of the Building. If at any time any

such person representing Tenant shall cause or threaten to cause such disharmony or interference, including labor disharmony, and Tenant fails to immediately institute and maintain such corrective actions as directed by Landlord, then Landlord may withdraw such license upon twenty-four (24) hours’ prior written notice to Tenant.

(d) Any such entry into and occupancy of Suite 400 by Tenant or any person or entity working for or on behalf of Tenant shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Lease, specifically including the provisions of Article 9 thereof and excluding only the covenant to pay Rent. Landlord shall not be liable for any injury) loss or damage which may occur to any of Tenant’s Pre-Occupancy Work made in or about Suite 400 or to property placed therein prior to the commencement of the term of the Lease, the same being at Tenant’s sole risk and liability. Tenant shall be liable to Landlord for any damage to Suite 400 or to any portion of the Work or Additional Work caused by Tenant or any of Tenant’s employees, agents, contractors, workmen or suppliers. In the event that the performance of Tenant’s Pre-Occupancy Work causes extra costs to Landlord or requires the use of elevators during hours other than 7:00 a.m. to 6:00 p.m. on Monday through Friday (excluding holidays) or of any other Building services, Tenant shall reimburse Landlord for such extra cost and/or shall pay Landlord for such elevator service or other Building services at Landlord’s standard rates then in effect.

5. Lease Provisions. The terms and provisions of the Lease, insofar as they are applicable to this Suite 400 Work Letter, are hereby incorporated herein by reference. All amounts payable by Tenant to Landlord hereunder shall be deemed to be Additional Rent under the Lease and, upon any default in the payment of same, Landlord shall have all of the rights and remedies provided for in the Lease.

(a) This Suite 400 Work Letter shall be governed by the laws of the State of California.

(b) This Suite 400 Work Letter may not be amended except by a written instrument signed by the party or parties to be bound thereby.

(c) Any person signing this Suite 400 Work Letter on behalf of Tenant warrants and represents he/she has authority to sign and deliver this Suite 400 Work Letter and bind Tenant.

(d) Notices under this Suite 400 Work Letter shall be given in the same manner as under the Lease.

(f) This Suite 400 Work Letter sets forth the entire agreement of Tenant and Landlord regarding the Work.

IN WITNESS WHEREOF, this Suite 400 Work Letter Agreement is deemed executed as of the 7th day of January, 2003 in Walnut Creek, California.

As a representative of the referenced Tenant, I/we certify that: Tenant has physically inspected Suite 400 and its improvements with ___________, a representative of the Landlord. Except as set forth below, I/we accept the improvements constructed and installed in Suite 400 in their “’as is” condition and verifies that the same comply with all the requirements indicated in the Lease. I/we also verify that the following information is true, accurate and may be relied on by Landlord:

In consideration of the performance by the Tenant of its obligations under this Lease, the Landlord leases the Premises to the Tenant for the Term and grants to the Tenant the Access Easement throughout the Term. The Premises will be located on the 17th, 18th , 19th and 20th floors of the Building and are shown cross-hatched in red on the floor plan attached as Schedule “B”. The Rentable Area of the Premises is approximately Fifty-One Thousand, Eight Hundred and Seventy-Eight (51,878) square feet. “Access Easement” means an easement in favour of the Tenant, its employees and invitees over those portions of the Complex necessary to enable the Tenant, its employees and invitees to gain access to the Premises and the Parking Facilities on a twenty-four (24) hour basis, seven (7) days a week (subject to compliance with the Landlord’s reasonable security requirements and except in the event of emergencies) which shall include those portions as designated by the Landlord from time to time, as available for common access and egress of occupants of the Building such as driveways, walkways, hallways, elevators and exits and entrances.

The Term of this Lease is ten (10) years from the Commencement Date to and including the date being ten (10) years thereafter (the “Expiry Date”).

On the Possession Date the Tenant shall actively commence and thereafter diligently conduct and complete the Tenant’s Work within the Fixturing Period. The Tenant shall not be entitled to exclusive occupation of the Premises until the Landlord’s Work is completed. Subject to the foregoing, the Tenant shall be allowed to occupy and commence business in the Premises during the Fixturing Period provided that the Landlord and the Tenant are in receipt of all required permits as contemplated herein for its Leasehold Improvements, Trade Fixtures and its occupancy. The Tenant shall be subject to and shall comply with all the terms and conditions of this Lease during the Fixturing Period except that no Basic Rent or Additional Rent shall be payable by the Tenant prior to the Commencement Date. Without limiting the generality of the foregoing, the Tenant shall, subject to the payment of the Allowance, promptly upon being invoiced therefor, pay for all costs necessary to complete the Tenant’s Work.

The Landlord shall provide, at its cost, the following base building work described in Appendix “1” attached hereto (the “Base Building Standards”) prior to the Possession Date.

At the option of the Tenant, the Tenant shall be entitled either before or after the Possession Date, at the Tenant’s sole cost and expense, remove the suspended ceiling, insulation from HVAC ducts and lighting system within the Premises, as directed by the Tenant, to all applicable building code requirements, including redirecting the sprinkler heads if required. Any material so removed shall be the property of the Tenant to dispose with as it sees fit.

The Tenant shall be responsible for the installation and maintenance of its telephones, computers and special communications equipment.

The Tenant shall complete the Tenant’s Work in strict accordance with the plans and specifications for such work prepared by architects and engineers previously approved in writing by the Landlord. All Tenant’s Work shall be done in a good and workmanlike manner. The Tenant’s Work shall not be commenced until the requirements hereof have first been met and the Landlord’s written approval as required herein has been obtained. All of the provisions of Section 5.05 will be applicable to the initial Tenant’s Work. In addition to the foregoing: (a) the Tenant will be permitted to install one or more internal stairwells in the Premises, at the Tenant’s cost. Stairwells can be located in most areas of the floor plate, provided the opening in the floor plate is between beams. Final locations are also subject to the prior written approval of the Landlord. Subject to the limitations of the municipal fire building and fire codes and the prior written approval of the Landlord, the Tenant shall have the right to improve the common building stairwells which may include new paint, flooring and lights; and (b) subject to all applicable municipal fire and building codes, the Tenant shall have the right, at its sole cost and expense, to install skylights on the 20th floor ceiling. The exact number and locations will be mutually agreed upon between the Tenant and the Landlord. In connection with all of the foregoing, the Landlord will not unreasonably withhold or delay any of the required approvals.

The Landlord will contribute up to $0.10 (plus goods and services taxes) per square foot of Rentable Area of the Premises toward the cost of the Tenant’s space plan of the Premises and in this regard, the Landlord shall reimburse the Tenant for such amount forthwith upon obtaining satisfactory written evidence from the Tenant of the costs incurred in connection with the space plan.

The Tenant shall be responsible for the preparation of all space plan services with respect to any improvements to the Premises over and above the Landlord’s Work. The Tenant shall also submit to the Landlord working drawings of the proposed Tenant’s Leasehold Improvements, which drawings must be approved by the Landlord prior to the commencement of any such work, such approval not to be unreasonably delayed or withheld. For greater certainty, the Landlord shall respond to a Tenant’s request for approval as soon as reasonably possible and in any event within 5 Business Days.

It is the Tenant’s responsibility to secure all the necessary building permits and approvals required by the City of Vancouver for any Leasehold Improvements and/or Trade Fixtures. Such permits must be secured before any such work shall commence on the Premises. The Tenant shall also be responsible for making application for a certificate of occupancy as required by the City of Vancouver as it applies to the Premises and its Leasehold Improvements. The Landlord confirms that it has secured or will secure all necessary permits and approvals required to construct the Base Building Standards prior to completion of the same at its sole cost and expense.

The provisions (if any) of the Lease Proposal relating to construction of the Premises and delay in availability of the Premises for occupancy by the Tenant shall remain in effect and shall not merge upon the execution of this Lease. The Tenant shall abide by the provisions of this Lease and the tenant leasehold improvement manual supplied by the Landlord for any construction it proposes to do prior to or upon occupancy of the Premises, and any renovations to the Premises after it takes occupancy. The Tenant agrees to accept the Premises in their current “as is” condition, subject to any Landlord’s Work expressly set out in this Lease.

Provided the Tenant is Electronic Arts (Canada), Inc., or any Permitted Transferee, and is not in default under the terms of the Lease, the Landlord will pay the Tenant a leasehold improvement allowance of $57.00 per square foot of the Rentable Area of the Premises, plus all applicable goods and services taxes (the “Allowance”). Ninety percent (90%) of the Allowance will be paid to the approved contractor in instalments as agreed between the Landlord, the Tenant and the approved contractor, on submission of the contractor’s invoices duly certified as correct by the Tenant’s architect and that the specified work has been carried out.

The remaining ten percent (10%) of the Allowance will be paid forthwith after the expiry of the forty-five (45) day lien period, provided no liens have been registered in respect of the Tenant’s leasehold improvements. The Tenant acknowledges that the Allowance is to be applied towards the cost of construction of the Tenant’s leasehold improvements, including wiring. To the extent that the Allowance exceeds the cost of construction, such extra amount will be applied by the Landlord to the Net Rent and Operating Costs as the same become due and payable by the Tenant under this Lease. The Tenant agrees to provide invoices documenting the cost of construction.

The Landlord will complete the Landlord’s Work in a good and workmanlike manner. The Landlord will use its reasonable commercial efforts to enforce all construction warranties and guarantees in respect of the Landlord’s Work.

The Premises shall be used only for general office uses and the development of inter-active entertainment software and for no other purpose. The Tenant shall conduct its business in the Premises in a reputable and first class manner. The Tenant acknowledges and agrees that it is only one of many tenants in the Complex and that it shall conduct its business in the Premises in a manner consistent with the best interests of the Building and the Complex. If the Tenant is a corporation, the Tenant will be either incorporated or extra-provincially registered in the Province and will remain in good standing during the Term with the Registrar of Companies for the Province with respect to filing annual reports. If the Tenant is a partnership it will be formed or extra-provincially registered in the Province and will remain in good standing therein.

(a)		Except as otherwise expressly provided in this Lease, the Tenant shall pay Rent from the Commencement Date without prior demand and without any deduction, abatement, setoff or compensation. If the Commencement Date is not on the first day of a calendar month, or the period of time from the Commencement Date to the end of the first Fiscal Year during the Term, is less than 12 calendar months, or the period of time from the last Fiscal Year end during the Term to the end of the Term is less than 12 calendar months, then Rent for such month and such periods shall be pro-rated on a per diem basis, based upon a period of 365 days.

(b)		All Rent payable hereunder shall be paid by the Tenant to the Landlord, without prior demand therefor, at its address set out in Section 12.10 or at such other place as the Landlord may designate in writing from time to time.

Except as otherwise expressly provided for in this Lease, the Tenant shall pay Net Rent in the sum per annum, payable in equal consecutive monthly installments in advance on the first day of each calendar month of the Term as follows:

As soon as reasonably possible after completion of construction of the Premises, the Landlord shall measure the Rentable Area of the Premises and shall calculate the Rentable Area of the Premises and Rent shall be adjusted accordingly.

The Tenant shall pay to the Landlord the Tenant’s Proportionate Share of Operating Costs.

(a)

The Tenant shall pay when due all Tenant’s Taxes If the Tenant’s Taxes is payable by the Landlord only to a relevant taxing authority, the Tenant shall pay the amount thereof to the Landlord or as it directs. If no separate tax bills for Tenant’s Taxes are issued with respect to the Tenant or the Premises, the Landlord may allocate Tenant’s Taxes charged, assessed or levied against the Building or the Lands to the Tenant on the basis of the Tenant’s Proportionate Share. If Tenant’s Taxes are eliminated by the Province or the city in which the Building is located, and Taxes are increased the Tenant will pay an equitable share of Taxes attributable to the Premises to the extent that Taxes attributable to the Premises are increased as a consequence of the elimination of Tenant’s Taxes. The Tenant shall indemnify and keep indemnified the Landlord from and against payment for all losses, costs, charges and expenses occasioned by or arising from any and all Tenant’s Taxes, and any such losses, costs, charges and expenses suffered by the Landlord may be collected by the Landlord as Rent with all rights of distress and otherwise as reserved to the Landlord in respect of Rent in arrears. The Tenant further covenants and agrees that upon request of the Landlord, the Tenant shall promptly deliver to the Landlord for inspection, receipts for payment of all Tenant’s Taxes which were due and payable up to 1 month

		prior to the request, and in any event will furnish to the Landlord if requested by the Landlord any evidence of payment satisfactory to the Landlord by a date being no later than thirty (30) days after the same have become payable in each year covering payments for the preceding year.

(b)		The Landlord shall have the right from time to time to reasonably allocate and re-allocate Taxes among the Building and other various components of the Complex (unless such portion of the Complex does not pertain to the Building, the Lands or any portion of the Parking Facilities). It is understood and agreed that Taxes may include an allocation to and within the Building of property taxes and any other amounts referred to above which are levied, rated, charged or assessed against or upon the Complex generally or those portions which the Landlord determines are not exclusive to the Building but which serve or benefit the Building and the tenants thereof together with any other component or components of the Complex and the tenants or invitees thereof.

(c)		Subject to Section 2.05 hereof, the Tenant shall promptly pay to the Landlord or the relevant taxing authority, as the Landlord may direct, not later than the due date thereof, its Proportionate Share of the Taxes allocated to the Total Rentable Area of the Building by the Landlord.

(d)		If the Landlord obtains a written statement from the assessment or taxing authorities indicating that as a result of any construction or installation of improvements in the Premises, or any act or election of the Tenant, the estimated monthly Taxes payable by the Tenant under Section 2.05(a) do not accurately reflect the Tenant’s proper share of Taxes for the calendar year, the Landlord may require the Tenant to pay such greater or lesser monthly amount as is determined by the Landlord, acting reasonably.

(e)		The Landlord may: contest any Taxes and appeal any assessments with respect thereto; withdraw any such contest or appeal; and agree with the taxing authorities on any settlement or compromise with respect to Taxes. The Tenant will co-operate with the Landlord in respect of any such contest or appeal and will provide the Landlord with all relevant information, documents and consents required by the Landlord in connection with any such contest or appeal. The Tenant will not contest any Taxes or appeal any assessments related thereto without the Landlord’s prior written consent, which consent will not be unreasonably withheld or delayed.

(f)		The Tenant shall promptly deliver to the Landlord on request, copies of assessment notices, tax bills and other documents received by the Tenant relating to Taxes and Tenant’s Taxes and receipts for payment of Taxes and Tenant’s Taxes payable by the Tenant.

(g)		Notwithstanding any other provisions of this Lease to the contrary, the Tenant shall pay, without duplication, to the Landlord or to the appropriate taxing authority if required by the Landlord, as and when required by law, all Other Taxes not required to be paid by the Tenant directly to the taxing authority (except to the extent that the Landlord is entitled to a rebate or credit with respect thereto), it being the intention of the parties that the Landlord shall, without duplication, be fully reimbursed by the Tenant for any and all Other Taxes. The amount of Other Taxes so payable by the Tenant shall be calculated by the Landlord on the basis that the Building is the only property of the Landlord and that the only credits, set offs, exemptions or deductions available to the Landlord are those to which the Landlord is entitled to by virtue of the purchase of goods and services for the Building (but not by virtue of the purchase of the Building itself). The amounts payable by the Tenant hereunder as Other Taxes, shall be deemed not to be Rent, but the Landlord shall have all the same remedies for and rights of recovery of such amounts as it has for recovery of Rent.

(a)

The amount of Taxes and Operating Costs may be reasonably estimated by the Landlord for such period as the Landlord reasonably determines from time to time, and the Tenant agrees to pay to the Landlord the amounts so estimated in equal instalments, in advance, on the first day of each month during such period, provided that in respect of the Taxes such period shall be a calendar year and the amount of Taxes so estimated shall be payable in twelve (12) equal monthly instalments in advance. Notwithstanding the foregoing, when bills for all or any portion of the amounts of Operating Costs so estimated are received, the Landlord may bill the Tenant for the Tenant’s Proportionate Share thereof after crediting against such amounts any monthly payments of estimated Taxes and Operating Costs previously made by the Tenant and the Tenant shall pay the Landlord the amounts so billed.

(b)

Within a reasonable time (not to exceed 180 days) after the end of the Fiscal Year for which such estimated payments have been made, the Landlord shall submit to the Tenant a statement showing the calculation of the Tenant’s share of Taxes and Operating Costs together with a report from the Landlord’s auditor as to the total amount of Operating Costs. If:

	(i)		the amount the Tenant has paid is less than the amounts due, the Tenant shall pay such deficiency to the Landlord; or

	(ii)		the amount paid by the Tenant is greater than the amounts due, the Landlord shall pay such excess to the Tenant.

The obligations contained in this Section 2.05(b) shall survive for a period of three (3) years (with respect to Operating Costs) and six (6) years (with respect to Taxes) after the expiration or earlier termination of the Term. Failure of the Landlord to render any statement of Taxes or Operating Costs shall not prejudice the Landlord’s right to render such statement thereafter or with respect to any other period. The rendering of any such statement shall also not affect the Landlord’s right to subsequently render an amended or corrected statement.

(c)		If the time or method of collection of Taxes by the municipal, provincial, parliamentary, or other authority shall become different from the time or method of collection of Taxes which exists at the date of the execution of this Lease, the Landlord shall have the right to change the time or method of the collection of the Tenant’s Proportionate Share of Taxes such that the Tenant’s Proportionate Share of Taxes for the calendar year shall be fully paid to the Landlord by such time or times as the Taxes are due and owing to the municipal, provincial, parliamentary or other authority.

(d)		Whenever any part or parts of the Operating Costs and/or Taxes are, in the reasonable opinion of the Landlord, attributable to certain premises or classes of premises in the Building, the Landlord may attribute such part or parts thereof to such premises or classes of premises respectively (the “Designated Premises”). If and whenever the Premises constitute all or a part of the Designated Premises with respect to any such part or parts of the Operating Costs and/or Taxes, the Tenant’s share (the “Share”) thereof shall be a fraction thereof, the numerator of which is the Rentable Area of the Premises or the part thereof within the Designated Premises and the denominator of which is the Rentable Area of the Designated Premises.

(e)		The Landlord may at any time and from time to time change the commencement and termination dates of any Fiscal Year, so long as the Tenant is not unduly prejudiced by any such change.

(f)		The Tenant’s Proportionate Share of the Operating Costs (but not Taxes) shall be capped at a maximum of $5.89 per square foot for 2003 Fiscal Year, and in 2004 Fiscal Year and 2005 Fiscal Year, any increase on account of such Tenant’s Proportionate Share of the Operating Costs (but not Taxes) shall be limited to a maximum of three (3%) percent cumulative compound increase from the previous year.

(g)		The Tenant shall have the right, at its option and at its own expense throughout the Term, to review and/or audit the Landlord’s year-end Taxes and Operating Cost statements, provided that the Tenant’s audit right in respect of any fiscal period must be exercised within six (6) months after receipt by the Tenant of the Landlord’s statement of Additional Rent for such fiscal period, the Tenant and its representatives must keep all information obtained strictly confidential unless required for court or arbitration purposes, and the Tenant must give the Landlord at least thirty (30) days’ written notice of its intention to conduct a review or audit. In the event of a dispute as to the amount of the Tenant’s Proportionate Share of Operating Costs or Taxes payable (which the Tenant shall inform the Landlord of in writing within twelve (12) months after the statement to which such Operating Costs and Taxes relate has been submitted), a report by the auditor of the Landlord shall be provided by the Landlord to the Tenant. If the Tenant fails to object to such report within thirty (30) days after the receipt thereof it will be deemed to have approved the report. If the Tenant objects to such report within thirty (30) days after the receipt thereof, the dispute shall be determined by a single arbitrator pursuant to the Commercial Arbitration Act of British Columbia.

Except as otherwise provided in this Lease, all Additional Rent shall be payable by the Tenant to the Landlord within 5 Business Days after written demand.

All Rent past due shall bear interest from the date on which the same became due until the date of payment at 3% per annum in excess of the prime interest rate for commercial demand loans announced from time to time by any Canadian chartered bank designated by the Landlord. Such interest shall be calculated on a daily basis and compounded monthly from the time such amounts first become due and payable until such amounts and all interest thereon are paid in full by the Tenant to the Landlord.

(a)		The Tenant shall pay to the Landlord, or as the Landlord directs, all gas, electricity, water, steam and other utility charges applicable to the Premises on the basis of the Rentable Area of the Premises unless separately metered as contemplated in Section 2.08(c) below in which event such utility charges shall be based on the Tenant’s actual consumption. Charges for utilities shall be payable in advance on the first day of each month at a basic rate determined by the Landlord’s engineers. The Landlord, acting reasonably, shall be entitled to allocate to the Premises an additional charge, as determined by the Landlord’s engineer, for any supply of utilities to the Premises in excess of those covered by such basic charge. If any utility rates or related taxes or charges are increased or decreased during the Term, such charges shall be equitably adjusted by the Landlord, acting reasonably.

(b)		The Landlord shall have the exclusive right to replace bulbs, tubes and ballasts in the lighting system in the Premises, on either an individual or a group basis. The Tenant shall pay the cost of such replacement on the first day of each month or at the option of the Landlord upon demand.

The exact Rentable Area of the Premises shall be subject to verification in writing by the Architect, at the Tenant’s expense, in accordance with the BOMA American National Standard ANSI Z65.1-1980 (Reaffirmed 1989) method of floor measurement for office buildings in Canada. The actual Rentable Area shall be adjusted to reflect the final area of the Premises as measured and all Rent shall be adjusted accordingly.

The Landlord may from time to time re-measure the Rentable Area of the Premises or re-calculate the Rentable Area of the Premises and may re-adjust the Net Rent and/or the Tenant’s Proportionate Share of Additional Rent accordingly. The effective date of any such re-adjustment shall:

(a)		in the case of an adjustment to the Rentable Area resulting from a change in the aggregate Rentable Area of all office premises on the floor on which the Premises are situated, the date on which such change occurred; and,

(b)		in the case of a correction to any measurement or calculation error, be the date as of which such error was introduced in the calculation of Rent.

Any necessary adjusting payment will be made by the party responsible for that payment forthwith upon the amount of the adjusting payment being determined.

This Lease is a completely net lease to the Landlord, except as expressly herein set out. The Landlord is not responsible for any expenses or outlays of any nature arising from or relating to the Premises, or the use or occupancy thereof, or the contents thereof or the business carried on therein, except as expressly herein set out. The Tenant shall pay all charges, impositions and outlays of every nature and kind relating to the Premises, except as expressly herein set out.

(a)		The Landlord shall provide climate control to the Premises during Normal Business Hours to maintain a temperature adequate for normal occupancy for office purposes and subject to the generation of an average amount of heat from illumination and business machines, except during the making of repairs, alterations or improvements, provided that the Landlord shall have no liability for failure to supply climate control service when stopped as aforesaid or when prevented from doing so by repairs, or causes beyond the Landlord’s reasonable control.

(b)		Upon prior notice from the Tenant (which, for greater certainty, may be same day notice), the Landlord shall operate the climate systems beyond the Normal Business Hours subject to the Tenant paying the incremental charge therefor at market rates as an additional service at the prevailing market hourly rate, which may be adjusted by the Landlord from time-to-time, provided, however, and notwithstanding the foregoing, the Landlord’s standard hourly rate shall be deemed to be in first Lease Year $10.50/hr per floor if applicable to the HVAC system being operated with respect to one floor only, and which amount shall decrease by $1.00 per hour for each additional floor of the Premises with respect to which such after hours HVAC is then being operated, and each year thereafter shall be increased by a maximum amount equal to the percentage increase in the CPI for such year. The Landlord shall provide to the Tenant throughout the Term (at the Tenant’s expense) with access to additional 24 hours auxiliary cooling capacity in accordance with the needs of the Tenant’s business provided the same may be satisfied by the capacity described in the Base Building Standards.

(c)		Subject to the Rules and Regulations, the Landlord shall provide elevator service, including freight elevator service, during Normal Business Hours for use by the Tenant in common with others, except when prevented by repairs. The Landlord will operate at least one passenger elevator for use by tenants at all times except in the case of fire or other emergencies.

(d)		The Landlord will provide cleaning services in the Building consistent with the standards of a first class office building (excluding interior glass areas and areas used exclusively for computer equipment) provided that the Tenant at the end of each business day shall provide access to the persons performing the janitor services and leave the Premises in a reasonably clean and tidy condition. The Tenant hereby agrees that the Landlord shall have no responsibility or liability whatsoever for any act or omission on the part of the person, persons, or corporation employed to perform the cleaning services, save and except in the case of the negligence of the Landlord.

(e)		Subject to Section 2.08, the Landlord shall make available to the Premises electricity for normal lighting and miscellaneous power requirements and, in normal quantities gas, water, and other public utilities generally made available to other tenants of the Building by the Landlord.

(f)		The Tenant shall not install any equipment or systems that will exceed, or overload the capacity or interfere with the normal operation of the heating, ventilating or air-conditioning or any other service or facility in the Building and agrees that if any equipment or systems installed by the Tenant requires additional heating, ventilating or air-conditioning equipment or any other service or facility, as determined by the Landlord acting reasonably, the same shall be installed at the Tenant’s expense. If installation of any equipment, fixture or system or the removal of any ceiling on or at the Premises by the Tenant necessitates rebalancing or readjustment of the heating, ventilating and air-conditioning system by the Landlord, the same will be performed by the Landlord at the Tenant’s sole expense. The Tenant shall not, without the Landlord’s prior written consent in each instance, which consent shall not be unreasonably withheld or delayed, connect any equipment, fixtures, systems or appliances (other than normal office electrical fixtures, computers, typewriters,

word processors, small office machines and lamps) to the Building’s electric distribution system or make any alteration or addition to the electric system of the Premises.

(a)		alter, add to, subtract from, construct improvements to, rearrange, on and construct additional facilities adjoining or near the Building and the Complex;

(b)		relocate the facilities and improvements comprising the Building (other than the Premises) or erected on the Lands,;

(c)		do such things on, or in the Lands or Complex as required to comply with any laws, by-laws, regulations, orders or directives affecting the Lands or any part of the Complex; and

(d)		do such other things on or in the Lands or Complex as the Landlord, acting reasonably and in the use of good business judgment determines to be advisable;

provided that notwithstanding anything contained in this Section, access to the Premises shall at all times be available from the elevator lobbies of the Building.

For greater certainty, the Landlord shall use its reasonable commercial efforts to exercise its rights under this section, to the extent possible in the circumstances, in such manner so as to minimize interference with the Tenant’s use and enjoyment of the Premises.

The Landlord shall, subject to the foregoing, not be in breach of its covenant for quiet enjoyment or liable for any loss, costs or damages, whether direct or indirect, incurred by the Tenant due to any of the foregoing, save and except in the case of negligence or wilful misconduct by the Landlord, and in no circumstances shall there be an abatement or reduction of Rent.

The Landlord acknowledges that security in respect of the Premises is a significant issue for the Tenant. In this regard, the Landlord agrees that the Tenant may at its option, hire its own cleaning and janitorial staff for the Premises. In such event, the Landlord covenants and agrees to ensure that the cleaning and janitorial staff for the Building will not have access to the Premises. If the Tenant exercises its right to have its own cleaning and janitorial staff, then the Tenant shall not be required to pay its Proportionate Share of the cleaning and janitorial costs incurred by the Landlord in respect of the Premises, and such costs will not be included in the calculation of “Operating Costs” hereunder.

The Landlord agrees that it will during the Term and any extension term co-operate fully with the Tenant in respect of the Tenant’s security issues and concerns both with respect to the Premises and the Building as a whole. In this regard, the Landlord and its employees, agents, servants, contractors and subcontractors shall not under any circumstances (other than in an emergency) enter the Premises without the proper written notice as herein required and, subject to the foregoing, without providing to the Tenant a reasonable opportunity to have a representative of the Tenant accompany the Landlord. The Tenant will provide the Landlord with the name and contact information for its representative prior to taking occupancy of the Premises.

The Landlord shall be entitled at all reasonable times, and after having given the Tenant at least twenty-four (24) hours prior written notice, (and at any time without prior notice in case of emergency but subject to the Landlord notifying the Tenant as soon as reasonably possible after such entry) to enter the Premises to examine them; to make such repairs, alterations or improvements in the Premises or the Building as the Landlord, acting reasonably, considers necessary or desirable, to have access to underfloor ducts and access panels to mechanical shafts; to check, calibrate, adjust and balance controls and other parts of the heating, air conditioning, ventilating and climate control systems; and for any

other purpose necessary to enable the Landlord to perform its obligations or exercise its rights under this Lease or in the administration of the Building or other improvements on the Lands, provided always that in each instance the Landlord shall provide to the Tenant the reasonable opportunity to be accompanied by a representative of the Tenant. The Tenant shall not obstruct any pipes, conduits or mechanical or electrical equipment so as to prevent reasonable access thereto. The Landlord shall use its reasonable commercial efforts to exercise its rights under this Section, to the extent possible in the circumstances, in such manner so as to minimize interference with the Tenant’s use and enjoyment of the Premises.

If the Tenant is not present to open and permit an entry into the Premises at any time when for a proper reason an entry is necessary or permissible, after reasonable notice as herein provided has been given to the Tenant (subject to the right to enter in the case of an emergency without prior notice (but subject to the Landlord notifying the Tenant as soon as reasonably possible after such entry), the Landlord or its agents may enter by a master key or card, or may forcibly enter, without rendering the Landlord or its agents liable therefor and without affecting this Lease. Nothing in this Section shall be deemed to impose any obligation on the Landlord.

The Landlord and its agents have the right to enter the Premises at all reasonable times and on reasonable written notice during Normal Business Hours to show them to prospective purchasers, or Mortgagees or prospective Mortgagees, and, during the last six months of the Term (or the last six months of any renewal term if this Lease is renewed), to prospective tenants. The Tenant shall be provided the reasonable opportunity to have a representative of the Tenant in attendance during any such showing.

No entry into the Premises or anything done therein by the Landlord pursuant to a right granted by this Lease shall constitute a breach of any covenant for quiet enjoyment, or (except where expressed by the Landlord in writing) shall constitute a re-entry or forfeiture, or an actual or constructive eviction. The Tenant shall have no claim for injury, damages or loss suffered as a result of any such entry or thing, except in the case of negligence or wilful misconduct by the Landlord in the course of such entry, but the Landlord shall in no event be responsible for the acts or negligence of any Persons providing cleaning services in the Building.

(a)

The Landlord covenants to keep the following in good repair as a prudent owner of a first class office building:

	(i)		the structure of the Building including exterior walls and roofs;

	(ii)		the mechanical, electrical and other base building systems; and

	(iii)		the entrance, lobbies, plazas, stairways, corridors, parking areas (including the Parking Facilities) and other facilities (including any other portion of the Complex applicable to the Building) from time to time provided for use in common by the Tenant and other tenants of the Building.

If such maintenance or repairs are required by law due to the business carried on by the Tenant, then the full cost of such maintenance and repairs plus the Overhead Charge shall be paid by the Tenant to the Landlord.

(b)

The Landlord shall not be responsible for any damages caused to the Tenant by reason of failure of any equipment or facilities serving the Building, save and except if such failure is due to the Landlord’s negligence or wilful misconduct and provided the Landlord diligently completes such repairs in a good and workmanlike manner, or delays in the performance of any work for which the Landlord is responsible under this Lease. The Landlord, acting reasonably, shall have the right to stop, interrupt or reduce any services, systems or utilities provided to, or serving the Building or Premises to perform repairs, alterations or maintenance or to comply with laws or regulations, or requirements of its insurers, or for causes beyond the Landlord’s reasonable control or as a result of the Landlord exercising its rights under Section 3.02. The Landlord shall not be in breach of its covenant for quiet enjoyment, provided the Landlord shall use its reasonable commercial efforts

to exercise its rights under this section, to the extent possible in the circumstances, in such manner so as to minimize interference with the Tenant’s use and enjoyment of the premises, or liable for any loss, costs or damages, whether direct or indirect, incurred by the Tenant due to any of the foregoing, save and except in the case of the negligence of or wilful misconduct by the Landlord, and the Landlord shall use its reasonable commercial efforts to restore the services, utilities or systems so stopped, interrupted or reduced as soon as reasonably possible.

(a)		The Tenant shall at its sole cost repair and maintain the Premises (exclusive of base building mechanical and electrical systems) all to a standard consistent with a first class office building, with the exception only of those repairs which are the obligation of the Landlord under this Lease, subject to Article VII. The Landlord may enter the Premises at all reasonable times, and after having given the Tenant at least twenty-four (24) hours prior written notice (and at any time in case of emergency but subject to the Landlord notifying the Tenant as soon as possible after such entry) and the reasonable opportunity to have a representative of the Tenant in attendance (other than in connection with any circumstance which constitutes an emergency), to view their condition and the Tenant shall maintain and keep the Premises in good and substantial repair according to notice in writing, reasonable wear and tear excepted, but failure to give notice shall not relieve the Tenant from any of its obligations. At the expiration or earlier termination of the Term, the Tenant shall surrender the Premises to the Landlord in as good condition and repair as the Tenant is required to maintain the Premises throughout the Term.

(b)		The Tenant shall, at its own expense, promptly comply with all laws, by-laws, government orders and with all reasonable requirements or directives of the Landlord’s insurers affecting the Premises or their use, repair or alteration.

(c)		The Tenant agrees that it shall at its cost be responsible to provide for the cleaning of all carpets (excluding daily vacuuming) and window coverings in the Premises by a professional cleaning service at reasonable intervals.

(d)		The Tenant shall not commit, or permit to be committed, waste upon the Premises, Building or any other part of the Complex or the fixtures and equipment thereof or any nuisance or other thing that may disturb the quiet enjoyment of any other tenant in the Complex, whether or not the nuisance arises out of the use of the Premises by the Tenant for a purpose permitted by this Lease.

The Tenant shall not use the Premises or permit them to be used, to generate, utilize, manufacture, refine, treat, transport, store, handle, transfer, produce or process Hazardous Substances.

The Tenant shall, upon expiration or termination of this Lease or any renewal thereof, promptly remove all Hazardous Substances used or brought onto the Premises by the Tenant or those acting under its authority or control. For greater certainty, the foregoing obligation of the Tenant shall include, without limitation, the responsibility to remove any Hazardous Substances which have as a result of the operations of the Tenant, or any other person acting under its authority or control, become affixed to, permeated within or accumulated on or within the Building or other structures forming part of the Complex.

(a)

No Alterations shall be made to the Premises without the Landlord’s written approval, which approval shall not be unreasonably withheld or delayed. The Tenant shall submit to the Landlord details of the proposed work including 4 sets of detailed drawings and specifications prepared by qualified architects or engineers conforming to good engineering practice. All such Alterations shall be performed:

	(i)		at the sole cost of the Tenant;

	(ii)		by contractors and workmen approved by the Landlord, acting reasonably, whose labour affiliations are compatible with others employed by the Landlord and its contractors;

	(iii)		in a good and workmanlike manner;

	(iv)		strictly in accordance with drawings and specifications approved by the Landlord;

	(v)		in accordance with all reasonable insurance requirements of the Landlord;

	(vi)		subject to the reasonable regulation, supervision, control and inspection of the Landlord;

	(vii)		subject to such indemnification against liens and expenses as the Landlord reasonably requires; and

	(viii)		in accordance with all applicable laws, by-laws and government orders.

		The Landlord’s reasonable cost incurred with respect to the Tenant’s Alterations including, without limitation, the cost of approving, supervising and inspecting all such work shall be paid by the Tenant.

(b)		If the Alterations would affect the structure of the Building or any of the electrical, plumbing, mechanical, heating, ventilating or air conditioning systems or other base building systems, such work shall at the option of the Landlord be performed by the Landlord at the Tenant’s cost. On completion of such work, the cost of the work (including the reasonable fees of any architectural and engineering consultants) plus the Overhead Charge shall be paid by the Tenant to the Landlord. Notwithstanding any other provision of this Lease, no repairs, replacements, alterations, additions, or improvements to the Premises by or on behalf of the Tenant shall be permitted which may weaken or endanger the structure or adversely affect the condition or operation of the Premises, the Building, or any portion thereof, or any other portion of the Complex or any mechanical or electrical system or facility thereof, or diminish the value thereof. The Tenant shall not, except in the installation of its usual trade fixtures or other work to be performed by it in accordance with the provisions of this Lease, cut or drill into, nail or otherwise attach or secure any fixture, sign, apparatus or equipment to any part of the Premises without first obtaining the Landlord’s written consent, which consent shall not be unreasonably withheld or delayed.

(c)		If the Tenant installs Leasehold Improvements, or makes Alterations which depart from the Building standard and which restrict access to any Building system or to any structural element of the Building by the Landlord or by any person or corporation authorized by the Landlord or which restricts the installation of the leasehold improvements of any other tenant in the Building, then the Tenant shall be responsible for all costs incurred by the Landlord in obtaining access to such Building system, or in installing such other tenant’s leasehold improvements and the Tenant shall, at the request of the Landlord, remove any obstruction in a manner acceptable to the Landlord, failing which the Landlord may remove the same and the Tenant will pay, or reimburse the Landlord for, the cost of such removal and for any replacement or restoration of such Leasehold Improvement or Alteration. Any repairs, replacements, alterations, additions or improvements made by the Tenant without the prior written consent of the Landlord or which are not made in accordance with the drawings and specifications approved by the Landlord shall, if requested by the Landlord, be promptly removed by the Tenant at the Tenant’s expense and the Premises restored to their previous condition. In the event the Tenant fails to comply with any such request of the Landlord, the Landlord shall be entitled on not less than ten (10) Business Days’ prior written notice, or in the case of an emergency forthwith without prior notice (but with subsequent notice as soon as reasonably possible thereafter), and the reasonable opportunity to have a representative of the Tenant in attendance (other than in connection with any circumstances which constitute an emergency), to enter upon the Premises and restore the same to their previous condition at Tenant’s sole cost and expense.

(d)		The Tenant shall provide the Landlord with as-built drawings of any Alterations by it for the Landlord’s records.

Notwithstanding any other provisions of this Lease but subject to the waiver of subrogation set out in Section 6.07 hereof, if the Building or any other portion of the Complex is damaged or destroyed or requires repair, replacement or alteration as a result of the act or omission of the Tenant, its employees, agents, invitees, licensees, contractors or others for whom it is in law responsible, the cost of the resulting repairs, replacements or alterations plus the Overhead Charge shall be paid by the Tenant to the Landlord.

All Leasehold Improvements (other than Trade Fixtures) shall immediately upon their placement become the Landlord’s property without compensation to the Tenant but the Landlord shall be under no obligation to repair, maintain or insure the same, such matters being the sole responsibility of the Tenant in accordance with the provisions of this Lease. Except as otherwise agreed by the Landlord in writing, no Leasehold Improvements shall be removed from the Premises by the Tenant either during or at the expiry or sooner termination of the Term except that:

(a)		the Tenant may, during the Term, in the usual course of its business, remove its Trade Fixtures, provided that the Tenant is not in default under this Lease; and

(b)		the Tenant shall, at the expiration or earlier termination of the Term, at its sole cost, remove its Trade Fixtures in the Premises, failing which, at the option of the Landlord, the Trade Fixtures shall become the property of the Landlord and may be removed from the Premises and sold or disposed of by the Landlord in such manner as it deems advisable.

		No other property of the Landlord in or comprising the Premises or any other part of the Building may be removed by the Tenant under any circumstances.

The Tenant shall promptly pay before delinquency for all materials supplied and work done or caused to be done in respect of the Premises so as to ensure that no lien is registered against any portion of the Lands or Building or against the Landlord’s or Tenant’s interest therein. If a lien is registered or filed, the Tenant shall discharge it at its expense forthwith, failing which the Landlord may at its option discharge the lien by paying the amount claimed to be due into court or directly to the lien claimant and the amount so paid and all expenses of the Landlord including legal fees (on a solicitor and client basis) shall be paid by the Tenant to the Landlord. The Tenant will not grant any security interest in the Leasehold Improvements without the prior written consent of the Landlord, in the Landlord’s unfettered discretion, and will promptly cause the discharge of any financing statement or notice which may be filed in respect of such security interest under any statute, unless such statement or notice is in favour of the Landlord.

The Tenant shall notify the Landlord of any accident, defect, fire, damage or deficiency in any part of the Premises, the Complex or the Building, which comes to the attention of the Tenant, its employees or contractors notwithstanding that the Landlord may have no obligation in respect thereof. If the Landlord has an obligation in respect of such defect, damage or deficiency, the Landlord will forthwith remedy and repair same.

If the Tenant refuses or neglects to repair or maintain the Premises or complete such other work with respect thereto promptly or properly as required under this Lease and to the reasonable satisfaction of the Landlord, or fails to comply with the provisions of Section 5.05(b), the Landlord may, acting reasonably, on not less than ten (10) Business Days’ prior written notice to the Tenant, or in the case of an emergency forthwith without notice, undertake the repairs or restoration in a good and workmanlike manner without liability to the Tenant for any loss or damage that may occur to the Tenant’s merchandise, fixtures, or other property or to the Tenant’s business by reason thereof, and upon completion thereof, the Tenant shall pay the Landlord forthwith upon demand, as Rent, the costs of making the repairs or restoration plus the Overhead Charge. The Tenant agrees that the making of any repairs or restoration by the Landlord pursuant to this Section 5.10 is not a re-entry or a breach of any covenant for quiet enjoyment contained in this Lease and shall not relieve the Tenant from the obligation to maintain and repair the Premises.

The Tenant covenants that it shall not bring upon the Premises any machinery, equipment or thing that by reason of its weight, size or use might damage the Building and shall not at any time overload the floors of the Premises by any machinery, equipment or thing. If overloading occurs and damage ensues, the Tenant shall forthwith, at the option of the Landlord, repair the damage or pay the Landlord the cost of making it good, plus the Overhead Charge, upon demand as Rent. In the event of any dispute as to whether any machinery, equipment or thing will or will not overload the floors of the Premises or whether such machinery, equipment or thing may be brought upon the Premises, the decision of the Architect shall be final and binding.

(a)

The Tenant shall maintain the following insurance throughout the Term at its sole cost:

	(i)		“All Risks” (including flood and earthquake) property insurance with reasonable deductibles, naming the Landlord, the owners of the Lands and Building and the Mortgagee as additional insured parties, containing a waiver of any subrogation rights which the Tenant’s insurers may have against the Landlord and against those for whom the Landlord is in law responsible (and the Tenant hereby waives its rights of subrogation against the Landlord and those for whom it is in law responsible), and (except with respect to the Tenant’s chattels) incorporating the Mortgagee’s standard mortgage clause. Such insurance shall insure property of every kind owned by the Tenant or for which the Tenant is legally liable located on or in the Building including, without limitation, Leasehold Improvements, in an amount equal to not less than 100% of the full replacement cost thereof, subject to a stated amount co-insurance clause;

	(ii)		Commercial general liability insurance which includes the following coverages: owners protective; personal injury; occurrence property damage; and employers and blanket contractual liability, such coverage to include the activities and operations conducted by the Tenant and any other person on the Premises, and by the Tenant and any other person performing work on behalf of the Tenant and those for whom the Tenant is in law responsible in any other part of the Building. Such policies shall contain inclusive limits of not less than $5,000,000, provide for cross liability and severability of interests, and name the Landlord as an additional insured;

	(iii)		Automobile liability insurance on a non-owned form including contractual liability, and on an owner’s form covering all licensed vehicles operated by or on behalf of the Tenant, which insurance shall have inclusive limits of not less than $5,000,000 and accident benefits coverage;

	(iv)		Extra expense or business interruption insurance in such amount as will reimburse the Tenant for extra costs and expenses incurred by the Tenant and for direct and indirect loss of earnings attributable to all perils insured against in Subsection 6.01(a)(i) and other perils commonly insured against by prudent tenants operating under similar circumstances or losses attributable to the prevention or obstruction of access to the Premises or the Building as a result of such perils; and

	(v)		Any other form of insurance which the Tenant or the Landlord, acting reasonably, or the Mortgagee, acting reasonably, requires from time to time in form, in amounts and for risks against which a prudent tenant would insure.

	(i)		name the Landlord, any Mortgagee, any owner or any other Person (having an insurable interest) designated by the Landlord (acting reasonably) as additional insured;

	(ii)		be taken out with insurers having a financial rating of A.M. Best A-VII or better;

	(iii)		be in a form reasonably satisfactory to the Landlord;

	(iv)		contain a severability of interest clause and a cross-liability clause;

	(v)		be non-contributing with, and shall apply only as primary and not as excess to any other insurance available to the Landlord;

	(vi)		not be invalidated as respects the interests of the Landlord or the Mortgagee by reason of any breach of or violation of any warranty, representation, declaration or condition; and

	(vii)		contain an undertaking by the insurers to notify the Landlord in writing not less than 30 days prior to any material change, cancellation or termination.

Certificates of insurance issued by the Tenant’s insurers, shall be delivered to the Landlord prior to the Commencement Date and from time to time, forthwith upon request. If the Tenant fails to take out or to keep in force any insurance referred to in this Section 6.01 or should any such insurance not be approved by either the Landlord or the Mortgagee, acting reasonably, and should the Tenant not commence to diligently rectify (and thereafter proceed to diligently rectify) the situation within 48 hours after written notice by the Landlord to the Tenant (stating, if the Landlord or the Mortgagee, from time to time, does not approve of such insurance, the reasons therefor) the Landlord has the right without assuming any obligation in connection therewith, to effect such insurance at the sole cost of the Tenant and all outlays by the Landlord shall be paid by the Tenant to the Landlord without prejudice to any other rights or remedies of the Landlord under this Lease.

The Tenant shall not keep or use in the Premises any article or do anything which may be prohibited by any insurance policy in force from time to time covering the Premises, the Building or the Complex. If:

(a)		the conduct of business in, or use or manner of use of the Premises;

(b)		or any acts or omissions of the Tenant in the Complex or any part thereof;

cause or result in any increase in premiums for any insurance carried by the Landlord with respect to the Complex, the Tenant shall pay any such increase in premiums.

In determining whether increased premiums are caused by or result from the use or occupancy of the Premises, a schedule issued by the organization computing the insurance rate on the Building or the Complex showing the various components of such rate, shall be conclusive evidence of the items and charges which make up such rate.

If any insurer under any insurance policy covering any part of the Complex or any occupant thereof cancels or threatens to cancel its insurance policy or reduces or threatens to reduce coverage under such policy by reason of the use or occupation of the Premises by the Tenant or by any Transferee, or by anyone permitted by the Tenant to be upon the Premises, the Tenant shall remedy such condition within three (3) Business Days written notice after written notice thereof by the Landlord. If the Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation, reduction, or threatened reduction of coverage within three Business Days after written notice thereof by the Landlord, the Landlord may, at its option, either:

(a)		enter the Premises and remedy the condition giving rise to the cancellation or reduction or threatened cancellation or reduction, and the Tenant shall pay to the Landlord the cost thereof plus the Overhead Charge on demand as Rent; or

(b)		failing the ability of the Landlord to remedy such condition on a timely basis, re-enter the Premises forthwith and thereupon the provisions of Article IX shall apply.

The Tenant agrees that the Landlord shall not be liable for damage or injury caused to property of the Tenant or others located on the Premises as a result of the entry or wilful misconduct, save and except if caused by the negligence or wilful misconduct of the Landlord, and that such entry by the Landlord is not a re-entry or a breach of any covenant for

quiet enjoyment contained in this Lease except to the extent caused by the negligence of the Landlord or those for whom it is in law responsible.

The Landlord shall not be liable for any death or injury arising from or out of any occurrence in, upon, at, or relating to the Lands, the Building or the Complex or damage to property of the Tenant or of others located on the Premises or elsewhere in the Complex, nor shall it be responsible for any loss of or damage to any property of the Tenant or others from any cause, except to the extent that any such death, injury, loss or damage results from the negligence of the Landlord, its agents, employees, contractors, or others for whom it may, in law, be responsible. Without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to Persons or property resulting from fire, explosion, falling plaster, falling ceiling tile, falling fixtures, steam, gas, electricity, water, rain, flood, snow or leaks from any part of the Premises or from the pipes, sprinklers, appliances, plumbing works, roof, windows or subsurface of any floor or ceiling of the Building or from the street or any other place or by dampness or by any other cause whatsoever, save and except if caused by the negligence or wilful misconduct of the Landlord. The Landlord shall not be liable for any such damage caused by other tenants or Persons on the Lands or in the Building or the Complex or by occupants of adjacent property thereto, or the public. All property of the Tenant kept or stored on the Premises shall be so kept or stored at the risk of the Tenant only and the Tenant releases and agrees to indemnify the Landlord and save it harmless from any claims arising out of any damage to the same including, without limitation, any subrogation claims by the Tenant’s insurers.

The Landlord shall throughout the Term carry: (a) “all risks” insurance (including earthquake) on the Building and the Parking Facilities (excluding the foundations and excavations) and the machinery, boilers and equipment in or servicing the Building and owned by the Landlord or the owners of the Building (excluding any property which the Tenant and other tenants are obliged to insure under Section 6.01 or similar sections of their respective leases) on a full replacement cost basis; (b) commercial general liability insurance with respect to the Building and the Parking Facilities in such amounts as would be maintained from time to time by a prudent Landlord; and (c) such other form or forms of insurance as would be carried by a prudent owner or as the Landlord or the Mortgagee reasonably considers advisable. Such insurance shall be in such reasonable amounts and with such reasonable deductibles as would be carried by a prudent owner of a reasonably similar building, having regard to size, age and location. Notwithstanding the Landlord’s covenant in this Section and notwithstanding any contribution by the Tenant to the cost of the Landlord’s insurance premiums, the Tenant acknowledges and agrees that: (a) subject to the mutual waier of subrogation set out in Section 6.07 hereof, the Tenant is not relieved of any liability arising from or contributed to by its negligence or its wilful act or omissions; (b) no insurable interest is conferred upon the Tenant under any insurance policies carried by the Landlord; and (c) the Tenant has no right to receive any proceeds of any insurance policies carried by the Landlord.

Notwithstanding any other provision of this Lease, and save and except if caused by the negligence or wilful misconduct of the Landlord, the Tenant shall indemnify the Landlord and save it harmless from all loss (including loss of Net Rent and Additional Rent) claims, actions, damages, liability and expense in connection with loss of life, personal injury, damage to property or any other loss or injury whatsoever arising out of a breach of this Lease by the Tenant, or any occurrence in, upon or at the Premises, or the occupancy or use by the Tenant of the Premises or any part thereof, or occasioned wholly or in part by any act or omission of the Tenant or by anyone permitted to be on the Premises by the Tenant or its assignees and sublessees, and its and their servants, employees, agents, contractors, officers, licensees, concessionaires, clients, customers or anyone permitted by the Tenant to be on the Premises or in the Complex or anyone for whom the Tenant is responsible in law. If the Landlord shall, without fault on its part, be made a party to any litigation commenced by or against the Tenant, then the Tenant shall protect, indemnify and hold the Landlord harmless in connection with such litigation. The Landlord may at its option, participate in or if it determines, acting reasonably, that the matter is of a material nature to the Landlord or the Building, assume carriage of any litigation or settlement discussions relating to the foregoing, or any other matter for which the Tenant is required to indemnify the Landlord under this Lease.

(a)		Every policy of insurance maintained or required to be maintained by the Tenant under this Lease in respect of the Premises will contain a waiver of subrogation clause; and

(b)		Every policy of insurance maintained or required to be maintained by the Landlord with respect to the Building (and/or Parking Facilities) will contain a waiver of subrogation clause.

If the Premises or Building are damaged or destroyed in whole or in part by fire or any other occurrence, this Lease shall continue in full force and effect and there shall be no abatement of Rent except as provided in this Article VII.

If the Premises are at any time destroyed or damaged as a result of fire or any other casualty required to be insured against by the Landlord under this Lease or otherwise insured against by the Landlord and not caused or contributed to by the Tenant, then the following provisions shall apply:

(a)		if the Premises are rendered untenantable only in part, the Landlord shall diligently repair the Premises to the extent only of its obligations under Section 5.01 and Net Rent shall abate proportionately to the portion of the Premises rendered untenantable from the date of destruction or damage until the Landlord’s repairs have been completed;

(b)		if the Premises are rendered wholly untenantable, the Landlord shall diligently repair the Premises to the extent only of its obligations pursuant to Section 5.01 and Net Rent shall abate entirely from the date of destruction or damage until the Landlord’s repairs have been completed;

(c)		if the Premises are not rendered untenantable in whole or in part, the Landlord shall diligently perform such repairs to the Premises to the extent only of its obligations under Section 5.01, but in such circumstances Net Rent shall not terminate or abate;

(d)		upon being notified by the Landlord that the Landlord’s repairs have been substantially completed, the Tenant shall diligently perform all repairs to the Premises which are the Tenant’s responsibility under Section 5.02, and all other work required to fully restore the Premises for use in the Tenant’s business, in every case at the Tenant’s cost and without any contribution to such cost by the Landlord, whether or not the Landlord has at any time made any contribution to the cost of supply, installation or construction of Leasehold Improvements in the Premises;

(e)		nothing in this Section shall require the Landlord to rebuild the Premises in the condition which existed before any such damage or destruction so long as the Premises as rebuilt will have reasonably similar facilities to those in the Premises prior to such damage or destruction, having regard, however, to the age of the Building at such time; and

(f)		nothing in this Section shall require the Landlord to undertake any repairs having a cost in excess of the insurance proceeds actually received by the Landlord with respect to such damage or destruction.

(a)

Notwithstanding Section 7.02, if the damage or destruction which has occurred in the Premises is such that in the reasonable opinion of the Landlord the Premises cannot be rebuilt or made fit for the purposes of the Tenant within 90 days of the happening of the damage or destruction, the Landlord may, at its option, terminate this Lease on notice to the Tenant given within 30 days after such damage or destruction. If such notice of termination is given, Rent shall be apportioned and paid to the date of such damage or destruction and the Tenant shall immediately deliver vacant possession of the Premises in accordance with the terms of this Lease.

(b)		Notwithstanding the provisions of Section 7.02, if the proceeds of insurance recoverable by the Landlord as a result of any damage in the Premises are insufficient to pay the costs of repair and replacement pursuant to Section 7.02 (other in an immaterial respect) the Landlord may terminate this Lease upon 30 days’ notice in writing to the Tenant. The Tenant shall surrender the Premises to the Landlord within 30 days after delivery of its notice of termination and Rent shall be apportioned and paid to the date on which the Tenant delivers vacant possession of the Premises.

(c)		Notwithstanding Section 7.02, if the damage and destruction which has occurred in the Premises is such that in the reasonable opinion of the Architect, the Premises cannot be rebuilt or be made fit for the purposes of the Tenant within 180 days of the happening of the damage or destruction, then the Landlord will, subject to Section 7.03(a), provide the Tenant with other premises comparable to the Premises having regard to size, age and location within the downtown core of the City of Vancouver on a temporary basis until such time as the Premises have been rebuilt as contemplated, failing which the Tenant may, at its option, elect to terminate this Lease by giving to the Landlord notice of termination and thereupon Net Rent, Additional Rent and any other payment for which the Tenant is liable under this Lease shall be apportioned and paid to the date of such termination and the Tenant shall immediately deliver vacant possession of the Premises to the Landlord in accordance with the terms of this Lease.

(a)

Notwithstanding any other provision of this Lease and specifically notwithstanding the provisions of Section 7.03, if

	(i)		35% or more of the Total Rentable Area of the Building or the Parking Facilities is destroyed or damaged by any cause; or

	(ii)		portions of the Building or Lands which affect access or services essential thereto are damaged or destroyed by any cause; and,

		in the reasonable opinion of the Landlord, cannot be reasonably repaired within 180 days after the occurrence of the damage or destruction; then, the Landlord may at its option, to be exercised by notice to the Tenant given within sixty (60) days after such damage or destruction, terminate this Lease. In the case of such election, the Term and the tenancy hereby created shall expire upon the thirtieth (30th) day after such notice is given, without indemnity or penalty payable by, or any other recourse against the Landlord and neither the Landlord nor the Tenant shall be bound to repair. The Tenant shall surrender the Premises to the Landlord within 30 days after delivery of its notice of termination and Rent shall be apportioned and paid to the date on which the Tenant delivers vacant possession of the Premises, subject to any abatement to which the Tenant may be entitled under Section 7.02.

(b)		If the Landlord is entitled to, but does not elect to terminate this Lease under Section 7.04(a), the Landlord shall, following such damage or destruction, diligently repair if necessary that part of the Building and the Parking Facilities damaged or destroyed, but only to the extent of the Landlord’s obligations under section 5.01 and under the terms of the various leases for premises in the Building and exclusive of any tenant’s responsibilities with respect to such repair. If the Landlord elects to repair the Building and the Parking Facilities, the Landlord may do so in accordance with plans and specifications other than those used in the original construction of the Building , provided such plans and specifications are materially similar to the original plans and contemplate an office building of similar quality and standard.

(a)		the percentage of the Total Rentable Area of the Building and the Parking Facilities damaged or destroyed;

(b)		whether or not the Premises are rendered untenantable and the percentage of the Premises rendered untenantable;

(c)		the date upon which either the Landlord’s or Tenant’s work of reconstruction or repair is completed or substantially completed and the date when the Premises are rendered tenantable; and

(d)		the state of completion of any work of the Landlord or the Tenant.

The Tenant shall not enter into, consent to, or permit (whether voluntarily, involuntarily or by operation of law) any Transfer without the prior written consent of the Landlord in each instance, which consent shall not be unreasonably withheld but shall be subject to the Landlord’s rights under Section 8.02. Any transfer without such consent shall be void and shall, at the option of the Landlord, constitute a default that shall entitle the Landlord to terminate this Lease. Any such consent by the Landlord shall not release the Tenant from any of the Tenant’s obligations hereunder or be deemed to be a consent to any subsequent hypothecation, assignment, subletting, occupation or use by another person. Notwithstanding any statutory provision to the contrary and without limiting the other instances in which it may be reasonable for the Landlord to withhold its consent, it shall not be considered unreasonable for the Landlord to take into account the following factors in deciding whether to grant or withhold its consent:

(a)		whether such Transfer is in violation or in breach of any covenants or restrictions made or granted by the Landlord to other tenants or occupants or prospective tenants or occupants of the Building;

(b)		whether in the Landlord’s opinion, the financial background, business history and capability of the proposed Transferee is satisfactory; and,

(c)		the proposed assignee or sublessee is a governmental or quasi governmental department, agency or consulate;

(d)		in the Landlord’s reasonable judgment, the use of the Premises by the proposed assignee or sublessee would involve occupancy by other than primarily general office personnel or otherwise in violation of Section 10.01 of this Lease, would involve any alterations which would lessen the value of the leasehold improvements in the Premises, would require increased services, including increased load on elevator services, by the Landlord or alter the reputation or character of the Complex;

(e)		in the Landlord’s reasonable judgment, the proposed assignee or sublessee does not have a good reputation in the community as a tenant of property;

(f)		the use of the Premises by the proposed assignee or subtenant will violate any applicable law, by-law or regulation;

(g)		there is continuing an Event of Default by the Tenant under this Lease;

(h)		other than in the case of a Permitted Subletting, in the case of a subletting of less than the entire Premises, if the subletting would result in the division of any one floor of the Premises into more than three subparcels or, in any circumstance, would require access to be provided through space leased or held for lease to another tenant or improvements to be made outside of the Premises; or

(i)		the Landlord does not receive sufficient information from the Tenant of the proposed assignee or subtenant to enable it to make a determination concerning the matters herein set out.

Consent by the Landlord to any Transfer if granted shall not constitute a waiver of the necessity for such consent to any subsequent Transfer. This prohibition against Transfer shall include a prohibition against any Transfer by operation of law and no Transfer shall take place by reason of the failure of the Landlord to give notice to the Tenant within 20 days as required by Section 8.02 hereof. Notwithstanding anything to the contrary herein contained, the Tenant may not assign this Lease while any Rent is in arrears hereunder or while any other Event of Default exists hereunder. Before making any assignment of this Lease the Tenant will pay all Rent in arrears and will remedy any Event of Default which then exists or will cause any Event of Default to cease to exist.

The Tenant acknowledges that the Landlord shall not be liable to the Tenant in damages where, in giving good faith consideration to any request of the Tenant hereunder, and acting reasonably, it withholds its consent to a proposed assignment or sublease.

Notwithstanding anything contained in this Lease to the contrary (including without limitation, the definition of “Transfer”), the Tenant may assign this Lease or sublet or license the whole or any part of the Premises, without the consent of the Landlord to (a “Permitted Transferee”):

	(i)		an Affiliate of the Tenant, in which case the Tenant will continue to be liable to the Landlord for payment of Rent payable by the Tenant to the Landlord under this Lease; and

	(ii)		to a successor of the Tenant by amalgamation, merger or other corporate reorganization.

Any such assignment or sublease is hereinafter referred to as a “Permitted Transfer”. The Tenant agrees to provide the Landlord with written notice as soon as reasonably possible following a Permitted Transfer.

In addition, the Landlord consents to the use and occupation of a portion of the Premises by Black Box Games Ltd. and any assignment, sublet or license in whole or in part of the Premises to a successor of the Tenant by reason of the amalgamation, merger or other corporate reorganization of the Tenant and Black Box shall not require consent of the Landlord. In no event shall the Tenant be released from its obligations hereunder by virtue of a Permitted Transfer. In addition to the foregoing, the Tenant shall be entitled at any time to sublease up to two (2) floors to subtenants provided that the subleases are for terms of equal to or less than five (5) years (inclusive of all renewals and any further subleases to the same subtenant or any Person related to such subtenant) (each such subletting, a “Permitted Subletting”) without Section 8.02(b) or Section 8.02(c) being applicable thereto.

If the Tenant intends to effect a Transfer, the Tenant shall give prior notice to the Landlord of such intent specifying the identity of the Transferee, the type of Transfer contemplated, the portion of the Premises affected thereby, and the financial and other terms of the Transfer, and shall provide such financial, business or other information relating to the proposed Transferee and its principals as the Landlord or any Mortgagee requires, together with copies of any documents which record the particulars of the proposed Transfer. The Landlord shall, within 20 days after having received such notice and all requested information, notify the Tenant either that:

(a)		it consents or does not consent to the Transfer in accordance with the provisions and qualifications of this Article VIII or it is withholding its consent in accordance with the provisions of this Article VIII; or

(b)		it elects to cancel this Lease as to the whole or the part of the Premises included in the proposed Transfer, as the case may be, of the Premises affected by the proposed Transfer, in preference to giving such consent; or

(c)		it elects to take over the position of the proposed Transferee with respect to the Transfer such that the Landlord becomes the assignee or subtenant, as the case may be, of the Tenant on the financial terms set out in the notice.

If the Landlord elects to terminate this Lease it shall stipulate in its notice the termination date of this Lease, which date shall be no less than 30 days nor more than 90 days following the giving of such notice of termination. If the Landlord elects to terminate this Lease, the Tenant shall notify the Landlord within 10 days thereafter of the Tenant’s intention either to refrain from such Transfer or to accept termination of this Lease or the portion thereof in respect of which the Landlord has exercised its rights. If the Tenant fails to deliver such notice within such 10 days or notifies the Landlord that it accepts the Landlord’s termination, this Lease will as to the whole or affected part of the Premises, as the case may be, be terminated on the date of termination stipulated by the Landlord in its notice of termination. If the Tenant notifies the Landlord within 10 days that it intends to refrain from such Transfer, then the Landlord’s election to terminate this Lease shall become void.

If the Landlord terminates this Lease or sublets from the Tenant any portion of the Premises proposed to be sublet by the Tenant, the Landlord may, if it elects, enter into a new lease covering the Premises or a portion thereof or, in the case of a sublet from the Tenant, the sublet portion, with the intended assignee or subtenant on such terms as the Landlord and such person may agree, or enter into a new lease covering the Premises or a portion thereof or in the case

of a sublet from the Tenant, the sublet portion, with any other person; and in such event, the Tenant shall not be entitled to any portion of the profit, or rents, if any, which the Landlord may realize on account of such termination and reletting. The Landlord’s exercise of its aforesaid option shall not be construed to impose any liability upon the Landlord with respect to any real estate brokerage commission(s) or any other costs or expenses incurred by the Tenant in connection with its proposed subletting or assignment other than the cost of constructing any necessary demising walls in connection therewith.

(a)

If there is a permitted Transfer, the Landlord may collect Rent from the Transferee and apply the net amount collected to the Rent payable under this Lease but no acceptance by the Landlord of any payments by a Transferee shall be deemed a waiver of the Tenant’s covenants or any acceptance of the Transferee as tenant or a release from the Tenant from the further performance by the Tenant of its obligations under this Lease. The Tenant hereby assigns as security for performance of its obligations hereunder to the Landlord all of the Tenant’s right, title and interest in and to any:

	(i)		sublease hereafter granted and all security for, guarantees of, indemnities in respect of, the observance and performance thereof and all proceeds of insurance to which the Tenant may become entitled thereunder; and

	(ii)		any assignment of security for, guarantees of, indemnities in respect of an assignment of this Lease, or any rights hereunder for the observance and performance of the assignee thereunder.

		Any consent by the Landlord shall be subject to the Tenant and Transferee executing an agreement in form and substance acceptable to the Landlord, acting reasonably, with the Landlord agreeing that the Transferee will be bound by all of the terms of this Lease (other than in respect of a sublease in which event the Transferee shall only have to agree to be bound by the applicable terms of this Lease and to pay the rent payable pursuant to the applicable sublease) and, except in the case of a sublease, that the Transferee will be so bound as if it had originally executed this Lease as tenant.

(b)		Notwithstanding any Transfer permitted or consented to by the Landlord, including a Transfer to the Landlord pursuant to Section 8.02(c), the Tenant shall remain liable under this Lease and shall not be released from performing any of the terms of this Lease.

(c)		The net and additional rent payable by the Transferee shall not be less than the Rent payable by the Tenant under this Lease as at the effective date of the Transfer (including any increases provided for in this Lease) and if the rent and additional rent to be paid by the Transferee under such Transfer exceeds the Rent payable under this Lease, the amount of such excess shall be paid by the Tenant to the Landlord. If the Tenant receives from any Transferee, either directly or indirectly, any consideration other than rent or additional rent for such Transfer, either in the form of cash, goods or services (other than the proceeds of any financing as the result of a Transfer involving a mortgage, charge or similar security interest in this Lease) the Tenant shall forthwith pay to the Landlord an amount equivalent to such consideration less the reasonable costs paid by the Tenant for additional improvements installed in the portion of the Premises subject to such assignment or sublease by the Tenant at the Tenant’s sole cost and expense for the specific assignee or subtenant in question, reasonable legal costs, leasing and marketing costs, real estate commissions and demolition costs paid by the Tenant in connection with such assignment or sublease. The Tenant and the Transferee shall execute any agreement required by the Landlord to give effect to the foregoing terms. In determining the amounts to be deducted in each monthly payment period in respect of the Tenant’s costs of assigning or subleasing, such costs shall be applied to the first excess payments due to the Landlord. Notwithstanding the foregoing, this paragraph shall not apply to Permitted Subletting.

(d)		Notwithstanding the effective date of any permitted Transfer as between the Tenant and the Transferee, all Rent for the month in which such effective date occurs shall be paid in advance by the Tenant so that the Landlord will not be required to accept partial payments of Rent for such month from either the Tenant or Transferee.

(e)		If a Transfer occurs as a result of the Landlord’s election pursuant to Section 8.02(c), the Landlord will apply the Rent payable by the Landlord, as Transferee, to the Rent payable under this Lease but otherwise the Tenant will not be released from its covenants under this Lease or from further performance of its obligations under this Lease and the Tenant will enter into an agreement with the Landlord setting out the terms of such Transfer.

(f)		Any document evidencing any Transfer permitted by the Landlord, or setting out any terms applicable to such Transfer or the rights and obligations of the Tenant or Transferee thereunder including a Transfer under Section 8.02(c), or any amendment of this Lease pursuant to Section 8.03(a)(ii), shall be prepared by the Landlord or its solicitors and all associated reasonable legal costs shall be paid by the Tenant.

If the Tenant is at any time a corporation or partnership, any actual or proposed Change of Control in such corporation or partnership shall be deemed to be a Transfer and subject to all of the provisions of this Article VIII. The Tenant shall make available to the Landlord or its representatives all of the relevant corporate or partnership records, as the case may be, for inspection at all reasonable times, in order to ascertain whether any Change of Control has occurred.

The Tenant shall not advertise that the whole or any part of the Premises are available for a Transfer and shall not permit any broker or other Person to do so unless the text and format of such advertisement and the publications in which such advertisement is to be placed are approved in writing by the Landlord, which approval shall not be unreasonably withheld or delayed. No such advertisement shall contain any reference to the rental rate of the Premises.

The voluntary or other surrender of this Lease by the Tenant, or the sublease of space by the Tenant to the Landlord pursuant to this Article, or the cancellation of this Lease by mutual agreement of the Tenant and the Landlord shall not work as a merger, but shall, at the Landlord’s option, terminate all or any subleases and subtenancies or operate as an assignment to the Landlord of all or any subleases or subtenancies. The Landlord’s option hereunder shall be exercised by written notice to the Tenant and all known sublessees or subtenants in the Premises or any part thereof.

The Landlord shall have the unrestricted right to sell, lease, convey or otherwise dispose of all or any part of the Building or Lands or this Lease or any interest of the Landlord in this Lease. To the extent that the purchaser or assignee from the Landlord assumes the obligations of the Landlord under this Lease, the Landlord shall thereupon and without further agreement be released of all liability under this Lease. If the Landlord shall sell or otherwise dispose of any portion of the Parking Facilities used by the Tenant separately from the Building, the Landlord shall ensure that the Tenant continues to have access to such portions of the Parking Facilities for the purposes of its parking contemplated in Section 11.01 hereof, failing which the Landlord shall relocate the Tenant’s parking spaces to another location where it can provide such rights on terms acceptable to the Tenant, acting reasonably.

If and whenever an Event of Default occurs, then without prejudice to any other rights which it has pursuant to this Lease or at law, the Landlord shall have the following rights and remedies, which are cumulative and not alternative:

(a)		to re-enter the Premises or any part thereof in the name of the whole and the same to have again, repossess, and enjoy as of the Landlord’s former estate, anything herein contained to the contrary notwithstanding;

(b)		to terminate this Lease, with or without notice to the Tenant, whether or not the Landlord has, with respect to the same or another Event of Default, previously elected or pursued a right or remedy which is inconsistent with termination of this Lease. Upon notice of termination hereunder, this Lease and the Term hereof shall terminate and come to an end as fully and completely as if such date were the day herein definitely fixed for the end and expiration of this Lease and such Term, all Rent payable under this Lease shall immediately

		become due, any amounts paid by the Landlord to the Tenant hereunder as an inducement or improvement allowance shall immediately become repayable by the Tenant to the Landlord in accordance with subsection Section 9.01(g) and the Tenant shall then quit and surrender the Premises to the Landlord and, notwithstanding any statute, rule of law or decision of any courts to the contrary, the Tenant shall remain liable to the Landlord as set forth hereinafter.

(c)		to enter the Premises as agent of the Tenant and to relet (either in the name of the Landlord or otherwise) the Premises for whatever term, and on such terms as the Landlord in its discretion may determine and to receive the Rent therefor and as agent of the Tenant to take possession of any property of the Tenant on the Premises, to store such property at the expense and risk of the Tenant or to sell or otherwise dispose of such property in such manner as the Landlord may see fit without notice to the Tenant; to make alterations to the Premises to facilitate their reletting; and the making of such alterations or decorations shall not operate or be construed to release the Tenant from any liability to the Landlord hereunder; and to apply the proceeds of any such sale or reletting first, to the payment of any expenses incurred by the Landlord with respect to any such reletting or sale; second, to the payment of any indebtedness of the Tenant to the Landlord other than Rent; and third, to the payment of Rent in arrears; with the residue to be held by the Landlord and applied in payment of future Rent as it becomes due and payable. The Tenant shall remain liable for any deficiency to the Landlord. If any reletting extends for a period beyond the end of the Term, such reletting shall not constitute a termination of this Lease, but a reletting as agent of the Tenant up to the end of the Term and a letting thereafter by the Landlord for its own account;

(d)		to remedy or attempt to remedy any default of the Tenant under this Lease for the account of the Tenant and to enter upon the Premises for such purposes. No notice of the Landlord’s intention to perform such covenants need be given the Tenant unless expressly required by this Lease. The Landlord shall not be liable to the Tenant for any loss, injury or damage caused by acts of the Landlord in remedying or attempting to remedy such default and the Tenant shall pay to the Landlord all reasonable expenses incurred by the Landlord in connection with remedying or attempting to remedy such default;

(e)		to recover from the Tenant all damages, and expenses incurred by the Landlord as a result of any breach by the Tenant. The Tenant shall pay to the Landlord, on demand, if the Landlord has terminated or cancelled this Lease, liquidated damages for the failure of the Tenant to observe and perform its covenants under this Lease, which damages shall be the worth at the time of termination of the excess of the amount of Rent reserved in this Lease for the remainder of the Term over the then rental value of the Premises for the remainder of the Term, established by reference to the terms and conditions upon which the Landlord relets them, if such reletting is accomplished within a reasonable time after termination of this Lease, and otherwise with reference to all market and other relevant circumstances, such Rent and rental value being reduced to present worth at an interest rate determined by the Landlord on the basis of the Landlord’s reasonable estimates and assumptions of fact.

		The refusal or failure of the Landlord to relet the Premises or any part or parts thereof shall not release or affect the Tenant’s liability for liquidated damages hereunder. In computing such liquidated damages there shall be added to the said amount, such reasonable expenses as the Landlord may incur in connection with reletting, such as court costs, legal fees and disbursements on a solicitor and client basis, brokerage and management fees and commissions, costs of putting and keeping the Premises in good order and costs of preparing the Premises for reletting as herein provided. The Landlord shall in no event be liable in any way whatsoever for the failure to relet the Premises, or in the event that the Premises are relet, for failure to collect the rent thereof under such reletting. Any such liquidated damages shall be paid by the Tenant to the Landlord immediately upon demand therefor.

		The Tenant shall pay to the Landlord, on demand, all reasonable expenses of the Landlord in connection with the terminating, re-entering, reletting or collection of sums due or payable by the Tenant or realizing upon assets seized, including brokerage expenses, legal fees and disbursements on a solicitor and client basis, the expense of keeping the Premises in good order and repairing and maintaining the same or preparing the Premises for reletting;

(f)		to recover from the Tenant the full amount of the current month’s Rent together with the next 3 months’ instalments of Rent, all of which shall accrue on a day-to-day basis and shall immediately become due and payable as accelerated rent.

(g)

if this Lease has been terminated in accordance with Section 9.01(b), to recover from the Tenant the unamortized portion of any leasehold improvement allowance or inducement paid or given by the Landlord under the terms of this Lease or the Lease Proposal, calculated from the date which is the later of the date of payment by the Landlord or the Commencement Date, on the basis of an assumed rate of depreciation on a straight line basis to zero over the initial Term of this Lease.

Notwithstanding any provision of this Lease or any provision of applicable legislation, none of the goods and chattels of the Tenant on the Premises at any time during the Term shall be exempt from levy by distress for Rent in arrears, and the Tenant waives any such exemption and further releases the Landlord of the obligation of proving or identifying such goods. If the Landlord makes any claim against the goods and chattels of the Tenant by way of distress, this provision may be pleaded as an estoppel against the Tenant in any action brought to test the right of the Landlord to levy such distress.

Upon the occurrence of an Event of Default, or if the notice of termination provided for in Section 9.01 herein shall have been given and this Lease shall be terminated, then, in addition and without prejudice to all other remedies of the Landlord contained herein or at law, the Landlord may in each instance and without notice re-enter the Premises and terminate all services to be provided to the Tenant hereunder, including but not limited to the furnishing of utilities, and upon such re-entry, either by force or otherwise, and by summary proceedings or otherwise, in accordance with applicable laws, dispossess the Tenant or any other occupant of the Premises, and remove their effects, improvements, trade fixtures, furnishings and personal property and repossess and enjoy the Premises, together with all alterations, additions and improvements, all without being liable to prosecution or damages therefor. Upon any lawful re-entry by the Landlord hereunder, the Landlord may remove and sell the Tenant’s effects, improvements, trade fixtures, furnishings and personal property from the Premises, any rule of law or equity to the contrary notwithstanding and may apply the proceeds thereof to all Rent and other amounts to which the Landlord is then entitled under this Lease. Any such sale may be effected in the discretion of the Landlord by public auction or otherwise, and either in bulk or by individual item, or partly by one means and partly by another, all as the Landlord in its entire discretion may decide.

Upon the occurrence of an Event of Default or if the Tenant shall otherwise fail to perform any of the covenants or obligations of the Tenant under this Lease, the Landlord may, without notice to the Tenant, unless notice is otherwise required hereunder and only after the expiry of any applicable cure period, in addition to its rights under Section 9.01 and without prejudice to any other rights of the Landlord hereunder or at law, from time to time and at its discretion, perform or cause to be performed any of the covenants or obligations of the Tenant and for that purpose may do such things as may be requisite, including without limitation, entering upon the Premises on not less than 5 days prior written notice to the Tenant, or without notice in the case of an emergency, and do such things upon or in respect of the Premises as the Landlord may consider requisite or necessary. All expenses incurred and expenditures made by or on behalf of the Landlord under this Section 9.04 plus the Overhead Charge shall be paid by the Tenant upon presentation of a bill therefor as Rent. The Landlord shall have no liability to the Tenant for loss or damages resulting from such action by the Landlord, save and except for the Landlord’s negligent acts and wilful misconduct, nor shall such action be deemed a re-entry or breach of the covenant of quiet enjoyment.

In the event of any breach or threatened breach by the Tenant of any of the covenants or provisions hereof, the Landlord shall have the immediate right of injunction and the right to invoke any remedy allowed at law or in equity, as if re-entry, summary proceedings and other remedies were not herein provided for. No re-entry by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of that intention is given to the Tenant. Mention in this Lease of any particular remedy shall not preclude the Landlord from any other remedies under this Lease, now or hereafter existing at law or in equity.

The Tenant shall, without duplication, pay to the Landlord all damages and reasonable costs (including, without limitation, all legal fees on a solicitor and his client basis) incurred by the Landlord in enforcing or interpreting the terms of this Lease (provided the Landlord’s position is correct), or with respect to any matter or thing which is the obligation of the Tenant under this Lease, or in respect of which the Tenant has agreed to insure, or to indemnify the Landlord.

The Landlord may at its option apply sums received from the Tenant against any amounts due and payable by the Tenant under this Lease in such manner as the Landlord sees fit regardless of any designation or instructions to the contrary.

If the Tenant has failed to fulfil its obligations under this Lease with respect to the payment of Rent, the maintenance, repair and alteration of the Premises and removal of improvements and fixtures from the Premises during or at the end of the Term, such obligations and the Landlord’s rights in respect thereto shall remain in full force and effect notwithstanding the expiration, surrender or sooner termination of the Term.

No payments of money by the Tenant to the Landlord after the expiration or other termination of the Term or after the giving of any notice (other than a demand for payment of money) by the Landlord to the Tenant, shall reinstate, continue or extend the Term or make ineffective any notice given to the Tenant prior to the payment of such money. After the service of notice or the commencement of an action or distraining proceedings, or after final judgment granting the Landlord possession of the Premises, the Landlord may receive and collect any Rent due under the Lease, and the payment thereof shall not make ineffective any notice, or in any manner affect any pending suit or proceedings or any judgment theretofore obtained.

No reference to or exercise of a specific right or remedy by the Landlord shall preclude the Landlord from or prejudice it in exercising another right or pursuing another remedy or maintaining any action to which it may otherwise be entitled either by law or in equity. No such remedy shall be exclusive or dependent upon any other such remedy, but the Landlord may from time to time exercise any one or more of such remedies independently or in combination.

Within 10 days after written request by the Landlord, the Tenant shall deliver in a form supplied by the Landlord a statement or estoppel certificate to the Landlord or such assignee or mortgagee as may be designated by the Landlord, as to the status of this Lease, including as to whether this Lease is unmodified and in full force and effect (or, if there have been modifications that this Lease is in full force and effect as modified and identifying the modification agreements); the amount of Net Rent and Additional Rent then being paid and the dates to which same have been paid; whether or not there is any existing or alleged default by either party with respect to which a notice of default has been served and if there is any such default, specifying the nature and extent thereof; and any other matters pertaining to this Lease to the best of the Tenant’s knowledge and belief as to which the Landlord shall reasonably request such statement or certificate.

This Lease and all rights of the Tenant shall, subject to any Mortgagee agreeing to execute and deliver to the Tenant a non-disturbance agreement on terms and conditions satisfactory to the Tenant, acting reasonably, be subject and subordinate to any and all Mortgages and any ground, operating, overriding or underlying leases, from time to time in existence against the Lands and Building. On request, the Tenant shall, subject to the foregoing, acknowledge in

writing the subordination of this Lease and its rights under this Lease to any and all such Mortgages and leases and to all advances made under such Mortgages. The form of such acknowledgement of subordination shall be as required by the Landlord or any Mortgagee or the lessee under any such lease.

The Tenant shall promptly, on request, attorn to any Mortgagee, or to the owners of the Building and Lands, or the lessor under any ground, operating, overriding, underlying or similar lease of all or substantially all of the Building made by the Landlord or otherwise affecting the Building and Lands, or the purchaser on any foreclosure or sale proceedings taken under any Mortgage, and shall recognize such Mortgagee, owner, lessor or purchaser as the Landlord under this Lease.

The Tenant will be entitled to license from the Landlord, from the date (the “Parking Occupancy Date”) it takes occupancy of the Premises for the purpose of conducting business and receipt by the Landlord of all permits required in connection therewith throughout the Term and any renewals, or expansion, or extensions thereof up to sixty (60) unreserved and ten (10) reserved parking permits for the Parking Facilities serving the Complex at the prevailing rates charged from time to time by the parking facility operator. The Tenant shall notify the Landlord in writing by no later than March 31, 2003 as to the actual number of reserved and unreserved parking permits it will require for the Term. The Tenant shall be entitled, after the expiry of the second year of the Term on a quarterly basis, to reduce the number of unreserved and reserved parking stalls on a pro-rata basis by giving the Landlord 30 days prior written notice, provided that the Tenant will at all times licence at least fifty (50) parking stalls in the aggregate. In addition, if the Tenant reduces its number of parking stalls below that determined as at March 31, 2003, the Tenant shall be entitled, subject to availability, to increase on a quarterly basis, on no less than thirty (30) days notice, its number of reserved and unreserved parking stalls up to a maximum of that initially licenced by the Tenant. The reserved stalls will be located in the parking facility comprising 250 Howe Street and Granville Square only, adjacent to one another to the extent possible, and located in a prime area of the parkade, and subject to the right of other tenants, in a location nearest to the Building access door. The Landlord shall, upon giving the Tenant reasonable written notice, have the right to relocate on a temporary basis the reserved parking permits from time to time to comparable locations in the Parking Facilities. All reserved parking stalls shall be provided with a name plate indicating the personalized name and “reserved” and installed by the Landlord at no cost to the Tenant.

The Landlord reserves the right to make such Rules and Regulations with respect to the use of the Parking Facilities as the Landlord deems advisable from time to time. The Tenant shall use the Parking Facilities at its sole risk.

The Tenant shall comply with all Rules and Regulations, and amendments thereto, adopted by the Landlord, from time to time, including those set out in Schedule “D”. To the extent of any conflict between the terms of the Rules and Regulations and the terms of the balance of this Lease, the terms of the balance of this Lease shall prevail. Such Rules and Regulations may differentiate between different types of businesses in the Building, and the Landlord shall have no obligation to enforce any Rule or Regulation or the provisions of any other lease against any other tenant, and the Landlord shall have no liability to the Tenant with respect thereto and shall not be liable to the Tenant for violation of the same by any other tenant, its servants, employees, agents, assigns or licensees.

Except as expressly provided in this Lease, whenever the Landlord or Tenant is delayed in the fulfilment of any obligation under this Lease (other than the payment of Rent and surrender of the Premises on termination) by an

unavoidable occurrence which is beyond the reasonable control (except a delay caused by lack of funds or other financial reason) of the party delayed in performing such obligation, then the time for fulfilment of such obligation shall be extended during the period in which such circumstances operate to delay the fulfilment of such obligation.

If the Tenant remains in possession of the Premises after the end of the Term with the written consent of the Landlord (which consent shall not be unreasonably or arbitrarily withheld, it being acknowledged that it is reasonable for the Landlord to withhold consent if it has leased or is actively leasing the Premises) but without having executed and delivered a new lease or an agreement extending the Term, there shall be no tacit renewal of this Lease, and the Tenant shall be deemed to be occupying the Premises as a Tenant from month to month at a monthly Net Rent payable in advance on the first day of each month equal to 125% for the first 60 days and then thereafter 150% of the monthly amount of Net Rent payable during the last month of the Term, and otherwise upon the same terms as are set forth in this Lease, so far as these are applicable to a monthly tenancy.

The waiver by the Landlord or the Tenant of a breach of a term, covenant or condition herein contained must be in writing and shall not be deemed to be a waiver of any continuing or subsequent breach of the same or another term, covenant or condition herein contained. No waiver shall be inferred from or implied by anything done or omitted by the Landlord or the Tenant. The subsequent acceptance of Rent by the Landlord shall not be deemed to be a waiver of a preceding breach by the Tenant of a term, covenant or condition of this Lease, other than the failure of the Tenant to pay the particular Rent accepted.

If at any time during the Term, the whole or any part of the Premises, or a substantial or material portion of the Building or Complex rendering continuing occupancy of the Premises impractical shall be taken by any lawful power or authority by the right of expropriation, the Landlord may, at its option, give notice to the Tenant terminating this Lease on the date when the Tenant or Landlord is required to yield up possession thereof to the expropriating authority. Upon such termination, or upon termination by operation of law, as the case may be, the Tenant shall immediately surrender the Premises and all of its interest therein, and the Rent shall abate and be apportioned to the date of termination and the Tenant shall forthwith pay to the Landlord the apportioned Rent which may be due to the Landlord to such date. The Tenant shall have no claim upon the Landlord for the value of its property or the unexpired Term, but the parties shall each be entitled to separately advance their claims for compensation for the loss of their respective interest in the Premises and the parties shall be entitled to receive and retain such compensation as may be awarded to each respectively. If an award of compensation made to the Landlord specifically includes an award for the Tenant, the Landlord shall account therefor to the Tenant.

The Landlord may from time to time conduct fire drills and emergency procedures, test emergency procedures, and test fire alarms and other emergency devices without being in breach of its covenant of quiet enjoyment. The Tenant shall participate, and shall cause its employees and invitees to participate, in such drills and procedures without holding the Landlord liable for any damage, injury, or loss caused thereby.

The Tenant covenants with the Landlord to cooperate with the Landlord and to comply with all regulations, orders, laws and requirements passed by any governmental authorities or other agencies having jurisdiction respecting energy conservation in relation to the use, occupancy, maintenance and operation of the Building or the Parking Facilities, or any part thereof. The Tenant shall, at its cost, comply with all reasonable requests and demands of the Landlord made with a view to energy conservation. Any costs the Landlord incurs in an effort to promote energy conservation in the Building or the Parking Facilities and complying with such regulations, orders, laws and requirements in the Building or the Parking Facilities shall be added to Operating Costs in the financial year of the Landlord or portion thereof that such expenditures are incurred. The Landlord shall not be liable as a result of being compelled to undertake any action or work to comply with any such regulations, orders, laws and requirements even where the same results in a reduction,

change, or elimination in heating, ventilation or air-conditioning in the Premises, Building or Complex, or any part thereof, or any other service or utility provided by the Landlord.

Neither the Tenant nor anyone claiming under the Tenant shall register this Lease or any Transfer without the prior written consent of the Landlord provided, however, that the Tenant shall have the right to register a short form of this Lease for the purposes of giving notice of this Lease provided that: (i) the Tenant obtains the prior written approval of the Landlord as the form and content of such document, which approval shall not be unreasonably withheld or delayed; and (ii) the cost of preparing any plans required for the preparation and registration of such document shall be borne by the Tenant. Subject to the foregoing the Tenant hereby waives any right which the Tenant may have to require the Landlord to deliver in registrable form or to provide a plan of the Premises acceptable to the land title office or other office of public record for registration or filing purposes.

No payment by the Tenant or receipt of the Landlord of a lesser amount than the monthly instalment of Net Rent and Additional Rent herein stipulated will be deemed to be other than on account of the earliest stipulated monthly instalment of Net Rent and Additional Rent, nor will an endorsement or statement on a cheque or in a letter accompanying a cheque or payment as Rent be deemed an acknowledgement of full payment or an accord and satisfaction, and the Landlord may accept a cheque or payment without prejudice to the Landlord’s right to recover the balance of the Rent or pursue any other remedy. No payment of Rent hereunder made by any third party and accepted by the Landlord will constitute or in any way be interpreted to be the consent or acknowledgement by the Landlord to an assignment or subletting by the Tenant.

Any notice, consent or other instrument which may be or is required to be given under this Lease shall be in writing and shall be delivered in person or sent by facsimile or by registered mail postage prepaid, addressed: (a) if to the Landlord: c/o The Cadillac Fairview Corporation Limited, 20 Queen Street West, 5th Floor, Toronto, Ontario, M5H 3R4, Attention: Executive Vice President, Property Management, facsimile no. (416) 598-8222, with a copy to the Building Manager, and (b) if to the Tenant, at the Premises to the attention of the Chief Financial Officer with a copy to Bull, Housser & Tupper, Barristers & Solicitors, 3000-1055 West Georgia Street, Vancouver, B.C. V6E 3R3, facsimile no. (604) 641-4949, (Attention: George Burke. Any such notice or other instrument shall be deemed to have been given and received on the day upon which personal delivery or any facsimile delivery is made if during normal business hours on a Business Day, failing which, it shall be deemed to be received on the next following Business Day or, if mailed, then 3rd Business Day following the date of mailing. Either party may give notice to the other of any change of address and after the giving of such notice, the address therein specified is deemed to be the address of such party for the giving of notices. If postal service is interrupted or substantially delayed, all notices or other instruments shall be delivered in person.

The rights and liabilities created by this Lease extend to and bind the successors and assigns of the Landlord and the heirs, executors, administrators and permitted successors and assigns of the Tenant. No rights, however, shall enure to the benefit of any Transferee unless the provisions of Article VIII are complied with.

If there is at any time more than one Tenant or more than one Person constituting the Tenant, their covenants shall be considered to be joint and several and shall apply to each and every one of them. If the Tenant is or becomes a partnership, each Person who is a member, or shall become a member, of such partnership or its successors shall be and continue to be jointly and severally liable for the performance of all covenants of the Tenant pursuant to this Lease, whether or not such Person ceases to be a member of such partnership or its successor.

The captions, section numbers, article numbers and table of contents appearing in this Lease are inserted only as a matter of convenience and in no way affect the substance of this Lease.

The words “hereof”, “hereto” and “hereunder” and similar expressions used in this Lease relate to the whole of this Lease and not only to the provisions in which such expressions appear. This Lease shall be read with all changes in number and gender as may be appropriate or required by the context.

All of the provisions of this Lease are to be construed as covenants even though not expressed as such. If any such provision is held or rendered illegal or unenforceable it shall be considered separate and severable from this Lease and the remaining provisions of this Lease shall remain in force and bind the parties as though the illegal or unenforceable provision had never been included in this Lease.

This Lease and the Schedules and riders, if any, attached hereto and the Lease Proposal, set forth the entire agreement between the Landlord and Tenant concerning the Premises and there are no agreements or understandings between them other than as are herein set forth. Subject to Section 12.01, this Lease and its Schedules and riders may not be modified except by agreement in writing executed by the Landlord and Tenant. In the event of any inconsistency between the provisions of this Lease and the provisions of the Lease Proposal, the provisions of this Lease shall prevail. Acceptance of, or acquiescence in, a course of performance rendered under any prior agreement between the parties or their officers, employees, representatives, agents or affiliates shall not be relevant or admissible to determine the meaning of any of the terms of this Lease. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition, to this Lease shall be binding upon the Landlord or the Tenant unless reduced to writing and signed by them.

This Lease shall be construed in accordance with and governed by the laws of the Province of British Columbia.

If the Tenant pays Rent, fully observes and performs all of its obligations under this Lease, and there has been no Event of Default which remains outstanding, the Tenant shall be entitled to peaceful and quiet enjoyment of the Premises for the Term without interruption or interference by the Landlord or any Person claiming through the Landlord.

The Tenant agrees that by no later than December 1, 2002 it shall either: (i) cause the Indemnifier to execute and deliver to the Landlord an indemnity agreement in form attached as Schedule “E” hereto, subject to reasonable negotiation between the Landlord and the Indemnifier, with respect to this Lease and any and all renewals hereof (the “Indemnity Agreement”); or (ii) deliver to the Landlord a Letter of Credit in the amount of $5,000,000 as security for any and all obligations of the Tenant hereunder or otherwise with respect to the Premises at any time after the occurrence of a Trigger Event. Subject to the Tenant not then being in default hereunder, the amount of the Letter of Credit shall amortize over a 10 year period on a straight-line basis. For greater certainty, if the Tenant desires to cause the Indemnifier to execute and deliver the Indemnity Agreement and if the Landlord and the Tenant cannot agree on the form of such indemnity agreement, each acting reasonably, within a reasonable period thereafter, the Tenant shall be obliged to deliver the Letter of Credit.

The Tenant shall: (i) forthwith notify the Landlord of the occurrence of any Trigger Event; and (ii) until a Trigger Event shall have occurred, provide to the Landlord upon written request within 60 days of the end of each Lease Year, an officer’s certificate of the Tenant certifying that no Trigger Event has occurred, together with all necessary evidence to support such conclusion.

The Landlord and the Tenant confirm for greater certainty that the provisions set forth in Schedule “F” hereto form an integral part of this Lease.

The Tenant will be responsible for its own telephone installation and any related charges or repair bills to telephone communications equipment. Throughout the Term of the Lease, the Landlord shall use commercially reasonable efforts to ensure that multiple, non-exclusive competitive telecommunications service providers are available to all tenants within the Building.

The parties understand that the Building contains one or more rooms where the fibre optic and telephone equipment for the Building is situated (hereinafter referred to as the “Riser Rooms”) and the Tenant agrees that all Riser Rooms shall be for the sole and exclusive use of the Landlord. The Tenant shall subject to the terms hereinafter set forth, not use the equipment contained in the Riser Rooms, install or instruct the installation of any additional equipment, whether telephone equipment, fibre optic equipment or otherwise, without first obtaining the Landlord’s written consent to same, which consent may not be unreasonably withheld, including the payment of an additional fee, the amount of which shall be at market rates. If the Landlord elects to retain a riser manager (the “Riser Manager”), the Tenant will, to the extent directed by the Landlord: (i) recognize the Riser Manager as the duly authorized representative of the Landlord; (ii) abide by all policies, directions and decisions of the Riser Manager, provided such policies, directions and decisions do not materially adversely affect or interfere with the manner in which the Tenant conducts its business; (iii) pay directly to the Riser Manager its reasonable charges for services provided directly to the Tenant including, but not limited to, the cost of reviewing plans and specifications, inspecting work performed on behalf of the Tenant and supervision of the work; and (iv) pay a pro-rated share of the charges and fees reasonably paid by the Landlord to the Riser Manager for riser management services and such charges and fees will constitute part of the Operating Costs.

The Landlord may elect to provide existing and future telecommunications service providers with access to the Building in order to provide service to tenants of the Building, and may provide a central distribution system (a “CDS”) in the Building for use by providers of telecommunications services. To the extent the Landlord determines the CDS will include a main cross connection point for use by telecommunications service providers utilizing the Building, the main cross connection point will serve as the prime demarcation point for service providers, including the Tenant and as the origination point of the CDS. The telephone closet cross connection block on each floor of the Building will serve as the secondary demarcation point, and as the termination point of the CDS on that floor, and the Landlord may charge all or any of such service providers (including the Tenant) a fee or fees in connection with all matters relating to the CDS.

Subject to the foregoing, the Tenant may utilize a telecommunication service provider of its choice with Landlord’s prior written consent, which consent the Landlord may not unreasonably withhold or delay and subject to the following:

(a)		the service provider shall execute and deliver Landlord’s standard form of license agreement which shall include a provision for Landlord to receive compensation for the use of the space for the service provider’s equipment and materials;

(b)		Landlord shall incur no expense or liability whatsoever with respect to any aspect of the provision of telecommunication services, including without limitation, the cost of installation, service, materials, repairs, maintenance, interruption or loss of telecommunication service;

(c)		Landlord must first reasonably determine that there is sufficient space in the risers of the Building for the installation of the service provider’s equipment and materials;

(d)		Tenant shall indemnify and hold harmless Landlord for all losses, claims, demands, expenses, and judgments against Landlord caused by or arising out of, either directly or indirectly, any acts or omissions by the service provider; and

(e)

Tenant shall incorporate in its agreement with its service provider a provision granting the Tenant the right to terminate the service provider agreement if required to do so by the Landlord as a result of any default by the service provider of the obligations contemplated herein or in the service provider agreement or as a result of such service provider’s acts or omissions detrimentally impacting upon the operation of the CDS or upon any other tenant’s service provider, the Landlord or its Riser Manager, in each case as determined by the Landlord, acting reasonably, and subject to the foregoing, Landlord shall have the right at any time from time to time during the Term to require Tenant at its expense to exercise the termination right and to contract for telecommunication service with a different service provider.

As part of the Tenant’s Work, the Tenant shall be responsible for the costs associated with the supply and installation of telephone, computer and other communication equipment and systems related wiring within the Premises to the boundary of the Premises for hook up or other integration with telephone and other communication equipment and systems of a telephone or other communication service provider, which equipment and systems of the service provider are located or are to be located in the Building pursuant to Landlord’s standard form of license agreement.

Landlord shall supply space in risers in the Building and space on floor(s) of the Building in which the Premises are located, the location of which shall be designated by Landlord in its discretion, to telecommunication service providers who have entered into Landlord’s standard form of license agreement for the purpose, without any cost or expense to Landlord therefor, of permitting installation in such risers and on such floor(s) of telephone and other communication services and systems (including data cable patch panels) to the Premises at a point designated by Landlord.

Landlord shall have the right to assume control of cables and other telecommunication equipment in the Building (excluding the Premises) and may designate them as part of the Common Areas.

If the Tenant is a corporation, the Tenant confirms and agrees that this Lease has been executed by its authorized signatories and that if only one signatory has signed this Lease, the Tenant is authorized by its articles of incorporation or other constating documents to execute leases by such sole authorized signatory and if this Lease is not executed under seal by the Tenant, the Tenant is authorized by its articles of incorporation or other constating documents to execute leases without a seal.

Save and except as otherwise specifically provided in the Lease, whenever there is a dispute between the parties to this Lease, either the Landlord and the Tenant may deliver to the other written notice requiring arbitration. If the Landlord and the Tenant are unable to agree on an arbitrator within five (5) days after the date of receipt of such notice, either party may apply to the superior court of competent jurisdiction of the Province of British Columbia for the appointment of a single arbitrator under the provisions of the commercial arbitration or arbitration legislation then in force in the Province. The Landlord and the Tenant will irrevocably authorize and instruct the arbitrator to determine the dispute without bias toward or against either party. Any submission to arbitration will be deemed to be a submission under the commercial arbitration legislation then in force in the Province of British Columbia, except that any limitation on the remuneration of the arbitrator will not apply. The arbitrator’s determination of the dispute will be conclusive and binding on the Landlord and the Tenant. Costs will be awarded in the arbitrator’s discretion. Each of the Landlord and the Tenant will co-operate with the arbitrator fully and expeditiously.

1.		“Additional Rent” means all sums of money or charges required to be paid by the Tenant under this Lease (except Net Rent) whether or not the same are designated “Additional Rent” or are payable to the Landlord or otherwise.

2.		“Affiliate” has the meaning ascribed thereto in the Business Corporations Act (Canada).

3.		“Alterations” means all repairs, replacements, improvements or alterations to the Premises by the Tenant.

4.		“Architect” means the architect or engineer from time to time named by the Landlord.

5.		“Building” means the multi-storey building known municipally as 250 Howe Street, Vancouver, British Columbia and generally as “PricewaterhouseCoopers Place” which forms part of the Complex, including the roof thereof and including all premises rented or intended to be rented therein, whether for office, retail, banking or other purposes; and facilities serving the Building or having utility in connection therewith, as determined by the Landlord, whether or not located directly under the Building, which areas and facilities may include, without limitation, internal malls, sidewalks and plazas, exhibit areas, storage and mechanical areas, janitor rooms, mail rooms, telephone, mechanical and electrical rooms, stairways, escalators, elevators, truck and receiving areas, driveways, parking facilities, loading docks and corridors and includes all other buildings, structures or improvements relating thereto and erected on or about the Lands from time to time, including, without limitation, any lands, structures, easements or appurtenances to or in favour of the Lands used as part of or in connection with the Building, all outside areas, landscaped areas, roadways and driveways, ramps, outside and covered parking areas and walkways, existing or to be constructed from time to time, in, under or upon the Lands and any additions, expansions and improvements made thereon.

6.		“Business Day” means any day of the week other than a Saturday, Sunday or any statutory holiday in either of the Provinces of Ontario or British Columbia.

7.		“Capital Tax” is an amount determined by multiplying each of the “Applicable Rates” by the “Building Capital” and totalling the products. “Building Capital” is the amount of capital which the Landlord determines, without duplication, is invested from time to time by the Landlord, the owners, or all of them, in doing all or any of the following: acquiring, developing, expanding, redeveloping and improving the Lands and Building. Building Capital will not be increased by any financing or refinancing except to the extent that the proceeds are invested directly as Building Capital. An “Applicable Rate” is the capital tax rate specified from time to time under any statute of Canada and any statute of the Province which imposes a tax in respect of the capital of corporations. Each Applicable Rate will be considered to be the rate that would apply if none of the Landlord or the owners employed capital outside of the Province.

8.		“Change of Control” means, in the case of the Tenant, the transfer or issue by sale, assignment, subscription, transmission on death, mortgage, charge, security interest, operation of law or otherwise, of any of the Tenant’s shares, voting rights or interest which would result in any change in the ownership of the Tenant.

9.		“Commencement Date” means May 1, 2003. Provided, however, that if the Possession Date should be delayed beyond November 15, 2002, the Commencement Date shall be extended by each day that the Possession Date is so delayed.

10.		“Complex” means the multi-use commercial development located on and in the area of the Lands which is comprised of the Building, the office building and parking facilities known as Granville Square, the office, retail and parking developments known as The Station and Waterfront Centre, the Parking Facilities and all other buildings, improvements and facilities relating thereto from time to time.

11.		“CPI” shall mean (a) the Consumer Price Index (All Items for Regional Cities, base year 1992=100) for Vancouver, or if there is no Consumer Price Index for that city, for the city in Canada nearest the Building for which there is a Consumer Price Index published by Statistics Canada (or by a successor or other governmental agency, including a provincial agency), or (b) if the Consumer Price Index is no longer published, an index

		published in substitution for the Consumer Price Index or any replacement index designated by the Landlord. If a substitution is required, the Landlord will make the necessary conversions. If the base year for the Consumer Price Index (or the substituted or replacement index) is changed by Statistics Canada (or by its successor or other governmental agency) the Landlord will make the necessary conversion. If any calculation is required to be made under this Lease based on CPI as at a particular date or for a particular period and the CPI for such date or period is not available as at the time the calculation is required to be made, the Landlord shall be entitled to estimate the CPI for the purposes of such calculation, subject to adjustment following the CPI for the relevant date or period becoming available.

12.		“Designated Premises” shall have the meaning ascribed thereto in Section 2.05(d).

13.		“Environmental Laws” means all applicable federal, provincial and municipal laws, regulations, by-laws, standards, requirements, ordinances, codes, policies, guidelines, orders, notices, permits or directives, or parts thereof, pertaining to protection, conservation, utilization, impairment or degradation of the environment in effect as of the date hereof and as may be brought into effect or amended at a future date.

14.		An “Event of Default” shall occur whenever:

	(a)		any Rent is in arrears and is not paid within seven (7) Business Days after written demand by the Landlord;

	(b)		the Tenant has breached any of its obligations in this Lease (other than the payment of Rent) and: (i) fails to remedy such breach within fifteen (15) days (or such shorter period as may be expressly provided in this Lease); or (ii) if such breach cannot be reasonably remedied within fifteen (15) days or such shorter period, the Tenant fails to commence to remedy such breach within such fifteen (15) days or shorter period or thereafter fails to proceed diligently to remedy such breach to completion; in either case after notice in writing from the Landlord;

	(c)		the Tenant or any Indemnifier becomes bankrupt or insolvent or takes the benefit of any statute for bankrupt or insolvent debtors or makes any proposal, assignment or arrangement with its creditors, or any steps are taken or proceedings commenced by any Person for the dissolution, winding-up or other termination of the Tenant’s existence or the liquidation of its assets;

	(d)		any execution, attachment or similar process shall be issued against the Tenant or any encumbrancer shall take any action or proceeding whereby any of the improvements, trade fixtures, furnishings or personal property on the Premises or any portion thereof shall be taken or attempted to be taken by someone other than the Tenant, unless such execution, attachment or similar process, action or proceeding be set aside, vacated, discharged or abandoned within 10 days after its commencement;

	(e)		an order shall be made or an effective resolution passed for the winding-up or liquidation of the Tenant or the surrender or forfeiture of its charter;

	(f)		a trustee, receiver, receiver/manager or like Person is appointed with respect to all or part of the business or assets of the Tenant or any Indemnifier;

	(g)		the Tenant makes a sale in bulk of all or a substantial portion of its assets other than in conjunction with a Transfer approved by the Landlord;

	(h)		this Lease or any of the Tenant’s assets are taken under a writ of execution;

	(i)		the Tenant purports to make a Transfer other than in compliance with the provisions of this Lease;

	(j)		the Tenant abandons or attempts to abandon the Premises or disposes of its goods so that there would not after such disposal be sufficient goods of the Tenant on the Premises subject to distress to satisfy Rent for at least 3 months, or the Premises become vacant and unoccupied for a period of 10 consecutive Business Days or more without the consent of the Landlord;

	(k)		any insurance policies covering any part of the Building or any occupant thereof are actually or threatened to be cancelled or adversely changed as a result of any use or occupancy of the Premises;

	(l)		if the Tenant shall default in the full and timely performance of any covenant of this Lease and any such default shall be repeated 2 times in any Lease Year, notwithstanding that such defaults may have been cured within the period after notice has been provided pursuant to Subsections (a) or (b) hereof;

	(m)		if an Event of Default as defined in this paragraph occurs with respect to any lease or agreement under which the Tenant occupies other premises in the Building; or

	(n)		if the Tenant or any Indemnifier is a corporation and at any time during the Term does not remain in good standing with the applicable governmental authority and such failure is not remedied within a reasonable period of time.

15.		“Fiscal Year” means (i) the period of time commencing on the Commencement Date and ending on the last day of the next ensuing October; and (ii) thereafter the period of time commencing on the first day of November and ending on the last day of the next ensuing October, or (iii) the fiscal period designated by the Landlord from time to time.

16.		“Fixturing Period” means the period commencing on Possession Date and ending at 11:59 p.m. on the day preceding the Commencement Date.

17.		“Hazardous Substance” means any substance or material whose discharge, release, use, storage, handling or disposal is regulated, prohibited or controlled, either generally or specifically, by any governmental authority pursuant to or under any Environmental Laws, including, but not limited to, any contaminant, pollutant, deleterious substance, or material which may impair the environment, petroleum and other hydrocarbons and their derivatives and by-products, dangerous substances or goods, asbestos, gaseous, solid and liquid waste, special waste, toxic substance, hazardous or toxic chemical, hazardous waste, hazardous material or hazardous substance, either in fact or as defined in or pursuant to any Environmental Laws.

18.		“Indemnifier” means Electronic Arts, Inc., its successors and assigns.

19.		“Landlord” means the party named as landlord on the first page of this Lease, and those for whom it is responsible in law.

20.		“Landlord’s Work” means the items of work to be completed by the Landlord with respect to the Premises as described in the Lease Proposal and as described in this Lease.

21.		“Lands” means the lands situated in the City of Vancouver in the Province of British Columbia on which the Building will be constructed, as more particularly described in Schedule “A”, or as such lands may be expanded or reduced from time to time by the Landlord.

22.		“Lease” or “lease” means this document as originally signed, sealed and delivered or as amended from time to time, which amendments shall be in writing, signed, sealed and delivered by both the Landlord and the Tenant.

23.		“Lease Proposal” means the offer to lease dated the 30th day of August, 2002, as amended, between the Landlord and the Tenant with respect to the Premises.

24.		“Lease Year” means the twelve (12) month period commencing on the Commencement Date unless the Commencement Date is not the first day of the month in which case it will commence on the first day of the month immediately following the Commencement Date, and each twelve (12) month period thereafter.

25.		“Leasehold Improvements” mean leasehold improvements in the Premises determined according to common law, and shall include, without limitation, all fixtures, improvements, installations, alterations and additions from time to time made, erected or installed in the Premises by or on behalf of the Tenant or any previous occupant of the Premises, including signs and lettering, partitions, doors and hardware, however affixed and whether or not movable, all mechanical, electrical and utility installations and all carpeting and drapes with the

		exception only of furniture and equipment not in the nature of fixtures. For greater certainty, under no circumstances whatsoever shall Leasehold Improvements include any Trade Fixtures.

26.		“Letter of Credit” means an irrevocable, unconditional and transferable letter of credit in favour of the Landlord (including, without limitation, a requirement that such Letter of Credit shall either automatically renew or shall provide that if it is not renewed at least 30 days prior to its expiry, Landlord may draw thereon and such Letter of Credit shall provide for partial drawings thereunder) issued by one of the five largest Canadian chartered banks listed in Schedule 1 to the Bank Act (Canada) and shall otherwise be in such form and substance as is satisfactory to the Landlord, acting reasonably.

27.		“Mortgage” means any and all mortgages, charges, debentures, security agreements, trust deeds, hypothecs or like instruments resulting from financing, refinancing or collateral financing (including renewals or extensions thereof) made or arranged by the Landlord of its interest in all or any part of the Building or Lands.

28.		“Mortgagee” means the holder of, or secured party under, any Mortgage and includes any trustee for bondholders.

29.		“Net Rent” means the annual rent payable by the Tenant under Section 2.02.

30.		“Normal Business Hours” means the hours from 7:00 a.m. to 6:00 p.m. (or 7:00 p.m. where such definition applies to the hours of operation of the HVAC systems) on Mondays through Fridays and the hours from 8:00 a.m. to 1:00 p.m. on Saturday, unless any such day is a statutory holiday, legal or civic holiday in British Columbia.

31.		“Operating Costs” means for any period designated by the Landlord any amounts paid or payable whether by the Landlord or by others on behalf of the Landlord for maintenance, operation, repair, replacement to and administration of the Lands and Building, including without limitation the fitness centre (which shall be deemed to be $0.19 per square foot in this first lease year), the conference centre and the Parking Facilities, or reasonably and fairly allocated by the Landlord to the Lands and Building and portions of the Complex and for services provided generally to tenants of the Building, calculated as if the Building were 100% occupied by tenants during the Term, including without limitation or duplication:

	(a)		the cost of insurance which the Landlord is obligated or permitted to obtain under this Lease and any deductible amount applicable to any claim made by the Landlord under such insurance;

	(b)		the cost of security, janitorial, cleaning, landscaping, window cleaning, garbage removal and snow removal services, the cost of providing loudspeakers, public address and musical broadcasting systems and providing fire protection and detection systems, communications systems and connections;

	(c)		the cost of heating, ventilating and air-conditioning;

	(d)		the cost of fuel, steam, water, electricity, telephone and other utilities used in the maintenance, operation or administration of the Building, including the replacement of building standard electric bulbs, tubes, starters and ballasts; including charges and imposts related to such utilities to the extent such costs, charges and imposts are not recovered from other tenants;

	(e)		on-site management office expenses of operation (or to the extent there is no on-site management offices, a portion of the operating expenses of the off-site management office bearing responsibility for, inter alia, the Building determined by the Landlord on an equitable basis), and salaries, wages and other amounts paid or payable for all personnel involved in the repair, maintenance, operation, management, security, supervision or cleaning of the Building, including fringe benefits, employment and worker’s compensation insurance premiums, pension plan contributions and other employment costs and the cost of engaging contractors for the repair, maintenance, security, supervision or cleaning of the Building;

	(f)		auditing, accounting, legal and other professional and consulting fees and disbursements;

	(i)		of repairing, operating and maintaining the Building and the equipment serving the Building and of all replacements and modifications to the Building or such equipment, including those made by the Landlord in order to comply with laws or regulations affecting the Building;

	(ii)		incurred by the Landlord in providing and installing energy conservation equipment or systems and life safety systems;

	(iii)		incurred by the Landlord to make alterations, replacements or additions to the Building intended to reduce operating costs, improve the operation of the Building or maintain its operation as a first class office building; and,

	(iv)		incurred to replace machinery or equipment which by its nature requires periodic replacement;

all to the extent that such costs are fully chargeable in the Fiscal Year in which they are incurred in accordance with sound accounting principles;

	(h)		the cost of the rental of all equipment, supplies, tools, materials and signs;

	(i)		all costs incurred by the Landlord in administering, contesting or appealing taxes or related assessments including legal, appraisal and other professional fees, and administration and overhead costs;

	(j)		Capital Tax (unless the Landlord is Ontrea Inc. and Ontrea Inc. continues to be exempt from the payment of Capital Tax), any Tenant’s Taxes which may be imposed on the Landlord, or its managing agents, by reason of its operation of the Building and water rates, special licence fees or levies for the Building other than Taxes, Other Taxes and Tenant’s Taxes;

	(k)		depreciation or amortization of the costs referred to in paragraph 31(g) above as determined by the Landlord in accordance with sound accounting principles, if such costs (in accordance with sound accounting principles) have not been charged fully in the Fiscal Year in which they are incurred;

	(l)		interest calculated at 2 percentage points above the average daily prime bank commercial lending rate charged during such rental year by any Canadian chartered bank designated from time to time by the Landlord upon the undepreciated or unamortized balance of the costs referred to in paragraph 31(k); and

	(m)		an administrative overhead charge equal to 15% of the aggregate of all of the foregoing costs and amounts.

		“Operating Costs” in respect of the Complex which the Landlord determines are not exclusive to the Building but which serve or benefit the Building and the tenants or invitees thereof (including, without limitation, the Parking Facilities), will be allocated by the Landlord amongst the various components of the Complex in accordance with reasonable, equitable and current practices relevant to multi-use commercial developments adopted by the Landlord on a basis consistent with the benefits derived by the components of the Complex and having regard to the nature of the particular cost and expense being allocated. For greater certainty, no cost will be allocated to the Building if the tenants of the Building or the users of the Parking Facility do not derive any benefit from such cost

		Operating Costs shall exclude or have deducted from them as the case may be, all as calculated in accordance with Canadian generally accepted accounting principles consistently applied:

(aa)

all amounts which otherwise would be included in Operating Costs which are recovered by the Landlord from tenants (other than under sections of their leases comparable to Section 2.03 of this Lease);

	(bb)		such of the Operating Costs as are recovered from insurance proceeds, warranties or guarantees, to the extent such recovery represents reimbursements for costs previously included in Operating Costs;

	(cc)		interest on debt and capital retirement of debt;

	(dd)		ground rent payable by the Landlord to the owner of the Lands under any ground lease of the Lands;

	(ee)		commissions and other expenses payable in connection with the marketing and leasing of the Building including the cost of any leasehold improvement allowance or other inducement paid to tenants of the Building; and

	(ff)		the amount of any goods and services tax (“G.S.T.”) paid or payable by the Landlord on the purchase of goods and services included in Operating Costs which may be available to the Landlord as a credit in determining the Landlord’s net tax liability or refund on account of G.S.T.

32.

“Other Taxes” means any and all goods and services tax, sales tax, multi-stage tax, value added tax, consumption tax or any other similar taxes, levies, duties and assessments (other than income taxes) imposed on the Landlord, the Tenant or both of them with respect to:

	(i)		any or all amounts payable by the Tenant to the Landlord as Rent; and

	(ii)		this Lease, or services supplied or provided by the Landlord in accordance with the terms of this Lease,

		which Other Taxes shall be determined and paid by the Tenant in accordance with the provisions of Article II, but not including any goods and services taxes that the Tenant has agreed to pay pursuant to this Lease.

33.		“Overhead Charge” means a sum equal to 15% of the applicable cost incurred representing the Landlord’s overhead.

34.		“Parking Facilities” means the parking facility forming part of the Complex which is located on both the Lands and lands adjacent thereto or within 300 feet thereof, which are owned or controlled by the Landlord and which serve the Complex.

35.		“Person” means any person, firm, partnership or corporation, or any group or combination of persons, firms, partnerships or corporations.

36.		“Possession Date” means the date that construction of the Building and the Landlord’s Work with respect to the Premises has been completed to the extent required to permit the Tenant to commence the Tenant’s Work and the Tenant has been provided possession of the whole of the Premises for such purposes, it being acknowledged that the Landlord shall not be required to provide to the Tenant the cross-over corridors until December 9, 2002 and that, subject to the foregoing, if the Landlord’s Work has been completed to the state described above, the Possession Date shall be deemed to have occurred.

37.		“Premises” means the premises leased to the Tenant described in Section 1.01 and includes Leasehold Improvements in such premises.

38.		“Proportionate Share” means a fraction which has as its numerator the Rentable Area of the Premises and as its denominator the Total Rentable Area of the Building, but in the case of calculating the Tenant’s share of Taxes and Operating Costs means a fraction which has its numerator the Rentable Area of the Premises and as its denominator the aggregate of the Rentable Area of each floor in the Building used or intended to be used for office purposes, calculated as if each floor is occupied by one tenant and making the same exclusions as set out in Paragraph 50 below.

39.		“Province” means the province in which the Building is located.

40.		“Rent” means the aggregate of Net Rent and Additional Rent.

41.		“Rentable Area” means with reference to the Premises or any other premises in the Building means the area of the Premises, or such other premises, expressed in square feet in accordance with the BOMA American National Standard ANSI Z65.1-1980 (Reaffirmed 1989) method of floor measurement for office buildings in Canada, as contemplated in Section 2.09.

42.		“Revenues” means, in connection with the Tenant, the Tenant’s revenues for its fiscal year recognized based on product development expenses incurred on behalf of Electronic Arts Inc. on a cost plus basis or as determined in accordance with generally accepted accounting principles, whichever is greater.

43.		“Rules and Regulations” means the rules and regulations adopted and promulgated by the Landlord from time to time pursuant to Section 12.01. The Rules and Regulations existing as at the Commencement Date are those set out in Schedule “D”.

44.		“Share” shall have the meaning ascribed thereto in Section 2.05(d).

45.		“Taxes” means all taxes, levies, charges, local improvement rates and assessments whatsoever, (including but not limited to, any present or future commercial concentration tax or levy and every other tax, rate, duty, levy or assessment charged or assessed based upon the floor area of a building or any part or parts thereof) assessed or charged against the Building and the Lands or any part thereof by any lawful taxing authority and including any amounts assessed or charged in substitution for or in lieu of any such taxes, but excluding only such taxes as capital gains taxes, corporate, income, profit or excess profit taxes to the extent such taxes are not levied in lieu of any of the foregoing against the Building or Lands or the Landlord in respect thereof. Taxes shall in every instance be calculated on the basis of the Total Rentable Area of the Building being fully assessed and taxed at prevailing commercial tax rates for occupied space for the period for which Taxes are being calculated. Provided, however, that if there is any local improvement, charge or assessment which has directly resulted by virtue of any redevelopment initiated by the Landlord of any portion of the Complex (other than the Building, the Lands and/or the Parking Facilities) which does not result in a benefit to any tenant in the Building, such local improvement, charge or assessment shall be excluded from the determination of “Taxes” for the purposes of this Lease.

46.		“Tenant” means the party named as tenant on the first page of this Lease, and those for whom it is responsible in law.

47.		“Tenant’s Taxes” means all business, sales, machinery or other taxes, rates, duties, assessments, licence fees and other charges levied, charged or imposed by any competent authority with respect to the business operations of the Tenant or the equipment and facilities of the Tenant or other occupant of the Premises on or in the Premises and in respect of the Tenant’s use or occupation of the Premises and every business carried on therein (including every subtenant or licensee), whether imposed on the Landlord or Tenant.

48.		“Tenant’s Work” means all items of work, other than the Landlord’s Work, which are necessary to properly complete the Premises ready for use and occupancy of the Tenant for the purpose of its business.

49.		“Term” means the period of time set out in Section 1.02.

50.		“Total Rentable Area of the Building” means the aggregate of the Rentable Area of each floor in the Building intended for office or retail use as if each floor is occupied by one tenant, all as determined by the Architect. The Total Rentable Area of the Building shall: (a) exclude the main telephone, mechanical, electrical and other utility rooms and enclosures, public lobbies on the ground floor, and other public space common to the entire Building; and, (b) be adjusted by the Architect from time to time to take account of any structural, functional or other change affecting the same.

51.		“Trade Fixtures” means trade fixtures as determined at common law and shall include without limitation, speciality millwork, shelving, partitions, speciality lighting fixtures, telecommunications equipment, facilities, systems and all related accessories, any heating, ventilating and air-conditioning equipment which is not part of or linked to the Building system, all computer equipment (including without limitation, server and network closets, servers, desktops, network equipment and facilities, monitors, printers, and fax machines), all security equipment and systems (including cameras, recorders and related accessories), in each case which is not linked into the Building systems, all video, audio and multi-media equipment and systems, and certain other “built-in”

electronic equipment and facilities, in each case which is not linked into the Building systems but for greater certainty, shall not include:

	(a)		heating, ventilating or air conditioning systems, facilities and equipment in or serving the Premises, which are part of the Building system;

	(b)		floor covering affixed to the floor of the Premises;

	(c)		building standard light fixtures;

	(d)		internal stairways and doors; and,

	(e)		any fixtures, facilities, equipment or installations installed by or at the expense of the Landlord pursuant to this Lease or otherwise.

52.		“Transfer” means an assignment of this Lease in whole or in part, a sublease of all or any part of the Premises (whether by the Tenant or by a subtenant), any transaction whereby the rights of the Tenant under this Lease or the rights of any subtenant to the Premises or any part thereof are transferred to another, any transaction by which any right of use or occupancy of all or any part of the Premises is conferred upon anyone, any mortgage, charge or encumbrance of this Lease or the Premises or any part thereof or other arrangement under which either this Lease or the Premises become security for any indebtedness or other obligations and includes any transaction or occurrence whatsoever (including, but not limited to, expropriation, receivership proceedings, seizure by legal process and transfer by operation of law), which has changed or might change the identity of the Persons having lawful use or occupancy of any part of the Premises or which creates a security interest in any part of the Premises, including without limitation, any of the Leasehold Improvements.

53.		“Transferee” means the Person or Persons to whom a Transfer is or is to be made.

54.		“Trigger Event” means any one of the following circumstances having occurred:

	(a)		the Tenant shall cease to employ more than five hundred (500) full-time or part-time employees;

	(b)		the Tenant’s Revenues shall be less than Thirty Million Dollars (Cdn $30,000,000); and

	(c)		if less than 51% of any class of shares in the capital of the Tenant shall cease to be owned by the Indemnifier.

	(a)		The Tenant shall not do or permit anything to be done in the Premises, or bring or keep anything therein which may damage the Complex or which will in any way increase the risk of fire or the rate of fire insurance on the Building or on property kept therein, or obstruct or interfere with the rights of other tenants or in any way injure or annoy them or the Landlord, or violate or act at variance with the laws relating to fires or with regulations of the Fire Department, or with any insurance upon the Lands or Building or in any part thereof, or violate or act in conflict with any statutes, rules and ordinances governing health standards or with any other statute or municipal by-law.

	(b)		No inflammable oils or other inflammable, dangerous or explosive materials save those approved in writing by the Landlord’s insurers shall be kept or permitted to be kept in the Premises.

	(a)		The Landlord shall permit the Tenant and the Tenant’s employees and all Persons lawfully requiring communication with them to have the use, during Normal Business Hours in common with others entitled thereto, of the main entrance and the stairways, corridors, elevators, escalators, or other mechanical means of access leading to the Building and the Premises. At times other than during Normal Business Hours the Tenant and the employees of the Tenant shall have access to the Building and to the Premises only in accordance with the Rules and Regulations and shall be required to satisfactorily identify themselves and to register in any book which may at the Landlord’s option be kept by the Landlord for such purpose. If identification is not satisfactory, the Landlord is entitled to prevent the Tenant or the Tenant’s employees or other Persons lawfully requiring communication with the Tenant from having access to the Building and to the Premises. In addition, the Landlord is not required to open the door to the Premises for the purpose of permitting entry therein to any Person not having a key to the Premises. Each tenant shall be responsible for all persons authorized to have access to the Building and shall be liable to the Landlord for all their acts while in the Building. When security service is in effect during non-business hours entrances, deliveries and exits shall be made via designated entrances and the Landlord may require all persons to sign a register on entering and leaving the Building;

	(b)		The Tenant shall not place or cause to be placed any additional locks or bolts of any kind upon any doors or windows of the Premises without the approval of the Landlord nor shall any changes whatsoever be made to existing locks or the mechanics thereof, except by Landlord, at its option. Two keys shall be supplied to the Tenant for each entrance door to the Premises and all locks shall be Building standard to permit access by the Landlord’s master key. If additional keys are required, they must be obtained from the Landlord at the cost of the Tenant. Keys or other means of access for entrance doors to the Building will not be issued without the written authority of the Landlord. The Tenant will lock all entrance doors in the Premises and close all windows when not in use. If without the Landlord’s consent, the Tenant installs any locks incompatible with the building master locking system:

		(A) the Landlord, without abatement of Rent, shall be relieved of any obligation under this Lease to provide any service to the affected area which requires access thereto;

		(B) the Tenant shall indemnify the Landlord against any expense as a result of forced entry thereto which may be required in an emergency; and

		(C) the Tenant shall, at the end of the Term and in any event upon the Landlord’s request, remove such locks at the Tenant’s expense.

	(a)		The Tenant shall permit window cleaners to clean the windows of the Premises during Normal Business Hours and will keep the inside of all glass in the doors and windows of the Premises clean.

	(b)		The Tenant shall not place any debris, garbage, trash or refuse or permit same to be placed or left in or upon any part of the Lands or Building outside of the Premises, other than in a location provided by the Landlord specifically for such purposes, and the Tenant shall not allow any undue accumulation of any debris, garbage, trash or refuse in or outside of the Premises. If the Tenant uses perishable articles or generates wet garbage, the Tenant shall provide refrigerated storage facilities suitable to the Landlord. When required by a governmental authority having jurisdiction, the Tenant shall provide, within the Premises, facilities or accommodation for garbage and waste and its disposal and pick-up, as required.

	(c)		The Tenant shall not place or maintain any supplies, or other articles in any vestibule or entry of the Premises, on the adjacent footwalks or elsewhere on the exterior of the Premises or elsewhere on the Lands or Building.

	(c)		The sidewalks, entrances, passages, escalators, elevators and staircases shall not be obstructed or used by the Tenant, its agents, servants, contractors, invitees or employees for any purpose other than ingress to and egress from the Premises and the Building. The Landlord reserves entire control of all parts of the Lands and Building employed for the common benefit of the tenants and without restricting the generality of the foregoing, the sidewalks, entrances, corridors and passages not within the Premises, washrooms, lavatories, air conditioning closets, fan rooms, janitor’s closets, electrical closets and other closets, stairs, escalators, elevator shafts, flues, stacks, pipe shafts and ducts and shall have the right to place such signs and appliances therein, as it deems advisable, provided that ingress to and egress from the Premises is not unduly impaired thereby.

	(d)		The Tenant will not permit the parking of delivery vehicles so as to interfere with the use of any driveway, walkway, parking area, mall or other facilities in the Building.

	(e)		The Tenant shall not cause or permit: any waste or damage to the Premises; any overloading of the floors or the utility, electrical or mechanical facilities of the Premises; any nuisance in the Premises; or any use or manner of use causing a hazard or annoyance to other occupants of the Building or to the Landlord.

	(a)		The Tenant shall not receive, load, unload or ship articles of any kind except through facilities and designated doors and at hours designated by the Landlord from time to time and under the supervision of the Landlord. The Tenant shall promptly pay or cause to be paid to the Landlord the cost of repairing to the satisfaction of the Landlord any damage in the Building caused by any person making such deliveries.

	(b)		Hand trucks, carryalls or similar appliances shall only be used in the Building with the consent of the Landlord and shall be equipped with rubber tires, slide guards and such other safeguards as the Landlord requires.

	(c)		The Tenant, its agents, servants, contractors, invitees or employees, shall not bring in or take out, position, construct, install or move any safe, business machinery or other heavy machinery or equipment or anything liable to injure or destroy any part of the Building, including the Premises, without first obtaining the consent in writing of the Landlord. In giving such consent, the Landlord shall have the right in its sole discretion, to prescribe the weight permitted and the position thereof, the use and design of planks, skids or platforms, and to distribute the weight thereof. All damage done to the Building, including the Premises, by moving or using any such heavy equipment or other office equipment or furniture shall be repaired at the expense of the

Tenant. The moving of all heavy equipment or other office furniture shall occur only by prior arrangement with the Landlord. The cost of such moving shall be paid by the Tenant. Safes and other heavy office equipment and machinery shall be moved through the halls and corridors only in a manner expressly approved by the Landlord. No freight or bulky matter of any description will be received into any part of the Building, including the Premises, or carried in the elevators except during hours approved by the Landlord.

	(a)		It shall be the duty of the Tenant to assist and co-operate with the Landlord in preventing injury to the Premises.

	(b)		The Tenant shall not deface or mark any part of the Building, including the Premises, and shall not drive nails, spikes, hooks or screws into the walls, floors, ceilings or woodwork of any part of the Building, including the Premises, or bore, drill or cut into the walls, floors, ceilings or woodwork of any part of the Building including the Premises, in any manner or for any reason. Notwithstanding the foregoing, the Tenant shall be entitled to hang pictures within the Premises.

	(c)		If the Tenant desires telegraphic or telephonic connections, the Landlord, in its sole discretion, may direct the electricians as to where and how the wires are to be introduced. No gas pipe or electric wire will be permitted which has not been ordered or authorized by the Landlord. No outside antenna of any nature shall be allowed on any part of the Premises without authorization in writing by the Landlord.

6.		Windows

		Except for the proper use of Landlord approved blinds and drapes (which the Tenant shall be required to provide in accordance with the Building standard), the Tenant shall not cover, obstruct or affix any object or material to any of the skylights and windows that reflect or admit light into any part of the Building, including, without limiting the generality of the foregoing, the application of solar films.

		The Tenant will use all reasonable efforts to cause all windows and all sun control units on all windows exposed to the sun in the Premises to be kept closed at all times when the air conditioning system of the Building is in operation and will abide by all reasonable rules and regulations which the Landlord may from time to time find necessary to make for the proper and efficient operation thereof.

7.		Washrooms

	(a)		The Landlord shall permit the Tenant and the employees of the Tenant in common with others entitled thereto, to use the washrooms on the floor of the Building on which the Premises are situated or, in lieu thereof, those washrooms designated by the Landlord, save and except when the general water supply may be turned off from the public main or at such other times when repair and maintenance undertaken by the Landlord shall necessitate the non-use of the facilities.

	(b)		The water closets and other apparatus shall not be used for any purposes other than those for which they were intended, and no sweepings, rubbish, rags, ashes or other substances shall be thrown into them. Any damage resulting from misuse shall be borne by the Tenant by whom or by whose agents, servants, invitees, or employees such damage is caused.

	(c)		The Tenant shall not be permitted to change any of the specifications or designs relating to the washrooms.

(a)

No one shall use the Premises for sleeping apartments, lodging or residential purposes, or for the storage of personal effects or articles other than those required for business purposes, or for any illegal purpose.

	(b)		No cooking or heating of any foods or liquids (other than the heating of water or coffee in coffee makers or kettles or heating by microwave ovens, stoves, toasters or toaster ovens) shall be permitted in the Premises without the written consent of the Landlord, which consent will not be unreasonably withheld or delayed. For greater certainty, the Tenant shall be entitled to have dishwashers at the Premises.

	(c)		The Tenant shall not install or permit the installation or use of any machine dispensing goods for sale in the Premises or the Building (other than food and drink dispensing machines for the use of the Tenant’s employees) or rendering services or providing, however operated, entertainment or permit the delivery of any food or beverage to the Premises (other than the serving of prepared catered foods) without the written approval of the Landlord or in contravention of the Rules and Regulations.

	(d)		The Tenant shall not permit or allow any odours, vapours, steam, water, vibrations, noises or other undesirable effects to emanate from the Premises or any equipment or installation therein which, in the Landlord’s opinion, are objectionable or cause any interference with the safety, comfort or convenience of the Building to the Landlord or the occupants and tenants thereof or their agents, servants, invitees or employees.

9.		Canvassing, Soliciting, Peddling

		Canvassing, soliciting and peddling in or about the Lands and Building are prohibited.

10.		Bicycles

		No bicycles or other vehicles shall be brought within any part of the Lands or Building other than to the locations identified by the Landlord within the Parking Facilities without the consent of the Landlord.

11.		Animals and Birds

		No animals or birds shall be brought into any part of the Lands or Building without the consent of the Landlord.

12.		Signs and Advertising

		The Tenant shall not paint, affix, display or cause to be painted, affixed or displayed, any sign, picture, advertisement, notice, lettering or decoration on any part of the outside of the Building or in the interior of the Premises which is visible from the outside of the Building. The Landlord will prescribe a uniform pattern and location of identification signs for tenants to be placed on the outside of (or beside, as the case may be) the interior door leading to the Premises shall be: (i) installed by the Landlord at the Tenant’s sole cost and expense; (ii) consistent with the uniform pattern, size and design prescribed by the Landlord; (iii) the property of the Landlord and shall be maintained by the Landlord throughout the Term at the Tenant’s sole cost and expense; and (iv) removed by the Landlord (or, at the Landlord’s option, by the Tenant) at the sole cost and expense of the Tenant. All damage caused by the removal of such sign shall be promptly repaired by the party that removed the sign, at the Tenant’s sole cost and expense. The Tenant’s obligation to observe and perform this covenant shall survive the expiration of the Term or earlier termination of the Lease.

13.		Directory Board

		The Tenant shall be entitled at its expense to have its name shown upon the directory board in the main lobby of the Building and in the elevator lobby on the floor on which the Premises are located (if the Premises are located on a multi-tenant floor). The Landlord shall design the style of such identification and shall determine the number of spaces available on the directory board(s) for each tenant. The directory board(s) shall be located in an area designated by the Landlord.

14.		Smoking

		The Tenant acknowledges and agrees that the Landlord shall have the right to designate non-smoking areas in any portion of the Building and the Complex, including the Premises.

In order to induce the Landlord to enter into the Lease (the “Lease”) dated the 7th day of October, 2002, and made between the Landlord and Electronic Arts (Canada), Inc. as Tenant and for other good and valuable consideration, the receipt and sufficiency whereof is hereby acknowledged, the Indemnifier hereby makes the following indemnity and agreement (the “Indemnity”) with and in favour of the Landlord:

1.	(a)	The Indemnifier hereby agrees with the Landlord that at all times during the Term of the Lease and any extensions or renewals thereof or overholding by the Tenant under the Lease, it will (i) after any default by the Tenant under the Lease, make the due and punctual payment of all Rent, monies, charges and other amounts of any kind whatsoever payable under the Lease by the Tenant whether to the Landlord or otherwise; (ii) effect prompt and complete performance and observance of all and singular the terms, covenants and conditions contained in the Lease on the part of the Tenant to be kept, observed and performed; and (iii) indemnify and save harmless the Landlord from any loss, costs or damages arising out of any failure by the Tenant and the Indemnifier to pay the aforesaid Rent, monies, charges and other amounts of any kind whatsoever payable under the Lease or resulting from any failure by the Tenant and the Indemnifier to observe or perform any of the terms, covenants and conditions contained in the Lease.

	(b)	The Indemnifier’s covenants and obligations set out in paragraph (a) above will not be affected by any disaffirmance, disclaimer, repudiation, rejection, termination or unenforceability of the Lease by any Person other than the Landlord, or by any other event or occurrence which would have the effect at law of terminating any obligations of the Tenant prior to the termination of the Lease whether pursuant to court proceedings or otherwise and no surrender of the Lease to which the Landlord has not provided its written consent (all of which are referred to collectively and individually in this Indemnity as an “Unexpected Termination”), and the occurrence of any such Unexpected Termination shall not reduce the period of time in which the Indemnifier’s covenants and obligations hereunder apply, which period of time includes, for greater certainty, that part of the Term of the Lease and any extensions or renewals thereof which would have followed had the Unexpected Termination not occurred.

This Indemnity is absolute, unconditional and irrevocable and the obligations of the Indemnifier and the rights of the Landlord under this Indemnity shall not be prejudiced, waived, released, discharged, mitigated, impaired or affected by (a) any extension of time, indulgences or modifications which the Landlord extends to or makes with the Tenant in respect of the performance of any of the obligations of the Tenant (or any other obligated Person) under the Lease; (b) any waiver by or failure of the Landlord to enforce any of the terms, covenants and conditions contained in the Lease; (c) any Transfer under Article VIII of the Lease by the Tenant or by any trustee, receiver, liquidator or any other Person; (d) any consent which the Landlord gives to any such Transfer; (e) any amendment to the Lease or any waiver by the Tenant of any of its rights under the Lease; (f) the expiration of the Term; or (g) any Unexpected Termination (as that term is defined in Section 1(b) above). The obligations of the Indemnifier are as primary obligor and not as a guarantor of the Tenant’s obligations.

3.		The Indemnifier hereby expressly waives notice of the acceptance of this Indemnity and all notice of non-performance, non-payment or non-observance on the part of the Tenant of the terms, covenants and conditions in the Lease. Notwithstanding the foregoing but without prejudicing the foregoing, any notice which the Landlord desires to give to the Indemnifier shall be sufficiently given if delivered to the Indemnifier, or, if mailed, by prepaid registered mail addressed to the Indemnifier at the Premises, or, at the Landlord’s option, at the address, if any, set forth above and every such notice is deemed to have been given upon the day it was delivered, or if mailed, forty-eight (48) hours after the date it was mailed. Despite what is stated above, the Indemnifier acknowledges that if its address is stipulated as a post office box or rural route number, then notice will be considered to have been sufficiently given to the Indemnifier if delivered or sent by registered mail to the Premises or, where notice cannot be given in person upon the Premises, by posting the notice upon the Premises. The Indemnifier may designate by notice in writing a substitute address for that set forth above and thereafter notice shall be directed to such substitute address. If two or more Persons are named as Indemnifier, such notice given hereunder or under the Lease shall be deemed sufficiently given to all such Persons if delivered or mailed in the foregoing manner to any one of such Persons.

4.		If an Event of Default has occurred under the Lease or a default under this Indemnity, the Indemnifier waives any right to require the Landlord to (a) proceed against the Tenant or pursue any rights or remedies against the Tenant with respect to the Lease; (b) proceed against or exhaust any security of the Tenant held by the Landlord; or (c) pursue any other remedy whatsoever in the Landlord’s power. The Landlord has the right to enforce this Indemnity regardless of the acceptance of additional security from the Tenant and regardless of any release or discharge of the Tenant by the Landlord or by others or by operation of any law.

5.		Without limiting the generality of the foregoing, the liability of the Indemnifier under this Indemnity is not and is not deemed to have been waived, released, discharged, impaired or affected by reason of the release or discharge of the Tenant in any receivership, bankruptcy, winding-up or other creditors’ proceedings or any Unexpected Termination (as that term is defined in Section 1(b) above) and shall continue with respect to the periods prior thereto and thereafter, for and with respect to the Term as if an Unexpected Termination or any receivership, bankruptcy, wind-up or other creditors’ proceedings had not occurred, and in furtherance hereof, the Indemnifier agrees, upon any such Unexpected Termination or any receivership, bankruptcy, wind-up or other creditors’ proceedings, that the Indemnifier shall, at the option of the Landlord, exercisable at any time after such Unexpected Termination or any receivership, bankruptcy, wind-up or other creditors’ proceedings, become the Tenant of the Landlord upon the same terms and conditions as are contained in the Lease, applied mutatis mutandis. The liability of the Indemnifier shall not be affected by any failure of the Landlord to exercise this option, nor by any repossession of the Premises by the Landlord provided, however, that the net payments received by the Landlord after deducting all costs and expenses of repossessing and reletting the Premises shall be credited from time to time by the Landlord against the indebtedness of the Indemnifier hereunder and the Indemnifier shall pay any balance owing to the Landlord from time to time immediately upon demand.

6.		No action or proceedings brought or instituted under this Indemnity and no recovery in pursuance thereof shall be a bar or defence to any further action or proceeding which may be brought under this Indemnity by reason of any further default or default hereunder or in the performance and observance of the terms, covenants and conditions contained in the Lease.

7.		No modification of this Indemnity shall be effective unless it is in writing and is executed by both the Indemnifier and two authorized representatives of the Landlord.

8.		The Indemnifier shall, without limiting the generality of the foregoing, be bound by this Indemnity in the same manner as though the Indemnifier were the Tenant named in the Lease.

9.		If two or more individuals, corporations, partnerships or other business associations (or any combination of two or more thereof) execute this Indemnity as Indemnifier, the liability of each such individual, corporation, partnership or other business association hereunder is joint and several. In like manner, if the Indemnifier named in this Indemnity is a partnership or other business association, the members of which are by virtue of statutory or general law, subject to personal liability, the liability of each such member is joint and several.

10.		All of the terms, covenants and conditions of this Indemnity extend to and are binding upon the Indemnifier, his, her or its heirs, executors, administrators, successors and assigns, as the case may be, and enure to the benefit of and may be enforced by the Landlord, the owner or owners from time to time (other than the Landlord) of the freehold or leasehold title of the Building and any Mortgagee.

11.		The expressions “Building”, “Event of Default”, “Landlord”, “Tenant”, “Rent”, “Term”, and “Premises” and other terms or expressions where used in this Indemnity, respectively, have the same meaning as in the Lease.

12.		The use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Indemnity to such person or persons or circumstances as the context otherwise permits.

13.		The undersigned, as Indemnifier, hereby represents and warrants to and covenants and agrees with the Landlord that:

	(a)		notwithstanding the foregoing or any performance in whole or in part by the Indemnifier of the covenants of this Indemnity, the Indemnifier shall not, except at the option of the Landlord, have any entitlement to occupy the Premises or otherwise enjoy the benefits of the Tenant under this Lease;

	(b)		the Indemnifier has full power and authority to enter into this Indemnity and to perform the Indemnifier’s obligations contained herein;

	(c)		this Indemnity is valid and binding upon the Indemnifier and enforceable against the Indemnifier in accordance with its terms; and

	(d)		in entering into this Indemnity the Indemnifier, if a corporation, is not contravening any provisions of the Company Act or the Business Corporations Act of the province in which the Building is located or the Canada Business Corporations Act, as the case may be, as these Acts may be amended from time to time, or any statute that replaces or supersedes those Acts.

14.

If a part of this Indemnity or the application of it to any Person hereunder or circumstance is to any extent held or rendered invalid, unenforceable or illegal, that part:

	(a)		is independent of the remainder of this Indemnity and is severable from it, and its invalidity, unenforceability or illegality does not affect, impair or invalidate the remainder of this Agreement; and

	(b)		continues to be applicable to and enforceable to the fullest extent permitted by law against any Person hereunder and circumstance, except those as to which it has been held or rendered invalid, unenforceable or illegal.

15.		The Indemnifier agrees to execute such further assurances in connection with this Indemnity as the Landlord may reasonably require.

16.		This Indemnity shall be construed in accordance with the laws of the Province in which the Building is located.

17.		This Indemnity is the sole agreement between the Landlord and the Indemnifier relating to the indemnity and there are no other written or verbal agreements or representations relating thereto. This Agreement may not be amended except in writing and signed by the Indemnifier and two authorized representatives of the Landlord.

18.		If the Indemnifier is a corporation, the Indemnifier confirms and agrees that this Indemnity has been executed by its authorized signatories and that if only one signatory has signed this Indemnity, the Indemnifier is authorized by its articles of incorporation or other constating documents to execute

		indemnities by such sole authorized signatory and if this Indemnity is not executed under seal by the Indemnifier, the Indemnifier is authorized by its articles of incorporation or other constating documents to execute indemnities without a seal.

19.		Wherever in this Indemnity reference is made to either the Landlord or the Tenant, the reference is deemed to apply also to the heirs, executors, administrators, successors and assigns of the Landlord and the heirs, executors, administrators, permitted successors, and permitted assigns of the Tenant. Any assignment by the Landlord of any of its interests in the Lease operates automatically as an assignment to such assignee of the benefit of this Indemnity.

20.		Notwithstanding anything else herein contained to the contrary, the Landlord shall, subject to Section 1(b) hereof, not make a demand on the Indemnifier for any payment hereunder until a Trigger Event (as defined in the Lease) and a default under the Lease has occurred.

21.		“Trigger Event” means any one of the following circumstances having occurred:

	(a)		the Tenant shall cease to employ more than five hundred (500) full-time or part-time employees;

	(b)		the Tenant’s Revenues shall be less than Thirty Million Dollars (Cdn $30,000,000); and

	(c)		if less than 51% of any class of shares in the capital of the Tenant shall cease to be owned by the Indemnifier

IN WITNESS WHEREOF the Landlord and the Indemnifier have signed and sealed this Indemnity.

Provided the Tenant is Electronic Arts (Canada), Inc. or any Permitted Transferee and is not in default under the terms of the Lease, the Landlord will provide the Tenant with a moving allowance (the “Moving Allowance”) of $5.00 per square foot of Rentable Area of the Premises, plus all applicable goods and services taxes. The Moving Allowance will be paid to the Tenant on the earlier of: (i) the Tenant having commenced to carry on its business from the Premises, or from any portion thereof; and (ii) the Commencement Date.

Provided that the Tenant has under lease no less than three (3) full floors in the Building and subject to obtaining the prior written approval of the Landlord to any such signage, which approval shall not be unreasonably withheld or delayed, the Tenant shall have the right during the Term and any renewal thereof to have signage at three of the following four locations (the “Signage Options”): (i) place exterior podium signage at the base of the Building adjacent to the entrance; (ii) subject to obtaining the approval of PricewaterhouseCoopers, Building top signage (2 sides); (iii) subject to obtaining the approval of PricewaterhouseCoopers (“PWC”), a lit sign projecting onto the sidewalk outside the Building; and (iv) one sign on the Building (not including Building top signage pursuant to item (ii) above) or on a podium facing the plaza. It is understood “Signage Options” (i) and (iv) do not require the approval of PWC. The Tenant shall notify the Landlord which three Signage Options it elects to pursue within 30 days of execution of this Lease by the parties. The Landlord agrees that if a Signage Option is unavailable as a result of the inability of the Landlord to obtain PWC’s approval thereto (to the extent required) or the necessary municipal approvals, the Tenant shall be entitled to select another signage option in a location to be agreed upon by the Landlord and the Tenant, both acting reasonably, it being acknowledged that any such signage option will be subject to any existing signage rights of PWC. For greater certainty, if PWC does not consent to the Signage Options described in clauses (ii) and (iii) above, the only Signage Options the Tenant shall be entitled to are those Signage Options set out in clauses (i) and (iv) above and, in addition, the Tenant shall be entitled, subject to obtaining all municipal approvals, another signage option in a location to be agreed upon by the Landlord and the Tenant, both acting reasonably. The Tenant shall also be entitled to have customized elevator buttons for each floor leased and up to seven (7) listings on the directory board signage. All signage will utilize the name “Electronic Arts” or it’s abbreviated symbols. All such signage shall comply with the Landlord’s design criteria for the Building and all local municipal requirements and approvals. The signage shall be installed and maintained at the Tenant’s sole cost and expense. At the expiry or early termination of the Lease term, the signage shall at the Tenant’s expense, be removed by either the Tenant or the Landlord, at the Landlord’s option, and any damage caused to the Building and/or the Lands by such removal shall be the responsibility of the Tenant.

The Landlord shall confirm that the following services/amenities are available to the Tenant and its staff in the Complex at no charge (unless otherwise provided for herein) during the Term or any renewals thereof:

Provided the Tenant is Electronic Arts (Canada), Inc. or any Permitted Transferee and the Tenant is not then in default under the Lease, and subject to existing rights as of the date hereof of other tenants in the Building under their respective leases, the Tenant shall have an ongoing right of first offer at any time during the Term or any extension of the Term to lease any space which becomes vacant and available for lease in the Building.

If and when the space becomes vacant and available for lease, the Landlord shall, subject to the foregoing, deliver to the Tenant a written notice, indicating the date when the space designated therein (the “Designated Space”) shall be available for occupancy by the Tenant (the “Designated Date”) and offer to lease the Designated Space to the Tenant on the same terms and conditions as this Lease save and except that: (i) the basic rent, any tenant allowances, tenant

inducements and rent free periods (taking into account the time remaining on the balance of the Term) shall be at the then prevailing market terms for similar quality space in similar quality buildings; and (ii) the expiry date shall be co-terminous with the expiry date hereunder for the balance of the Premises. If the Tenant elects to lease the Designated Space as aforesaid, the Tenant shall deliver written notice to the Landlord of its intention to do so within five (5) Business Days of receipt of the Landlord’s notice. The parties hereto shall enter into a lease amending agreement for the Designated Space on the same terms as the Lease subject to the foregoing exceptions. If the parties cannot agree on any of the fair market rent, tenant allowances, tenant inducements and/or rent free periods, such matter shall be determined by arbitration in accordance with the Commercial Arbitration Act of British Columbia.

Provided that the Tenant is Electronic Arts (Canada), Inc. or any Permitted Transferee and is not then in default under the terms of the Lease, the Tenant will have the right to terminate this Lease effective on or after the 5th anniversary of the Commencement Date by providing the Landlord with a minimum of twelve (12) months prior written notice (the “Termination Notice”). The Tenant will pay to the Landlord, within thirty (30) days prior to the date of termination, the unamortized portion (as at the effective date of such termination) of the Allowance, Moving Allowance, brokerage fees in respect of this Lease transaction, and all other costs and expenses directly or indirectly incurred by the Landlord in connection with the Lease Takeover (less any sublease rent received), based on a 9% per annum interest rate.

	(i)		Electronic Arts (Canada), Inc., or any Permitted Transferee, has, at all times during the initial Term and any Extended Term, leased the Premises;

	(ii)		the Tenant has given written notice to the Landlord not less than nine (9) months prior to the expiration of the initial Term (or the current Extended Term, as applicable) of its intention to exercise its within right to extend the Term and in such written notice identifies the particular premises to which its right to extend relates; and

	(iii)		the Tenant is not in default under this Lease at the date of its exercise of the particular right to extend,

then subject to the provisions hereinafter set out, the Tenant shall have the right to extend the Term of this Lease as it pertains to all or a portion of the Premises and any additional premises leased by the Tenant for two (2) periods of five (5) years (each such extension period being referred to as an “Extended Term”). The following terms shall apply

	(1)		each such Extended Term shall commence on the expiration of the initial Term or the then current Extended Term in effect for the Premises, as applicable, and this Lease and all of its terms shall continue in full force and effect during such Extended Term in relation to the Premises, except as otherwise modified expressly below;

	(2)		any inducements (including rent-free periods or fixturing periods), leasehold improvement allowances or other payments payable to the Tenant shall be at the prevailing market terms;

	(3)		the Tenant will accept the Premises in an “as is” condition with no work to be performed by the Landlord unless otherwise agreed to by the parties;

	(4)		the Tenant shall not have any further right to extend the Term following the exercise, if any, of its second right to extend set out above;

	(5)		during each Extended Term, Net Rent for the Premises shall be the fair market Net Rent, calculated on a net effective basis, as agreed to between the parties at the date (the

			“Calculation Date”) which is three (3) months prior to the expiration of the initial Term or the then current Extended Term (as applicable) for similarly improved premises of similar size, quality and location in buildings of a similar size, quality and location in the City of Vancouver and, for greater certainty, in determining the net effective fair market Net Rent, account shall be taken of the existence of any inducements or leasehold improvement allowances or other payments payable by the Landlord to the Tenant. Failing agreement by the 30th day prior to the commencement of any renewal term Net Rent shall be determined by a single arbitrator under the Commercial Arbitration Act of British Columbia;

	(6)		the Landlord and the Tenant will execute and deliver a lease extension agreement (in form satisfactory to the Tenant and its solicitors, each acting reasonably) in order to confirm the terms of the foregoing extensions, but the Tenant shall be deemed to have exercised its right to extend on the terms referred to herein whether or not such extension agreement is executed and delivered; and

	(7)		if the Tenant fails to provide written notice to the Landlord of its intention to exercise its right to extend in accordance with paragraph (ii) above, then the within rights to extend shall then be null and void and of no further force or effect in their entirety.

The Landlord acknowledges that the Tenant’s wholly-owned subsidiary, Black Box Games Ltd., presently operates the business operations to be relocated to the Premises demised by this Lease in certain premises (the “Existing Premises”) comprising the 20th floor in the building municipally known as 505 Burrard Street, Vancouver, British Columbia pursuant to a lease dated April 25, 2001 (the Tenant’s “Existing Lease”), between Black Box Games Ltd., as tenant, and Bentall Properties Ltd. and the Great-West Life Assurance Company (collectively, the “505 Landlord”), as landlord. As an inducement to enter into this Lease, the Landlord covenants and agrees with the Tenant that effective the Takeover Date (as hereinafter defined), the Tenant shall assign (including an assumption and indemnity from the Landlord for matters arising after the date of assignment and the indemnity from the Tenant with respect to matters arising prior to date of the assignment) the Existing Lease to the Landlord (the “Lease Takeover”).

The “Takeover Date” means the date upon which the last of the following shall have occurred:

	(i)		the date of execution and delivery of this Lease by the Tenant;

	(ii)		the date of occupancy by the Tenant of the Premises and the commencement of the conduct of business therefrom; and

	(iii)		the Commencement Date.

The Tenant represents and warrants that it has delivered to the Landlord a true copy of the Existing Lease which sets forth all of its rights and obligations with respect to the Existing Premises and which is in full force and effect and unamended and in good standing. The term of the Existing Lease expires on August 31, 2007, and the current base rent is $223,326.00 per annum and the current estimated monthly additional rent for 2002 is $14.42 per square foot. The Tenant agrees to use reasonable commercial efforts to obtain from the 505 Landlord an estoppel certificate (the “Estoppel Certificate”) certifying as to all of the foregoing by no later than the Takeover Date.

The Tenant shall vacate the Existing Premises on or before the Takeover Date and shall leave them in good repair in the condition required by the Existing Lease.

Unless otherwise expressly provided herein to the contrary, all approvals required hereunder by the Tenant from the Landlord shall not be unreasonably withheld or delayed by the Landlord.

All amounts referred to in this lease are quoted prior to inclusion of goods and services taxes.

The Landlord and the Tenant will use all reasonable commercial efforts to keep confidential, and to cause its employees, officers, agents, contractors and consultants to keep confidential, the terms and conditions of this Lease and, in connection with the Landlord, all financial information with respect to the Tenant and its business. Notwithstanding the foregoing, the Landlord shall be entitled to disclose such information in connection with any financing or sale of the Building or of any other portion of the Complex.

The audits referred to in our report dated May 5, 2003, include the related financial statement schedule as of March 31, 2003, and for each of the years in the three-year period ended March 31, 2003, included in Electronic Arts Inc.’s annual report on Form 10-K. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We consent to the incorporation by reference in the registration statements on Forms S-8 (Nos. 33-66836, 33-55212, 33-53302, 33-41955, 33-82166, 33-61781, 33-61783, 333-09683, 333-09893, 333-32239, 333-32771, 333-46937, 333-60513, 333-60517, 333-84215, 333-39430, 333-39432, 333-44222, 333-60256, 333-67430, 333-82888 and 333-99525), and the registration statement on Form S-3 (No. 333-102797), of Electronic Arts Inc. of our reports dated May 5, 2003 relating to the consolidated balance sheets of Electronic Arts Inc. and subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended March 31, 2003, and the related financial statement schedule, which reports appear in the March 31, 2003, annual report on Form 10-K of Electronic Arts Inc. Our report refers to a change in the method of accounting for goodwill.

Certification Pursuant to 18 USC Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Electronic Arts Inc. for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lawrence F. Probst III, Chairman and Chief Executive Officer of Electronic Arts Inc., certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

	1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Electronic Arts Inc. for the periods presented therein.

A signed original of this written statement required by Section 906 has been provided to Electronic Arts Inc. and will be retained by Electronic Arts Inc. and furnished to the Securities and Exchange commission or its staff upon request.

Certification Pursuant to 18 USC Section 1350
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Electronic Arts Inc. for the period ended March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Warren C. Jenson, Executive Vice President and Chief Financial and Administrative Officer of Electronic Arts Inc., certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

	1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Electronic Arts Inc. for the periods presented therein.


Delaware		94-2838567
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

209 Redwood Shores Parkway Redwood City, California		94065
(Address of principal executive offices)		(Zip Code)


PART I
	Item 1: Business
	Item 2: Properties
	Item 3: Legal Proceedings
	Item 4: Submission of Matters to a Vote of Security Holders
PART II
	Item 5: Market for Registrant’s Common Equity and Related Stockholder Matters
	Item 6: Selected Financial Data
	Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A: Quantitative and Qualitative Disclosures About Market Risk
	Item 8: Financial Statements and Supplementary Data
	Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
	Item 10: Directors and Executive Officers of the Registrant
	Item 11: Executive Compensation
	Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13: Certain Relationships and Related Transactions
	Item 14: Controls and Procedures
PART IV
	Item 15: Exhibits, Financial Statement Schedule and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 10.02
EXHIBIT 10.27
EXHIBIT 10.28
EXHIBIT 21.01
EXHIBIT 23.01
EXHIBIT 99.1
EXHIBIT 99.2


		Page

PART I
Item 1.	Business		3
Item 2.	Properties		18
Item 3.	Legal Proceedings		20
Item 4.	Submission of Matters to a Vote of Security Holders		20
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		21
Item 6.	Selected Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		59
Item 8.	Financial Statements and Supplementary Data		61
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		105
PART III
Item 10.	Directors and Executive Officers of the Registrant		106
Item 11.	Executive Compensation		106
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		106
Item 13.	Certain Relationships and Related Transactions		106
Item 14.	Controls and Procedures		106
PART IV
Item 15.	Exhibits, Financial Statement Schedule, and Reports on Form 8-K		107
Signatures			110
Certifications			111
Exhibit Index			114




STATEMENTS OF OPERATIONS DATA			2003			2002			2001			2000			1999


Net revenue			$	2,482,244		$	1,724,675		$	1,322,273		$	1,420,011		$	1,221,863
Cost of goods sold				1,072,802			814,783			664,991			710,974			630,827

		Gross profit		1,409,442			909,892			657,282			709,037			591,036
Operating expenses:
	Marketing and sales			332,453			241,109			185,336			188,611			163,407
	General and administrative			130,859			107,059			104,041			92,418			76,219
	Research and development			400,990			380,564			376,179			255,694			196,137
	Amortization of intangibles⁽¹⁾			7,482			25,418			19,323			11,989			5,880
	Charge for acquired in-process technology			—			—			2,719			6,539			44,115
	Restructuring charges			15,102			7,485			—			—			—
	Asset impairment charges			66,329			12,818			—			—			—

		Total operating expenses		953,215			774,453			687,598			555,251			485,758

	Operating income (loss)			456,227			135,439			(30,316	)		153,786			105,278
Interest and other income, net				5,222			12,848			16,886			16,028			13,180

	Income (loss) before provision for (benefit from) income taxes and minority interest			461,449			148,287			(13,430	)		169,814			118,458
Provision for (benefit from) income taxes				143,049			45,969			(4,163	)		52,642			45,414

	Income (loss) before minority interest			318,400			102,318			(9,267	)		117,172			73,044
Minority interest in consolidated joint venture				(1,303	)		(809	)		(1,815	)		(421	)		(172	)

	Net income (loss)		$	317,097		$	101,509		$	(11,082	)	$	116,751		$	72,872

Net income per share:
		Basic		N/A			N/A			N/A		$	0.93		$	0.60
		Diluted		N/A			N/A			N/A		$	0.88		$	0.58
Number of shares used in computation:
		Basic		N/A			N/A			N/A			125,660			121,495
		Diluted		N/A			N/A			N/A			132,742			126,545
Class A common stock:
Net income (loss):
	Basic		$	329,212		$	124,256		$	11,944			N/A			N/A
	Diluted		$	317,097		$	101,509		$	(11,082	)		N/A			N/A
Net income (loss) per share:
	Basic		$	2.34		$	0.91		$	0.09			N/A			N/A
	Diluted		$	2.17		$	0.71		$	(0.08	)		N/A			N/A
Number of shares used in computation:
	Basic			140,989			136,832			131,404			N/A			N/A
	Diluted			146,446			143,142			132,056			N/A			N/A
Class B common stock:
Net loss, net of retained interest in EA.com			$	(12,115	)	$	(22,747	)	$	(23,026	)		N/A			N/A
Net loss per share:
	Basic		$	(2.77	)	$	(3.77	)	$	(3.83	)		N/A			N/A
	Diluted		$	(2.77	)	$	(3.77	)	$	(3.83	)		N/A			N/A
Number of shares used in computation:
	Basic			4,368			6,026			6,015			N/A			N/A
	Diluted			4,368			6,026			6,015			N/A			N/A




BALANCE SHEET DATA AT FISCAL
YEAR END	2003		2002		2001		2000		1999


Cash and cash equivalents	$	949,995	$	552,826	$	419,812	$	246,265	$	242,208
Short-term investments		637,623		244,110		46,680		93,539		70,614
Marketable securities		1,111		6,869		10,022		236		4,884
Working capital		1,340,261		699,561		478,701		440,021		333,256
Long-term investments		—		—		8,400		8,400		18,400
Total assets		2,359,533		1,699,374		1,378,918		1,192,312		901,873
Total liabilities		570,876		452,982		340,026		265,302		236,209
Minority interest		3,918		3,098		4,545		3,617		2,733
Total stockholders’ equity		1,784,739		1,243,294		1,034,347		923,393		662,931


Name	Age		Position

Lawrence F. Probst III		53	Chairman and Chief Executive Officer
Don A. Mattrick		39	President, Worldwide Studios
John S. Riccitiello		43	President and Chief Operating Officer
William B. Gordon		53	Executive Vice President and Chief Creative Officer
Warren C. Jenson		46	Executive Vice President and Chief Financial and Administrative Officer
Ruth A. Kennedy		48	Executive Vice President, General Counsel and Secretary
V. Paul Lee		38	Executive Vice President and Chief Operating Officer, Worldwide Studios
Bruce McMillan		40	Executive Vice President, Group Studio General Manager, Worldwide Studios
J. Russell (Rusty) Rueff, Jr.		41	Executive Vice President, Human Resources
Nancy L. Smith		50	Executive Vice President and General Manager, North American Publishing
David L. Carbone		52	Senior Vice President, Finance
Gerhard Florin		44	Senior Vice President and Managing Director, European Publishing


	2003		2002		Increase		% change


North America	$	1,435,718	$	1,093,244	$	342,474		31%
Europe		878,904		519,458		359,446		69%
Asia Pacific		87,569		53,376		34,193		64%
Japan		80,053		58,597		21,456		37%

International		1,046,526		631,431		415,095		66%

Consolidated Net Revenue	$	2,482,244	$	1,724,675	$	757,569		44%


					Increase/
	2003		2002		(Decrease)			% change


PlayStation 2	$	910,693	$	482,882		$427,811			89%
PC		499,634		456,292		43,342			9%
Xbox		219,378		78,363		141,015			180%
Nintendo GameCube		176,656		51,740		124,916			241%
PlayStation		99,951		189,535		(89,584	)		(47%	)
Game Boy Advance		79,093		43,653		35,440			81%
Online Subscriptions		37,851		30,940		6,911			22%
Advertising		31,988		38,024		(6,036	)		(16%	)
Game Boy Color		26,293		38,026		(11,733	)		(31%	)
License, OEM and Other		24,948		46,210		(21,262	)		(46%	)

		2,106,485		1,455,665		650,820			45%
Co-publishing and Distribution		375,759		269,010		106,749			40%

Consolidated Net Revenue	$	2,482,244	$	1,724,675		$757,569			44%



PlayStation 2 Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$910,693		37%	$	482,882		28%		89%



Personal Computer Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$499,634		20%	$	456,292		26%		9%



Xbox Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$219,378		9%	$	78,363		5%		180%



Nintendo GameCube Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$176,656		7%	$	51,740		3%		241%



PlayStation Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$99,951		4%	$	189,535		11%	(47%)



Game Boy Advance and Game Boy Color Net Revenue (in thousands)

		% of net				% of net
	2003	revenue		2002		revenue		% change


Game Boy Advance	$79,093		3%	$	43,653		3%		81%

Game Boy Color	$26,293		1%	$	38,026		2%		(31%)



Co-publishing and Distribution Net Revenue (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$375,759		15%	$	269,010		16%		40%





		Fiscal Year Ended March 31, 2003

		EA Core
		(excl. EA.com)			EA.com			Electronic Arts


Net revenue		$	2,400,669		$	81,575		$	2,482,244
Cost of goods sold			1,056,385			16,417			1,072,802

Gross profit			1,344,284			65,158			1,409,442
Operating expenses:
	Marketing and sales^(a)		289,933			42,520			332,453
	General and administrative		123,538			7,321			130,859
	Research and development^(b)		299,294			101,696			400,990
	Amortization of intangibles^(c)		3,526			3,956			7,482
	Restructuring charges		11,014			4,088			15,102
	Asset impairment charges		3,442			62,887			66,329

Total operating expenses			730,747			222,468			953,215

Operating income (loss)			613,537			(157,310	)		456,227
Interest and other income (expense), net			5,452			(230	)		5,222

Income (loss) before provision for income taxes and minority interest			618,989			(157,540	)		461,449
Provision for income taxes			143,049			—			143,049

Income (loss) before minority interest			475,940			(157,540	)		318,400
Minority interest in consolidated joint venture			(1,303	)		—			(1,303	)

Net income (loss) before retained interest in EA.com			474,637			(157,540	)		317,097
Net loss related to retained interest in EA.com			(145,425	)		145,425			—

Net income (loss)		$	329,212		$	(12,115	)	$	317,097





		Fiscal Year Ended March 31, 2002

		EA Core
		(excl. EA.com)			EA.com			Electronic Arts


Net revenue		$	1,647,502		$	77,173		$	1,724,675
Cost of goods sold			797,894			16,889			814,783

Gross profit			849,608			60,284			909,892
Operating expenses:
	Marketing and sales^(a)		202,749			38,360			241,109
	General and administrative		96,919			10,140			107,059
	Research and development^(b)		250,590			129,974			380,564
	Amortization of intangibles^(c)		12,888			12,530			25,418
	Restructuring charges		—			7,485			7,485
	Asset impairment charges		—			12,818			12,818

Total operating expenses			563,146			211,307			774,453

Operating income (loss)			286,462			(151,023	)		135,439
Interest and other income (expense), net			13,472			(624	)		12,848

Income (loss) before provision for income taxes and minority interest			299,934			(151,647	)		148,287
Provision for income taxes			45,969			—			45,969

Income (loss) before minority interest			253,965			(151,647	)		102,318
Minority interest in consolidated joint venture			(809	)		—			(809	)

Net income (loss) before retained interest in EA.com			253,156			(151,647	)		101,509
Net loss related to retained interest in EA.com			(128,900	)		128,900			—

Net income (loss)		$	124,256		$	(22,747	)	$	101,509



*Amortization of Intangibles* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$7,482		0.3%		$25,418		1.5%		(70.6%)



*Net Income* (in thousands)

	% of net				% of net
2003	revenue		2002		revenue		% change


$317,097		12.8%		$101,509		5.9%		212.4%





		Fiscal Year Ended March 31, 2002

		EA Core						Electronic
		(excl. EA.com)			EA.com			Arts


Net revenue		$	1,647,502		$	77,173		$	1,724,675
Cost of goods sold			797,894			16,889			814,783

Gross profit			849,608			60,284			909,892
Operating expenses:
	Marketing and sales^(a)		202,749			38,360			241,109
	General and administrative		96,919			10,140			107,059
	Research and development^(b)		250,590			129,974			380,564
	Amortization of intangibles		12,888			12,530			25,418
	Restructuring charges		—			7,485			7,485
	Asset impairment charges		—			12,818			12,818

Total operating expenses			563,146			211,307			774,453

Operating income (loss)			286,462			(151,023	)		135,439
Interest and other income (expense), net			13,472			(624	)		12,848

Income (loss) before provision for income taxes and minority interest			299,934			(151,647	)		148,287
Provision for income taxes			45,969			—			45,969

Income (loss) before minority interest			253,965			(151,647	)		102,318
Minority interest in consolidated joint venture			(809	)		—			(809	)

Net income (loss) before retained interest in EA.com			253,156			(151,647	)		101,509
Net loss related to retained interest in EA.com			(128,900	)		128,900			—

Net income (loss)		$	124,256		$	(22,747	)	$	101,509





		Fiscal Year Ended March 31, 2001

		EA Core						Electronic
		(excl. EA.com)			EA.com			Arts


Net revenue		$	1,280,172		$	42,101		$	1,322,273
Cost of goods sold			650,330			14,661			664,991

Gross profit			629,842			27,440			657,282
Operating expenses:
	Marketing and sales^(a)		163,928			21,408			185,336
	General and administrative		93,885			10,156			104,041
	Research and development^(b)		235,785			140,394			376,179
	Amortization of intangibles		12,829			6,494			19,323
	Charge for acquired in-process technology		—			2,719			2,719

Total operating expenses			506,427			181,171			687,598

Operating income (loss)			123,415			(153,731	)		(30,316	)
Interest and other income, net			16,659			227			16,886

Income (loss) before benefit from income taxes and minority interest			140,074			(153,504	)		(13,430	)
Benefit from income taxes			(4,163	)		—			(4,163	)

Income (loss) before minority interest			144,237			(153,504	)		(9,267	)
Minority interest in consolidated joint venture			(1,815	)		—			(1,815	)

Net income (loss) before retained interest in EA.com			142,422			(153,504	)		(11,082	)
Net loss related to retained interest in EA.com			(130,478	)		130,478			—

Net income (loss)		$	11,944		$	(23,026	)	$	(11,082	)



											Commercial
	Contractual Obligations										Commitments

					Developer/						Bank and
Fiscal Year					Licensee						Other		Letters of
Ended March 31,	Leases		Advertising		Commitments		AOL		Marketing		Guarantees		Credit		Total


2004	$	15,149	$	6,178	$	30,348	$	11,250	$	19,095	$	362	$	1,086	$	83,468
2005		19,504		6,987		32,144		—		14,252		295		—		73,182
2006		19,623		3,000		29,564		—		9,692		295		—		62,174
2007		11,351		3,000		9,565		—		9,692		295		—		33,903
2008		7,952		—		11,733		—		9,692		294		—		29,671
Thereafter		8,102		—		11,949		—		16,952		294		—		37,297

	$	81,681	$	19,165	$	125,303	$	11,250	$	79,375	$	1,835	$	1,086	$	319,695




				Weighted-
				Average
		Contract		Contract
		Amount		Rate		Fair Value


		(in				(in
		thousands)				thousands)
Foreign currency to be sold under contract:
	British Pound		$101,959		1.5686		$ 448
	Swedish Krona		17,796		0.1148		(125)
	Euro		15,962		1.0642		(63)
	Japanese Yen		5,576		0.0083		(16)
	Australian Dollar		3,564		0.5940		(30)
	South African Rand		3,548		0.1223		(69)
	Norwegian Krone		2,842		0.1353		(9)
	Swiss Franc		1,447		0.7230		—
	Danish Krone		1,289		0.1432		(7)
	New Zealand Dollar		1,098		0.5490		1
	Brazilian Real		435		0.2899		(8)

Total			$155,516				$ 122

Foreign currency to be purchased under contract:
	British Pound		$ 21,109		1.5643		$(190)

Total			$ 21,109				$(190)




		Average
		Interest Rate		Cost		Fair Value


		(Dollars in thousands)
Cash equivalents⁽¹⁾
	Variable rate		1.36%		$632,568		$632,568
Short-term investments⁽¹⁾⁽²⁾
	Fixed rate		2.75%		$633,205		$637,623


(In thousands, except share data)
As of March 31,			2003		2002


ASSETS
Current assets:
	Cash and cash equivalents		$	949,995	$	552,826
	Short-term investments			637,623		244,110
	Marketable securities			1,111		6,869
	Receivables, net of allowances of $164,634 and $115,870, respectively			82,083		190,495
	Inventories, net			25,170		23,780
	Deferred income taxes			117,180		38,597
	Other current assets			97,975		95,866

		Total current assets		1,911,137		1,152,543

Property and equipment, net				262,252		308,827
Investment in affiliates				20,277		19,077
Goodwill				86,031		69,050
Other intangibles, net				21,301		41,462
Long-term deferred income taxes				13,523		64,065
Other assets				45,012		44,350

			$	2,359,533	$	1,699,374

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	106,329	$	88,563
	Accrued and other liabilities			464,547		364,419

		Total current liabilities		570,876		452,982

Commitments and contingencies
Minority interest in consolidated joint venture				3,918		3,098
Stockholders’ equity:
	Preferred stock, $0.01 par value. Authorized 10,000,000 shares			—		—
	Common stock
		Class A common stock, $0.01 par value. Authorized 400,000,000 shares; issued and outstanding 144,133,305 and 138,429,269 shares, respectively		1,441		1,384
		Class B common stock, $0.01 par value. Authorized 100,000,000 shares; issued and outstanding 225,130 and 6,233,413 shares, respectively		2		62
	Paid-in capital			857,870		649,777
	Retained earnings			923,892		606,795
	Accumulated other comprehensive income (loss)			1,534		(14,724	)

		Total stockholders’ equity		1,784,739		1,243,294

			$	2,359,533	$	1,699,374


(In thousands, except per share data)
Years Ended March 31,			2003			2002			2001


Net revenue			$	2,482,244		$	1,724,675		$	1,322,273
Cost of goods sold				1,072,802			814,783			664,991

	Gross profit			1,409,442			909,892			657,282
Operating expenses:
	Marketing and sales			332,453			241,109			185,336
	General and administrative			130,859			107,059			104,041
	Research and development			400,990			380,564			376,179
	Amortization of intangibles			7,482			25,418			19,323
	Charge for acquired in-process technology			—			—			2,719
	Restructuring charges			15,102			7,485			—
	Asset impairment charges			66,329			12,818			—

		Total operating expenses		953,215			774,453			687,598

		Operating income (loss)		456,227			135,439			(30,316	)
Interest and other income, net				5,222			12,848			16,886

	Income (loss) before provision for (benefit from) income taxes and minority interest			461,449			148,287			(13,430	)
Provision for (benefit from) income taxes				143,049			45,969			(4,163	)

	Income (loss) before minority interest			318,400			102,318			(9,267	)
Minority interest in consolidated joint venture				(1,303	)		(809	)		(1,815	)

		Net income (loss)	$	317,097		$	101,509		$	(11,082	)

Net income per share:
Class A common stock:
Net income (loss):
	Basic		$	329,212		$	124,256		$	11,944
	Diluted		$	317,097		$	101,509		$	(11,082	)
Net income (loss) per share:
	Basic		$	2.34		$	0.91		$	0.09
	Diluted		$	2.17		$	0.71		$	(0.08	)
Number of shares used in computation:
	Basic			140,989			136,832			131,404
	Diluted			146,446			143,142			132,056
Class B common stock:
Net loss, net of retained interest in EA.com			$	(12,115	)	$	(22,747	)	$	(23,026	)
Net loss per share:
	Basic		$	(2.77	)	$	(3.77	)	$	(3.83	)
	Diluted		$	(2.77	)	$	(3.77	)	$	(3.83	)
Number of shares used in computation:
	Basic			4,368			6,026			6,015
	Diluted			4,368			6,026			6,015


																			Accumu-
																			lated
																			Other
	Class A						Class B												Compre-			Compre-
	Common Stock						Common Stock												hensive			hensive			Treasury Stock						Total
													Paid-In			Retained			Income			Income									Stockholders’
	Shares			Amount			Shares			Amount			Capital			Earnings			(Loss)			(Loss)			Shares			Amount			Equity


Balances at March 31, 2000		128,869		$	1,288			6,000		$	60		$	412,038		$	516,368		$	(6,361	)					—		$	—		$	923,393
Net loss																	(11,082	)					(11,082	)								(11,082	)
Change in unrealized appreciation of investments, net																				3,097			3,097									3,097
Translation adjustment																				(9,439	)		(9,439	)								(9,439	)

Comprehensive loss																							(17,424	)

Proceeds from sales of shares through stock plans		5,845			59									101,937																		101,996
Issuance of Class B common stock								250			3			2,247																		2,250
Notes receivable in connection with issuance of Class B stock														(1,618	)																	(1,618	)
Tax benefit related to stock options														25,750																		25,750

Balances at March 31, 2001		134,714			1,347			6,250			63			540,354			505,286			(12,703	)					—			—			1,034,347
Net income																	101,509						101,509									101,509
Change in unrealized depreciation of investments, net																				(3,540	)		(3,540	)								(3,540	)
Reclassification adjustment for losses realized in net income, net																				66			66									66
Translation adjustment																				1,453			1,453									1,453

Comprehensive income																							99,488

Proceeds from sales of shares through stock plans		3,995			40			—			—			98,701																		98,741
Sale of stock under stock purchase agreement								8			—			100																		100
Purchase of treasury stock																										(280	)		(11,922	)		(11,922	)
Retirement of treasury stock		(280	)		(3	)								(11,919	)											280			11,922			—
Other								(25	)		(1	)																				(1	)
Tax benefit related to stock options														22,541																		22,541

Balances at March 31, 2002		138,429			1,384			6,233			62			649,777			606,795			(14,724	)					—			—			1,243,294


(In thousands)
Years Ended March 31,				2003			2002			2001


OPERATING ACTIVITIES
Net income (loss)				$	317,097		$	101,509		$	(11,082	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Minority interest in consolidated joint venture				1,303			809			1,815
	Equity in net income of affiliates				(5,467	)		(2,999	)		(820	)
	Gain on sale of affiliate				—			(200	)		(214	)
	Depreciation and amortization				91,639			110,901			78,601
	Non-cash restructuring and asset impairment charges				66,329			13,399			—
	Other-than-temporary impairment of investments in affiliates				10,590			—			—
	Loss on sale of fixed assets, net				527			331			1,992
	Loss on marketable securities				706			96			—
	Bad debt expense				7,058			9,361			7,541
	Stock-based compensation				906			3,099			2,707
	Charge for acquired in-process technology				—			—			2,719
	Tax benefit from exercise of stock options				74,620			22,541			25,750
	Change in assets and liabilities, net of acquisitions:
		Receivables			103,125			(25,407	)		53,775
		Inventories			(1,390	)		(8,094	)		7,300
		Other assets			(34,416	)		(1,718	)		(4,238	)
		Accounts payable			17,735			15,502			(27,476	)
		Accrued and other liabilities			93,430			90,996			91,356
		Deferred income taxes			(29,341	)		(42,056	)		(33,080	)

			Net cash provided by operating activities		714,451			288,070			196,646

INVESTING ACTIVITIES
	Proceeds from sale of property and equipment				738			299			4,134
	Proceeds from sale of marketable securities				4,794			—			—
	Proceeds from sale of affiliate				—			570			—
	Capital expenditures				(59,108	)		(51,518	)		(120,347	)
	Investment in affiliates, net				(9,323	)		2,919			1,662
	Purchases of marketable securities				—			—			(2,479	)
	Purchases of short-term investments				(1,049,765	)		(322,484	)		(89,900	)
	Proceeds from maturities and sales of short-term investments				659,517			132,142			136,807
	Distribution from investment in affiliate				3,000			—			—
	Dividend to joint venture				(751	)		(2,481	)		—
	Acquisition of Pogo Corporation, net of cash acquired				—			—			(42,571	)
	Acquisition of other subsidiaries, net of cash acquired				(12,868	)		—			—

			Net cash used in investing activities		(463,766	)		(240,553	)		(112,694	)

FINANCING ACTIVITIES
	Proceeds from sales of Class A shares through employee stock plans and other plans				131,695			95,642			99,289
	Proceeds from sales of Class B shares through employee stock plans, other plans and stock warrants				1			99			632
	Repayment of Class B notes receivable				1,176			—			—
	Purchase of treasury shares				—			(11,922	)		—

			Net cash provided by financing activities		132,872			83,819			99,921

Translation adjustment					13,612			1,678			(10,326	)

Increase in cash and cash equivalents					397,169			133,014			173,547
Beginning cash and cash equivalents					552,826			419,812			246,265

Ending cash and cash equivalents					949,995			552,826			419,812
Short-term investments					637,623			244,110			46,680

Ending cash, cash equivalents and short-term investments				$	1,587,618		$	796,936		$	466,492

Supplemental cash flow information:
	Cash paid during the year for income taxes			$	36,525		$	9,955		$	13,556

Non-cash investing activities:
	Change in unrealized appreciation (loss) of investments and marketable securities			$	3,018		$	(5,035	)	$	4,488




	2003	2002


Raw materials and work in process	$ 1,090	$ 1,025
Finished goods	24,080	22,755

	$25,170	$23,780




Buildings		20 to 25 years


Computer equipment and software		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, generally 1 to 8 years





	March 31, 2003					March 31, 2002

	Gross				Other	Gross			Other
	Carrying	Accumulated			Intangibles,	Carrying	Accumulated		Intangibles,
	Amount	Amortization	Impairment	Other	Net	Amount	Amortization	Other	Net


Developed/ Core Technology	$28,263	$(18,886)	$ (9,377)	$ —	$ —	$28,263	$(15,455)	$ —	$12,808
Tradename	35,169	(12,763)	(1,211)	—	21,195	35,169	(9,854)	—	25,315
Subscribers and Other Intangibles	8,694	(6,298)	(1,776)	(514)	106	8,694	(5,156)	(199)	3,339

Total	$72,126	$(37,947)	$(12,364)	$(514)	$21,301	$72,126	$(30,465)	$(199)	$41,462



(In thousands, except for per share amounts):



		Year Ended March 31, 2003
		Class A			Class A		Class B
		common			common		common
		stock-Basic			stock-Diluted		stock


Net income (loss) before retained interest in EA.com		$	474,637		$	317,097	$	(157,540	)
Net loss related to retained interest in EA.com			(145,425	)		—		145,425

Net income (loss)		$	329,212		$	317,097	$	(12,115	)

Shares used to compute net earnings (loss) per share:
Weighted-average common shares			140,989			140,989		4,368
Dilutive stock equivalents			—			5,457		—

Dilutive potential common shares			140,989			146,446		4,368

Net earnings (loss) per share:
	Basic	$	2.34			N/A	$	(2.77	)
	Diluted		N/A		$	2.17	$	(2.77	)


(In thousands, except for per share amounts):



		Year Ended March 31, 2002
		Class A			Class A		Class B
		common			common		common
		stock-Basic			stock-Diluted		stock


Net income (loss) before retained interest in EA.com			$ 253,156		$	101,509	$	(151,647	)
Net loss related to retained interest in EA.com			(128,900	)		—		128,900

Net income (loss)			$ 124,256		$	101,509	$	(22,747	)

Shares used to compute net earnings (loss) per share:
Weighted-average common shares			136,832			136,832		6,026
Dilutive stock equivalents			—			6,310		—

Dilutive potential common shares			136,832			143,142		6,026

Net earnings (loss) per share:
	Basic		$0.91			N/A	$	(3.77	)
	Diluted		N/A		$	0.71	$	(3.77	)



(In thousands, except for per share amounts):



		Year Ended March 31, 2001
		Class A			Class A			Class B
		common			common			common
		stock-Basic			stock-Diluted			stock


Net income (loss) before retained interest in EA.com		$	142,422		$	(11,082	)	$	(153,504	)
Net loss related to retained interest in EA.com			(130,478	)		—			130,478

Net income (loss)		$	11,944		$	(11,082	)	$	(23,026	)

Shares used to compute net earnings (loss) per share:
Weighted-average common shares			131,404			131,404			6,015
Dilutive stock equivalents			—			652			—

Dilutive potential common shares			131,404			132,056			6,015

Net earnings (loss) per share:
	Basic	$	0.09			N/A		$	(3.83	)
	Diluted		N/A		$	(0.08	)	$	(3.83	)



Consolidated
(In thousands, except per share data)


		2003			2002			2001


Net income (loss):
	As reported		$317,097			$101,509			$(11,082	)
	Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(83,863	)		(73,596	)		(58,268	)

	Pro forma		$233,234			$ 27,913			$(69,350	)

Earnings per share:
	Please see Class A Common Stock and Class B Common Stock tables below for earnings (loss) per share information