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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark one)

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

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2000

                                       OR

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

             For the transition period from __________ to __________

                         Commission File Number 0-12699

                                ACTIVISION, INC.
             (Exact name of registrant as specified in its charter)

                DELAWARE                                 95-4803544
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

 3100 OCEAN PARK BLVD., SANTA MONICA, CA                    90405
(Address of principal executive offices)                 (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 255-2000

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                   Common Stock, par value $.000001 per share
                   ------------------------------------------
                                (Title of Class)

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
                                       ---    ---

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 the 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. [ ]

The aggregate market value of the Common Stock of the registrant held by
non-affiliates of the registrant on June 19, 2000 was $138,494,069.

The number of shares of the registrant's Common Stock outstanding as of June 19,
2000 was 23,682,010.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement, to be filed with the
Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this Form 10-K, with respect to the 2000 Annual Meeting of
Shareholders, are incorporated by reference into Part III of this Annual Report.


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                                      INDEX


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PART I.


         Item 1.    Business ..................................................................   3


         Item 2.    Properties ................................................................  17


         Item 3.    Legal Proceedings .........................................................  17


         Item 4.    Submission of Matters to a Vote of Security Holders .......................  17


PART II.


         Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters .....  18


         Item 6.    Selected Consolidated Financial Data ......................................  20


         Item 7.    Management's Discussion and Analysis of Financial Condition
                        and Results of Operations .............................................  22


         Item 7A.   Quantitative and Qualitative Disclosures about Market Risk.................  31


         Item 8.    Consolidated Financial Statements and Supplementary Data ..................  32


PART III.


         Item 10.   Directors and Executive Officers of the Registrant ........................  33


         Item 11.   Executive Compensation ....................................................  33


         Item 12.   Security Ownership of Certain Beneficial Owners and Management ............  33


         Item 13.   Certain Relationships and Related Transactions ............................  33


PART IV.


         Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..........  34

SIGNATURES ....................................................................................  38
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                                     PART I


ITEM 1.  BUSINESS

         (a)      GENERAL

                  Activision, Inc. (together with its subsidiaries, "Activision"
         or the "Company") is a leading international publisher, developer and
         distributor of interactive entertainment and leisure products. The
         Company was originally incorporated in California in 1979. In December
         1992, the Company reincorporated in Delaware. In June 2000, the Company
         reorganized into a holding company organizational structure as
         described below.

                  The Company's products span a wide range of genres (including
         action, adventure, extreme sports, strategy and simulation) and target
         markets (including game enthusiasts, mass market consumers, value
         buyers and children). In addition to its genre and market diversity,
         the Company publishes, develops and distributes products for a variety
         of game platforms and operating systems, including personal computers
         ("PCs"), the Sony Playstation, Sega Dreamcast and Nintendo N64 console
         systems and the Nintendo Gameboy Color handheld device.

                  Financial data for all periods presented reflect the
         retroactive effect of the merger, accounted for as a pooling of
         interests, with JCM Productions, Inc. dba Neversoft Entertainment
         ("Neversoft"), which was consummated on September 30, 1999. The Company
         additionally acquired Elsinore Multimedia, Inc. ("Elsinore") on June
         29, 1999 and Expert Software, Inc. ("Expert") on June 22, 1999. The
         acquisitions of Elsinore and Expert were accounted for using the
         purchase method of accounting. Accordingly, the results of operations
         of Elsinore and Expert have been included in the Company's consolidated
         results of operations from the respective dates of acquisition. See the
         Consolidated Financial Statements and Notes thereto included in Item 8
         of this Annual Report on Form 10-K for certain financial information
         required by Item 1. In the fourth quarter of the Company's fiscal year
         ended March 31, 2000, the Company adopted and began the implementation
         of a strategic restructuring plan. The plan and its components are
         described in Item 7 -- "Management's Discussion and Analysis of
         Financial Condition and Results of Operations."

         (b)      HOLDING COMPANY ORGANIZATIONAL STRUCTURE

                  Effective June 9, 2000, Activision reorganized into a holding
         company form of organizational structure, whereby Activision Holdings,
         Inc., a Delaware corporation ("Activision Holdings"), became the
         holding company for Activision and its subsidiaries. The new
         holding company organizational structure will allow Activision to
         manage its entire organization more effectively and broadens the
         alternatives for future financings.

                  The holding company organizational structure was effected by a
         merger conducted pursuant to Section 251 (g) of the General Corporation
         Law of the State of Delaware, which provides for the formation of a
         holding company structure without a vote of the stockholders of the
         constituent corporations. In the merger, ATVI Merger Sub, Inc., a
         Delaware corporation, organized for the purpose of implementing the
         holding company organizational structure,(the "Merger Sub"), merged
         with and into Activision with Activision as the surviving corporation
         (the "Surviving Corporation"). Prior to the merger, Activision Holdings
         was a direct, wholly-owned subsidiary of Activision and Merger Sub was
         a direct, wholly owned subsidiary of Activision Holdings. Pursuant to
         the merger, (i) each issued and outstanding share of common stock of
         Activision (including treasury shares) was converted into one share of
         common stock of Activision Holdings, (ii) each issued and outstanding
         share of Merger Sub was converted into one share of the Surviving
         Corporation's common stock, and Merger Sub's corporate existence
         ceased, and (iii) all of the issued and outstanding shares of
         Activision Holdings owned by Activision were automatically canceled and
         retired. As a result of the merger, Activision became a direct, wholly
         owned subsidiary of Activision Holdings.

                  Immediately following the merger, Activision changed its name
         to "Activision Publishing, Inc." and Activision Holdings changed its
         name to "Activision, Inc." The holding company's common stock will
         continue to trade on The Nasdaq National Market under the symbol ATVI.


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                  The conversion of shares of Activision's common stock in the
         merger occurred without an exchange of certificates. Accordingly,
         certificates formerly representing shares of outstanding common stock
         of Activision are deemed to represent the same number of shares of
         common stock of Activision Holdings. The change to the holding company
         structure was tax free for federal income tax purposes for
         stockholders.

                  These transactions had no impact on the Company's consolidated
         financial statements.

         (c)      FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

                  The Company has two reportable segments: publishing CD-based
         and cartridge based interactive entertainment and leisure software, and
         distributing interactive entertainment and leisure products. Publishing
         relates to the development (both internally and externally), marketing
         and sale of products owned or controlled by the Company, either
         directly, by license or through its affiliate label program with third
         party publishers. Distribution refers to the shipping and sale by the
         Company's European distribution subsidiaries of other publishers'
         software and related products to the marketplace. See the Consolidated
         Financial Statements and Notes thereto included in Item 8 of this
         Annual Report on Form 10-K for certain financial information required
         by Item 1.

         (d)      NARRATIVE DESCRIPTION OF BUSINESS

         FACTORS AFFECTING FUTURE PERFORMANCE

                  In connection with the Private Securities Litigation Reform
         Act of 1995 (the "Litigation Reform Act"), the Company is hereby
         disclosing certain cautionary information to be used in connection with
         written materials (including this Annual Report on Form 10-K) and oral
         statements made by or on behalf of its employees and representatives
         that may contain "forward-looking statements" within the meaning of the
         Litigation Reform Act. Such statements consist of any statement other
         than a recitation of historical fact and can be identified by the use
         of forward-looking terminology such as "may," "expect," "anticipate,"
         "estimate" or "continue" or the negative thereof or other variations
         thereon or comparable terminology. The listener or reader is cautioned
         that all forward-looking statements are necessarily speculative and
         there are numerous risks and uncertainties that could cause actual
         events or results to differ materially from those referred to in such
         forward-looking statements. The discussion below highlights some of the
         more important risks identified by management, but should not be
         assumed to be the only factors that could affect future performance.
         The reader or listener is cautioned that the Company does not have a
         policy of updating or revising forward-looking statements and thus he
         or she should not assume that silence by management over time means
         that actual events are bearing out as estimated in such forward-looking
         statements.

                  FLUCTUATIONS IN QUARTERLY RESULTS; FUTURE OPERATING RESULTS
         UNCERTAIN; SEASONALITY. The Company's quarterly operating results have
         varied significantly in the past and will likely vary significantly in
         the future depending on numerous factors, several of which are not
         under the Company's control. Such factors include, but are not limited
         to, demand for products published or distributed by the Company, the
         size and rate of growth of the interactive entertainment and leisure
         markets, development and promotional expenses relating to the
         introduction of new products, changes in operating systems and
         platforms, product returns, the timing of orders from major customers,
         delays in shipment, the level of price competition, the timing of
         product introductions by the Company and its competitors, product life
         cycles, product defects and other quality problems, the level of the
         Company's international revenues, and personnel changes. Products are
         generally shipped as orders are received, and consequently, the Company
         operates with little or no backlog. Net revenues in any quarter are,
         therefore, substantially dependent on orders booked and shipped in that
         quarter.

                  The Company's expenses are based in part on the Company's
         product development, acquisition and marketing budgets. Many of the
         costs incurred by the Company to produce and sell its products are
         expensed as such costs are incurred, which often occurs before a
         product is released. In addition, a significant portion of the
         Company's expenses are fixed. As the Company increases its production,
         acquisition and sales activities, current expenses will increase and,
         if sales from previously released products are below expectations, net
         income is likely to be disproportionately affected.

                  Due to all of the foregoing, revenues and operating results
         for any future quarter are not predictable with any significant degree
         of accuracy. Accordingly, the Company believes that period-to-period


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         comparisons of its operating results are not necessarily meaningful and
         should not be relied upon as indications of future performance.

                  The Company's business has experienced and is expected to
         continue to experience significant seasonality, in part due to consumer
         buying patterns. Net revenues typically are significantly higher during
         the fourth calendar quarter, primarily due to the increased demand for
         consumer software during the year-end holiday buying season. Net
         revenues and net income in other quarters are generally lower and vary
         significantly as a result of new product introductions and other
         factors. On average in the past three fiscal years, the Company has
         earned approximately 15% of its net revenues in the quarter ending June
         30th, 20% in the quarter ending September 30th, 45% in the quarter
         ending December 31st and 20% in the quarter ending March 31st. The
         Company expects its net revenues and operating results to continue to
         reflect significant seasonality.

                  DEPENDENCE ON NEW PRODUCT DEVELOPMENT; PRODUCT DELAYS. The
         Company's future success depends in part on the timely introduction of
         successful new products to replace declining revenues from older
         products. If, for any reason, revenues from new products were to fail
         to replace declining revenues from older products, the Company's
         business, operating results and financial condition would be materially
         and adversely affected. In addition, the Company believes that the
         competitive factors in the marketplace for premium-priced interactive
         products create the need for higher quality, distinctive products that
         incorporate increasingly complex technology and sophisticated graphics,
         sound and other effects and the need to support product releases with
         increased marketing, resulting in longer development periods and higher
         development, acquisition and marketing costs. The lack of market
         acceptance or significant delay in the introduction of, or the presence
         of a defect in, one or more premium-priced products could have a
         material adverse effect on the Company's business, operating results
         and financial condition, particularly in view of the seasonality of the
         Company's business. Further, because a large portion of a product's
         revenue generally is associated with initial shipments, the delay of a
         product introduction expected near the end of a fiscal quarter may have
         a material adverse effect on operating results for that quarter.

                  The Company has, in the past, experienced significant delays
         in the introduction of certain new products. The timing and success of
         interactive entertainment software products remain unpredictable due to
         the complexity of product development, including the uncertainty
         associated with technological developments. Although the Company has
         implemented substantial development controls, there likely will be
         delays in developing and introducing new products in the future. There
         can be no assurance that new products will be introduced on schedule,
         or at all, or that they will achieve market acceptance or generate
         significant revenues.

                  RELIANCE ON THIRD PARTY DEVELOPERS AND INDEPENDENT
         CONTRACTORS. The percentage of products published by the Company that
         are developed by independent third party developers has increased
         significantly over the last several fiscal years. The Company also
         utilizes independent contractors for many aspects of products that are
         developed internally by the Company and its subsidiaries. The Company
         has less control over the scheduling and the quality of work by
         independent contractors and third party developers than that of its own
         employees. A delay in the work performed by independent contractors and
         third party developers or poor quality of such work may result in
         product delays. Although the Company intends to continue releasing
         products that are developed primarily by its own employees and
         employees of its subsidiaries, the Company's ability to grow its
         business and its future operating results will depend, in significant
         part, on the Company's continued ability to initiate and maintain
         relationships with skilled independent contractors and third party
         developers. There can be no assurance that the Company will be able to
         initiate and maintain such relationships successfully in the future.

                  UNCERTAINTY OF MARKET ACCEPTANCE; SHORT PRODUCT LIFE CYCLES.
         The market for interactive entertainment software platforms and
         software products has been characterized by shifts in consumer
         preferences and short life cycles. Consumer preferences for
         entertainment and leisure software products are difficult to predict
         and few such products achieve sustained market acceptance. There can be
         no assurance that new products introduced by the Company will achieve
         any significant degree of market acceptance, that such acceptance will
         be sustained for any significant period, or that product life cycles
         will be sufficient to permit the Company to recoup product acquisition,
         development, marketing and other associated costs. In addition, if
         market acceptance is not achieved, the Company could be forced to
         accept substantial product returns to maintain its relationships with
         retailers and its access to distribution channels. Failure of new


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         products to achieve or sustain market acceptance or product returns in
         excess of the Company's expectations would have a material adverse
         effect on the Company's business, operating results and financial
         condition.

                  PRODUCT CONCENTRATION; DEPENDENCE ON HIT PRODUCTS. The Company
         derives a significant portion of its revenues from a relatively small
         number of products released each year. Many of these products have
         substantial development, production and acquisition costs and marketing
         budgets. In fiscal 2000 the Company had two products which each
         accounted for approximately 10% of consolidated net revenues. In fiscal
         1998, the Company had one product which accounted for approximately 10%
         of consolidated net revenues. In fiscal 1999, no single product
         accounted for greater than 10% of consolidated net revenues. The
         Company anticipates that a relatively limited number of products will
         continue, in the aggregate, to produce a disproportionate amount of
         revenues. Due to this dependence on a limited number of products, the
         failure of one or more of these products to achieve anticipated results
         may have a material adverse effect on the Company's business, operating
         results and financial condition.

                  The Company's strategy also includes as a key component
         publishing titles that have franchise value, such that sequels,
         conversions, enhancements and add-on products can be released over
         time, thereby extending the life of the property in the market. While
         the focus on franchise properties, if successful, results in extending
         product life cycles, it also results in the Company depending on a
         limited number of titles for its revenues. There can be no assurance
         that the Company's existing franchise titles can continue to be
         exploited as successfully as in the past. In addition, new products
         that the Company believes will have potential value as franchise
         properties may not achieve market acceptance and therefore may not be a
         basis for future releases.

                  INDUSTRY COMPETITION; COMPETITION FOR SHELF SPACE. The
         interactive entertainment and leisure industry is intensely
         competitive. Competition is principally based on product quality and
         features, the compatibility of products with popular platforms, company
         or product line brand name recognition, access to distribution
         channels, marketing effectiveness, reliability and ease of use, price
         and technical support. Significant financial resources also have become
         a competitive factor in this industry, principally due to the
         substantial cost of product development and marketing that is required
         to support best-selling titles. In addition, competitors with broad
         product lines and popular titles typically have greater leverage with
         distributors and other customers who may be willing to promote titles
         with less consumer appeal in return for access to such competitor's
         most popular titles.

                  The Company's competitors range from small companies with
         limited resources to large companies with substantially greater
         financial, technical and marketing resources than those of the Company.
         The Company's competitors currently include Electronic Arts, Microsoft,
         Sony, Sega, Nintendo, Havas, Infogrames, Hasbro, THQ, Midway and Eidos,
         among many others.

                  The interactive entertainment software industry is undergoing
         significant consolidation which allows the Company's largest
         competitors to exercise control over a growing number of product lines
         and increasing concentration of development, financial and technical
         resources. As the Company's competitors grow stronger and competition
         increases, significant price pressure, increased production costs and
         reduced profit margins may result. Prolonged price competition or
         reduced demand would have a material adverse effect on the Company's
         business, operating results and financial condition. There can be no
         assurance that the Company will be able to compete successfully against
         current or future competitors or that competitive pressures faced by
         the Company will not have a material adverse effect on its business,
         operating results and financial condition.

                  Retailers typically have a limited amount of shelf space, and
         there is intense competition among interactive entertainment and
         leisure software producers for adequate levels of shelf space and
         promotional support from retailers. As the number of interactive
         entertainment and leisure products increase, the competition for shelf
         space has intensified, resulting in greater leverage for retailers and
         distributors in negotiating terms of sale, including price discounts
         and product return policies. The Company's products constitute a
         relatively small percentage of a retailer's sales volume, and there can
         be no assurance that retailers will continue to purchase the Company's
         products or promote the Company's products with adequate levels of
         shelf space and promotional support.

                  DEPENDENCE ON DISTRIBUTORS AND RETAILERS; RISK OF CUSTOMER
         BUSINESS FAILURE; PRODUCT RETURNS. The Company depends on access to
         retailers and distributors in order to market and sell its products.
         The loss 


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         of, or significant reduction in sales attributable to, any of the
         Company's principal distributors or retailers could materially
         adversely affect the Company's business, operating results and
         financial condition. An increasing focus by companies on inventory
         management and the maintenance of minimum inventory on-hand levels
         could affect the buying patterns of our principal distributors and
         retailers, thereby, resulting in less predictable purchasing patterns.
         Significant changes in the buying patterns of the Company's major
         customers could impact the Company's ability to accurately forecast
         sales and, resultantly, the necessary production to fill such sales,
         which could have a material adverse effect on the financial condition
         and results of operations of the Company. Further, certain mass market
         retailers have established exclusive buying relationships under which
         such retailers will buy consumer software only from one intermediary.
         In such instances, the price or other terms on which the Company sells
         to such retailers may be adversely affected by the terms imposed by
         such intermediary, or the Company may be unable to sell to such
         retailers on terms which the Company deems acceptable.

                  Retailers in the computer and software industry have from time
         to time experienced significant fluctuations in their businesses and
         there have been a number of business failures among these entities. The
         insolvency or business failure of any significant retailer or other
         wholesale purchaser of the Company's products could have a material
         adverse effect on the Company's business, operating results and
         financial condition. Sales are typically made on credit, with terms
         that vary depending upon the customer and the nature of the product.
         The Company does not hold collateral to secure payment. Although the
         Company has obtained insolvency risk insurance to protect against
         bankruptcy, insolvency, or liquidation that may occur to its customers,
         such insurance contains a significant deductible as well as a
         co-payment obligation, and the policy does not cover all instances of
         non-payment. In addition, while the Company maintains a reserve for
         uncollectible receivables that it believes to be adequate, the actual
         reserve which is maintained may not be sufficient in every
         circumstance. As a result of the foregoing, a payment default by a
         significant customer could have a material adverse effect on the
         Company's business, operating results and financial condition.

                  The Company also is exposed to the risk of product returns
         from retailers and other wholesale purchasers. Although the Company
         provides reserves for returns that it believes are adequate, and
         although the Company's agreements with certain of its customers place
         certain limits on product returns, the Company could be forced to
         accept substantial product returns to maintain its relationships with
         retailers and its access to distribution channels. Product returns that
         exceed the Company's reserves could have a material adverse effect on
         the Company's business, operating results and financial condition.

                  CHANGES IN TECHNOLOGY AND INDUSTRY STANDARDS. The consumer
         software industry is undergoing rapid changes, including evolving
         industry standards, frequent new platform introductions and changes in
         consumer requirements and preferences. The introduction of new
         technologies, including new console systems such as the Sony
         PlayStation 2, Microsoft X-Box and Nintendo Dolphin technologies that
         support multi-player on-line games, and new media formats and methods
         of consumer delivery such as on-line delivery, could render the
         Company's previously released products obsolete or unmarketable. The
         development cycle for products utilizing new console platforms,
         computer operating systems and microprocessors or formats may be
         significantly longer and more expensive than the Company's current
         development cycle for products on existing platforms, operating
         systems, microprocessors and formats and may require the Company to
         invest resources in products that may not become profitable. There can
         be no assurance that the mix of the Company's future product offerings
         will keep pace with technological changes or satisfy evolving consumer
         preferences, or that the Company will be successful in developing and
         marketing products for any future operating system or format. Failure
         to develop and introduce new products and product enhancements in a
         timely fashion could result in significant product returns and
         inventory obsolescence and could have a material adverse effect on the
         Company's business, operating results and financial condition.

                  RISKS ASSOCIATED WITH LEVERAGE. As of March 31, 2000, the
         Company had outstanding $60.0 million of subordinated convertible notes
         due 2005. In June 1999, the Company obtained a term loan and revolving
         credit facility composed of a $25.0 million term loan and up to
         $100.0 million of revolving credit loans and letters of credit. The
         proceeds of the term loan, which is due in June 2002, were used to
         complete the acquisition of Expert Software, Inc. and to pay expenses
         associated with the acquisition and the financing transaction. The
         revolving credit facility is used for working capital and general 
         corporate purposes. As of  March 31, 2000, there was $20.0 million
         outstanding under the term loan and $2.5 million outstanding under the
         revolving credit facility.


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                  The term loan and the revolving credit facility are 
         collateralized by substantially all of the assets of the Company and of
         its US subsidiaries. The facility contains various financial and other
         covenants that the Company and its subsidiaries must comply with. If
         the Company were to default under the terms of the credit facility,
         either as a result of a failure to pay principal or interest when due
         or as a result of a breach of a financial or other covenant, the
         lenders could stop providing funds and letters of credit to the Company
         and could declare an event of default and foreclose on the collateral.
         This could also result in an acceleration of the subordinated notes. A
         default by the Company under the revolving credit and term loan
         facility would materially adversely affect the Company's business and
         could result in the Company declaring bankruptcy.

                  On June 8, 2000, the Company amended certain of the covenants
         of its term loan and revolving credit facility. The amended term loan
         and credit facility permits the Company to purchase up to $15.0 million
         in shares of its common stock as well as its convertible subordinated
         notes in accordance with the Company's stock repurchase program
         (described in Note 15 to the consolidated financial statements), the
         distribution of "Rights" under the Company's shareholders' rights plan
         (described in Note 15 to the consolidated financial statements), as
         well as the reorganization of the Company's organizational structure
         into a holding company form.

                  LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY
         RIGHTS; RISK OF LITIGATION. The Company holds copyrights on the
         products, manuals, advertising and other materials owned by it and
         maintains trademark rights in the ACTIVISION name, the ACTIVISION logo,
         and the names of the products owned by the Company. The Company regards
         its software as proprietary and relies primarily on a combination of
         trademark, copyright and trade secret laws, employee and third-party
         nondisclosure agreements, and other methods to protect its proprietary
         rights. However, there can be no assurance that third parties will not
         assert infringement claims against the Company in the future with
         respect to current or future products. As is common in the industry,
         from time to time the Company receives notices from third parties
         claiming infringement of intellectual property rights of such parties.
         The Company investigates these claims and responds as it deems
         appropriate. Any claims or litigation, with or without merit, could be
         costly and could result in a diversion of management's attention, which
         could have a material adverse effect on the Company's business,
         operating results and financial condition. Adverse determinations in
         such claims or litigation could also have a material adverse effect on
         the Company's business, operating results and financial condition.

                  Unauthorized copying and other forms of piracy are common
         within the software industry, and if a significant amount of
         unauthorized copying of the Company's products were to occur, the
         Company's business, operating results and financial condition would be
         adversely effected. Policing unauthorized use of the Company's products
         is difficult, and while the Company is unable to determine the extent
         to which piracy of its software products exists, software piracy can be
         expected to be a persistent problem. In selling its products, the
         Company relies primarily on "shrink wrap" licenses that are not signed
         by licensees and, therefore, may be unenforceable under the laws of
         certain jurisdictions. Further, the Company enters into transactions in
         countries where intellectual property laws are not well developed or
         are poorly enforced. Legal protections of the Company's rights may be
         ineffective in such countries.

                  DEPENDENCE ON KEY PERSONNEL; COMPETITION WITH INTERNET
         COMPANIES FOR KEY PERSONNEL. The Company's success depends to a
         significant extent on the performance and continued service of its
         senior management and certain key employees. Competition for highly
         skilled employees with technical, management, marketing, sales, product
         development and other specialized training is intense, and there can be
         no assurance that the Company will be successful in attracting and
         retaining such personnel. Specifically, the Company may experience
         increased costs in order to attract and retain skilled employees.
         Although the Company enters into term employment agreements with most
         of its skilled employees and management personnel, there can be no
         assurance that such employees will not leave the Company or compete
         against the Company. The Company's failure to attract or retain
         qualified employees could have a material adverse effect on the
         Company's business, operating results and financial condition.

                  The Company faces intense competition for talent from highly
         valued Internet companies. Competition for employees in the interactive
         software business continues to be intense. Recently, the most intense
         competition for recruiting and retaining key employees is from Internet
         companies. The high market valuations, large equity positions for key
         executives and creative talent and fast stock price appreciation of
         these companies make their compensation packages attractive to those
         who already are working in more mature companies. This situation could
         create difficulty for the Company to compete for the attraction and
         retention of executive and key creative talent.


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                  RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS: CURRENCY
         FLUCTUATIONS. International sales and licensing accounted for 71%, 66%
         and 51% of the Company's total revenues in the fiscal years 1998, 1999
         and 2000, respectively. The Company intends to continue to expand its
         direct and indirect sales, marketing and localization activities
         worldwide. This expansion will require significant management time and
         attention and financial resources in order to develop adequate
         international sales and support channels. The Company may not be able
         to maintain or increase international market demand for its products.
         International sales are subject to inherent risks, including the impact
         of possible recessionary environments in economies outside the United
         States, currency fluctuations, the costs of transferring and localizing
         products for foreign markets, longer receivable collection periods and
         greater difficulty in accounts receivable collection, unexpected
         changes in regulatory requirements, difficulties and costs of staffing
         and managing foreign operations, and political and economic
         instability. The Company may not be able to sustain or increase
         international revenues and the foregoing factors may have a material
         adverse effect on the Company's future international revenues and,
         consequently, on the Company's business, operating results and
         financial condition. The Company currently does not engage in currency
         hedging activities. Although exposure to currency fluctuations to date
         has been insignificant, fluctuations in currency exchange rates may in
         the future have a material adverse impact on revenues from
         international sales and licensing and thus the Company's business,
         operating results and financial condition.

                  RISK OF DEFECTS. Interactive software products such as those
         offered by the Company frequently contain errors or defects. Despite
         extensive product testing, in the past the Company has released
         products with defects and has discovered errors in certain of its
         product offerings after their introduction. In particular, the PC
         hardware environment is characterized by a wide variety of non-standard
         peripherals (such as sound cards and graphics cards) and hardware
         configurations that make pre-release testing for programming or
         compatibility errors very difficult and time-consuming. Despite testing
         by the Company, new products or releases may contain errors after
         commencement of commercial shipments, resulting in a loss of or delay
         in market acceptance, which could have a material adverse effect on the
         Company's business, operating results and financial condition.

                  RISKS ASSOCIATED WITH ACQUISITIONS. As the Company executes
         acquisitions, it must integrate the operations of its acquired
         subsidiaries with its previously existing operations. This process, as
         well as the process of managing new operations, requires substantial
         management time and effort and diverts the attention of management from
         other matters. In addition, there is a risk of loss of key employees,
         customers and vendors of the recently acquired operations as well as
         existing operations as this process is implemented. The Company may not
         be successful in integrating these operations.

                  Consistent with the Company's strategy of enhancing its
         distribution and product development capabilities, the Company intends
         to continue to pursue acquisitions of companies, intellectual property
         rights and other assets that can be purchased or licensed on acceptable
         terms and which the Company believes can be operated or exploited
         profitably. Some of these transactions could be material in size and
         scope. While the Company will continually be searching for appropriate
         acquisition opportunities, the Company may not be successful in
         identifying suitable acquisitions. If any potential acquisition
         opportunities are identified, the Company may not be able to consummate
         such acquisitions and if any such acquisition does occur, it may not
         enhance the Company's business or be accretive to the Company's
         earnings. As the interactive entertainment and leisure industry
         continues to consolidate, the Company faces significant competition in
         seeking acquisitions and may in the future face increased competition
         for acquisition opportunities. This may inhibit the Company's ability
         to complete suitable transactions. Future acquisitions could also
         divert substantial management time, could result in short term
         reductions in earnings or special transaction or other charges and may
         be difficult to integrate with existing operations or assets.

                  The Company may, in the future, issue additional shares of
         common stock in connection with one or more acquisitions, which may
         dilute its existing shareholders. The Company's shareholders will not
         have an opportunity, with respect to most of the Company's future
         acquisitions, to review the financial statements of the entity being
         acquired or to evaluate the benefits of the intellectual property
         rights being purchased or licensed, or to vote on the acquisitions.

                  RISK OF DISTRIBUTION COMPANIES' VENDOR DEFECTIONS; VENDOR
         CONCENTRATION. The Company's CD Contact, NBG and CentreSoft
         subsidiaries perform interactive entertainment distribution services in
         the Benelux territories, Germany and in the United Kingdom,
         respectively, and, via export, in other European 


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<PAGE>

         territories for a variety of entertainment software publishers, many 
         of which are competitors of the Company. These services are 
         generally performed under limited term contracts, some of which 
         provide for cancellation in the event of a change of control. While 
         the Company expects to use reasonable efforts to retain these 
         vendors, the Company may not be successful in this regard. The 
         cancellation or non-renewal of one or more of these contracts could 
         have a material adverse effect on the Company's business, operating 
         results and financial condition. Two of CD Contact's third party 
         vendors accounted for 12% and 11%, respectively, of CD Contact's net 
         revenues in fiscal year 2000. The net revenues from each of these 
         vendors represented 1% of consolidated net revenues of the Company 
         for this period. Three of CentreSoft's third party vendors accounted 
         for 25%, 14%, and 10%, respectively, of CentreSoft's net revenues in 
         fiscal year 2000. The net revenues from these vendors represented 
         5%, 3% and 2%, respectively, of consolidated net revenues of the 
         Company for this period. Two of NBG's third party vendors accounted 
         for 11% and 10%, respectively, of NBG's net revenues in fiscal year 
         2000. The net revenues from these vendors each represented 1% of 
         consolidated net revenues of the Company for this period. All other 
         third party vendors contributed less than 10% individually to the 
         respective subsidiary's net revenues.

                  RISKS ASSOCIATED WITH FLUCTUATIONS IN STOCK VALUE. Due to
         analysts' expectations of continued growth and other factors, any
         shortfall in earnings could have an immediate and significant adverse
         effect on the trading price of the Company's common stock in any given
         period. As a result of the factors discussed in this report and other
         factors that may arise in the future, the market price of the Company's
         common stock historically has been, and may continue to be subject to
         significant fluctuations over a short period of time. These
         fluctuations may be due to factors specific to the Company, to changes
         in analysts' earnings estimates, or to factors affecting the computer,
         software, entertainment, media or electronics industries or the
         securities markets in general.

         STRATEGY

                  The Company's objective is to be a worldwide leader in the
         development, publishing and distribution of quality interactive
         entertainment and leisure products that deliver, at each point of the
         value spectrum, a highly satisfying experience. The Company's strategy
         includes the following elements:

                  CREATE AND MAINTAIN A BALANCED AND DIVERSIFIED PORTFOLIO OF
         OPERATIONS. The Company has assembled a large diversified portfolio of
         development, publishing and distribution operations and relationships
         which are complementary and, at the same time, reduce the Company's
         risk of concentration on any one developer, brand, platform, customer
         or market. The Company has focused historically on the development and
         publishing of premium products that provide the most sophisticated game
         play and entertainment experience at the top price point. While the
         Company will continue to take advantage of its expertise in this area,
         it has continued to diversify its business operations and product and
         audience mix. In addition to establishing, primarily through
         acquisitions, the European distribution business, the Company believes
         that as a result of its acquisition activities, it has positioned
         itself as a leading publisher of "value" products for the PC, which are
         characterized by less sophisticated game play and lower price points.
         Further, the Company publishes and distributes titles that operate on a
         variety of platforms (PC, Sony PlayStation, Sega Dreamcast and Nintendo
         N64 and Gameboy). This diversification helps to reduce the risk of
         downturn or underperformance in any of the Company's individual
         operations.

                  CREATE AND MAINTAIN STRONG BRANDS. The Company focuses its
         development and publishing activities principally on titles that are,
         or have the potential to become, franchise properties with sustainable
         consumer appeal and brand recognition. These titles can thereby serve
         as the basis for sequels, prequels, mission packs, other add-ons and
         related new titles that can be released over an extended period of
         time. The Company believes that the publishing and distribution of
         products based in large part on franchise properties enhances revenue
         predictability and the probability of high unit volume sales and
         operating profits. In addition, the Company has entered into a series
         of strategic partnerships with the owners of intellectual property
         pursuant to which the Company has acquired the rights to publish titles
         based on franchises such as STAR TREK, various Disney films such as TOY
         STORY 2, and Marvel Comic's properties such as SPIDERMAN, X-MEN and
         BLADE. The Company also has capitalized on the success of its TONY HAWK
         PRO SKATER products to sign long term agreements with superstars of
         extreme sports such as Mat Hoffman in BMX pro biking, Kelly Slater in
         pro surfing and Shaun Palmer in snow boarding.

                  FOCUS ON ON-TIME DELIVERY. The success of the Company's
         publishing business is dependent, in significant part, on its ability
         to develop games that will generate high unit volume sales that can be
         completed in accordance with planned budgets and schedules. In order to
         increase its ability to achieve this 


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<PAGE>

         objective, the Company's publishing units have implemented a formal
         control process for the development of the Company's products. This
         process includes three key elements: (i) in-depth reviews are conducted
         for each project at five intervals during the development process by a
         team that includes several of the Company's highest ranking operating
         managers; (ii) each project is led by a small team which is given
         incentives to deliver a high-quality product, on-schedule and within
         budget; and (iii) day-to-day progress is monitored by a dedicated
         process manager in order to insure that issues, if any, are promptly
         identified and addressed in a timely manner.

                  LEVERAGE INFRASTRUCTURE AND ORGANIZATION. The Company is
         continually striving to reduce its risk and increase its operating
         leverage and efficiency. For example, the Company has significantly
         increased its product making capabilities by allocating a larger
         portion of its product development investments to experienced
         independent development companies. These companies generally are small
         firms focused on a particular product type of game, run and owned by
         individuals who are willing to take development risk by accepting
         payments based on the completion of fixed performance milestones in
         exchange for a royalty on the revenue stream of the game after the
         Company recoups its development costs. The Company also has broadly
         instituted objective-based reward programs that provide incentives to
         management and staff to produce results that meet the Company's
         financial objectives.

                  GROW THROUGH CONTINUED STRATEGIC ACQUISITIONS. The interactive
         entertainment and leisure industry is consolidating, and the Company
         believes that success in this industry will be driven in part by the
         ability to take advantage of scale. Specifically, smaller companies are
         more capital constrained, enjoy less predictability of revenues and
         cashflow, lack product diversity and must spread fixed costs over a
         smaller revenue base. Several industry leaders are emerging that
         combine the entrepreneurial and creative spirit of the industry with
         professional management, the ability to access the capital markets and
         the ability to maintain favorable relationships with strategic
         developers, property owners and retailers. Through nine completed
         acquisitions since 1997, the Company believes that it has successfully
         diversified its operations, its channels of distribution, its
         development talent pool and its library of titles, and has emerged as
         one of the industry's leaders.

         PRODUCTS

                  The Company historically has been best known for its action,
         adventure, strategy and simulation products. With the successful
         introduction of its TONY HAWK PRO SKATER product, the Company also has
         become one of the industry leaders in the extreme sport category. The
         Company also distributes products in other categories such as leisure
         and role playing. The Company may in the future expand its product
         offerings into new categories.

                  The Company's current and upcoming releases are based on
         intellectual property and other character or story rights licensed from
         third parties, as well as a combination of characters, worlds and
         concepts derived from the Company's extensive library of titles, and
         original characters and concepts owned and created by the Company. In
         publishing products based on licensed intellectual property rights, the
         Company generally seeks to capitalize on the name recognition,
         marketing efforts and goodwill associated with the underlying property.

                  In the past year, the Company has entered into a series of
         long term or multi-product agreements with the owners of intellectual
         property that is well known throughout the world. In addition to the
         strategic relationships established by the Company with Disney
         Interactive for several animated film properties, with Viacom Consumer
         Products for STAR TREK and with LucasArts Entertainment for STAR WARS
         and INDIANA JONES, the Company also has entered into long term license
         agreements with Cabela's for its BIG GAME HUNTER series of products,
         Marvel Comics for such properties as SPIDERMAN, X-MEN and BLADE, and
         such superstars of extreme sports as Tony Hawk, Mat Hoffman, Kelly
         Slater and Shaun Palmer. The Company may not be able to seek out and
         sustain new long term relationships of similar caliber in the future.

                  In addition to its own internally developed products, the
         Company publishes and distributes software products for other
         independent developers and publishers such as id Software, Sony, Sega,
         Nihilistic Software, and Heuristic Park. As the Company seeks to
         associate the "ACTIVISION" mark only with the highest quality
         interactive entertainment products, the Company attempts to be
         selective in acquiring publishing and distribution rights from third
         party developers. Such products typically are marketed under the
         Company's name as well as the name of the original developer. The
         Company believes that these efforts enable the Company to leverage its
         investment in worldwide sales and marketing and add a new source of
         products while balancing the risks inherent in internal product
         development and production. This activity also allows 


                                       11

<PAGE>

         the Company to enter new product genres more quickly and provide
         consumers with a wider variety of products.

                  The Company has established itself as a leader in the "value
         priced" software publishing business with such products as Cabela's BIG
         GAME HUNTER series. Products published by the Company in this category
         are generally developed by third parties, often under contract with the
         Company, and are marketed under the Activision Value and Head Games
         names.

         PRODUCT DEVELOPMENT AND SUPPORT

                  The Company uses both internal and external resources to
         develop products. The Company also acquires rights to products through
         publishing and distribution arrangements with other interactive
         entertainment and leisure companies.

         INTERNAL DEVELOPMENT

                  The Company's internal development and production groups are
         located at the Company's operational bases in California, Minnesota,
         Wisconsin, Florida, the United Kingdom and Japan.

                  Activision internally develops and produces titles using a
         model in which a core group of creative, production and technical
         professionals on staff at the Company, in cooperation with the
         Company's marketing and finance departments, have overall
         responsibility for the entire development and production process and
         for the supervision and coordination of internal and external
         resources. This team assembles the necessary creative elements to
         complete a title, using where appropriate outside programmers, artists,
         animators, musicians and songwriters, sound effects and special effects
         experts, and sound and video studios. The Company believes that this
         model allows the Company to supplement internal expertise with top
         quality external resources on an as needed basis.

                  The Company has adopted and implemented a rigorous procedure
         for the selection, development, production and quality assurance of its
         internally produced entertainment software titles. The process involves
         one or more pre-development, development and production phases, each of
         which includes a number of specific performance milestones. This
         procedure is designed to enable the Company to manage and control
         production and development budgets and timetables, to identify and
         address production and technical issues at the earliest opportunity,
         and to coordinate marketing and quality control strategies throughout
         the production and development phases, all in an environment that
         fosters creativity. Checks and balances are intended to be provided
         through the structured interaction of the project team with the
         Company's creative, technical, marketing and quality assurance/customer
         support personnel, as well as the legal, accounting and finance
         departments.

         EXTERNAL DEVELOPMENT

                  The Company licenses or acquires software products from
         independent developers for publishing or distribution by the Company.
         Acquired titles generally are marketed under the Company's name as well
         as the name of the original developer. The agreements with developers
         provide the Company with exclusive publishing and/or distribution
         rights for a specific period of time for specified platforms and
         territories. These agreements often grant to the Company the right to
         publish and/or distribute sequels, conversions, enhancements and
         add-ons to the product originally being developed and produced by the
         developer. In consideration for its services, the developer receives a
         royalty based on net sales of the product that it has developed.
         Typically, the developer also receives a nonrefundable advance which is
         recoupable by the Company from the royalties otherwise required to be
         paid to the developer. The royalty generally is paid in stages, with
         the payment of each stage tied to the completion of a detailed
         performance milestone.

                  The Company acquires titles from developers during various
         phases of the development and production processes for such titles. To
         the extent the Company acquires rights early in the development
         process, the Company generally will cause the independent developer to
         comply with the requirements of the pre-development, development and
         production processes applicable to titles internally produced by
         Activision. The Company will assign a game producer to each title who
         will serve as the principal liaison to the independent developer and
         help insure that performance milestones are timely met. The Company


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<PAGE>

         generally has the right to cease making payments to an independent 
         developer if the developer fails to complete its performance milestones
         in a timely fashion.

                  The Company may make, from time to time, an investment and
         hold a minority equity interest in the third party developer in
         connection with entertainment software products to be developed by each
         of these developers for the Company, which the Company believes helps
         to create a closer relationship between the Company and the developer.
         In addition to the Company's minority interest in each of Pandemic
         Studios, Savage Entertainment, Raster Productions and Hammerhead
         Studios, the Company also acquired a minority equity interest in Gray
         Matter Studios in connection with the development of a product known as
         RETURN TO CASTLE WOLFENSTEIN. There can be no assurance that the
         Company will realize long term benefits from such type of investments
         or that it will continue to carry such investments at its current
         value.

         PRODUCT SUPPORT

                  The Company provides various forms of product support to both
         its internally and externally developed titles. The Company's quality
         assurance personnel are involved throughout the development and
         production processes for each title published by the Company. All such
         products are subjected to extensive testing before release in order to
         insure compatibility with the widest possible array of hardware
         configurations and to minimize the number of bugs and other defects
         found in the products. To support its products after release, the
         Company provides on-line support to its customers on a 24-hour basis as
         well as operator help lines during regular business hours. The customer
         support group tracks customer inquiries and this data is used to help
         improve the development and production processes.

         PUBLISHING AND DISTRIBUTION ACTIVITIES

         MARKETING

                  The Company's marketing efforts include on-line activities
         (such as the creation of World Wide Web pages to promote specific
         Company titles), public relations, print and broadcast advertising,
         coordinated in-store and industry promotions including merchandising
         and point of purchase displays, participation in cooperative
         advertising programs, direct response vehicles, and product sampling
         through demonstration software distributed through the Internet or on
         compact discs. In addition, the Company's products contain software
         that enables customers to "electronically register" their purchases
         with the Company via modem. Through this process, the Company captures
         electronic mail addresses for its customers as well as a variety of
         additional market research data.

                  The Company believes that certain of its franchise properties
         have loyal and devoted audiences who purchase the Company's sequels as
         a result of dedication to the property and satisfaction from previous
         product purchases. Marketing of these sequels is therefore directed
         both toward the established market as well as broader audiences. In
         marketing titles based on licensed properties, the Company believes
         that it derives marketing synergies and related benefits from the
         marketing and promotional activities of the property owners. In
         marketing titles owned by third party developers, the Company believes
         that it derives marketing synergies and related benefits from the
         previously established reputation of and goodwill associated with the
         developer and/or properties owned by the developer.


                                       13

<PAGE>

         SALES AND DISTRIBUTION

                  DOMESTIC SALES AND DISTRIBUTION. The Company's products are
         available for sale or rental in thousands of retail outlets
         domestically. The Company's domestic customers include Best Buy,
         CompUSA, Computer City, Electronic Boutique, Babbages, WalMart, K-Mart,
         Target and Toys "R" Us. During fiscal 2000 or fiscal 1999, no single
         domestic customer accounted for more than 10% of consolidated net
         revenues.

                  In the United States, the Company's products are sold
         primarily on a direct basis to major computer and software retailing
         organizations, mass market retailers, consumer electronic stores and
         discount warehouses and mail order companies. The Company believes that
         a direct relationship with retail accounts results in more effective
         inventory management, merchandising and communications than would be
         possible through indirect relationships. The Company has implemented
         electronic data interchange ("EDI") linkage with many of its retailers
         to facilitate the placing and shipping of orders. The Company seeks to
         continue to increase the number of retail outlets reached directly
         through its internal sales force. The Company utilizes wholesale
         distributors such as Ingram Micro to service independent channels.

                  INTERNATIONAL SALES AND DISTRIBUTION. The Company conducts its
         international publishing and distribution activities through offices in
         the United Kingdom, Germany, France, Australia, Canada, the
         Netherlands, Belgium and Japan. The Company seeks to maximize its
         worldwide revenues and profits by releasing high quality foreign
         language localizations concurrently with the English language releases,
         whenever practicable, and by continuing to expand the number of direct
         selling relationships it maintains with key retailers in major
         territories. As part of the restructuring plan adopted in March 2000,
         described in Item 7 "Management's Discussion and Analysis of 
         Financial Condition and Results of Operations," the Company is in 
         the process of realigning its direct distribution system and 
         restructuring its worldwide distributor relationships, significantly 
         reducing the number of distributors.

                  In November 1997, the Company commenced its European
         distribution operations through the acquisitions of NBG in Germany and
         CentreSoft in the United Kingdom. CentreSoft is Sony's exclusive
         distributor of PlayStation products to the independent channel in the
         United Kingdom and employs approximately 165 people, including one of
         the largest entertainment software sales and marketing organizations in
         that country. In September 1998, the Company acquired CD Contact, a
         company specializing in the localization and marketing of entertainment
         software products in the Benelux territories. The assets and personnel
         of CD Contact have been integrated with the Company's other
         distribution operations to form the core of Activision's international
         distribution operations.

                  AFFILIATE LABELS. In addition to its own products, the Company
         distributes interactive entertainment products that are developed and
         marketed by other third party publishers through its "affiliate label"
         programs. The distribution of other publishers' products allows the
         Company to maximize the efficiencies of its sales force and provides
         the Company with the ability to better insure adequate shelf presence
         at retail stores for all of the products that it distributes. It also
         mitigates the risk associated with a particular title or titles
         published by Activision failing to achieve expectations. Services
         provided by the Company under its affiliate label program include order
         solicitation, in-store marketing, logistics and order fulfillment,
         sales channel management, as well as other accounting and general
         administrative functions.

                  During the fiscal year 2000, the Company's affiliate label
         partners included LucasArts, Psygnosis, Fox Interactive, Interplay,
         Codemasters, 989 Studios and Encore Entertainment. Each affiliate label
         relationship is unique and may pertain only to distribution in certain
         geographic territory such as the United States or Europe and may be
         further limited only to the specifically named titles or titles
         operating on specific platforms.

                  OEM SALES AND DISTRIBUTION. The Company seeks to enhance the
         distribution of its products through licensing arrangements with
         original equipment manufacturers ("OEMs"). Under these arrangements,
         one or more of the Company's titles are "bundled" with hardware or
         peripheral devices sold and distributed by the OEM so that the
         purchaser of the hardware or device obtains the Company's software as
         part of the purchase or on a discounted basis. Although it is customary
         for the Company to receive a lower per unit price on sales through OEM
         bundle arrangements, the OEM customer makes a high unit volume
         commitment to the Company with little associated marketing costs. The
         Company also believes that such arrangements can substantially expand
         the distribution of its titles to a broader audience. Recent OEM
         partners include Gateway Computers, Franklin Computers, Logitech, Dell
         Computers and Diamond 


                                       14

<PAGE>

         Multimedia. The Company also enters into OEM transactions through third
         party software aggregators who resell the Company products to OEM
         customers. The OEM market has been undergoing radical changes due to
         the declining prices of personal computers and hardware accessories and
         the reluctance of hardware manufacturers to produce large inventories.
         There can be no assurances that the Company will be able to find new or
         maintain productive relationship with its existing OEM customers. The
         Company's own OEM subsidiary, TDC, has been negatively impacted by the
         changes in the OEM market, as further described in Item 7 "Management's
         Discussion and Analysis of Financial Condition and Results of
         Operations."

         LICENSING AND MERCHANDISING

                  The Company believes that a number of its products have the
         potential to be exploited in ancillary markets and media, such as
         product merchandising and traditional entertainment media. The Company
         seeks opportunities for the exploitation of these ancillary rights
         directly and through third party agents. Potential opportunities
         include the publication of strategy guides for selected titles, the
         adaptation of titles into comic books, novels, television series or
         motion pictures, and the licensing of product merchandising rights. The
         Company also has been licensing to third party developers on a
         selective basis some of its products for development and publishing on
         platforms, which the Company determines not to be economically viable
         to exploit with regard to that particular product. In addition, the
         Company has established "900" telephone numbers through a third party
         telephone bureau as hint lines for certain of its titles and has
         realized revenues from the calls made to these numbers. The Company
         believes that these types of licensing activities and other forms of
         ancillary exploitation can provide additional sources of revenue and
         increase the visibility of the title, thereby leading to additional
         unit sales and greater potential for additional sequels. There can be
         no assurance that the Company will be successful in exploiting its
         properties in ancillary markets or media or will continue to license
         its products for conversion to platforms it does not exploit directly.

         INTERNET

                  The Company believes that there are opportunities for further
         exploitation of its titles through the Internet, on-line services, and
         dedicated Internet on-line gaming services. The Company is actively
         exploring the establishment of on-line game playing opportunities,
         on-line hint sites and Internet services as a method for realizing
         additional revenues from its products. There can be no assurance that
         the Company will be successful in exploiting these opportunities. The
         Company has been operating its on-line store under a third party
         fulfillment arrangement with Digital River, where customers can order a
         wide array of Activision titles.

         HARDWARE LICENSES

                  The Company's console products currently are being developed
         or published primarily for the Sony PlayStation and PlayStation 2, Sega
         Dreamcast and Nintendo N64 and Gameboy. In order to maintain general
         access to the console systems marketplace, the Company has obtained
         licenses for each of these platforms. Each license allows the Company
         to create one or more products for the applicable system, subject to
         certain approval rights as to quality which are reserved by each
         licensor. Each license also requires that the Company pay the licensor
         a per unit license fee for each unit manufactured.

                  In contrast, the Company currently is not required to obtain
         any license for the development and production of PC-CD products.
         Accordingly, the Company's per unit manufacturing cost for PC-CD
         products is less than the per unit manufacturing cost for console
         products.

         MANUFACTURING

                  The Company prepares a set of master program copies,
         documentation and packaging materials for its products for each
         respective hardware platform on which the product will be released.
         Except with respect to products for use on the Sony, Sega and Nintendo
         systems, the Company's disk duplication, packaging, printing,
         manufacturing, warehousing, assembly and shipping are performed by
         third party subcontractors.

                  In the case of products for the Sony, Sega and Nintendo
         systems, in order to maintain protection over their hardware
         technologies, such hardware producers generally specify and/or control
         the manufacturing and assembly of finished products. The Company
         delivers the master materials to the licensor or its approved
         replicator which then manufactures finished goods and delivers them to
         the Company for distribution under the Company's label. At the time the
         Company's product unit orders are filled by the 


                                       15

<PAGE>

         manufacturer, the Company becomes responsible for the costs of
         manufacturing and the applicable per unit royalty on such units, even
         if the units do not ultimately sell.

                  To date, the Company has not experienced any material
         difficulties or delays in the manufacture and assembly of its products
         or material returns due to product defects.

         COMPETITION

                  The interactive entertainment and leisure industry is
         intensely competitive and is in the process of substantial
         consolidation. The availability of significant financial resources has
         become a major competitive factor in this industry primarily as a
         result of the increasing development, acquisition, production and
         marketing budgets required to publish quality titles. In addition,
         competitors with large product lines and popular titles typically have
         greater leverage with distributors and other customers who may be
         willing to promote titles with less consumer appeal in return for
         access to such competitor's most popular titles. See "Factors Affecting
         Future Performance".

                  The Company seeks to compete by publishing high quality titles
         and by supporting these titles with substantial marketing efforts; by
         focusing on properties with sustainable consumer appeal; by working to
         strengthen its relationships with retailers and other resellers and
         otherwise expanding its channels of distribution; and by pursuing
         opportunities for strategic acquisitions. See "Strategy."

         EMPLOYEES

                  As of March 31, 2000, the Company had 775 employees, including
         268 in product development, 91 in North American publishing, 67 in
         corporate finance, operations and administration, 90 in international
         publishing, and 259 in European distribution activities.

                  As of March 31, 2000, approximately 170 of the Company's
         full-time employees were subject to term employment agreements with the
         Company. These agreements generally commit such employees to employment
         terms of between one and three years from the commencement of their
         respective agreements. Most of the employees subject to such agreements
         are executives of the Company or members of the product development,
         sales or marketing divisions. These individuals perform services to the
         Company as executives, directors, producers, associate producers,
         computer programmers, game designers, sales directors and marketing
         product managers. The execution by the Company of employment agreements
         with such employees, in the Company's experience, significantly reduces
         the Company's turnover during the development and production of its
         entertainment software products and allows the Company to plan more
         effectively for future development activities.

                  None of the Company's employees are subject to a collective
         bargaining agreement, and the Company has experienced no labor-related
         work stoppages.

         FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
         SALES

                  See Item 7 "Management's Discussion and Analysis of Financial
         Condition and Results of Operations" and Note 7 of Notes to
         Consolidated Financial Statements included in Item 8.


                                       16

<PAGE>


I
TEM 2.  PROPERTIES

                  The Company's principal corporate, administrative, and product
         development offices are located in approximately 98,000 square feet of
         leased space in a building located at 3100 Ocean Park Boulevard, Santa
         Monica, California 90405. The following is a listing of the principal
         offices maintained by the Company at June 19, 2000:


<TABLE>
<CAPTION>
                  Location of
                  Principal Facilities                    Square Feet        Lease Expiration Date
                  -------------------------------------   -----------------  --------------------------------
<S>                                                       <C>                <C> 
                  Santa Monica, California                98,000             April 30, 2007
                  Woodland Hills, California              10,000             April 20, 2005
                  Miami, Florida                          7,000              June 29, 2005
                  Madison, Wisconsin                      13,300             December 31, 2004
                  Eden Prairie, Minnesota                 9,800              September 30, 2005
                  Dallas, Texas                           2,300              February 28, 2003
                  Bentonville, Arkansas                   250                February 28, 2001
                  New York, New York                      500                April 30, 2001
                  Coral Gables, Florida                   20,000             August 29, 2000
                  Middlesex, United Kingdom               10,600             July 23, 2005
                  Birmingham, United Kingdom              81,000             May 20, 2011 - May 31, 2012
                  Birmingham, United Kingdom              43,300             Month to Month
                  Antwerpen, Belgium                      3,200              May 1, 2002
                  Eemnes, The Netherlands                 1,900              January 1, 2001
                  Argenteuil, France                      1,800              December 15, 2006
                  Sydney, Australia                       3,400              September 30, 2000
                  Ismaning, Germany                       4,200              November 30, 2001
                  Burglengenfeld, Germany                 39,000             Owned
                  Tokyo, Japan                            530                July 31, 2001
</TABLE>



ITEM 3.  LEGAL PROCEEDINGS

                  The Company is party to routine claims and suits brought
         against it in the ordinary course of business including disputes
         arising over the ownership of intellectual property rights and
         collection matters. In the opinion of management, the outcome of such
         routine claims will not have a material adverse effect on the Company's
         business, financial condition, results of operations or liquidity.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


                                       17

<PAGE>


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

                  The Company's Common Stock is quoted on the NASDAQ National
         Market under the symbol "ATVI."

                  The following table sets forth for the periods indicated the
         high and low reported closing sale prices for the Company's common
         stock. As of June 19, 2000, there were approximately 5,000 holders of
         record of the Company's common stock.


<TABLE>
<CAPTION>
                                                                 High              Low
                                                              -----------       -----------
<S>                                                           <C>               <C>
         Fiscal 1999
         ----------------
                    First Quarter ended June 30, 1998            $11.62          $9.37
                    Second Quarter ended September 30, 1998       13.75           9.37
                    Third Quarter ended December 31, 1998         14.87           8.75
                    Fourth Quarter ended March 31, 1999           13.81           9.75

         Fiscal 2000
         ---------------
                    First Quarter ended June 30, 1999            $14.56          $10.31
                    Second Quarter ended September 30, 1999       17.75           12.63
                    Third Quarter ended December 31, 1999         17.50           13.94
                    Fourth Quarter ended March 31, 2000           17.69           12.06

         Fiscal 2001
         --------------
                    First Quarter through June 19, 2000          $11.13           $6.13
</TABLE>


         On June 19, 2000, the reported last sales price for the Company's
         Common Stock was $6.25.

         DIVIDENDS

                  The Company paid no cash dividends in 2000 or 1999 and does
         not intend to pay any cash dividends at any time in the foreseeable
         future. The Company expects that earnings will be retained for the
         continued growth and development of the Company's business. In
         addition, the Company's bank credit facility currently prohibits the
         Company from paying dividends on its common stock. Future dividends, if
         any, will depend upon the Company's earnings, financial condition, cash
         requirements, future prospects and other factors deemed relevant by the
         Company's Board of Directors.

         SALES OF UNREGISTERED EQUITY SECURITIES

                  In May 1999, the Company granted warrants to purchase 100,000
         shares of the Company's common stock at an exercise price of $11.63 per
         share to Cabela's, Inc. ("Cabela's") in connection with, and as partial
         consideration for, a license agreement that allows the Company to
         utilize the Cabela's name in conjunction with certain Activision
         products. The warrants have a seven year term and vest in annual
         increments of approximately 14.25%.

                  In June 1999, the Company issued 204,448 shares of its common
         stock in connection with the acquisition of Elsinore Multimedia, Inc.

                  In September 1999, the Company issued 698,835 shares of its
         common stock in connection with the acquisition of JCM Productions,
         Inc. dba Neversoft Entertainment.


                                       18

<PAGE>

                  In December 1999, the Company issued 77,031 shares of its
         common stock in connection with a 40% equity investment in Gray Matter
         Studios, formerly known as Video Games West, Inc.

                  None of the shares, warrants, options or shares into which the
         warrants or options are exercisable were registered under the
         Securities Act of 1933, as amended (the "Securities Act"), by reason of
         the exemption under Section 4(2) of the Securities Act. The Company
         subsequently registered the shares issued in connection with the
         Elsinore Multimedia, Inc., JCM Productions, Inc. dba Neversoft
         Entertainment and Gray Matter Studios transactions for resale by the
         holders thereof.

         REPURCHASE PLAN

                  As of May 9, 2000, the Board of Directors authorized the
         Company to purchase up to $15.0 million in shares of its common stock
         as well as its convertible subordinated notes. The shares and notes
         could be purchased from time to time through the open market or in
         privately negotiated transactions. The amount of shares and notes
         purchased and the timing of purchases were based on a number of
         factors, including the market price of the shares and notes, market
         conditions, and such other factors as the Company's management deemed
         appropriate. The Company has financed the purchase of shares with 
         available cash. As of June 19, 2000, the Company has purchased 2.3 
         million shares of its common stock for approximately $15.0 million.

         SHAREHOLDERS' RIGHTS PLAN

                  On April 18, 2000, the Company's Board of Directors approved a
         shareholders rights plan (the "Rights Plan"). Under the Rights Plan,
         each common stockholder at the close of business on April 19, 2000 will
         receive a dividend of one right for each share of common stock held.
         Each right represents the right to purchase one one-hundredth (1/100)
         of a share of the Company's Series A Junior Preferred Stock at an
         exercise price of $40.00. Initially, the rights are represented by the
         Company's common stock certificates and are neither exercisable nor
         traded separately from the Company's common stock. The rights will only
         become exercisable if a person or group acquires 15% or more of the
         common stock of the Company, or announces or commences a tender or
         exchange offer which would result in the bidder's beneficial ownership
         of 15% or more of the Company's common stock.

                  In the event that any person or group acquires 15% or more of
         the Company's outstanding common stock each holder of a right (other
         than such person or members of such group) will thereafter have the
         right to receive upon exercise of such right, in lieu of shares of
         Series A Junior Preferred Stock, the number of shares of common stock
         of the Company having a value equal to two times the then current
         exercise price of the right. If the Company is acquired in a merger or
         other business combination transaction after a person has acquired 15%
         or more the Company's common stock, each holder of a right will
         thereafter have the right to receive upon exercise of such right a
         number of the acquiring company's common shares having a market value
         equal to two times the then current exercise price of the right. For
         persons who, as of the close of business on April 18, 2000,
         beneficially own 15% or more of the common stock of the Company, the
         Rights Plan "grandfathers" their current level of ownership, so long as
         they do not purchase additional shares in excess of certain
         limitations.

                  The Company may redeem the rights for $.01 per right at any
         time until the first public announcement of the acquisition of
         beneficial ownership of 15% of the Company's common stock. At any time
         after a person has acquired 15% or more (but before any person has
         acquired more than 50%) of the Company's common stock, the Company may
         exchange all or part of the rights for shares of common stock at an
         exchange ratio of one share of common stock per right. The rights
         expire on April 18, 2010.


                                       19

<PAGE>


ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

              The following table summarizes certain selected consolidated
         financial data, which should be read in conjunction with the Company's
         Consolidated Financial Statements and Notes thereto and with

         Management's Discussion and Analysis of Financial Condition and Results
         of Operations included elsewhere herein. The selected consolidated
         financial data presented below as of and for each of the fiscal years
         in the five-year period ended March 31, 2000 are derived from the
         audited consolidated financial statements of the Company. The
         Consolidated Balance Sheets as of March 31, 2000 and 1999 and the
         Consolidated Statements of Operations and Statements of Cash Flows for
         each of the fiscal years in the three-year period ended March 31, 2000,
         and the report thereon, are included elsewhere in this Form 10-K.

                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                          FISCAL YEARS ENDED MARCH 31,
                                                           ----------------------------------------------------------
                                                                                        RESTATED (1)
                                                                       -----------------------------------------------
                                                              2000        1999        1998         1997        1996
                                                           ----------  ----------  -----------  ----------  ----------
<S>                                                        <C>         <C>         <C>          <C>         <C>    
       STATEMENT OF OPERATIONS DATA:
       Net revenues                                          $572,205    $436,526    $312,906      $190,446     $87,561
       Cost of sales - product costs                          319,422     260,041     176,188       103,124      34,034
       Cost of sales - royalties and software
           amortization                                        91,238      36,990      29,840        13,108       7,333
       Income (loss) from operations                         (30,325)      26,667       9,218        11,497       3,264
       Income (loss) before income tax provision             (38,736)      23,636       8,106        11,578       4,872
       Net income (loss)                                     (34,088)      14,891       4,970         7,583       5,908
       Basic earnings (loss) per share                         (1.38)        0.65        0.22          0.36        0.33
       Diluted earnings (loss) per share                       (1.38)        0.62        0.21          0.35        0.31
       Basic weighted average common shares
           outstanding                                         24,691      22,861      22,038        20,961      17,931
       Diluted weighted average common shares
           outstanding                                         24,691      23,932      22,909        21,650      18,993

       SELECTED OPERATING DATA:

       EBITDA (2)                                              15,541     33,155       14,564        15,690       5,974

       CASH (USED IN) PROVIDED BY:

       Operating activities                                    77,389      18,190      31,670         4,984       3,817
       Investing activities                                  (99,547)    (64,331)     (43,814)     (19,617)    (11,515)
       Financing activities                                    42,028       7,220      62,862        11,981     (4,378)
</TABLE>



<TABLE>
<CAPTION>
                                                                                AS OF MARCH 31,
                                                           ----------------------------------------------------------
                                                                                          RESTATED
                                                                       -----------------------------------------------
                                                              2000        1999        1998         1997        1996
                                                           ----------  ----------  -----------  ----------  ----------
<S>                                                        <C>         <C>         <C>          <C>         <C>    
       BALANCE SHEET DATA:

       Working capital                                       $160,149    $136,355     $115,782     $52,142     $40,067
       Cash and cash equivalents                               49,985      33,037       74,319      23,352      25,827
       Goodwill                                                12,347      21,647       23,473      23,756      19,583
       Total assets                                           309,737     283,345      229,366     132,203      84,737
       Long-term debt                                          73,778      61,143       61,192       5,907       1,222
       Redeemable and convertible preferred stock                   -           -            -       1,500           -
       Shareholders' equity                                   132,009     127,190       97,475      80,321      62,674
</TABLE>



     (1) Consolidated financial information for fiscal years 1999 - 1996 has
         been restated retroactively for the effects of the September 1999
         acquisition of Neversoft, accounted for as a pooling of interests.
         Consolidated financial information for fiscal years 1998 - 1996 has
         been restated retroactively for the effects of the acquisitions of
         S.B.F. Services, Limited dba Head Games Publishing and CD Contact Data
         GmbH, in June 1998 and September 1998, respectively, accounted for as
         pooling of interests. Consolidated financial information for fiscal
         years 1997 and 1996 has been restated retroactively for the effects of
         the acquisitions of 


                                       20

<PAGE>

         Raven Software Corporation, NBG EDV Handels - und Verlags GmbH and
         Combined Distribution (Holdings) Limited in November 1997, August 1997
         and November 1997, respectively, accounted for as pooling of interests.

     (2) EBITDA represents income (loss) before interest, income taxes and,
         depreciation and amortization on property and equipment and goodwill.
         The Company believes that EBITDA provides useful information regarding
         the Company's ability to service its debt; however, EBITDA does not
         represent cash flow from operations as defined by generally accepted
         accounting principles and should not be considered a substitute for net
         income, as an indicator of the Company's operating performance, or cash
         flow or as a measure of liquidity.


                                       21

<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     The Company is a leading international publisher, developer and distributor
of interactive entertainment and leisure products. The Company currently focuses
its publishing, development and distribution efforts on products designed for
personal computers ("PCs") as well as the Sony PlayStation ("PSX") and
PlayStation 2, Sega Dreamcast ("Dreamcast") and Nintendo N64 ("N64") console
systems and Nintendo Gameboy handheld game devices. The Company's products span
a wide range of genres and target markets.

     The Company distributes its products worldwide through its direct sales
forces, through its distribution subsidiaries, and through third party
distributors and licensees.

     The Company's financial information as of and for the years ended March 31,
1999 and 1998 has been restated to reflect the effect of pooling of interests
transactions as discussed in Item 1 and Item 6 of this Report.

     The Company recognizes revenue from the sale of its products upon shipment.
Subject to certain limitations, the Company permits customers to obtain
exchanges and returns within certain specified periods and provides price
protection on certain unsold merchandise. Revenue from product sales is
reflected after deducting the estimated allowance for returns and price
protection. Management of the Company estimates the amount of future returns,
and price protection based upon historical results and current known
circumstances. With respect to license agreements that provide customers the
right to multiple copies in exchange for guaranteed amounts, revenue is
recognized upon delivery. Per copy royalties on sales that exceed the guarantee
are recognized as earned.

     Cost of sales-product costs represents the cost to purchase, manufacture
and distribute PC and console product units. Manufacturers of the Company's PC
software are located worldwide and are readily available. Console CDs and
cartridges are manufactured by the respective video game console manufacturers,
Sony, Nintendo and Sega or its agents, who often require significant lead time
to fulfill the Company's orders.

     Cost of sales-royalties and software amortization represents amounts due
developers, product owners and other royalty participants as a result of product
sales, as well as amortization of capitalized software development costs. The
costs incurred by the Company to develop products are accounted for in
accordance with accounting standards that provide for the capitalization of
certain software development costs once technological feasibility is established
and such costs are determined to be recoverable. Additionally, various contracts
are maintained with developers, product owners or other royalty participants,
which state a royalty rate, territory and term of agreement, among other items.
Commencing upon product release, prepaid royalties are amortized to cost of 
sales-royalties and software amortization at the contractual royalty rate based 
on actual net product sales, or on the ratio of current revenues to total 
projected revenues, whichever is greater and capitalized software costs are 
amortized to cost of sales-royalties and software amortization on a 
straight-line basis over the estimated product life or on the ratio of current 
revenues to total projected revenues, whichever is greater.

     For products that have been released, management evaluates the future
recoverability of prepaid royalties and capitalized software costs on a
quarterly basis. Prior to a product's release, the Company charges to expense,
as part of product development costs, capitalized costs when, in management's
estimate, such amounts are not recoverable. The following criteria is used to
evaluate recoverability: historical performance of comparable products; the
commercial acceptance of prior products released on a given game engine; orders
for the product prior to its release; estimated performance of a sequel product
based on the performance of the product on which the sequel is based; and actual
development costs of a product as compared to the Company's budgeted amount.


                                       22

<PAGE>

     The following table sets forth certain consolidated statements of
operations data for the periods indicated as a percentage of total net revenues
and also breaks down net revenues by territory, platform and channel:


<TABLE>
<CAPTION>
                                                                        Fiscal years ended March 31,
                                               ------------------------------------------------------------------------
                                                                           (In thousands)
                                               ------------------------------------------------------------------------
                                                                                           Restated
                                                                       ------------------------------------------------
                                                       2000                      1999                     1998
                                               ----------------------  -----------------------  -----------------------
<S>                                             <C>            <C>     <C>              <C>        <C>           <C>   
Net revenues                                    $ 572,205      100.0%   $  436,526      100.0%   $  312,906      100.0%

Costs and expenses:
     Cost of sales - product costs                319,422       55.8%      260,041       59.6%      176,188       56.3%
     Cost of sales - royalties and software
         amortization                              91,238       15.9%       36,990        8.5%       29,840        9.5%
     Product development                           26,275        4.6%       22,875        5.2%       28,285        9.0%
     Sales and marketing                           93,878       16.4%       66,420       15.2%       47,714       15.3%
     General and administrative                    30,099        5.3%       21,948        5.0%       20,099        6.4%
     Amortization of intangible assets             41,618        7.3%        1,585        0.4%        1,562        0.5%
                                               ----------  ----------  -----------  ----------  -----------  ----------

         Total costs and expenses                 602,530      105.3%      409,859       93.9%      303,688       97.0%
                                               ----------  ----------  -----------  ----------  -----------  ----------

Income (loss) from operations                    (30,325)      (5.3%)       26,667        6.1%        9,218        3.0%

Interest income (expense), net                    (8,411)      (1.5%)      (3,031)      (0.7%)      (1,112)      (0.4%)
                                               ----------  ----------  -----------  ----------  -----------  ----------

     Income (loss) before income tax
     provision                                   (38,736)      (6.8%)       23,636        5.4%        8,106        2.6%

Income tax provision (benefit)                    (4,648)      (0.8%)        8,745        2.0%        3,136        1.0%
                                               ----------  ----------  -----------  ----------  -----------  ----------

Net income (loss)                               $(34,088)      (6.0%)   $   14,891        3.4%   $    4,970        1.6%
                                               ==========  ==========  ===========  ==========  ===========  ==========


NET REVENUES BY TERRITORY:
     United States                              $ 279,165       48.8%   $  149,705       34.3%   $   90,784       29.0%
     Europe                                       277,524       48.5%      278,032       63.7%      208,817       66.7%
     Other                                         15,516        2.7%        8,789        2.0%       13,305        4.3%
                                               ----------  ----------  -----------  ----------  -----------  ----------

     Total net revenues                         $ 572,205      100.0%   $  436,526      100.0%   $  312,906      100.0%
                                               ==========  ==========  ===========  ==========  ===========  ==========

NET REVENUES BY CHANNEL:
     Retailer/Reseller                          $ 545,482       95.3%   $  417,490       95.6%   $  287,801       92.0%
     OEM, Licensing, on-line and other             26,723        4.7%       19,036        4.4%       25,105        8.0%
                                               ----------  ----------  -----------  ----------  -----------  ----------

     Total net revenues                         $ 572,205      100.0%   $  436,526      100.0%   $  312,906      100.0%
                                               ==========  ==========  ===========  ==========  ===========  ==========

ACTIVITY/PLATFORM MIX:
     Publishing:
         Console                                $ 281,204       49.1%   $  111,662       25.6%   $   27,150        8.7%
         PC                                       115,487       20.2%       93,880       21.5%      106,524       34.0%
                                               ----------  ----------  -----------  ----------  -----------  ----------

         Total publishing net revenues          $ 396,691       69.3%     $205,542       47.1%   $  133,674       42.7%
                                               ----------  ----------  -----------  ----------  -----------  ----------

     Distribution:
         Console                                $ 129,688       22.7%   $  156,584       35.9%   $  105,588       33.8%
         PC                                        45,826        8.0%       74,400       17.0%       73,644       23.5%
                                               ----------  ----------  -----------  ----------  -----------  ----------

         Total distribution net revenues        $ 175,514       30.7%   $  230,984       52.9%   $  179,232       57.3%
                                               ----------  ----------  -----------  ----------  -----------  ----------

         Total net revenues                     $ 572,205      100.0%   $ 436,526       100.0%   $  312,906      100.0%
                                               ==========  ==========  ==========  ===========  ===========  ==========
</TABLE>



                                       23

<PAGE>

RESULTS OF OPERATIONS - FISCAL YEARS ENDED MARCH 31, 2000 AND 1999

         Net loss for fiscal year 2000 was $34.1 million or $1.38 per diluted
share, as compared to net income of $14.9 million or $0.62 per diluted share in
fiscal year 1999. The 2000 results were negatively impacted by a strategic
restructuring charge totaling $70.2 million, approximately $61.8 million net of
tax, or $2.50 per diluted share.

STRATEGIC RESTRUCTURING PLAN

         In the fourth quarter of fiscal 2000, the Company finalized a strategic
restructuring plan to accelerate the development and sale of interactive
entertainment and leisure products for the next-generation consoles and the
Internet. Costs associated with this plan amounted to $70.2 million,
approximately $61.8 million net of taxes, and were recorded in the consolidated
statement of operations in the fourth quarter of fiscal year 2000 and classified
as follows:


<TABLE>
<S>                                                            <C>  
Net revenues                                                   $11.7
Cost of sales - royalties and software
         amortization                                           11.9
Product development                                              4.2
General and administrative                                       5.2
Amortization of intangible assets                               37.2
                                                                ----

                                                               $70.2
                                                               =====
</TABLE>


         The component of the charge included in amortization of intangible
assets represents a write down of intangibles including goodwill, relating to
Expert Software, Inc. ("Expert"), one of the Company's value publishing
subsidiaries, totaling $26.3 million. The Company is consolidating Expert into
Head Games, forming one integrated business unit. As part of this consolidation,
the Company is discontinuing substantially all of Expert's product lines,
terminating substantially all of Expert's employees and phasing out the use of
the Expert name. In addition, a $10.9 million write down of goodwill relating to
TDC, an OEM business unit, was recorded. In the past year, the OEM market has
gone through radical changes due to price declines of PCs and hardware
accessories. The sum of the undiscounted future cash flow of these assets was
not sufficient to cover the carrying value of these assets and as such was
written down to fair market value.

         The component of the charge included in net revenues and general and
administrative expense represents costs associated with the planned termination
of a substantial number of third party distributor relationships in connection
with the Company's realignment of its worldwide publishing business to leverage
its existing sales and marketing organizations and improve the control and
management of its products. These actions have resulted in an increase in the
allowance for sales returns of $11.7 million and the allowance for doubtful
accounts of $3.4 million. The plan also includes a severance charge of $1.2
million for employee redundancies. The plan is expected to be completed by the
fourth quarter of fiscal 2001.

         The components of the charge included in cost of sales - royalties and
software amortization and product development represent costs to write down
certain assets associated with exiting certain product lines and re-evaluating
other product lines which resulted in reduced expectations.

NET REVENUES

         Net revenues for the year ended March 31, 2000 increased 31.1% from the
same period last year, from $436.5 million to $572.2 million. The increase was
due to a 53.2% increase in console net revenues from $268.2 million to $410.9
million, slightly offset by a 4.1% decrease in PC net revenues from $168.3
million to $161.3 million. Domestic net revenues grew 86.5% from $149.7 million
to $279.2 million. International net revenues remained fairly constant,
increasing 2.2% from $286.8 million to $293.0 million.

         Publishing net revenues for the year ended March 31, 2000 increased
93.0% from $205.5 million to $396.7 million. This increase primarily was due to
publishing console net revenues increasing 151.8% from $111.7 million to $281.2
million. The increase in publishing console net revenues was attributable to the
release in fiscal 2000 of a larger number of titles that sold well in the
marketplace, including Blue Stinger (Dreamcast), Space Invaders (PlayStation,
N64 and Gameboy Color) and Toy Story II (PlayStation and N64), Tarzan (N64 and
Gameboy), A Bug's Life (N64), Vigilante 8: Second Offense (PlayStation, N64 and
Gameboy), WuTang: Shaolin Style (PlayStation) and 


                                       24

<PAGE>

Tony Hawk's Pro Skater (PlayStation, N64 and Gameboy). Publishing PC net
revenues for the year ended March 31, 2000 increased 23.0% from $93.9 million to
$115.5 million. This increase primarily was due to the release of Quake 3 Arena,
Cabela's Big Game Hunter III, Star Trek: Hidden Evil, Armada and Soldier of
Fortune.

         For the year ended March 31, 2000, distribution net revenues decreased
24.0% from prior fiscal year from $231.0 million to $175.5 million. The decrease
was mainly attributable to the pricing reductions initiated by leading retail
chains in the United Kingdom (the "UK"), which in turn reduced market share for
the independent retail channel in the UK to which the Company's CentreSoft
subsidiary is the sole authorized Sony PlayStation distributor, as well as the
unfavorable impact of foreign currency translation rates.

         Net OEM licensing, on-line and other revenues for the fiscal year ended
March 31, 2000 increased 40.4% from $19.0 million to $26.7 million. The increase
was primarily due to an increase in licensing revenues, partially offset by a
decrease in OEM revenues. Licensing revenues increased due to an increase in the
number of licensing arrangements entered into by the Company during fiscal 2000.
OEM revenues decreased due to the radical changes being experienced in the OEM
market resulting from declining prices of personal computers and hardware
accessories and the reluctance of hardware manufacturers to produce large
inventories.

COSTS AND EXPENSES

         Cost of sales - product costs represented 55.8% and 59.6% of net
revenues for the year ended March 31, 2000 and 1999, respectively. The decrease
in cost of sales - product costs as a percentage of net revenues for the year
ended March 31, 2000 was due to the decrease in distribution net revenue,
partially offset by a higher publishing console net revenue mix. Distribution
products have a higher per unit product cost than publishing products, and
console products have a higher per unit product cost than PC products.

         Cost of sales - royalty and software amortization expense represented
15.9% and 8.5% of net revenues for the year ended March 31, 2000 and 1999,
respectively. The increase in cost of sales - royalty and software amortization
expense as a percentage of net revenues was primarily due to changes in the
Company's product mix, with an increase in the number of branded products with
higher royalty obligations as compared to the prior fiscal year and increases in
amortization expenses relating to the release of a greater number of products
with capitalizable development costs. The increase also partially resulted from
$11.9 million of write-offs recorded in the fourth quarter of fiscal 2000
relating to the Company's restructuring plan as previously described.

         Product development expenses for the year ended March 31, 2000
increased 14.9% from the same period last year from $22.9 million to $26.3
million. The increase was primarily due to a $4.2 million charge to product
development costs relating to the Company's restructuring plan as previously
described.

         As a percentage of net revenues, total product creation costs (i.e.,
royalties and software amortization expense plus product development expenses)
increased from 13.7% to 20.5% for the year ended March 31, 2000. Such increases
were attributable to the increases in product development costs, as described
above.

         Sales and marketing expenses for the year ended March 31, 2000
increased 41.3% from the same period last year, from $66.4 million to $93.9
million, but remained relatively constant as a percentage of net revenues at
16.4% and 15.2% at March 31, 2000 and 1999, respectively. The increase in the
amount of sales and marketing expenses primarily was due to an increase in the
number of titles released and an increase in television advertising during the
final quarter of fiscal 2000 to support the Company's premium titles.

         General and administrative expenses for the year ended March 31, 2000
increased 37.1% from the prior fiscal year, from $21.9 million to $30.1 million.
As a percentage of net revenues, general and administrative expenses remained
relatively constant at approximately 5%. The increase in the amount of general
and administrative expenses was due to an increase in worldwide administrative
support needs and headcount related expenses and charges incurred in conjunction
with the Company's restructuring plan previously described.

         Amortization of intangibles increased substantially from $1.6 million
in fiscal 1999 to $41.6 million in fiscal 2000. This was due to the write-off of
goodwill acquired in purchase acquisitions.


                                       25

<PAGE>

OPERATING INCOME (LOSS)

         Operating income (loss) for the year ended March 31, 2000, was $(30.3)
million, compared to $26.7 million in fiscal 1999.

         Publishing operating income (loss) for the year ended March 31, 2000
decreased 382.3% to $(35.0) million, compared to $12.4 million in the prior
fiscal year. The decrease reflects the charges incurred in conjunction with the
Company's restructuring plan as previously described, which predominantly
impacted the Company's publishing segment. Distribution operating income for the
year ended March 31, 2000 decreased 66.9% to $4.7 million, compared to $14.3
million in the prior fiscal year. The period over period change primarily was
due to a decrease in distribution sales and the UK price reductions, as noted
earlier.

OTHER INCOME (EXPENSE)

         Interest expense, net of interest income, increased to $8.4 million for
the year ended March 31, 2000, from $3.0 million for the year ended March 31,
1999. This increase primarily was the result of interest costs associated with
the Company's $125 million term loan and revolving credit facility obtained in
June 1999.

PROVISION FOR INCOME TAXES

         The income tax benefit of $4.6 million for the year ended March 31,
2000 reflects the Company's effective income tax rate of approximately 12%. The
significant items generating the variance between the Company's effective rate
and its statutory rate of 34% are nondeductible goodwill amortization and an
increase in the Company's deferred tax asset valuation allowance, partially
offset by research and development tax credits. The realization of deferred tax
assets primarily is dependent on the generation of future taxable income.
Management believes that it is more likely than not that the Company will
generate taxable income sufficient to realize the benefit of net deferred tax
assets recognized.

RESULTS OF OPERATIONS - FISCAL YEARS ENDED MARCH 31, 1999 AND 1998

NET REVENUES

         Net revenues for the fiscal year ended March 31, 1999 increased 39.5%,
from $312.9 million to $436.5 million, over the prior year. The United States
and international net revenues increased 64.9%, from $90.8 million to $149.7
million, and 29.1%, from $222.1 million to $286.8 million, respectively, over
the prior year. The increase in overall net revenues was composed of a 102.1%
increase in console net revenues, from $132.7 million to $268.2 million,
partially offset by a 6.6% decrease in PC net revenues, from $180.2 million to
$168.3 million, respectively, over the prior year.

         Publishing net revenues for the year ended March 31, 1999 increased
53.8%, from $133.7 million to $205.5 million, over the prior year. Distribution
net revenues for the year ended March 31, 1999 increased 28.9%, from $179.2
million to $231.0 million, over the prior year. These increases were primarily
attributable to the increases in publishing and distribution console net
revenues.

         Publishing console net revenues for the year ended March 31, 1999
increased 311.3%, from $27.2 million to $111.7 million, over the prior year.
This increase was primarily attributable to the initial release of Tenchu
(PlayStation), Apocalypse (PlayStation), Vigilante 8 (PlayStation and N64),
Asteroids (PlayStation), Nightmare Creatures (PlayStation and N64) and
Activision Classics (PlayStation). Publishing PC net revenues for the year ended
March 31, 1999 decreased 11.9%, from $106.5 million to $93.9 million, over the
prior year. This decrease was primarily due to the release of Quake II (Windows
95) in the prior year. Publishing PC initial releases during the year ended
March 31, 1999 included Civilization: Call to Power, Cabela's Big Game Hunter,
Cabela's Big Game Hunter 2, Asteroids and Sin.

         Distribution console net revenues increased 48.3%, from $105.6 million
to $156.6 million, over the prior year. This increase was primarily attributable
to an increase in the number of products released for PlayStation and Nintendo
N64 and an increase in the Playstation and N64 hardware installed base.
Distribution PC net revenues increased 1.0%, from $73.6 million to $74.4
million, over the prior year. Distribution PC net revenues remained relatively
constant during this period as the number of new PC titles released by the
publishers utilizing the Company's distribution services in each year were
approximately the same.


                                       26

<PAGE>

         Net OEM, licensing, on-line and other revenues for the fiscal year
ended March 31, 1999 decreased 24.2% to $19.0 million from $25.1 million in the
prior year. This decrease was due to the release of fewer PC titles during the
fiscal year that were compatible with OEM customers' products.

COSTS AND EXPENSES

         Cost of sales - product costs represented 59.6% and 56.3% of net
revenues for the years ended March 31, 1999 and 1998, respectively. The increase
in cost of sales - product costs as a percentage of net revenues was due to the
increase in the sales mix related to console products. Console products have a
higher per unit product cost than PC products.

         Cost of sales - royalties and software amortization expense represented
8.5% and 9.5% of net revenues for the years ended March 31, 1999 and 1998,
respectively. The decrease in cost of sales - royalties and software
amortization expense as a percentage of net revenues was due to changes in the
Company's product mix, with an increase in products with lower royalty
obligations as compared to the prior year.

         Product development expenses for the year ended March 31, 1999
decreased 19.1% from the prior year, from $28.3 million to $22.9 million. The
decrease in the amount of product development expenses for the year ended March
31, 1999 was primarily due to an increase in capitalizable development costs
relating to sequel products being developed on proven engine technologies which
have been capitalized in accordance with Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or otherwise Marketed" ("SFAS 86").

         As a percentage of net revenues, total product creation costs (i.e.,
royalties and software amortization expenses plus product development expenses)
for the year ended March 31, 1999, decreased to 13.7% from 18.5% in the prior
year. This decrease was attributable to decrease in the effective royalty rate,
as discussed above, and an increase in development costs capitalized under SFAS
86, also as discussed above.

         Sales and marketing expenses for the year ended March 31, 1999
increased 39.2% from the same period last year, from $47.7 million to $66.4
million. As a percentage of net revenues, sales and marketing expenses remained
constant. The increase in the amount of sales and marketing expenses for the
year ended March 31, 1999 was primarily due to a significant increase in
television advertising and an increase in the number of products released during
the current year.

         General and administrative expense for the year ended March 31, 1999
increased 9.2% from the same period last year, from $20.1 million to $21.9
million. As a percentage of net revenues, general and administrative expenses
decreased from 6.4% to 5.0%. The period over period increase in the amount of
general and administrative expenses primarily was due to an increase in
worldwide administrative support needs and headcount related expenses. The
decrease as a percentage of net revenues relates primarily to efficiencies
gained in controlling fixed costs and the increase in net revenues.

OTHER INCOME (EXPENSE)

         Interest expense, net of interest income, increased to $3.0 million for
the year ended March 31, 1999, from $1.1 million for the year ended March 31,
1998. This increase primarily was the result of interest costs associated with
the Company's convertible subordinated notes issued in December 1997 and short
term borrowings under bank line of credit agreements which had a greater average
outstanding balance in the fiscal year ended March 31, 1999.

PROVISION FOR INCOME TAXES

         The income tax provision of $8.7 million for the year ended March 31,
1999, reflects the Company's effective income tax rate of approximately 37.0%.
The significant items generating the variance between the Company's effective
rate and its statutory rate of 34% are nondeductible goodwill amortization and
an increase in the Company's deferred tax asset valuation allowance, partially
offset by research and development tax credits. The realization of deferred tax
assets primarily is dependent on the generation of future taxable income.
Management believes that it is more likely than not that the company will
generate taxable income sufficient to realize the benefit of deferred tax assets
recognized.


                                       27

<PAGE>

QUARTERLY OPERATING RESULTS

     The Company's quarterly operating results have in the past varied
significantly and will likely vary significantly in the future, depending on
numerous factors, several of which are not under the Company's control. See Item
1 "Business - Certain Cautionary Information" and Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Restructuring." Accordingly, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.

     The following table is a comparative breakdown of the Company's quarterly
results for the immediately preceding eight quarters (amounts in thousands,
except per share data):


<TABLE>
<CAPTION>
                                                                  Quarter ended
                               ------------------------------------------------------------------------------------
                                                                                     Restated
                                                                ---------------------------------------------------
                                March 31, Dec. 31,   Sept. 30,    June 30, March 31,  Dec. 31, Sept. 30,   June 30,
                                 2000 (1)   1999      1999         1999      1999      1998      1998        1998
                               --------------------  --------  ---------  -------------------  ---------  ---------
<S>                             <C>         <C>      <C>          <C>      <C>        <C>        <C>       <C>    
Net revenues                    $103,838    $268,862 $115,363     $84,142  $115,266   $193,537   $66,182    $61,541
Operating income (loss)         (65,990)      38,241    3,525     (6,101)     9,053     25,873   (2,735)    (5,524)
Net income (loss)               (52,877)      22,301    1,063     (4,575)     5,032     15,736   (2,206)    (3,671)
Basic earnings (loss) per
share                             (2.07)        0.89     0.04      (0.19)      0.22       0.69    (0.10)     (0.16)
Diluted earnings (loss) per
share                             (2.07)        0.75     0.04      (0.19)      0.21       0.61    (0.10)     (0.16)
</TABLE>


     (1) See Item 7 "Management's Discussion and Analysis of Financial Condition
         and Results of Operations Restructuring."

LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash and cash equivalents increased $17.0 million, from
$33.0 million at March 31, 1999 to $50.0 million at March 31, 2000. This was in
comparison to a $41.3 million decrease in cash flows in fiscal year 1999 from
$74.3 million at March 31, 1998 to $33.0 million at March 31, 1999. This
increase in cash in fiscal year 2000 resulted from $77.4 million and $42.0
million provided by operating activities and financing activities, respectively,
offset by $99.5 million utilized in investing activities. The increase in cash
flows provided by operating activities from fiscal 1999 to fiscal 2000 primarily
is due to decreases in accounts receivable trade from March 31, 1999 to March
31, 2000. The increase in cash flows provided by financing activities from
fiscal 1999 to fiscal 2000 primarily is due to $22.5 million in proceeds from
the issuance of common stock pursuant to employee stock option plans and
employee stock purchase plans in fiscal year 2000 and $25.0 million in proceeds
from the issuance of the term loan portion of the $125 million U.S. bank credit
facility obtained in June 1999. The increase in cash flows used in investing
activities from fiscal 1999 to fiscal 2000 primarily is due to $20.5 million of
cash expended in connection with the acquisition of Expert in June 1999.
Additionally, in fiscal 2000, investments in prepaid royalties and capitalized
software costs increased $14.0 million from $60.5 million in fiscal 1999 to
$74.5 million in fiscal 2000 in connection with the execution of new license
agreements granting the Company long-term rights to intellectual property of
third parties, as well as the acquisition of publishing or distribution rights
to products being developed by third parties. Comparatively, in fiscal year
1999, only $18.2 million and $7.2 million was provided by cash flows from
operating activities and financing activities, respectively, partially
offsetting cash used in investing activities of $64.3 million.

     In connection with the Company's purchases of Nintendo N64 hardware and
software cartridges for distribution in North America and Europe, Nintendo
requires the Company to provide irrevocable letters of credit prior to accepting
purchase orders from the Company. Furthermore, Nintendo maintains a policy of
not accepting returns of Nintendo N64 hardware and software cartridges. Because
of these and other factors, the carrying of an inventory of Nintendo N64
hardware and software cartridges entails significant capital and risk. As of
March 31, 2000, the Company had $5.5 million of N64 hardware and software
cartridge inventory on hand, which represented approximately 14% of all
inventory.

     In December 1997, the Company completed the private placement of $60.0
million principal amount of 6 3/4% convertible subordinated notes due 2005 (the
"Notes"). The Notes are convertible, in whole or in part, at the option of the
holder at any time after December 22, 1997 (the date of original issuance) and
prior to the close of business on the business day immediately preceding the
maturity date, unless previously redeemed or repurchased, into common stock,


                                       28

<PAGE>

$.000001 par value, of the Company, at a conversion price of $18.875 per share,
(equivalent to a conversion rate of 52.9801 shares per $1,000 principal amount
of Notes), subject to adjustment in certain circumstances. The Notes are
redeemable, in whole or in part, at the option of the Company at any time on or
after January 10, 2001. If redemption occurs prior to December 31, 2003, the
Company must pay a premium on such redeemed Notes.

     The Company has a $125.0 million revolving credit facility and term loan
with a group of banks (the "U.S. Facility"). The U.S. Facility provides the
Company with the ability to borrow up to $100.0 million and issue letters of
credit up to $80 million on a revolving basis against eligible accounts
receivable and inventory. The $25.0 million term loan portion of the U.S.
Facility was used to fund the acquisition of Expert Software, Inc. in June 1999
and to pay costs related to such acquisition and the securing of the U.S.
Facility. The term loan has a three year term with principal amortization on a
straight-line quarterly basis beginning December 31, 1999 and a borrowing rate
based on the banks' base rate (which is generally equivalent to the published
prime rate) plus 2% or LIBOR plus 3%. The revolving portion of the U.S Facility
has a borrowing rate based on the banks' base rate plus 1.75% or LIBOR plus
2.75% (weighted average interest rate of approximately 9.50% for the year ending
March 31, 2000) and matures June 2002. The Company pays a commitment fee of 1/2%
on the unused portion of the revolving line. The U.S. Facility is collateralized
by substantially all of the assets of the Company and its U.S. subsidiaries. The
U.S. Facility contains various covenants which limit the ability of the Company
to incur additional indebtedness, pay dividends or make other distributions,
create certain liens, sell assets, or enter into certain mergers or
acquisitions. The Company was in compliance with these covenants as of March 31,
2000. The Company is also required to maintain specified financial ratios
related to net worth and fixed charges. As of March 31, 2000, $20.0 million was
outstanding under the term loan portion of the U.S. Facility and $2.5 million
was outstanding under the revolving portion of the U.S. Facility. No letters of
credit were outstanding against the revolving portion of the U.S. Facility at
March 31, 2000.

     On June 8, 2000, the Company amended certain of the covenants of its U.S.
Facility. The amended term loan and credit facility allows for the purchase by
the Company of up to $15.0 million in shares of its common stock as well as its
convertible subordinated notes in accordance with the Company's stock repurchase
program (described in Note 15 to the consolidated financial statements), the
distribution of "Rights" under the Company's shareholders' rights plan
(described in Note 15 to the consolidated financial statements), as well as the
reorganization of the Company's organizational structure into a holding company
form.

     The Company has a revolving credit facility through its CD Contact
subsidiary in the Netherlands (the "Netherlands Facility"). The Netherlands
Facility permits revolving credit loans and letters of credit up to Netherlands
Guilder ("NLG") 45 million ($19.4 million) at March 31, 2000, based upon
eligible accounts receivable and inventory balances. The Netherlands Facility is
due on demand, bears interest at a Eurocurrency rate plus 1.25% (weighted
average interest rate of 5.5% of March 31, 2000) and matures March 2001. Letters
of credit outstanding against the Netherlands Facility at March 31, 2000 were
NLG 3.8 million ($1.6 million). The Company had $3.5 million of borrowings
outstanding under the Netherlands Facility at March 31, 2000.

     The Company also has revolving credit facilities with its CentreSoft 
subsidiary located in the United Kingdom, (the "UK Facility") and its NBG 
subsidiary located in Germany, (the "German Facility"). The UK Facility can 
be used for working capital requirements and provides for British Pounds 
("GBP") 7 million ($11.2 million) of revolving loans and GBP 6 million ($9.6 
million) of letters of credit, bears interest at LIBOR plus 2%, is 
collateralized by substantially all of the assets of the subsidiary and 
matures in July 2000. The UK Facility also contains various covenants that 
require the subsidiary to maintain specified financial ratios related to, 
among others, fixed charges. The Company was in compliance with these 
covenants as of March 31, 2000. No borrowings were outstanding against the UK 
facility at March 31, 2000. Letters of credit of GBP 6.0 million ($9.6 
million) were outstanding against the UK Facility at March 31, 2000. The 
German Facility can be used for working capital requirements and provides for 
revolving loans up to Deutsche Marks ("DM") 4 million ($1.9 million), bears 
interest at 6.25%, is collateralized by a cash deposit of approximately GBP 
650,000 ($1.0 million) made by the Company's CentreSoft subsidiary and has no 
expiration date. No borrowings were outstanding against the German Facility 
as of March 31, 2000.

     In the normal course of business, the Company enters into contractual
arrangements with third parties for the development of products. Under these
agreements, the Company commits to provide specified payments to a developer,
contingent upon the developer's achievement of contractually specified
milestones. Assuming all contractually specified milestones are achieved, for
contracts in place as of March 31, 2000, the total future minimum contract
commitment is approximately $42.9 million, of which $35.0 million, $6.6 million
and $1.3 million is scheduled to be paid in fiscal 2001, 2002 and 2003,
respectively. Additionally, under the terms of a production financing
arrangement, the Company has a commitment to purchase two future PlayStation 2
titles from independent 


                                       29

<PAGE>

third party developers upon their completion for an estimated $8.4 million.
Failure by the developers to complete the project within the contractual time
frame or specifications alleviates the Company's commitment.

     The Company historically has financed its acquisitions through the issuance
of shares of its common stock. The Company will continue to evaluate potential
acquisition candidates as to the benefit they bring to the Company and as to the
ability of the Company to make such acquisitions and maintain compliance with
its bank facilities.

     In May 2000, the Board of Directors authorized the Company to purchase 
up to $15.0 million in shares of its common stock as well as its convertible 
subordinated notes. The shares and notes could be purchased in the open 
market or in privately negotiated transactions at such times and in such 
amounts as management deemed appropriate, depending on market conditions and 
other factors. As of June 19, 2000, the Company has repurchased 2.3 million 
shares of its common stock for approximately $15.0 million.

     The Company believes that it has sufficient working capital ($160.1 million
at March 31, 2000), as well as proceeds available from the U.S. Facility, the UK
Facility, the Netherlands Facility and the German Facility, to finance the
Company's operational requirements for at least the next twelve months,
including acquisitions of inventory and equipment, the funding of the
development, production, marketing and sale of new products, the acquisition of
intellectual property rights for future products from third parties and the
repurchase of common stock and notes under the Company's repurchase plan.

INFLATION

     The Company's management currently believes that inflation has not had a
material impact on continuing operations.

YEAR 2000

     The Company encountered no significant problems in its critical systems or
products sold to customers in the transition to the year 2000. All of the
Company's internal systems are functioning normally, and no year 2000 problems
have been reported by any of its trading partners. The Company will continue to
monitor its systems for any latent issues, but expects no significant year 2000
issues to arise. The Company continues to maintain contingency plans that
management believes are adequate and customary to address any unexpected year
2000 problems.

EURO CONVERSION

     On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the "euro" as their common currency. The sovereign currencies of
the participating countries are scheduled to remain legal tender as
denominations of the euro between January 1, 1999 and January 1, 2002. Beginning
January 1, 2002, the participating countries will issue new euro-denominated
bills and coins for use in cash transactions. No later than July 1, 2002, the
participating countries will withdraw all bills and coins denominated in the
sovereign currencies, so that the sovereign currencies no longer will be legal
tender for any transactions, making conversion to the euro complete. The Company
has performed an internal analysis of the possible implications of the euro
conversion on the Company's business and financial condition, and has determined
that the impact of the conversion will be immaterial to its overall operations.
The Company's wholly owned subsidiaries operating in participating countries
represented 12% and 19% of the Company's consolidated net revenues for the years
ended March 31, 2000 and 1999, respectively.

RECENTLY ISSUED ACCOUNTING STANDARDS

     Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS No. 133") is effective
for all fiscal years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company does not currently participate in hedging
activities or own derivative instruments but plans to adopt SFAS No. 133
beginning April 1, 2001.


                                       30

<PAGE>


I
TEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk is the potential loss arising from fluctuations in market rates
and prices. The Company's market risk exposures primarily include fluctuations
in interest rates and foreign currency exchange rates. The Company's market risk
sensitive instruments are classified as "other than trading." The Company's
exposure to market risk as discussed below includes "forward-looking statements"
and represents an estimate of possible changes in fair value or future earnings
that would occur assuming hypothetical future movements in interest rates or
foreign currency exchange rates. The Company's views on market risk are not
necessarily indicative of actual results that may occur and do not represent the
maximum possible gains and losses that may occur, since actual gains and losses
will differ from those estimated, based upon actual fluctuations in foreign
currency exchange rates, interest rates and the timing of transactions.

INTEREST RATE RISK

     The Company has a number of variable rate and fixed rate debt obligations,
denominated both in U.S. dollars and various foreign currencies as detailed in
Note 10 to the Consolidated Financial Statements appearing elsewhere in this
Annual Report. The Company manages interest rate risk by monitoring its ratio of
fixed and variable rate debt obligations in view of changing market conditions.
Additionally, in the future, the Company may consider the use of interest rate
swap agreements to further manage potential interest rate risk.

     As of March 31, 2000, the carrying value of the Company's variable rate
debt was $26.0 million, which includes the U.S. Facility ($22.5 million) and the
Netherlands Facility ($3.5 million). As of March 31, 1999, the carrying value of
the Company's variable rate debt was $5.5 million, which was composed entirely
of the Netherlands Facility. A hypothetical 1% increase in the applicable
interest rates of the Company's variable rate debt would increase annual
interest expense by approximately $260,000 and $55,000, as March 31, 2000 and
1999, respectively.

     The Company additionally has 6 3/4% convertible subordinated notes (the
"Notes") that have a carrying value of $60.0 million and a fair value of $51.6
million as of March 31, 2000. The fair value of the Notes was determined based
on quoted market prices. A hypothetical 1% increase in market rate of the Notes
would decrease their fair value by approximately $516,000.

FOREIGN CURRENCY EXCHANGE RATE RISK

     The Company transacts business in many different foreign currencies and may
be exposed to financial market risk resulting from fluctuations in foreign
currency exchange rates, particularly GBP. The volatility of GBP (and all other
applicable currencies) will be monitored frequently throughout the coming year .
While the Company has not traditionally engaged in foreign currency hedging, the
Company may in the future use hedging programs, currency forward contracts,
currency options and/or other derivative financial instruments commonly utilized
to reduce financial market risks if it is determined that such hedging
activities are appropriate to reduce risk.


                                       31

<PAGE>


ITEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


<TABLE>
<CAPTION>
                                                                                                      PAGE
                                                                                                      ----
<S>                                                                                                   <C>
              Independent Auditors' Report                                                            F-1

              Consolidated Balance Sheets as of March 31, 2000 and 1999                               F-2

              Consolidated Statements of Operations for the Years Ended March 31, 2000, 1999
                    and 1998                                                                          F-3

              Consolidated Statements of Changes in Shareholders' Equity for the
                    Years Ended March 31, 2000, 1999 and 1998                                         F-4

              Consolidated Statements of Cash Flows for the Years Ended March
                    31, 2000, 1999 and 1998                                                           F-5

              Notes to Consolidated Financial Statements                                              F-6

              Schedule II-Valuation and Qualifying Accounts and Reserves as of March 31,
                    2000, 1999 and 1998                                                              F-29


              Item 14.  Exhibit Index                                                                F-30
</TABLE>


          All other schedules of the Registrant are omitted because of the
          absence of conditions under which they are required or because the
          required information is included elsewhere in the financial statements
          or in the notes thereto.


                                       32

<PAGE>


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for its 2000
         Annual Meeting of Shareholders, entitled "Election of Directors" and
         "Executive Officers and Key Employees" to be filed with the Securities
         and Exchange Commission within 120 days after the end of the fiscal
         year covered by this Form 10-K.


ITEM 11. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for its 2000
         Annual Meeting of Shareholders, entitled "Executive Compensation" and
         "Indebtedness of Management" to be filed with the Securities and
         Exchange Commission within 120 days after the end of the fiscal year
         covered by this Form 10-K.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for its 2000
         Annual Meeting of Shareholders, entitled "Security Ownership of Certain
         Beneficial Owners and Management" to be filed with the Securities and
         Exchange Commission within 120 days after the end of the fiscal year
         covered by this Form 10-K.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated by reference to
         the sections of the Company's definitive Proxy Statement for its 2000
         Annual Meeting of Shareholders, entitled "Certain Relationships and
         Related Transactions" to be filed with the Securities and Exchange
         Commission within 120 days after the end of the fiscal year covered by
         this Form 10-K.



                                       33

<PAGE>


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      1.  FINANCIAL STATEMENTS  See Item 8. - Consolidated Financial
                      Statements and Supplementary Data Index for Financial  
                      Statements and Schedule on page 32 herein.

                  2.  FINANCIAL STATEMENT SCHEDULE The following financial
                      statement schedule of Activision, Inc. for the years ended
                      March 31, 2000, 1999 and 1998 is filed as part of this
                      report and should be read in conjunction with the
                      Consolidated Financial Statements of Activision, Inc.

                           Schedule II -- Valuation and Qualifying Accounts and
                      Reserves 

                      Other financial statement schedules are omitted because 
                      the information called for is not required or is shown 
                      either in the Consolidated Financial Statements or the 
                      notes thereto.

                  3.  EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K


<TABLE>
<CAPTION>
                      Exhibit
                      Number                                   Exhibit
                      ------                                   -------

<S>                                    <C> 
                      2.1              Agreement and Plan of Merger dated as of June 9, 2000 among
                                       Activision, Inc., Activision Holdings, Inc. and ATVI Merger
                                       Sub, Inc. (incorporated by reference to Exhibit 2.4 of the
                                       Company's Form 8-K filed June 16, 2000).

                      3.1              Amended and Restated Certificate of Incorporation of
                                       Activision Holdings, dated June 1, 2000 (incorporated by
                                       reference to Exhibit 2.5 of the Company's Form 8-K, filed
                                       on June 16, 2000).

                      3.2              Amended and Restated Bylaws of Activision Holdings
                                       (incorporated by reference to Exhibit 2.6 of the Company's
                                       Form 8-K, filed on June 16, 2000).

                      3.3              Certificate of Amendment of Amended and Restated
                                       Certificate of Incorporation of Activision Holdings dated
                                       as of June 9, 2000 (incorporated by reference to Exhibit
                                       2.7 of the Company's Form 8-K, filed on June 16, 2000).

                      4.1              Rights Agreement dated as of April 18, 2000, between the
                                       Company and Continental Stock Transfer & Trust Company,
                                       which includes as exhibits the form of Right Certificates
                                       as Exhibit A, the Summary of Rights to Purchase Series A
                                       Junior Preferred Stock as Exhibit B and the form of
                                       Certificate of Designation of Series A Junior Preferred
                                       Stock of the Company as Exhibit C, (incorporated by
                                       reference to the Company's Registration Statement on Form
                                       8-A, Registration No. 001-15839, filed April 19, 2000).

                      10.1             Mediagenic 1991 Stock Option and Stock Award Plan, as
                                       amended (incorporated by reference to Exhibit 4.1 to the
                                       Company's Registration Statement on Form S-8, Registration
                                       No. 33-63638, filed on December 8, 1995).

                      10.2             Mediagenic 1991 Director Warrant Plan, as amended (incorporated
                                       by reference to Exhibit 28.2 to the Company's 


                                       34

<PAGE>

                                       Registration Statement on Form S-8, Registration No. 33-63638, 
                                       filed on June 1, 1993).

                      10.3             Activision, Inc.  Employee Stock Purchase Plan, as amended,
                                       (incorporated by reference to Exhibit 4.1 of the Company's
                                       Form S-8, Registration No. 333-36272 filed on May 4, 2000).

                      10.4             Activision, Inc. 1998 Incentive Plan (incorporated by
                                       reference to Appendix I of the Company's 1998 Proxy
                                       Statement).

                      10.5             Activision, Inc. 1999 Incentive Plan

                      10.6             Lease Agreement dated as of December 20, 1996, between the
                                       Company and Barclay Curci Investment Company (incorporated
                                       by reference to Exhibit 10.14 of the Company's Form 10-Q
                                       for the quarter ended December 31, 1996).

                      10.7             Share Exchange Agreement dated November 23, 1997, among the
                                       Company and the holders of all of the issued and
                                       outstanding capital stock of Combined Distribution
                                       (Holdings) Limited (incorporated by reference to Exhibit 10.1
                                       of the Company's Form 8-K filed December 5, 1997).

                      10.8             Purchase Agreement dated as of December 16, 1997, among the
                                       Company and Credit Suisse First Boston Corporation, Piper
                                       Jaffray, Inc. and UBS Securities LLC (the "Initial
                                       Purchasers") (incorporated by reference to Exhibit 10.1 of
                                       the Company's Form 8-K filed December 23, 1997).

                      10.9             Registration Rights Agreement dated as of December 16,
                                       1997, among the Company and the Initial Purchasers
                                       (incorporated by reference to Exhibit 10.2 of the Company's
                                       Form 8-K filed December 23, 1997).

                      10.10            Indenture dated as of December 22, 1997, between the
                                       Company and State Street Bank and Trust Company of
                                       California, N.A., as Trustee (incorporated by reference to
                                       Exhibit 10.3 of the Company's Form 8-K filed December 23,
                                       1997).

                      10.11            Employment agreement dated January 12, 1999 between the
                                       Company and Robert A. Kotick (incorporated by reference to
                                       Exhibit 10.10 of the Company's Form 10-K for the year
                                       ending March 31, 1999).

                      10.12            Employment agreement dated October 19, 1998 between the
                                       Company and Ronald Doornink (incorporated by reference to
                                       Exhibit 10.12 of the Company's Form 10-K for the year
                                       ending March 31, 1999).

                      10.13            Employment agreement dated March 4, 1999 between the
                                       Company and Lawrence Goldberg (incorporated by reference to
                                       Exhibit 10.13 of the Company's Form 10-K for the year
                                       ending March 31, 1999).

                      10.14            Employment agreement dated April 1, 1998 between the
                                       Company and Mitchell Lasky (incorporated by reference to
                                       Exhibit 10.15 of the Company's Form 10-K for the year
                                       ending March 31, 1999).


                                       35

<PAGE>

                      10.15            Employment agreement dated April 1, 1998 between the
                                       Company and Ronald Scott (incorporated by reference to
                                       Exhibit 10.16 of the Company's Form 10-K for the year
                                       ending March 31, 1999).

                      10.16            Service Agreement dated November 24, 1997 between 
                                       Combined Distribution (Holdings) Limited and Richard Andrew
                                       Steele (incorporated by reference to Exhibit 10.17 of the
                                       Company's Form 10-K for the year ending March 31, 1999).

                      10.17            Employment agreement dated January 12, 1999 between the
                                       Company and Brian G. Kelly (incorporated by reference to
                                       Exhibit 10.11 of the Company's Form 10-K for the year
                                       ending March 31, 1999).

                      10.18            Articles of Merger dated June 30, 1998 between S.B.F.
                                       Acquisition Corp., a wholly owned subsidiary of the
                                       Company, and S.B.F. Services, Limited dba Head Games
                                       Publishing (incorporated by reference to Exhibit 2.1 of
                                       the Company's Form 8-K, filed on July 2, 1998).

                      10.19            Share Exchange Agreement dated September 29, 1998 by and
                                       between the Company and Mr. Frank d'Oleire, Mrs. Christa
                                       d'Oleire, Ms. Fiona d'Oleire, Ms. Alexa d'Oleire acting as
                                       Dr. d'Oleire Beteiligungsgesellschaft bR, Mr. Martinus J.C.
                                       Bubbert, and Mr. Dennis W. Buis (incorporated by reference
                                       to Exhibit 10.1 of the Company's Form 8-K, filed on October
                                       8, 1998).

                      10.20            Amended and Restated Agreement and Plan of Merger dated
                                       April 19, 1999 by and among the Company, Expert Acquisition
                                       Corp. and Expert Software, Inc. (incorporated by reference
                                       to Exhibit 2.1 of the Form 8-K of Expert Software, Inc.,
                                       filed April 29, 1999).

                      10.21            Credit Agreement dated as of June 21, 1999 among the
                                       Company, Head Games Publishing, Inc., Expert Software,
                                       Inc., various financial institutions, PNC Bank, National 
                                       Association, as issuing bank, administrative agent and 
                                       collateral agent for such financial institutions, and 
                                       Credit Suisse First Boston, as syndication agent 
                                       (incorporated by reference to Exhibit 10.22 of the 
                                       Company's Form 10-K for the year ending March 31, 1999).

                      10.22            Share Exchange Agreement dated as of June 29, 1999, among
                                       the Company, Jill G. Mark and Robert N. Herrick
                                       (incorporated by reference to Exhibit 4.1 of the Company's
                                       Registration Statement on Form S-3, Registration No.
                                       333-85385, filed August 17, 1999).

                      10.23            Agreement and Plan of Reorganization dated as of September
                                       30, 1999, among the Company, Neversoft Entertainment, Inc.,
                                       JCM Productions, Inc., Joel Jewett, Michael West and
                                       Christopher Ward (incorporated by reference to Exhibit 4.1
                                       of the Company's Registration Statement on Form S-3,
                                       Registration No. 333-94509, filed January 12, 2000).

                      10.24            Employment agreement dated July 12, 1999, between the
                                       Company and Mr. Michael Rowe (incorporated by reference to


                                       36

<PAGE>

                                       Exhibit 6.1 of the Company's Form 10-Q for the quarter
                                       ending June 30, 1999).

                      10.25            Employment agreement dated July 12, 1999, between the
                                       Company and Ms. Kathy Vrabek (incorporated by reference to
                                       Exhibit 6.2 of the Company's Form 10-Q for the quarter
                                       ending June 30, 1999).

                      10.26            Amendment to Employment Agreement between Mr. Ronald
                                       Doornink and the Company, dated April 30 1999 (incorporated
                                       by reference to Exhibit 6.1 of the Company's Form 10-Q for
                                       the quarter ending December 31, 1999).

                      10.27            Employment agreement dated April 7, 2000, between the
                                       Company and Mr. Michael Pole.

                      10.28            First Amendment effective as of  June 8, 2000 to the Credit
                                       Agreement dated June 21, 1999 among the Company, Head Games
                                       Publishing, Inc., Expert Software, Inc., various financial
                                       institutions, PNC Bank, National Association as issuing
                                       bank, administrative agent and collateral agent for such
                                       lenders and Credit Suisse First Boston, as syndication
                                       agent.

                      21.1             Principal subsidiaries of the Company.

                      23.1             Independent Auditors' Consent.

                      27.1             Fiscal 1998 Year to Date Financial Data Schedule.

                      27.2             Fiscal 1999 Year to Date Financial Data Schedule.

                      27.3             Fiscal 2000 Year to Date Financial Data Schedule.
</TABLE>


         (b)      Reports on Form 8-K. There have been no reports on Form 8-K
                  that have been filed by the Company during the last quarter of
                  the fiscal year ending March 31, 2000. The following reports 
                  on Form 8-K have been filed by the Company during the first
                  quarter of the fiscal year ending March 31, 2001:

                      1.1        The Company filed a Form 8-K on April 19, 2000,
                                 reporting under "Item 5. Other Events" the 
                                 announcement of the Company's stockholders' 
                                 rights plan.

                      1.2        The Company filed a Form 8-K on June 16, 2000 
                                 reporting under "Item 5. Other Events" the 
                                 announcement of the organizational 
                                 restructuring of the Company into a holding 
                                 company format organizational structure.


                                       37


<PAGE>


                                   SIGNATURES

Pursuant to the requirements of 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.

Date: June 28, 2000

ACTIVISION, INC.

By:     /s/  ROBERT A. KOTICK       
   ---------------------------------
         (Robert A. Kotick)
        Chairman 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 and
in the capacities and on the dates indicated.


<TABLE>
<S>                                         <C>                                             <C>

By:     /s/  ROBERT A. KOTICK               Chairman, Chief Executive Officer               June 28, 2000
   ---------------------------------        (Principal Executive Officer) and Director
            (Robert A. Kotick)                 
          
          
          
By:     /s/  BRIAN G. KELLY                 Co-Chairman and Director                        June 28, 2000
   ---------------------------------
            (Brian G. Kelly)
          
          
By:     /s/  WILLIAM J. CHARDAVOYNE         Chief Financial Officer                         June 28, 2000
   ---------------------------------        and Chief Accounting Officer
            (William J. Chardavoyne)        
          
By:     /s/  HAROLD A. BROWN                Director                                        June 28, 2000
   ---------------------------------
            (Harold A. Brown)
          
          
By:     /s/  BARBARA S. ISGUR               Director                                        June 28, 2000
   ---------------------------------
            (Barbara S. Isgur)
          
          
By:                                         Director                                        June 28, 2000
   ---------------------------------
            (Steven T. Mayer)


By:                                         Director                                        June 28, 2000
   ---------------------------------
          (Robert J. Morgado)
</TABLE>



                                       38

<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders:

We have audited the accompanying consolidated balance sheets of ACTIVISION, INC.
and subsidiaries as of March 31, 2000 and 1999 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the years in the three-year period ended March 31, 2000. In connection
with our audit of the consolidated financial statements, we also have audited
financial statement schedule II for each of the years in the three-year period
ended March 31, 2000. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ACTIVISION, INC. and
subsidiaries as of March 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 2000, in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule for each of the years in
the three-year period ended March 31, 2000, 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.

KPMG LLP

Los Angeles, California 
May 5, 2000, 

except as to Note 14, 
which is as of June 9, 2000


                                      F-1

<PAGE>


PART I.  FINANCIAL INFORMATION.

Item I.  Financial Statements.

                        ACTIVISION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                            March 31,        March 31,
                                                                              2000             1999
                                                                         ------------      ------------
                                                                                             Restated
                                                                                           ------------
<S>                                                                      <C>               <C>         
ASSETS

     Current assets:
         Cash and cash equivalents                                       $     49,985      $     33,037
         Accounts receivable, net of allowances of $31,521 and
             $14,979 at March 31, 2000 and 1999, respectively                 108,108           117,541
         Inventories                                                           40,453            30,931
         Prepaid royalties and capitalized software costs                      31,655            33,503
         Deferred income taxes                                                 14,159             6,383
         Other current assets                                                  19,737             9,965
                                                                         ------------      ------------

              Total current assets                                            264,097           231,360

     Prepaid royalties and capitalized software costs                           9,153            11,513
     Property and equipment, net                                               10,815            10,924
     Deferred income taxes                                                      6,055             2,618
     Goodwill, net                                                             12,347            21,647
     Other assets                                                               7,270             5,283
                                                                         ------------      ------------

              Total assets                                               $    309,737      $    283,345
                                                                         ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY

     Current liabilities:
         Current portion of long-term debt                               $     16,260      $      5,992
         Accounts payable                                                      38,284            43,853
         Accrued expenses                                                      49,404            45,160
                                                                         ------------      ------------

              Total current liabilities                                       103,948            95,005

     Long-term debt, less current portion                                      13,778             1,143
     Convertible subordinated notes                                            60,000            60,000
     Other liabilities                                                              2                 7
                                                                         ------------      ------------

              Total liabilities                                               177,728           156,155
                                                                         ------------      ------------

     Commitments and contingencies

     Shareholders' equity:
         Preferred stock, $.000001 par value, 5,000,000 shares                      -                 -
         authorized, no shares issued at March 31, 2000 and 1999
         Common stock, $.000001 par value, 50,000,000 shares
             authorized, 26,488,260 and 23,803,762 shares issued and
             25,988,260 and 23,303,762 outstanding at March 31, 2000                -                 -
             and 1999, respectively
         Additional paid-in capital                                           151,714           109,251
         Retained earnings (deficit)                                           (8,361)           25,727
         Accumulated other comprehensive loss                                  (6,066)           (2,510)
         Less:  Treasury stock, cost of 500,000 shares                         (5,278)           (5,278)
                                                                         ------------      ------------

              Total shareholders' equity                                      132,009           127,190
                                                                         ------------      ------------

              Total liabilities and shareholders' equity                 $    309,737      $    283,345
                                                                         ============      ============
</TABLE>



       The accompanying notes are an integral part of these consolidated
                              financial statements.


                                      F-2

<PAGE>

                        ACTIVISION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                              For the years ended March 31,
                                                    ------------------------------------------------
                                                                                 Restated
                                                                      ------------------------------
                                                        2000              1999              1998
                                                    ------------      ------------      ------------
<S>                                                 <C>               <C>               <C>         
Net revenues                                        $    572,205      $    436,526      $    312,906

Costs and expenses:
     Cost of sales - product costs                       319,422           260,041           176,188
     Cost of sales - royalties and software
         amortization                                     91,238            36,990            29,840
     Product development                                  26,275            22,875            28,285
     Sales and marketing                                  93,878            66,420            47,714
     General and administrative                           30,099            21,948            20,099
     Amortization of intangible assets                    41,618             1,585             1,562
                                                    ------------      ------------      ------------

         Total costs and expenses                        602,530           409,859           303,688
                                                    ------------      ------------      ------------

Income (loss) from operations                            (30,325)           26,667             9,218

Interest income (expense), net                            (8,411)           (3,031)           (1,112)
                                                    ------------      ------------      ------------

     Income (loss) before income tax provision           (38,736)           23,636             8,106

Income tax provision (benefit)                            (4,648)            8,745             3,136
                                                    ------------      ------------      ------------

Net income (loss)                                   $    (34,088)     $     14,891      $      4,970
                                                    ============      ============      ============

Basic earnings (loss) per share:
     Net income (loss)                              $      (1.38)     $       0.65      $       0.22
                                                    ============      ============      ============

     Weighted average common shares outstanding           24,691            22,861            22,038
                                                    ============      ============      ============

Diluted earnings (loss) per share:
     Net income (loss)                              $      (1.38)     $       0.62      $       0.21
                                                    ============      ============      ============

     Weighted average common shares outstanding           24,691            23,932            22,909
                                                    ============      ============      ============
</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                      F-3

<PAGE>


     ACTIVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN
                              SHAREHOLDERS' EQUITY
                For the years ended March 31, 2000, 1999 and 1998


<TABLE>
<CAPTION>
                                                                                                                        
                                                                     Common Stock           Additional     Retained     
                                                              ------------------------       Paid-In       Earnings     
(In thousands)                                                    Shares       Amount        Capital      (Deficit)     
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>         <C>           <C>           <C>           
BALANCE, MARCH 31, 1997                                           22,033      $       -     $  79,147     $   6,610     
Components of comprehensive income
   Net income for the year                                             -              -             -         4,970     
   Foreign currency translation adjustment                             -              -             -             -     
     Total comprehensive income                                        -              -             -             -     
Issuance of common stock and common stock warrants                    82              -         1,214             -     
Issuance of common stock pursuant to employee stock
   option plans                                                      599              -         4,756             -
Issuance of common stock pursuant to employee stock                                   -                                
   purchase plan                                                      64                          582             -
Tax benefit attributable to employee stock option plans                -              -         1,247             -     
Adjustment for change in year-end of pooled subsidiary                 -              -             -          (639)    
Conversion of Redeemable Preferred Stock                              87              -         1,286             -     
Conversion of Convertible Preferred Stock                             15              -           214             -     
Conversion of Subordinated Loan Stock Debentures                     217              -         3,216             -     
Issuance of stock to affect business combination                      10              -           163            11     
Dividends declared                                                     -              -             -          (116)    
                                                               ---------      ---------     ---------     ---------     

BALANCE, MARCH 31, 1998                                           23,107              -        91,825        10,836     
Components of comprehensive income
   Net income for the year                                             -              -             -        14,891     
   Foreign currency translation adjustment                             -              -             -             -     
     Total comprehensive income                                        -              -             -             -     
Issuance of common stock and common stock warrants                     -              -         3,368             -     
Issuance of common stock pursuant to employee stock                  
   option plans                                                      605              -         5,271             -     
Issuance of common stock pursuant to employee stock                   
   purchase plan                                                      92              -           798             -     
Tax benefit attributable to employee stock option plans                -              -         1,059             -     
Tax benefit derived from net operating loss carryforward               
   utilization                                                         -              -         2,430             -     
Conversion of notes payable to common stock                            -              -         4,500             -     
                                                               ---------      ---------     ---------     ---------     

BALANCE, MARCH 31, 1999                                           23,804              -       109,251        25,727     
Components of comprehensive income:
   Net loss for the year                                               -              -             -       (34,088)    
   Foreign currency translation adjustment                             -              -             -             -     
     Total comprehensive loss                                                                                           
Issuance of common stock and common stock warrants                     -              -         8,529             -     
Issuance of common stock pursuant to employee stock                
   option plans                                                    2,331              -        21,718             -     
Issuance of common stock pursuant to employee stock                   
   purchase plan                                                      72              -           762             -     
Tax benefit attributable to employee stock option plans                -              -         3,017             -     
Tax benefit derived from net operating loss carryforward               
   utilization                                                         -              -         1,266             -     
Acquisitions and investments made with common stock and              
   common stock options                                              281              -         7,171             -     
                                                               ---------      ---------     ---------     ---------     

BALANCE, MARCH 31, 2000                                           26,488      $       -     $ 151,714     $  (8,361)    
                                                               =========      =========     =========     =========     

<CAPTION>
                                                                                           Accumulated
                                                                    Treasury Stock             Other      
                                                                 ----------------------    Comprehensive  Shareholders'
(In thousands)                                                   Shares        Amount      Income (loss)     Equity
----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>       <C>            <C>            <C>      
BALANCE, MARCH 31, 1997                                             (500)     $  (5,278)     $    (158)     $  80,321
Components of comprehensive income
   Net income for the year                                             -              -              -          4,970
   Foreign currency translation adjustment                             -              -            250            250
                                                                                                            ---------
     Total comprehensive income                                        -              -              -          5,220
                                                                                                            ---------
Issuance of common stock and common stock warrants                     -              -              -          1,214
Issuance of common stock pursuant to employee stock                    
   option plans                                                        -              -              -          4,756
Issuance of common stock pursuant to employee stock                    
   purchase plan                                                       -              -              -            582
Tax benefit attributable to employee stock option plans                -              -              -          1,247
Adjustment for change in year-end of pooled subsidiary                 -              -              -           (639)
Conversion of Redeemable Preferred Stock                               -              -              -          1,286
Conversion of Convertible Preferred Stock                              -              -              -            214
Conversion of Subordinated Loan Stock Debentures                       -              -              -          3,216
Issuance of stock to affect business combination                       -              -              -            174
Dividends declared                                                     -              -              -           (116)
                                                               ---------      ---------      ---------      ---------

BALANCE, MARCH 31, 1998                                             (500)        (5,278)            92         97,475
Components of comprehensive income
   Net income for the year                                             -              -              -         14,891
   Foreign currency translation adjustment                             -              -         (2,602)        (2,602)
                                                                                                            ---------
     Total comprehensive income                                        -              -              -         12,289
                                                                                                            ---------
Issuance of common stock and common stock warrants                     -              -              -          3,368
Issuance of common stock pursuant to employee stock                    
   option plans                                                        -              -              -          5,271
Issuance of common stock pursuant to employee stock                    
   purchase plan                                                       -              -              -            798
Tax benefit attributable to employee stock option plans                -              -              -          1,059
Tax benefit derived from net operating loss carryforward               
   utilization                                                         -              -              -          2,430
Conversion of notes payable to common stock                            -              -              -          4,500
                                                               ---------      ---------      ---------      ---------

BALANCE, MARCH 31, 1999                                             (500)        (5,278)        (2,510)       127,190
Components of comprehensive income:
   Net loss for the year                                               -              -              -        (34,088)
   Foreign currency translation adjustment                             -              -         (3,556)        (3,556)
                                                                                                            ---------
     Total comprehensive loss                                                                                 (37,644)
                                                                                                            ---------
Issuance of common stock and common stock warrants                     -              -              -          8,529
Issuance of common stock pursuant to employee stock                    
   option plans                                                        -              -              -         21,718
Issuance of common stock pursuant to employee stock                    
   purchase plan                                                       -              -              -            762
Tax benefit attributable to employee stock option plans                -              -              -          3,017
Tax benefit derived from net operating loss carryforward               
   utilization                                                         -              -              -          1,266
Acquisitions and investments made with common stock and                
   common stock options                                                -              -              -          7,171
                                                               ---------      ---------      ---------      ---------

BALANCE, MARCH 31, 2000                                             (500)     $  (5,278)     $  (6,066)     $ 132,009
                                                               =========      =========      =========      =========
</TABLE>


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.


                                      F-4

<PAGE>


                        ACTIVISION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                    For the years ended March 31,
                                                                           ------------------------------------------------
                                                                                                        Restated
                                                                                             ------------------------------
                                                                               2000              1999              1998
                                                                           ------------      ------------      ------------
<S>                                                                        <C>               <C>               <C>         
Cash flows from operating activities:
     Net income (loss)                                                     $    (34,088)     $     14,891      $      4,970
     Adjustments to reconcile net income (loss) to net cash
        provided by operating activities:
         Deferred income taxes                                                   (4,311)            3,806            (1,327)
         Adjustment for change in fiscal year-end for pooled                          
            subsidiaries                                                              -                 -              (639)
         Depreciation and amortization                                           45,866             6,488             5,346
         Amortization of prepaid royalties and capitalized                       
            software costs                                                       78,714            27,055            29,167
         Expense related to common stock warrants                                 5,769               388               200
     Change in assets and liabilities (net of effects of purchases and
        acquisitions):
         Accounts receivable                                                      9,900           (43,686)          (24,896)
         Inventories                                                             (7,342)          (11,506)           (6,798)
         Other current assets                                                    (7,124)           (8,360)              458
         Other assets                                                               817             1,498               168
         Accounts payable                                                        (8,038)           (6,620)           25,410
         Accrued expenses                                                        (2,770)           34,304              (308)
         Other liabilities                                                           (4)              (68)              (81)
                                                                           ------------      ------------      ------------

     Net cash provided by operating activities                                   77,389            18,190            31,670
                                                                           ------------      ------------      ------------
Cash flows from investing activities:
     Cash paid by Combined Distribution (Holdings) Ltd. to acquire                    
        CentreSoft (net of cash acquired)                                             -                 -              (812)
     Cash used in purchase acquisitions (net of cash acquired)                  (20,523)                -              (246)
     Investment in prepaid royalties and capitalized software costs             (74,506)          (60,531)          (33,656)
     Capital expenditures                                                        (4,518)           (3,800)           (8,872)
     Other                                                                            -                 -              (228)
                                                                           ------------      ------------      ------------

     Net cash used in investing activities                                      (99,547)          (64,331)          (43,814)
                                                                           ------------      ------------      ------------

Cash flows from financing activities:
     Proceeds from issuance of common stock pursuant to
        employee stock option plans                                              21,718             5,271             4,756
     Proceeds from issuance of common stock pursuant to
        employee stock purchase plan                                                762               798               582
     Dividends paid (Combined Distribution (Holdings) Ltd.)                           -                 -            (1,256)
     Borrowing under line-of-credit agreement                                   361,161             5,300             8,800
     Payment under line-of-credit agreement                                    (355,156)           (5,300)           (8,800)
     Proceeds from term loan                                                     25,000                 -                 -
     Proceeds from issuance of subordinated convertible notes                         -                 -            57,900
     Notes payable, net                                                          (8,102)            1,151               886

     Cash paid to secure line of credit and term loan                            (3,355)                -                 -
     Other                                                                            -                 -                (6)
                                                                           ------------      ------------      ------------

Net cash provided by financing activities                                        42,028             7,220            62,862
                                                                           ------------      ------------      ------------

Effect of exchange rate changes on cash                                          (2,922)           (2,361)              250
                                                                           ------------      ------------      ------------

Net increase (decrease) in cash and cash equivalents                             16,948           (41,282)           50,968

Cash and cash equivalents at beginning of period                                 33,037            74,319            23,351
                                                                           ------------      ------------      ------------

Cash and cash equivalents at end of period                                 $     49,985      $     33,037      $     74,319
                                                                           ============      ============      ============
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                      F-5

<PAGE>

                        ACTIVISION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       BUSINESS

       Activision, Inc. ("Activision" or the "Company") is a leading
       international publisher, developer and distributor of interactive
       entertainment and leisure products. The Company's products span a wide
       range of genres (including action, adventure, extreme sports, strategy
       and simulation) and target markets (including game enthusiasts, mass
       market consumers, value buyers and children). In addition to its genre
       and market diversity, the Company publishes, develops and distributes
       products for a variety of game platforms and operating systems, including
       personal computers ("PCs"), the Sony Playstation, Sega Dreamcast and the
       Nintendo N64 console systems and the Nintendo Gameboy Color handheld
       device.

       The Company maintains operations in the U.S., Canada, the United Kingdom,
       France, Germany, Japan, Australia, Belgium and the Netherlands. For
       fiscal year 2000, international operations contributed approximately 51%
       of net revenues.

       PRINCIPLES OF CONSOLIDATION

       The consolidated financial statements include the accounts of Activision,
       Inc., a Delaware corporation, and its wholly-owned subsidiaries (the
       "Company" or "Activision"). All intercompany accounts and transactions
       have been eliminated in consolidation.

       BASIS OF PRESENTATION

       The consolidated financial statements have been retroactively restated to
       reflect the poolings of interests of the Company with JCM Productions,
       Inc. dba Neversoft Entertainment ("Neversoft") in September 1999, S.B.F.
       Services, Limited dba Head Games Publishing ("Head Games") in June 1998,
       CD Contact Data GmbH ("CD Contact") in September 1998, Raven Software
       Corporation ("Raven") in November 1997, NBG EDV Handels - und Verlags
       GmbH ("NBG") in August 1997 and Combined Distribution (Holdings) Limited
       ("Centresoft") in November 1997.

       CASH AND CASH EQUIVALENTS

       Cash and cash equivalents include cash, money markets and short-term
       investments with original maturities of not more than 90 days.

       The Company's cash and cash equivalents were comprised of the following
       at March 31, 2000 and 1999 (amounts in thousands):


<TABLE>
<CAPTION>
                                                           March 31,
                                                 -----------------------------
                                                     2000             1999
                                                 ------------     ------------
<S>                                              <C>              <C>         
                 Cash                            $     32,637     $     28,833
                 Money market funds                    17,348              315
                 Short-term debt instruments                -            3,889
                                                 ------------     ------------

                                                 $     49,985     $     33,037
                                                 ============     ============
</TABLE>



       CONCENTRATION OF CREDIT RISK

       Financial instruments which potentially subject the Company to
       concentration of credit risk consist principally of temporary cash
       investments and accounts receivable. The Company places its temporary
       cash investments with financial institutions. At various times during the
       fiscal years ended March 31, 2000 and 1999, the 


                                      F-6

<PAGE>

       Company had deposits in excess of the Federal Deposit Insurance
       Corporation ("FDIC") limit at these financial institutions. The Company's
       customer base includes retail outlets and distributors including consumer
       electronics and computer specialty stores, discount chains, video rental
       stores and toy stores in the United States and countries worldwide. The
       Company performs ongoing credit evaluations of its customers and
       maintains allowances for potential credit losses. The Company generally
       does not require collateral or other security from its customers.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

       The estimated fair values of financial instruments have been determined
       by the Company using available market information and valuation
       methodologies described below. However, considerable judgment is required
       in interpreting market data to develop the estimates of fair value.
       Accordingly, the estimates presented herein may not be indicative of the
       amounts that the Company could realize in a current market exchange. The
       use of different market assumptions or valuation methodologies may have a
       material effect on the estimated fair value amounts.

       CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND
       ACCRUED LIABILITIES: The carrying amounts of these instruments
       approximate fair value due to their short-term nature.

       LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED NOTES: The carrying amounts
       of the Company's variable rate debt approximate fair value because the
       interest rates are based on floating rates identified by reference to
       market rates. The fair value of the Company's fixed rate debt is based on
       quoted market prices, where available, or discounted future cash flows
       based on the Company's current incremental borrowing rates for similar
       types of borrowing arrangements as of the balance sheet date. The
       carrying amount and fair value of the Company's long-term debt and
       convertible subordinated notes, was $90.0 million and $81.6 million,
       respectively, as of March 31, 2000.

       PREPAID ROYALTIES AND CAPITALIZED SOFTWARE COSTS

       Prepaid royalties include payments made to independent software
       developers under development agreements and license fees paid to
       intellectual property rights holders for use of their trademarks or
       copyrights. Intellectual property rights which have alternative future
       uses are capitalized. Capitalized software costs represent costs incurred
       for development that are not recoupable against future royalties.

       The Company accounts for prepaid royalties relating to development
       agreements and capitalized software costs in accordance with Statement of
       Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs
       of Computer Software to be Sold, Leased, or Otherwise Marketed." Software
       development costs and prepaid royalties are capitalized once
       technological feasibility is established. Technological feasibility is
       evaluated on a product by product basis. For products where proven game
       engine technology exists, this may occur early in the development cycle.
       Software development costs are expensed if and when they are deemed
       unrecoverable. Amounts related to software development which are not
       capitalized are charged immediately to product development expense.

       The following criteria is used to evaluate recoverability of software
       development costs: historical performance of comparable products; the
       commercial acceptance of prior products released on a given game engine;
       orders for the product prior to its release; estimated performance of a
       sequel product based on the performance of the product on which the
       sequel is based; and actual development costs of a product as compared to
       the Company's budgeted amount.

       Commencing upon product release capitalized software development costs
       are amortized to cost of sales royalties and software amortization on a
       straight-line basis over the estimated product life (generally one year
       or less), or on the ratio of current revenues to total projected
       revenues, whichever amortization amount is greater. Prepaid royalties are
       amortized to cost of sales - royalties and software amortization
       commencing upon the product release at the contractual royalty rate based
       on actual net product sales, or on the ratio of current revenues to total
       projected revenues, whichever amortization amount is greater. For
       products that have been released, management evaluates the future
       recoverability of capitalized amounts on a quarterly basis.


                                      F-7

<PAGE>

       As of March 31, 2000, prepaid royalties and unamortized capitalized
       software costs totaled $29.2 million (including $9.2 million classified
       as non-current) and $11.6 million, respectively. As of March 31, 1999,
       prepaid royalties and unamortized capitalized software costs totaled
       $36.2 million (including $11.5 million classified as non-current) and
       $8.8 million, respectively. Amortization of prepaid royalties and
       capitalized software costs was $78.7 million, $27.1 million and $29.2
       million for the years ended March 31, 2000, 1999 and 1998, respectively.
       Write-offs of prepaid royalties and capitalized software costs prior to
       product release were $6.3 million, $2.4 million and $363,000 for the
       years ended March 31, 2000, 1999 and 1998, respectively.

       INVENTORIES

       Inventories are valued at the lower of cost (first-in, first-out) or
       market.

       REVENUE RECOGNITION

       The American Institute of Certified Public Accountants (AICPA) Statement
       of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), provides
       guidance on applying generally accepted accounting principles in
       recognizing revenue on software transactions. SOP 97-2 is effective for
       all transactions entered into subsequent to March 31, 1999. The Company
       has adopted SOP 97-2 and such adoption did not have a material impact on
       the Company's financial position, results of operations or liquidity.
       Effective December 15, 1998, the AICPA issued Statement of Position 98-9,
       "Modification of SOP 97-2, Software Revenue Recognition with Respect to
       Certain Transactions" ("SOP 98-9"), which is effective for transactions
       entered into after March 15, 1999. SOP 98-9 deals with the determination
       of vendor specific objective evidence of fair value in multiple element
       arrangements, such as maintenance agreements sold in conjunction with
       software packages. The adoption of SOP 98-9 did not have a material
       impact on the Company's financial position, results of operations or
       liquidity.

       Product Sales: The Company recognizes revenue from the sale of its
       products upon shipment. Subject to certain limitations, the Company
       permits customers to obtain exchanges or return products within certain
       specified periods and provides price protection on certain unsold
       merchandise. Management of the Company estimates the amount of future
       returns, and price protections based upon historical results and current
       known circumstances. Revenue from product sales is reflected net of the
       allowance for returns and price protection.

       Software Licenses: For those license agreements which provide the
       customers the right to multiple copies in exchange for guaranteed
       amounts, revenue is recognized at delivery. Per copy royalties on sales
       which exceed the guarantee are recognized as earned.

       ADVERTISING EXPENSES

       The Company expenses advertising and the related costs as incurred.
       Advertising expenses for the years ended March 31, 2000, 1999 and 1998
       were approximately $18.6 million $15.6 million and $6.3 million,
       respectively, and are included in sales and marketing expense in the
       consolidated statements of operations.

       GOODWILL AND LONG-LIVED ASSETS

       Cost in excess of the fair value of net assets of companies acquired,
       goodwill, is being amortized on a straight-line basis over periods
       ranging from 5 to 20 years. As of March 31, 2000 and 1999, accumulated
       amortization amounted to $50.8 million and $9.1 million, respectively.
       The Company accounts for impairment of long-lived assets, including
       goodwill, in accordance with SFAS No. 121, "Accounting for Impairment of
       Long-Lived Assets and Long-Lived Assets to Be Disposed Of." This
       Statement requires that long-lived assets and certain identifiable
       intangibles, including goodwill, be reviewed for impairment whenever
       events or changes in circumstances indicate that the carrying amount of
       an asset may not be recoverable. Recoverability of assets to be held and
       used is measured by a comparison of the carrying amount of the asset to
       undiscounted cash flows expected to be generated by the asset. If such
       assets are considered to be impaired, the impairment to be recognized is
       measured by the amount by which the carrying amount exceeds the fair
       value of the assets. In conjunction with its strategic restructuring plan
       as detailed in Note 3, in the fourth quarter of fiscal 2000, the Company
       recorded a charge for impairment of goodwill of $37.2 million. See Note 3
       for further discussion.


                                      F-8

<PAGE>

       INTEREST INCOME (EXPENSE)

       Interest income (expense), net is comprised of the following, (amounts in
       thousands):


<TABLE>
<CAPTION>
                                                            March 31,
                                         ------------------------------------------------
                                             2000              1999              1998
                                         ------------      ------------      ------------
<S>                                      <C>               <C>               <C>          
       Interest expense                  $     (9,375)     $     (4,974)     $     (2,223)
       Interest income                            964             1,943             1,111
                                         ------------      ------------      ------------

       Net interest income (expense)     $     (8,411)     $     (3,031)     $     (1,112)
                                         ============      ============      ============
</TABLE>


       INCOME TAXES

       The Company accounts for income taxes using Statement of Financial
       Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
       Taxes." Under SFAS No. 109, income taxes are accounted for under the
       asset and liability method. Deferred tax assets and liabilities are
       recognized for the future tax consequences attributable to differences
       between the financial statement carrying amounts of existing assets and
       liabilities and their respective tax bases and operating loss and tax
       credit carryforwards. Deferred tax assets and liabilities are measured
       using enacted tax rates expected to apply to taxable income in the years
       in which those temporary differences are expected to be recovered or
       settled. The effect on deferred tax assets and liabilities of a change in
       tax rates is recognized in income in the period that includes the
       enactment date.

       FOREIGN CURRENCY TRANSLATION

       All assets and liabilities of the Company's foreign subsidiaries are
       translated into U.S. dollars at the exchange rate in effect at the end of
       the period, and revenue and expenses are translated at weighted average
       exchange rates during the period. The resulting translation adjustments
       are reflected as a component of shareholders' equity.

       ESTIMATES

       The preparation of financial statements in conformity with generally
       accepted accounting principles requires management to make estimates and
       assumptions that affect the reported amounts of assets and liabilities at
       the date of the financial statements and the reported amounts of revenues
       and expenses during the reporting period. Actual results could differ
       from those estimates.

       EARNINGS PER COMMON SHARE

       Basic earnings per share is computed by dividing net income by the
       weighted average number of common shares outstanding for all periods.
       Diluted earnings per share reflects the potential dilution that could
       occur if net income were divided by the weighted average number of common
       and common stock equivalent shares outstanding during the period. Diluted
       earnings per share is computed by dividing net income by the weighted
       average number of common shares and common stock equivalents from
       outstanding stock options and warrants and convertible debt. Common stock
       equivalents are calculated using the treasury stock method and represent
       incremental shares issuable upon exercise of the Company's outstanding
       options and warrants. However, potential common shares are not included
       in the denominator of the diluted earnings per share calculation when
       inclusion of such shares would be anti-dilutive, such as in a period in
       which the Company records a net loss.

       STOCK BASED COMPENSATION

       Prior to April 1, 1996, the Company accounted for its stock option plan
       in accordance with the provisions of Accounting Principles Board Opinion
       No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and
       related interpretations. As such, compensation expense would be recorded
       on the date of the grant only if the current market price of the
       underlying stock exceeded the option exercise price. On April 1, 1996 the
       Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
       which permits entities to recognize as expense over the vesting period,
       the fair value of all stock-based awards on the date of the grant.
 

                                      F-9

<PAGE>

       Alternatively, SFAS No. 123 also allows entities to continue to apply the
       provisions of APB Opinion No. 25 and provide pro forma net income and pro
       forma earnings per share disclosures for employee stock option grants
       made in 1995 and future years as if the fair-value-based method defined
       in SFAS No. 123 had been applied. The Company has elected to continue to
       apply the provisions of APB No. 25 and provide the pro forma disclosure
       provisions of SFAS No. 123.

       RECLASSIFICATIONS

       Certain amounts in the consolidated financial statements have been
       reclassified to conform with the current year's presentation. These
       reclassifications had no effect on net income (loss), shareholders'
       equity or cash flows.

2.     ACQUISITIONS

       FISCAL 2000 TRANSACTIONS

       ACQUISITION OF NEVERSOFT

       On September 30, 1999, the Company acquired Neversoft, a privately held
       console software developer, in exchange for 698,835 shares of the
       Company's common stock. The acquisition was accounted for as a pooling of
       interests. Accordingly, the Company has restated the financial statements
       for all periods prior to the closing of the transaction.

       The following table represents the results of operations of the
       previously separate companies for the period before the combination was
       consummated which are included in fiscal year 2000 combined net income
       (loss).


<TABLE>
<CAPTION>
                                                                  Fiscal Year 2000
                                              ----------------------------------------------------------
                                                  Activision           Neversoft              Total
                                              Six Months Ended      Six Months Ended    Six Months Ended
                                                Sept. 30, 1999       Sept. 30, 1999      Sept. 30, 1999
                                              -----------------    ----------------     ----------------
<S>                                           <C>                  <C>                  <C>             
       Revenues                               $      199,505       $              -     $        199,505
       Net income (loss)                      $      (3,028)       $          (484)     $        (3,512)
</TABLE>


       ACQUISITION OF ELSINORE MULTIMEDIA

       On June 29,1999, the Company acquired Elsinore Multimedia, Inc.
       ("Elsinore"), a privately held interactive software development company,
       in exchange for 204,448 shares of the Company's common stock.

       The acquisition was accounted for using the purchase method of
       accounting. Accordingly, the results of operations of Elsinore have been
       included in the Company's consolidated financial statements from the date
       of acquisition. The aggregate purchase price has been allocated to the
       assets and liabilities acquired, consisting mostly of goodwill of $3.0
       million, that is being amortized over a five year period. Proforma
       statements of operations reflecting the acquisition of Elsinore are not
       shown, as they would not differ materially from reported results.

       ACQUISITION OF EXPERT SOFTWARE

       On June 22, 1999, the Company acquired all of the outstanding capital
       stock of Expert Software, Inc. ("Expert"), a publicly held developer and
       publisher of value-line interactive leisure products, for approximately
       $24.7 million. The aggregate purchase price of approximately $24.7
       million consisted of $20.3 million in cash payable to the former
       shareholders of Expert, the valuation of employee stock options in the
       amount of $3.3 million, and other acquisition costs.

       The acquisition was accounted for using the purchase method of
       accounting. Accordingly, the results of operations of Expert have been
       included in the Company's consolidated financial statements from the date
       of acquisition.


                                      F-10

<PAGE>

       The aggregate purchase price was allocated to the fair values of the
       assets and liabilities acquired as follows (amounts in thousands):



<TABLE>
<S>                                        <C>         
                  Tangible assets          $      4,743
                  Existing products               1,123
                  Goodwill                       28,335
                  Liabilities                   (9,532)
                                           ------------

                                           $     24,669
                                           ============
</TABLE>


       However, as more fully described in Note 3, in the fourth quarter of
       fiscal 2000, the Company implemented a strategic restructuring plan to
       accelerate the development of games for the next-generation consoles and
       the Internet. In conjunction with that plan, the Company consolidated
       Expert and its Head Games subsidiary, forming one integrated business
       unit in the value software category. As part of this consolidation, the
       Company discontinued several of Expert's product lines and terminated
       substantially all of Expert's employees. In addition, the Company will
       phase-out the use of the Expert name. As a result of these initiatives,
       the Company incurred a nonrecurring charge of $26.3 million resulting
       from the write-down of intangibles acquired, including goodwill.

       FISCAL 1999 TRANSACTIONS

       The acquisitions of Head Games and CD Contact were originally treated as
       immaterial poolings of interests. However, after reviewing the results of
       operations of the entities, including the materiality and impact on the
       Company's trends, the Company has restated the financial statements for
       all periods prior to the closing of each respective transaction.

       ACQUISITION OF HEAD GAMES

       On June 30, 1998, the Company acquired Head Games in exchange for
       1,000,000 shares of the Company's common stock. The acquisition was
       accounted for as a pooling of interests.

       ACQUISITION OF CD CONTACT

       On September 29, 1998, the Company acquired CD Contact in exchange for
       1,900,000 shares of the Company's common stock and the assumption of $9.1
       million in outstanding debt payable to CD Contact's former shareholders.
       The debt is evidenced by notes payable which are due on demand and bear
       interest at approximately 8% per annum. The acquisition was accounted for
       as a pooling of interests.

       The following table represents the results of operations of the
       previously separate companies for the periods before the combinations 
       were consummated that are included in the current combined net income of
       the Company:


<TABLE>
<CAPTION>
                                                                    Fiscal Year 1999
                              --------------------------------------------------------------------------------------------------
                                                     Head Games          CD Contact                         
                               Activision           Three Months         Six Months           Neversoft              Total
                                Year Ended         Ended June 30,      Ended Sept. 30,       Year Ended             Year Ended 
                              March 31, 1999           1998                 1998            March 31, 1998        March 31, 1999
                             --------------       --------------       --------------       --------------        --------------
<S>                          <C>                  <C>                  <C>                  <C>                   <C>           
      Revenues               $      412,225       $        2,195       $       22,065       $           41        $      436,526
      Net income
        (loss)               $       14,194       $          394       $          666       $         (363)       $       14,891
</TABLE>



                                      F-11

<PAGE>


       FISCAL 1998 TRANSACTIONS

       The acquisitions of NBG and Raven were originally accounted for as 
       immaterial poolings of interests. However, after reviewing the results 
       of operations of the entities, including the materiality and impact on 
       the Company's trends, the Company has restated the financial 
       statements for all periods prior to the closing of each respective 
       transaction.

       ACQUISITION OF NBG

       On November 26, 1997, the Company acquired NBG in exchange for 281,206
       shares of the Company's common stock. The acquisition was accounted for
       as a pooling on interests.

       The following table represents the results of operations of the 
       previously separate companies for the periods before the combinations 
       were consummated that are included in the current combined net income 
       of the Company:


<TABLE>
<CAPTION>
                                                                    Fiscal Year 1998
                        -----------------------------------------------------------------------------------------------------------
                          Activision
                        as Previously           NBG           Head Games          CD Contact                             Total    
                           Reported         Six Months            Year               Year             Neversoft          Year     
                          Year Ended           Ended              Ended              Ended           Year Ended          Ended    
                        March 31, 1998    Sept. 30, 1997    March 31, 1998      March 31, 1998     March 31, 1998    March 31, 1998
                        --------------    --------------    --------------      --------------     --------------    --------------
<S>                     <C>               <C>                <C>                <C>                <C>                <C>         
      Revenues          $    259,926      $      7,081       $      3,715       $     41,336       $        848       $    312,906
      Net income
          (loss)        $      5,827      $       (106)      $        (70)      $       (512)      $       (169)      $      4,970
</TABLE>


       ACQUISITION OF RAVEN SOFTWARE CORPORATION

       On August 26, 1997, the Company acquired Raven in exchange for 1,040,000
       shares of the Company's common stock. The acquisition was accounted for
       as a pooling on interests.

       ACQUISITION OF CENTRESOFT

       On November 26, 1997, the Company acquired CentreSoft Limited
       ("CentreSoft") in exchange for 2,787,043 shares and 50,325 options to
       acquire shares of the Company's common stock. The acquisition of
       CentreSoft was accounted for in accordance with the pooling of interests
       method of accounting and, accordingly, the Company's consolidated
       financial statements were retroactively restated to reflect the effect of
       the Centresoft acquisition for all periods presented.

3.     STRATEGIC RESTRUCTURING PLAN

       In the fourth quarter of fiscal 2000, the Company finalized a strategic
       restructuring plan to accelerate the development and sale of interactive
       entertainment and leisure products for the next-generation consoles and
       the Internet. Costs associated with this plan amounted to $70.2 million,
       approximately $61.8 million net of taxes, and were recorded in the
       consolidated statement of operations in the fourth quarter of fiscal year
       2000 and classified as follows:


<TABLE>
<S>                                                                    <C>  
       Net revenues                                                    $11.7
       Cost of sales - royalties and software
         amortization                                                   11.9
       Product development                                               4.2
       General and administrative                                        5.2
       Amortization of intangible assets                                37.2
                                                                        ----

                                                                       $70.2
                                                                       =====
</TABLE>


       The component of the charge included in amortization of intangible assets
       represents a write down of intangibles including goodwill, relating to
       Expert Software, Inc. ("Expert"), one of the Company's value publishing


                                      F-12

<PAGE>

       subsidiaries, totaling $26.3 million. The Company is consolidating Expert
       into Head Games, forming one integrated business unit. As part of this
       consolidation, the Company is discontinuing substantially all of Expert's
       product lines, terminating substantially all of Expert's employees and
       phasing out the use of the Expert name. In addition, a $10.9 million
       write down of goodwill relating to TDC, an OEM business unit, was
       recorded. In the past year, the OEM market has gone through radical
       changes due to price declines of PCs and hardware accessories. The sum of
       the undiscounted future cash flow of these assets was not sufficient to
       cover the carrying value of these assets and as such was written down to
       fair market value.

       The component of the charge included in net revenues and general and
       administrative expense represents costs associated with the planned
       termination of a substantial number of its third party distributor
       relationships in connection with the Company's realignment of its
       worldwide publishing business to leverage its existing sales and
       marketing organizations and improve the control and management of its
       products. These actions have resulted in an increase in the allowance for
       sales returns of $11.7 million and the allowance for doubtful accounts of
       $3.4 million. The plan also includes a severance charge of $1.2 million
       for employee redundancies. The plan is expected to be completed by the
       fourth quarter of fiscal 2001.

       The components of the charge included in cost of sales - royalties and
       software amortization and product development represent costs to write
       down certain assets associated with exiting certain product lines and
       re-evaluating other product lines which resulted in reduced expectations.

4.     INVENTORIES

       The Company's inventories consist of the following (amounts in
       thousands):


<TABLE>
<CAPTION>
                                                           March 31,
                                                  -----------------------------
                                                      2000              1999
                                                  ------------     ------------
<S>                                               <C>              <C>         
               Purchased parts and components     $      2,857     $      2,326
               Finished goods                           37,596           28,605
                                                  ------------     ------------

                                                  $     40,453     $     30,931
                                                  ============     ============
</TABLE>


5.     PROPERTY AND EQUIPMENT

       Property and equipment are recorded at cost. Depreciation and
       amortization are provided using the straight-line method over the shorter
       of the estimated useful lives or the lease term: buildings, 30 years;
       computer equipment, office furniture and other equipment, 3 years;
       leasehold improvements, through the life of the lease. When assets are
       retired or disposed, the cost and accumulated depreciation thereon are
       removed and any resultant gains or losses are recognized in current
       operations. Property and equipment was as follows (amounts in thousands):


<TABLE>
<CAPTION>
                                                                       March 31,
                                                            ------------------------------
                                                                2000              1999
                                                            ------------      ------------
<S>                                                         <C>               <C>         
               Land                                         $        526      $        582
               Buildings                                           2,468               759
               Computer equipment                                 18,670            18,123
               Office furniture and other equipment                5,800             3,523
               Leasehold improvements                              3,229             3,189
                                                            ------------      ------------

                   Total cost of property and equipment           30,693            26,176

               Less accumulated depreciation                     (19,878)          (15,252)
                                                            ------------      ------------

                   Property and equipment, net              $     10,815      $     10,924
                                                            ============      ============
</TABLE>



                                      F-13

<PAGE>

       Depreciation expense for the years ended March 31, 2000, 1999 and 1998
       was $4.2 million, $4.9 million and $3.8 million, respectively.

6.     ACCRUED EXPENSES

       Accrued expenses were comprised of the following (amounts in thousands):


<TABLE>
<CAPTION>
                                                                 March 31,
                                                       -----------------------------
                                                           2000             1999
                                                       ------------     ------------
<S>                                                    <C>              <C>         
               Accrued royalties payable               $     13,300     $     11,249
               Affiliated label payable                       4,033           11,999
               Accrued selling and marketing costs           10,493            3,082
               Income tax payable                             4,934            5,068
               Accrued interest expense                       1,013            1,013
               Accrued bonus and vacation pay                 5,514            4,473
               Other                                         10,117            8,276
                                                       ------------     ------------

                   Total                               $     49,404     $     45,160
                                                       ============     ============
</TABLE>


7.     OPERATIONS BY REPORTABLE SEGMENTS AND GEOGRAPHIC AREA

       The Company adopted SFAS No. 131, "Disclosure about Segments of an
       Enterprise and Related Information," ("SFAS No. 131") as of April 1,
       1998. SFAS No. 131 establishes standards for reporting information about
       an enterprise's operating segments and related disclosures about its
       products, geographic areas and major customers.

       The Company publishes, develops and distributes interactive entertainment
       and leisure products for a variety of game platforms, including PCs, the
       Sony PlayStation console system, the Nintendo 64 console system and the
       Sega Dreamcast console system. Based on its organizational structure, the
       Company operates in two reportable segments: publishing and distribution.

       The Company's publishing segment develops and publishes titles both
       internally through the studios owned by the Company and externally
       through third party developers. In the United States, the Company's
       products are sold primarily on a direct basis to major computer and
       software retailing organizations, mass market retailers, consumer
       electronic stores, discount warehouses and mail order companies. The
       Company conducts its international publishing activities through offices
       in the United Kingdom, Germany, France, Australia and Japan. The
       Company's products are sold internationally on a direct to retail basis
       and through third party distribution and licensing arrangements and
       through the Company's wholly-owned distribution subsidiaries located in
       the United Kingdom, the Netherlands and Germany.

       The Company's distribution segment, located in the United Kingdom, the
       Netherlands and Germany, distributes interactive entertainment software
       and hardware and provides logistical services for a variety of publishers
       and manufacturers. A small percentage of distribution sales is derived
       from Activision-published titles.

       The President and Chief Operating Officer allocates resources to each of
       these segments using information on their respective revenues and
       operating profits before interest and taxes. The President and Chief
       Operating Officer has been identified as the Chief Operating Decision
       Maker as defined by SFAS No. 131.

       The President and Chief Operating Officer does not evaluate individual
       segments based on assets or depreciation.

       The accounting policies of these segments are the same as those described
       in the Summary of Significant Accounting Policies. Revenue derived from
       sales between segments is eliminated in consolidation.


                                      F-14

<PAGE>

       Information on the reportable segments for the three years ended March
       31, 2000 is as follows:


<TABLE>
<CAPTION>
                                                                    Year ended March 31, 2000
                                                          ----------------------------------------------
                                                            Publishing     Distribution        Total
                                                          -------------    -------------   -------------
<S>                                                       <C>              <C>             <C>          
       Total segment revenues                             $     396,691    $     175,514   $     572,205
       Revenue from sales between segments                      (40,255)          40,255               -
                                                          -------------    -------------   -------------

       Revenues from external customers                   $     356,436    $     215,769   $     572,205
                                                          =============    =============   =============

       Operating income (loss)                            $     (35,049)   $       4,724   $     (30,325)
                                                          =============    =============   =============
</TABLE>



<TABLE>
<CAPTION>
                                                                    Year ended March 31, 1999
                                                          ----------------------------------------------
                                                            Publishing     Distribution        Total
                                                          -------------    -------------   -------------
<S>                                                       <C>              <C>             <C>          
       Total segment revenues                             $     205,542    $     230,984   $     436,526
       Revenue from sales between segments                      (19,202)          19,202               -
                                                          -------------    -------------   -------------

       Revenues from external customers                   $     186,340    $     250,186   $     436,526
                                                          =============    =============   =============

       Operating income (loss)                            $      12,398    $      14,269   $      26,667
                                                          =============    =============   =============
</TABLE>



<TABLE>
<CAPTION>
                                                                    Year ended March 31, 1998
                                                          ----------------------------------------------
                                                            Publishing     Distribution        Total
                                                          -------------    -------------   -------------
<S>                                                       <C>              <C>             <C>          
       Total segment revenues                             $     133,674    $     179,232   $     312,906
       Revenue from sales between segments                       (7,759)           7,759               -
                                                          -------------    -------------   -------------

       Revenues from external customers                   $     125,915    $     186,991   $     312,906
                                                          =============    =============   =============

       Operating income (loss)                            $       4,376    $       4,842   $       9,218
                                                          =============    =============   =============
</TABLE>



       Geographic information for the three years ended March 31, 2000 is based
       on the location of the selling entity. Revenues from external customers
       by geographic region were as follows:


<TABLE>
<CAPTION>
                                      Year ended March 31,
                         ----------------------------------------------
                             2000             1999             1998
                         ------------     ------------     ------------
<S>                      <C>              <C>              <C>         
       United States     $    279,165     $    149,705     $     90,784
       Europe                 277,524          278,032          208,817
       Other                   15,516            8,789           13,305
                         ------------     ------------     ------------

       Total             $    572,205     $    436,526     $    312,906
                         ============     ============     ============
</TABLE>



                                      F-15

<PAGE>


       Revenues by platform were as follows:


<TABLE>
<CAPTION>
                                Year ended March 31,
                   ----------------------------------------------
                       2000             1999             1998
                   ------------     ------------     ------------
<S>                <C>              <C>              <C>         
       Console     $    410,892     $    268,246     $    132,738
       PC               161,313          168,280          180,168
                   ------------     ------------     ------------

       Total       $    572,205     $    436,526     $    312,906
                   ============     ============     ============
</TABLE>



8.     COMPUTATION OF EARNINGS PER SHARE

       The following table sets forth the computations of basic and diluted
       earnings (loss) per share, (amounts in thousands, except per share data):


<TABLE>
<CAPTION>
                                                                      Year ended March 31,
                                                         -----------------------------------------------
                                                             2000              1999             1998
                                                         ------------      ------------     ------------
<S>                                                      <C>               <C>              <C>         
       NUMERATOR
           Net income (loss)                             $    (34,088)     $     14,891     $      4,970
           Preferred stock dividends                                -                 -             (116)
                                                         ------------      ------------     ------------

           Numerator for basic and diluted earnings
               per share-income available to common      $    (34,088)     $     14,891     $      4,854
               shareholders                              ============      ============     ============


       DENOMINATOR
           Denominator for basic earnings per share-
               weighted average common shares
               outstanding                                     24,691            22,861           22,038

           Effect of dilutive securities:
           Employee stock options                                   -               942              801
           Warrants to purchase common stock                        -               129               70
                                                         ------------      ------------     ------------

           Potential dilutive common shares                         -             1,071              871
                                                         ------------      ------------     ------------

           Denominator for diluted earnings per
               share-weighted average common shares
               outstanding plus assumed conversions            24,691            23,932           22,909
                                                         ============      ============     ============


       Basic earnings (loss) per share                   $      (1.38)     $       0.65     $       0.22
                                                         ============      ============     ============

       Diluted earnings (loss) per share                 $      (1.38)     $       0.62     $       0.21
                                                         ============      ============     ============
</TABLE>


       Options to purchase 10,332,000, 2,188,000 and 1,978,000 shares of common
       stock were outstanding for the years ended March 31, 2000, 1999 and 1998,
       respectively, but were not included in the calculations of diluted
       earnings (loss) per share because their effect would be antidilutive.
       Convertible subordinated notes and convertible preferred stock were not
       included in the calculations of diluted earnings per share because their
       effect would be antidilutive.


                                      F-16

<PAGE>

9.     INCOME TAXES

       Domestic and foreign income (loss) before income taxes and details of the
       income tax provision (benefit) are as follows (amounts in thousands):


<TABLE>
<CAPTION>
                                                                            Year ended March 31,
                                                          ------------------------------------------------
                                                              2000              1999              1998
                                                          ------------      ------------      ------------
<S>                                                       <C>               <C>               <C>          
       Income (loss) before income taxes:
           Domestic                                       $    (37,115)     $      5,945      $     (2,483)
           Foreign                                              (1,621)           17,691            10,589
                                                          ------------      ------------      ------------

                                                          $    (38,736)     $     23,636      $      8,106
                                                          ============      ============      ============

       Income tax expense (benefit):
           Current:
                Federal                                   $       (383)     $         37      $      1,133
                State                                              337               124                14
                Foreign                                          2,610             5,456             3,653
                                                          ------------      ------------      ------------

                    Total current                                2,564             5,617             4,800
                                                          ------------      ------------      ------------

           Deferred:
                Federal                                        (10,047)             (418)           (2,679)
                State                                           (1,448)               57              (232)
                                                          ------------      ------------      ------------

                    Total deferred                             (11,495)             (361)           (2,911)
                                                          ------------      ------------      ------------

       Add back benefit credited to additional
           paid-in capital:
           Tax benefit related to stock option
               exercises                                         3,017             1,059             1,247
           Tax benefit related to utilization of pre-
               bankruptcy net operating loss
               carryforwards                                     1,266             2,430                 -
                                                          ------------      ------------      ------------

                                                                 4,283             3,489             1,247
                                                          ------------      ------------      ------------

                                                          $     (4,648)     $      8,745      $      3,136
                                                          ============      ============      ============
</TABLE>



                                      F-17

<PAGE>

       The items accounting for the difference between income taxes computed at
       the U.S. federal statutory income tax rate and the income tax provision
       for each of the years are as follows:


<TABLE>
<CAPTION>
                                                                      Year ended March 31,
                                                       --------------------------------------------------
                                                           2000               1999               1998
                                                       ------------       ------------       ------------
<S>                                                    <C>                <C>                <C> 
       Federal income tax provision (benefit) at
           statutory rate                                     (34.0%)             34.0%              34.0%
       State taxes, net of federal benefit                     (4.5%)              1.3%              (1.2%)
       Nondeductible amortization                              18.6%               1.7%               4.4%
       Nondeductible merger fees                                0.4%               0.8%               3.6%
       Research and development credits                        (8.6%)             (5.4%)             (5.3%)
       Incremental effect of foreign tax rates                  2.8%              (0.9%)              0.7%
       Increase (reduction) of valuation allowance             13.8%               5.1%                 -
       Other                                                   (0.5%)              0.4%               2.5%
                                                       ------------       ------------       ------------

                                                              (12.0%)             37.0%              38.7%
                                                       ============       ============       ============
</TABLE>


       Deferred income taxes reflect the net tax effects of temporary
       differences between the amounts of assets and liabilities for accounting
       purposes and the amounts used for income tax purposes. The components of
       the net deferred tax asset and liability are as follows (amounts in
       thousands):


<TABLE>
<CAPTION>
                                                            March 31,
                                                  ------------------------------
                                                      2000              1999
                                                  ------------      ------------
<S>                                               <C>               <C>         
       Deferred asset:
            Allowance for bad debts               $      1,019      $        942
            Allowance for sales returns                  5,151               144
            Inventory reserve                              799               172
            Vacation & bonus reserve                       763               404
            Royalty reserve                                774             1,649
            Other                                        1,585             1,298
            Tax credit carryforwards                    12,062             6,726
            Net operating loss carryforwards            12,828            10,534
            Amortization & depreciation                  7,055                56
                                                  ------------      ------------
                Deferred asset                          42,036            21,925
                Valuation allowance                    (13,041)           (6,916)
                                                  ------------      ------------

                Net deferred asset                      28,995            15,009
                                                  ------------      ------------

       Deferred liability:
                Capitalized research expenses            7,864             5,512
                State taxes                                917               386
                Deferred compensation                        -               110
                                                  ------------      ------------

                Deferred liability                       8,781             6,008
                                                  ------------      ------------

                Net deferred asset                $     20,214      $      9,001
                                                  ============      ============
</TABLE>


       In accordance with Statement of Position 90-7 ("SOP 90-7"), "Financial
       Reporting by Entities in Reorganization Under the Bankruptcy Code,"
       issued by the AICPA, benefits from loss carryforwards arising prior to
       the Company's reorganization are recorded as additional paid-in capital.
       During the year ended March 31, 2000, $1.3 million was recorded as
       additional paid-in capital.


                                      F-18

<PAGE>

       As of March 31, 2000, the Company's available net operating loss
       carryforward of $31.8 million and $8.0 million for federal and state
       purposes, respectively, is subject to certain limitations as defined
       under Section 382 of the Internal Revenue Code. The net operating loss
       carryforwards expire from 2002 to 2019. The Company has tax credit
       carryforwards of $8.1 million and $4.0 million for federal and state
       purposes, respectively, which expire from 2004 to 2019.

       At March 31, 2000, the Company's deferred income tax asset for tax credit
       carryforwards and net operating loss carryforwards was reduced by a
       valuation allowance of $13.0 million. Of such valuation allowance, $3.2
       million relates to SOP 90-7 which, if realized, will be recorded as
       additional paid-in capital. Realization of the deferred tax assets is
       dependent upon the continued generation of sufficient taxable income
       prior to expiration of tax credits and loss carryforwards. Although
       realization is not assured, management believes it is more likely than
       not that the net carrying value of the deferred tax asset will be
       realized. The amount of deferred tax assets considered realizable,
       however, could be reduced in the future if estimates of future taxable
       income are reduced.

       Cumulative undistributed earnings of foreign subsidiaries for which no
       deferred taxes have been provided approximated $15.7 million at March 31,
       2000. Deferred income taxes on these earnings have not been provided as
       these amounts are considered to be permanent in duration.

10.    LONG-TERM DEBT

       BANK LINES OF CREDIT AND OTHER DEBT

       The Company's long-term debt consists of the following (amounts in
       thousands):


<TABLE>
<CAPTION>
                                                           March 31,
                                                ------------------------------
                                                    2000              1999
                                                ------------      ------------
<S>                                             <C>               <C>
       U.S. Facility                            $     22,496      $          -
       The Netherlands Facility                        3,509             5,513
       Mortgage notes payable and other                4,033             1,622
                                                ------------      ------------

                                                      30,038             7,135
       Less current portion                          (16,260)           (5,992)
                                                ------------      ------------

       Long-term debt, less current portion     $     13,778      $      1,143
                                                ============      ============
</TABLE>


       In June 1999, the Company obtained a $125.0 million revolving credit
       facility and term loan (the "U.S. Facility") with a group of banks. The
       U.S. Facility provides the Company with the ability to borrow up to
       $100.0 million and issue letters of credit up to $80 million on a
       revolving basis against eligible accounts receivable and inventory. The
       $25.0 million term loan portion of the U.S. Facility was used to acquire
       Expert Software, Inc. in June 1999 and to pay costs related to such
       acquisition and the securing of the U.S. Facility. The term loan has a
       three year term with principal amortization on a straight-line quarterly
       basis beginning December 31, 1999 and a borrowing rate based on the
       banks' base rate (which is generally equivalent to the published prime
       rate) plus 2% or LIBOR plus 3%. The revolving portion of the U.S Facility
       has a borrowing rate based on the banks' base rate plus 1.75% or LIBOR
       plus 2.75% (weighted average interest rate of approximately 9.50% for the
       year ended March 31, 2000) and matures June 2002. The Company pays a
       commitment fee of 1/2% on the unused portion of the revolving line. The
       U.S. Facility is collateralized by substantially all of the assets of the
       Company and its U.S. subsidiaries. The U.S. Facility contains various
       covenants that limit the ability of the Company to incur additional
       indebtedness, pay dividends or make other distributions, create certain
       liens, sell assets, or enter into certain mergers or acquisitions. The
       Company is also required to maintain specified financial ratios related
       to net worth and fixed charges. As of March 31, 2000, the Company was in
       compliance with these covenants. As of March 31, 2000, $20.0 million was
       outstanding under the term loan portion of the 


                                      F-19

<PAGE>

       U.S. Facility and $2.5 million was outstanding under the revolving
       portion of the U.S. Facility. No letters of credit were outstanding
       against the revolving portion of the U.S. Facility at March 31, 2000.

       On June 8, 2000, the Company amended certain of the covenants of its 
       U.S. Facility. The amended U.S. Facility permits the Company to purchase 
       up to $15.0 million in shares of its common stock as well as its 
       convertible subordinated notes in accordance with the Company's stock 
       repurchase program (described in Note 15), the distribution of "Rights" 
       under the Company's shareholders' rights plan (described in Note 15), as 
       well as the reorganization of the Company's organizational structure 
       into a holding company form.

       The Company has a revolving credit facility through its CD Contact
       subsidiary in the Netherlands (the "Netherlands Facility"). The
       Netherlands Facility permits revolving credit loans and letters of credit
       up to Netherlands Guilders ("NLG") 45 million ($19.4 million) and NLG 30
       million ($13.0 million) at March 31, 2000 and 1999, respectively, based
       upon eligible accounts receivable and inventory balances. The Netherlands
       Facility is due on demand, bears interest at a Eurocurrency rate plus
       1.25% (weighted average interest rate of 5.5% as of March 31, 2000) and
       matures March 2001. Letters of credit outstanding under the Netherlands
       Facility were NLG 3.8 million ($1.6 million) and NLG 17.9 million ($6.9
       million) and borrowings outstanding under the Netherlands Facility were
       $3.5 million and $5.5 million at March 31, 2000 and 1999, respectively.

       The Company also has revolving credit facilities with its Centresoft 
       subsidiary located in the United Kingdom (the "UK Facility") and its 
       NBG subsidiary located in Germany (the "German Facility"). The UK 
       Facility provides for British Pounds ("GBP") 7.0 million ($11.2 
       million) of revolving loans and GBP 6.0 million ($9.6 million) of 
       letters of credit, bears interest at LIBOR plus 2%, is collateralized 
       by substantially all of the assets of the subsidiary and matures in 
       July 2000. The UK Facility also contains various covenants that 
       require the subsidiary to maintain specified financial ratios related 
       to, among others, fixed charges. As of March 31, 2000, the Company was 
       in compliance with these covenants. No borrowings were outstanding 
       against the UK facility at March 31, 2000 or 1999. Letters of credit 
       of GBP 6.0 million ($9.6 million) were outstanding against the UK 
       Facility at March 31, 2000 and 1999. As of March 31, 2000, the German 
       Facility provides for revolving loans up to Deutsche Marks ("DM") 4 
       million ($1.9 million), bears interest at 6.25%, is collateralized by 
       a cash deposit of approximately GBP 650,000 ($1.0 million) made by the 
       Company's CentreSoft subsidiary and has no expiration date. No 
       borrowings were outstanding against the German Facility as of March 
       31, 2000 and 1999.

       Mortgage notes payable relate to the land, office and warehouse
       facilities of the Company's German and Netherlands subsidiaries. The
       notes bear interest at 5.45% and 5.35%, respectively, and are
       collateralized by the related assets. The Netherlands mortgage note
       payable is due in quarterly installments of NLG 25,000 ($11,725) and
       matures January 2019. The German mortgage note payable is due in
       bi-annual installments of DM 145,000 ($70,615) beginning June 2002 and
       matures December 2019.

       As of March 31, 1999, the Company had a $40.0 million revolving credit
       and letter of credit facility (the "Prior Facility") with a group of
       banks. The Prior Facility provided the Company with the ability to borrow
       funds and issue letters of credit against eligible accounts receivable up
       to $40.0 million. The Prior Facility was scheduled to expire in October
       2001. As of March 31, 1999, the Company had $22.4 million in letters of
       credit outstanding and no borrowings against the Prior Facility. The
       Prior Facility was terminated in June 1999 in conjunction with the
       acquisition of the U.S. Facility.

       Annual maturities of long-term debt are as follows:


<TABLE>
<S>                                          <C>  
                           2001              $16,260
                           2002               10,190
                           2003                  190
                           2004                  190
                           2005                  190
                           Thereafter          3,018
                                             -------

                           Total             $30,038
                                             =======
</TABLE>



                                      F-20

<PAGE>

       PRIVATE PLACEMENT OF CONVERTIBLE SUBORDINATED NOTES

       In December 1997, the Company completed the private placement of $60.0
       million principal amount of 6 3/4% convertible subordinated notes due
       2005 (the "Notes"). The Notes are convertible, in whole or in part, at
       the option of the holder at any time after December 22, 1997 (the date of
       original issuance) and prior to the close of business on the business day
       immediately preceding the maturity date, unless previously redeemed or
       repurchased, into common stock, $.000001 par value, of the Company, at a
       conversion price of $18.875 per share, (equivalent to a conversion rate
       of 52.9801 shares per $1,000 principal amount of Notes), subject to
       adjustment in certain circumstances. The Notes are redeemable, in whole
       or in part, at the option of the Company at any time on or after January
       10, 2001, subject to premiums through December 31, 2003.

11.    COMMITMENTS AND CONTINGENCIES

       DEVELOPER CONTRACTS

       In the normal course of business, the Company enters into contractual
       arrangements with third parties for the development of products. Under
       these agreements, the Company commits to provide specified payments to a
       developer, contingent upon the developer's achievement of contractually
       specified milestones. Assuming all contractually specified milestones are
       achieved, for contracts in place as of March 31, 2000, the total future
       minimum contract commitment is approximately $42.9 million, of which
       $35.0 million, $6.6 million and $1.3 million is scheduled to be paid in
       fiscal 2001, 2002 and 2003, respectively.

       Additionally, under the terms of a production financing arrangement, the
       Company has a commitment to purchase two future PlayStation 2 titles from
       independent third party developers upon their completion for an estimated
       $8.4 million. Failure by the developers to complete the project within
       the contractual time frame or specifications alleviates the Company's
       commitment.

       LEASE OBLIGATIONS

       The Company leases certain of its facilities under non-cancelable
       operating lease agreements. Total future minimum lease commitments as of
       March 31, 2000 are as follows (amounts in thousands):


<TABLE>
<S>                                        <C>
                Year ending March 31,
                         2001              $      3,950
                         2002                     3,670
                         2003                     3,608
                         2004                     3,594
                         2005                     3,378
                         Thereafter               8,789
                                           ------------

                         Total             $     26,989
                                           ============
</TABLE>


       Rent expense under these leases for the years ended March 31, 2000, 1999
       and 1998 was approximately $4.4 million, $4.4 million and $3.3 million,
       respectively.

       LEGAL PROCEEDINGS

       The Company is party to routine claims and suits brought against it in
       the ordinary course of business, including disputes arising over the
       ownership of intellectual property rights and collection matters. In the
       opinion of management, the outcome of such routine claims will not have a
       material adverse effect on the Company's business, financial condition,
       results of operations or liquidity.


                                      F-21

<PAGE>

12.    STOCKHOLDERS' EQUITY AND COMPENSATION PLANS

       OPTION PLANS

       The Company sponsors three stock option plans for the benefit of
       officers, employees, consultants and others.

       The Activision 1991 Stock Option and Stock Award Plan, as amended, (the
       "1991 Plan") permits the granting of "Awards" in the form of
       non-qualified stock options, incentive stock options ("ISOs"), stock
       appreciation rights ("SARs"), restricted stock awards, deferred stock
       awards and other common stock-based awards. The total number of shares of
       common stock available for distribution under the 1991 Plan is 7,566,667.
       The 1991 Plan requires available shares to consist in whole or in part of
       authorized and unissued shares or treasury shares. There were
       approximately 449,000 shares remaining available for grant under the 1991
       Plan as of March 31, 2000.

       On September 23, 1998, the stockholders of the Company approved the
       Activision 1998 Incentive Plan (the "1998 Plan"). The 1998 Plan permits
       the granting of "Awards" in the form of non-qualified stock options,
       ISOs, restricted stock awards, deferred stock awards and other common
       stock-based awards to officers, employees, consultants and others. The
       total number of shares of common stock available for distribution under
       the 1998 Plan is 3,000,000. The 1998 Plan requires available shares to
       consist in whole or in part of authorized and unissued shares or treasury
       shares. There were approximately 250,000 shares remaining available for
       grant under the 1998 Plan as of March 31, 2000.

       On, April 26, 1999, the Board of Directors approved the Activision 1999
       Incentive Plan (the "1999 Plan"). The 1999 Plan permits the granting of
       "Awards" in the form of non-qualified stock options, ISOs, SARs,
       restricted stock awards, deferred share awards and other common
       stock-based awards. The total number of shares of common stock available
       for distribution under the 1999 Plan is 5,000,000. The 1999 Plan requires
       available shares to consist in whole or in part of authorized and
       unissued shares or treasury shares. As of March 31, 2000, there were
       approximately 3,386,000 shares remaining available for grant under the 
       1999 Plan.

       The exercise price for Awards issued under the 1991 Plan, 1998 Plan and
       1999 Plan (collectively, the "Plans") is determined at the discretion of
       the Board of Directors (or the Compensation Committee of the Board of
       Directors), and for ISOs, is not to be less than the fair market value of
       the Company's common stock at the date of grant, or in the case of
       non-qualified options, must exceed or be equal to 85% of the fair market
       value at the date of grant. Options typically become exercisable in
       installments over a period not to exceed five years and must be exercised
       within 10 years of the date of grant. However, certain options granted to
       executives vest immediately. Historically, stock options have been
       granted with exercise prices equal to or greater than the fair market
       value at the date of grant.

       DIRECTOR WARRANT PLAN

       The Director Warrant Plan, which expired on December 19, 1996, provided
       for the automatic granting of warrants ("Director Warrants") to purchase
       16,667 shares of common stock to each director of the Company who was not
       an officer or employee of the Company or any of its subsidiaries.
       Director Warrants granted under the Director Warrant Plan vest 25% on the
       first anniversary of the date of grant, and 12.5% each six months
       thereafter. The expiration of the Plan had no effect on the outstanding
       Warrants. As of March 31, 2000, there were no shares of common stock
       available for distribution under the Director Warrant Plan.

       The range of exercise prices for Director Warrants outstanding as of
       March 31, 2000 was $.75 to $8.50. The range of exercise prices for
       Director Warrants is wide due to increases and decreases in the Company's
       stock price over the period of the grants. As of March 31, 2000, 33,300
       of the outstanding and vested Director Warrants have a weighted average
       remaining contractual life of 1.78 years and a weighted average exercise
       price of $.75; 20,000 of the outstanding and vested Director Warrants
       have a weighted average remaining contractual life of 4.82 years and a
       weighted average exercise price of $6.50; and 20,000 of the outstanding
       and vested Director Warrants have a weighted average remaining
       contractual life of 4.82 years and a weighted average exercise price of
       $8.50.


                                      F-22

<PAGE>

       EMPLOYEE STOCK PURCHASE PLAN

       The Company has an employee stock purchase plan for all eligible
       employees (the "Purchase Plan"). Under the Purchase Plan, shares of the
       Company's common stock may be purchased at six-month intervals at 85% of
       the lower of the fair market value on the first or last day of each
       six-month period (the "Offering Period"). Employees may purchase shares
       having a value not exceeding 10% of their gross compensation during an
       Offering Period. Employees purchased 39,002 and 42,093 shares at a price
       of $10.68 and $9.24 per share during the Purchase Plan's offering period
       ended September 30, 1999 and 1998, respectively, and 33,440 and 45,868
       shares at a price of $10.25 and $8.92 per share during the Purchase
       Plan's offering period ended March 31, 2000 and 1999, respectively.

       OTHER EMPLOYEE OPTIONS

       On March 23, 1999, 1,000,000 options to purchase common stock were issued
       to each of Robert A. Kotick, the Company's Chairman and Chief Executive
       Officer, and Brian G. Kelly, the Company's Co-Chairman. The options were
       granted in connection with employment agreements between the Company and
       each of Mr. Kotick and Mr. Kelly dated January 12, 1999. The options vest
       in five equal annual installments beginning on the date of issuance, have
       an exercise price of $10.50 per share, and expire on January 12, 2009. At
       March 31, 2000, 2,000,000 and 800,000 shares were outstanding and
       exercisable, respectively.

       The Company also issues stock options in conjunction with acquisition
       transactions. For the year ended March 31, 2000, approximately 174,000
       and 148,000 options were outstanding and exercisable, respectively,
       relating to options issued in conjunction with the acquisitions of Head
       Games and Expert.

       During the fiscal year ended March 31, 1997, the Company issued warrants
       to purchase 40,000 shares of the Company's common stock, at exercise
       prices ranging from $6.59 to $6.91 to two of its outside directors in
       connection with their election to the Board. Such warrants have vesting
       terms identical to the Directors Warrants and expire within 10 years. As
       of March 31, 2000, 40,000 and 29,000 shares with weighted average
       exercise prices of $12.85 and $12.88 were outstanding and exercisable,
       respectively.

       Activity of all employee and director options and warrants during the
       last three fiscal years was as follows (amounts in thousands, except
       weighted average exercise price amounts):


<TABLE>
<CAPTION>
                                                        2000                    1999                    1998
                                               ----------------------- ----------------------- -----------------------
                                                           Wtd Avg Ex              Wtd Avg Ex              Wtd Avg Ex
                                                 Shares       Price      Shares       Price      Shares       Price
                                               ----------- ----------- ----------- ----------- ----------- -----------
<S>                                            <C>         <C>         <C>         <C>         <C>         <C>   
       Outstanding at beginning of year              9,949      $10.54       6,218      $11.47       5,228      $11.69
           Granted                                   3,767       11.52       5,538       10.27       2,776       12.14
           Exercised                                (2,331)       9.15        (605)       8.68        (599)       8.35
           Forfeited                                (1,053)      11.91      (1,202)      15.33      (1,187)      14.45
                                               ----------- ----------- ----------- ----------- ----------- -----------

       Outstanding at end of year                   10,332      $11.07       9,949      $10.54       6,218      $11.47
                                               =========== =========== =========== =========== =========== ===========

       Exercisable at end of year                    4,715      $10.25       4,154      $10.00       2,532       $9.78
                                               =========== =========== =========== =========== =========== ===========
</TABLE>


       For the year ended March 31 2000, 2,501,000 options with a weighted
       average exercise price of $12.88 were granted at an exercise price equal
       to the fair market value on the date of grant and 705,000 options with a
       weighted average exercise price of $10.71 were granted at an exercise
       price greater than fair market value on the date of grant. Additionally,
       in conjunction with the acquisition of Expert, 561,000 options with a
       weighted average exercise price of $6.48 were granted at an exercise
       price less than market value on the date of grant. Options granted to
       Expert were outside any of the Plans.


                                      F-23

<PAGE>



       The following tables summarize information about all employee and
       director stock options and warrants outstanding as of March 31, 2000:


<TABLE>
<CAPTION>
                                                     Outstanding Options                      Exercisable Options
                                      ------------------------------------------------- --------------------------------
                                                          Remaining 
                                                          Wtd Avg
                                                         Contractual
                                                            Life           Wtd Avg                          Wtd Avg    
                                          Shares         (in years)     Exercise Price      Shares       Exercise Price
                                      --------------- ---------------- ---------------- --------------- ----------------
<S>                                   <C>             <C>              <C>              <C>             <C>             
       Range of exercise prices:
           $0.75 to $5.00                      195             3.49            $3.31             195            $3.31
           $5.01 to $10.00                   2,552             7.25             9.08           1,930             8.92
           $10.01 to $15.00                  6,733             8.51            11.38           2,285            11.12
           $15.01 to $20.00                    849             8.04            16.27             302            16.45
           $20.01 to $23.04                      3             9.23            23.04               3            23.04
</TABLE>


       NON-EMPLOYEE WARRANTS

       During the fiscal year ended March 31, 1999, the Company issued the
       following warrants to purchase an aggregate of 1,000,000 shares of 
       common stock in connection with software license agreements:


<TABLE>
<CAPTION>
                                      Exercise                                                             Expiration
         Warrants          Shares      Price                       Vesting Schedule                           Date
       -------------  ------------  ------------  ----------------------------------------------------------------------
<S>                   <C>           <C>           <C>                                                      <C>
            #1             500,000   $    10.27   Vest ratably over 5 years beginning on date of grant.      9/16/08
            #2             250,000          (a)   Vest ratably over 5 years beginning on 9/16/03.            9/16/08
            #3             250,000   $    12.70   Vest in full on 7/2/99.                                     7/2/08
                      ------------  ------------  

           Total         1,000,000
                      ============
</TABLE>


       (a) Exercise price will be equal to the average closing price of the
           Company's common stock on the NASDAQ National Market for the 30
           trading days preceding September 16, 2003.

       In May 1999, the Company granted warrants to purchase 100,000 shares of
       the Company's common stock at an exercise price of $11.63 per share to
       Cabela's, Inc. ("Cabela's") in connection with, and as partial
       consideration for, a license agreement that allows the Company to utilize
       the Cabela's name in conjunction with certain Activision products. The
       warrants have a seven year term and vest in annual increments of
       approximately 14.25%.

       The fair value of the warrants was determined using the Black-Scholes
       pricing model, assuming a risk-free rate of 4.77%, a volatility factor of
       66% and expected terms as noted above. In accordance with the Financial
       Accounting Standards Board's Emerging Issues Task Force Issue No. 96-18
       "Accounting for Equity Instruments that are Issued To Other Than
       Employees for Acquiring or in Connection With Selling Goods or Services"
       (EITF 96-18), the Company measures the fair value of the securities on
       the measurement date. The measurement date is the earlier of the date on
       which the other party's performance is completed or the date of a
       performance commitment, as defined. The fair value of each warrant is
       capitalized and amortized to royalty expense when the related product is
       released and the related revenue is recognized. During fiscal year 2000
       and 1999, $5.8 million and $0.4 million, respectively, was amortized and
       included in royalty expense relating to warrants. No amortization was
       recognized in 1998.

       PRO FORMA INFORMATION

       The Company has elected to follow APB Opinion No. 25, "Accounting for
       Stock Issued to Employees," in accounting for its employee stock options.
       Under APB No. 25, if the exercise price of the Company's employee 


                                      F-24

<PAGE>

       stock options equals the market price of the underlying stock on the date
       of grant, no compensation expense is recognized in the Company's
       financial statements.

       Pro forma information regarding net income (loss) and earnings per share
       is required by SFAS No. 123. This information is required to be
       determined as if the Company had accounted for its employee stock options
       (including shares issued under the Purchase Plan and Director Warrant
       Plan and other employee option grants, collectively called "options")
       granted during fiscal 2000, 1999 and 1998 under the fair value method of
       that statement. The fair value of options granted in the years ended
       March 31, 2000, 1999 and 1998 reported below has been estimated at the
       date of grant using a Black-Scholes option pricing model with the
       following weighted average assumptions:


<TABLE>
<CAPTION>
                                         Option Plans and Other
                                            Employee Options             Purchase Plan          Director Warrant Plan
                                       -------------------------- --------------------------- -------------------------
                                         2000     1999     1998     2000     1999     1998     2000     1999     1998
                                       -------- -------- -------- -------- -------- -------- -------- -------- --------
<S>                                    <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C> 
       Expected life (in years)               1      1.5      3.0      0.5      0.5      0.5        1      0.5        -
       Risk free interest rate            6.15%    4.77%    5.62%    6.15%    4.77%    5.62%    6.15%    4.77%        -
       Volatility                           67%      66%      63%      67%      66%      71%      67%      66%        -
       Dividend yield                         -        -        -        -        -        -        -        -        -
</TABLE>


       The Black-Scholes option valuation model was developed for use in
       estimating the fair value of traded options that have no vesting
       restrictions and are fully transferable. In addition, option valuation
       models require the input of highly subjective assumptions, including the
       expected stock price volatility. Because the Company's options have
       characteristics significantly different from those of traded options, and
       because changes in the subjective input assumptions can materially affect
       the fair value estimate, in the opinion of management, the existing
       models do not necessarily provide a reliable single measure of the fair
       value of its options. For options granted during fiscal 2000, the per
       share weighted average fair value of options with exercise prices equal
       to market value on date of grant, exercise prices greater than market
       value and exercise prices less than market value were $5.91, $2.64 and
       $8.00, respectively. The weighted average estimated fair value of options
       and warrants granted to employees and directors during the years ended
       March 31, 1999 and 1998 was $11.12 and $13.47 per share, respectively.
       The per share weighted average estimated fair value of Employee Stock
       Purchase Plan shares granted during the years ended March 31, 2000, 1999
       and 1998 were $3.35, $2.85 and $2.65, respectively.

       For purposes of pro forma disclosures, the estimated fair value of the
       options is amortized to expense over the options' vesting period. The
       Company's pro forma information follows (amounts in thousands except for
       per share information):


<TABLE>
<CAPTION>
                                                                         Year ended March 31,
                                                                  --------------------------------
                                                                     2000       1999       1998
                                                                  ---------- ---------- ----------
<S>                                                               <C>             <C>    <C>     
              Pro forma net income (loss)                           $(45,355)      $748    $(2,422)
              Pro forma basic earnings per share                       (1.84)      0.01      (0.13)
              Pro forma diluted earnings per share                     (1.84)      0.01      (0.13)
</TABLE>


       The effects on pro forma disclosures of applying SFAS No. 123 are not
       likely to be representative of the effects on pro forma disclosures of
       future years.

       EMPLOYEE RETIREMENT PLAN

       The Company has a retirement plan covering substantially all of its
       eligible employees. The retirement plan is qualified in accordance with
       Section 401(k) of the Internal Revenue Code. Under the plan, employees
       may defer up to 15% of their pre-tax salary, but not more than statutory
       limits. The Company contributes 5% of each dollar contributed by a
       participant. The Company's matching contributions to the plan were
       $46,000, $40,000 and $25,000 during the years ended March 31, 2000, 1999
       and 1998, respectively.


                                      F-25

<PAGE>

12.    SUPPLEMENTAL CASH FLOW INFORMATION

       Non-cash investing and financing activities and supplemental cash flow
       information is as follows (amounts in thousands):


<TABLE>
<CAPTION>
                                                                            Years ended March 31,
                                                                 ----------------------------------------------
                                                                     2000             1999             1998
                                                                 ------------     ------------     ------------
<S>                                                              <C>              <C>              <C>         
       Non-cash investing and financing activities:
       Stock and warrants to acquire common stock issued in
           exchange for licensing rights                         $      8,529     $      3,368     $      1,214
       Tax benefit derived from net operating loss
           carryforward utilization                                     1,266            2,430                -
       Tax benefit attributable to stock option exercises               3,017            1,059            1,247
       Subordinated loan stock debentures converted to
           common stock in pooling transaction                              -                -            3,216
       Redeemable preferred stock converted to common
           stock in pooling transaction                                     -                -            1,286
       Convertible preferred stock converted to common stock
           in pooling transaction                                           -                -              214
       Stock issued to effect business combination                      7,171                -              174
       Assumption of debt to effect business combination                    -            9,100                -
       Conversion of notes payable to common stock                          -            4,500                -

       Supplemental cash flow information:
       Cash paid for income taxes                                $      6,333     $      2,814     $      2,174
                                                                 ============     ============     ============

       Cash paid for interest                                    $     10,519     $      5,513     $        675
                                                                 ============     ============     ============
</TABLE>



                                      F-26

<PAGE>

13.      QUARTERLY FINANCIAL AND MARKET INFORMATION (UNAUDITED)


<TABLE>
<CAPTION>
                                                                               Quarter Ended
                                                            ----------------------------------------------------
                                                                                                                         Year
     (Amounts in thousands, except per share data)            June 30     Sept 30       Dec 31       Mar 31 (1)         Ended
                                                            ----------  ----------   -----------    ------------    ------------
<S>                                                         <C>         <C>          <C>            <C>             <C>         
         Fiscal 2000 (quarter ended June 30 restated):
              Net revenues                                  $   84,142  $  115,363   $   268,862    $    103,838    $    572,205
              Operating income (loss)                          (6,101)       3,525        38,241        (65,990)        (30,325)
              Net income (loss)                                (4,575)       1,063        22,301        (52,877)        (34,088)
              Basic earnings (loss) per share                   (0.19)        0.04          0.89          (2.07)          (1.38)
              Diluted earnings (loss) per share                 (0.19)        0.04          0.75          (2.07)          (1.38)

              Common stock price per share
                  High                                           14.56       17.75         17.50          17.69           17.75
                  Low                                            10.31       12.63         13.94          12.06           10.31

         Fiscal 1999 (restated):
              Net revenues                                  $   61,541  $   66,182   $   193,537    $   115,266     $   436,526
              Operating income (loss)                          (5,524)     (2,735)        25,873          9,053          26,667
              Net income (loss)                                (3,671)     (2,206)        15,736          5,032          14,891
              Basic earnings (loss) per share                   (0.16)      (0.10)          0.69           0.22            0.65
              Diluted earnings (loss) per share                 (0.16)      (0.10)          0.61           0.21            0.62

              Common stock price per share
                  High                                           11.62       13.75         14.87          13.81           14.87
                  Low                                             9.37        9.37          8.75           9.75            8.75
</TABLE>


       (1) In the fourth quarter of fiscal 2000, the Company initiated a
           strategic restructuring which resulted in additional costs of $70.2
           million reflected in the consolidated statement of operations in the
           fourth quarter. See Note 3, "Strategic Restructuring Plan."

14.    ORGANIZATIONAL STRUCTURE

       Effective June 9, 2000, Activision reorganized into a holding company
       form of organizational structure, whereby Activision Holdings, Inc., a
       Delaware corporation ("Activision Holdings"), became the holding company
       for Activision and its subsidiaries. The new holding company
       organizational structure will allow Activision to manage its entire
       organization more effectively and broadens the alternatives for future
       financings.

       The holding company organizational structure was effected by a merger
       conducted pursuant to Section 251 (g) of the General Corporation Law of
       the State of Delaware, which provides for the formation of a holding
       company structure without a vote of the stockholders of the constituent
       corporations. In the merger, ATVI Merger Sub, Inc., a Delaware
       corporation, organized for the purpose of implementing the holding
       company organizational structure,(the "Merger Sub"), merged with and into
       Activision with Activision as the surviving corporation (the "Surviving
       Corporation"). Prior to the merger, Activision Holdings was a direct,
       wholly-owned subsidiary of Activision and Merger Sub was a direct, wholly
       owned subsidiary of Activision Holdings. Pursuant to the merger, (i) each
       issued and outstanding share of common stock of Activision (including
       treasury shares) was converted into one share of common stock of
       Activision Holdings, (ii) each issued and outstanding share of Merger Sub
       was converted into one share of the Surviving Corporation's common stock,
       and Merger Sub's corporate existence ceased, and (iii) all of the issued
       and outstanding shares of Activision Holdings owned by Activision were
       automatically canceled and retired. As a result of the merger, Activision
       became a direct, wholly owned subsidiary of Activision Holdings.

       Immediately following the merger, Activision changed its name to
       "Activision Publishing, Inc." and Activision Holdings changed its name to
       "Activision, Inc." The holding company's common stock will continue to
       trade on The Nasdaq National Market under the symbol ATVI.


                                      F-27

<PAGE>

       The conversion of shares of Activision's common stock in the merger
       occurred without an exchange of certificates. Accordingly, certificates
       formerly representing shares of outstanding common stock of Activision
       are deemed to represent the same number of shares of common stock of
       Activision Holdings. The change to the holding company structure was tax
       free for federal income tax purposes for stockholders.

       These transactions had no impact on the Company's consolidated financial
       statements.

15.    SUBSEQUENT EVENTS -- UNAUDITED

       REPURCHASE PLAN

       As of May 9, 2000, the Board of Directors authorized the Company to
       purchase up to $15.0 million in shares of its common stock as well as its
       convertible subordinated notes. The shares and notes could be purchased
       from time to time through the open market or in privately negotiated
       transactions. The amount of shares and notes purchased and the timing of
       purchases was based on a number of factors, including the market price of
       the shares and shares, market conditions, and such other factors as the
       Company's management deemed appropriate. The Company has financed the
       purchase of shares with available cash. As of June 19, 2000, the Company 
       has repurchased 2.3 million shares of its common stock for approximately
       $15.0 million.

       SHAREHOLDERS' RIGHTS PLAN

       On April 18, 2000, the Company's Board of Directors approved a
       shareholders rights plan (the "Rights Plan"). Under the Rights Plan, each
       common stockholder at the close of business on April 19, 2000, will
       receive a dividend of one right for each share of common stock held. Each
       right represents the right to purchase one one-hundredth (1/100) of a
       share of the Company's Series A Junior Preferred Stock at an exercise
       price of $40.00. Initially, the rights are represented by the Company's
       common stock certificates and are neither exercisable nor traded
       separately from the Company's common stock. The rights will only become
       exercisable if a person or group acquires 15% or more of the common stock
       of the Company, or announces or commences a tender or exchange offer
       which would result in the bidder's beneficial ownership of 15% or more of
       the Company's common stock.

       In the event that any person or group acquires 15% or more of the
       Company's outstanding common stock each holder of a right (other than
       such person or members of such group) will thereafter have the right to
       receive upon exercise of such right, in lieu of shares of Series A Junior
       Preferred Stock, the number of shares of common stock of the Company
       having a value equal to two times the then current exercise price of the
       right. If the Company is acquired in a merger or other business
       combination transaction after a person has acquired 15% or more the
       Company's common stock, each holder of a right will thereafter have the
       right to receive upon exercise of such right a number of the acquiring
       company's common shares having a market value equal to two times the then
       current exercise price of the right. For persons who, as of the close of
       business on April 18, 2000, beneficially own 15% or more of the common
       stock of the Company, the Rights Plan "grandfathers" their current level
       of ownership, so long as they do not purchase additional shares in excess
       of certain limitations.

       The Company may redeem the rights for $.01 per right at any time until
       the first public announcement of the acquisition of beneficial ownership
       of 15% of the Company's common stock. At any time after a person has
       acquired 15% or more (but before any person has acquired more than 50%)
       of the Company's common stock, the Company may exchange all or part of
       the rights for shares of common stock at an exchange ratio of one share
       of common stock per right. The rights expire on April 18, 2010.

       As discussed in Note 10, the Company obtained an amendment to its U.S.
       Facility relating to the Rights Plan and the Company's stock repurchase
       plan.


                                      F-28

<PAGE>

 
                                                                    SCHEDULE II

                        ACTIVISION, INC. AND SUBSIDIARIES
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (In thousands)


<TABLE>
<CAPTION>
                   COL. A                           COL. B            COL. C            COL. D            COL. E
                   ------                           ------            ------            ------            ------
                                                  Balance at
                                                 Beginning of                                         Balance at End
                 Description                        Period         Additions(A)     Deductions (B)      of Period
---------------------------------------------- ----------------- ----------------- ----------------- -----------------
<S>                                            <C>               <C>               <C>               <C>              
Year ended March 31, 2000
         Allowance for sales returns,
             price protection and doubtful
             accounts                                    14,979            97,362            80,820            31,521

         Deferred tax valuation allowance                 6,916             6,125                 -            13,041

Year ended March 31, 1999 (Restated)

         Allowance for sales returns,
             price protection and doubtful
             accounts                                    15,582            53,773            54,376            14,979

         Deferred tax valuation allowance                 8,107             1,239             2,430             6,916

Year ended March 31, 1998 (Restated)

         Allowance for sales returns,
             price protection and doubtful
             accounts                                     7,674            39,437            31,529            15,582

         Deferred tax valuation allowance                 8,107                 -                 -             8,107
</TABLE>


(A)    Includes increases in allowance for sales returns, price protection and
       doubtful accounts due to normal reserving terms and allowance accounts
       acquired in conjunction with acquisitions.

(B)    Includes actual write-offs of uncollectible accounts receivable or sales
       returns and price protection, recoveries of previously written off
       receivables and foreign currency translation adjustments.


                                      F-29

<PAGE>

                                                   EXHIBIT INDEX


ITEM 14(a).  EXHIBITS.


<TABLE>
<CAPTION>
     Exhibit                                                                                           Sequential Page
     Number           Exhibit                                                                               Number
     ------           -------                                                                               ------
<S>                   <C>                                                                              <C> 
     2.1              Agreement and Plan of Merger dated as of June 9, 2000 among
                      Activision, Inc., Activision Holdings, Inc. and ATVI Merger
                      Sub, Inc. (incorporated by reference to Exhibit 2.4 of the
                      Company's Form 8-K filed June 16, 2000).

     3.1              Amended and Restated Certificate of Incorporation of Activision 
                      Holdings, dated June 1, 2000 (incorporated by reference to Exhibit
                      2.5 of the Company's Form 8-K, filed on June 16, 2000).

     3.2              Amended and Restated Bylaws of Activision Holdings
                      (incorporated by reference to Exhibit 2.6 of the Company's Form
                      8-K, filed on June 16, 2000).

     3.3              Certificate of Amendment of Amended and Restated Certificate of
                      Incorporation of Activision Holdings dated as of June 9, 2000 
                      (incorporated by reference to Exhibit 2.7 of the Company's Form 
                      8-K, filed on June 16, 2000).

     4.1              Rights Agreement dated as of April 18, 2000, between the
                      Company and Continental Stock Transfer & Trust Company, which
                      includes as exhibits the form of Right Certificates as Exhibit
                      A, the Summary of Rights to Purchase Series A Junior Preferred
                      Stock as Exhibit B and the form of Certificate of Designation
                      of Series A Junior Preferred Stock of the Company as Exhibit C,
                      (incorporated by reference to the Company's Registration
                      Statement on Form 8-A, Registration No. 001-15839, filed April
                      19, 2000).

     10.1             Mediagenic 1991 Stock Option and Stock Award Plan, as amended
                      (incorporated by reference to Exhibit 4.1 to the Company's
                      Registration Statement on Form S-8, Registration No. 33-63638,
                      filed on December 8, 1995).

     10.2             Mediagenic 1991 Director Warrant Plan, as amended (incorporated
                      by reference to Exhibit 28.2 to the Company's Registration
                      Statement on Form S-8, Registration No. 33-63638, filed on June
                      1, 1993).

     10.3             Activision, Inc.  Employee Stock Purchase Plan, as amended,
                      (incorporated by reference to Exhibit 4.1 of the Company's Form
                      S-8, Registration No. 333-36272 filed on May 4, 2000).

     10.4             Activision, Inc. 1998 Incentive Plan (incorporated by reference
                      to Appendix I of the Company's 1998 Proxy Statement).

     10.5             Activision, Inc. 1999 Incentive Plan

     10.6             Lease Agreement dated as of December 20, 1996, between the
                      Company and Barclay Curci Investment Company (incorporated by
                      reference to Exhibit 10.14 of the Company's Form 10-Q for the
                      quarter ended December 31, 1996).


                                      F-30

<PAGE>

     10.7             Share Exchange Agreement dated November 23, 1997, among the
                      Company and the holders of all of the issued and outstanding
                      capital stock of Combined Distribution (Holdings) Limited
                      (incorporated by reference to Exhibit 10.1 of the Company's
                      Form 8-K filed December 5, 1997).

     10.8             Purchase Agreement dated as of December 16, 1997, among the
                      Company and Credit Suisse First Boston Corporation, Piper
                      Jaffray, Inc. and UBS Securities LLC (the "Initial Purchasers")
                      (incorporated by reference to Exhibit 10.1 of the Company's
                      Form 8-K filed December 23, 1997).

     10.9             Registration Rights Agreement dated as of December 16, 1997,
                      among the Company and the Initial Purchasers (incorporated by
                      reference to Exhibit 10.2 of the Company's Form 8-K filed
                      December 23, 1997).

     10.10            Indenture dated as of December 22, 1997, between the Company
                      and State Street Bank and Trust Company of California, N.A., as
                      Trustee (incorporated by reference to Exhibit 10.3 of the
                      Company's Form 8-K filed December 23, 1997).

     10.11            Employment agreement dated January 12, 1999 between the Company
                      and Robert A. Kotick (incorporated by reference to Exhibit
                      10.10 of the Company's Form 10-K for the year ending March 31,
                      1999).

     10.12            Employment agreement dated October 19, 1998 between the Company
                      and Ronald Doornink (incorporated by reference to Exhibit 10.12
                      of the Company's Form 10-K for the year ending March 31, 1999).

     10.13            Employment agreement dated March 4, 1999 between the Company
                      and Lawrence Goldberg (incorporated by reference to Exhibit
                      10.13 of the Company's Form 10-K for the year ending March 31,
                      1999).

     10.14            Employment agreement dated April 1, 1998 between the Company
                      and Mitchell Lasky (incorporated by reference to Exhibit 10.15
                      of the Company's Form 10-K for the year ending March 31, 1999).

     10.15            Employment agreement dated April 1, 1998 between the Company
                      and Ronald Scott (incorporated by reference to Exhibit 10.16 of
                      the Company's Form 10-K for the year ending March 31, 1999).

     10.16            Service Agreement dated November 24, 1997 between Combined
                      Distribution (Holdings) Limited and Richard Andrew Steele
                      (incorporated by reference to Exhibit 10.17 of the Company's
                      Form 10-K for the year ending March 31, 1999).

     10.17            Employment agreement dated January 12, 1999 between the Company
                      and Brian G. Kelly (incorporated by reference to Exhibit 10.11
                      of the Company's Form 10-K for the year ending March 31, 1999).

     10.18            Articles of Merger dated June 30, 1998 between S.B.F.
                      Acquisition Corp., a wholly owned subsidiary of the Company,
                      and S.B.F. 


                                      F-31

<PAGE>

                      Services, Limited dba Head Games Publishing (incorporated by
                      reference to Exhibit 2.1 of the Company's Form 8-K, filed
                      on July 2, 1998).

     10.19            Share Exchange Agreement dated September 29, 1998 by and
                      between the Company and Mr. Frank d'Oleire, Mrs. Christa
                      d'Oleire, Ms. Fiona d'Oleire, Ms. Alexa d'Oleire acting as Dr.
                      d'Oleire Beteiligungsgesellschaft bR, Mr. Martinus J.C. Bubbert,
                      and Mr. Dennis W. Buis (incorporated by reference to Exhibit
                      10.1 of the Company's Form 8-K, filed on October 8, 1998).

     10.20            Amended and Restated Agreement and Plan of Merger dated April
                      19, 1999 by and among the Company, Expert Acquisition Corp. and
                      Expert Software, Inc. (incorporated by reference to Exhibit 2.1
                      of the Form 8-K of Expert Software, Inc., filed April 29, 1999).

     10.21            Credit Agreement dated as of June 21, 1999 among the Company,
                      Head Games Publishing, Inc., Expert Software, Inc., various
                      financial institutions, PNC Bank, National Association, as issuing 
                      bank, administrative agent and collateral agent for such financial 
                      institutions, and Credit Suisse First Boston, as syndication agent 
                      (incorporated by reference to Exhibit 10.22 of the Company's Form 
                      10-K for the year ending March 31, 1999).

     10.22            Share Exchange Agreement dated as of June 29, 1999, among the
                      Company, Jill G. Mark and Robert N. Herrick (incorporated by
                      reference to Exhibit 4.1 of the Company's Registration
                      Statement on Form S-3, Registration No. 333-85385, filed August
                      17, 1999).

     10.23            Agreement and Plan of Reorganization dated as of September 30,
                      1999, among the Company, Neversoft Entertainment, Inc., JCM
                      Productions, Inc., Joel Jewett, Michael West and Christopher
                      Ward (incorporated by reference to Exhibit 4.1 of the Company's
                      Registration Statement on Form S-3, Registration No. 333-94509,
                      filed January 12, 2000).

     10.24            Employment agreement dated July 12, 1999, between the Company
                      and Mr. Michael Rowe (incorporated by reference to Exhibit 6.1
                      of the Company's Form 10-Q for the quarter ending June 30,
                      1999).

     10.25            Employment agreement dated July 12, 1999, between the Company
                      and Ms. Kathy Vrabek (incorporated by reference to Exhibit 6.2
                      of the Company's Form 10-Q for the quarter ending June 30,
                      1999).

     10.26            Amendment to Employment Agreement between Mr. Ronald Doornink
                      and the Company, dated April 30 1999 (incorporated by reference
                      to Exhibit 6.1 of the Company's Form 10-Q for the quarter
                      ending December 31, 1999).

     10.27            Employment agreement dated April 7, 2000, between the Company
                      and Mr. Michael Pole.

     10.28            First Amendment effective as of June 8, 2000 to the Credit
                      Agreement dated June 21, 1999 among the Company, Head Games
                      Publishing, Inc., Expert Software, Inc., various financial
                      institutions, PNC Bank, National Association as issuing bank,
                      administrative agent and collateral agent for such lenders and
                      Credit Suisse First Boston, as syndication agent.


                                      F-32

<PAGE>

     21.1             Principal subsidiaries of the Company.

     23.1             Independent Auditors' Consent.

     27.1             Fiscal 1998 Year to Date Financial Data Schedule.

     27.2             Fiscal 1999 Year to Date Financial Data Schedule.

     27.3             Fiscal 2000 Year to Date Financial Data Schedule.

     (b)              Reports on Form 8-K. There have been no reports on Form
                      8-K that have been filed by the Company during the last
                      quarter of the fiscal year ending March 31, 2000. The
                      following reports on Form 8-K have been filed by the
                      Company during the first quarter of the fiscal year ending
                      March 31, 2001:

                      1.1  The Company filed a Form 8-K on April 19, 2000,
                           reporting under "Item 5. Other Events" the
                           announcement of the Company's stockholders' rights
                           plan.

                      1.2  The Company filed a Form 8-K on June 16, 2000
                           reporting under "Item 5. Other Events" the
                           announcement of the organizational restructuring of the
                           Company into a holding company format organizational
                           structure.
</TABLE>



                                      F-33





<PAGE>
                                                                    EXHIBIT 10.5


                                 ACTIVISION, INC.
                               1999 INCENTIVE PLAN


        ACTIVISION, INC., a corporation formed under the laws of the State of
Delaware (the "Company"), hereby establishes and adopts the following 1999
Incentive Plan (the "Plan").

                                    RECITALS

        WHEREAS, the Company desires to encourage high levels of performance by
those individuals who are key to the success of the Company, to attract new
individuals who are highly motivated and who will contribute to the success of
the Company and to encourage such individuals to remain as directors and/or
employees of the Company and its subsidiaries by increasing their proprietary
interest in the Company's growth and success.

        WHEREAS, to attain these ends, the Company has formulated the Plan
embodied herein to authorize the granting of incentive awards through grants of
share options ("Options"), grants of share appreciation rights, grants of Share
Purchase Awards (hereafter defined) and grants of Restricted Share Awards
(hereafter defined) to those individuals whose judgment, initiative and efforts
are or have been responsible for the success of the Company.

        NOW, THEREFORE, the Company hereby constitutes, establishes and adopts
the following Plan and agrees to the following
 provisions:

                                   ARTICLE 1.

                               PURPOSE OF THE PLAN

        1.1     PURPOSE. The purpose of the Plan is to assist the Company and
its subsidiaries in attracting and retaining selected individuals to serve as
directors, officers, consultants, advisors and other key employees of the
Company and its subsidiaries who will contribute to the Company's success and to
achieve long-term objectives which will inure to the benefit of all shareholders
of the Company through the additional incentive inherent in the ownership or
increased ownership of the Company's shares of common stock ("Shares"). Options
granted under the Plan will be either "incentive share options," intended to
qualify as such under the provisions of Section 422 of the Internal Revenue Code
of 1986, as amended from time to time (the "Code"), or "nonqualified share
options." For purposes of the Plan, the term "subsidiary" shall mean "subsidiary
corporation," as such term is defined in Section 424(f) of the Code, and
"affiliate" shall have the meaning set forth in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of the Plan,
the term "Award" shall mean a grant of an Option, a grant of a share
appreciation right, a grant of a Share Purchase Award, a grant of a Restricted
Share Award, or any other award made under the terms of the Plan.

                                   ARTICLE 2.

                            SHARES SUBJECT TO AWARDS

        2.1.    NUMBER OF SHARES. Subject to the adjustment provisions of
Section 9.10 hereof, the aggregate number of Shares which may be issued under
Awards under the Plan, whether pursuant to Options, share appreciation rights,
Share Purchase Awards or Restricted Share Awards shall not exceed 5,000,000. No
Options to purchase fractional Shares shall be granted or issued under the Plan.
For



<PAGE>


purposes of this Section 2.1, the Shares that shall be counted toward such
limitation shall include all Shares:

                (1)     issued or issuable pursuant to Options that have been or
                        may be exercised;

                (2)     issued or issuable pursuant to Share Purchase Awards;
                        and

                (3)     issued as, or subject to issuance as a Restricted Share
                        Award.

        2.2.    SHARES SUBJECT TO TERMINATED AWARDS. The Shares covered by any
unexercised portions of terminated Options granted under Articles 4 and 6,
Shares forfeited as provided in Section 8.2(a) and Shares subject to any Awards
which are otherwise surrendered by the Participant without receiving any payment
or other benefit with respect thereto may again be subject to new Awards under
the Plan. In the event the purchase price of an Option is paid in whole or in
part through the delivery of Shares, the number of Shares issuable in connection
with the exercise of the Option shall not again be available for the grant of
Awards under the Plan. Shares subject to Options, or portions thereof, which
have been surrendered in connection with the exercise of share appreciation
rights shall not again be available for the grant of Awards under the Plan.

        2.3     CHARACTER OF SHARES. Shares delivered under the Plan may be
authorized and unissued Shares or Shares acquired by the Company, or both.

        2.4     LIMITATIONS ON GRANTS TO INDIVIDUAL PARTICIPANT. Subject to
adjustments pursuant to the provisions of Section 10.10 hereof, the maximum
number of Shares with respect to which Options or stock appreciation rights may
be granted hereunder to any employee during any fiscal year shall be 500,000
Shares (the "Limitation"). If an Option is cancelled, the cancelled Option shall
continue to be counted toward the Limitation for the year granted. An Option (or
a stock appreciation right) that is repriced during any fiscal year is treated
as the cancellation of the Option (or stock appreciation right) and a grant of a
new Option (or stock appreciation right) for purposes of the Limitation for that
fiscal year.

                                   ARTICLE 3.

                         ELIGIBILITY AND ADMINISTRATION

        3.1.    AWARDS TO EMPLOYEES AND DIRECTORS. (a) Participants who receive
(i) Options under Articles 4 and 6 hereof or share appreciation rights under
Article 5 ("Optionees"), and (ii) Share Purchase Awards under Article 7 or
Restricted Share Awards under Article 8 (in either case, a "Participant"), shall
consist of such officers, key employees, consultants, representatives and other
contractors and agents and Directors (hereinafter defined) of the Company or any
of its subsidiaries or affiliates as the Committee shall select from time to
time, PROVIDED, HOWEVER, that an Option that is intended to qualify as an
"incentive share option" may be granted only to an individual that is an
employee of the Company or any of its subsidiaries. The Committee's designation
of an Optionee or Participant in any year shall not require the Committee to
designate such person to receive Awards or grants in any other year. The
designation of an Optionee or Participant to receive Awards or grants under one
portion of the Plan shall not require the Committee to include such Optionee or
Participant under other portions of the Plan.

                (b)     No Option which is intended to qualify as an "incentive
share option" may be granted to any employee or Director who, at the time of
such grant, owns, directly or indirectly (within the meaning of Sections
422(b)(6) and 424(d) of the Code), shares possessing more than 10% of the total


                                       2

<PAGE>


combined voting power of all classes of shares of the Company or any of its
subsidiaries or affiliates, unless at the time of such grant, (i) the option
price is fixed at not less than 110% of the Fair Market Value (as defined below)
of the Shares subject to such Option, determined on the date of the grant, and
(ii) the exercise of such Option is prohibited by its terms after the expiration
of five years from the date such Option is granted.

        3.2.    ADMINISTRATION. (a) The Plan shall be administered by a
committee (the "Committee") consisting of not fewer than two Directors of the
Company (the directors of the Company being hereinafter referred to as the
"Directors"), as designated by the Directors. The Directors may remove from, add
members to, or fill vacancies in the Committee. Unless otherwise determined by
the Directors, each member of the Committee will be a "non-employee director"
within the meaning of Rule 16b-3 (or any successor rule) of the Exchange Act and
an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the Code
and the regulations thereunder.

                Notwithstanding any other provision of this Plan, any Award to a
member of the Committee must be approved by the Board of Directors of the
Company (excluding Directors who are also members of the Committee) to be
effective.

                (b)     The Committee is authorized, subject to the provisions
of the Plan, to establish such rules and regulations as it may deem appropriate
for the conduct of meetings and proper administration of the Plan. All actions
of the Committee shall be taken by majority vote of its members.

                (c)     Subject to the provisions of the Plan, the Committee
shall have authority, in its sole discretion, to grant Awards under the Plan, to
interpret the provisions of the Plan and, subject to the requirements of
applicable law, including Rule 16b-3 of the Exchange Act, to prescribe, amend,
and rescind rules and regulations relating to the Plan or any Award thereunder
as it may deem necessary or advisable. All decisions made by the Committee
pursuant to the provisions of the Plan shall be final, conclusive and binding on
all persons, including the Company, its shareholders, Directors and employees,
and other Plan participants.

                                   ARTICLE 4.

                                    OPTIONS

        4.1.    GRANT OF OPTIONS. DIRECTORS, OFFICERS AND OTHER KEY EMPLOYEES.
The Committee shall determine, within the limitations of the Plan, those
Directors, officers and other key employees of the Company and its subsidiaries
and affiliates to whom Options are to be granted under the Plan, the number of
Shares that may be purchased under each such Option and the option price, and
shall designate such Options at the time of the grant as either "incentive share
options" or "nonqualified share options"; PROVIDED, HOWEVER, that Options
granted to employees of an affiliate (that is not also a subsidiary) or to
non-employees of the Company may only be "nonqualified share options."

        4.2.    SHARE OPTION AGREEMENTS; ETC. All Options granted pursuant to
Article 4 and Article 6 herein (a) shall be authorized by the Committee and (b)
shall be evidenced in writing by share option agreements ("Share Option
Agreements") in such form and containing such terms and conditions as the
Committee shall determine which are not inconsistent with the provisions of the
Plan, and, with respect to any Share Option Agreement granting Options which are
intended to qualify as "incentive share options," are not inconsistent with
Section 422 of the Code. Granting of an Option pursuant to the Plan shall impose
no obligation on the recipient to exercise such option. Any individual who is
granted an Option


                                       3

<PAGE>


pursuant to this Article 4 and Article 6 herein may hold more than one Option
granted pursuant to such Articles at the same time and may hold both "incentive
share options" and "nonqualified share options" at the same time. To the extent
that any Option does not qualify as an "incentive share option" (whether because
of its provisions, the time or manner of its exercise or otherwise) such Option
or the portion thereof which does not so qualify shall constitute a separate
"nonqualified share option."

        4.3.    OPTION PRICE. Subject to Section 3.1(b), the option price per
each Share purchasable under any "incentive share option" granted pursuant to
this Article 4 and any "nonqualified share option" granted pursuant to Article 6
herein shall be determined by the Committee, but in the case of an "incentive
share option" shall not be less than 100% of the Fair Market Value (as
hereinafter defined) of such Share on the date of the grant of such Option. The
option price per share of each Share purchasable under any "nonqualified share
option" granted pursuant to this Article 4 shall be determined by the Committee
at the time of the grant of such Option, but shall not be less than 85% of the
Fair Market Value of such Share on the date of the grant of such Option.

        4.4.    OTHER PROVISIONS. Options granted pursuant to this Article 4
shall be made in accordance with the terms and provisions of Article 10 hereof
and any other applicable terms and provisions of the Plan.

                                   ARTICLE 5.

                            SHARE APPRECIATION RIGHTS

        5.1.    GRANT AND EXERCISE. Share appreciation rights may be granted in
conjunction with all or part of any Option granted under the Plan, as follows:
(i) in the case of a nonqualified share option, such rights may be granted
either at the time of the grant of such option or at any subsequent time during
the term of the option; and (ii) in the case of an incentive share option, such
rights may be granted only at the time of the grant of such option. A "share
appreciation right" is a right to receive cash or Shares, as provided in this
Article 5, in lieu of the purchase of a Share under a related Option. A share
appreciation right or applicable portion thereof shall terminate and no longer
be exercisable upon the termination or exercise of the related Option, and a
share appreciation right granted with respect to less than the full number of
Shares covered by a related Option shall not be reduced until, and then only to
the extent that, the exercise or termination of the related Option exceeds the
number of Shares not covered by the share appreciation right. A share
appreciation right may be exercised by the holder thereof (the "Holder"), in
accordance with Section 5.2 of this Article 5, by giving written notice thereof
to the Company and surrendering the applicable portion of the related Option.
Upon giving such notice and surrender, the Holder shall be entitled to receive
an amount determined in the manner prescribed in Section 5.2 of this Article 5.
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the related share appreciation rights have been
exercised.

        5.2.    TERMS AND CONDITIONS. Share appreciation rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:

                (a)     Share appreciation rights shall be exercisable only at
such time or times and to the extent that the Options to which they relate shall
be exercisable in accordance with the provisions of the Plan.


                                       4

<PAGE>


                (b)     Upon the exercise of a share appreciation right, a
Holder shall be entitled to receive up to, but no more than, an amount in cash
or whole Shares as determined by the Committee in its sole discretion equal to
the excess of the then Fair Market Value of one Share over the option price per
Share specified in the related Option multiplied by the number of Shares in
respect of which the share appreciation right shall have been exercised. The
Holder shall specify in his written notice of exercise, whether payment shall be
made in cash or in whole Shares. Each share appreciation right may be exercised
only at the time and so long as a related Option, if any, would be exercisable
or as otherwise permitted by applicable law.

                (c)     Upon the exercise of a share appreciation right, the
Option or part thereof to which such share appreciation right is related shall
be deemed to have been exercised for the purpose of the limitation of the number
of Shares to be issued under the Plan, as set forth in Section 2.1 of the Plan.

                (d)     With respect to share appreciation rights granted in
connection with an Option that is intended to be an "incentive share option,"
the following shall apply:

                        (i)     No share appreciation right shall be
transferable by a Holder otherwise than by will or by the laws of descent and
distribution, and share appreciation rights shall be exercisable, during the
Holder's lifetime, only by the Holder.

                        (ii)    Share appreciation rights granted in connection
with an Option may be exercised only when the Fair Market Value of the Shares
subject to the Option exceeds the option price at which Shares can be acquired
pursuant to the Option.

                                   ARTICLE 6.

                                 RELOAD OPTIONS

        6.1.    AUTHORIZATION OF RELOAD OPTIONS. Concurrently with the award of
any Option (such Option hereinafter referred to as the "Underlying Option") to
any participant in the Plan, the Committee may grant one or more reload options
(each, a "Reload Option") to such participant to purchase for cash or Shares a
number of Shares as specified below. A Reload Option shall be exercisable for an
amount of Shares equal to (i) the number of Shares delivered by the Optionee to
the Company to exercise the Underlying Option, and (ii) to the extent authorized
by the Committee, the number of Shares used to satisfy any tax withholding
requirement incident to the exercise of the Underlying Option, subject to the
availability of Shares under the Plan at the time of such exercise. Any Reload
Option may provide for the grant, when exercised, of subsequent Reload Options
to the extent and upon such terms and conditions consistent with this Article 6,
as the Committee in its sole discretion shall specify at or after the time of
grant of such Reload Option. The grant of a Reload Option will become effective
upon the exercise of an Underlying Option or Reload Option by the Optionee
delivering to the Company Shares owned by the Optionee in payment of the
exercise price and/or tax withholding obligations. Notwithstanding the fact that
the Underlying Option may be an "incentive share option," a Reload Option is not
intended to qualify as an "incentive share option" under Section 422 of the
Code.

        6.2.    RELOAD OPTION AMENDMENT. Each Share Option Agreement shall state
whether the Committee has authorized Reload Options with respect to the
Underlying Option. Upon the exercise of an Underlying Option or other Reload
Option, the Reload Option will be evidenced by an amendment to the underlying
Share Option Agreement.


                                       5

<PAGE>


        6.3.    RELOAD OPTION PRICE. The option price per Share payable upon the
exercise of a Reload Option shall be the Fair Market Value of a Share on the
date the grant of the Reload Option becomes effective.

        6.4.    TERM AND EXERCISE. Each Reload Option is fully exercisable
immediately from the effective date of grant. The term of each Reload Option
shall be equal to the remaining option term of the Underlying Option.

        6.5.    TERMINATION OF EMPLOYMENT. No additional Reload Options shall be
granted to Optionees when Options and/or Reload Options are exercised pursuant
to the terms of this Plan following termination of the Optionee's employment
unless the Committee, in its sole discretion, shall determine otherwise.

        6.6.    APPLICABILITY OF OTHER SECTIONS. Except as otherwise provided in
this Article 6, the provisions of Article 9 applicable to Options shall apply
equally to Reload Options.

                                   ARTICLE 7.

                              SHARE PURCHASE AWARDS

        7.1.    GRANT OF SHARE PURCHASE AWARD. The term "Share Purchase Award"
means the right to purchase Shares of the Company and to pay for such Shares
through a loan made by the Company to an employee (a "Purchase Loan") as set
forth in this Article 7.

        7.2.    TERMS OF PURCHASE LOANS. (a) PURCHASE LOAN. Each Purchase Loan
shall be evidenced by a promissory note. The term of the Purchase Loan shall be
a period of years, as determined by the Committee, and the proceeds of the
Purchase Loan shall be used exclusively by the Participant for purchase of
Shares from the Company at a purchase price equal to the Fair Market Value on
the date of the Share Purchase Award.

                (b)     INTEREST ON PURCHASE LOAN. A Purchase Loan shall be
non-interest bearing or shall bear interest at whatever rate the Committee shall
determine (but not in excess of the maximum rate permissible under applicable
law), payable in a manner and at such times as the Committee shall determine.
Those terms and provisions as the Committee shall determine shall be
incorporated into the promissory note evidencing the Purchase Loan.

                (c)     FORGIVENESS OF PURCHASE LOAN. Subject to Section 7.4
hereof, the Company may forgive the repayment of up to 100% of the principal
amount of the Purchase Loan, subject to such terms and conditions as the
Committee shall determine and set forth in the promissory note evidencing the
Purchase Loan. A Participant's Purchase Loan can be prepaid at any time, and
from time to time, without penalty.

        7.3.    SECURITY FOR LOANS. (a) STOCK POWER AND PLEDGE. Purchase Loans
granted to Participants shall be secured by a pledge of the Shares acquired
pursuant to the Share Purchase Award. Such pledge shall be evidenced by a pledge
agreement (the "Pledge Agreement") containing such terms and conditions as the
Committee shall determine. Purchase Loans shall be recourse or non-recourse with
respect to a Participant, as determined from time to time by the Committee. The
share certificates for the Shares purchased by a Participant pursuant to a Share
Purchase Award shall be issued in the Participant's name, but shall be held by
the Company as security for repayment of the Participant's Purchase Loan
together


                                       6

<PAGE>


with a stock power executed in blank by the Participant (the execution and
delivery of which by the Participant shall be a condition to the issuance of the
Share Purchase Award). The Participant shall be entitled to exercise all rights
applicable to such Shares, including, but not limited to, the right to vote such
Shares and the right to receive dividends and other distributions made with
respect to such Shares. When the Purchase Loan and any accrued but unpaid
interest thereon has been repaid or otherwise satisfied in full, the Company
shall deliver to the Participant the share certificates for the Shares purchased
by a Participant under the Share Purchase Award.

                (b)     RELEASE AND DELIVERY OF SHARE CERTIFICATES DURING THE
TERM OF THE PURCHASE LOAN. The Company shall release and deliver to each
Participant certificates for Shares purchased by a Participant pursuant to a
Share Purchase Award, in such amounts and on such terms and conditions as the
Committee shall determine, which shall be set forth in the Pledge Agreement.

                (c)     RELEASE AND DELIVERY OF SHARE CERTIFICATES UPON
REPAYMENT OF THE PURCHASE LOAN. The Company shall release and deliver to each
Participant certificates for the Shares purchased by the Participant under the
Share Purchase Award and then held by the Company, provided the Participant has
paid or otherwise satisfied in full the balance of the Purchase Loan and any
accrued but unpaid interest thereon. In the event the balance of the Purchase
Loan is not repaid, forgiven or otherwise satisfied within 90 days after (i) the
date repayment of the Purchase Loan is due (whether in accordance with its term,
by reason of acceleration or otherwise), or (ii) such longer time as the
Committee, in its discretion, shall provide for repayment or satisfaction, the
Company shall retain those Shares then held by the Company in accordance with
the Pledge Agreement.

                (d)     RECOURSE PURCHASE LOANS. Notwithstanding Sections
7.3(a), (b) and (c) above, in the case of a recourse Purchase Loan, the
Committee may make such Purchase Loan on such terms as it determines, including
without limitation, not requiring a pledge of the acquired Shares.

        7.4.    TERMINATION OF EMPLOYMENT. (a) TERMINATION OF EMPLOYMENT BY
DEATH, DISABILITY OR BY THE COMPANY WITHOUT CAUSE; CHANGE OF CONTROL. In the
event of a Participant's termination of employment by reason of death,
"disability" or by the Company without "cause," or in the event of a "change of
control," the Committee shall have the right (but shall not be required) to
forgive the remaining unpaid amount (principal and interest) of the Purchase
Loan in whole or in part as of the date of such occurrence. "Change of Control,"
"disability" and "cause" shall have the respective meanings as set forth in the
promissory note evidencing the Purchase Loan.

                (b)     OTHER TERMINATION OF EMPLOYMENT. Subject to Section
7.4(a) above, in the event of a Participant's termination of employment for any
reason, the Participant shall repay to the Company the entire balance of the
Purchase Loan and any accrued but unpaid interest thereon, which amounts shall
become immediately due and payable, unless otherwise determined by the
Committee.

        7.5.    RESTRICTIONS ON TRANSFER. No Share Purchase Award or Shares
purchased through such an Award and pledged to the Company as collateral
security for the Participant's Purchase Loan (and accrued and unpaid interest
thereon) may be otherwise pledged, sold, assigned or transferred (other than by
will or by the laws of descent and distribution).


                                       7

<PAGE>


                                   ARTICLE 8.

                                RESTRICTED AWARDS

        8.1.    RESTRICTED SHARE AWARDS. (a) GRANT. A grant of Shares made
pursuant to this Article 8 is referred to as a "Restricted Share Award." The
Committee may grant to any employee an amount of Shares in such manner, and
subject to such terms and conditions relating to vesting, forfeitability and
restrictions on delivery and transfer (whether based on performance standards,
periods of service or otherwise) as the Committee shall establish (such Shares,
"Restricted Shares"). The terms of any Restricted Share Award granted under this
Plan shall be set forth in a written agreement (a "Restricted Share Agreement")
which shall contain provisions determined by the Committee and not inconsistent
with this Plan. The provisions of Restricted Share Awards need not be the same
for each Participant receiving such Awards.

                (b)     ISSUANCE OF RESTRICTED SHARES. As soon as practicable
after the date of grant of a Restricted Share Award by the Committee, the
Company shall cause to be transferred on the books of the Company, Shares
registered in the name of the Company, as nominee for the Participant,
evidencing the Restricted Shares covered by the Award; provided, however, such
Shares shall be subject to forfeiture to the Company retroactive to the date of
grant, if a Restricted Share Agreement delivered to the Participant by the
Company with respect to the Restricted Shares covered by the Award is not duly
executed by the Participant and timely returned to the Company. All Restricted
Shares covered by Awards under this Article 8 shall be subject to the
restrictions, terms and conditions contained in the Plan and the Restricted
Share Agreement entered into by and between the Company and the Participant.
Until the lapse or release of all restrictions applicable to an Award of
Restricted Shares, the share certificates representing such Restricted Shares
shall be held in custody by the Company or its designee.

                (c)     SHAREHOLDER RIGHTS. Beginning on the date of grant of
the Restricted Share Award and subject to execution of the Restricted Share
Agreement as provided in Sections 8.1(a) and (b), the Participant shall become a
shareholder of the Company with respect to all Shares subject to the Restricted
Share Agreement and shall have all of the rights of a shareholder, including,
but not limited to, the right to vote such Shares and the right to receive
distributions made with respect to such Shares; PROVIDED, HOWEVER, that any
Shares distributed as a dividend or otherwise with respect to any Restricted
Shares as to which the restrictions have not yet lapsed shall be subject to the
same restrictions as such Restricted Shares and shall be represented by book
entry and held as prescribed in Section 8.1(b).

                (d)     RESTRICTION ON TRANSFERABILITY. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws of descent
and distribution), pledged or sold prior to lapse or release of the restrictions
applicable thereto.

                (e)     DELIVERY OF SHARES UPON RELEASE OF RESTRICTIONS. Upon
expiration or earlier termination of the forfeiture period without a forfeiture
and the satisfaction of or release from any other conditions prescribed by the
Committee, the restrictions applicable to the Restricted Shares shall lapse. As
promptly as administratively feasible thereafter, subject to the requirements of
Section 12.1, the Company shall deliver to the Participant or, in case of the
Participant's death, to the Participant's beneficiary, one or more stock
certificates for the appropriate number of Shares, free of all such
restrictions, except for any restrictions that may be imposed by law.

        8.2.    TERMS OF RESTRICTED SHARES. (a) FORFEITURE OF RESTRICTED SHARES.
Subject to Section 8.2(b), all Restricted Shares shall be forfeited and returned
to the Company and all rights of the


                                       8

<PAGE>


Participant with respect to such Restricted Shares shall terminate unless the
Participant continues in the service of the Company as an employee until the
expiration of the forfeiture period for such Restricted Shares and satisfies any
and all other conditions set forth in the Restricted Share Agreement. The
Committee in its sole discretion, shall determine the forfeiture period (which
may, but need not, lapse in installments) and any other terms and conditions
applicable with respect to any Restricted Share Award.

                (b)     WAIVER OF FORFEITURE PERIOD. Notwithstanding anything
contained in this Article 8 to the contrary, the Committee may, in its sole
discretion, waive the forfeiture period and any other conditions set forth in
any Restricted Share Agreement under appropriate circumstances (including the
death, disability or retirement of the Participant or a material change in
circumstances arising after the date of an Award) and subject to such terms and
conditions (including forfeiture of a proportionate number of the Restricted
Shares) as the Committee shall deem appropriate.

                                   ARTICLE 9.

                              DEFERRED SHARE AWARDS

        9.1.    SHARES AND ADMINISTRATION. Awards of the right to receive Shares
that are not to be distributed to the Participant until after a specified
deferral period (such Award and the deferred Shares delivered thereunder
hereinafter as the context shall require, the "Deferred Shares") may be made
either alone or in addition to share options, share appreciation rights, or
Restricted Share Awards, or Other Share-based Awards (hereafter defined) granted
under the Plan. The Committee shall determine the Directors, officers and other
key employees of the Company and its subsidiaries to whom and the time or times
at which Deferred Shares shall be awarded, the number of Deferred Shares to be
awarded to any Participant, the duration of the period (the "Deferral Period")
during which, and the conditions under which, receipt of the Shares will be
deferred, and the terms and conditions of the award in addition to those
contained in Section 9.2. In its sole discretion, the Committee may provide for
a minimum payment at the end of the applicable Deferral Period based on a stated
percentage of the Fair Market Value on the date of grant of the number of Shares
covered by a Deferred Share award. The Committee may also provide for the grant
of Deferred Shares upon the completion of a specified performance period. The
provisions of Deferred Share awards need not be the same with respect to each
recipient.

        9.2.    TERMS AND CONDITIONS. Deferred Share awards made pursuant to
this Article 9 shall be subject to the following terms and conditions:

                (a)     Subject to the provisions of the Plan, the Shares to be
issued pursuant to a Deferred Share award may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Deferral Period or
Elective Deferral Period (defined below), where applicable, and may be subject
to a risk of forfeiture during all or such portion of the Deferral Period as
shall be specified by the Committee. At the expiration of the Deferral Period
and Elective Deferral Period, share certificates shall be delivered to the
Participant, or the Participant's legal representative, in a number equal to the
number of shares covered by the Deferred Share award.

                (b)     Amounts equal to any dividends declared during the
Deferral Period with respect to the number of Shares covered by a Deferred Share
award will be paid to the Participant currently, or deferred and deemed to be
reinvested in additional deferred Shares or otherwise reinvested, as determined
at the time of the award by the Committee, in its sole discretion.


                                       9

<PAGE>


                (c)     Subject to the provisions of paragraph 9.2(d) of this
Article 9, upon termination of employment for any reason during the Deferral
Period for a given award, the Deferred Shares in question shall be forfeited by
the Participant.

                (d)     In the event of the Participant's death or permanent
disability during the Deferral Period (or Elective Deferral Period, where
applicable), or in cases of special circumstances, the Committee may, in its
sole discretion, when it finds that a waiver would be in the best interests of
the Company, waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the Participant's
Deferred Shares.

                (e)     Prior to completion of the Deferral Period, a
Participant may elect to further defer receipt of the award for a specified
period or until a specified event (the "Elective Deferral Period"), subject in
each case to the approval of the Committee and under such terms as are
determined by the Committee, all in its sole discretion.

                (f)     Each award shall be confirmed by a Deferred Share
agreement or other instrument executed by the Company and the Participant.

                                   ARTICLE 10.

                         GENERALLY APPLICABLE PROVISIONS

        10.1.   OPTION PERIOD. Subject to Section 3.1(b), the period for which
an Option is exercisable shall not exceed ten years from the date such Option is
granted, PROVIDED, HOWEVER, in the case of an Option that is not intended to be
an "incentive share option," the Committee may prescribe a period in excess of
ten years. After the Option is granted, the option period may not be reduced.

        10.2.   FAIR MARKET VALUE. If the Shares are listed or admitted to
trading on a securities exchange registered under the Exchange Act or listed as
a national market security on the National Association of Securities Dealers,
Inc. Automated Quotations System ("NASDAQ"), the "Fair Market Value" of a Share
as of a specified date shall mean the closing price of a share on the day
immediately preceding the date as of which Fair Market Value is being determined
(or if there was no reported sale on such date, on the last preceding date on
which any reported sale occurred) on the principal securities exchange or NASDAQ
on which the Shares are listed or admitted to trading. If the Shares are not
listed or admitted to trading on any such exchange but are traded in the
over-the-counter market or listed or traded on any similar system then in use,
the Fair Market Value of a Share shall be the average of the high bid and low
asked prices of the Shares for the day immediately preceding the date as of
which the Fair Market Value is being determined (or if there was no reported
sale on such date, on the last preceding date on which any reported sale
occurred) reported on such system. If the Shares are not publicly traded, Fair
Market Value shall be determined by the Committee in its sole discretion using
appropriate criteria. In no case shall Fair Market Value be less than the par
value of a Share. An Option shall be considered granted on the date the
Committee acts to grant the Option or such later date as the Committee shall
specify.

        10.3.   EXERCISE OF OPTIONS. Options granted under the Plan shall be
exercised by the Optionee or by a Permitted Assignee thereof (or by his
executors, administrators, guardian or legal representative, as provided in
Sections 10.6 and 10.7 hereof) as to all or part of the Shares covered thereby,
by the giving of written notice of exercise to the Company, specifying the
number of Shares to be purchased, accompanied by payment of the full purchase
price for the Shares being purchased. Full payment of such


                                       10

<PAGE>


purchase price shall be made within five business days following the date of
exercise and shall be made (i) in cash or by certified check or bank check, (ii)
with the consent of the Committee, by delivery of a promissory note in favor of
the Company upon such terms and conditions as determined by the Committee, (iii)
with the consent of Committee, by tendering previously acquired Shares (valued
at its Fair Market Value, as determined by the Committee as of the date of
tender), or (iv) with the consent of the Committee, any combination of (i), (ii)
and (iii). In connection with a tender of previously acquired Shares pursuant to
clause (iii) above, the Committee, in its sole discretion, may permit the
Optionee to constructively exchange Shares already owned by the Optionee in lieu
of actually tendering such Shares to the Company, provided that adequate
documentation concerning the ownership of the Shares to be constructively
tendered is furnished in form satisfactory to the Committee. The notice of
exercise, accompanied by such payment, shall be delivered to the Company at its
principal business office or such other office as the Committee may from time to
time direct, and shall be in such form, containing such further provisions
consistent with the provisions of the Plan, as the Committee may from time to
time prescribe. In no event may any Option granted hereunder be exercised for a
fraction of a Share. The Company shall effect the transfer of Shares purchased
pursuant to an Option as soon as practicable, and, within a reasonable time
thereafter, such transfer shall be evidenced on the books of the Company. No
person exercising an Option shall have any of the rights of a holder of Shares
subject to an Option until certificates for such Shares shall have been issued
following the exercise of such Option. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date of such
issuance.

        10.4.   TRANSFERABILITY. No Option that is intended to qualify as an
"incentive share option" under Section 422 of the Code shall be assignable or
transferable by the Optionee, other than by will or the laws of descent and
distribution, and such Option may be exercised during the life of the Optionee
only by the Optionee or his guardian or legal representative. "Nonqualified
share options" and any share appreciation rights granted in tandem therewith are
transferrable (together and not separately) with the consent of the Compensation
Committee of the Board of Directors by the Optionee or Holder, as the case may
be, to any one or more of the following persons (each, a "Permitted Assignee"):
(i) the spouse, parent, issue, spouse of issue, or issue of spouse ("issue"
shall include all descendants whether natural or adopted) of such Optionee or
Holder, as the case may be; (ii) a trust for the benefit of one or more of those
persons described in clause (i) above or for the benefit of such Optionee or
Holder, as the case may be, or for the benefit of any such persons and such
Optionee or Holder, as the case may be; or (iii) an entity in which the Optionee
or Holder or any Permitted Assignee thereof is a beneficial owner; provided,
however, that such Permitted Assignee shall be bound by all of the terms and
conditions of this Plan and shall execute an agreement satisfactory to the
Company evidencing such obligation; provided further, however that any transfer
by an Optionee or Holder who is not then a Director of the Company to any
Permitted Assignee shall be subject to the prior consent of the Committee; and
provided further, however, that such Optionee or Holder shall remain bound by
the terms and conditions of this Plan. The Company shall cooperate with an
Optionee's Permitted Assignee and the Company's transfer agent in effectuating
any transfer permitted pursuant to this Section 10.4.

        10.5.   TERMINATION OF EMPLOYMENT. In the event of the termination of
employment of an Optionee or the termination or separation from service of an
advisor or consultant or a Director (who is an Optionee) for any reason (other
than death or disability as provided below), any Option(s) granted to such
Optionee under this Plan and not previously exercised or expired shall be deemed
cancelled and terminated on the day of such termination or separation, unless
the Committee decides, in its sole discretion, to extend the term of the Option
for a period not to exceed three months after the date of such termination or
separation, PROVIDED, HOWEVER, that in no instance may the term of the Option,
as so extended, exceed the maximum term established pursuant to Section
3.1(b)(ii) or 10.1 above.


                                       11

<PAGE>


Notwithstanding the foregoing, in the event of the termination or separation
from service of an Optionee for any reason other than death or disability, under
conditions satisfactory to the Company, the Committee may, in its sole
discretion, allow any "nonqualified share options" granted to such Optionee
under the Plan and not previously exercised or expired to be exercisable for a
period of time to be specified by the Committee, PROVIDED, HOWEVER, that in no
instance may the term of the Option, as so extended, exceed the maximum term
established pursuant to Section 10.1 above.

        10.6.   DEATH. In the event an Optionee dies while employed by the
Company or any of its subsidiaries or affiliates or during his term as a
Director of the Company or any of its subsidiaries or affiliates, as the case
may be, any Option(s) granted to him (or his Permitted Assignee) and not
previously expired or exercised shall, to the extent exercisable on the date of
death, be exercisable by the estate of such Optionee or by any person who
acquired such Option by bequest or inheritance, or by the Permitted Assignee at
any time within one year after the death of the Optionee, unless earlier
terminated pursuant to its terms, PROVIDED, HOWEVER, that if the term of such
Option would expire by its terms within six months after the Optionee's death,
the term of such Option shall be extended until six months after the Optionee's
death, PROVIDED FURTHER, HOWEVER, that in no instance may the term of the
Option, as so extended, exceed the maximum term established pursuant to Section
3.1(b)(ii) or 10.1 above.

        10.7.   DISABILITY. In the event of the termination of employment of an
Optionee or the separation from service of a Director (who is an Optionee) due
to total disability, the Optionee, or his guardian or legal representative, or a
Permitted Assignee shall have the unqualified right to exercise any Option(s)
which have not been previously exercised or expired and which the Optionee was
eligible to exercise as of the first date of total disability (as determined by
the Committee), at any time within one year after such termination or
separation, unless earlier terminated pursuant to its terms, PROVIDED, HOWEVER,
that if the term of such Option would expire by its terms within six months
after such termination or separation, the term of such Option shall be extended
until six months after such termination or separation, PROVIDED FURTHER,
HOWEVER, that in no instance may the term of the Option, as so extended, exceed
the maximum term established pursuant to Section 3.1(b)(ii) or 10.1 above. The
term "total disability" shall, for purposes of this Plan, be defined in the same
manner as such term is defined in Section 22(e)(3) of the Code.

        10.8.   AMENDMENT AND MODIFICATION OF THE PLAN. The Compensation
Committee of the Board of Directors of the Company may, from time to time,
alter, amend, suspend or terminate the Plan as it shall deem advisable, subject
to any requirement for shareholder approval imposed by applicable law or any
rule of any stock exchange or quotation system on which Shares are listed or
quoted; provided that such Compensation Committee may not amend the Plan,
without the approval of the Company's shareholders, to increase the number of
Shares that may be the subject of Options under the Plan (except for adjustments
pursuant to Section 10.9 hereof). In addition, no amendments to, or termination
of, the Plan shall in any way impair the rights of an Optionee or a Participant
(or a Permitted Assignee thereof) under any Award previously granted without
such Optionee's or Participant's consent.

        10.9.   ADJUSTMENTS. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities, the issuance
of warrants or other rights to purchase Shares or other securities, or other
similar corporate transaction or event affects the Shares with respect to which
Options have been or may be issued under the Plan, such that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan, then the Committee shall, in such manner as the


                                       12

<PAGE>


Committee may deem equitable, adjust any or all of (i) the number and type of
Shares that thereafter may be made the subject of Options, (ii) the number and
type of Shares subject to outstanding Options and share appreciation rights, and
(iii) the grant or exercise price with respect to any Option, or, if deemed
appropriate, make provision for a cash payment to the holder of any outstanding
Option; provided, in each case, that with respect to "incentive stock options,"
no such adjustment shall be authorized to the extent that such adjustment would
cause such options to violate Section 422(b) of the Code or any successor
provision; and provided further, that the number of Shares subject to any Option
denominated in Shares shall always be a whole number. In the event of any
reorganization, merger, consolidation, split-up, spin-off, or other business
combination involving the Company (collectively, a "Reorganization"), the
Compensation Committee of the Board of Directors or the Board of Directors may
cause any Award outstanding as of the effective date of the Reorganization to be
cancelled in consideration of a cash payment or alternate Award made to the
holder of such cancelled Award equal in value to the fair market value of such
cancelled Award. The determination of fair market value shall be made by the
Compensation Committee of the Board of Directors or the Board of Directors, as
the case may be, in their sole discretion.

        10.10.  CHANGE IN CONTROL. The terms of any Award may provide in the
Share Option Agreement, Restricted Share Agreement, Purchase Loan or other
document evidencing the Award, that upon a "Change in Control" of the Company
(as that term may be defined therein), (i) Options (and share appreciation
rights) accelerate and become fully exercisable, (ii) restrictions on Restricted
Shares lapse and the shares become fully vested, (iii) Purchase Loans are
forgiven in whole or in part, and (iv) such other additional benefits as the
Committee deems appropriate shall apply. For purposes of this Plan, a "Change in
Control" shall mean an event described in the applicable document evidencing the
Award or such other event as determined in the sole discretion of the Board of
Directors of the Company. The Committee, in its discretion, may determine that,
upon the occurrence of a Change in Control of the Company, each Option and share
appreciation right outstanding hereunder shall terminate within a specified
number of days after notice to the Participant or Holder, and such Participant
or Holder shall receive, with respect to each Share subject to such Option or
share appreciation right, an amount equal to the excess of the Fair Market Value
of such Shares immediately prior to the occurrence of such Change in Control
over the exercise price per share of such Option or share appreciation right;
such amount to be payable in cash, in one or more kinds of property (including
the property, if any, payable in the transaction) or in a combination thereof,
as the Committee, in its discretion, shall determine.

        10.11.  OTHER PROVISIONS. (a) The Committee may require each Participant
purchasing Shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that such Participant is acquiring the Shares
without a view to distribution thereof. The certificates for such Shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.

                (b)     All certificates for Shares delivered under the Plan
pursuant to any Award shall be subject to such share-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other restrictions of the Securities and Exchange Commission, any stock
exchange upon which the Shares are then listed, and any applicable Federal or
state securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.

                (c)     Awards granted under the Plan may, in the discretion of
the Committee, be granted either alone or in addition to, in tandem with, or in
substitution for, any other Awards granted under the Plan. If Awards are granted
in substitution for other Awards, the Committee shall require the surrender of
such other Awards in consideration for the grant of the new Awards. Awards
granted in


                                       13

<PAGE>


addition to or in tandem with other Awards may be granted either at the same
time as or at a different time from the grant of such other Awards.

                (d)     Nothing contained in this Plan shall prevent the Board
of Directors from adopting other or additional compensation arrangements,
subject to shareholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.

                (e)     A Participant shall have no right as a shareholder until
he or she becomes the holder of record.

                (f)     The Company will provide to its shareholders, at least
annually, reports containing financial statements and management's discussion
and analysis of financial conditions and results of operations.

                                   ARTICLE 11.

                                  MISCELLANEOUS

        11.1.   TAX WITHHOLDING. The Company shall notify an Optionee or
Participant (or a Permitted Assignee thereof) of any income tax withholding
requirements arising as a result of the grant of any Award, exercise of an
Option or share appreciation rights or any other event occurring pursuant to
this Plan. The Company shall have the right to withhold from such Optionee or
Participant (or a Permitted Assignee thereof) such withholding taxes as may be
required by law, or to otherwise require the Optionee or Participant (or a
Permitted Assignee thereof) to pay such withholding taxes. If the Optionee or
Participant (or a Permitted Assignee thereof) shall fail to make such tax
payments as are required, the Company or its subsidiaries or affiliates shall,
to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to such Optionee or Participant or to take
such other action as may be necessary to satisfy such withholding obligations.
In satisfaction of the requirement to pay withholding taxes, the Optionee (or
Permitted Assignee) make a written election, which may be accepted or rejected
in the discretion of the Committee, to have withheld a portion of the Shares
then issuable to the Optionee (or Permitted Assignee) pursuant to the Option
having an aggregate Fair Market Value equal to the withholding taxes.

        11.2.   RIGHT OF DISCHARGE RESERVED. Nothing in the Plan nor the grant
of an Award hereunder shall confer upon any employee, Director or other
individual the right to continue in the employment or service of the Company or
any subsidiary or affiliate of the Company or affect any right that the Company
or any subsidiary or affiliate of the Company may have to terminate the
employment or service of (or to demote or to exclude from future Options under
the Plan) any such employee, Director or other individual at any time for any
reason. Except as specifically provided by the Committee, the Company shall not
be liable for the loss of existing or potential profit from an Award granted in
the event of termination of an employment or other relationship even if the
termination is in violation of an obligation of the Company or any subsidiary or
affiliate of the Company to the employee or Director.

        11.3.   NATURE OF PAYMENTS. All Awards made pursuant to the Plan are in
consideration of services performed or to be performed for the Company or any
subsidiary or affiliate of the Company. Any income or gain realized pursuant to
Awards under the Plan and any share appreciation rights constitutes a special
incentive payment to the Optionee, Participant or Holder and shall not be taken
into account, to the extent permissible under applicable law, as compensation
for purposes of any of the employee benefit plans of the Company or any
subsidiary or affiliate of the Company except as may be


                                       14

<PAGE>


determined by the Committee or by the Directors or directors of the applicable
subsidiary or affiliate of the Company.

        11.4.   STATUS OF THE PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant or Optionee by the Company, nothing
contained herein shall give any such Participant or Optionee any rights that are
greater than those of a general creditor of the Company. In its sole discretion,
the Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver the Shares or payments in lieu
of or with respect to Awards hereunder; provided, however, that the existence of
such trusts or other arrangements is consistent with the unfunded status of the
Plan.

        11.5.   SEVERABILITY. If any provision of the Plan shall be held
unlawful or otherwise invalid or unenforceable in whole or in part, such
unlawfulness, invalidity or unenforceability shall not affect any other
provision of the Plan or part thereof, each of which remain in full force and
effect. If the making of any payment or the provision of any other benefit
required under the Plan shall be held unlawful or otherwise invalid or
unenforceable, such unlawfulness, invalidity or unenforceability shall not
prevent any other payment or benefit from being made or provided under the Plan,
and if the making of any payment in full or the provision of any other benefit
required under the Plan in full would be unlawful or otherwise invalid or
unenforceable, then such unlawfulness, invalidity or unenforceability shall not
prevent such payment or benefit from being made or provided in part, to the
extent that it would not be unlawful, invalid or unenforceable, and the maximum
payment or benefit that would not be unlawful, invalid or unenforceable shall be
made or provided under the Plan.

        11.6.   GENDER AND NUMBER. In order to shorten and to improve the
understandability of the Plan document by eliminating the repeated usage of such
phrases as "his or her" and any masculine terminology herein shall also include
the feminine, and the definition of any term herein in the singular shall also
include the plural except when otherwise indicated by the context.

        11.7.   GOVERNING LAW. The Plan and all determinations made and actions
taken thereunder, to the extent not otherwise governed by the Code or the laws
of the United States, shall be governed by the laws of the State of Delaware and
construed accordingly.

        11.8.   EFFECTIVE DATE OF PLAN; TERMINATION OF PLAN. The Plan shall be
effective on the date of the approval of the Plan by the Board of Directors.
Notwithstanding the foregoing, no Option intended to qualify as an incentive
share option shall be granted hereunder until the Plan shall be approved by the
holders of a majority of the shares entitled to vote thereon, provided such
approval is obtained within 12 months after the date of adoption of the Plan by
the Board of Directors. Awards may be granted under the Plan at any time and
from time to time prior to May 31, 2009, on which date the Plan will expire
except as to Awards and related share appreciation rights then outstanding under
the Plan. Such outstanding Awards and share appreciation rights shall remain in
effect until they have been exercised or terminated, or have expired.

        11.9.   CAPTIONS. The captions in this Plan are for convenience of
reference only, and are not intended to narrow, limit or affect the substance or
interpretation of the provisions contained herein.


                                       15




<PAGE>

                                                                   EXHIBIT 10.27


                                                                   April 7, 2000
Mr. Michael Pole
290 Ridgeway Road
Woodside, California  94062

Dear Mr. Pole:

This letter confirms the terms of your employment by Activision, Inc.
("Employer").

1.   TERM

     (a)  The initial term of your employment under this agreement shall
commence on May 15, 2000 and shall expire on April 30, 2003 (the "initial
period").

     (b)  Employer shall have the irrevocable option to extend the term of this
agreement beyond the initial period for an additional successive one year
period.

     (c)  The option granted to Employer in Paragraph 1(b) of this agreement
will be exercised by Employer by written notice given to you at least sixty (60)
days prior to the expiration of the initial period.

2.   SALARY

     (a)  In full consideration for all rights and services provided by you
under this agreement, you shall be paid a base salary at the annual rate of
$300,000 during the portion of the initial period commencing on May 15, 2000 and
ending on April 30, 2001, an annual base salary of $320,000 during the portion
of the initial period commencing on May 1, 2001 and ending on April 30, 2002,
and an annual base salary of $340,000 during the portion of the initial period
commencing on May 1, 2002 and ending on April 30, 2003. If Employer exercises
its option
 pursuant to Paragraph 1(b), you shall be paid an annual base salary
of $360,000 during such option period.

     (b)  Base salary payments shall be made in accordance with Employer's then
prevailing payroll policy. Each base salary referred to in Paragraph 2(a) shall
constitute your minimum base salary during the applicable period, and your base
salary may be increased above the minimum at any time if Employer's Board of
Directors (or the Compensation Committee of such Board of Directors), in its
sole and absolute discretion, elects to do so. In the event of an increase in
your base salary beyond the applicable minimum base salary for a particular
period, such increased base salary shall then constitute your minimum base
salary for all subsequent periods under this agreement, but only to the extent
such increased base salary is in excess of the minimum base salary referred to
in Paragraph 2(a) for the corresponding period.

     (c)  Notwithstanding anything to the contrary set forth above, but subject
to the right of termination granted to you pursuant to Paragraph 12(b), Employer
shall not be required to actually use your services, and payment of your base
salary during the applicable period of your employment under this agreement will
discharge Employer's obligations to you hereunder. Such payment, however, will
not discharge your obligations to Employer hereunder.

     (d)  In addition to your base salary, you shall be eligible to receive a
performance based bonus targeted at 60% of your annual base salary for each
fiscal year of


                                     Page 1                       June 21, 2000



<PAGE>


Employer during which you are employed under this agreement (pro-rated for the
amount of time that you actually perform services for Employer during a
particular fiscal year). All bonus payments will be in compliance with
Employer's Management Bonus Plan for the applicable fiscal year, each of which
is determined by Employer's senior management and Board of Directors (or the
Compensation Committee of such Board of Directors) and is based on a number of
factors that may include, without limitation, the achievement of specific
corporate and divisional sales, operating margins and profitability levels.

     (e)  You also are being granted, under Employer's 1999 Incentive Plan,
options to purchase 325,000 shares of Employer's common stock. The options will
be issued on April 7, 2000 and will have an exercise price of $8.00 per share
(i.e., the market price of Employer's common stock on the date the options are
issued). 50,000 of such options will vest on May 15, 2000; 100,000 of such
options will vest on May 1, 2001; 100,000 of such options will vest on May 1,
2002; and 75,000 of such options will vest on May 1, 2003. The foregoing options
will be governed in all other respects by Employer's 1999 Incentive Plan. You
also shall be eligible to receive additional options, under Employer's existing
or modified stock option plan, if Employer's Board of Directors (or the
Compensation Committee of such Board of Directors), in its sole and absolute
discretion, determines that the grant to you of additional options is
appropriate.

3.   TITLE

     You are being employed under this agreement in the position of Executive
Vice President, Worldwide Studios.

4.   DUTIES

     You shall personally and diligently perform, on a full-time and exclusive
basis, such services as Employer may reasonably require, provided that such
services are consistent with your position with Employer. You shall observe all
reasonable rules and regulations adopted by Employer in connection with the
operation of its business and carry out all instructions of Employer. You will
at all times perform all of the duties and obligations required by you under
this agreement in a loyal and conscientious manner and to the best of your
ability and experience.

5.   EXPENSES

     To the extent you incur necessary and reasonable business expenses in the
course of your employment, you shall be reimbursed for such expenses, subject to
Employer's then current policies regarding reimbursement of such business
expenses.

6.   OTHER BENEFITS

     You shall be entitled to those benefits which are standard for persons in
similar positions with Employer, including coverage under Employer's health,
life insurance and disability plans, and eligibility to participate in
Employer's 401(k) plan. Nothing paid to you under any such plans and
arrangements (nor any bonus or stock options which Employer's Board of Directors
(or the Compensation Committee of such Board of Directors), in its sole and
absolute discretion, shall provide to you) shall be deemed in lieu, or paid on
account, of your base salary. You expressly agree and acknowledge


                                     Page 2                       June 21, 2000



<PAGE>


that after expiration or early termination of the term of your employment under
this agreement, you are entitled to no additional benefits not expressly set
forth in this agreement, except as specifically provided under the benefit plans
referred to above and those benefit plans in which you subsequently may become a
participant, subject in each case to the terms and conditions of each such plan.
Notwithstanding anything to the contrary set forth above, you shall be eligible
to receive those benefits provided by COBRA upon the expiration or early
termination of the term of your employment under this Agreement.

7.   VACATION AND PAID HOLIDAYS

     (a)  You will be entitled to paid vacation days in accordance with the
normal vacation policies of Employer in effect from time to time, provided that
in no event shall you be entitled to less than fifteen (15) days of paid
vacation per year.

     (b)  You shall be entitled to all paid holidays given by Employer to its
full-time employees.

8.   LOANS

     (a)  As an additional incentive to the commencement of your employment with
Employer, Employer will provide you with a loan in the principal amount of
$100,000 by no later than April 30, 2000. Such loan will bear interest at the
rate of 6-3/4% per annum and will be due and payable in full on April 30, 2002.
However, the principal amount and accrued interest on such loan will be forgiven
on a pro rata basis over the first twenty four (24) months of your employment,
provided that you remain employed by Employer on the applicable date of
forgiveness. In the event and to the extent the loan is forgiven, then within
thirty (30) days after the end of each calendar year you shall be paid an
additional "gross up" amount to cover the income taxes payable by you as a
result of any forgiveness of indebtedness income that you earn during such
calendar year in connection with the foregoing. In order to receive the
foregoing loan, you shall be required to execute a promissory note substantially
in the form of Exhibit A attached to this agreement.

     (b)  Employer also will provide you with an additional loan of $100,000 by
no later than April 30, 2000. Such loan also will bear interest at the rate of
6-3/4% per annum and will be due and payable in full on April 30, 2002. However,
the principal amount and accrued interest on such loan will be forgiven in full
on April 30, 2002 if the closing stock price of Employer's common stock as
reported on NASDAQ is not at least $16.00 per share (adjusted to reflect stock
splits, stock dividends, combinations of shares and similar transactions
occurring after April 7, 2000) for five (5) consecutive trading days from the
date the loan is made through April 30, 2002. In order to receive the foregoing
loan, you shall be required to execute a promissory note substantially in the
form of Exhibit B attached to this agreement.

9.   REIMBURSEMENT OF MOVING AND TEMPORARY LIVING EXPENSES

     Employer shall reimburse you for the following expenses actually incurred
by you in connection with the moving of your personal and household goods to the
Los Angeles area: the reasonable expenses actually incurred by you for temporary
living accommodations pending your search for a permanent residence in the Los
Angeles area, subject to a maximum reimbursement for up to two month's temporary
living


                                     Page 3                       June 21, 2000



<PAGE>


accommodations; customary home purchase expenses, subject to a maximum
reimbursement of $50,000; expenses relating to the transport of household goods;
and rental car expenses; provided, however, in each case such expenses must be
pre-approved in writing by Employer and you must provide Employer with
documentation which adequately evidences such expenses.

10.  PROTECTION OF EMPLOYER'S INTERESTS

     (a)  During the term of your employment by Employer, you will not compete
in any manner, whether directly or indirectly, as a principal, employee, agent
or owner, with Employer, or any affiliate of Employer, except that the foregoing
will not prevent you from holding at any time less than five percent (5%) of the
outstanding capital stock of any company whose stock is publicly traded.

     (b)  All rights worldwide with respect to any and all intellectual or other
property of any nature produced, created or suggested by you during the term of
your employment or resulting from your services which (i) relate in any manner
at the time of conception or reduction to practice to the actual or demonstrably
anticipated business of Employer, (ii) result from or are suggested by any task
assigned to you or any work performed by you on behalf of Employer, or (iii) are
based on any property owned or idea conceived by Employer, shall be deemed to be
a work made for hire and shall be the sole and exclusive property of Employer.
You agree to execute, acknowledge and deliver to Employer, at Employer's
request, such further documents, including copyright and patent assignments, as
Employer finds appropriate to evidence Employer's rights in such property.

     (c)  Any confidential and/or proprietary information of Employer or any
affiliate of Employer shall not be used by you or disclosed or made available by
you to any person except as required in the course of your employment, and upon
expiration or earlier termination of the term of your employment, you shall
return to Employer all such information which exists in written or other
physical form (and all copies thereof) under your control. Without limiting the
generality of the foregoing, you acknowledge signing and delivering to Employer
the Activision Employee Proprietary Information Agreement attached to this
agreement as Exhibit C, and you agree that all terms and conditions contained in
such agreement, and all of your obligations and commitments provided for in such
agreement, shall be deemed, and hereby are, incorporated into this agreement as
if set forth in full herein. The provisions of the immediately preceding four
sentences of this paragraph shall survive the expiration or earlier termination
of this agreement.

11.  SERVICES UNIQUE

     You recognize that the services being performed by you under this agreement
are of a special, unique, unusual, extraordinary and intellectual character
giving them a peculiar value, the loss of which cannot be reasonably or
adequately compensated for in damages, and in the event of a breach of this
agreement by you (particularly, but without limitation, with respect to the
provisions hereof relating to the exclusivity of your services and the
provisions of paragraph 10 of this agreement), Employer shall, in addition to
all other remedies available to it, be entitled to equitable relief by way of
injunction and any other legal or equitable remedies.


                                     Page 4                       June 21, 2000



<PAGE>


12.  TERMINATION

     (a)  At any time during the term of your employment, Employer may terminate
your employment under this agreement for (i) your willful, reckless or gross
misconduct, (ii) your material breach of any term or provision of this
agreement, or (iii) for other good cause, as such term is defined under
California law.

     (b)  You may terminate your employment under this agreement (i) upon
Employer's material breach of any term or provision of this agreement, or (ii)
if Employer elects to not actually use your services and continues to pay your
base salary pursuant to Paragraph 2(c) above for a period of one hundred twenty
(120) consecutive days.

     (c)  In the event of the termination of your employment under this
agreement pursuant to paragraphs 12(a) or (b), all obligations of Employer to
you under this agreement shall immediately terminate.

     (e)  In the event of your death during the term of this agreement, this
agreement shall terminate and Employer only shall be obligated to pay your
estate or legal representative the salary provided for above to the extent
earned by you prior to such event. In the event you are unable to perform the
services required of you under this agreement as a result of any disability, and
such disability continues for a period of 60 or more consecutive days or an
aggregate of 90 or more days during any 12-month period during the term of this
agreement, then Employer shall have the right, at its option, to terminate your
employment under this agreement. Unless and until so terminated, during any
period of disability during which you are unable to perform the services
required of you under this agreement, your base salary shall be payable to the
extent of, and subject to, Employer's policies and practices then in effect with
regard to sick leave and disability benefits.

13.  USE OF EMPLOYEE'S NAME

     Employer shall have the right, but not the obligation, to use your name or
likeness for any publicity or advertising purpose.

14.  ASSIGNMENT

     Employer may assign this agreement or all or any part of its rights under
this agreement to any entity which succeeds to all or substantially all of
Employer's assets (whether by merger, acquisition, consolidation, reorganization
or otherwise) or which Employer may own substantially, and this agreement shall
inure to the benefit of such assignee.

15.  NO CONFLICT WITH PRIOR AGREEMENTS

     You represent to Employer that neither your commencement of employment
under this agreement nor the performance of your duties under this agreement
conflicts or will conflict with any contractual commitment on your part to any
third party, nor does it or will it violate or interfere with any rights of any
third party.


                                     Page 5                       June 21, 2000



<PAGE>


16.  POST-TERMINATION OBLIGATIONS

     After the expiration or earlier termination of your employment under this
agreement for any reason whatsoever, you shall not, either alone or jointly,
with or on behalf of others, directly or indirectly, whether as principal,
partner, agent, shareholder, director, employee, consultant or otherwise, at any
time during a period of one (1) year following such expiration or termination,
offer employment to, or solicit the employment or engagement of, or otherwise
entice away from the employment of Employer or any affiliated entity, either for
your own account or for any other person firm or company, any person who was
employed by Employer or any such affiliated entity on the last day of your
employment under this agreement, whether or not such person would commit any
breach of his or her contract of employment by reason of his or her leaving the
service of Employer or any affiliated entity.

17.  ENTIRE AGREEMENT; AMENDMENTS; WAIVER, ETC.

     (a)  This agreement supersedes all prior or contemporaneous agreements and
statements, whether written or oral, concerning the terms of your employment
with Employer, and no amendment or modification of this agreement shall be
binding against Employer unless set forth in a writing signed by Employer and
delivered to you.

     (b)  You have given no indication, representation or commitment of any
nature to any broker, finder, agent or other third party to the effect that any
fees or commissions of any nature are, or under any circumstances might be,
payable by Employer or any affiliate of Employer in connection with your
employment under this agreement.

     (c)  No waiver by either party of any breach by the other party of any
provision or condition of this agreement shall be deemed a waiver of any similar
or dissimilar provision or condition at the same or any prior or subsequent
time.

     (d)  Nothing contained in this agreement shall be construed so as to
require the commission of any act contrary to law and wherever there is any
conflict between any provision of this agreement and any present or future
statute, law, ordinance or regulation, the latter shall prevail, but in such
event the provision of this agreement affected shall be curtailed and limited
only to the extent necessary to bring it within legal requirements.

     (e)  This agreement does not constitute a commitment of Employer with
regard to your employment, express or implied, other than to the extent
expressly provided for herein. Upon termination of this agreement, it is the
contemplation of both parties that your employment with Employer shall cease,
and that neither Employer nor you shall have any obligation to the other with
respect to continued employment. In the event that your employment continues for
a period of time following the stated expiration date of this contract, unless
and until agreed to in a new subscribed written document, such employment or any
continuation thereof is "at will," and may be terminated without obligation at
any time by either party giving notice to the other.

     (f)  You hereby acknowledge that you have had an opportunity to seek legal
counsel of your own choice regarding the effect and import of entering into this
Agreement.


                                     Page 6                       June 21, 2000



<PAGE>


     (g)  This agreement shall be governed by and construed in accordance with
the laws of the State of California without regard to conflict of law
principles.

     (h)  In accordance with the Immigration Reform and Control Act of 1986,
employment under this agreement is conditioned upon satisfactory proof of your
identity and legal ability to work in the United States.

     (i)  To the extent permitted by law, you will keep the terms of this
agreement confidential, and you will not disclose any information concerning
this agreement to anyone other than your immediate family and professional
representatives (provided they also agree to keep the terms of this agreement
confidential).

18.  NOTICES

     All notices which either party is required or may desire to give the other
shall be in writing and given either personally or by depositing the same in the
United States mail addressed to the party to be given notice as follows:

          To Employer:                  3100 Ocean Park Boulevard
                                        Santa Monica, California  90405
                                        Attention: Executive Vice President
                                        and General Counsel

          To Employee:                  290 Ridgeway Road
                                        Woodside, California  94062

     Either party may by written notice designate a different address for giving
of notices. The date of mailing of any such notices shall be deemed to be the
date on which such notice is given.

19.  HEADINGS

     The headings set forth herein are included solely for the purpose of
identification and shall not be used for the purpose of construing the meaning
of the provisions of this agreement.

     If the foregoing accurately reflects our mutual agreement, please sign
where indicated.

ACCEPTED AND AGREED TO:


EMPLOYER                                    EMPLOYEE


By: /s/ Lawrence Goldberg                   By: /s/ Michael Pole
   ----------------------------                ----------------------------
   Lawrence Goldberg                           Michael Pole
   Executive Vice President
   and General Counsel


Date:       4/14/00                         Date:         4/14/00
     --------------------------                  --------------------------


                                     Page 7                       June 21, 2000



<PAGE>


                                    EXHIBIT A
                                 PROMISSORY NOTE


$100,000.00                                           April __, 2000
                                                      Santa Monica, California


     FOR VALUE RECEIVED, and subject to the provisions of Paragraph 1 below, the
undersigned, Michael Pole ("Maker"), promises to pay to Activision, Inc.
("Holder"), or its order, the sum of One Hundred Thousand Dollars ($100,000.00),
together with simple interest on the unpaid principal amount from the date
hereof at the rate of Six and Three Quarters Percent (6-3/4%) per annum, payable
monthly. The entire principal indebtedness under this Promissory Note and all
accrued but unpaid interest, or so much thereof as may remain unpaid at the
time, shall become due and payable on April 30, 2002, and payment of said
principal indebtedness, or the balance thereof, and all interest thereon,
together with all other sums due under the terms hereof, may be enforced and
recovered at once, time being of the essence.

     1. FORGIVENESS OF INDEBTEDNESS. The amount of principal due hereunder
automatically will be reduced by Four Thousand One Hundred Sixty-Six and 67/100
Dollars ($4,166.67) per month on the last day of each month, commencing on May
31, 2000, provided that the undersigned continues to be employed by the Holder
on the applicable reduction date. All interest which is accrued but unpaid as of
a particular principal reduction date also shall be forgiven to the extent a
portion of the principal is forgiven on such date.

     2. PREPAYMENT. Maker may prepay all or any portion of the principal amount
of this Promissory Note and the interest due thereon at any time or times during
the term of this Promissory Note without any other premium or penalty.

     3. PAYMENT CREDITS. Each payment shall, when made, be credited first to
interest then due, then to other expenses payable to Holder, including any
collection costs, and the remainder to principal, and interest shall thereupon
cease upon the principal so credited. All payments hereunder shall be made in
lawful money of the United States of America at the principal executive offices
of Holder located at 3100 Ocean Park Boulevard, Santa Monica, California 90405.

     4. ATTORNEYS' FEES. Maker promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred in the collection and enforcement of this
Promissory Note.

     5. MAXIMUM INTEREST. The provisions of this Promissory Note shall not have
the effect of, or be construed as, requiring or committing Maker to pay interest
in excess of the highest rate per annum allowed by the laws for such
jurisdiction whose laws shall govern this Promissory Note. If, under any
circumstance, Holder shall ever receive as interest an amount which would exceed
the highest applicable lawful rate as determined by a court of competent
jurisdiction, then such amount which would be excessive interest shall, ipso
facto, be applied to the reduction of the unpaid principal balance due hereunder
and not to the payment of interest. This provision shall control and supersede
every other provision of this Promissory Note.

     6. EXERCISE OF RIGHTS. No single or partial exercise of any power granted
to Holder under this Promissory Note shall preclude other or further exercise
thereof or the exercise of any other power. No delay or omission on the part of
Holder in exercising


                                     Page 8                       June 21, 2000



<PAGE>


any right under this Promissory Note shall operate as a waiver of such right or
of any other right.

     7. WAIVER OF NOTICE. The makers, endorsers, guarantors and sureties of this
Promissory Note, and each of them, hereby waive diligence, demand, presentment
for payment, notice of nonpayment, protest and notice of protest, and
specifically consent to and waive notice of any renewals or extensions of this
Promissory Note, whether made to or in favor of the makers or any other person
or persons. The pleading of any statute of limitations as a defense to any
demand against the makers, endorsers, guarantors or sureties is expressly waived
by each and all of said parties.

     8. SUCCESSORS AND ASSIGNS. The terms of this Promissory Note apply to,
inure to the benefit of, and bind all parties hereto, their heirs, legatees,
devisees, administrators, executors, successors and assigns.

     9. SEVERABILITY. If any portion of this Promissory Note shall be held
invalid or unenforceable, then the remainder of this Promissory Note shall be
considered valid and enforceable according to its terms.

     10. MISCELLANEOUS. This Promissory Note shall be governed and interpreted
in accordance with the laws of the State of California. If suit is instituted by
Maker against Holder or by Holder against Maker for any cause or matter arising
from or in connection with the respective rights or obligations of Maker or the
holder of this Promissory Note hereunder, the sole jurisdiction and venue for
such action shall be the Superior Court of the State of California in and for
the County of Los Angeles. Captions are for convenience only and shall not be
used in construing meaning. This Promissory Note may only be changed, modified,
or amended in writing by the mutual consent of Maker and the Holder. The
provisions of this Promissory Note may only be waived in or by a writing signed
by the party against whom enforcement of any waiver is sought.

     IN WITNESS WHEREOF, Maker has executed this Promissory Note as of the date
first written above.


                                            ------------------------------
                                            Michael Pole


                                     Page 9                       June 21, 2000



<PAGE>


                                    EXHIBIT B

                                 PROMISSORY NOTE


$100,000.00                                           April __, 2000
                                                      Santa Monica, California


     FOR VALUE RECEIVED, and subject to the provisions of Paragraph 1 below, the
undersigned, Michael Pole ("Maker"), promises to pay to Activision, Inc.
("Holder"), or its order, the sum of One Hundred Thousand Dollars ($100,000.00),
together with simple interest on the unpaid principal amount from the date
hereof at the rate of Six and Three Quarters Percent (6-3/4%) per annum. The
entire principal indebtedness under this Promissory Note and all accrued but
unpaid interest, or so much thereof as may remain unpaid at the time, shall
become due and payable on April 30, 2002, and payment of said principal
indebtedness, or the balance thereof, and all interest thereon, together with
all other sums due under the terms hereof, may be enforced and recovered at
once, time being of the essence.

     1. FORGIVENESS OF INDEBTEDNESS. In the event the closing stock price of
Holder's common stock as reported on NASDAQ is not at least $16.00 per share
(adjusted to reflect stock splits, stock dividends, combinations of shares and
similar transactions occurring after the date hereof) for five (5) consecutive
trading days from the date of this Promissory Note through April 30, 2000, then
on April 30, 2002 the entire principal amount of this Promissory Note and all
interest due thereon will be forgiven, and Maker will have no obligation to make
any payment to Holder hereunder.

     2. PREPAYMENT. Maker may prepay all or any portion of the principal amount
of this Promissory Note and the interest due thereon at any time or times during
the term of this Promissory Note without any other premium or penalty.

     3. PAYMENT CREDITS. Each payment shall, when made, be credited first to
interest then due, then to other expenses payable to Holder, including any
collection costs, and the remainder to principal, and interest shall thereupon
cease upon the principal so credited. All payments hereunder shall be made in
lawful money of the United States of America at the principal executive offices
of Holder located at 3100 Ocean Park Boulevard, Santa Monica, California 90405.

     4. ATTORNEYS' FEES. Maker promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred in the collection and enforcement of this
Promissory Note.

     5. MAXIMUM INTEREST. The provisions of this Promissory Note shall not have
the effect of, or be construed as, requiring or committing Maker to pay interest
in excess of the highest rate per annum allowed by the laws for such
jurisdiction whose laws shall govern this Promissory Note. If, under any
circumstance, Holder shall ever receive as interest an amount which would exceed
the highest applicable lawful rate as determined by a court of competent
jurisdiction, then such amount which would be excessive interest shall, ipso


                                    Page 10                       June 21, 2000



<PAGE>


facto, be applied to the reduction of the unpaid principal balance due hereunder
and not to the payment of interest. This provision shall control and supersede
every other provision of this Promissory Note.

     6.   EXERCISE OF RIGHTS. No single or partial exercise of any power granted
to Holder under this Promissory Note shall preclude other or further exercise
thereof or the exercise of any other power. No delay or omission on the part of
Holder in exercising any right under this Promissory Note shall operate as a
waiver of such right or of any other right.

     7.   WAIVER OF NOTICE. The makers, endorsers, guarantors and sureties of
this Promissory Note, and each of them, hereby waive diligence, demand,
presentment for payment, notice of nonpayment, protest and notice of protest,
and specifically consent to and waive notice of any renewals or extensions of
this Promissory Note, whether made to or in favor of the makers or any other
person or persons. The pleading of any statute of limitations as a defense to
any demand against the makers, endorsers, guarantors or sureties is expressly
waived by each and all of said parties.

     8.   SUCCESSORS AND ASSIGNS. The terms of this Promissory Note apply to,
inure to the benefit of, and bind all parties hereto, their heirs, legatees,
devisees, administrators, executors, successors and assigns.

     9.   SEVERABILITY. If any portion of this Promissory Note shall be held
invalid or unenforceable, then the remainder of this Promissory Note shall be
considered valid and enforceable according to its terms.

     10.  MISCELLANEOUS. This Promissory Note shall be governed and interpreted
in accordance with the laws of the State of California. If suit is instituted by
Maker against Holder or by Holder against Maker for any cause or matter arising
from or in connection with the respective rights or obligations of Maker or the
holder of this Promissory Note hereunder, the sole jurisdiction and venue for
such action shall be the Superior Court of the State of California in and for
the County of Los Angeles. Captions are for convenience only and shall not be
used in construing meaning. This Promissory Note may only be changed, modified,
or amended in writing by the mutual consent of Maker and the Holder. The
provisions of this Promissory Note may only be waived in or by a writing signed
by the party against whom enforcement of any waiver is sought.

     IN WITNESS WHEREOF, Maker has executed this Promissory Note as of the date
first written above.


                                            ------------------------------
                                            MICHAEL POLE


                                    Page 11                       June 21, 2000



<PAGE>


                                    EXHIBIT C

                                ACTIVISION, INC.
                   EMPLOYEE PROPRIETARY INFORMATION AGREEMENT


In consideration of and as a condition of my employment by ACTIVISION, INC.
and/or by companies which it owns, controls, or is affiliated with, and their
successors in business (the "Company"), and the compensation now and hereafter
paid to me for such employment, I hereby agree as follows:

1.   CONFIDENTIALITY. I agree to hold in strictest confidence and not to
disclose, make any use of, except for the benefit of the Company, lecture upon
or publish, at any time either during the term of or subsequent to my
employment, any of the Company's Proprietary Information (as defined below)
which I may produce, obtain or otherwise acquire during the course of my
employment, except as the Company may otherwise consent to in writing in its
sole and absolute discretion. I further agree not to deliver, reproduce or in
any way allow such Proprietary Information, or any documentation relating to
such information, to be delivered or used by any third parties without the
specific written direction or consent of a duly authorized representative of the
Company.

The term "Proprietary Information" shall mean any and all trade secrets,
confidential knowledge, data or any other proprietary information pertaining to
any business of the Company or any of its clients, customers or consultants,
licensees or affiliates. By way of illustration but not limitation, "Proprietary
Information" includes (a) inventions, ideas, improvements, discoveries, trade
secrets, processes, data, programs, knowledge, know-how, designs, techniques,
formulas, test data, computer code, other works of authorship and designs
whether or not patentable, copyrightable, or otherwise protected by law, and
whether or not conceived of or prepared by me, either alone or jointly with
others (hereinafter collectively referred to as "Inventions"); (b) information
regarding research, development, new products and services, marketing plans and
strategies, merchandising and selling, business plans, strategies, forecasts,
projections, profits, investments, operations, financings, records, budgets and
unpublished financial statements, licenses, prices and costs, suppliers and
customers; and (c) identity, requirements, preferences, practices and methods of
doing business of specific parties with whom the Company transacts business, and
information regarding the skills and compensation of other employees of the
Company and independent contractors performing services for the Company.

Notwithstanding the foregoing, the term "Proprietary Information" does not
include any information which (i) is or becomes publicly available or part of
the public domain through no fault of my own; (ii) is specifically authorized in
writing by the Company to become publicly known; (iii) is rightfully received
from a third party on a non-confidential basis, provided that the third party is
not known to me to be bound by a confidentiality obligation to the Company, or
(iv) was already properly known to me without restriction from the Company at
the time of my receipt.


                                    Page 12                       June 21, 2000



<PAGE>


2.   THIRD PARTY INFORMATION. I understand that the Company, from time to time,
may enter into agreements with other parties which impose obligations or
restrictions on the Company regarding Inventions made during the course of the
work under such agreements or regarding the confidential nature of such works,
or otherwise receive from third parties confidential or proprietary information
("Third Party Information") subject to a duty on the Company's part to maintain
the confidentiality of such information and to use it only for certain limited
purposes. During the term of my employment and thereafter, I agree to be bound
by all such obligations and restrictions, will hold Third Party Information in
the strictest confidence, will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with my work for the Company, Third
Party Information unless expressly authorized by the Company in writing, and
will otherwise take all action necessary to discharge the obligations to the
Company arising in connection with such Third Party Information.

3.   WORK FOR HIRE STATEMENT. I hereby acknowledge and agree that all original
works of authorship (the "Works of Authorship") which are produced, developed or
authored by me (whether alone or jointly with others), or otherwise resulting
from my work within the scope of my employment with the Company and which are
protectible by copyright are "works made for hire," as that term is defined in
the United States Copyright Act (17 U.S.C., Section 101). In the event that any
rights to the Works of Authorship are deemed not to be works made for hire, or
in the event that I should, by operation of law, be deemed to retain any rights
in such Works of Authorship, I hereby irrevocably assign, without any further
consideration and regardless of any use by the Company of any such Work of
Authorship, all of my rights, title and interest, if any, in and to such Works
of Authorship to the Company. I agree that the Company, as the owner of all
rights to the Works of Authorship, has the full and complete right to prepare
and create derivative works based upon the Works of Authorship and any
derivative works of such Works of Authorship and to use, reproduce, publish,
print, copy, market, advertise, distribute, transfer, sell, publicly perform and
publicly display, and otherwise exploit by all means now known or later
developed, such Works of Authorship and derivative works anywhere throughout the
world.

4.   MORAL RIGHTS. I hereby irrevocably and unconditionally transfer and assign
to the Company, without any further consideration, any and all Moral Rights (as
defined below) I may have in or with respect to any and all Works of Authorship.
To the extent that I cannot assign such rights, I hereby waive and agree never
to assign such rights against the Company, the Company's successors-in-interest,
or any of their licensees. "Moral Rights" shall mean any right to (i) divulge
such Inventions to the public; (ii) retract such Invention from the public;
(iii) claim authorship of such Invention; (iv) object to any distortion,
mutilation, or other modification of such Invention; and (v) any and all similar
rights, existing under judicial or statutory law of any country or jurisdiction
in the world, or under any treaty regardless of whether or not such right is
called or generally referred to as a "moral right."


                                    Page 13                       June 21, 2000



<PAGE>


5.   ASSIGNMENT OF INVENTIONS.

     (a)  In addition to the foregoing, I hereby assign and transfer to the
Company my entire right, title and interest in and to all Inventions, whether or
not patentable, and whether or not reduced to practice, made, learned or
conceived by me (whether alone or jointly with others) during the period of my
employment with the Company which relate in any manner at the time of conception
or reduction to practice to the actual or demonstrably anticipated research or
product development by the Company or to its business, or result from or are
suggested by any task assigned to me or any work performed by me for or on
behalf of the Company. I agree that all such Inventions shall be the sole and
exclusive property of the Company and its assigns, and the Company and its
assigns shall be the sole owners of all Inventions and any and all patents,
copyrights and other proprietary rights related thereto; provided, however, that
I hereby acknowledge and agree that this Agreement does not require assignments
of an Invention which qualifies fully and expressly for protection under Section
2870 of the California Labor Code.

     (b)  If I have any right or rights to Inventions that cannot be assigned to
the Company or waived by me, I unconditionally grant to the Company during the
term of such rights, an exclusive, irrevocable, perpetual, worldwide, fully paid
and royalty-free license, with rights to sublicense through multiple levels of
sublicenses, to use, reproduce, publish, create derivative works of, market,
advertise, distribute, sell, publicly perform and publicly display and otherwise
exploit by all means now known or later developed, such Inventions.

6.   DISCLOSURE OF INVENTIONS; PATENTS. I agree that in connection with any
Invention:

     (a)  I will disclose such Invention promptly in writing to my immediate
supervisor at the Company, with a copy to the Company's then acting Chief
Operating Officer, regardless of whether I believe the invention is protected by
Section 2870 of the California Labor Code, in order to permit the Company to
claim rights to which it may be entitled under this Agreement. Such disclosure
shall be received in confidence by the Company.

     (b)  I will, at the Company's request, promptly execute a written
assignment of title to the Company for any Invention required to be assigned by
Paragraph 4 ("Assignable Invention") and I will preserve any such Assignable
Invention as confidential information of the Company.

     (c)  Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for such Assignable
Inventions in any and all countries, which Inventions shall be and remain the
sole and exclusive property of the Company or its nominee whether or not
patented or copyrighted. I agree to execute such papers and perform such lawful
acts as the Company deems to be necessary to allow it to exercise all rights and
interest in such patents and copyrights.


                                    Page 14                       June 21, 2000



<PAGE>


7.   EXECUTION OF DOCUMENTS.

     (a)  In connection with this Agreement, I further agree to execute,
acknowledge and deliver to the Company or its nominee upon request and at its
expense all such documents, including application for patents and copyrights and
assignments of inventions, patents and copyrights to be issued therefor, as the
Company may determine necessary or desirable to apply for, and obtain letters,
patents and copyrights on such assignable invention in any and all countries
and/or to protect the interest of the Company or its nominee in such inventions,
patents or copyrights and to vest title thereto in the Company or its nominee.

     (b)  In the event the Company is unable, after reasonable efforts, to
secure my signature on any document or documents needed to apply for or
prosecute any patent, copyright or other right of protection relating to an
Invention, whether because of my physical or mental incapacity or for any other
reason whatsoever, I hereby irrevocably designate and appoint the Company and
its duly authorized officers and agents as my agent and attorney-in-fact, to act
for and in my behalf and stead to execute and file any such application or
applications and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights or similar protections thereon
with the same legal force and effect as if executed by me; it is being expressly
understood and intended by me that the grant of the foregoing irrevocable power
of attorney is coupled with an interest.

8.   MAINTENANCE OF RECORDS. I agree to keep and maintain adequate and current
written records of all inventions made by me (in the form of notes, sketches,
and drawings as may be specified by the Company), which records shall be
available to and remain the sole property of the Company at all times.

9.   PRIOR INVENTIONS. It is understood that all Inventions, if any, patented or
unpatented, which are made by me prior to my employment by the Company, are
excluded from the scope of this Agreement. To preclude any possible uncertainty,
I have set forth on Exhibit I attached to this Agreement a complete list of all
my prior Inventions, including those which are the property of a previous
employer. I represent and covenant that the list is complete and that, if no
items are on the list, I have no such prior Inventions. I agree to notify the
Company in writing before I make any disclosure or perform any work on behalf of
the Company which appears to threaten or conflict with proprietary rights I
claim in any Invention or idea. In the event of my failure to give such notice,
I agree that I will make no claim against the Company with respect to such
Inventions or ideas.

10.  RETURN OF COMPANY PROPERTY. I acknowledge and agree that all files,
accounts, records, materials, documents, drawings, sketches, designs, diagrams,
models, blue-prints, plans, specifications, manuals, books, forms, receipts,
notes, reports, memoranda, studies, data, calculations, recordings, catalogues,
compilations of information, correspondence and all copies, abstracts and
summaries of the foregoing, instruments, tools and equipment and all other
physical items related to the Company or to my employment with the Company,
other than merely personal items, whether of a public nature or not, and whether
prepared by me or not, are and shall remain the sole and


                                    Page 15                       June 21, 2000



<PAGE>


exclusive property of the Company and shall not be removed from the premises of
the Company, except as required in the course of employment by the Company,
without prior written consent of the Company in each instance. In the event of
termination of my employment with the Company for any reason whatsoever, I agree
to promptly surrender and deliver to the Company all of the foregoing property,
and I will not take with me any description containing or pertaining to any
Proprietary Information which I may produce or obtain during the course of my
employment. I agree to sign and deliver the "Termination Certification" attached
to this Agreement as Exhibit II.

11.  TRADE SECRETS OF OTHERS. I represent that my performance of all the terms
of this Agreement and as an employee of the Company does not and will not breach
any agreement to keep in confidence Proprietary Information, knowledge or data
acquired by me in confidence or in trust prior to my employment with the
Company, and during my employment by the Company, I will not improperly use or
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or other
parties. I have not brought and will not bring onto the premises of the Company
or use in the performance of my responsibilities at the Company any unpublished
documents or any property belonging to any previous employer or any other person
to whom I have an obligation of confidentiality unless consented to in writing
by that previous employer or person. I agree not to enter into any agreement
either written or oral in conflict with this Agreement.

12.  CONFLICTING EMPLOYMENT. I agree that during my employment with the Company,
I will not engage in any other employment, occupation, consulting or other
activity relating to the business in which the Company is now or may hereafter
become engaged, or which would otherwise conflict with my obligations to the
Company.

13.  ENFORCEMENT.

     (a)  I understand and agree that in the event of a prospective or actual
breach of this Agreement by me, damages would not be an adequate remedy to
compensate the Company for the losses suffered as a result of such breach.
Accordingly, in addition to all other rights and remedies the Company has at law
or in equity, in the event of a threatened or actual breach of any of the terms
and provisions of this Agreement, the Company shall be entitled to a temporary
restraining order, and to temporary and permanent injunctive relief, to prevent
or terminate such anticipated or actual breach, without the necessity of proving
actual damages or being required to post any bond or other undertaking in
connection with any such action, provided that nothing in this Agreement shall
be construed to limit the damages otherwise recoverable by the Company in any
such event.

     (b)  In addition, the Company shall have the right to inform any person,
company, organization or business entity, and the principals of the foregoing,
and any other third parties that the Company reasonably believes to be receiving
or intending to receive from me any Proprietary Information in violation of the
terms of this Agreement, that participation by such entity or


                                    Page 16                       June 21, 2000



<PAGE>


persons with me in activities in violation of this Agreement may give rise to
claims by Activision against such entity, persons or third parties.

14.  PURPOSE AND INTENT. I acknowledge and agree that this Agreement does not
constitute an agreement of employment and that nothing in this Agreement shall
confer any right upon me with respect to my employment by the Company,
including, without limitation continuation of such employment.

15.  REPRESENTATIONS. I represent and warrant to the Company that:

     (a)  This Agreement does not constitute a violation of any other agreement
to which I am a party and it has been executed and delivered by me after having
an opportunity to consult with my legal and other professional counsel and
advisors.

     (b)  I have full power and authority to enter into, and have obtained all
necessary authorizations and approvals required for the execution and deliver
of, this Agreement.

     (c)  I have taken all necessary actions to execute and deliver this
Agreement, and this Agreement constitutes my valid and binding agreement,
enforceable in accordance with its terms.

16.  MODIFICATION. This Agreement may not be changed, modified, released,
discharged, abandoned, or otherwise amended, in whole or in part, except by an
instrument in writing, signed by me and the Company. I agree that any subsequent
change or changes in duties, salary, or compensation shall not affect the
validity of this Agreement.

17.  ENTIRE AGREEMENT. I acknowledge receipt of this Agreement, and agree that
with respect to the subject matter of this Agreement it is my entire agreement
with the Company, superseding any previous written communications,
representations, understandings or agreements with the Company or any of its
officers or representatives.

18.  SEVERABILITY. The provisions of this Agreement are severable and if any one
or more provisions may be determined to be unenforceable, in whole or in part,
the remaining provisions, and any partially unenforceable provisions to the
extent enforceable, shall nevertheless be binding and enforceable.

19.  SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon my heirs,
executors, administers and other legal representatives and is for the benefit of
the Company, its successors and assigns.

20.  GOVERNING LAW. This Agreement has been executed and delivered by the
parties hereto in California, and shall be governed by and construed in
accordance with the internal laws (and not laws pertaining to conflicts or
choice of law) of the State of California in all respects, including all matters
of validity, construction and performance of this Agreement. All parties consent
to the exercise of personal jurisdiction over them in California and agree that
any lawsuit or arbitration arising out of or relating to this Agreement shall be


                                    Page 17                       June 21, 2000



<PAGE>


brought exclusively in a court of competent subject matter jurisdiction located
within the County of Los Angeles, State of California.

21.  COUNTERPARTS. This Agreement may be signed in two counterparts, each of
which shall be deemed an original and both of which shall together constitute
one agreement.

22.  FAILURE TO ENFORCE. The failure of the Company to enforce any threatened or
existing violation, default or breach of this Agreement shall not be deemed a
waiver of such a violation, default or breach, and the Company shall have the
right to enforce the same at a later time and the right to waive in writing any
condition imposed herein for its benefit without thereby waiving any other
provision or condition.

ACTIVISION, INC.

By: 
   ----------------------------------------

Name:
     --------------------------------------

Title:
      -------------------------------------

Date:
     --------------------------------------


Accepted and Agreed:


By: /s/ Michael Pole
   ----------------------------------------    --------------------------------
     Employee Signature                        Employee Name (Please Print)

Title: Executive Vice President W.W. Studios
      --------------------------------------
         Employee Job Title

Date:           4/14/00
     --------------------------------------


-------------------------------------------
Witness


                                    Page 18                       June 21, 2000



<PAGE>


                                    EXHIBIT I

                            LIST OF PRIOR INVENTIONS


TITLE             DATE                      IDENTIFYING NUMBER OR DESCRIPTION

  None
--------------------------------------------------------------------------------


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--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


--------------------------------------------------------------------------------


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                                    Page 19                       June 21, 2000



<PAGE>


                                   EXHIBIT II

                            TERMINATION CERTIFICATION



This is to certify that I do not have in my possession, nor have I failed to
return, any files, accounts, records, materials, documents, drawings, sketches,
designs, diagrams, models, blue-prints, plans, specifications, manuals, books,
forms, receipts, notes, reports, memoranda, studies, data, calculations,
recordings, catalogues, compilations of information, correspondence and all
copies, abstracts and summaries of the foregoing, instruments, tools and
equipment and all other physical items that are property of Activision, Inc.
(the "Company") or are otherwise related to my employment with the Company, or
any other property belonging to the Company and/or companies it owns, controls,
or is affiliated with, or their respective successors and assigns.

I further certify that I have complied with and will continue to comply with all
terms of the Employee Proprietary Information Agreement signed by me with the
Company, including, without limitation, the reporting of any Inventions (as
defined therein) conceived or made by me and covered by such agreement.

I further agree that in compliance with the Employee Proprietary Information
Agreement, I will preserve as confidential all trade secrets, confidential
information, knowledge, data or other information relating to products,
processes, know-how, designs, formulas, test data, customer lists and other
information identified as "Proprietary Information" of the Company, companies it
owns, controls, or which are affiliated with the Company, or their successors
and assigns under the terms of the Employee Proprietary Information Agreement.

/s/ Michael Pole                                      4/14/00
------------------------------------        ------------------------------
Employee Signature                          Date


                                    Page 20                       June 21, 2000




<PAGE>

                                                                  EXHIBIT 10.28

                       FIRST AMENDMENT TO CREDIT AGREEMENT

                               AND LIMITED WAIVER


          This FIRST AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this
"AMENDMENT") is dated as of June 8, 2000 and entered into by ACTIVISION, INC., a
Delaware corporation ("ACTIVISION"), HEAD GAMES PUBLISHING, INC., a Minnesota
corporation ("HEAD") and EXPERT SOFTWARE, INC., a Delaware corporation
("EXPERT"; each of Activision, Head and Expert, a "BORROWER" and collectively,
"BORROWERS"), the financial institutions signatory to this Amendment which are
parties to the Credit Agreement referred to below (the "LENDERS"), PNC BANK,
NATIONAL ASSOCIATION, a national banking association, as issuing bank (in such
capacity, the "ISSUING BANK"), and as administrative agent (in such capacity,
the "ADMINISTRATIVE AGENT") and collateral agent (in such capacity, the
"COLLATERAL AGENT") for the Lenders and CREDIT SUISSE FIRST BOSTON, a bank
organized under the laws of Switzerland, acting through its New York branch, as
syndication agent (in such capacity, the "SYNDICATION AGENT").


                              W I T N E S S E T H :

          WHEREAS, the Borrowers, the Lenders, the Administrative Agent and the
Syndication Agent are parties to that certain Credit Agreement dated as of June
21, 1999 (as modified prior to the date hereof,
 the "ORIGINAL CREDIT
AGREEMENT");

          WHEREAS, concurrently with the execution and delivery of this
Amendment Activision is closing the Reorganization (as defined below) of its
corporate organization so that it will become a wholly-owned Subsidiary of
Activision Holdings, Inc., a Delaware corporation ("ACTIVISION HOLDINGS"), which
will change its name to Activision, Inc., and Activision will then change its
name to Activision Publishing, Inc.;

          WHEREAS, Activision Holdings desires to become a Borrower;

          WHEREAS, Activision and Activision Holdings desire to make certain
investments in a newly created Subsidiary of Activision Holdings, Kaboom.com,
Inc., a Delaware corporation ("KABOOM");

          WHEREAS, Activision desires to repurchase a certain amount of its
outstanding common stock and/or Convertible Subordinated Notes;

          WHEREAS, the actions Activision desires to take require the consent of
the Lenders under the Original Credit Agreement;

          WHEREAS, Activision has entered into that certain Rights Agreement,
dated as of April 18, 2000, with Continental Stock Transfer & Trust Company (the
"Rights Agreement") providing for a dividend payable in rights to purchase
shares of Series A Junior Preferred Stock or common stock of Activision under
the circumstances described in the Rights Agreement; and


                                       1

<PAGE>

          WHEREAS, the parties hereto desire to amend certain provisions of the
Original Credit Agreement on the terms and subject to the conditions provided
herein;

          NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained in this Amendment and for other good and valuable
consideration, receipt of which is hereby acknowledged, the Borrowers, the
Lenders, the Issuing Bank, the Administrative Agent, the Collateral Agent and
the Syndication Agent hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

          Unless otherwise defined herein, terms defined in the Original Credit
Agreement shall have such defined meanings when used in this Amendment.

                                   ARTICLE II

                         AMENDMENTS TO CREDIT AGREEMENT

     SECTION 2.1. DEFINED TERMS. Section 1.01 of the Original Credit Agreement
is hereby amended by:

(a)       inserting the following terms and definitions therefor in the
appropriate alphabetical order:

          "ACTIVISION HOLDINGS" shall mean Activision Holdings, Inc., a
Delaware corporation, which will be renamed Activision, Inc.

          "KABOOM" shall mean Kaboom.com, Inc., a Delaware corporation and a
wholly-owned Subsidiary of Activision Holdings.

          "MERGER SUB" shall mean ATVI Merger Sub, Inc., a Delaware corporation
and a wholly-owned Subsidiary of Activision Holdings.

          "REORGANIZATION" shall mean the merger of Merger Sub with and into
Activision, with Activision being the surviving corporation, and the conversion
of all of the shares of capital stock of Activision into shares of capital stock
of Activision Holdings.

          (b) amending and restating the definitions of "Borrowers", "Change in
Control", "Collateral", "Equity Issuance", "Joinder Agreement", "Leverage
Ratio", "Net Income" and "Subsidiary" in their entirety to read as follows:

          "BORROWERS" shall mean Activision Holdings, Activision, Head, Expert
and any other Subsidiary of Activision Holdings which becomes a Borrower
hereunder.

          "CHANGE IN CONTROL" shall be deemed to have occurred if (a) any person
or group (within the meaning of Rule 13d-5 of the Securities Exchange Act of
1934, as amended, as in 


                                       2

<PAGE>

effect on the date hereof) shall own directly or indirectly, beneficially or of
record, shares representing more than 35% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of Activision Holdings,
(b) a majority of the seats (other than vacant seats) on the board of directors
of Activision Holdings shall at any time be occupied by persons who were neither
(i) nominated by the board of directors of Activision Holdings, nor (ii)
appointed by directors so nominated, or (c) any change in control (or similar
event, however denominated) with respect to Activision Holdings or any of its
Subsidiaries shall occur under and as defined in any indenture or agreement in
respect of Indebtedness in an aggregate principal amount in excess of $2,000,000
to which Activision Holdings or any of its Subsidiaries is a party, or (d)
Activision ceases to be a wholly-owned Subsidiary of Activision Holdings, or (e)
any Subsidiary of Activision which is a Borrower or UK Sub ceases to be a
wholly-owned Subsidiary of Activision.

          "COLLATERAL" shall mean all the "Collateral" as defined in any
Security Document and shall also include any Mortgaged Properties, but shall
exclude "Margin Stock" (as defined in Regulation U of the Board).

          "EQUITY ISSUANCE" shall mean any issuance or sale by Activision
Holdings or any Subsidiary of any Equity Interests of Activision Holdings or any
Subsidiary, as applicable, or any obligations convertible into or exchangeable
for, or giving any Person a right, option or warrant to acquire, such Equity
Interests or such convertible or exchangeable obligations, except in each case
for (a) any issuance or sale to a Borrower or any Subsidiary, (b) any issuance
of directors' qualifying shares, (c) sales or issuances of common stock of
Activision Holdings to management or key employees of Activision Holdings or any
Subsidiary or Kaboom under any employee stock option or stock purchase plan or
employee benefit plan in existence from time to time or other stock options from
time to time granted to employees or directors, or in connection with license,
distribution or development or other similar agreements, (d) conversion of the
Convertible Subordinated Notes into common stock of Activision Holdings, (e)
issuance of common stock (or options or warrants to purchase common stock) of
Activision Holdings as consideration for any Permitted Acquisition, (f) the
issuance of common stock of Activision Holdings in connection with the
Reorganization and (g) other issuances of Equity Interests for non-cash or no
consideration.

          "JOINDER AGREEMENT" shall mean a Borrower Joinder Agreement
substantially in the form attached hereto as Exhibit E executed by Activision
Holdings or any Domestic Subsidiary which becomes a Borrower hereunder.

          "LEVERAGE RATIO" shall mean, (a) with respect to the Loan Parties on
any date, the ratio of the daily average amount of Total Debt of the Loan
Parties for the two months ended on such date to Adjusted EBITDA of the Loan
Parties for such two month period and (b) with respect to Activision Holdings
and its Subsidiaries on any date, the ratio of Total Debt of Activision Holdings
and its Subsidiaries on a consolidated basis on such date to Adjusted EBITDA of
Activision Holdings and its Subsidiaries on a consolidated basis for such two
month period.


                                       3

<PAGE>

          "NET INCOME" shall mean, for any period, net income or loss of
Activision Holdings and its Subsidiaries, or of the Loan Parties, as the case
may be, for such period determined on a consolidated basis in accordance with
GAAP; PROVIDED that there shall be excluded (a) the income of any Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by the Subsidiary of that income is prohibited by operation of the terms of its
charter or any agreement, instrument, judgment, decree, statute, rule or
governmental regulation applicable to the Subsidiary except to the extent that
dividends or distributions are actually paid in compliance therewith, (b) the
income (or loss) of any person accrued prior to the date it becomes a Subsidiary
or is merged into or consolidated with a Borrower or any of its Subsidiaries or
the date that person's assets are acquired by a Borrower or any of its
Subsidiaries, and (c) the income of any Subsidiary which is not a wholly owned
Subsidiary except to the extent that dividends or distributions are actually
paid to Activision Holdings or a wholly owned Subsidiary.

          "SUBSIDIARY" means any subsidiary of Activision Holdings, EXCLUDING,
HOWEVER, Kaboom and any of its subsidiaries.

          (c) adding the following clause (t) to the definition of "Eligible
Receivables"

               "(t)  the Receivable is owed by Kaboom."

          (d) deleting the reference to "Activision" in clause (a) of the
definition of "Material Adverse Effect" and replacing it with "Activision
Holdings".

     SECTION 2.2. ADDITIONAL AMENDMENTS. The following sections of the Original
Credit Agreement shall be amended as follows:

          (a) All references to "Activision" in Section 5.04 shall be deleted
and replaced with "Activision Holdings".

          (b) Section 5.04 is further amended to require that the Borrowers
shall provide to the Administrative Agent annual and quarterly financial
statements for Kaboom, meeting the criteria described in clauses (a) and (b) of
such Section 5.04.

          (c) Section 5.12 is amended to add the following at the end of such
Section.

               "Promptly following the Reorganization, Activision Holdings shall
               pledge to the Collateral Agent the stock of Activision."

          (d) Section 6.04 is amended to add the following clause (p) at the end
of such Section:

               "(p) Activision Holdings may acquire Equity Interests in, or
     make loans or advances to, Kaboom and Activision or any of its
     Domestic Subsidiaries may acquire Equity Interests in, or make loans or
     advances to, Kaboom, PROVIDED, HOWEVER, that (i) the aggregate amount
     invested in Kaboom by Borrowers and 


                                       4

<PAGE>

     their Subsidiaries, whether as an investment in Equity Interests or loans
     or advances, shall not exceed $10,000,000 in the aggregate PLUS up to
     $250,000 of short-term inter-company loans and advances at any time
     outstanding, (ii) all loans and advances shall be evidenced by promissory
     notes, and all such promissory notes and any certificates evidencing the
     Equity Interests of Kaboom shall be pledged by the applicable Borrower or
     Domestic Subsidiary as Collateral pursuant to the Pledge Agreement."

          (e) Section 6.05 is amended to add the following clause (v) at the end
of subsection (a):

               "and (v) the Borrowers may effect the Reorganization."

          (f) Section 6.06(a) is amended to add the following at the end of such
Section:

               "and PROVIDED FURTHER, that, as long as no Default or Event of
     Default shall have occurred and be continuing or shall result therefrom,
     Activision (prior to the Reorganization) or Activision Holdings (after the
     Reorganization) may purchase or redeem its common stock at a price no
     greater than $10 per share and for a maximum amount, together with any
     funds used to redeem or purchase Convertible Subordinated Notes permitted
     under Section 6.14(b) hereof, of $15,000,000."

          (g) Section 6.07 is amended to add the following subsection (e):

               "and (e) a Borrower or any Subsidiary may enter into the 
     inter-company agreements with Kaboom described on Schedule 6.07(e) hereto."

          (h) Each of Section 6.10(b) and Section 6.11(b) are amended to delete
the references to "Activision and its Subsidiaries" and to replace them with
"Borrowers and their Subsidiaries."

          (i) Each of Sections 6.13(a) and (b) are amended to add the following
immediately before the semicolon:

               "LESS the amount paid by Activision or Activision Holdings
     since May 1, 2000 to purchase or redeem its common stock"

          (j) Section 6.14(b) is amended to add the following at the end of such
subsection:

               ";PROVIDED, HOWEVER, that, as long as no Default or Event of
     Default shall have occurred and be continuing or shall result therefrom,
     Activision Holdings or Activision may redeem or purchase the Convertible
     Subordinated Notes at a price no greater than 85% of par value and for a
     maximum amount, together with any funds used to redeem or purchase common
     stock of Activision or Activision Holdings permitted under Section 6.06(a)
     hereof, of $15,000,000."



                                       5

<PAGE>

          (k) Section 6.16 is amended and restated as follows::

               "SECTION 6.16. BUSINESS. With respect to Activision Holdings,
     engage in any business other than owning Equity Interests in Activision and
     Kaboom and, subject to compliance with Section 5.12 hereof, such other
     Subsidiaries as may be organized from time to time and with respect to
     Activision and other Subsidiaries, engage (directly or indirectly) in any
     business other than the businesses in which Activision and its Subsidiaries
     are engaged on the Closing Date and other businesses reasonably related
     thereto."

          (l) The following Section 6.18 is added to the Original Credit 
Agreement:

               "SECTION 6.18. MINIMUM UNDRAWN AVAILABILITY. Permit Undraw
     Availability (without giving effect to clause (iv) of the "Formula Amount"
     in Section 2.01) at any time to be less than an amount equal to $15,000,000
     LESS the aggregate amount of proceeds received by Activision or Activision
     Holdings from the exercise of stock options since May 1, 2000."

                                  ARTICLE III

                                 LIMITED WAIVER

          The Lenders hereby waive any Default or Event of Default arising out
of (a) the issuance by Activision of a dividend in "Rights" under and as defined
in the Rights Agreement and (b) the failure of Activision to be in good standing
in California as the result of failure to pay taxes in the amount of
approximately $300.00 as long as such Default or Event of Default is cured no
later than July 15, 2000 and Borrowers delivers to Administrative Agent evidence
of the good standing of Activision on or before such date.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

     SECTION 4.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders
to enter into this Amendment, each of the Borrowers hereby represents and
warrants to each of the Lenders and the Administrative Agent that:

          (a) Each representation and warranty of the Borrowers and each of
their Subsidiaries contained in the Loan Documents is true and correct in all
material respects as of the date hereof, and will be true and correct in all
material respects as of the effective date of this Amendment.

          (b) Each Borrower and each of its Subsidiaries has all requisite
corporate power and authority to execute, deliver and perform this Amendment,
and, in the case of the Subsidiary Guarantors, the Consent of Subsidiary
Guarantors attached hereto (the "GUARANTOR CONSENT") and, in the case of
Activision Holdings, to execute deliver and perform the Joinder Agreement 


                                       6

<PAGE>

and the other Loan Documents executed and delivered concurrently herewith.
Activision and Merger Sub have all requisite corporate power and authority to
effect the Reorganization.

          (c) Each Loan Party has duly authorized, executed and delivered this
Amendment and the Guarantor Consent, as applicable, and, as to Activision
Holdings, the Joinder Agreement and the other Loan Documents, and neither its
execution and delivery hereof or thereof nor its consummation of the
transactions contemplated hereby or thereby (including the Reorganization) or
its compliance with the terms hereof or thereof (i) conflicts with or
constitutes a default under or results in a violation of the provisions of its
governing documents or any requirement of law applicable to or binding on it or
any of its properties, (ii) constitutes a default under or results in the
violation of the provisions of any indenture, mortgage, deed of trust, agreement
or other instrument to which it is a party or by which it or any of its
properties or assets is or may be bound or affected, or (iii) results or could
reasonably be expected to result in or requires the creation or imposition of
(or the obligation to create or impose) any Lien (other than Liens in favor of
the Collateral Agent) upon any of its property or assets under, or results in
the acceleration of, any of its Indebtedness. The execution, delivery and
performance of this Amendment, the Guarantor Consent, the Joinder Agreement and
the other Loan Documents executed and delivered on the date hereof, as
applicable, does not require the approval or consent of any holder or trustee of
any Indebtedness or other obligations or any stockholder of any Borrower or any
of its Subsidiaries nor does it require any filing (except (i) the filing of
Uniform Commercial Code financing statements and filings with the United States
Patent and Trademark Office and the United States Copyright Office, and (ii) the
filing of a merger agreement to effect the Reorganization) with or consent or
approval of any Governmental Authority, than those which have been obtained and
are in full force and effect.

          (d) This Amendment is a legal, valid and binding obligation of each
Borrower, enforceable against each Borrower in accordance with its terms. The
Guarantor Consent is a legal, valid and binding obligation of each Subsidiary
Guarantor, enforceable against each Subsidiary Guarantor in accordance with its
terms. The Joinder Agreement and each other Loan Document executed and delivered
by Activision Holdings in connection therewith are the legal, valid and binding
obligations of Activision Holdings, enforceable against Activision Holdings in
accordance with their terms.

          (e) No fact is known to any Borrower which has resulted in, or could
reasonably be expected to result in, a Material Adverse Effect.

          (f) After giving effect to this Amendment, no event has occurred and
is continuing or will result from the execution, delivery and performance of
this Amendment or the other documents executed and delivered in connection
herewith or the transactions contemplated hereby, including the Reorganization,
that constitutes or will constitute a Default or Event of Default.

     SECTION 4.2. ACKNOWLEDGMENT OF RELIANCE. Each of the Borrowers acknowledges
that each of the Lenders and the Administrative Agent has entered into this
Amendment in reliance upon the representations and warranties contained in this
Article IV.


                                       7


<PAGE>

                                   ARTICLE V

                           CONDITIONS TO EFFECTIVENESS

          This Amendment shall be effective only if and when signed by, and when
counterparts hereof shall have been delivered to the Administrative Agent (by
hand delivery, mail or telecopy) by, each of the Borrowers and the Required
Lenders and only if and when each of the following conditions is satisfied:

     SECTION 5.1. CONSENT OF SUBSIDIARY GUARANTORS. Each of the Subsidiary
Guarantors shall have executed and delivered to the Administrative Agent the
Guarantor Consent.

     SECTION 5.2. JOINDER AGREEMENT AND LOAN DOCUMENTS. Activision Holdings
shall have executed and delivered to the Administrative Agent the Joinder
Agreement, and shall have become a party to the Loan Documents as a Borrower,
and shall have delivered to the Collateral Agent the certificates evidencing the
stock of Activision and Kaboom owned by it.

     SECTION 5.3. SUPPORTING DOCUMENTS. The Borrowers shall have delivered to
the Administrative Agent copies of resolutions of each of the Loan Parties
approving and authorizing this Amendment, the Guarantor Consent, the
Reorganization and, as to Activision Holdings, the Joinder Agreement and other
Loan Documents, together with an incumbency certificate for the persons
executing the applicable documents, all in form and substance satisfactory to
the Administrative Agent.

     SECTION 5.4. EXPENSE REIMBURSEMENTS. The Borrowers shall have paid all
expense reimbursements due to the Administrative Agent in connection with this
Amendment.

     SECTION 5.5. LEGAL OPINIONS. Each of the Borrowers shall deliver to the
Administrative Agent legal opinions of counsel to each of the Borrowers, in form
and substance satisfactory to the Administrative Agent which may be in the form
of one opinion.

     SECTION 5.6. LIEN FILINGS. The Loan Parties shall have executed and
delivered to the Collateral Agent such documents as may be reasonably requested
by the Collateral Agent to perfect the Liens granted by the Loan Documents and
to continue the perfection thereof, including such documents as may be necessary
to reflect the Reorganization and the changes of the names of Activision and
Activision Holdings.

     SECTION 5.7. CONSENT FEE. The Borrowers shall have paid to the
Administrative Agent for the ratable benefit of the Lenders a consent fee equal
to $175,000.

     SECTION 5.8. NO DEFAULT; ACCURACY OF REPRESENTATIONS AND WARRANTIES. After
giving effect to this Amendment, no Default or Event of Default shall have
occurred and be continuing, and each representation and warranty made by the
Borrowers or any of their Subsidiaries herein or in the Loan Documents shall be
true and correct in all material respects as if made on and as of the effective
date of this Amendment, and the Borrowers shall have delivered to the
Administrative Agent a certificate confirming such matters.


                                       8

<PAGE>

                                   ARTICLE VI

                                  MISCELLANEOUS

     SECTION 6.1. EFFECT OF AMENDMENT. From and after the date on which this
Amendment becomes effective, all references in the Loan Documents to the Credit
Agreement shall mean the Original Credit Agreement as amended hereby. Except as
expressly amended or waived hereby, the Original Credit Agreement and the other
Loan Documents, including the Liens granted thereunder, shall remain in full
force and effect, and are hereby ratified and confirmed.

          The issuance of the waiver contained herein does not constitute a
waiver of any other Default or Event of Default.

     SECTION 6.2. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     SECTION 6.3. COMPLETE AGREEMENT. This Amendment sets forth exhaustively the
complete agreement of the parties in respect of any amendment to any of the
provisions of the Original Credit Agreement.

     SECTION 6.4. HEADINGS & COUNTERPARTS. The Article and Section headings
herein are intended solely for convenience of reference and shall not be used to
interpret or construe the provisions hereof. This Amendment may be executed by
one or more of the parties to this Amendment on any number of separate
counterparts (including by telecopy), all of which taken together shall
constitute but one and the same instrument.

                  [Remainder of page intentionally left blank.]


                                       9


<PAGE>


          IN WITNESS WHEREOF, the parties have caused this First Amendment to
Credit Agreement to be executed and delivered by their proper and duly
authorized officers as of the date first above written.

                              ACTIVISION, INC.



                              By: /s/ Lawrence Goldberg
                                 -----------------------------------------------
                                    Name: Lawrence Goldberg
                                    Title: Executive Vice President,
                                           Chief Operating Officer


                              HEAD GAMES PUBLISHING, INC.



                              By: /s/ Lawrence Goldberg
                                 -----------------------------------------------
                                    Name: Lawrence Goldberg
                                    Title: Vice President


                              EXPERT SOFTWARE, INC.



                              By: /s/ Lawrence Goldberg
                                 -----------------------------------------------
                                    Name: Lawrence Goldberg
                                    Title: Vice President


                              PNC BANK, NATIONAL ASSOCIATION,
                              individually and as Collateral Agent and Issuing 
                              Bank and as Administrative Agent on behalf of 
                              Lender



                              By: /s/ Thomas J. Stoltz
                                 -----------------------------------------------
                                    Name: Thomas J. Stoltz
                                    Title: Vice President


                                       10




<PAGE>

                    PRINCIPAL SUBSIDIARIES OF THE REGISTRANT

                                                                    EXHIBIT 21.1


<TABLE>
<CAPTION>
                                                     State or Other Jurisdiction
                                                        of Incorporation or
           Name of subsidiary                               Organization
-----------------------------------------------      ---------------------------
<S>                                                  <C>
Activision Publishing, Inc.                              Delaware

Activision Australia Pty Ltd.                            Australia

Activision International B.V.                            The Netherlands

Activision Deutschland GmbH                              Germany

Activision GmbH                                          Germany

Activision New York, Inc.                                New York

Activision Productions, Inc.                             Delaware

Activision Texas, Inc.                                   Texas

Activision International Holdings, Inc.                  California

Elsinore Multimedia, Inc.                                Florida

Neversoft Entertainment, Inc.                            California

Activision U.K. Ltd.                                     United Kingdom

CD Contact Data GmbH                                     Germany

CD Contact Data BV                                       The Netherlands

CentreSoft Ltd.                                          United Kingdom

CentreSoft France SARL                                   France

Combined Distribution (Holdings) Limited                 United Kingdom

Contact Data Belgium N.V.                                Belgium

The Disc Company International, Inc.                     U.S. Virgin Islands

Expert Software, Inc.                                    Delaware

Head Games Publishing, Inc.                              Minnesota

Jotaphoenicis Beteiligungs GmbH                          Germany

Kappaphoenicis Beteiligungs GmbH                         Germany

NBG EDV Handels und Verlags GmbH & Co. KG                Germany



<PAGE>

PDQ Distribution Ltd.                                    United Kingdom

Raven Software Corporation                               Wisconsin

Swfte International, Ltd.                                Delaware

Target
 Software Vertriebs GmbH                           Germany

TDC Group, Inc.                                          Delaware
</TABLE>






<PAGE>

                                                                    EXHIBIT 23.1

                          INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the registration statements Nos.
333-30303, 333-36949, 333-43961, 333-46425, 333-56879, 333-61571, 333-67707,
033-75878, 333-85385, 333-96079 and 333-94509 on Form S-3 and Nos. 333-06130,
333-12621, 333-06054, 333-40727, 333-61573 ,333-81239, 033-48411, 033-63638,
033-68144, 033-91074, 333-85383 and 333-36272 on Form S-8 of Activision, Inc. of
our report dated May 5, 2000, except as to Note 14, which is as of June 9, 2000,
relating to the consolidated balance sheets of ACTIVISION, INC. and subsidiaries
as of March 31, 2000 and 1999 and the related consolidated statements of
operations, changes in shareholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 2000, and the related financial
statement schedule for each of the years in the three-year period ended March
31, 2000, which report appears in the March 31, 2000 annual report on Form 10-K
of ACTIVISION, INC.

KPMG LLP

Los Angeles, California
June 28, 2000





<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          MAR-31-1998
<PERIOD-START>                             APR-01-1997
<PERIOD-END>                               MAR-31-1998
<CASH>                                          74,319
<SECURITIES>                                         0
<RECEIVABLES>                                   89,614
<ALLOWANCES>                                    15,582
<INVENTORY>                                     19,425
<CURRENT-ASSETS>                               185,890
<PP&E>                                          23,565
<DEPRECIATION>                                  11,549
<TOTAL-ASSETS>                                 229,366
<CURRENT-LIABILITIES>                           70,108
<BONDS>                                         61,692
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                      97,475
<TOTAL-LIABILITY-AND-EQUITY>                   229,366
<SALES>                                        312,906
<TOTAL-REVENUES>                               312,906
<CGS>                                          176,188
<TOTAL-COSTS>                                  206,028
<OTHER-EXPENSES>                                97,660
<LOSS-PROVISION>                                39,112
<INTEREST-EXPENSE>                               2,223
<INCOME-PRETAX>                                  8,106
<INCOME-TAX>                                     3,136
<INCOME-CONTINUING>                              4,970
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     4,970
<EPS-BASIC>                                       0.22
<EPS-DILUTED>                                     0.21
        

</TABLE>






<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<RESTATED> 
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          MAR-31-1999
<PERIOD-START>                             APR-01-1998
<PERIOD-END>                               MAR-31-1999
<CASH>                                          33,037
<SECURITIES>                                         0
<RECEIVABLES>                                  132,520
<ALLOWANCES>                                    14,979
<INVENTORY>                                     30,931
<CURRENT-ASSETS>                               231,360
<PP&E>                                          26,176
<DEPRECIATION>                                  15,252
<TOTAL-ASSETS>                                 283,345
<CURRENT-LIABILITIES>                           95,005
<BONDS>                                         61,143
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     127,190
<TOTAL-LIABILITY-AND-EQUITY>                   283,345
<SALES>                                        436,526
<TOTAL-REVENUES>                               436,526
<CGS>                                          260,041
<TOTAL-COSTS>                                  297,031
<OTHER-EXPENSES>                               112,828
<LOSS-PROVISION>                                46,742
<INTEREST-EXPENSE>                               4,974
<INCOME-PRETAX>                                 23,636
<INCOME-TAX>                                     8,745
<INCOME-CONTINUING>                             14,891
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    14,891
<EPS-BASIC>                                       0.65
<EPS-DILUTED>                                     0.62
        

</TABLE>






<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          MAR-31-2000
<PERIOD-START>                             APR-01-1999
<PERIOD-END>                               MAR-31-2000
<CASH>                                          49,985
<SECURITIES>                                         0
<RECEIVABLES>                                  139,629
<ALLOWANCES>                                    31,521
<INVENTORY>                                     40,453
<CURRENT-ASSETS>                               264,097
<PP&E>                                          30,693
<DEPRECIATION>                                  19,878
<TOTAL-ASSETS>                                 309,737
<CURRENT-LIABILITIES>                          103,948
<BONDS>                                         73,778
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     132,009
<TOTAL-LIABILITY-AND-EQUITY>                   309,737
<SALES>                                        572,205
<TOTAL-REVENUES>                               572,205
<CGS>                                          319,422
<TOTAL-COSTS>                                  410,660
<OTHER-EXPENSES>                               191,870
<LOSS-PROVISION>                               109,429
<INTEREST-EXPENSE>                               9,375
<INCOME-PRETAX>                               (38,736)
<INCOME-TAX>                                   (4,648)
<INCOME-CONTINUING>                           (34,088)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                  (34,088)
<EPS-BASIC>                                     (1.38)
<EPS-DILUTED>                                   (1.38)
        

</TABLE>