EX-99.I.3

Exhibit I-3

(English Language Translation)

This share exchange is made for the securities of a Japanese company. The share exchange is subject to disclosure requirements of Japan that are different from those of the United States. Financial statements included in the document, if any, have been prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies. It may be difficult for you to enforce your rights and any claim you may have arising under U.S. federal securities laws, since the issuer is located in Japan, and some or all of its officers and directors are residents of Japan. You may not be able to sue a Japanese company or its officers or directors in a Japanese court for violations of the U.S. securities laws. Furthermore, it may be difficult to compel a Japanese company and its affiliates to subject themselves to a U.S. court’s judgment. You should be aware that the issuer may purchase securities otherwise than under the share exchange, such as in open market or privately negotiated purchases.

(Securities Code: 3745)
October 12, 2010

To All Shareholders:

1-31 Aoyama 3-chome, Minato-ku, Tokyo
SAMMY NETWORKS CO., LTD.
Masaaki Ono, President and Chief Executive Officer

Notice to Convene Extraordinary General Meeting of Shareholders

Greetings:

SAMMY NETWORKS CO., LTD. (the “Company”) will hold an extraordinary general meeting of shareholders as described below, and we hereby give you notice and request your attendance at the same.

Since you may exercise your voting rights in writing, if you are unable to attend on the day of the meeting, please study the Reference Materials that are set forth herein, and after indicating your approval or disapproval of the resolution on the enclosed voting rights proxy form, please return it so that it arrives no later than 7:00 PM on October 27, 2010 (Wednesday).


1.	Date and Time:	October 28, 2010 (Thursday), AM
2.	Place:	Bellesalle Shiodome Event Hall, in the Sumitomo Real Estate Shiodome Hama Rikyu Building (Please see the attached map showing the meeting location for the Extraordinary General Meeting and make sure you do not make a mistake, as this is different from the forum for the Annual General Meeting)
3.	Purpose of Meeting:
	Resolutions:
	Proposed Resolution:	Approval of the Share Exchange Agreement between the Company and SEGA SAMMY HOLDINGS INC.

End.

•

If you attend the meeting, please submit the enclosed voting rights proxy form at the meeting place reception desk.

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General Meeting of Shareholders Reference Materials

Proposed Resolution and Reference Matters

Proposed Resolution:

Approval of the Share Exchange Agreement between the Company and SEGA SAMMY HOLDINGS INC. (hereinafter “SEGA SAMMY”)

It was resolved at the meetings of the boards of directors of the Company and SEGA SAMMY that were held on August 27, 2010, to carry out a share exchange making SEGA SAMMY the wholly owning parent company and making SAMMY NETWORKS CO., LTD. (hereinafter the “Company”) the wholly owned subsidiary company (hereinafter the “Share Exchange”), and SEGA SAMMY and the Company entered into a share exchange agreement (hereinafter the “Share Exchange Agreement”).

In this regard, we would like to receive your approval for the Share Exchange Agreement.

The planned effective date for the Share Exchange is December 1, 2010. SEGA SAMMY plans to conduct the Share Exchange by implementing procedures for a simplified exchange of shares as prescribed in Article 796(3) of the Companies Act of Japan, without obtaining approval for the Share Exchange Agreement at a general meeting of shareholders.

If this resolution is approved, SEGA SAMMY will become the Company’s wholly owning parent company as of the effective date of the Share Exchange (planned for December 1, 2010). Also, it is planned that in advance of the effective date, the Company’s ordinary shares will be delisted from the Mothers market of the Tokyo Stock Exchange (hereinafter “Mothers”) as of November 26, 2010 (the final trading date will be November 25, 2010).

1.		Reasons for Conducting the Share Exchange

		Since the time we became a subsidiary of SEGA SAMMY in April 2005, we have built our business mainly in the content sector, including the planning, production

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		and distribution of content such as game-related content, provided over the internet to computer and mobile phone users, as well as the providing information services and advertising via the internet, as a member of the SEGA SAMMY group.

		In our core business of 777TOWN.NET, a pachislot and pachinko online game site for PC users, as well as Sammy 777 Town, a pachislot and pachinko game site designed for mobile phone users, we distribute content that includes many well known actual pachislot and pachinko machines, and are thereby building a solid earnings model that focuses on monthly billing and billing by traffic volume. Both of these services have captured top pachislot and pachinko content market shares.

		We are also actively engaged in increasing our sphere of operations, including deployment of point media sites such as yosoo net mobile, through which users can earn points by using services advertised therein and play games and quizzes, as well as uchico, a community for users who are studying for entrance exams that targets junior high school and high school students, and new online games that are based on social networking services.

		However, over the past few years, we have witnessed enormous technical innovations in the market for PC and mobile phone oriented content, such that the Company has faced pressure to embrace new technologies in order to provide high quality content in advance of other companies. Moreover, even in the Company’s core sector of pachislot and pachinko games, achieving further growth now requires the creation of new value-added features that accurately address widely differing demands of customers as well as flexible and rapid commercialization.

		Since the time of the business integration of SEGA CORPORATION and Sammy Inc. in October 2004, the SEGA SAMMY group has strived to grow its business with the group management objective of solidifying its presence within the expansive entertainment sector as a Comprehensive Entertainment Company, centering around SEGA SAMMY. As a result, the SEGA SAMMY group has responded flexibly in addressing developments such as the current global financial instability as well as changes to the regulatory environment, and has reached a stage at which the group sees prospects for a recovery in earnings. It is also true that we continue to face a strongly negative outlook for the operating environment which is caused by weak consumption that in turn results from concerns about an economic

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		slowdown. We have therefore determined that achieving an effective synergy of its management resources within the group and further reinforcing its competitiveness as a Comprehensive Entertainment Company are necessary for achieving further recovery in earnings as well as sustainable growth for the SEGA SAMMY group. Based on the circumstances discussed above, we have decided on this occasion to carry out the Share Exchange as a component element in building our group structure.

		At the same time SEGA SAMMY will also carry out a share exchange with SEGA TOYS CO., LTD. and TMS ENTERTAINMENT, LTD. (hereinafter “TMS ENTERTAINMENT”) with SEGA SAMMY becoming the wholly owning parent and both of these companies becoming wholly owned subsidiaries.

		Implementation of the Share Exchange will facilitate the timely and optimum allocation of human and physical resources by the SEGA SAMMY group, even more than as currently allocated, and will enable management decisions to be made and executed flexibly and rapidly in order to achieve our group management strategies. Synergies and complementary gains can be expected from closer ties among management resources, such as the strong intellectual property and content resources that are scattered throughout our group, and we therefore believe that the Share Exchange will strongly contribute to the creation of an organizational infrastructure that will leverage the integrated capabilities of the group to the greatest extent possible. In addition to these synergies in business, we also intend to take advantage of the Share Exchange to consolidate management of the group. We will do so with the aim of enhancing the corporate value of the group as a whole, realizing not merely accounting profits but also substantive economic value, by capturing the benefits arising from consolidation of head office functions, efficient cash management, consolidated payment of taxes and other measures.

		For the Company the implementation of this Share Exchange will enable us to make investments both across business sectors and concentrated in areas such as animation, games and toys over the entire SEGA SAMMY group without being constrained by the need to show short term profits or profits at the Company. As a result, high quality intellectual property and content can be developed and incubated. We believe that this will not only reduce the risks associated with such activities as individual investments, but also create opportunities for broad-based use of

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		intellectual property and content that have been painstakingly developed by leveraging the assets of the group as a whole, thereby enabling the Company to earn substantial profits.

		A further business advantage will be the ability to utilize the resources of the group in administrative and indirect divisions, which is expected to enable substantial cost savings and facilitate the development of a superior internal control and compliance framework.

		Moreover, the Share Exchange is entirely for the purpose of increasing the corporate value of the Company, thereby enhancing the value of the SEGA SAMMY group as a whole, and delisting the Company is not the final objective. Rather, we believe that delisting will enable the reduction of costs associated with maintaining share listings, as well as the building of our businesses from a medium- to long-term perspective that will alleviate concerns relating to short-term business fluctuations, thereby yielding significant advantages in terms of achieving sustainable growth.

		In order to accommodate a business environment that combines rapid technical innovation and severe competition, and to create new businesses and services that remain current, it will be necessary for the Company to increase collaboration within the SEGA SAMMY group through the Share Exchange to effectively leverage the content produced within the group and to strengthen exchanges and utilization of superior development personnel and technologies. These measures are expected to provide a strong boost to these businesses. In the Company’s core business as well, we expect that product development will accelerate and diversity increase in respect of product development techniques, resulting in better services.

2.		Summary of Content of Share Exchange Agreement

		Exhibit 1 sets forth the content of the Share Exchange Agreement into which the Company entered with SEGA SAMMY on August 27, 2010.

3.		Overview of Content Set forth in Article 184 of the Companies Act Enforcement Regulations

(1)

Matters Concerning Reasonability of Consideration for Exchange

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	A.		Matters Concerning the Total Number of Shares and Allocation of the Consideration for Exchange

			SEGA SAMMY will furnish 333 shares per common share of stock of the Company, provided that SEGA SAMMY will not allocate shares in the Share Exchange in connection with shares that SEGA SAMMY holds consisting of 24,804 common shares of stock of the Company. This allocation in connection with the Share Exchange may be changed through discussion and agreement between SEGA SAMMY and the Company if a significant change occurs in the terms and conditions that constitute the bases for the relevant calculations.

			In order to achieve fairness and appropriateness in the share exchange ratios used for the Share Exchange, it was respectively decided to retain independent, unbiased and credible institutions to perform the calculations. SEGA SAMMY selected Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., (“Mitsubishi UFJ Morgan Stanley”), while the Company selected PricewaterhouseCoopers Co., Ltd. (“PwC”) to perform such calculations.

			Neither of the independent and neutral institutions, Mitsubishi UFJ Morgan Stanley and PwC, is related to SEGA SAMMY or the Company, and neither has a material relationship of interest requiring disclosure in connection with the Share Exchange.

			Mitsubishi UFJ Morgan Stanley mainly used a market value analysis method (“Market Value Analysis”) to make calculations regarding SEGA SAMMY, because Mitsubishi UFJ Morgan Stanley determined that using the market value would enable fully appropriate results to be obtained given that SEGA SAMMY is listed on the First Section of the Tokyo Stock Exchange and has a market value as well as a substantial market capitalization and high liquidity in the trading market. Market Value Analysis was also used for the Company, since we are listed on the Mothers market and a market price exists. For the calculation periods of the market values in the Market Value Analysis, August 25, 2010, was set

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			as a record date, and this record date as well as the periods corresponding to one month, three months and six months prior to such record date were used as the basis of the calculations for calculating the closing share prices of SEGA SAMMY and the Company on each trading date in the relevant period.

			An analysis based on a similar company comparison method was used for the Company, since several similar listed companies exist, and a calculation was made using a discount cash flow analysis (“DCF Analysis”), in order to incorporate the conditions expected to affect future business activities into the evaluation.

			The following is a summary of the results of the calculations performed by Mitsubishi UFJ Morgan Stanley of the share exchange ratio in the Share Exchange (setting forth the calculation range obtained from each calculation method, assuming that the value of one share of SEGA SAMMY is one):


Method of Calculating Value		Share Exchange Ratio Range
Market Value Analysis		149-352
Similar Companies Comparison		311-486
DCF Analysis		322-638

In calculating the above share exchange ratios, Mitsubishi UFJ Morgan Stanley in principle used information such as that provided by SEGA SAMMY as well as the Company, and their major subsidiaries and affiliates, as well as information made available to the general public, and assumed that this data and information is entirely accurate and complete. It has not made an independent study of the accuracy or completeness thereof. It has also not made an independent assessment or evaluation in connection with the relevant assets or liabilities (including off-balance sheet assets and liabilities and other contingent liabilities) of SEGA SAMMY or the Company or their affiliates, and has not requested an appraisal or evaluation from any independent institution. Moreover, it has been assumed that the financial forecasts obtained from both

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			companies have been prepared pursuant to the best forecasts and judgments that the management team of both companies could reasonably obtain at such time. The calculations made by Mitsubishi UFJ Morgan Stanley reflect the above information and other relevant factors through August 25, 2010.

			PwC used a market value-based calculation method in connection with SEGA SAMMY, since shares of SEGA SAMMY are listed on the First Section of the Tokyo Stock Exchange, and therefore a market value exists for them. A market value-based method was used in the calculations relating to the Company, since shares of the Company are listed on the Mothers market, and therefore a market value exists for them. Moreover, in order to incorporate the conditions expected to affect future business activities into the evaluation of the Company, a calculation was also made using the DCF method (the “DCF Method”).

			Under the market value-based calculation method, to account for recent market trading conditions in shares of SEGA SAMMY and the Company, the volume-weighted average price and the final average price over the one-month, three-month and six-month periods immediately preceding and including August 25, 2010, were used in the calculation of the share exchange ratio. The following is a summary of the results of the calculations of the share exchange ratios performed by PwC (setting forth the valuation range obtained from each calculation method, assuming that the value of one share of SEGA SAMMY is one):


Calculation Method		Calculation Range of Share Exchange Ratios
Market Value-Based Method		204-235
DCF Method		448-568

In calculating the above share exchange ratios, PwC in principle used information such as that provided by SEGA SAMMY as well as the Company, and their major subsidiaries and affiliates, as well as information made available to the general public, and assumed that this data and information is entirely accurate and complete. It has not made

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			an independent study of the accuracy or completeness thereof. It has also not made an independent assessment, appraisal or evaluation in connection with the relevant assets or liabilities (including off-balance sheet assets and liabilities and other contingent liabilities) of either company or the affiliates thereof, including any analysis or evaluation of individual assets or liabilities, and has not requested an appraisal or evaluation from any independent institution. Moreover, it has been assumed that the financial forecasts obtained from both companies have been prepared pursuant to the best forecasts and judgment that the management team of both companies could reasonably obtain at such time. The calculations of the share exchange ratios made by PwC reflect the above information and other relevant factors to date as of August 25, 2010.

			In its results, PwC expresses no opinion concerning the fairness of the share exchange ratios it has calculated in relation to the Share Exchange.

			SEGA SAMMY and the Company have deliberated in good faith concerning the results of the share exchange ratio analyses submitted by the independent institutions referenced above, and determined that the share exchange ratio in the Share Exchange shall be as set forth below. The share exchange ratio set forth below has been approved at the board of directors meetings that both companies respectively held on August 27, 2010.


	Wholly owning		Wholly owned
	parent in Share		subsidiary
	Exchange		SAMMY
	SEGA SAMMY		NETWORKS
Allocation in connection with Share Exchange		1		333

In accordance with the above, SEGA SAMMY and the Company have determined that the conditions relating to the consideration given for the shares in this Share Exchange are reasonable.

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	B		Reasons for Selection of SEGA SAMMY Common Shares as Exchange Consideration

			As consideration in the Share Exchange, SEGA SAMMY and the Company have selected common shares of SEGA SAMMY, which will be the wholly owning parent in the Share Exchange. The reasons for this are as follows:

	(1)		The common shares in SEGA SAMMY, which are the consideration in the Share Exchange, are listed on the First Section of the market of the Tokyo Stock Exchange and consequently we believe that share liquidity will be achieved even after the Share Exchange;

	(2)		As a result of the Share Exchange, SEGA SAMMY and the Company will constitute a relationship of a wholly owning parent and subsidiary, and consequently we have determined that, if shareholders in the Company receive shares in SEGA SAMMY as compensation, they will enjoy the benefits obtained from the synergies associated with the Share Exchange.

Matters in which Caution has been Exercised so that Damage does not Occur to the Interests of Shareholders in the Company

	(i)		Actions to Achieve Fairness

			As of August 27, 2010, which is the date of entering into the Share Exchange Agreement, SEGA SAMMY held 56.3% of the shareholder voting rights of the Company. Consequently, in order to ensure that the share exchange ratios used in the Share Exchange are fair and appropriate, SEGA SAMMY retained Mitsubishi UFJ Morgan Stanley as an independent institution to calculate the share exchange ratios set forth in A. above. Using the results of these calculations, SEGA SAMMY conducted negotiations and discussions with the Company, while SEGA SAMMY’s board of directors resolved on August 27, 2010, to implement the Share Exchange using the share exchange ratios set forth in A. above.

			In order to ensure that the share exchange ratios used in the Share

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			Exchange are fair and appropriate, the Company retained PwC as an independent institution to calculate the share exchange ratios set forth in A. above. Using the results of these calculations, the Company conducted negotiations and discussions with SEGA SAMMY, while the Company’s board of directors resolved on August 27, 2010, to implement the Share Exchange using the share exchange ratios set forth in A. above.

			Neither the Company nor SEGA SAMMY has received any opinion from PwC or Mitsubishi UFJ Morgan Stanley concerning the fairness of the share exchange ratios (i.e., a fairness opinion).

			SEGA SAMMY has appointed the law firm of Mori Hamada & Matsumoto (“MHM”) as its legal advisor, while the Company has appointed the law firm of Soga Uryu & Itoga (“SUI”) as its legal advisor, with each receiving legal advice concerning, among other things, appropriate procedures and responses in connection with the Share Exchange.

	(ii)		Measures to Avoid Conflicts of Interest

			As discussed in (i) the Company is a subsidiary of SEGA SAMMY. In order to avoid conflicts of interest, the Company’s director and chairman of the board Hajime Satomi, who also serves as chairman of the board and chief executive officer of SEGA SAMMY, and director Hiroshi Nishida, who also serves as a director of TMS ENTERTAINMENT, did not participate in deliberations or voting in connection with the Share Exchange at the meeting of the board of directors of the Company held on August 27, 2010. Moreover, the deliberations were not attended by our corporate auditor Mineo Enomoto, who also serves as a corporate auditor of of SEGA SAMMY, or by our corporate auditor Tomio Kazashi, who also serves as the standing corporate auditor of SEGA SAMMY. The four directors of the Company other than the two directors noted above attended the meeting of the board of directors, as did the one corporate auditor (the outside auditor) of the Company other than

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			the two corporate auditors noted above. The directors present unanimously approved the execution of the share exchange agreement. Moreover, the corporate auditor (the outside auditor) who was present expressed an opinion agreeing with the approval by the board of directors of entering into the Share Exchange Agreement.

			SEGA SAMMY has appointed MHM as its legal advisor, while the Company has appointed SUI as its legal advisor, with each receiving legal advice regarding, among other things, appropriate procedures and responses in connection with the Share Exchange.

			Moreover, on August 26, 2010, the Company received from SUI, which is not an interested party in respect of the controlling shareholder, an opinion stating that the implementation by each of these companies of procedures to become a wholly owned subsidiary of SEGA SAMMY under the Share Exchange will not disadvantage minority shareholders.

	D.		Regarding the Stated Capital and Reserves of SEGA SAMMY

			The following are the amounts by which the stated capital, capital reserves, and earned reserves of SEGA SAMMY will respectively increase as a result of the Share Exchange:

	Stated capital		¥0

	Capital reserves		An amount that SEGA SAMMY will determine separately pursuant to Article 39 of the Corporate Accounting Regulations

	Earned reserves		¥0

We have determined that the amount of stated capital and reserves as set forth above complies with the Companies Act and the Corporate Accounting Regulations pursuant thereto, and are reasonable in view of, e.g., the capital policy of SEGA SAMMY after the Share Exchange.

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(2)

Matters for Reference in Connection with the Exchange Consideration

	A.		Stipulations in the Articles of Incorporation of SEGA SAMMY

			Exhibit 2 sets forth the content of the stipulations of the Articles of Incorporation of SEGA SAMMY.

	B.		Matters Regarding the Method of Monetizing the Exchange Consideration

	(i)		Trading Market of the Exchange Consideration

			Shares in SEGA SAMMY are traded on the First Section of the Tokyo Stock Exchange.

	(ii)		Persons Serving as Intermediary, Broker or Agent of Transactions in the Exchange Consideration

			Shares in SEGA SAMMY can be conducted through securities companies generally throughout Japan.

	(iii)		Restrictions on Assignment or Other Disposition of the Exchange Consideration

			None to be mentioned.

	C.		Matters Regarding the Market Value of the Exchange Consideration

			The following are the closing averages of the market prices of SEGA SAMMY shares, which is the consideration of the Share Exchange, for the respective one month, three month, and six month periods prior to the date of the Share Exchange Agreement.

			The most recent market prices, etc., of SEGA SAMMY appear on the website of the Tokyo Stock Exchange (http://www.tse.or.jp).

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1 Month	3 Month	6 Month
(From July 27 through	(From May 27 through	(From March 1 through
August 26, 2010)	August 26, 2010)	August 26, 2010)
¥1,323	¥1,282	¥1,221

(3)		Matters Concerning the Reasonableness of the Stipulations Concerning Warrant Bonds in Connection with the Share Exchange

		None to be mentioned. If approval of the Share Exchange Agreement is obtained at the Extraordinary General Meeting of the Company, then it is planned that the Company will acquire, without compensation and pursuant to the redemption clause, all stock subscription warrants that the Company has issued and retire the same by the date immediately preceding the effective date (December 1, 2010). The Company has not issued any warrant bonds.

(4)		Matters Concerning the Financial Statements, Etc., of the Final Fiscal Year of SEGA SAMMY

Matters Concerning SEGA SAMMY, the Wholly Owning Parent in the Share Exchange

	(i)		Financial Statements, Etc., of the Final Fiscal Year

			These are as set forth in Exhibit 3.

	(ii)		Content of Extraordinary Financial Statements, Etc., with an Extraordinary Settlement Date Later than the Last Day of the Final Fiscal Year

			None to be mentioned.

	(iii)		Disposition of Significant Assets, as well as Incurring of Significant Liabilities and Other Events Having a Material Influence on the Condition of the Assets of the Company that have Occurred on or after the Final Day of the Final Fiscal Year

			None to be mentioned.

Matters Concerning the Company, which will be a Wholly Owned Subsidiary in the Share Exchange

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Exhibit 1: Share Exchange Agreement

Share Exchange Agreement

SEGA SAMMY HOLDINGS INC. (located at the Shiodome Sumitomo Building, 1-9-2 Shimbashi, Minato-ku, Tokyo; hereinafter “Sega Sammy”) and Sammy NetWorks Co., Ltd. (located at 3-1-31 Minami-Aoyama, Minato-ku, Tokyo; hereinafter “Sammy NetWorks”) hereby enter into this Share Exchange Agreement as set forth below (hereinafter this “Agreement”) and dated August 27, 2010 (hereinafter the “Execution Date”).


Article 1		(Share Exchange)

In accordance with the provisions of this Agreement, Sega Sammy and Sammy NetWorks shall implement a share exchange making Sega Sammy the wholly owning parent company and making Sammy NetWorks the wholly owned subsidiary company (hereinafter the “Share Exchange”).


Article 2		(Matters Concerning the Method for Calculating the Number of Shares to be Issued and Their Allocation at the Time of the Share Exchange)

1.		Upon execution of the Share Exchange, Sega Sammy shall, in exchange for Sammy NetWorks common shares, deliver to Sammy NetWorks shareholders (provided that this shall exclude Sega Sammy; hereinafter the same) who are shareholders at the point in time immediately preceding the acquisition by Sega Sammy of all of Sammy NetWorks’ issued shares (excluding shares in Sammy NetWorks that are held by Sega Sammy) (hereinafter the “Base Time”) the number of Sega Sammy common shares that is the total number of Sammy NetWorks common shares held by such shareholders multiplied by 333.

2.		Under the provisions of the preceding paragraph, upon execution of the Share Exchange, Sega Sammy shall allocate to the Sammy NetWorks shareholders at the Base Time treasury shares held by Sega Sammy at a rate of 333 shares per one share of the Sammy NetWorks common shares owned by such Sammy NetWorks shareholders.


Article 3		(Matters Concerning Sega Sammy’s Capitalization and Reserves)

The amounts by which Sega Sammy’s Capitalization and Reserves will be increased pursuant to the Share Exchange will be as follows.

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	(1) Capitalization Amount:		JPY0

	(2) Amount of Capital Reserve:		Amount separately provided by Sega Sammy in accordance with Article 39 of the Company Accounting Ordinance

	(3) Amount of Retained Earnings Reserve:		JPY0


Article 4		(Effective Date)

The date that the Share Exchange takes effect (hereinafter the “Effective Date”) shall be December 1, 2010, provided, however, that this may be changed upon agreement by the parties if necessary for reasons such as procedural necessity during the Share Exchange.


Article 5		(General Meeting for Approval of Share Exchange)

1.		Based on the provisions of Article 796(3) of the Companies Act of Japan, Sega Sammy shall implement the Share Exchange without obtaining approval of this Agreement at a general meeting of shareholders as set forth in Article 795(1) of the Companies Act of Japan; provided, however, if approval of this Agreement at Sega Sammy’s general meeting of shareholders becomes necessary in connection with the Share Exchange pursuant to the provisions of Article 796(4) of the Companies Act of Japan, Sega Sammy shall request approval concerning matters that are necessary for this Agreement and the Share Exchange at a Sega Sammy extraordinary general meeting of shareholders to be convened no later than the day before the Effective Date.

2.		Sammy NetWorks shall request approval concerning matters necessary for this Agreement and the Share Exchange at the extraordinary general meeting of shareholders that is scheduled to be convened on October 28, 2010 (hereinafter the “General Meeting for Approval of Share Exchange”); provided, however, that this may be changed upon agreement by the parties if necessary for reasons such as procedural necessity during the Share Exchange.


Article 6		(Extinguishment of Stock Warrants and Retirement of Treasury Shares)

If approval concerning matters necessary for this Agreement and the Share Exchange is obtained at the General Meeting for Approval of Share Exchange as set forth in paragraph 2 of the preceding Article, Sammy NetWorks shall cause all of the stock warrants issued by Sammy NetWorks to be extinguished by acquisition pursuant to the acquisition clause, by voluntary purchase, by waiver of rights, or by another method, no later than the day immediately preceding the Effective Date, and

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		shall perform any acts necessary to accomplish that (including a resolution of the board of directors to cancel treasury stock warrants).

2.		Pursuant to a resolution of a board of directors meeting to be convened no later than the day before the Effective Date, after the purchase of shares related to purchase requests for the relevant shares takes effect and before the Base Time, Sammy NetWorks shall retire all of the treasury shares that are owned by Sammy NetWorks on the Effective Date (including any treasury shares that Sammy NetWorks purchases in connection with any stock buyback request from opposing shareholders, as prescribed in Article 785(1) of the Companies Act of Japan, that is exercised at the time of the Share Exchange).


Article 7		(Restrictions on Distribution of Surplus and Acquisition of Treasury Shares)

1.		Sega Sammy may make a surplus distribution of no more than twenty yen per common share to shareholders of Sega Sammy’s common shares or to registered pledge right holders of Sega Sammy’s common shares who are entered or recorded in the final shareholder registry for September 30, 2010.

2.		Except as provided in the preceding paragraph, during the period from the Execution Date to the Effective Date, Sega Sammy and Sammy NetWorks shall not make a surplus distribution with a record date that predates the Effective Date.

3.		During the period from the Execution Date to the Effective Date, Sega Sammy and Sammy NetWorks shall not acquire treasury shares with an acquisition date that predates the Effective Date (except for the acquisition of treasury shares where treasury shares must be acquired in response to the exercise of shareholder rights in accordance with applicable laws and regulations).


Article 8		(Management of Company Assets, Etc.)

During the period from the Execution Date to the Effective Date, Sega Sammy and Sammy NetWorks shall respectively run their businesses and manage and administer their assets with the care of a conscientious manager, and unless it is otherwise provided in this Agreement, shall not perform any act that may cause a material effect with respect to their assets or their rights and obligations without discussing the matter and reaching an agreement in advance.


Article 9		(Changes to the Terms and Conditions of the Share Exchange and Cancellation of the Agreement)

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The parties may change the terms and conditions of the Share Exchange, otherwise change the contents of this Agreement or cancel this Agreement after discussing the matter and reaching an agreement regarding the same if, during the period from the Execution Date to the Effective Date, a material change arising for any reason, including an act of God, has occurred in the condition of Sega Sammy’s or Sammy NetWorks’ assets or business, or a situation has arisen or been revealed that presents a material obstacle to the execution of the Share Exchange, or if otherwise it has become difficult to achieve the purpose of this Agreement.


Article 10		(Effect of this Agreement)

This Agreement shall lose its effect in any of the following situations.

	(1)		Approval of the matters necessary for execution and performance of this Agreement or implementation of the Share Exchange cannot be obtained at Sega NetWorks’ General Meeting for Approval of Share Exchange.

	(2)		If, in the case falling under the proviso of Article 5.1 above, approval of the matters necessary for execution and performance of this Agreement or implementation of the Share Exchange cannot be obtained at a general meeting of shareholders of Sega Sammy that is convened no later than the day immediately preceding the Effective Date.

	(3)		If, based on law and regulation concerning the Share Exchange (including foreign law and regulation), the acquisition of necessary permits, approvals, and the like from relevant government authorities, and notification procedures to relevant government authorities and the like (if any), are not completed by the Effective Date.

	(4)		If this Agreement is cancelled based on the preceding Article.


Article 11		(Matters for Discussion)

Concerning matters other than those set forth in this Agreement, the parties shall stipulate any necessary matter concerning the Share Exchange in accordance with the purpose and spirit of this Agreement after discussing and reaching agreement on such matter.


Article 12		(Governing Law)

This Agreement shall be governed by and interpreted in accordance with the laws of Japan.

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Exhibit 2: Articles of Incorporation of SEGA SAMMY HOLDINGS INC.

ARTICLES OF INCORPORATION
OF
SEGA SAMMY HOLDINGS INC.

CHAPTER I GENERAL PROVISIONS

Article 1 (Trade Name)

The name of the Company shall be “SEGA SAMMY HOLDINGS Kabushiki Kaisha” and in English translation it shall be “SEGA SAMMY HOLDINGS INC. ”

Article 2 (Purpose)

The purpose of the Company shall be: to manage and control the business activities of the corporations that conduct the following businesses and businesses equivalent thereto and to engage in operations incidental thereto by owning shares in such corporations:

(1)		Manufacture, marketing and recycling of pachinko, pachislot, arranged-ball, jankyu machines, and related equipment;

(2)		Planning, manufacture, marketing, import and export of amusement machines and equipment, game machines and equipment, amusement park rides, electric machines and equipment, electronic machines and equipment, optical machines and equipment, office machines and equipment, learning machines and equipment, exercise machines and equipment, health promoting machines and equipment, vending machines and equipment, money changers, machines and equipment for prizes, photo machines and parts, and materials thereof;

(3)		Planning, development, design, manufacture, marketing, importing and exporting of toys;

(4)		Designing, manufacture and marketing of computers and peripheral equipment and terminal units;

(5)		Planning, development, production, marketing and consulting of computer software, and computer systems;

(6)		Planning, manufacture, production, marketing, importing and exporting of hardware and software of game equipment and peripheral equipment and terminal units thereof;

(7)		Planning, design, development, administration, operation and maintenance of network systems, such as the Internet, computer networks, cell phones, car navigation systems, and television game networks, etc.;

(8)		Marketing, dealership, importing and exporting, manufacture, processing, installation and maintenance of telecommunications equipment and peripheral equipment and terminal units equipment thereof and dealership concerning the subscription of telecommunications service;

(9)		Construction work, installation work, interior and exterior decoration work, and installation of machines and equipment;

(10)		Planning, design and administration of various facilities, such as commercial and industrial facilities, and educational facilities, and displays;

(11)		Manufacture and marketing of various construction materials;

(12)		Building maintenance and providing invitation of and guidance to member shops on franchise systems and marketing of cleanup products (carpets, mops, cloth, rolls of towels, air fresheners for bathrooms and home, air purifiers, and water purifiers) and lease thereof;

(13)		Operation of amusement centers, game arcades, amusement parks, hotels, Japanese-style inns, catering establishments, golf courses, sports facilities, spa facilities, Karaoke facilities, parking facilities and car washes; and recruitment and support of franchisees, and sale of franchises through a franchise system of those businesses listed above;

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(14)		Planning, management and operation of a variety of events such as theater plays, theatrical entertainment, movies and concerts;

(15)		Information services to collect, analyze, process and provide a variety of information;

(16)		Internet connection intermediary business

(17)		Planning, production, sale, and import and export of video software, and audio and music software

(18)		Planning, production, sale and distribution of broadcast programs, movies and animation

(19)		Advertising and publicity businesses

(20)		System design and planning for cable television

(21)		Television and other general broadcast businesses under the Broadcast Law

(22)		Management and promotion of entertainment talent and artists;

(23)		Planning, development, manufacture and marketing of character goods;

(24)		Administration, acquisition, licensing, sale and purchase, and leasing of industrial property rights, including patent rights, utility model rights, design rights, and trademark rights, and intangible property rights, including copyright, copyright neighboring rights, and merchandising rights, and studying on the use thereof;

(25)		Publishing;

(26)		General leasing;

(27)		Sale and purchase, leasing, administration and intermediacy of real estate;

(28)		Money lending business, investing business and handling of credit cards and planning, manufacture and sale of prepaid cards and gift certificates;

(29)		Serving as a non-life insurance agent and conducting operations concerning the collection of life insurances;

(30)		Serving as a travel agent;

(31)		Specific employment agency business;

(32)		Management consulting;

(33)		Mail order sale;

(34)		Planning, manufacture, marketing, importing and exporting of three dimensional vision equipment and planning, manufacture, marketing, importing and exporting of image processing systems;

(35)		Manufacture, marketing, importing and exporting of jet skis, motor boats, and scuba diving equipment, fabric products for clothing, fur clothing, dry goods for clothing, dress accessories, accessories, leather goods, shoes, suitcases, bags, indoor ornament, furniture, arts and crafts, watches, glasses, acoustic instruments, home appliances, cosmetics, medical consumables, and medical equipment;

(36)		Marketing, importing and exporting of gems, precious metals, antiques, cameras, stationery, books, magazines, musical instruments, sports gear, DIY tools, gardening tools, fertilizers, feed, soil conditioners, automobiles, automobile parts, automobile goods, bicycles, food, alcoholic beverages, soft drinks, tobaccos, daily necessities, system equipment for emergency notification for the prevention of crimes, fires and disaster damages, disposal units of industrial wastes (kitchen garbage), photovoltaic generators, food processing machines and equipment; and

(37)		Creation, marketing and maintenance of databases.

The Company may engage itself in each of the foregoing businesses and those incidental or pertinent thereto.

Article 3 (Head office)

The head office of the Company shall be located at Minato-ku, Tokyo, Japan.

Article 4 (Method of public notice)

Public notices of the Company shall be given in the form of electronic public notice; provided, however, that they shall be given in The Nihon Keizai Shimbun published in Tokyo for any compelling reason including an accident that makes electronic public notices unavailable.

CHAPTER II SHARES

Article 5 (Number of shares authorized for issue)

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The number of shares authorized for issue by the Company shall be 800,000,000 shares.

Article 6 (Acquisition of own shares)

The Company may acquire its own shares by such means as market transactions, subject to a resolution of the Board of Directors, pursuant to the provisions of Article 165, paragraph 2 of the Corporate Law.

Article 7 (Number of shares per unit share)

The number of shares to constitute a unit share of the Company shall be 100 shares.

Article 8 (Request for sale of additional fractional unit shares)

Shareholders who possess fractional unit shares of the Company may request the Company to sell the number of shares that will, together with such fractional unit shares, constitute a full unit share (hereinafter “request for sale of additional shares).

2. The period when a request for the sale may be made, the method of request and other matters shall comply with the share handling regulations adopted by the Board of Directors.

Article 9 (Rights of shareholders holding fractional unit shares)

Shareholders holding fractional unit shares of the Company shall have no rights to exercise other than those stipulated below:

(1)		Rights stipulated in each item of Article 189, paragraph 2 of the Corporate Law.

(2)		Right to receive dividends of surplus

(3)		Right to request redemption of shares with redemption rights

(4)		Right to be allocated publicly offered shares or publicly offered stock acquisition rights

(5)		Right to request the sale of additional fractional unit shares defined in the preceding article

Article 10 (Shareholder register manager)

The Company shall have a shareholder register manager.

2. The shareholder register manager and its business office shall be determined by a resolution of the Board of Directors.

Article 11 (Regulation of Share handling)

Handling and handling fees of matters relating to shares or stock acquisition rights such as the stating or recording of matters in the register of shareholders and the register of stock acquisition rights of the Company, purchase and additional purchase of fractional unit shares; procedures etc. for exercise of shareholders’ rights shall be governed by the regulation of share handling established by the Board of Directors, in addition to what is provided for in the laws and regulations.

Article 12 (Record date)

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The Company shall treat the shareholders with voting rights appearing or recorded in the final register of shareholders as of March 31 of each year as the shareholders entitled to exercise their rights at the ordinary general meeting of shareholders for the corresponding fiscal year.

2. In addition to the case of the preceding paragraph or Article 53, the Company may, by giving prior public notice, set a certain date as record date by a resolution of the Board of Directors, if it is necessary in order to define persons entitled to exercise their rights as shareholders or registered share pledgees.

CHAPTER III GENERAL MEETING OF SHAREHOLDERS

Article 13 (Convocation)

An ordinary general meeting of shareholders shall be convened within three (3) months after April 1 each year and, whenever necessary, an extraordinary general meeting of shareholders may be convened.

Article 14 (Venue)

A general meetings of shareholders shall be convened in the area of head office, at a neighboring location or at a location in a ward of the Metropolis of Tokyo.

Article 15 (Convener and Chair of General Meetings of Shareholders)

Except as otherwise provided by the laws and regulations, the President and Representative Director previously determined by a resolution of the Board of Directors shall convene the general meetings of shareholders and act as the chairman thereof.

2. When such President and Representative Director are unable to act, another Director, who shall be decided in accordance with an order of priority previously determined by a resolution of the Board of Directors, shall convene such general meetings and act as the chairman thereof.

Article 16 (Deemed provision and disclosure via the Internet of reference materials, etc. for general meetings of shareholders)

Regarding convocation of general meetings of shareholders, the Company may be deemed to have provided shareholders with information pertaining to items that the Company is required to describe or present in reference materials for general meetings of shareholders, business reports, and non-consolidated and consolidated financial statements, if such information is disclosed via the Internet in accordance with relevant ordinances of the Ministry of Justice.

Article 17 (Vote by proxy)

A shareholder of the Company may exercise its voting rights by authorizing another shareholder who has a voting right in the Company as its proxy in a general meeting of

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shareholders.

2. In the event of the preceding section, documents evidencing the authority of a proxy must be filed with the Company at every general meeting of shareholders.

Article 18 (Method of adopting resolutions)

Except as otherwise provided by laws and regulations or by these Articles of Incorporation, all resolutions of a general meeting of shareholders shall be adopted by a majority of voting rights held by the attending shareholders.

2. A resolution to be adopted under Article 309, paragraph 2 of the Corporate Law shall be adopted by not less than two thirds of the votes of the shareholders who attend the meeting and represent not less than one third of the aggregate voting rights of all shareholders entitled to exercise their voting rights.

Article 19 (Minutes)

Concerning the proceedings of general meetings of shareholders, a summary of the proceedings, the result thereof and other items prescribed by relevant laws and regulations shall be described or recorded in the minutes of the meeting.

2. The original minutes of general meetings of shareholders shall be kept for ten (10) years at the head office from the date of resolution and certified duplicates thereof shall be kept for five (5) years at branch offices.

CHAPTER IV DIRECTORS AND BOARD OF DIRECTORS AND EXECUTIVE OFFICERS

Article 20 (Board of Directors)

The Company shall have a Board of Directors.

Article 21 (Number of Directors)

The Company shall have no more than fifteen (15) Directors.

Article 22 (Election of Directors)

A resolution for election of Directors shall be adopted, in a general meeting of shareholders, by a majority of the votes of the shareholders who attend the meeting and represent not less than one third of the aggregate voting rights of all shareholders entitled to exercise their voting rights.

2. Cumulative voting shall not be used for the election of directors specified in the preceding section.

Article 23 (Term of office of Directors)

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The term of office for Directors shall be until the conclusion of the ordinary general meeting of shareholders pertaining to the last fiscal year ending within one year after their election.

2. The term of office of a director elected to fill a vacancy shall expire when that of a retired director would otherwise expire.

3. The term of office of a director elected to increase the number of directors shall be the same as the remainder of the term of office of other incumbent directors.

Article 24 (Executive Directors)

By a resolution of the Board of Directors, one President shall be appointed, and a few Chairpersons, Vice Chairpersons, Senior Vice Presidents, Senior Managing Directors and Managing Directors may be appointed if necessary.

Article 25 (Representative Directors)

The President shall represent the Company.

2. In addition to the foregoing section, the Company may, by a resolution of the Board of Directors, elect representative directors if necessary and each such director shall represent the Company.

Article 26 (Convener and Chair of Meetings of the Board of Directors)

Except as otherwise provided by laws and regulations, the President shall convene a meeting of the Board of Directors and shall act as the chairman thereof.

2. When such President is unable to act, another Director, who shall be decided in accordance with an order of priority previously determined by a resolution of the Board of Directors, shall convene such a meeting and shall act as the chairman thereof.

Article 27 (Convocation of meeting of the Board of Directors)

To convene a meeting of the Board of Directors, a notice of convocation shall be dispatched to each Director and each Corporate Auditor no later than three days prior to the date of the meeting; provided, however, that this period may be shortened in case of a compelling emergency.

2. If the agreement of all the directors and auditors is obtained, a meeting of the Board of Directors may be held without following the convocation procedures.

Article 28 (Resolution of Board of Directors)

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Resolution of the Board of Directors of the Company shall be adopted by a majority of Directors present at a meeting, which Directors shall constitute a majority of the total number of Directors.

Article 29 (Omission of resolution of Board of Directors)

If all the Directors agree to a matter to be resolved by the Board of Directors either in writing or with an electromagnetic record, the matter to be resolved shall be deemed to have been passed by resolution of the Board of Directors; provided, however, that this shall not apply in the event that any Corporate Auditor disapproves.

Article 30 (Minutes of Board of Directors’ meetings)

Concerning the proceedings of a meeting of the Board of Directors, a summary of the proceedings, the result thereof and other items prescribed by relevant laws and regulations shall be described or recorded in the minutes of the meeting. The chairperson, and the Directors and Corporate Auditors who attended the meeting shall sign, affix their names and seals to, or place electronic signatures on the minutes.

2. The original minutes shall be kept for ten (10) years at the head office from the date of resolutions.

Article 31 (Advisors)

The Company may, by a resolution of the Board of Directors, appoint one or more advisors. Advisors shall respond to a request for consulting by the President with respect to the business operations of the Company.

Article 32 (Regulations of the Board of Directors)

Except as otherwise provided by laws and regulations or these Articles of Incorporation, matters regarding meetings of the Board of Directors shall comply with the regulations of the Board of Directors separately adopted by the Board of Directors.

Article 33 (Compensation etc. for Directors)

Compensation etc. for Directors shall be determined by a resolution of the general meeting of shareholders.

Article 34 (Executive Officer)

The Company may have a few Executive Officers based on a resolution of the Board of Directors.

2. Executive Officers shall be in charge of some part of the business operations entrusted by the President in accordance with the principles adopted by the Board of Directors.

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Article 35 (Regulations of Executive Officers)

Except as otherwise provided by the laws and regulations or these Articles of Incorporation, matters regarding officers shall conform to the regulations of officers adopted at a meeting of the Board of Directors.

CHAPTER V CORPORATE AUDITORS AND BOARD OF CORPORATE AUDITORS

Article 36 (Corporate Auditors and Board of Corporate Auditors)

The Company shall have Corporate Auditors and a Board of Corporate Auditors.

Article 37 (Number of Corporate Auditors)

The Company shall have no more than five (5) Corporate Auditors.

Article 38 (Election of Corporate Auditors)

A resolution for election of Corporate Auditors shall be adopted, in a general meeting of shareholders, by a majority of the votes of the shareholders who attend the meeting and represent not less than one third of the aggregate voting rights of all shareholders entitled to exercise their voting rights.

Article 39 (Term of office of Corporate Auditors)

The term of office for Corporate Auditors shall be until the conclusion of the ordinary general meeting of shareholders pertaining to the last fiscal year ending within four years after their election.

2. In the event that Corporate Auditors are newly elected to fill vacancies, their term of office shall be conterminous with the remaining term of office of the retired Corporate Auditors.

3. A resolution for election of Substitute Corporate Auditors adopted in accordance with Article 329, paragraph 2 of the Corporate Law shall be effective until the conclusion of the ordinary general meeting of shareholders pertaining to the last fiscal year ending within one year after their election.

4. In the event that Substitute Corporate Auditors specified in the preceding paragraph assume office as Corporate Auditors, their term of office shall be conterminous with the remaining term of office of the retired Corporate Auditors.

Article 40 (Standing Corporate Auditors)

The Board of Corporate Auditors shall elect Standing Corporate Auditors from among the Corporate Auditors.

Article 41 (Convocation of Meeting of the Board of Corporate Auditors)

Notice of a meeting of the Board of Corporate Auditors shall be given to each Corporate Auditor three (3) days prior to the date of said meeting; provided, however, that this period may be shortened in the case of an urgency.

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2. With the agreement of all the Corporate Auditors, a meeting of the Board of Corporate Auditors may be held without following the procedures for convocation.

Article 42 (Resolutions of Meeting of the Board of Auditors)

Except as otherwise provided by laws and regulations, resolution of the Board of Statutory Auditors of the Company shall be adopted by a majority of Statutory Auditors present at a meeting.

Article 43 (Minutes of Board of Corporate Auditors’ meeting)

Concerning the proceedings of a meeting of the Board of Corporate Auditors, a summary of the proceedings, the result thereof and other items prescribed by relevant laws and regulations shall be described or recorded in the minutes of the meeting, and the Corporate Auditors who attended the meeting shall sign, affix their names and seals to, or place electronic signatures on the minutes.

Article 44 (Regulations of Board of Corporate Auditors)

Other matters relating to the Board of Corporate Auditors shall comply with the regulations of the Board of Corporate Auditors separately adopted by the Board of Statutory Auditors, unless otherwise provided for by laws and regulations or these Articles of Incorporation.

Article 45 (Compensation etc. for Corporate Auditors)

Compensation etc. for Corporate Auditors shall be determined by a resolution of the general meeting of shareholders.

Article 46 (Limited liability contract with outside Corporate Auditors)

The Company may, pursuant to the provision of Article 427, paragraph 1 of the Corporate Law, conclude a contract with outside Corporate Auditors for the purpose of limiting their liability for compensation, in the case that the requirements of relevant laws and regulations regarding the liability for compensation stipulated in Article 423, paragraph 1 of the said Law are fulfilled; provided, however, that the maximum amount of liability under such contract shall be the minimum liability limit stipulated in relevant laws and regulations.

CHAPTER VI ACCOUNTING AUDITORS

Article 47 (Accounting Auditors)

The Company shall have Accounting Auditors.

Article 48 (Election of Accounting Auditors)

Accounting Auditors shall be elected by a resolution of the general meeting of shareholders.

Article 49 (Term of office of Accounting Auditors)

The term of office of Accounting Auditors shall be until the conclusion of the ordinary general meeting of shareholders pertaining to the last fiscal year ending within one year

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after their election.

2. Unless otherwise resolved at the ordinary general meeting of shareholders in the preceding paragraph, Accounting Auditors shall be deemed to have been reelected at the said ordinary general meeting of shareholders.

Article 50 (Compensation etc. for Accounting Auditors)

Compensation etc. for Accounting Auditors shall be determined by the Representative Director of the Company, subject to the consent of the Board of Corporate Auditors.

Article 51 (Exemption from liability of Accounting Auditors)

The Company may, pursuant to the provision of Article 427, paragraph 1 of the Corporate Law, conclude a contract with Accounting Auditors for the purpose of limiting their liability for compensation, in the case that the requirements of relevant laws and regulations regarding the liability for compensation stipulated in Article 423, paragraph 1 of the said Law are fulfilled; provided, however, that the maximum amount of liability under such contract shall be the minimum liability limit stipulated in relevant laws and regulations.

CHAPTER VII ACCOUNTS

Article 52 (Fiscal year and accounting term)

The fiscal year of the Company shall be from April 1 each year through March 31 the following year, and the accounts of the Company shall be closed at the end of each fiscal year.

Article 53 (Dividends of surplus, etc.)

The Company may, by a resolution of the Board of Directors, determine the matters provided for in each item of Article 459, paragraph 1 of the Corporate Law.

2. Cash dividends of surplus (hereinafter, “cash dividends”) shall be paid to the shareholders or registered share pledgees registered or recorded in the final register of shareholders as of March 31 or September 30 of each year.

Article 54 (Statute of limitation for cash dividends)

In the case that cash dividends remain unclaimed after the lapse of three years from the day on which payment thereof was commenced, the Company shall be exempted from the responsibility of payment thereof.

2. Unpaid cash dividends shall bear no interest.

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Exhibit 3: Sega Sammy Calculation Documents, etc. for Most Recent Fiscal Year

Business Report
April 1, 2009 to March 31, 2010

Items concerning current status of corporate group

(1)

Business developments and results

		In the consolidated fiscal year under review, Japan’s economy exhibited recovery in some sectors, but the overall picture remained harsh: the yen’s strength and the advances of deflation put pressure on corporate earnings, the labor market remained at a low level, and consumer spending remained sluggish.

		In these circumstances, the game machine industry has enjoyed robust business replacing pachinko machines with a variety of gameplay features. In pachislot machines, supply became available of machines featuring innovative new gameplay features that have won high praise from the marketplace, generating hopes of market recovery in the near future.

		The business environment remains harsh for the game sector, but it is hoped that the market will be enlivened by efforts to reach families, light users and other customer categories, leading to the development and supply of new kinds of game machines will drive the market.

		In the market for home game software, the ongoing slump in consumer spending has caused a slump in demand, particularly in the European and North American markets. At the same time, new changes in the market environment also require new responses, such as the growth of the market for new content for SNS, smart phones, etc.

		In this business environment, in the fiscal year under review Sega Sammy’s consolidated sales were ¥384.679 billion (-10.4% YoY), operating profit ¥36.712 billion (+339.0%), and recurring profit ¥35.925 billion (+441.3%). Extraordinary losses for asset impairment, valuation losses on marketable securities and other factors totaled ¥11.953 billion, and net profit was ¥20.269 billion (turning around from a net loss of ¥22.882 billion the year before).

In the sections below we discuss the business situation of our various business segments.

Pachislot and Pachinko Machines

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In the pachinko machines business, the Sammy brand enjoyed robust sales in the fiscal year under review with its main titles “Pachinko CR Souten no Ken,” “Pachinko CR Sengoku Ranbu Aoki Dokugan” with new gameplay features, and the Taiyo Elec brand “CR Kido Shinsengumi Moeyo Ken.” For pachinko machines as a whole, total sales fell to 360,000 units, below the year-earlier level, but profit margins improved thanks to a higher percentage of board sales, and lower costs for parts procurement.

In the pachislot machines business, a new game, “Pachislo Koukyo Shihen Eureka Seven” was launched under the Sammy brand, with new gameplay features; this won high praise from the marketplace, and 56,000 units were sold. Sales were also strong for the Sammy brand product “Pachislo Ashita no Joe,” the Rodeo brand “Shin Onimusha,” and others. As a result, the sales periods of some key titles were extended. For pachislot machines as a whole, sales totaled 162,000 units, surpassing the year-earlier level.

We updated our pricing strategy for pachinko and pachislot machines, resulting in improvement in profit margins. With the aim of further profit growth, we made Ginza Corp. into a wholly owned subsidiary, as a strategic brand that will play a role in our multibrand strategy in the game machine sector.

As a result of the above factors, sales in this segment totaled ¥160.698 billion (-1.1% YoY), and operating profit was ¥29.502 billion (+103.1%).

Game machines: key titles (by sales) and number of units sold

Pachinko machines


Product name	Brand	# of units sold
Pachinko CR Souten no Ken	Sammy	94,000
Pachinko CR Kyuuteijokan Changum no Chikai Series	Sammy	58,000
Pachinko CR Sengoku Ranbu Aoki Dokugan	Sammy	53,000
CR Gamera The Battle Pachinko	Sammy	35,000
CR Kidou Shinsengumi Moeyo Ken Shippu Doten Series	Taiyo Elec	34,000

Pachislot machines


Product name	Brand	# of units sold
Pachislo Kokyo Shihen Eureka Seven	Sammy	56,000
Pachislo Ashita no Joe	Sammy	37,000
Shin Onimusha	Rodeo	28,000
Pachislo Urusei Yatsura 2	Sammy	16,000
Blood+	Taiyo Elec	7,000

Amusement Machine Sales

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In the amusement machines business, we found success in the launch of our new key title “Border Break,” which is being sold under a new revenue-sharing model (ALL.Net P-ras), aimed at improving investment efficacy for the arcade operators and securing stable, long-term earnings for our corporate group. Also, we are seeing continuing sales of CVT kits for key titles such as “Sega Network Mahjong MJ4 Evolution.” No major new titles were launched in the fiscal year under review, and sales remained below the year-earlier level, but profit margins improved.

As a result of the above factors, sales in this segment totaled ¥47.925 billion (-26.8% YoY), and operating profit was ¥7.094 billion (+3.0%).

Amusement Center Operations

In amusement center operations, the business environment remained harsh due to sluggish consumer spending, and Sega’s business in Japan fell short of year-earlier levels, with same-store sales just 91.7% of the year before. Among amusement centers in Japan, locations with low profitability and/or dim future prospects were closed or sold, a trend that started late the year before; in total, 66 stores locations were closed, and only four new locations opened, so as of year-end the number of locations stood at 260.

Outside Japan, the company closed 8 locations in North America, with the aim of improving profitability.

As a result of the above measures, sales in this segment totaled ¥54.835 billion (-23.1% YoY), with an operating loss of ¥1.338 billion (vs. the previous year’s ¥7.520 billion loss).

Consumer Business

In the consumer business segment, the company launched several important new home game software titles, including “Mario & Sonic at the Olympic Winter Games” in Europe and the Americas, “Bayonetta” globally, and in Japan “Ryu ga Gotoku 4: Densetsu o Tsugumono” (latest installment in a popular series) and “Fantasy Star Portable 4.” Sales were robust in Japan, where the company cut back on the number of titles and focused on making its development efforts more efficient; outside Japan the market environment remained unfriendly, and sales of new titles were poor, so the launch of some new titles was postponed to the following year. As a result, U.S. sales told 10.55 million units, Europe 12.38 million, and Japan/other 3.82 million for a total of 26.75 million units. Due to changes The company decided to close its North American development subsidiary Secret Level Inc.

In the toy sales division, overseas sales were robust, but domestic sales declined due to

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some unprofitable business segments and a narrowing of product lines. At the same time, a slump in consumer spending chilled the domestic market, further slowing our sales. In the mobile phone and PC content business, the overall number of customers in the mobile phone pachinko/pachislot category continues to decline, but we launched new titles and changed our business model (introducing volume-based pricing), so we were able to show robust earnings. In the animated films business, we produced a lower number of films and videos, but income from theatrical releases increased due to hit films, and royalties also increased thanks to the overseas success of Bakugan, so overall revenues grew.

As a result of the above factors, revenues in this segment were ¥21.838 billion (-7.5% YoY), and operating profit was ¥6.332 billion (turning around from the year-earlier ¥941 million loss).

(Regarding illicit transactions by former employees of our subsidiary Sega Toys)

As was made public on April 15 and May 6, 2010, former employees of our subsidiary Sega Toys engaged in multiple illicit transactions with vendors. Investigations by an internal body of Sega Toys and by an external investigative committee revealed the existence of accounts-receivable notes with a total value of approximately ¥420 million, with Sega Toys named as the payer.

In connection with this incident, we recognize that we have caused trouble and concern for our shareholders and others with whom we do business, and we offer our sincere apologies, and our assurances that we will strive to prevent any recurrence, and restore your confidence in us.

The investigations into this incident are continuing in earnest, and when the final results are available we will inform you all without delay.

(2)

Outstanding issues

In our pachislot and pachinko machines business, customer preferences have been changing, as reflected in the growth of the low price pachinko rental ball market and other factors. A key challenge for our management is to respond to these changes in the business environment by developing and providing new kinds of games with new gameplay features that meet the changing needs of the marketplace.

In the amusement machines business, we aim to attract a wide variety of customers by meeting a wide variety of customer needs, from high-value-added products to family products, while at the same time improving investment efficacy for the arcade operators and securing stable, long-term earnings for our corporate group; outside Japan, our key business challenge is to provide products that are price-competitive while meeting local needs.

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In amusement center operations, our main business challenges are to update our location portfolio to construct a more efficient business structure while at the same time strengthening store management and competitiveness, securing new customers and improving profitability.

Within our consumer business, in the business of home game software we aim to make the development process more efficient and improve profitability by reducing the number of titles, and other measures; we will also add new functionality for game consoles, and respond to new types of content markets such as SNS and smart phones. In the toys, mobile phone / PC content and animated films businesses, our goal is to strengthen our business, particularly for our listed subsidiaries.

(3)

Access to funds

For purposes of securing medium- to long-term liquidity and a safety net for our Group as a whole, the Company concluded a ¥42 billion commitment line contract with a syndicate of seven financial institutions.

Also, in the fiscal year under review, for the purpose of securing operating funds, Sega issued ¥10 billion in bank-guaranteed private-placement bonds.

ii.

Capital investment

In the consolidated fiscal year under review, the Company made capital investments totaling ¥16.164 billion; capital investment in the pachinko / pachislot machines business totaled ¥3.297 billion, mainly for metal dies, while capital investment in amusement arcades operated by Sega and others totaled ¥7.796 billion.

iii.

Transfer, absorption and/or new establishment of businesses

No relevant items of significance in fiscal year under review.

	iv.		Transfer of businesses from other companies

			No relevant items of significance in fiscal year under review.

	v.		Succession of rights or obligations in other corporations’ business, etc., in connection with absorption mergers or absorption partitioning.

No relevant items of significance in fiscal year under review.

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vi.

Acquisition/disposition of shares, equity or new share rights in other companies

			On April 28, 2009, Sammy sold all shares it held in Sammy Systems.

			On December 8, 2009, Sammy acquired all outstanding shares of Ginza Corp.

(4)

Balance sheet, profit/loss data from last three fiscal years


	Term
	Fiscal Year No. 3		Fiscal Year No. 4		Fiscal Year No. 5		Fiscal Year No. 6
	April 1, 2006		April 1, 2007		April 1, 2008		April 1, 2009
Item	to March 31, 2007		to March 31, 2008		to March 31, 2009		to March 31, 2010
Sales (¥millions)		528,238		458,977		429,194		384,679
Recurring profit/loss (¥millions)		81,287		-8,224		6,636		35,925
Net profit/loss (¥millions)		43,456		-52,470		-22,882		20,269
Net profit/loss per share (¥)		172.47		-208.26		-90.83		80.46
Total assets (¥millions)		549,940		469,642		423,938		423,161
Net assets (¥millions)		358,858		281,627		242,532		256,770


(Notes)	1.	Values less than ¥1 million are truncated.

	2.	Figures for net profit/loss per share are based on the average number of shares outstanding in the relevant fiscal year.

	3.	Calculation of net assets, starting with Fiscal Year No. 3, is based on the application of “Accounting Standards concerning Presentation of Net Assets on Balance Sheet” (Corporate Accounting Standards No. 5, issued by the Corporate Accounting Standards Committee on December 9, 2005,) and the and the “Guides for Adopting the Accounting Standards concerning Presentation of Net Assets on Balance Sheet” (Corporate Accounting Standards Adoption Guide No. 8, issued by the Corporate Accounting Standards Committee on December 9, 2005).

	4.	Regarding Fiscal Year No. 6, please refer to above Section (1) Business development and results.

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(5)

Key business segments of corporate group


Business segment		Description
Pachinko and pachislot machines		Development, manufacture, sale and installation of pachinko and pachislot machines in arcades
Amusement machine sales		Development, manufacture, sale and installation of amusement machines in arcades
Amusement center operations		Development, operation, rental and maintenance of amusement centers
Consumer business		Development and sale of game software; development, manufacture and sale of toys etc.; planning and sale of entertainment content for mobile phones etc.; planning production and sale of animated films
Other		Information services, other

(6)

Main location of corporate group

	(1)		Main location

			Headquarters (Minato-ku, Tokyo)

	(2)		Locations of main subsidiaries

	•		Sammy Inc.

			Main office (Toshima-ku, Tokyo)
			Kawagoe plant (Kawagoe, Saitama prefecture)
			Branch offices, sales offices (seven branches, 29 sales offices)

	•		Sega Corp.

			Main office (Ohta-ku, Tokyo)
			Amusement centers 217 locations

	(3)		Employees of corporate group

			Employees (YoY increase/decrease) 6,236 (-620) Note: The number of employees includes seconded employees, but not temporary workers.

(7)

Status of parent company and subsidiaries

	(1)		Status of parent company

			No relevant items.

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(2)

Status of subsidiaries


Company name	Capital	Equity stake	Description
Sammy Inc.	¥18.221 billion	100.0% (Note)	Development, manufacture and sale of pachislot and pachinko machines
Sega Corp.	¥60 billion	100.0% (Note)	Development, manufacture and sale of amusement machines, development operation of amusement centers, development and sale of game software
Rodeo Co.	¥100 million	65.0% (Note)	Development, manufacture and sale of pachislot machines
Sammy Design Co.	¥40 million	100.0% (Note)	Planning, design and construction of halls
Taiyo Elec Co.	¥5.125 billion	51.2% (Note)	Development, manufacture and sale of pachislot and pachinko machines
Sega Logistics Service Co.	¥200 million	100.0% (Note)	Maintenance services, transportation, warehousing
Sega Amusements U.S.A. Inc.	$3.9 million	100.0% (Note)	Import, manufacture and sale of amusement equipment
Sega Amusements Europe Ltd.	26.485 million pounds	100.0% (Note)	Import, manufacture and sale of amusement equipment
Sega Entertainment U.S.A. Inc.	$0	100.0% (Note)	Operation of amusement centers
Sammy Networks Co.	¥2.33 billion	56.3%	Planning and production of game and music content for mobile phones, Internet, etc.
Sega Toys Co.	¥1.735 billion	52.2%	Development, manufacture and sale of toys
TMS Entertainment Ltd.	¥8.816 billion	60.2%	Planning, production and sale of animated films
Sega of America Inc.	$110 million	100.0% (Note)	Development, administration and sale of game software
Sega Publishing America Inc.	$41.9 million	100.0% (Note)	Sale of game software
Sega Europe Ltd.	10 million pounds	100.0% (Note)	Sale of game software
Sega Publishing Europe Ltd.	0 pounds sterling	100.0% (Note)	Sale of game software
Sega Sammy Investment and Partners Inc.	¥100 million	100.0%	Investment advisory services, operation and management of investment partnerships (funds)


Note:		Figures for equity stakes include indirect investments.

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(8)

Main lenders, amount of loans


Lender	Outstanding balance of loan
Bank of Tokyo-Mitsubishi UFJ Bank		¥3.555 billion
Sumitomo Mitsui Bank		¥3.05 billion
Hokuriku Bank		¥2.136 billion
Other		¥921 million
Total		¥9.663 billion

(9)

Guidelines for exercise of rights, as defined by bylaws, for Board of Directors decisions on payment of dividends from surplus funds

The Company regards the return of profits to shareholders as an important business matter, and its basic guideline is to pay dividends commensurate with profits.

In the fiscal year under review, the company fulfilled its obligation to pay stable dividends. The interim dividend was ¥15 per share, and the final dividend was ¥15 per share.

Regarding the use of retained earnings, the basic guideline is that such funds should be used effectively, to strengthen the company’s financial condition and management foundation, and to expand the Company’s business.

(10)

Other important items regarding current status of corporate group

On December 27, 2005, Universal Entertainment sought legal action against Sammy, charging that its game Hokuto no Ken violated Patents 3069092 and 3708056, and seeking ¥21 billion in damages; on May 22, 2007, the Tokyo District Court dismissed the claims.

Universal objected to this decision, and on June 4, 2007 it brought an appeal to the Intellectual Property High Court, but on March 10, 2010 this court dismissed the appeal.

On March 26, 2010, Universal made a final appeal to the Supreme Court, and its final appeal was accepted, but because its claims were dismissed by both the Tokyo District Court and the Intellectual Property High Court, we are confident that the Supreme Court will also dismiss the claims.

On the same date, Universal also filed with the Supreme Court a motion to reduce

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the damages to ¥100 million.

Items regarding shares


(1)	Total number of authorized shares	800,000,000 shares
(2)	Total number of shares outstanding	283,229,476 shares
(3)	Number of shareholders	89,355
(4)	Top 10 shareholders


	Status of investment in the Company
Name of shareholder	Number of shares held		Shareholding ratio (%)
Hajime Satomi		43,569,338		17.29
Mellon Bank, NA Treaty Client Omnibus		18,280,322		7.25
FSC Co.		14,172,840		5.62
The Bank of New York Mellon Depositary Bank for Depositary Receipt Holders		12,465,860		4.94
The Master Trust Bank of Japan, Ltd. (As Trustee)		12,251,700		4.86
Japan Trustee Services Bank, Ltd. (As Trustee)		10,002,900		3.97
Japan Trustee Services Bank, Ltd. (As Trustee9)		4,174,100		1.65
State Street Bank and Trust Company		3,055,936		1.21
State Street Bank and Trust Company 505225		2,850,921		1.13
Hideo Ando		2,694,500		1.06


Note: Figures for shareholding ratio (%) exclude treasury shares (31,315,801 shares).

	3.		Items concerning rights to acquire new shares (stock options)

	(1)		Summary of details of rights to acquire new shares (stock options) given to executives of the Company as compensation for their duties as of the last day of the fiscal year under review


Date of decision by regular meeting of shareholders		June 20, 2006
Number of holders
Company director		1 (Note) 1
Number of stock options		150 (100 shares per option)
Type of shares to be granted in exchange for options		Ordinary shares
Number of shares to be granted in exchange for options		15,000 shares
Stock option exercise price		¥510
Price of assets to be delivered in exchange for exercise of options		¥4,235

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Date of decision by regular meeting of shareholders		June 20, 2006
Stock options exercise period		August 15, 2008 - July 30, 2010
Main conditions for exercise of stock options		Note 2
Items concerning transfer of stock options		Transfer of stock options requires approval of Board of Directors

Note 1: Excludes three members of Board of Directors who retired at the regular shareholders meetings of June 19, 2007 and June 18, 2008.

Note 2: The conditions for the exercise of the stock options are as follows:

	1.		Recipients of stock options must be directors, auditors, executive officers, advisors, counselors or other employees of the company or one of its subsidiaries, as of the time the options are exercised.

			This condition shall not apply, however, if the person in question loses his/her standing due to a law, bylaw of the company or one of its subsidiaries or a company regulation, or as specified by Item (2) or (3) below.

	2.		If a director, executive officer or employee of the company loses his/her standing, and if Item 1. or 2. below applies, that person may exercise the unexercised stock options held at the time the position was lost, regardless of Item (1) above.

	i.		If the person in question loses his/her position due to the end of his/her term of office or retirement due to legal change.

	ii.		If the person in question loses his/her position due to legal retirement age, downsizing of business, or other reason based on company regulations, or transfers to a subsidiary due to company circumstances.

	iii.		If the person in question, immediately after losing his/her position, becomes a director, auditor, executive officer, advisor or counselor of the Company or a director, auditor, executive officer, advisor, counselor or employee of a Subsidiary.

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If the person in question loses his/her position as a director, auditor, executive officer, advisor, counselor or employee of a Subsidiary, and if Item 1. or 2. below applies, that person may exercise the unexercised stock options held at the time the position was lost, regardless of Item (1) above.

	i.		If the person in question loses his/her position due to the end of his/her term of office or retirement due to legal change.

	ii.		If the person in question loses his/her position due to legal retirement age, downsizing of business, or other reason based on company regulations, or transfers to a subsidiary due to company circumstances.

	iii.		If the person in question, immediately after losing his/her position, becomes a director, auditor, executive officer, advisor or counselor of the Company or a director, auditor, executive officer, advisor, counselor or employee of the Company or a Subsidiary.

	4.		Transfers or other disposals of stock options are not permitted.

	5.		Other conditions regarding the exercise of stock options may be defined in the stock option allotment contract between the recipient and the Company.

2. Summary of details of new stock rights granted to employees of the Company and/or executives or employees of a Subsidiary as compensation for their duties in the fiscal year under review.

None.

Items regarding company officers

(1)

Directors and auditors


Name	Position, or area of responsibility	Other Important Posts
Hajime Satomi	Representative Director and President	Chairman of Sammy Corp., Chairman of Sega Corp.
Keishi Nakayama	Executive Vice President and Representative Director of the Company, Group Representative, Group Communications Office, Policy & Public Relations, Administration, Group CSR Promotion Officer	President and Representative Director of Sammy Corp.

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Name	Position, or area of responsibility	Other Important Posts
Okitane Usui	Director	President of Sega Corp.
Hisao Oguchi	Director	Senior Managing Director of Sammy Corp.
Yuji Iwanaga	Director	Attorney
Takeshi Natsuno	Director
Tomio Kazashi	Standing Corporate Auditor
Toshio Hirakawa	Corporate Auditor	Standing Corporate Auditor of Sammy Corp.
Hisashi Miyazaki	Corporate Auditor	Standing Corporate Auditor of Sega Corp.
Mineo Enomoto	Corporate Auditor	Corporate Auditor of Sega Corp., Attorney

Notes:	1.	Of the directors, Yuji Iwanaga and Takeshi Natsuno are Outside Directors, as defined by the Companies Act, Article 2-15

	2.	Three of the auditors — Standing Auditor Tomio Kazashi, and Corporate Auditors Toshio Hirakawa and Mineo Enomoto — are Outside Auditors as defined by the Companies Act, Article 2-16.

	3.	Standing Auditor Tomio Kazashi was elected, and assumed office, at the regular shareholders meeting of June 18, 2009.

	4.	The Company has instituted an executive officer system, with the aim of ensuring speedy management decision-making, strengthening oversight of operational execution, and strengthening operational executive functioning. The company has four executive officers: Hideo Yoshizawa (General Manager of Administration Department), Koichi Fukazawa and Takatoshi Akiba (in charge of policies and external affairs), and Tetsushi Ikeda (General Manager of Group Internal Control and CSR Promotion Office, General Manager of Internal Audit Office).

(2)

Total amount of executive compensation


Category	Number of persons		Amount of compensation
Director		5		¥489 million
Auditor		3		¥23 million
Total		8		¥513 million

Notes:

Compensation figures include ¥110 million in executive bonuses (¥107 million for directors, ¥2 million for auditors).

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	2.		The regular shareholders meeting of June 20, 2006 passed a decision to limit directors’ compensation to ¥600 million.

	3.		The Sammy Corp. regular shareholders meeting of June 25, 2004 and the Sega Corp. regular shareholder meeting of June 29, 2004 passed decisions to limit auditors’ compensation to ¥50 million.

	4.		The above includes compensation for one auditor who retired as of the June 18, 2009 regular shareholders meeting.

	5.		In addition to the above, a retirement bonus of ¥5 million was paid to one auditor who retired as of the June 18, 2009 regular shareholders meeting.

	6.		In addition to the above, at the June 18, 2009 regular shareholders meeting a decision was reached to end the executive retirement bonus payment system for directors and auditors, and to pay final executive bonuses instead. In the fiscal year under review, such final bonuses totaled ¥276 million for two directors, and payment was made at the time of their retirement.

(3)

Main activities of Outside Directors


Category	Name	Description of Main Activities
Outside Director	Yuji Iwanaga	Attended 10 of 11 Board of Directors meetings in the fiscal year under review (8 of 9 ordinary BoD meetings), and offered mainly legal and management expertise, making motions that ensured the suitability and fairness of BoD decisions.
Outside Director	Takeshi Natsuno	Attended 11 of 11 Board of Directors meetings in the fiscal year under review (9 of 9 ordinary BoD meetings), and offered mainly management expertise, making motions that ensured the suitability and fairness of BoD decisions.
Outside Auditor	Tomio Kazashi	Attended 8 of 8 Board of Directors meetings in the fiscal year under review (7 of 7 ordinary BoD meetings), and offered mainly management expertise, making motions that ensured the suitability and fairness of BoD decisions. Also, attended 8 of 8 auditors committee meetings in the fiscal year under review, exchanging views on the audit results, and consulting cooperatively on important points concerning audits.
Outside Auditor	Toshio Hirakawa	Attended 11 of 11 Board of Directors meetings in the fiscal year under review (9 of 9 ordinary BoD meetings), and offered mainly management expertise, making motions that ensured the suitability and fairness of BoD decisions. Also, attended 8 of 8 auditors committee meetings in the fiscal year under review, exchanging views on the audit results, and consulting cooperatively on important points concerning audits.
Outside Auditor	Mineo Enomoto	Attended 9 of 11 Board of Directors meetings in the fiscal year under review (8 of 9 ordinary BoD meetings), and offered mainly legal and management expertise, making motions that ensured the suitability and fairness of BoD decisions. Also, attended 11 of 12 auditors committee meetings in the fiscal year under review, exchanging views on the audit results, and consulting cooperatively on important points concerning audits.

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Note:

For Outside Auditor Tomio Kazashi, attendance figures cover the period after the regular shareholders meeting of June 18, 2009, when he assumed office.

(4)

Items concerning agreements to limit liability of Outside Officers

			At the June 20, 2006 regular shareholders meeting for Fiscal Year No. 2, the Company changed its bylaws to establish new rules regarding agreements to limit the liability of Outside Auditors.

			The following is a summary of the details of the limited-liability agreement the Company reached with Outside Auditor Mineo Enomoto, based on these new bylaws.

			(Summary of details of limited-liability agreement)

			Regarding liability indemnity under Article 423-1 of the Companies Act, liability for restitution is limited to the minimum amount specified by law, except in cases of malicious intent or gross negligence.

(5)

Total amount of compensation for Outside Officers

# of

Amount of

Of which, amount paid by

people

compensation

subsidiaries

Total amount of compensation for Outside Officers

¥69 million

¥16 million

Notes:	1.	Compensation figures include ¥2 million in bonus payments (auditors ¥2 million).

	2.	Compensation figures include ¥4 million in executive bonus payments (auditors ¥4 million) due to be paid by subsidiaries.

	5.	Items concerning statutory auditors

	(1)	Name

KPMG Azusa LLC

(2)

Items concerning agreements to limit liability of Statutory Auditor

At the June 20, 2006 regular shareholders meeting for Fiscal Year No. 2, the Company changed its bylaws to establish new rules regarding agreements to limit the liability of Statutory Auditors.

The following is a summary of the details of the limited-liability agreement the

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Company reached with Statutory Auditor KPMG Azusa LLC, based on these new bylaws. (Summary of details of limited-liability agreement) Regarding liability indemnity under Article 423-1 of the Companies Act, liability for restitution is limited to the minimum amount specified by law, except in cases of malicious intent or gross negligence.

(3)

Amount of compensation


		Amount
Amount of compensation in fiscal year under review		¥150 million
Total of cash and other assets/profits to be paid by company and/or subsidiaries to Statutory Auditor		¥382 million


Notes:	1.	Subsidiaries Japan Multimedia Services Corp., Sega Europe Ltd., and others were audited by auditors other than the Company’s Statutory Auditor.

	2.	Apart from operations specified under the Certified Public Accountants Act Article 2-1, the Company also outsources financial due diligence operations to the Statutory Auditor.

Guidelines for decisions to dismiss or not to reappoint

(4)

As a basic rule, the Company shall seek the advice of the Audit Committee regarding decisions to dismiss or not to reappoint the Statutory Auditor; if a decision is reached that any of the items in the Companies Act Article 340-1 is applicable, the basic directive is to dismiss the Statutory Auditor. Similarly, decisions to reappoint or not reappoint should be based on considerations of how well the Statutory Auditor has performed its duties.

Summary of details of decision regarding the establishment of systems to ensure the properness of operations

The Company has decided basic guidelines for the establishment of internal regulatory systems based on the Companies Act, as follows, and strives to realize these systems.

(1)

Systems to ensure that Directors’ performance of their duties is in keeping with the law and with company bylaws

To ensure that all corporate activities are based on compliance with the law, the company shall establish basic guidelines for social responsibility that define what it should do as a member of society, part of which shall be compliance systems forming the basis of a group CSR declaration and a group code of conduct; the representative director shall communicate the spirit of these instruments regularly to the company’s officers and employees. In addition, to ensure that the execution of the company’s

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			operations as a whole is both proper and healthy, the Board of Directors shall, from the perspective of further strengthening corporate governance, establish a system of effective internal regulations, as well as systems to ensure that the company as a whole adheres to laws and bylaws.

			The Audit Committee shall oversee the effectiveness and functioning of these internal rules, checking regularly to ensure the early detection and remedy of any issues.

	(2)		Systems for the preservation and administration of information related to the execution of the Board of Directors duties

			The representative director shall appoint the director in charge of the administration department as having overall company responsibility for the preservation and management of information related to the execution of the Board of Directors duties; based on the company’s internal rules and regulations, information related to the execution of these duties shall be recorded in paper or electronic form, and stored and administered in such a way that it can be easily accessed by directors and auditors, as necessary and appropriate.

	(3)		Systems for rules etc. regarding the management of risk of losses

			Regarding risks attached to the execution of the company’s operations, each department of the company is responsible for analyzing and categorizing risks, and clarifying risk management systems; the internal audit department and the internal rules department oversee and monitor the risk management situation of all departments, and report regularly to the management and administrative organizations responsible for management decision-making, execution and oversight.

	(4)		Systems for ensuring that directors execute their duties effectively Systems for ensuring that directors execute their duties effectively, the Company uses an auditor system to ensure that the decision-making process is swift and accurate, and carried out by internal officers who are well versed in the Group’s business; this system ensures that duties are carried out properly and effectively, in keeping with the Board of Directors rules and other regulations on professional duties, authority and the decision-making process.

	(5)		Systems to ensure that employees carry out their professional duties in accordance with the law and bylaws

(1) The compliance functions of the Company and the Group reside with the department responsible for internal rules, which shall promulgate group compliance measures aimed at ensuring employees conduct themselves properly, in accordance with the law, other company-internal rules, and socially accepted norms.

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(2) If it becomes known that an employee has violated the law, company bylaws, company-internal rules or social norms, a whistle-blowing system shall be put in place, as well as systems to ensure that the person responsible reports important instances without delay to the Board of Directors and/or the Audit Committee. To protect the person making this report, and to maintain transparency and suitable handling of such matters, in addition to regular operational reporting channels, a reporting hotline to the company-internal compliance authorities and outside legal counsel shall be established to receive such reports.

	(6)		Systems to ensure the propriety of actions by the corporate group consisting of the Company, the Parent Company and the Subsidiaries

			The Company shall establish a Group executives contact group, Group auditors contact group, etc., to deal with problems existing within the corporate group, as well as important risks and related rules; from the perspective of securing profit for the group as a whole, the Company’s internal audit department shall supervise, and share information within the corporate group to the extent possible, and make efforts to ensure the proper execution of the company’s operations.

	(7)		Items concerning employees requested by auditors to help with their professional duties

			An audit office shall be established, as an organization attached directly to the Audit Committee; the employees of the audit office shall follow the directions of the Audit Committee and assist the auditors in their professional duties.

	(8)		Items regarding employees described in the preceding Item, and their independence from the directors

(1) Employees assisting the auditors in their professional duties shall not be receptive to direction or supervision by directors.

(2) Employment, dismissal, reassignment, evaluation, penalization or changes in compensation concerning the above employees shall require prior approval by the board of directors.

(9)

Systems for directors and/or employees to report to the auditors, and other systems for reports to supervisory officers

(1) If directors and/or employees, in connection with their duties, become aware of facts regarding significant violations of the law or bylaws, or other wrongful acts, or matters that may be feared to cause significant harm to the company, they must report such matters to the auditors without delay.

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(2) Employees and directors must report to the auditors without delay any decisions that might have a significant impact on the Company’s business or organization, results of internal audits, and evaluation results related to internal regulations and financial reporting.

(10)

Other systems to ensure that the Auditors’ audits go smoothly

(1) The representative director shall meet regularly with the auditors, separate from organizational reports, to exchange views on the operations of the company, and to ensure that views are mutually understood.

(2) The Board of Directors shall ensure that Auditors attend important executive meetings, to ensure the propriety of operations.

(3) The Board of Directors shall, independently, as necessary, work with attorneys, accountants and other outside advisors, to ensure the creation of opportunities for assistance in the Auditors’ functions.

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Balance Sheet
(as of March 31, 2010)

(Unit: ¥ millions)


Item	Amount		Item	Amount
Assets			Liabilities
Liquid assets		5,532	Liquid liabilities		1,177
Cash and deposits		3,389	Short-term borrowings		440
Prepaid costs		56	Other accounts payable		26
Other		2,086	Accounts payable		278
Fixed assets		306,465	Deferred income		0
Tangible fixed assets		3,824	Reserves for executive bonuses		110
Buildings		1,004	Reserves for other bonuses		98
Structures		936	Other		205
Machinery and fixtures		5	Fixed liabilities		470
Vehicles and transport equipment		58	Deferred tax liabilities		158
Tools, apparatus and equipment		401	Pension reserves		35
Land		1,418	Total liabilities		1,647
			Net assets
Intangible fixed assets		170	Shareholder equity		309,566
Trademarks		9	Capital		29,953
Software		158	Capital surplus		287,152
Other		2	Capital reserves		29,945
			Other capital surplus		257,207
Investments and other assets		302,470	Retained profits		109,237
Investment marketable securities		15,156	Other retained profits		109,237
Shares in affiliated companies		284,132	Retained earned surplus		109,237
Other marketable securities of affiliated companies		2,396	Treasury shares		-116,777
Long-term loans to affiliated companies		24	Revaluation and translation adjustments		-281
Long-term prepaid costs		2	Other revaluation adjustments on marketable securities		-281

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Income Statement
April 1, 2009 to March 31, 2010

(Unit: ¥millions)


Item	Amount
Operating income
Management instruction fees		5,583
Dividends received		7,558	13,142
Operating costs
SG&A expenses		4,897	4,897
Operating profit			8,244
Non-operating revenues
Interest income received		4
Interest on marketable securities		18
Dividend income received		340
Income from operation of lease assets		188
Other		91	642
Non-operating costs
Interest paid		22
Fees and commissions paid		68
Investment partnership operating loss		352
Costs for operation of lease assets		103
Other		5	551
Recurring profit			8,334
Extraordinary profit
Profits from sale of fixed assets		0
Profits from sale of marketable securities		18
Income from exercise of stock options		61	81
Extraordinary losses
Losses on sale of fixed assets		7
Eliminations of fixed assets		0
Valuation losses on other marketable securities of affiliated companies		1,380	1,388
Pretax profit			7,027
Income tax, local income tax and enterprise taxes			12
Net profit			7,015

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(Note)		Amounts less than ¥1 million are truncated.

Statement of Changes in Shareholder Capital
April 1, 2009 - March 31, 2010

(Unit: ¥million)


	Shareholder Capital
			Capital Surplus
	Capital		Capital reserves		Other capital surplus		Capital surplus
Balance, previous fiscal year		29,953		29,945		257,211		287,157
Change in year under review
Dividends from surplus
Net profit
Purchases of treasury stock
Disposals of treasury stock						-4		-4
Total change in year under review		—		—		-4		-4
Balance at end of year under review		29,953		29,945


	Shareholder capital
	Retained earnings
	Other retained earnings
	Deferred retained		Total retained		Paid-in		Total shareholder
	earnings		earnings		capital		capital
Balance, previous fiscal year		109,779		109,779		-116,770		310,119
Change in year under review
Dividends from surplus		-7,557		-7,557				-7,557
Net profit		7,015		7,015				7,015
Purchases of treasury stock						-12		-12
Disposals of treasury stock						6		1
Total change in year under review		-541		-541		-6		-552
Balance at end of year under review		109,237		109,237		-116,777		309,566

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Notes

Notes on Items concerning Important Accounting Guidelines

Asset valuation standards and methods

(1)

Valuation standards and methods for marketable securities

	i.		Shares in subsidiaries and affiliates

	ii.		Other marketable securities

			Instruments with a current market value: Current value method, based on market price on final day of reporting period. (Revaluation adjustments are reported as a component of net assets; cost of assets sold calculated using moving-average method)

			Instruments with no current market value: Cost calculated using moving-average method.

			However, investments in limited-liability investment partnerships and similar institutions (instruments that may be construed as securities under the Financial Instruments and Exchange Act Article 2-2) are evaluated based on the equity-method share of net assets, as stated in obtainable financial statements closest to the settlement report date, as specified in the partnership contract.

Methods for depreciation of fixed assets

	(1)		Tangible fixed assets: The fixed percentage method is used.

			For buildings (excluding attached equipment) however, the straight-line method is used.

			Key values used for serviceable life are as follows:


Buildings		2-50 years
Structures		2-50 years
Tools, apparatus and equipment		2-20 years

For items acquired prior to March 31, 2007, once the depreciable limit is reached, beginning the following year the equal-amortization method is applied for five years.

	(2)		Intangible fixed assets: The straight-line method is used.

			For software used in-house, the straight-line method is applied

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for the duration of the serviceable life (five years).

Reserves

	(1)		Reserves for executive bonuses: To fund bonuses to be paid to executives, an amount is set aside equal to the amount to be paid.

	(2)		Reserves for other bonuses: To fund bonuses to be paid to other employees, an amount is set aside equal to the amount to be paid.

(3)

Pension reserves: To fund pensions for employees, an amount is set aside equal to the amount of pension benefits expected to be paid at the end of the current fiscal year.

Other important points regarding the preparation of financial statements

	(1)		Accounting treatment of Consumption Tax, etc.

			The accounting treatment method for consumption tax, local income tax, etc. is the tax-excluded method.

Changes in method of presentation

	(1)		Balance sheet

			The item “corporate taxes receivable,” which was included in our statements for the year ended March 31, 2009, has been rolled into the category “Other” under Liquid Assets for the fiscal year under review, because the amount had become small.

	(2)		Income statement

			The item “Costs for Operation of Lease Assets,” previously included as part of “Other” under Non-Operating Costs, has been broken out as a separate item beginning with the fiscal year under review, because the amount grew greater than 10% of Non-Operating Costs. In the preceding fiscal year, the amount of “Costs for Operation of Lease Assets” included as part of the “Other” category was ¥54 million.

	6.		Additional information

			Reserves for executives’ retirement bonuses: At the regular shareholders meeting in June 2009, it was decided to end retirement bonuses for executives, and a motion to pay final bonuses was approved. For this reason, the system of reserves for executive retirement bonuses was scrapped, and

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the unpaid portion of final bonuses are now recorded in the “Other” category under fixed liabilities.

II.

Notes on Balance Sheet

(1)	Total depreciation of tangible fixed assets	¥457 million

(2)	Receivables from and payables to affiliated companies

	Short-term receivables	¥505 million

	Short-term payables	¥38 million

	Long-term receivables	¥24 million

III.

Notes on Income Statement

	Transactions with affiliated companies

	Management training fees		¥5,583 million

	Dividends received (operating income)		¥7,558 million

	Cost of sales, SG&A expenses		¥49 million

	Non-operating transactions		¥703 million

IV.

Notes on Statement of Changes in Shareholder Capital


Type and number of shares of treasury stock in fiscal year under review Ordinary shares		31,315,801 shares

V.		Notes on tax-effect accounting

		The main causes of deferred tax assets were deferred losses and investment marketable securities, where valuation losses on shares of affiliated companies and other marketable securities of affiliated companies were treated as unfactored losses; these were recorded as valuation reserves, for the entire amount of deferred tax assets, based on the likelihood of recovery. The main causes of deferred tax liabilities were other revaluation losses on marketable securities.

VI.

Notes on transactions with related parties

(1)

Subsidiaries, affiliated companies, etc.

I-3-57

(Unit: ¥million)

Type

Company
name

Equity
shareholding
(held)

Relationship

Details of
transaction

Amount
(Note 1)

Sega Sammy:		Shiodome Sumitomo Building, 1-9-2 Shimbashi, Minato-ku, Tokyo SEGA SAMMY HOLDINGS INC. Hajime Satomi, Chairman of the Board and Chief Executive Officer

Sammy NetWorks:		3-1-31 Minami-Aoyama, Minato-ku, Tokyo Sammy NetWorks Co., Ltd. Masaaki Ono, President and Representative Director

			Events Such as Disposition of Significant Assets as well as Incurring of Significant Liabilities and Other Events Having a Material Influence on the Condition of the Assets of the Company that have Occurred on the Final Day of the Final Fiscal Year

			None to be mentioned.


	Revaluation and translation adjustments
							Net
	Other revaluation adjustments		Total Revaluation and		Share acquisition		asset
	on marketable securities		translation adjustments		rights		total
Balance, previous fiscal year		-1,939		-1,939		1,127		309,307
Change in year under review
Dividends from surplus								-7,557
Net profit								7,015
Purchases of treasury stock								-12
Disposals of treasury stock								1
Change (net) in items other than shareholder capital		1,657		1,657		-61		1,595
Total change in year under review		1,657		1,657		-61		1,042
Balance at end of year under review		-281		-281		1,065		310,350

Notes:	1.	Transaction values do not include Consumption Tax.

	2.	For purposes of group company management and administration, fees for management training are set at the level necessary to cover the Company’s necessary costs.

	3.	With the aim of unifying and making optimum use of group-internal fund-raising and management, these are handled as cash management system transactions; interest is calculated at market interest rates.

Notes:	1.	Transaction values do not include Consumption Tax.

	2.	Company chairman/president Hajime Satomi directly owns 53% of the shares of FSC.

	3.	Handled as a routine transaction, the price of which was calculated based on market rates.

	4.	Transaction price was based on prevailing prices.


	Satoshi Nakaizumi Designated and Engagement Partner Certified Public Accountant


	Michitaka Shishido Designated and Engagement Partner Certified Public Accountant


	Hiroyuki Nakamura Designated and Engagement Partner Certified Public Accountant


	Board of Corporate Auditors,
	SEGA SAMMY HOLDINGS INC.


	Tomio Kazashi, Standing Corporate Auditor (Outside Auditor)


	Toshio Hirakawa, Outside Auditor


	Hisashi Miyazaki, Corporate Auditor


	Mineo Enomoto, Outside Auditor

	*		Please note that the venue of extraordinary shareholder meeting is different from the general shareholder meeting. For your convenience, please bring this guide map with you.

	*		Please kindly note that parking lot is not provided by the venue. Shareholders attending the meeting are encouraged to use public transportation instead.