MICROSOFT ANNOUNCES LEADING SEGA GAMES FOR XBOX.

Microsoft Corp. (Nasdaq: MSFT) has announced that SEGA-AM2 Co. Ltd., a new subsidiary of Sega Corp., and Sonic Team Ltd. are developing popular game titles for the Microsoft Xbox video game system.

SEGA-AM2 will be developing its hit title "Shenmue II," the popular game series and current Sega Dreamcast bestseller that goes beyond the boundaries of existing games with an exciting story line. "Shenmue II" is the sequel to "Shenmue," which sold a record 1.2 million copies worldwide. Since its release on Sept. 6, "Shenmue II" has attracted attention due to its vast world and photo-realistic imagery never before depicted in video games. In the development of "Shenmue II," the full potential of Xbox has been utilized to convey the game's magnificence.

Sonic Team will be developing the networked RPG game "Phantasy Star Online (working title)" for Xbox. This game has amassed more than 300,000 registrants since its launch and has garnered several awards, including the Fifth Annual Japan Game Award. "Phantasy Star Online (working title)" is the first consumer networked RPG game that is compatible worldwide. The game has attracted its large audience by continuously incorporating innovative elements that set it apart from other networked RPG games. These elements include a word select system that allows players to communicate with other players worldwide and a visual lobby that expands the breadth of communications by adding graphic elements to text-based chat, a current standard of network games. "Phantasy Star Online (working title)" for Xbox will provide content that will be a major factor in Microsoft's broadband network strategy.

"In addition to the numerous Xbox game titles previously released by Sega, the significance of major titles such as 'Shenmue II' and 'Phantasy Star Online (working title)' being added to the lineup is just enormous," said Robbie Bach, chief Xbox officer at Microsoft. "Gamers will have the opportunity to enjoy masterpieces by world-renowned Yu Suzuki and Yuji Naka through the powerful graphics, sound and broadband network capabilities of Xbox."

"By bringing 'Shenmue II' and 'Phantasy Star Online (working title)' to Xbox, we are bringing Sega's renowned franchises to even more gamers worldwide," said Peter Moore, president and COO, Sega of America. "We expect that both titles will be killer apps on Xbox and that the technical capabilities of the platform will surely bring both games to new levels in terms of graphics and experience."

"Shenmue II" is the sequel to "Shenmue," which was a top-selling Dreamcast title. In "Shenmue II," the main character has left Yokosuka and makes his way to China, unraveling the mystery of his father's death during his travels. This is a masterpiece of unprecedented scale, with 10 times more environments and three times more characters than the previous title.

"Phantasy Star Online (working title)" has garnered 14 awards worldwide, including the Fifth Annual Japan Game Award. It is the world's largest networked RPG game with more than 300,000 users worldwide, drawn by the unparalleled automatic translation system, word select system, compatible with five languages. This game has been heralded as showing the future of networked RPG games.

Xbox ( http://www.xbox.com/ ) is Microsoft's future-generation video game system that delivers the most powerful games experiences ever. Xbox empowers game artists by giving them the technology to fulfill their creative visions as never before, creating games that blur the lines between fantasy and reality. Xbox will be available in North America on Nov. 15, 2001, at the estimated retail price of $299.99.

Sega of America is the American arm of Tokyo, Japan-based Sega Corp., responsible for the development, marketing and distribution of Sega video game systems and video games in the Americas. Sega Corp. is a nearly $2.5 billion company recognized as the industry leader in interactive digital entertainment media, offering interactive entertainment experiences both inside and outside the home. Sega of America's World Wide Web site is located at http://www.sega.com/.