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Announcement of Capital and Business Alliance Between GALA Inc. and Vector Inc.

02/14/2008

Tokyo, Japan – 14th February 2008 – GALA Inc.(GALA) and Vector Inc.(Vector) today signed a Memorandum of Understanding setting forth a basic agreement to work towards establishing a capital and business alliance. Additionally, Vector will be investing in GALA through the purchase of newly issued shares.

1.Background and purpose of the capital and business alliance

Japan’s online games market has been growing explosively in recent years, partly due to the ready availability of broadband. In 2006, the size of the market was estimated to be 101.5 billion yen, of which PC games accounted for 71 billion yen. This is an increase of 24% over 2005 (figures from Online Game Forum’s “Online Games Market Statistics Report 2007”). Likewise, the global market has been estimated at 4.5 billion U.S. dollars in 2006 and is estimated to reach 13 billion dollars in 2012(projections by DFC Intelligence, a U.S. market research and consulting firm).
However, the development of online games is becoming ever more costly due to the increasing scale of productions and ever more sophisticated graphics technology. It can often be difficult for developers to turn a profit without licensing their product to operators in multiple foreign countries.

Both GALA and Vector have a focus on the online games market. GALA, as part of its mission to become the “World’s premier global online community company” through the provision of online, community-related services, has established subsidiaries in the U.S. and Europe (GALA-NET INC. and GALA NETWORKS EUROPE LTD., respectively) specifically for the operation of online games. Vector, a leader in electronic software distribution, has designated online games as a new core business, and entered the Japanese market in May 2007 throught the establishment of a new consolidated subsidiary, VerX Inc.
Through the new alliance, both companies will develop, expand and pursue new business opportunities in the field.

GALA and Vector, together with their subsidiaries, will jointly search for, negotiate, and license new online game titles. Operation of the licensed titles will be by VerX Inc. in Japan, GALA-NET Inc. in the U.S., and GALA NETWORKS EUROPE LTD. in Europe. Titles developed in-house will continue to be operated by their respective company and/or its group companies.
By working togher, GALA and Vector aim to offer better terms in their negotiations with developers, thus enabling the procurement of superior titles. The greater royalties developers receive will also benefit all parties, by enabling the stable and ongoing improvement of the titles. Furthermore, in order to strengthen the relationship between the companies and to respond to GALA’s financing needs, Vector will be investing in GALA (details below). GALA plans to use the funding to acquire new online game titles.

3.Overview of the capital allian

(1) Number of new shares to be issued by GALA:
3,500 common shares
(2) Issue price:
46,730yen per share
(Average of the closing price for the last three months, rounded down to the nearest 10 yen)
(3) Total value of shares issued:
163,555,000yen
(4) Transaction date:
3 March 2008
(5) Number of shares to be acquired by Vector:
3,500 common shares
(6) Number of shares that will be owned by Vector after transaction:
3,500 common shares
(7) Percentage of total outstanding shares of GALA that will be owned by Vector after the transaction:
4.97%

This transaction will result in Vector becoming GALA’s second larget shareholder. All payment from Vector will be in cash.

4.Projections

The influence that the capital and business alliance will have on the consolidated and non-consolidated financial statements of GALA and Vector for FY 2008 is expected to be negligible. In the event that the influence becomes significant, an announcement will be made.

5.Overview of the companes involved

Overview of GALA Inc.(As of 30 September, 2007)

(1) Trade name: GALA INC.
(2) Representative: Noriyuki Hirosue, President
(3) Address: Shibuya Prestage 3F, 3-12-22, Shibuya, Shibuya-ku, Tokyo, Japan
(4) Established: 3 September, 1993
(5) Core business domain: Operation of online games, services
(6) End of company’s fiscal year: March 31st
(7) Number of employees, consolidated: 276
(8) Capital: 1,243,796,000 yen
(9) Shares outstanding: 66,857.3(Before this transaction)  70,357.3(After this transaction)
(10) Homepage: http://www.gala.jp/

Overview of Vector Inc.(As of 30 September, 2007)

(1) Trade name: Vector Inc.
(2) Representative: Nobuhiro Kajinami, President
(3) Address: Nishi-Shinjuku KF Building 5F, 8-14-24 Nishi-Shinjuku, Shinjuku, Tokyo, Japan
(4) Established: 3 February, 1989
(5) Core business domain: Sale of licensed PC software over the internet, sale of advertisements on company website
(6) End of company’s fiscal year: March 31st
(7) Number of employees, consolidated: 75
(8) Capital: 983,552,000 yen
(9) Shares outstanding: 69,012
(10) Homepage: http://www.vector.co.jp/

Disclaimer: This summarized translation is provided for convenience only. In the event of any discrepancy with the Japanese original, the original shall prevail.

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