＜Translation＞
August 27, 2008
For Immediate Release:
Company name: Digital Garage, Inc.
Representative: Kaoru Hayashi, President/CEO(JASDAQ code: 4819)(URL http://www.garage.co.jp/)
Direct inquiries to: Board Director Kota Sakurai,
TEL:+81-3-5465-7747

Company name: ECONTEXT, Inc.
Representative: Hitoshi Ushiku, President/CEO(OSE Hercules code: 2448)(URL http://www.econtext.co.jp/)
Direct inquiries to: Moriya Sato, Vice President
TEL:+81-3-5464-6461

Announcement Concerning Merger between
Digital Garage, Inc. and ECONTEXT, Inc.
Digital Garage, Inc. (Head office: Shibuya-ku, Tokyo, President/CEO Kaoru Hayashi, hereinafter“Digital Garage”) and ECONTEXT, Inc. (Head office: Shibuya-ku, Tokyo, President/CEO Hitoshi
Ushiku, hereinafter “ECONTEXT”) are pleased to announce that their respective boards of directors
passed a resolution held on August 27, 2008 approving an absorption merger effective as of
October 27, 2008, with Digital Garage as the surviving company and ECONTEXT as the dissolving
company, and both companies entered into a merger agreement as described below.
In addition, the Board of Directors of Digital Garage passed a resolution in its meeting held on
August 27, 2008 to authorize the surviving company of Digital Garage, Inc. to absorb and merge
with the dissolving companies of DG Solutions Co., Ltd. (hereinafter “DG Solutions”), a wholly
owned subsidiary of the Company, and DG & Ibex, Inc. (hereinafter “DG & Ibex), Creative Garage,
Inc. (hereinafter “Creative Garage”), and DG Media Marketing, Inc. (hereinafter “DG Media
Marketing”), all of which are wholly owned subsidiaries of DG Solutions, and entered into a merger
agreement with these dissolving companies. The Merger is subject to the demerger of Sogei Inc., awholly owned subsidiary of DG Solutions, in which Sogei inherits the rights and obligations of DG
Media Marketing concerning its e-marketing business. The demerger is scheduled for October 27,
2008, the same day as the effective date of the merger. On August 27, 2008, DG Marketing andSogei entered into a demerger agreement. For details of the demerger and the merger with thewholly owned subsidiaries, please refer to the press release that was published separately by
Digital Garage on August 27, 2008.

-1-

Notes
1. Purpose of the Merger
Digital Garage, Inc. was founded in 1995 to conduct advertising, planning, production, and otherbusinesses via the Internet. It operates according to a management vision to create new contexts(foundations in diversifying values) and contribute to society by organically connecting a variety ofcomplex data and further enhancing the value of existence for corporations, customers, and data.
It aims to do this by utilizing the Company’s solution expertise based on its achievements since theearly days of the Internet industry, and effective utilization of the state-of-the-art Internet
technologies.
Digital Garage adopted the pure holding company system through a company split in January 2006
in order to strengthen its group management function, clarify the profitability and management
responsibilities of each of its business, and enhance the speed and flexibility of decision-making ineach of its businesses. The Company operates in four core business areas: the solution businessfor IT construction, marketing promotion support, and Internet advertising-related business; theportal/blog business for Internet media businesses, such as Kakaku.com; the incubation businessfor investment in and development of venture and other companies; and the financing business forsettlement and logistics, such as ECONTEXT’s e-commerce, as well as foreign exchange margintransactions.
The corporate solution business is increasingly required to hybridize by comprehensively
connecting “real” business and cyber (Internet) business. In the Digital Garage Group, we have DG& Ibex that promotes “real” and cyberspace businesses; DG Media Marketing that has established
web advertising as its business domain; and Creative Garage that runs a creative production
business. In addition, ECONTEXT, which conducts settlement business, can be defined in a broader
sense as a corporate solution business. Digital Garage, a pure holding company, believes that theCompany has succeeded in offering unique solutions that its competitors are unable to provide, byencouraging close working relationships between its solution companies.
Digital Garage, as a major shareholder of ECONTEXT, has supported its business operations since
its establishment in May 2000. Since January 2003 in particular, when ECONTEXT became aconsolidated full subsidiary of Digital Garage, the Company has considered ECONTEXT as the corecompany in Digital Garage’s corporate solution business, and they have complemented each otherin the way they conduct business.
ECONTEXT was listed in June 2005 in order to further improve its financial strength and increase
its social trustworthiness.

ECONTEXT has developed its business mainly through providing

settlement infrastructure for e-commerce companies, and it has achieved a leading position,
particularly in the area of convenience store settlement business.
ECONTEXT can be considered as an exclusive settlement business entity, since 93% of its sales
were derived from its settlement services in the fiscal year ended on June 30, 2008. About 50% of
all settlement transactions were generated in the field of electronic money, which is used in online
games and media content download, and the remaining 50% were derived from settlement ofmerchandise sales, ticket sales, and sales at various organizations. The e-commerce market is
expected to grow further in the medium- and long-term. On the other hand, the introduction of
settlement infrastructure by major e-commerce companies has taken a hit. For this reason, we
recognize that the key to achieving a rate of growth that exceeds market expansion is through-2-

enhancing and expanding services for existing clients, as well as by advancing into peripheral fields
associated with settlement. With this background in mind, we also recognize that the existingcustomer base needs to be maintained and further expanded with the acquisition of new clients. In
addition, we need to develop a system and implement a wide range of marketing activities toprovide one-stop settlement solutions on cards and mobile devices, on top of our main businessline of convenience store settlement. We need to offer total settlement solutions that maximize ourcustomers’ profits to expand our business field into the peripheral fields associated withsettlement. We therefore believe that our medium- to long-term growth is contingent upon our
grasp of customers’ business processes from business development to fund collection, and ourprovision of comprehensive solutions that range from proposal to system development to business
operation to settlement.
However, in addition to the issues related to the corporate size of ECONTEXT and its limited humanmanagement resources, ECONTEXT had little expertise in the fields of system development andmarketing. In order to compensate for these shortcomings, ECONTEXT has strengthened its
collaboration with the solution companies of the Digital Garage Group.
In this environment, disharmony began to arise between Digital Garage and its solution companies
and ECONTEXT, because business collaboration was strengthened largely due to the pure holding
company format. Specifically, issues such as the following have become evident between the groupbusiness companies, including ECONTEXT: slower decision-making speed for offering totalsolutions, conflicts in the distribution of human resources relating to system development andmarketing, and time-consuming adjustment processes for transaction prices and profit sharing
among each company. These issues, in turn, led to conflicting interests that hindered the
maximization of group value through maximizing business synergy. In addition, awareness had
arisen of problems in the areas of internal control system introduction and appropriate distributionof management resources, as the cost of managing stock exchange listings increased. We havereached the conclusion that the diffused management resources need to be optimally redistributed
to solve these issues, implement strategies for further growth, and conduct business in a flexible
manner. It was therefore decided that Digital Garage would be transformed from a pure holding
company to an operating holding company. On August 27, 2008, Digital Garage and ECONTEXT
entered into an absorption merger agreement. On the same day, Digital Garage entered into anabsorption merger agreement with the following four companies: DG Solutions, DG & Ibex,
Creative Garage, and DG Media Marketing.
By amalgamating with their solution companies, Digital Garage and ECONTEXT will optimize sales
channels and conduct cross-marketing. This, in turn, will enable Digital Garage to offer a morecomprehensive consultation, marketing, and settlement unit that can solve customers’ issues. The
Company will therefore be able to further enhance the corporate value of the DG Group. The
Company has chosen not to turn ECONTEXT into a wholly owned subsidiary but to carry out amerger, which is the simplest and most effective management form for dissolving conflicts
between maximizing the interests of each subsidiary and the group as a whole, reducing cost in
indirect divisions, and constructing a system that can obtain large orders and promptly implement
unified growth strategies. In addition, by choosing a merger, Digital Garage will actively reward its
shareholders through maximizing business synergy, cost synergy and financial synergy at theearliest point in time.
Digital Garage is resolved to continue making constant efforts after the merger as a corporate-3-

group that creates new businesses, in line with the management vision of contributing to society.
[Delisting schedule and reason]
As a result of the merger, ECONTEXT, Inc. is scheduled to be dissolved on October 27, 2008, theeffective date of the merger. The ECONTEXT stocks currently listed on the Hercules Market of the
Osaka Securities Exchange are scheduled to be delisted in accordance with the procedures
stipulated in the regulations of the Osaka Securities Exchange (currently, ECONTEXT shares arescheduled to be delisted on October 21, 2008). After delisting, ECONTEXT shares may not be
traded on the Hercules Market of the Osaka Securities Exchange.
Digital Garage, Inc. does not plan to apply to list its shares on the Osaka Securities Exchange.
[Reason for delisting and consideration for compensation measures]
As noted above, ECONTEXT shares are scheduled to be delisted after the implementation of themerger. Digital Garage believes that it is able to continue to offer stock liquidity to ECONTEXT
shareholders since common shares of Digital Garage, which are scheduled to be allotted to
ECONTEXT shareholders in the merger, are listed on the JASDAQ Market. In addition, we believethat the merger will enhance the corporate value of the overall Digital Garage Group, and that
Digital Garage will be able to adequately respond to the expectations of shareholders, including
current ECONTEXT shareholders who are scheduled to hold Digital Garage shares. Incidentally,shareholders who are allotted shares including fractions of less than one share may use thefractional share buy-up system.
[Measures for guaranteeing fairness]
Digital Garage holds 44.0% of all issued ECONTEXT shares, and ECONTEXT is a consolidated
subsidiary of Digital Garage. In order to guarantee fairness with regard to the merger ratio, both
Digital Garage and ECONTEXT asked independent third party institutions to calculate a fair merger
ratio. The companies negotiated using the results of the merger ratio calculations, and decided to
implement the merger based on the agreed merger ratio.
The third party institution used by Digital Garage was Nomura Securities Co., Ltd (hereinafter“Nomura Securities”), and ECONTEXT used Nikko Cordial Securities, Inc. (hereinafter “Nikko
Cordial Securities”) to calculate the merger ratio.
[Measures for avoiding conflicts of interest]
To avoid conflicts of interest, Kaoru Hayashi, who serves as a director of both Digital Garage and
ECONTEXT, did not participate in the discussions and resolutions of both companies’ respective
meetings of Board of Directors regarding the Merger. In addition, Kota Sakurai, who is concurrently
elected as a director of Digital Garage and an auditor of ECONTEXT, did not participate in thediscussions and resolutions of both companies’ respective meetings of Board of Directors regarding
the Merger.
We have confirmed that none of the auditors at both companies who participated in the discussions
at the respective meetings of Board of Directors opposed the method of discussion and resolution
concerning the merger.

2. Outline of the Merger(1) Merger schedule-4-

Meeting of the Board of Directors that resolved to

Wednesday, August 27, 2008

undertake the merger (both companies)
Conclusion of merger agreement

Wednesday, August 27, 2008

General meeting of shareholders to approve the merger

Thursday, September 25, 2008 (planned)(ECONTEXT)
General meeting of shareholders to approve the merger

Friday, September 26, 2008 (planned)(Digital Garage)
Scheduled delisting date (ECONTEXT)

Tuesday, October 21, 2008 (planned)

Effective date of merger

Monday, October 27, 2008 (planned)(the day on which the merger takes effect)
Scheduled delivery date

Early December, 2008 (planned)(2) Merger method
The merger method is the absorption type, with Digital Garage as the surviving company and
ECONTEXT as the dissolving company.
(3) Allocation of new shares in association with the merger
Company name
Merger allocation ratio

Digital Garage, Inc.

ECONTEXT, Inc.

(surviving company)(dissolving company)

１

0.61

Number of new shares to beissued as a result of theCommon stock: 27,875 shares (planned)

merger(Note 1)For every one share of ECONTEXT (excluding the ECONTEXT shares held by Digital Garage

and the 40,150 ECONTEXT shares held by ECONTEXT), 0.61 share of Digital Garage will beallocated.
(Note 2)The number of new Digital Garage shares to be issued may be greater if the stockacquisition rights issued by ECONTEXT are exercised.

(4) Calculation basis for allocation concerning the merger(i) Calculation basis
To ensure fairness in the merger ratio, Digital Garage appointed Nomura Securities Co., Ltd.
and ECONTEXT appointed Nikko Cordial Securities, Inc. as financial advisors, respectively,
and asked them to calculate a fair merger ratio.
Prior to the Board of Directors meeting at which the merger agreement was approved,
Digital Garage received a report from Nomura Securities containing the following calculation
results.
Nomura Securities adopted the market share price average method with regard to Digital
Garage, since Digital Garage is listed on the Jasdaq market, and that market share priceexists for its shares. Specifically, Nomura Securities used the closing price on the calculationbase date of August 26, 2008 and the average closing price for the period from the next
business day following Digital Garage’s announcement of results for the fiscal year ended
June 30, 2008, to the calculation base date (August 15, 2008 to August 26, 2008). In
addition, calculations were made based on the discounted cash flow method based on-5-

financial forecasts (“the DCF method”) in order to reflect future business activities.
With regard to ECONTEXT, the market share price average method was used, since
ECONTEXT is listed on the Hercules market of the Osaka Securities Exchange, and thatmarket share price exists for its shares. Specifically, Nomura Securities used the closing
price on the calculation base date of August 26, 2008 and the average closing price for theperiod from the next business day following ECONTEXT’s announcement of results for the
fiscal year ended June 30, 2008, to the calculation base date (August 15, 2008 to August 26,
2008). In addition, calculations were made based on the discounted cash flow method basedon financial forecasts (“the DCF method”) in order to reflect future business activities.
The calculation results for each method are shown below. The calculated range of merger
ratio is the range within which the common stock of Digital Garage is to be allocated to one
share of common stock of ECONTEXT.
Adopted method

Calculated range of merger ratio(i)Market share price average method

1 : 0.48 ~ 0.53

(ii)

DCF method

1 : 0.45 ~ 0.67

Note In principal, at the time of calculating the merger ratio Nomura Securities used the information
offered by both companies and the information disclosed to the general public without change.
Nomura Securities has assumed that all the materials and information used are accurate andcomplete, and for that reason has not independently verified their accuracy and completeness.
Nomura Securities has not independently evaluated, appraised, or assessed the assets and liabilitiesof the companies and their affiliates (including contingent liabilities) including analysis andevaluation of individual assets and liabilities, nor it has asked third-party institutions to conduct
appraisals and assessments. In addition, Nomura Securities has assumed that the data concerning
the financial forecasts of the companies has been rationally obtained based on the best possible
forecast and decision at the present time. The calculation of the merger ratio by Nomura Securities
reflects information and economic conditions up to August 26, 2008. The merger with wholly-owned
subsidiaries is scheduled to take effect on October 27, 2008, but no issuance of new shares as aresult of the merger with wholly-owned subsidiaries is scheduled, and it has been determined thatthe merger with wholly-owned subsidiaries would not influence the ratio evaluation for the merger inany way.

Prior to the Board of Directors meeting at which the merger agreement was approved,
ECONTEXT received a report from Nikko Cordial Securities containing the following
calculation results.
Following analysis of a variety of conditions for the merger and businesses of the merging
companies, among other factors, Nikko Cordial Securities adopted the market share pricemethod for Digital Garage to reflect the stock market appraisal in the calculation, since theCompany is listed on the Jasdaq market. For ECONTEXT, Nikko Cordial Securities decided totake a diversified approach to evaluating the ECONTEXT stock.

Specifically, Nikko Cordial

Securities adopted the market share price method to reflect the stock market appraisal in
the calculation, since ECONTEXT is listed on the Hercules market of the Osaka Securities
Exchange; the comparable mutual valuation method to reflect the assumed stock value
based on the appraised level of similar listed companies on stock markets; and the DCF-6-method to reflect the cash flow which is expected to be acquired through future businessactivities.
The calculation results for each method are shown below. The calculated range of merger
ratio is the range within which the common stock of Digital Garage is to be allocated to one
share of common stock of ECONTEXT.
Digital Garage, Inc.

ECONTEXT, Inc.

Merger ratio(i)Market share price method

Market share price method

1 : 0.53(ii)

Market share price method

Comparable mutual valuation
method(iii)

Market share price method

DCF method

1 : 0.80 ~ 1.01
1 : 0.98 ~ 1.09

With regard to the market share price method for Digital Garage, Nikko Cordial Securities
used the closing price of the calculation base date of August 26, 2008 and the averageclosing price for the period from the next business day following Digital Garage’s August 14,
2008 announcement of the Tanshin business results for the fiscal year ended June 30, 2008,
to the calculation base date (August 15, 2008 to August 26, 2008).
With regard to the market share price method for ECONTEXT, Nikko Cordial Securities usedthe closing price of the calculation base date of August 26, 2008 and the average closing
price for the period from the next business day following ECONTEXT’s August 14, 2008
announcement of the business results for the fiscal year ended June 30, 2008, theAnnouncement Concerning Personnel Transfer of the Representative Director, and theAnnouncement Concerning Resignation and Personnel Transfer of Directors, to thecalculation base date (August 15, 2008 to August 26, 2008).
The comparative mutual valuation method used for ECONTEXT is calculated with the EBIT
ratio, the EBITDA ratio, and the PER ratio against the business value of listed companies
which are comparable to ECONTEXT in terms of size and business lineup.
With regard to the business plans of ECONTEXT, which were used as assumptions in theappraisal of Nikko Cordial Securities using the DCF method, no significant fluctuation is
expected in income increases or decreases.
Note In principal, at the time of calculating the merger ratio Nikko Cordial Securities used the information
offered by both companies and the information disclosed to the general public without change. Nikko
Cordial Securities has assumed that all the materials and information used are accurate andcomplete, and for that reason has not independently verified their accuracy and completeness. Nikko
Cordial Securities has not independently evaluated, appraised, or assessed the assets and liabilitiesof the companies and their affiliates (including contingent liabilities) including analysis and evaluationof individual assets and liabilities, nor it has asked third-party institutions to conduct appraisals andassessments. In addition, Nikko Cordial Securities has assumed that the data concerning the financial
forecasts of the companies has been rationally obtained based on the best possible forecast anddecision at the present time. The merger with wholly-owned subsidiaries is scheduled to take effecton October 27, 2008, but no issuance of new shares as a result of the merger with wholly-owned
subsidiaries is scheduled, and it has been determined that the merger with wholly-owned subsidiaries
would not influence the ratio evaluation for the merger in any way.

-7-

(ii)

Calculation history
As discussed above, Digital Garage engaged Nomura Securities and ECONTEXT engaged
Nikko Cordial Securities to calculate the merger ratio. Using the results of calculations
providedbythethird-party

institutions

asareference,both

mergingcompanies

comprehensively considered key factors such as both companies’ financial situations, asset
conditions, and outlook, and entered into frequent discussions concerning the merger ratio.
As a result, on August 27, 2008 the companies reached the conclusion that the abovementioned merger ratio was appropriate.
Digital Garage and ECONTEXT have not obtained an appraisal concerning the fairness of themerger ratio per se from either Nomura Securities or Nikko Cordial Securities, respectively.
(iii) Relationship to the calculation institutions
Neither Nomura Securities nor Nikko Cordial Securities fall under the category of interested
parties of Digital Garage and ECONTEXT.
(5) Treatment of the dissolving company’s stock acquisition rights and convertible bonds
As a result of the merger, no stock acquisition rights or cash shall be delivered to holders ofstock acquisition rights issued by ECONTEXT in exchange for the stock acquisition rights.
ECONTEXT plans to acquire and cancel all unexercised stock acquisition rights that it had
previously issued by the day immediately prior to the effective date of the merger,
contingent upon the merger agreement being approved at general meetings of shareholders
at both companies. ECONTEXT has never issued convertible bonds.
3. Overview of parties to the merger (as of June 30, 2008)(1)

Company name(2)

Nature of business(3)

Date of establishment(4)

Location of head office

(5)
(6)
(7)

Title and name of

Digital Garage, Inc. (surviving
company)

ECONTEXT, Inc. (dissolving company)

Holding shares of group companies

E-commerce settlement and logistic

to manage their business activities

platform businessAugust 17, 1995

May 29, 2000

43-15, Tomigaya 2-chome, Shibuyaku, Tokyo
President and CEO

9-9, Shibuya 3-chome, Shibuya-ku, Tokyo
President and CEO

representative (Note 1) Kaoru Hayashi

Hitoshi Ushiku

Paid-in capital

1,831,833 thousand yen

1,097,775 thousand yen

159,358 shares

85,824 shares

2,750,045 thousand yen (non-3,220,210 thousand yen (non-consolidated)consolidated)

11,776,438 thousand yen (non-9,803,850 thousand yen (non-consolidated)consolidated)

Number of sharesissued(8)

Net assets(9)

Total assets(10)

Fiscal year closing

June 30

June 30(11)

Number of employees

753 (consolidated)

27 (non-consolidated)
BitCash, Inc.

(12)

Major customers

Digital Check, Inc.

－

Lawson, Inc.

-8-

Kaoru Hayashi: 27.9%
State Street Bank & Trust Company:
7.0%
(13)

Lawson, Inc.: 3.4％
ECONTEXT, Inc. (treasury stock): 2.8％

Major shareholders and TIS Inc.: 5.5%
shareholding ratios

Digital Garage, Inc.: 44.0％

The Master Trust Bank of Japan, Ltd.
(trust account): 5.2%

Japan Trustee Services Bank, Ltd. (trust
accounts): 2.4％
Hitachi Systems & Services, Ltd.: 2.2％

BBH (LUX) Fidelity Funds PacificFund: 5.0%
The Bank of Tokyo-Mitsubishi UFJ,

Sumitomo Mitsui Banking Corporation

Ltd.
(14)

Major banks

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Mizuho Bank, Ltd

Resona Bank, Ltd.

Resona Bank, Ltd.

Mizuho Bank, Ltd.

Sumitomo Mitsui Banking

eBank Corporation

Corporation

Digital Garage holds 44.0% of all issued shares ofCapitalECONTEXT, and has made ECONTEXT one of its
consolidated subsidiaries.
The Representative/CEO of Digital Garage is concurrently
serving as a director of ECONTEXT. In addition, a director

Personnel (Note 1)(15)

and an auditor of Digital Garage are concurrently serving

Relationship between

as auditors of ECONTEXT.

the two companies

In the fiscal year immediately prior, there were no major
Transactionstransactions between the two companies or between
group companies of the two companies.

Application of theDigital Garage has made ECONTEXT one of its

interested party

consolidated subsidiaries.

category(Note 1) The details shown in “(5) Title and name of representative” and “(15) Relationship between the twocompanies: Personnel” are correct as of August 27, 2008.

(16) Business performance in the past three fiscal years(Unit: million yen)
Digital Garage, Inc. (surviving

ECONTEXT, Inc. (dissolving company)

company)(non-consolidated)(consolidated)

Fiscal period

Fiscal year

Fiscal year

Fiscal year

Fiscal year

Fiscal year

Fiscal year

ended June

ended June

ended June

ended June

ended June

ended June30, 2006

30, 2007

30, 2008

30, 2006

30, 2007

30, 2008

Sales

12,476

17,33839,582

2,084

2,575

2,812

Operating income

1,703

1,613

-172

543

659

598

Ordinary income

1,505

2,475

-375

542

659

599

Net income

338

588

-2,430

630

398

255

-9-

Net income per share (yen)4,294.73

3,724.33-15,281.86

7,803.98

4,810.94

3,048.11

Dividend per share (yen)

-

-

-

-

800.00800.00Net assets per share (yen)91,745.46

46,090.88

30,066.49

35,434.57

38,978.26

38,597.28

4. Post-merger situation(1) Company name

Digital Garage, Inc.
Solution business(2) Nature of businessSettlement and logistics platform business in EC business, etc.
Holding shares of group companies to manage their businessactivities(3) Location of head office(4)

Title and name ofrepresentative(5) Paid-in capital

43-15, Tomigaya 2-chome, Shibuya-ku, Tokyo
President and CEO

Kaoru Hayashi

1,831,833 thousand yen (There will be no change to the amount ofpaid-in capital as a result of the merger.)(6) Net assets

The amount has not yet been determined.

(7) Total assets

The amount has not yet been determined.

(8) Fiscal year closing

June 30(9) Overview of accounting treatment
Accounting treatment for the merger will be implemented by applying III. 4. Transactions underCommon Control in the Accounting Standards for Business Associations (published on October
31, 2003 by the Business Accounting Council of the Financial Services Agency).

End of Document- 10 -