UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK x Civil Action No. 1:05-CV-04804-LAP IN RE GRAVITY CO., LTD. SECURITIES (Consolidated) LITIGATION CLASS ACTION This Document Relates to: - STIPULATION OF SETTLEMENT ALL ACTIONS x This Stipulation of Settlement dated as of July _, 2007 (the "Stipulation") is made and entered into pursuant to Rule 23 of the Federal Rules of Civil Procedure and contains the terms of a proposed settlement of the claims arising out of the allegations made in the above-captioned action (the "Action") by and among the following Settling Parties, as defined in ¶1.23 below: (i) Lead Plaintiff Pipefitters Locals 522 and 633 Pension Trust Fund (the "Pipefitters") (the "Lead Plaintiff') (on behalf of itself and each of the Class Members, as defined below), and (ii) Defendants Gravity Co., Ltd. ("Gravity" or the "Company"), Jung Ryool Kim ("J. Kim"), and Credit Suisse First Boston', Daewoo Securities Co., Ltd., CIBC World Markets Corp. and CLSA Limited (the "Underwriter Defendants"), by and through their respective undersigned counsel of record in the Action. This Stipulation is intended by the Settling Parties to fully, finally and forever resolve, discharge. and settle the Released Claims, as defined in ¶1.19 below, against the Released Parties, as defined in ¶1.21 below, upon and subject to the terms and conditions hereof and subject to the approval of this Court, as defined below. 1. THE LITIGATION On and after May 2005, three purported securities class actions were filed against the Defendants in the United States District Court for the Southern District of New York (the "Court") on behalf of purchasers of American Depository Shares ("ADSs") of Gravity, alleging The Action purports to name as a defendant an entity identified as "Credit Suisse First Boston." No such entity currently exists. "Credit Suisse First Boston" is the former name of a Swiss affliate ofthe U . S. underwriter of the initial public offering ("IPO") of Gravity , Credit Suisse First Boston Securities, LLC, which is now known as Credit Suisse Securities (USA) LLC. Credit Suisse Securities (USA) LLC, the entity on whom service was effected, is therefore the proper defendant in this Action and it is the only Credit Suisse entity that is the proper party to this proposed settlement. violations of the Securities Act of 1933 (the "Securities Act") as to all Defendants and the Securities Exchange Act of 1934 ("Exchange Act") as to certain Defendants. On December 12, 2005, the Court entered an order-consolidating those actions and, pursuant to provisions of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), appointing the Pipefitters as Lead Plaintiff and appointing Lead Counsel and Liaison Counsel ("Consolidation Order"). On July 10, 2006, Lead Plaintiff filed a Consolidated Amended Complaint (the "CAC") asserting that the Defendants made misstatements and omissions of material fact in the Registration Statement and Prospectus for Gravity's February 7, 2005 initial public offering (the "IPO"), press releases and financial statements filed with the Securities and Exchange Commission ("SEC") concerning Gravity's business, which caused Gravity's ADS price to be artificially inflated during the Class Period (as defined in ¶1.4 below), in violation of §§ 11, 12(a)(2) and 15 of the Securities Act and § § 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule I Ob-5, promulgated thereunder. On October 17, 2006, those Defendants who had been served with the summons and complaint filed motions to dismiss the CAC. The Parties filed a joint stipulation in the Action, agreeing to postpone further briefing in light of the pending mediation. In order to attempt to settle the issues in dispute and achieve the best result possible consistent with the interests of Lead Plaintiff and all Class Members, on April. 25, 2007, a day- long arm's length mediation was conducted before a mutually agreed. upon neutral professional mediator that had Lead Plaintiff reach an agreement-in-principle to settle all claims in the Action against the Defendants, as embodied herein. -2- H. DEFENDANTS' DENIALS OF WRONGDOING AND LIABILITY The Defendants expressly have denied and continue to deny all allegations of any wrongdoing or liability against them_whatsoever, arising out of any of the conduct, statements, acts or omissions alleged, or that could have been alleged, in the Action. The Defendants also have denied and continue to deny, inter alia, the allegations that the price of Gravity ADSs was artificially inflated by reason of any alleged misrepresentations, non-disclosures or otherwise, that the Lead Plaintiff or the Class, as defined below, has suffered any damages, or that the Lead Plaintiff or the Class was harmed by any conduct alleged in the Action or that could have been alleged therein. To the contrary, the-Defendants maintain that (i) all challenged disclosures and statements made in connection with or arising from the IPO were accurate and complete and consistent with all applicable securities laws and regulations and (ii) Defendants did nothing to manipulate or improperly inflate the price of Gravity's ADS at any time. Nonetheless, the signatory Defendants have concluded that further conduct of the Action would be protracted, expensive and distracting, including, without limitation, to Gravity and its current management, and to the Underwriter Defendants, and that it is desirable that the Action be fully and finally settled. The signatory Defendants also have taken into account the uncertainty and risks inherent in any litigation, especially in complex cases like this Action. The signatory Defendants have, therefore, determined that it is desirable and beneficial that the Action be settled in the mariner and upon the terms and conditions set forth in this Stipulation. III. CLAIMS OF THE LEAD PLAINTIFF AND BENEFITS OF SETTLEMENT Lead Counsel represents that it has conducted an extensive investigation relating to the claims and the underlying events and transactions alleged in the CAC. Lead Counsel's investigation included: (i) review of Gravity's SEC filings, regulatory filings and reports, -3- securities analysts' reports and advisories about the Company, press releases, and other public statements issued by the Company; (ii) review of media reports about the Company; and (iii) interviews with confidential witnesses. - Lead Plaintiff believes that the claims asserted in the Action have merit and that the evidence developed to date supports the claims . However, Lead Counsel recognizes the expense and length of continued proceedings necessary to prosecute the Action against the Defendants through trial and appeal, especially because Gravity and the Individual Defendants are foreign residents. Lead Counsel also has taken into account the uncertain outcome and the risk of litigation, especially in complex actions such as this Action, as well as the difficulties and delays inherent in such litigation. Lead Counsel also is mindful of the inherent problems of proof of, and possible defenses to, the allegations asserted in the Action. Accordingly, Lead Plaintiff, by its counsel, conducted discussions and arm ' s-length negotiations at the mediation with respect to a compromise and settlement of the Action, with a view to settling the issues in dispute against the Defendants and achieving the best relief possible consistent with the interests of the Class. Based upon its investigation as set forth above, Lead Counsel has concluded that the terms and conditions of this Stipulation are fair, reasonable and adequate to Lead Plaintiff and the Class, as defined below, and in their best interests. Lead Counsel and Lead Plaintiff believe that the settlement set forth in this Stipulation confers substantial benefits upon the. Class and each ofthe Class Members, as defined in 11.3 below, and have agreed to settle the claims raised in the Action pursuant to the terms and provisions of this Stipulation, after considering: (a) the benefits that Lead Plaintiff and the members of the Class will receive from the settlement of the -4- Action; (b) the attendant risks of litigation; and (c) the desirability of permitting the settlement to be consummated as provided by the terms of this Stipulation. IV. TERMS OF STIPULATION-AND AGREEMENT OF SETTLEMENT NOW THEREFORE, IT IS HEREBY STIPULATED AND AGREED , by and among the Lead Plaintiff (on behalf of itself and each of the Class Members, as defined below) and the signatory Defendants, by and through their respective undersigned counsel or attorneys of record, that without any admission or concession on the part of Lead Plaintiff of any lack of merit of the Action whatsoever, and without any admission or concession by the Defendants of any liability or wrongdoing or lack of merit in the defenses to the Action whatsoever, subject to the approval of the Court pursuant to Rule 23(e) of the Federal Rules of Civil Procedure, and in consideration of the benefits flowing to the Settling Parties hereto, as defined in ¶1.23 below, from the Settlement (as defined below), that the Action and all Released Claims as against the Released Parties shall be finally and fully compromised, settled, released and dismissed with prejudice as to all Released Parties, upon and subject to the following terms and conditions: 1. Certain Definitions As used in this Stipulation, the following capitalized terms have the meanings specified below. Capitalized terms used in this Stipulation but not defined below shall have the meanings ascribed to them elsewhere in this Stipulation: 1.1 "Authorized Claimant" means any Class Member whose claim for recovery has been allowed pursuant to the terms of this Stipulation. 1.2 "Claims Administrator" means the firm of Gilardi & Co. LLC. 1.3 "Class" and "Class Members" mean all Persons who purchased Gravity ADSs during the Class Period. Excluded from the Class are: Defendants, the directors. and officers of -5- Gravity and the Underwriter Defendants, members of their immediate families, and their legal representatives, heirs, successors and.