Declaration of Compliance with the Small and Medium M&A Guidelines (Third Edition)

1. 1

   We fulfill our obligations under our agreements with clients.

   • We perform intermediary and FA services with the care of a prudent manager (duty of due care).

   • We do not sacrifice a client’s interests in order to benefit ourselves or any third party.

   • (For intermediaries) We remain fair and impartial toward each client and do not prioritize one party’s interests or unfairly harm either party’s interests.

2. 2

   Regardless of whether a contractual obligation applies, we respect the client’s intentions and act to realize the client’s interests as a matter of professional ethics.

3. 3

   Our representative recognizes that improving knowledge and capability and ensuring proper performance of duties are essential to maintaining and improving support quality. The representative communicates the importance of these efforts internally and externally and implements measures consistent with that message.

4. 4

   We implement effective measures to improve knowledge and capability.

5. 5

   We implement measures to ensure that officers and employees engaged in support services perform their duties properly.

6. 6

   When outsourcing any part of our services, we implement measures to ensure that the outsourced provider performs its duties properly.

【Decision-making】

1. 7

   Based on professional expertise, we make practical proposals and support the client’s M&A decision-making. In doing so, we observe the following:

   • We explicitly explain material anticipated advantages and disadvantages to the extent known.

   • We recognize that we owe a duty of due care regarding the handling of a prospective client’s corporate information even before an intermediary or FA agreement is executed, and we handle that information appropriately.

2. 8

   Advertising and sales activities intended to lead to an intermediary or FA agreement are conducted appropriately and in accordance with the following rules.

   Note: In addition to observing professional ethics, we recognize that excessive advertising or sales activity that significantly disrupts the business activities of a small or medium-sized enterprise or the daily life of its owner, considering the history and frequency of prior contact, may result in tort liability under the Civil Code.

   • If a recipient indicates that it has no intention to pursue M&A, does not intend to enter into an intermediary or FA agreement, or does not wish to receive further advertising or sales contact (a “stop request”), we do not reject that request and immediately stop the activity.

   • We record and share stop requests throughout the organization.

   • If advertising or sales activity is later resumed with a person who made a stop request, we do so only after careful consideration and an organizational decision under clear standards, through a process that is recorded and capable of subsequent review.

   • To support appropriate decision-making by the recipient SME, we do not engage in the following advertising or sales practices:

     • ①

       Advertising or sales activity that does not disclose our company name, the name of the person making the solicitation, and that the purpose is to solicit entry into an intermediary or FA agreement.

     • ②

       Advertising or sales activity that demands an immediate decision without allowing the time necessary to decide whether to execute an intermediary or FA agreement and proceed with the M&A process.

     • ③

       Advertising or sales activity that contains false, factually inaccurate, or misleading statements about matters that may affect the decision to enter into an intermediary or FA agreement and proceed with M&A, including:

       • Falsely claiming or creating the impression that a company wishes to acquire or transfer a business when that company has no such intention, its intention has not been confirmed, or the company does not exist.

       • Presenting an excessively high valuation of the expected transfer price.

       • Misrepresenting, or creating an impression more favorable than the facts, regarding the financial condition, outlook, or other information of the transferor or transferee.

       • Making definitive statements about the likelihood that an M&A transaction will be completed or about its terms.

【Execution of an intermediary or FA agreement】

1. 9

   We execute an intermediary or FA agreement that accurately reflects the actual form of the services provided.

2. 10

   Before executing the agreement, we provide the client with a document describing the following material matters concerning the intermediary or FA agreement, explain them clearly, and obtain the client’s understanding.

   • (1)

     The differences and respective characteristics of an intermediary, which contracts with and advises both the transferor and transferee, and an FA, which contracts with and advises only one party; where an intermediary receives fees from both parties, this is also disclosed.

   • (2)

     The scope and content of services provided at each stage, including valuation, matching, and negotiation.

   • (3)

     The qualifications, years of experience, and completion record of the person in charge, including, for example, certified public accountant, tax accountant, registered management consultant, attorney, administrative scrivener, judicial scrivener, labor and social security attorney, and accounting-related certifications.

   • (4)

     Fee matters, including the calculation basis, amount, minimum fee, treatment of fees already paid, and payment timing.

   • (5)

     Costs payable by the client other than fees, including the type of cost and payment timing.

   • (6)

     (For intermediaries) Matters concerning the other party’s fees, including calculation basis, minimum fee, and payment timing.

   • (7)

     Confidentiality matters, including any confidentiality obligation imposed on the client, the information covered, and any partial release needed for disclosure to licensed professionals or a Business Succession and Handover Support Center.

   • (8)

     Restrictions on direct negotiation, including whether the client is prohibited from identifying candidates itself or negotiating directly with candidates it identified, and the candidates and purposes covered by the restriction.

   • (9)

     Any exclusivity clause, including whether a second opinion is permitted.

   • (10)

     Any tail clause, including the tail period and the M&A transactions covered.

   • (11)

     The contract term and any renewal or extension.

   • (12)

     Termination provisions and, where the client may terminate the intermediary or FA agreement before expiry, the terms of that early termination.

   • (13)

     Liability and exemption matters, including the conditions giving rise to damages and the scope of recoverable damages.

   • (14)

     Clauses that survive termination and their effective periods.

   • (15)

     (For intermediaries) Matters in which a conflict between the parties is anticipated.

   • (16)

     (When explaining to a transferor) An overview of the investigation conducted on the transferee, including who conducts it and the checks on financial condition, compliance, and actual business operations.

   • (17)

     (When explaining to a transferor) Whether we participate in an industry information-sharing framework, including a statement that we do not participate where applicable.

3. 11

   We explain fees, the services provided, and, where relevant, the other party’s fees as follows:

   • We clearly explain the fees and the services provided in consideration for those fees. We provide a written or electronic document explaining the applicable success-fee rates, the fee base (such as transfer price, net assets, or total assets transferred), the minimum fee, the timing of each fee (retainer, monthly fee, interim fee, and success fee), and the specific services provided.

   • We organize and explain the services provided at each stage of the M&A process, including stages at which we do not provide services, and provide that information in writing or electronically. We organize and appropriately explain the principal services for each M&A process listed in Chapter 2, Part II, Section 4(1) of the Guidelines.

   • We explain the qualifications, years of experience, and completion record of the person in charge.

   • If the client is not satisfied with the pre-contract explanation and requests negotiations regarding services or fees, we consider that request in good faith.

   • (For intermediaries) Before executing an intermediary agreement, in addition to explaining the client’s fees, we provide written or electronic disclosure of the other party’s fee rate, fee base, minimum fee, and payment timing, and explain that the combined fees may affect whether the M&A is completed and its terms, including the transfer price.

   • If the other party’s fee disclosed before execution of the intermediary agreement is increased, we disclose the increase to the client.

   • If the client’s fee is reduced, we explain again that the other party’s originally disclosed fee has not been increased.

   • (For FAs) If we receive any payment from the FA supporting the other party, we explain the amount, purpose, and timing of the payment to our client.

4. 12

   The explanations in Items 10 and 11 are provided to the person authorized to execute the agreement: the individual client, or, for a corporate client, its representative or a person delegated authority to execute the agreement.

5. 13

   After the explanations in Items 10 and 11, we give the client sufficient time to consider the agreement and make an appropriate decision.

【Valuation (enterprise and business valuation)】

1. 14

   Before conducting a valuation, we explain the valuation method and assumptions to the client and obtain the client’s understanding regarding the method and indicated price range.

【Selection of the transferee (matching)】

1. 15

   Name clearance—the disclosure of detailed materials such as a company profile identifying the transferor—is conducted only after a candidate has expressed interest based on a non-name sheet or teaser, the transferor has consented, and a confidentiality agreement has been executed with the candidate.

2. 16

   The transferor’s consent is obtained separately for each candidate to whom information will be disclosed.

3. 17

   Before a confidentiality agreement is executed, we take care to prevent detailed information about the transferor from being disclosed or leaked externally.

【Negotiation】

1. 18

   We support negotiations in a manner attentive to clients who are unfamiliar with M&A, including by explaining the overall process and next steps as clearly as reasonably possible.

【Due diligence (DD)】

1. 19

   In connection with due diligence, we encourage and support the transferor in preparing materials requested by the transferee.

【Negotiation and execution of the final agreement】

1. 20

   Until the final agreement is executed, we support the parties so that, as far as possible, both are satisfied and the agreement reduces the risk of disputes after completion of the M&A; where risk remains, we support execution only after the parties understand that risk.

2. 21

   We coordinate and explain risks that may lead to disputes after the final agreement or closing. In particular, we take the following measures:

   • Regarding the transferor owner’s personal guarantees, we consult with the transferor owner and consider the appropriate approach.

     • ①

       We carefully ascertain the transferor owner’s intentions regarding personal guarantees and explain that consulting licensed professionals, particularly an attorney, a Business Succession and Handover Support Center, or the financial institution holding the guarantee before the M&A is completed may be an option.

       Note: When discussing the matter with a financial institution before completion, we also explain issues arising from providing M&A information before completion, including how the information will be handled if the M&A is not completed, so that the transferor owner can make an appropriate decision.

     • ②

       If the transferor wishes to consult a licensed professional or financial institution about personal guarantees, we do not prevent the consultation and exclude the consultation recipient from the confidentiality restrictions in the intermediary or FA agreement. If the agreement with the transferee contains confidentiality provisions, we also ask the transferee to exclude the relevant professional or financial institution.

     • ③

       If release or transfer of the personal guarantee to the transferee is contemplated, we consider clearly stating it as an obligation of the transferee in the final agreement. This may include making release or transfer a closing condition and including termination or indemnity provisions for a failure to complete the transfer.

       Note: Possible conditions include (a) requiring the transferee, after execution and before closing, to obtain an organizational indication from the financial institution as to whether release or transfer can be completed and (b), where the process can proceed, requiring the transferee to submit the necessary documents before closing and prepare documents needed to register the change of representative.

       Note: For greater certainty, the change-of-representative registration process and release or transfer of the guarantee may be carried out simultaneously on the closing date, with the financial institution present where necessary.

       Note: Another possible means is to repay the guaranteed debt at closing using the transferee’s resources and have the transferee separately refinance the obligation.

   • We explain that due diligence is an important process for both the transferor and transferee.

   • We explain that representations and warranties should be appropriately considered in light of due diligence results, and that unlimited duration or liability, or provisions whose application is unclear, may impose excessive liability on the transferor and create dispute risk.

   • Before sufficient coordination between the parties, we do not casually propose provisions or structures that create risks concerning post-closing payments and procedures, adjustments to payments after the final agreement, organization of the transferor’s assets or loans after the final agreement, or the period between signing and closing. If a proposal is made after careful review, it is based on an organizational decision under clear standards, recorded and capable of subsequent review, and we explain the risk and likely consequences as specifically as possible.

     Note: Once such a risk is recognized, it is desirable to explain the details and reasonably foreseeable consequences to the parties as specifically as possible.

3. 22

   When the final agreement is executed, we encourage the client to confirm again that the agreement contains no omissions.

   Note: If the final agreement includes a matter that may lead to a dispute after execution or closing, it is desirable to explain the details and reasonably foreseeable consequences again, as specifically as possible, before execution.

【Closing】

1. 23

   After arranging the specific closing steps, we confirm on the closing date that the transfer consideration has been received from the transferee.

1. 24

   To exclude inappropriate transferees to the greatest extent possible, we take the following measures:

   • We investigate whether a transferee has the intention and ability to perform the final agreement and take over the target business.

   • Before executing an intermediary or FA agreement with a transferor client—or before platform registration for an M&A platform operator—we explain the scope of our investigation of transferees. We consider and explain the investigation conducted for each category in the table in Chapter 2, Part II, Section 6(1) of the Guidelines.

     • ①

       The investigation may include the transferee’s financial condition and actual business operations; whether the transferee and related persons, including representatives, officers, and shareholders, are associated with antisocial forces; and whether they have caused past M&A disputes. Financial review includes whether the transferee can fund the expected consideration and continue operating the target business after the M&A.

     • ②

       The investigation is conducted before an agreement with the transferee—or before platform registration for an M&A platform operator—and is repeated as appropriate as the M&A progresses so that the transferee is sufficiently reviewed before the final agreement.

     • ③

       Methods may include reviewing tax returns and commercial registry records and conducting compliance checks on representatives, officers, shareholders, and other related persons. Particular care is taken where the transferor is insolvent or the transferee’s credit is especially important; in such cases, the transferee’s financial condition is confirmed at minimum through public financial notices or tax returns.

   • If information-sharing arrangements or information from prior support identifies a transferee associated with non-performance of a final agreement or other inappropriate conduct, we do not leave the information with an individual staff member. We share it within the organization and maintain a system for carefully considering whether to provide matching support.

   • Before providing new support to such a transferee, we carefully review the information and the potential disadvantage to a transferor from similar conduct. If support is provided, it is based on an organizational decision under clear standards, recorded and capable of subsequent review.

   • (For intermediaries) If we possess information about inappropriate conduct by the transferee, we disclose it to the transferor.

For exclusivity clauses, we observe the following:

1. 25

   If an exclusivity clause is used, we limit its scope as much as possible. If the client identifies the matter on which it seeks another support provider’s opinion and there is no reasonable ground to prevent it, we permit the client to obtain a second opinion. We nevertheless protect information by, for example, prohibiting disclosure of information concerning the other party or limiting consultation to persons with statutory or contractual confidentiality duties or to public bodies such as a Business Succession and Handover Support Center.

2. 26

   If an exclusivity clause is used, the contract term is set with a maximum guideline of six months to one year.

3. 27

   We include a provision or otherwise expressly state, including orally, that the client may terminate the intermediary or FA agreement at any time.

For restrictions on direct negotiation, we observe the following:

1. 28

   Candidates subject to a direct-negotiation restriction are limited to candidates with whom the M&A adviser was involved or in contact and whom it introduced, except where the client explicitly agrees not to identify candidates itself and not to negotiate directly with candidates it identifies, including where the client asks the adviser to support an M&A with a candidate it identified.

2. 29

   The negotiations subject to restriction are limited to negotiations between the client and candidate for M&A purposes.

3. 30

   A direct-negotiation restriction remains effective only until the intermediary or FA agreement ends.

For tail clauses, we observe the following:

1. 31

   The tail period is set with a maximum guideline of two to three years.

2. 32

   The tail clause is limited to transferees with whom the M&A adviser was involved or in contact and whom it introduced to the transferor. A candidate is not covered merely because it appeared on a long list or short list or received a non-name sheet or teaser. At minimum, name clearance must have occurred through delivery of a company profile identifying the transferor, and the transferee must have been introduced to the transferor.

   Note: The Guidelines state that tail clauses should be limited to transferees that received name clearance and were introduced to the transferor. Satisfaction of these conditions does not mean that every such tail clause is necessarily valid.

3. 33

   If the intermediary or FA agreement has no exclusivity clause, the client receives support from multiple M&A advisers, and the same candidate is introduced by more than one adviser, we do not rely on a tail clause to claim a fee if the client does not select us to support the transaction through completion.

When intermediary services are provided, the following measures are observed:

1. 34

   Before executing an intermediary agreement, the intermediary informs both the transferor and transferee that it will contract with both parties and, in particular, discloses if the agreement provides for fees from both parties.

2. 35

   Before execution, anticipated conflicts between the parties are explicitly explained to each party. If information later becomes known concerning an anticipated conflict, including information favorable or unfavorable to only one party, it is explicitly disclosed to each party in a timely manner.

3. 36

   Because the intermediary is engaged by both parties, it remains neutral and fair to both and does not engage in conduct that improperly benefits or disadvantages one party.

4. 37

   In particular, the intermediary never engages in conflicted conduct to benefit itself or a third party, and the intermediary agreement states at minimum that it will not engage in the following:

   • Obtaining an additional fee from the transferee and favoring it, including prioritizing a match contrary to the parties’ needs or inducing an unreasonably low transfer price.

   • Favoring a repeat client, including prioritizing a match contrary to the parties’ needs or inducing an unreasonably low transfer price.

   • If the M&A closes at a price above or below the transfer price desired by one party, demanding from that party an additional fee calculated as a percentage of the difference, separate from the regular fee.

   • Failing to communicate to the other party a matter that one party asked to be communicated, or falsely communicating a matter that the first party did not state.

   • Concealing from a party information known to be favorable or unfavorable only to that party.

5. 38

   The intermediary does not perform a definitive valuation and advises the client to obtain an opinion from an appropriate licensed professional where necessary.

6. 39

   If the intermediary presents a rough or provisional valuation calculated as reference material, it explicitly explains the following to both parties:

   • The amount is a simplified reference calculation and not a definitive valuation.

   • If one party’s intentions or views were considered in the simplified valuation, the content of those intentions or views.

   • An opinion from an appropriate licensed professional may be obtained where necessary.

7. 40

   In negotiations, the intermediary does not seek only one party’s benefit and works neutrally and fairly toward realizing the interests of both parties.

8. 41

   The intermediary does not itself conduct due diligence or determine conclusions concerning a due diligence report and advises the client to obtain an opinion from an appropriate licensed professional where necessary.

1. 42

   In addition to the foregoing, we endeavor to act in accordance with the purpose of the Small and Medium M&A Guidelines.