M&A Guideline Compliance

1. 1

   We fulfill our obligations under contracts with clients. ・　We conduct intermediary and FA services with the due care of a prudent manager (duty of care). ・　We do not pursue our own or a third party's interests at the expense of the client's interests. ・　(As an intermediary) We are fair and impartial to every client, and do not act in a way that prioritizes one party's interests or unjustly harms either party's interests.

2. 2

   Regardless of whether we bear contractual obligations, as a matter of professional ethics we respect clients' intentions and act to realize their interests.

3. 3

   The representative recognizes that, to ensure and improve the quality of support, (1) improving knowledge and capability and (2) ensuring proper conduct of business are indispensable, and communicates the importance of these efforts inside and outside the company. The representative also implements measures consistent with the messages communicated.

4. 4

   We implement effective measures to improve knowledge and capability.

5. 5

   We implement measures to ensure proper conduct of business by officers and employees engaged in support services.

6. 6

   When outsourcing part of our services to third parties, we implement measures to ensure proper performance of services by the outsourcees.

[Decision-Making]

1. 7

   Based on professional expertise, we make practical proposals to clients and support their M&A decision-making. In doing so, we pay attention to the following points. ・　To the extent we can know them, we expressly explain to prospective clients the significant merits and demerits anticipated. ・　We are conscious that we owe the due care of a prudent manager (duty of care) also with respect to the handling of a prospective client's corporate information before conclusion of an intermediary/FA contract, and handle it appropriately.

2. 8

   We conduct advertising and sales activities toward the conclusion of intermediary/FA contracts appropriately, in compliance with the following rules. ※In conducting advertising and sales activities, professional ethics must be observed; moreover, we bear in mind that if, in light of past dealings, frequency, and the like, such activities are so excessive as to seriously disrupt the business activities of the target SME or the life of its manager, tort liability under the Civil Code may arise. ・　If a recipient of advertising/sales indicates an intention not to pursue an M&A, not to conclude an intermediary/FA contract, or not to receive further advertising/sales (a "stop request"), we do not refuse the stop request and immediately cease such advertising/sales. ・　When a stop request is expressed by a recipient of advertising/sales, its content is organizationally recorded and shared. ・　If advertising/sales to a person who expressed a stop request is to be resumed, this is done only after careful consideration and through an organizational decision (a decision made through an organizational process under clarified standards—not by a single staff member alone—that is organizationally recorded and subsequently verifiable). ・　From the standpoint of properly supporting the decision-making of the target SMEs, we do not conduct advertising/sales such as the following: ①　Advertising/sales conducted without stating our company name, the name of the person soliciting, and the fact that the purpose is to solicit the conclusion of an intermediary/FA contract ②　Advertising/sales that press for an immediate decision without giving the time needed to decide whether to conclude an intermediary/FA contract and proceed with M&A procedures ③　Advertising/sales that are false, contrary to fact, or misleading regarding matters affecting the decision whether to conclude an intermediary/FA contract and proceed with M&A, such as the likelihood or terms of the M&A (for example, the following) 　・　Falsely representing, or creating the misimpression, that a company has an intention to acquire (or transfer) when it has no such intention, when that intention has not been confirmed, or when the company does not actually exist 　・　Presenting an excessive valuation as to the level of the transfer price 　・　Conveying information on the financial condition, future outlook, etc. of the transferor (acquirer) that is contrary to fact, or that creates the misimpression of being better or more favorable than the actual situation 　・　Otherwise rendering definitive judgments as to the likelihood of the M&A or its terms

[Conclusion of Intermediary/FA Contracts]

1. 9

   We conclude an intermediary contract or FA contract that matches the actual form of our services.

2. 10

   Before concluding a contract, we provide the client with a written document (or equivalent) setting out the important matters concerning the intermediary/FA contract ((1)–(17) below), give clear explanations, and obtain the client's understanding and consent. (1)　The difference between an intermediary, which contracts with both the transferor and the acquirer and advises both, and an FA, which contracts with only one party and advises only that party, and the characteristics of each (including, where the intermediary receives fees from both parties, that fact) (2)　The scope and content of services provided (the scope and content of services provided for each process such as valuation, matching, and negotiation) (3)　Qualifications held by the personnel in charge (e.g., certified public accountant, licensed tax accountant, SME management consultant, attorney, administrative scrivener, judicial scrivener, labor and social security attorney, and other accounting certifications (bookkeeping certification, business accounting certification, etc.)), years of experience, and track record of closed deals (4)　Matters concerning fees (calculation basis, amounts, minimum fee, deduction of fees already received, timing of payment, etc.) (5)　Costs payable by the client other than fees (types of costs, timing of payment, etc.) (6)　(For intermediaries) Matters concerning the counterparty's fees (calculation basis, minimum fee, timing of payment, etc.) (7)　Matters concerning confidentiality (where confidentiality obligations are imposed on the client, that fact; the facts subject to confidentiality; partial release from confidentiality obligations when disclosing to qualified professionals, Business Succession and Transfer Support Centers, etc.) (8)　Matters concerning restrictions on direct negotiation (where the client is prohibited from finding candidates itself and from negotiating directly with candidates it has found, that fact; the scope of candidates and negotiation purposes subject to restriction, etc.) (9)　Exclusivity clauses (availability of second opinions, etc.) (10)　Tail clauses (tail period, M&A transactions covered, etc.) (11)　Contract term (contract term, matters concerning renewal (extension of term), etc.) (12)　Matters concerning termination of the contract and, where it is expressly stated that the client may terminate the intermediary/FA contract mid-term, matters concerning such mid-term termination (13)　Matters concerning liability (exemption) (requirements giving rise to liability for damages, scope of compensation, etc.) (14)　Clauses that remain effective after the contract ends (the applicable clauses, their effective period, etc.) (15)　(For intermediaries) Matters where conflicts of interest between the two parties are anticipated (16)　(When explaining to the transferor) An outline of the investigation conducted on the acquirer (the investigating body, investigation of financial condition, compliance investigation, investigation of business actuality, etc.) (17)　(When explaining to the transferor) Whether or not we participate in industry information-sharing arrangements (and, if not, that fact)

3. 11

   Matters concerning fees, the content of services provided, and the counterparty's fees are explained in line with the following. ・　We clearly explain matters concerning fees and, at the same time, explain the content of the services we provide in consideration of those fees. Specifically, we deliver a written document (including provision by electronic means such as email) and explain the basis for calculating fees—such as the success-fee rate adopted, the fee base amount (transfer price / net assets / total assets transferred, etc.), the amount of the minimum fee, and the timing at which fees arise (retainer / monthly fee / interim fee / success fee)—and the specific content of the services provided. ・　As to the services provided, we organize which services are provided for each "M&A process" (including, where no services are provided in a given process, that fact), and then deliver a written document (including provision by electronic means such as email) and explain. Specifically, for each "M&A process" in the table in Chapter 2, II-4-(1) of the Guidelines, we organize the main services to be provided and give appropriate explanations (the "main services provided" column of that table sets out examples). ・　We explain the qualifications held by the personnel in charge (e.g., certified public accountant, licensed tax accountant, SME management consultant, attorney, administrative scrivener, judicial scrivener, labor and social security attorney, and other accounting certifications (bookkeeping certification, business accounting certification, etc.)), years of experience, and track record of closed deals. ・　If, in the explanation before contract conclusion, the client is not satisfied and requests negotiation with the intermediary/FA concerning services or fees, we consider our response in good faith. ・　(For intermediaries) Before concluding the intermediary contract, in addition to matters concerning the fees to be received from the client, we deliver a written document (including provision by electronic means such as email) and explain to the client matters concerning the counterparty's fees (the fee rate, the fee base amount (transfer price / net assets / total assets transferred, etc.), the amount of the minimum fee, the timing at which fees arise (retainer / monthly fee / interim fee / success fee), etc.), including the fact that the total amount of fees including the counterparty's may affect the conclusion of the M&A and its terms (transfer price, etc.). ・　If the counterparty's fees explained before conclusion of the intermediary contract are to be increased, we disclose the content of the increase to the client. ・　If the client's fees are to be reduced, we explain to the client once again that the counterparty's fees as initially explained have not been increased. ・　(For FAs) Where we receive payment from an FA supporting the counterparty, we explain to the client the amount of payment, the nature of the payment, and the timing of payment.

4. 12

   The explanations under 10 and 11 above are given to a person who has authority to conclude the contract (in the case of an individual, that individual; in the case of a corporation, the representative or a person delegated with authority to conclude the contract).

5. 13

   After the explanations under 10 and 11 above, we give the client sufficient time for consideration so that the client can make an appropriate decision on concluding the contract.

[Valuation (Corporate Value / Business Valuation)]

1. 14

   In conducting a valuation, we explain the valuation methods, underlying assumptions, and the like to the client in advance, and obtain the client's understanding of the valuation methods and the price range.

[Selection of the Acquirer (Matching)]

1. 15

   Name clearance (disclosure of detailed materials such as a corporate profile including the transferor's name) is carried out, for candidates that have shown interest through presentation of a non-name sheet (teaser) or the like, after obtaining the transferor's consent and concluding a non-disclosure agreement with the candidate.

2. 16

   The transferor's consent is obtained individually for each candidate to which disclosure is to be made.

3. 17

   At the stage before a non-disclosure agreement is concluded, we take care that detailed information concerning the transferor does not flow out or leak to outside parties.

[Negotiation]

1. 18

   We support negotiations in a manner that stays close to the client, including by explaining the overall picture of small and medium M&A and the upcoming flow as clearly as possible even to inexperienced clients.

[Due Diligence (DD)]

1. 19

   In the conduct of due diligence (DD), we encourage and support the transferor in preparing the materials requested by the acquirer.

[Negotiation and Conclusion of the Final Agreement]

1. 20

   During the period up to conclusion of the final agreement, we provide support so that the final agreement is concluded in a form that both the transferor and the acquirer accept to the greatest extent possible and that reduces the risk of disputes arising between the parties after the M&A is concluded (or, where risk remains after such reduction, at least in a form in which the parties understand that risk).

2. 21

   Regarding risks that could develop into disputes between the parties after the final agreement and closing, we carry out adjustments up to the conclusion of the final agreement and provide explanations to the client. Specifically, we implement in particular the following measures. ・　As to the treatment of the transferor's management guarantees, we consult with the transferor's manager on policy and consider our response. ①　We carefully listen to the transferor manager's intentions concerning the management guarantees, and explain that consulting qualified professionals (especially attorneys) or Business Succession and Transfer Support Centers, and consulting—before the M&A is concluded—the financial institutions to which the guarantees are provided, are also options. 　※Provided, that as to prior consultation with financial institutions, we support the transferor manager's appropriate judgment after also conveying the points to note arising from providing information to such financial institutions before the M&A is concluded (such as how the information will be handled if the M&A is not concluded). ②　Where the transferor wishes to consult qualified professionals or financial institutions about the treatment of the management guarantees, we do not refuse such consultation, and we exclude the consulted professionals and financial institutions from the scope of confidentiality clauses in the intermediary/FA contract and the like. Furthermore, where the contract with the acquirer contains a confidentiality clause, we encourage the acquirer to exclude the consulted professionals and financial institutions from the scope of that clause. ③　As to the treatment of the management guarantees in the final agreement, where release of the guarantee or its transfer to the acquirer is contemplated, we consider clearly positioning the release or transfer of the guarantee as an obligation of the acquirer in the final agreement. Specifically, after positioning the release or transfer as the acquirer's obligation, we make adjustments in the direction of setting the release or transfer of the guarantee as a closing condition and incorporating clauses contemplating the case where the guarantee is not transferred (e.g., termination clauses, indemnification clauses, etc.). 　※As specific conditions, it is conceivable to set: (a) that the acquirer obtain, after execution of the final agreement and before closing, an organizational indication of intent from the financial institutions to which the guarantee is provided as to whether the release or transfer of the guarantee can be executed; and (b) that where, as a result of such indication of intent, the procedures for release or transfer of the guarantee can proceed, the acquirer submit, after execution of the final agreement and before closing, the documents required for such procedures to the financial institutions to which the guarantee is provided, and prepare the documents necessary for registration of the change of representative. 　※Further, to ensure thoroughness, it is conceivable to carry out, on the closing date (with the financial institutions in attendance as needed), the procedures for registration of the change of representative and the procedures for release or transfer of the guarantee simultaneously. 　※As a means of reliably effecting the release or transfer of the guarantee, a method is also conceivable whereby, at closing, the debts covered by the transferor's management guarantee are repaid using the acquirer's financial resources, with the acquirer separately refinancing. ・　We explain to the client that due diligence (DD) is an important process for both the transferor and the acquirer. ・　We explain to the client that the content of representations and warranties should be appropriately considered based on the results of due diligence (DD), and that where no period or liability cap is set, or where provisions exist whose scope of application is not unambiguously clear, the transferor may bear excessive liability under the representations and warranties, creating a risk of disputes between the parties. ・　As to payments and procedures after closing, adjustments and corrections of payments after the final agreement, the organization of the transferor's assets and loans after the final agreement, and the period from the final agreement to closing: at a stage where adjustments between the parties have not been sufficiently made, we do not casually propose clauses or schemes that give rise to these risks; we consider them carefully and, if we do make such a proposal, we do so through an organizational decision (a decision made through an organizational process under clarified standards—not by a single staff member alone—that is organizationally recorded and subsequently verifiable), and when making the proposal we explain, as specifically as possible, the details of the risk and the consequences that could arise should the risk materialize. ※It is desirable, at the stage such a risk is recognized, to explain to the parties as specifically as possible the details of the risk and the consequences that could arise should it materialize.

3. 22

   In concluding the final agreement, we encourage the client to confirm once more that nothing is missing from the contract content. ※Where the content of the final agreement or the like comes to include risk matters that could develop into disputes between the parties after execution of the final agreement and closing, it is desirable to explain once more, before execution of the final agreement, the details of such risk matters and the consequences that could arise should the risks materialize, as specifically as possible.

[Closing]

1. 23

   After putting concrete arrangements in place for closing, on the closing date we confirm that the transfer consideration has been duly received from the acquirer.

1. 24

   From the standpoint of excluding inappropriate acquirers to the maximum extent, we implement the following measures. ・　We conduct an investigation of the acquirer from the standpoint of confirming whether the acquirer has the intent and capability to perform the final agreement and take over the target business. ・　On that basis, to the transferor as our client, we explain the outline of the investigation of the acquirer before concluding the intermediary/FA contract (in the case of an M&A platform operator, before registration on the M&A platform). Specifically, for each "investigation item" in the table in Chapter 2, II-6(1) of the Guidelines, we consider the content of the investigation to be conducted and explain it to the client. ①　As to the specific content of the investigation, confirmation of the acquirer's financial condition and business actuality, and confirmation in terms of compliance—such as whether the acquirer (including related persons such as the representative, officers, and shareholders) falls under anti-social forces or has caused trouble related to M&A in the past—are contemplated, and we conduct the investigation appropriately from these standpoints. In particular, as to the financial condition, we make appropriate confirmation from such standpoints as whether the acquirer can procure transfer consideration of the expected level and whether it is in a position to continue operating the target business after implementation of the M&A. ②　As to the timing of the investigation, in addition to before concluding the intermediary/FA contract with the acquirer (in the case of an M&A platform operator, before registration on the M&A platform), we conduct the necessary investigations appropriately as the M&A process progresses, and sufficiently confirm the acquirer by the time the final agreement is concluded. ③　As to the method of the investigation, confirmation of the acquirer's tax returns and commercial registry, and compliance checks covering the representative, officers, shareholders, and other related persons named therein, are contemplated; however, particularly in cases where the acquirer's creditworthiness is especially important to the conclusion of the M&A, such as where the transferor is insolvent, we conduct the investigation with particular care, and in such cases we appropriately confirm the acquirer's financial condition at least by checking financial results disclosures or tax returns. ・　Where, through the provision of information about acquirers we have supported in the past or through industry information-sharing arrangements and the like, we obtain information concerning inappropriate acquirers, such as non-performance of final agreements, we do not keep such information at the level of the individual staff member but share it organizationally, and we build a system for carefully considering whether to provide matching support to such acquirers. ・　As to providing new support to such an acquirer, we consider it carefully by scrutinizing the content of the obtained information and by taking into account the disadvantage to transferors from similar conduct; if we do provide such support, we do so through an organizational decision (a decision made through an organizational process under clarified standards—not by a single staff member alone—that is organizationally recorded and subsequently verifiable). ・　(For intermediaries) Where we have information concerning inappropriate conduct by the acquirer, we disclose it to the transferor.

As to exclusivity clauses, we act in compliance with the following points in particular.

1. 25

   Where an exclusivity clause is included, we limit its scope as much as possible. Specifically, where the client has made clear to the intermediary/FA the matters on which it wishes to seek the opinion of another support institution, and there is no reasonable ground to prevent this, we permit the client to seek a second opinion from another support institution. Provided, we give consideration to information management, such as prohibiting the disclosure of information concerning the counterparty, or limiting the consultation destinations to persons under statutory or contractual confidentiality obligations or to public institutions such as Business Succession and Transfer Support Centers.

2. 26

   Where an exclusivity clause is included, the contract term is set with a guideline of no longer than six months to one year.

3. 27

   We include clauses or the like (including oral statements) expressly stating that the client may terminate the intermediary/FA contract mid-term at any time.

As to clauses restricting direct negotiation, we act in compliance with the following points in particular.

1. 28

   Candidates subject to restrictions on direct negotiation are limited solely to candidates that the M&A professional has engaged with, contacted, and introduced (except where the client has expressly accepted "not to find candidates itself" and "not to negotiate directly with candidates it has found itself (contemplating cases where the client requests the M&A professional to provide support toward concluding an M&A with a candidate the client has found)").

2. 29

   Negotiations subject to restrictions on direct negotiation are limited to those conducted for purposes related to an M&A between the client and the candidate.

3. 30

   The effective period of clauses restricting direct negotiation is limited to the period until the intermediary/FA contract ends.

As to tail clauses, we act in compliance with the following points in particular.

1. 31

   The tail period is set with a guideline of no longer than two to three years.

2. 32

   The scope of the tail clause is limited solely to acquirers that the M&A professional engaged with or contacted and that were introduced to the transferor. Specifically, cases that go no further than the presentation of a long list / short list or a non-name sheet (teaser) are not covered by the tail clause. Coverage is limited to acquirers for which at least name clearance (sending a corporate profile to the acquirer and disclosing the transferor's name) was carried out and which were introduced to the transferor. ※The Guidelines indicate that the scope of tail clauses should be limited to acquirers for which name clearance was carried out and which were introduced to the transferor; this does not mean that the validity of the scope of a tail clause is recognized in every case where this requirement is met.

3. 33

   Where no exclusivity clause is included in the intermediary/FA contract, and the client receives support from multiple M&A professionals with the result that the same candidate is introduced by multiple M&A professionals, if we are not selected by the client as the M&A professional from which to receive support toward closing, we do not charge fees on the basis of the tail clause.

1. 34

   Before concluding an intermediary contract, we inform both parties that we are an intermediary concluding intermediary contracts with both the transferor and the acquirer (in particular, where the intermediary contract provides for the receipt of fees from both parties, that fact).

2. 35

   Upon concluding an intermediary contract, we expressly explain to each party, in advance, the matters on which conflicts of interest between the two parties are anticipated. In addition, where we separately become aware of information concerning matters on which conflicts of interest between the parties are anticipated (including information that is favorable or unfavorable to only one party), we disclose such information to each party expressly and in a timely manner.

3. 36

   Having accepted engagements from both parties, we must be neutral and fair to both parties, and we do not engage in conflict-of-interest conduct that unjustly benefits or disadvantages one party.

4. 37

   In particular, we never engage in such conflict-of-interest conduct for the purpose of benefiting ourselves or a third party, and we stipulate in the intermediary agreement, as obligations of the intermediary, that at least the following acts will not be carried out. ・　Obtaining additional fees from the acquirer and according favorable treatment to that acquirer (such as preferentially conducting matching contrary to the parties' needs or steering toward an unjustly low transfer price) ・　Favoring clients who are repeat customers and according favorable treatment to such clients (such as preferentially conducting matching contrary to the parties' needs or steering toward an unjustly low transfer price) ・　Where an M&A is concluded at a transfer price higher (lower) than the transfer price desired by the transferor (acquirer), demanding from the transferor (acquirer), separately from the regular fee, a fixed percentage of the difference between the desired transfer price and the concluded transfer price as remuneration ・　Failing to convey to the other party matters that one party requested be conveyed, or falsely conveying to the other party matters that one party did not actually state ・　Where we become aware of information that is favorable or unfavorable to only one party, failing to convey that information to that party and concealing it

5. 38

   We do not conduct definitive valuations, and we advise clients to seek the opinions of qualified professionals and the like as necessary.

6. 39

   Where we present to both parties the results of a valuation as an approximate or provisional amount that we calculated simply ourselves (simplified valuation) as reference material, we expressly state the following points to both parties. ・　That it is not a definitive valuation but merely a simplified calculation prepared as reference material ・　Where the intentions, opinions, or the like of one party were taken into account in the simplified valuation, the content of such intentions, opinions, or the like ・　That the opinions of qualified professionals and the like may be sought as necessary

7. 40

   In negotiations, we do not pursue the interests of one party only, but seek to realize the interests of both parties with neutrality and fairness.

8. 41

   We do not conduct due diligence ourselves and do not determine conclusions concerning the content of due diligence reports, and we advise clients to seek the opinions of qualified professionals and the like as necessary.

1. 42

   In addition to the above, we endeavor to act in line with the spirit of the Small and Medium M&A Guidelines.