Declaration of Compliance with the
SME M&A Guidelines (3rd Edition)

1.

We fulfill the obligations owed under our contract with the client.

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

• We do not seek our own or a third party’s benefit at the expense of the client’s interests.

• Where our services involve a matter in which our interests and those of the client may conflict, we handle it appropriately, giving priority to the client’s interests.

2.

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

3.

Our representative recognizes that, in order to secure and improve the quality of support, it is essential to (i) improve knowledge and capabilities and (ii) ensure the proper conduct of operations, and communicates internally and externally the message that these efforts are important. We also implement measures consistent with the message communicated.

4.

We implement effective measures to improve our knowledge and capabilities.

5.

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

6.

Where we outsource part of our operations to a third party, we implement measures to ensure the proper conduct of operations by the outsourcing contractor.

7.

We support the client so that they may reach a decision on whether to proceed with an M&A based on their own will.

• We explain the overall picture of SME M&A and the significance and risks of proceeding, in a manner as easy to understand as possible.

• We do not pressure the client into a decision, and we respect the client’s own judgment.

8.

We do not make solicitations that impede the client’s appropriate decision-making.

※ In particular, we exercise care with respect to the following forms of solicitation.

• Solicitations that unduly instill anxiety or urgency in the client

• Solicitations that make definitive statements regarding uncertain matters

• Solicitations that present excessive expectations as to the level of the transfer price

• Solicitations that repeatedly and persistently continue despite the client’s refusal

Specifically, we do not engage in solicitations that fall under the following:

• Those that unduly instill anxiety by asserting that the business will not survive unless an M&A is carried out

Examples of solicitations requiring particular care include:

• Those making definitive statements about matters that are inherently uncertain

• Those presenting an excessive valuation as to the level of the transfer price

• Those asserting without basis that a specific counterparty candidate will certainly be found

• Others that render definitive judgments as to the likelihood of an M&A being concluded or its terms

9.

We execute a brokerage agreement or an FA agreement that accurately corresponds to the actual form of our services.

10.

Before executing the agreement, we provide the client with a clear explanation ― including by delivering a written document setting out the material matters concerning the brokerage / FA agreement (items (1) through (17) below) ― and obtain the client’s understanding and consent.

(1) The distinction between a broker, which executes agreements with both the transferring and the acquiring party and advises both, and an FA, which executes an agreement with only one party and advises only that party, together with the characteristics of each (including, where the broker receives fees from both parties, a statement to that effect)

(2) The scope and content of the services provided (the scope and content of services provided at each process stage, such as valuation, matching, and negotiation)

(3) The qualifications held by the person in charge (for example, certified public accountant, tax accountant, SME management consultant, attorney, administrative scrivener, judicial scrivener, labor and social security attorney, or other accounting-related certifications such as bookkeeping or business accounting examinations), together with years of experience and track record of concluded deals

(4) Matters concerning fees (calculation basis, amount, 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) (In the case of a broker) Matters concerning the counterparty’s fees (calculation basis, minimum fee, timing of payment, etc.)

(7) Matters concerning confidentiality (where a confidentiality obligation is imposed on the client, a statement to that effect; the facts subject to confidentiality; partial release of the confidentiality obligation where disclosure is made to professional advisors or to a Business Succession Support Center, etc.)

(8) Matters concerning restrictions on direct negotiation (where the client is prohibited from finding candidates themselves and from negotiating directly with candidates they have found, a statement to that effect; the scope of candidates and negotiation purposes subject to restriction, etc.)

(9) Exclusivity clause (whether a second opinion is permitted, etc.)

(10) Tail clause (tail period, M&A transactions covered, etc.)

(11) Contract term (contract period, matters concerning renewal (extension of the period), etc.)

(12) Matters concerning termination of the agreement and, where it is expressly provided that the client may terminate the brokerage / FA agreement mid-term, matters concerning such mid-term termination

(13) Matters concerning liability (exemption) (the requirements giving rise to liability for damages, the scope of the amount of compensation, etc.)

(14) Provisions that remain effective after termination of the agreement (the applicable provisions, their period of validity, etc.)

(15) (In the case of a broker) Matters in which a conflict of interest between the two parties is anticipated

(16) (In the case of an explanation to the transferring party) An outline of the investigation conducted with respect to the acquiring party (the entity conducting the investigation, investigation of financial condition, investigation of compliance, investigation of actual business conditions, etc.)

(17) (In the case of an explanation to the transferring party) Whether we participate in an industry-wide information-sharing mechanism (and, if not, a statement to that effect)

11.

With respect to fees, the content of the services provided, and matters concerning the counterparty’s fees, we provide explanations in accordance with the following.

• We clearly explain the matters concerning fees and also explain the content of the services we provide in consideration for those fees. Specifically, we deliver a written document (including provision by electromagnetic means such as e-mail) and explain the fee calculation basis ― such as the success-fee rate applied, the fee base amount (transfer price / net assets / total transferred assets, etc.), the amount of the minimum fee, and the timing at which fees arise (retainer / monthly fee / interim fee / success fee) ― as well as the specific content of the services provided.

• As to the services provided, we organize which services are provided at each stage of the M&A process (including, where no services are provided at a given stage, a statement to that effect), and explain this by delivering a written document (including provision by electromagnetic means such as e-mail). Specifically, we organize the principal services provided for each “M&A process” in the table in Chapter 2, II, 4, (1) of the Guidelines, and provide an appropriate explanation.

• We explain the qualifications held by the person in charge (for example, certified public accountant, tax accountant, SME management consultant, attorney, administrative scrivener, judicial scrivener, labor and social security attorney, or other accounting-related certifications), together with years of experience and track record of concluded deals.

• If, in the pre-execution explanation, the client is not satisfied and requests negotiation with the broker / FA regarding services or fees, we consider our response in good faith.

• (In the case of a broker) Before executing the brokerage agreement, in addition to the matters concerning the fees received from the client, we deliver a written document (including provision by electromagnetic means such as e-mail) and explain to the client the matters concerning the counterparty’s fees (fee rate, fee base amount (transfer price / net assets / total transferred assets, etc.), amount of the minimum fee, timing at which fees arise (retainer / monthly fee / interim fee / success fee), etc.), including the fact that the total amount of fees including those of the counterparty may affect whether the M&A is concluded and its terms (such as the transfer price).

• Where the counterparty’s fees explained before execution of the brokerage agreement are to be increased, we disclose the substance of the increase to the client.

• Where the client’s fees are to be reduced, we again explain to the client that the counterparty’s fees initially explained have not been increased.

• (In the case of an FA) Where we receive payment from the FA supporting the counterparty, we explain to the client the amount paid, the nominal basis of the payment, and the timing of payment.

12.

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

13.

After the explanations under 10 and 11 above, we allow the client sufficient time to consider the matter in order to make an appropriate decision on executing the agreement.

14.

In conducting a valuation, we explain the valuation methods and underlying assumptions to the client in advance, and obtain the client’s understanding and consent as to the methods and the price range.

15.

Name clearing (disclosure of detailed materials, such as a company profile, that include the name of the transferring party) is conducted only after presenting a non-name sheet (teaser) or the like, obtaining the transferring party’s consent with respect to a candidate that has expressed interest, and executing a confidentiality agreement with that candidate.

16.

As to the transferring party’s consent, we obtain consent individually for each candidate to whom disclosure is to be made.

17.

We take care to ensure that detailed information concerning the transferring party is not leaked or disclosed externally at the stage prior to execution of a confidentiality agreement.

18.

We support negotiations in a manner that stands beside the client, including by explaining the overall picture of SME M&A and the process ahead as clearly as possible, even to clients unfamiliar with it.

19.

In conducting due diligence (DD), we encourage and support the transferring party in preparing the materials requested by the acquiring party.

20.

During the period leading up to execution of the final agreement, we provide support so that the final agreement is executed in a form in which both the transferring and acquiring parties are satisfied to the greatest extent possible, and in which the risk of disputes arising between the parties after the M&A is reduced (and, where risk remains after such reduction, at least in a form in which the parties understand that risk).

21.

With respect to risks that may develop into disputes between the parties after execution of the final agreement or after closing, we carry out adjustments up to execution of the final agreement and provide explanations to the client. Specifically, we implement the following measures.

• As to the treatment of the transferring party’s management guarantee, we consult with the transferring party’s owner on the approach and consider our response.

① We carefully hear the transferring party owner’s intentions regarding the management guarantee, and explain that consulting professional advisors (particularly attorneys) or a Business Succession Support Center, and consulting the financial institution to which the guarantee is provided before the M&A is concluded, are also available options.

※ However, with respect to prior consultation with a financial institution, we support the transferring party owner’s appropriate judgment after also conveying the points to note in providing information to that financial institution before the M&A is concluded (such as the handling of information in the event the M&A is not concluded).

② Where the transferring party wishes to consult professional advisors or financial institutions regarding the treatment of the management guarantee, we do not refuse such consultation, and we exclude the professional advisors and financial institutions consulted from the scope of the confidentiality provisions in the brokerage / FA agreement. Furthermore, where the agreement with the acquiring party contains confidentiality provisions, we urge the acquiring party to exclude the professional advisors and financial institutions consulted from the scope of those provisions.

③ With respect to the treatment of the management guarantee in the final agreement, where release of the guarantee or its transfer to the acquiring party is contemplated, we consider clearly positioning such release or transfer as an obligation of the acquiring party in the final agreement.

• Specifically, having positioned release or transfer of the guarantee as an obligation of the acquiring party, we make adjustments toward setting such release or transfer as a condition to closing and incorporating provisions contemplating the event that the transfer of the guarantee is not effected (for example, termination provisions or indemnity provisions).

• We explain to the client that due diligence (DD) is an important process for both the transferring and the acquiring party.

• We explain to the client that the content of representations and warranties should be appropriately considered in light of 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 transferring party may bear excessive representation and warranty liability, giving rise to a risk of disputes between the parties.

• With respect to payments and procedures after closing, adjustments and amendments to payments after the final agreement, arrangement of the transferring party’s assets and loans after the final agreement, and the period between the final agreement and closing, we do not lightly propose provisions or schemes that give rise to such risks at a stage where adjustment between the parties has not been sufficiently made. We consider them carefully and, if we do propose them, we do so through an organizational judgment (a judgment made through an organizational process under clarified standards, rather than by a single person in charge, which is recorded organizationally and is capable of subsequent verification), and when proposing them we explain, as specifically as possible, the details of the risk and the consequences that may arise should the risk materialize.

※ It is desirable that, at the stage when such risk is recognized, the details of the risk and the consequences that may arise should it materialize be explained to the parties as specifically as possible.

22.

In executing the final agreement, we urge the client to confirm once again that there are no omissions in the content of the agreement.

※ Where the content of the final agreement comes to include risk matters that may develop into disputes between the parties after execution of the final agreement or after closing, it is desirable to explain again, as specifically as possible and before execution of the final agreement, the details of those risk matters and the consequences that may arise should the risk materialize.

23.

After putting in place the specific arrangements for closing, we confirm on the day that the transfer consideration has been reliably remitted by the acquiring party.

24.

From the standpoint of eliminating inappropriate acquiring parties to the greatest extent possible, we implement the following measures.

• We conduct an investigation of the acquiring party from the standpoint of confirming whether it has the intention and the capability to perform the final agreement and to take over the subject business.

• On that basis, we explain to the transferring party as our client, before executing the brokerage / FA agreement (in the case of an M&A platformer, before registration on the M&A platform), an outline of the investigation of the acquiring party. Specifically, we consider the content of the investigation to be conducted for each “investigation item” in the table in Chapter 2, II, 6, (1) of the Guidelines, and explain this to the client.

① The detailed content of the investigation is expected to include confirmation of the acquiring party’s financial condition and actual business situation, and confirmation from a compliance perspective as to whether the acquiring party (including its representative, officers, shareholders, and other related persons) falls within anti-social forces and whether it has caused any M&A-related trouble in the past; we conduct the investigation appropriately from these perspectives. With respect to financial condition in particular, we conduct appropriate confirmation from the perspectives of whether the acquiring party can raise the anticipated level of transfer consideration and whether it is in a position to continue operating the subject business after the M&A.

② As to timing, in addition to conducting the investigation before executing the brokerage / FA agreement with the acquiring party (in the case of an M&A platformer, before registration on the M&A platform), we appropriately conduct any necessary investigation as the M&A process progresses, and sufficiently confirm the acquiring party before execution of the final agreement.

③ As to methods, confirmation of the acquiring party’s tax returns and commercial register, and compliance checks including the representative, officers, shareholders, and other related persons named therein, are contemplated. In cases where the acquiring party’s creditworthiness is particularly important to the conclusion of the M&A ― such as where the transferring party is insolvent ― we conduct the investigation with particular care, and in such cases we appropriately confirm the acquiring party’s financial condition at least by reviewing its financial statements announcement or tax returns.

• Where we obtain information concerning an inappropriate acquiring party, such as non-performance of a final agreement, through the provision of information about acquiring parties we have previously supported or through an industry-wide information-sharing mechanism, we do not confine such information to the level of the person in charge but share it organizationally, and build a structure for carefully considering whether to provide matching support to that acquiring party.

• As to whether to provide new support to such an acquiring party, we consider the matter carefully by scrutinizing the content of the information obtained and taking into account the disadvantage to transferring parties from similar conduct, and if we do proceed, we do so through an organizational judgment (a judgment made through an organizational process under clarified standards, rather than by a single person in charge, which is recorded organizationally and is capable of subsequent verification).

• (In the case of a broker) Where we have obtained information concerning inappropriate conduct by the acquiring party, we disclose it to the transferring party.

25.

Where an exclusivity clause is established, we limit its scope as much as possible. Specifically, after having the client clarify to the broker / FA the areas on which they wish to seek the opinion of another support institution, and where there is no reasonable ground to prevent it, we permit the client to seek a second opinion from another support institution. However, we give due regard to information management, such as by prohibiting disclosure of information concerning the counterparty, or limiting the parties consulted to those under a statutory or contractual confidentiality obligation or to public institutions such as a Business Succession Support Center.

26.

Where an exclusivity clause is established, we set the contract term at a maximum of six months to one year as a guide.

27.

We include a provision (including an express oral statement) clearly stating that the client may terminate the brokerage / FA agreement mid-term at any time.

28.

The candidates subject to restrictions on direct negotiation are limited solely to those candidates with whom the M&A specialist has been involved or in contact and which it has introduced (except where the client has expressly acknowledged that they will “not find candidates themselves” and will “not negotiate directly with candidates they have found themselves” (contemplating the case where the client requests the M&A specialist to support the conclusion of an M&A with a candidate the client has found)).

29.

The negotiations subject to restriction are limited to those conducted for the purpose of an M&A between the client and the candidate.

30.

The period of validity of provisions restricting direct negotiation is limited to the time until the brokerage / FA agreement terminates.

31.

The tail period is set at a maximum of two to three years as a guide.

32.

The scope of the tail clause is limited solely to acquiring parties with whom the M&A specialist has been involved or in contact and which have been introduced to the transferring party. Specifically, cases limited to presentation of a long list / short list or a non-name sheet (teaser) are not covered by the tail clause. It is limited to acquiring parties for which at least name clearing has been carried out (sending a company profile to the acquiring party and disclosing the name of the transferring party) and which have been introduced to the transferring party.

※ Note that the Guidelines indicate that the scope of a tail clause should be limited to acquiring parties for which name clearing has been carried out and which have been introduced to the transferring party; this does not mean that the validity of the scope of a tail clause is recognized in all cases satisfying that condition.

33.

Where no exclusivity clause is established in the brokerage / FA agreement, and the client receives support from multiple M&A specialists and is consequently introduced to the same candidate by multiple M&A specialists, we do not claim fees on the basis of a tail clause if we are not selected by the client as the M&A specialist from which to receive support toward conclusion.

34.

Before executing the brokerage agreement, we inform both parties that we are a broker executing brokerage agreements with both the transferring and the acquiring party (and in particular, where the brokerage agreement provides that we receive fees from both parties, a statement to that effect).

35.

In executing the brokerage agreement, we explicitly explain in advance to each party the matters in which a conflict of interest between the two parties is anticipated. In addition, where we separately become aware of information concerning matters in which a conflict of interest between the two parties is anticipated (including information advantageous or disadvantageous to only one party), we explicitly disclose such information to each party in a timely manner.

36.

As we accept engagements from both parties, we must be neutral and impartial toward both, and we do not engage in conflict-of-interest acts that unduly benefit or disadvantage one party.

37.

In particular, we never engage in such conflict-of-interest acts for the purpose of benefiting the broker itself or a third party, and we provide in the brokerage agreement, as an obligation of the broker, that at a minimum we will not engage in the following acts.

• Obtaining additional fees from the acquiring party and granting that party favorable treatment (such as giving priority to matching contrary to the parties’ needs, or steering toward an unreasonably low transfer price)

• Giving preferential treatment to repeat clients and granting them favorable treatment (such as giving priority to matching contrary to the parties’ needs, or steering toward an unreasonably low transfer price)

• Where an M&A is concluded at a transfer price higher (lower) than the price desired by the transferring (acquiring) party, demanding from the transferring (acquiring) party, separately from the regular fees, a certain percentage of the difference between the desired and the concluded transfer price as remuneration

• Failing to convey to the other party a matter that one party has requested be conveyed, or falsely conveying to the other party a matter that one party has not in fact stated

• Where we become aware of information advantageous or disadvantageous to only one party, failing to convey and concealing such information from that party

38.

We do not conduct a definitive valuation, and we advise the client to seek the opinion of professional advisors as necessary.

39.

Where we present to both parties the results of a valuation as an approximate or provisional figure, simply calculated by us as reference material (simplified valuation), we make the following points clear to both parties.

• That this is not a definitive valuation, but a simplified calculation prepared as reference material

• Where the intentions or opinions of one party were taken into account in such simplified valuation, the substance of those intentions or opinions

• That they may seek the opinion of professional advisors as necessary

40.

In negotiations, we seek to realize the interests of both parties with neutrality and impartiality, without pursuing the interests of only one party.

41.

We do not conduct due diligence ourselves and do not determine the conclusions set out in a due diligence report; we advise the client to seek the opinion of professional advisors as necessary.

42.

In addition to the above, we endeavor to act in accordance with the purpose of the SME M&A Guidelines.