Table of Contents
1. Overall policy(1) Outline(2) Essential matters
2. Policy for individual issue	  A. Pricing	  B. Officers	  C. Representations and Warranties about Land Contamination	  D. Dealings with Zeta	  E. Breakup Fee
Glossary
1. “contract” refers to the final stock purchase agreement
2. “agreement” refers to the overall outcome of this round of negotiation (i.e. MOU)
3. “consensus” refers to an agreement on specific issues/details
1. Overall policy(1) Outline
There are many variable elements in this round of negotiation, therefore our goal is to make abasic agreement. In each issue, except for the sales price, we start the negotiation by mutuallyconfirming each party’s priorities and the points in dispute. With this in mind, we make aconcession where appropriate, so that we can draw out concessions from Blue as well, and reachan agreement flexibly.
(2) Essential matters
We think the following three points to be particularly important :•••Concluding the contract in April, 2015
Ensuring that the sales price does not fall below US$90million even when various fees andcharges are taken into consideration (except for land contamination)
Setting a maximum on the amount that Red pays in relation to decontamination

The agreement including the three points above will be in a form of a Memorandum ofUnderstanding without any legally binding power. We will also specify that no exclusive right tonegotiation will be given to Blue. However, as for the fees that must be paid before the conclusionof the contract such as land survey, we will make them legally binding.
On the other hand, if Blue submits good conditions and possibility of cancellation of the contractis low, we consider an agreement with legally binding power. As long as the agreement has nolegally binding power, we continue considering other buyers than Blue.
Since Red is going to publicly announce its investment plan in the new educational projects inMay 2015, we would like to conclude the agreement to finalize this deal by April 2015 at thelatest.
(3) Position of each issue
Our top priority is (A)pricing. The enterprise value may drop depending on the outcome of theother issues, leading to a fall in the sales price, or Red may have to shoulder some of theadditional charges/fees, but we will not make an agreement that leaves the possibility of the sales

1price falling below US$90million. However, decontamination fee of the land is not included in
the condition above because it is an expense shouldered by the owner of the land under theNegoland Law. The priorities of (B)officers and (E)breakup fee are lower than the other issues for
Red, so we will use these issues as a bargaining chip to draw out concessions from Blue.
2. Policy for individual issues
A. Pricing(1) Goal
To agree on a price as high as possible.
(2) Strategies
Pricing is the most important issue. Since we have information that it would not be difficult tofind a buyer willing to pay US$90million for Red Chocolate, we cannot make a deal below
US$90million.
We will present why we think US$120million is appropriate from the Financial Condition of Red
shown in Exhibit 20 and 21. We will also show our doubts on Blue’s reasoning for the price theyclaim, so that we can decide on a higher sales price.
However, there is no solid reasoning for any of the indices, and if Blue seems unsatisfied with thearguments, we will move on and propose a different way of determining the price. In the case thatthe price does not exceed US$90million and the negotiation comes to a deadlock, we willemphasize that we will not come to an agreement if the price falls below US$90million and aim
for a concession by Blue.
(3) Bottom Line
Ensuring that the sales price does not fall below US$90million even when various fees andcharges (notably from the treatment of officers [B] and the dealings with Zeta [D]) are taken into
consideration.
B. Officers(1) Goal
Maintain the same level of salary (i.e. US$1million) and post as before purchase for both Ms.
Chen and Mr. Sullivan over a certain period.
(2) Strategies
As this issue is not so closely related to other issues, we will propose sharing each other’s
circumstances and seek a solution together, and spend as little time on this issue as possible.
Moreover, as we can settle this issue by adjusting the pricing in the end, we hope to make use ofthis issue as a leverage to draw out Blue’s concessions in other issues.
Regarding Ms. Chen, it is unlikely that there is any critical disparity between the intentions of Redand Blue, thus we will confirm Ms. Chen’s treatment first.
Regarding Mr. Sullivan, we will argue his importance as CEO and aim to maintain his salary andpost for a limited period. If not CEO, we will make new proposals to maintain a post where he canunleash his potential.
In the case that the salary cannot be maintained, we will propose supplementation for the first year,
so that the two will receive the same salary in the end. From the second year, we will agree to a
performance-related pay with a minimum.
(3) Bottom Line
• For the first year, maintain the same level of salary for both officers (it will be acceptable
to have substantially maintained the salary by making a supplementation)• Secure a post where both officers can make use of their abilities.

2	  If a consensus cannot be reached concerning the two points above, we will not conclude on thisissue at this round of negotiation, and confirm the two officers if they will accept the conditions
Blue has presented. If the two officers do not accept, Red will employ them.
C. Representations and Warranties about Land Contamination(1) Goal①Survey: Red will not conduct a thorough survey. Even if Red does, the survey fee will be paidby Blue.
②Representations and warranties: Red will limit the extent to which it represents and warrants,
and the period of representations and warranties.
③Decontamination fee: we will limit the amount of payment and make the amount as small as
possible.
(2) Strategies
As the current owner of the land is responsible for decontamination, we can agree to represent andwarrant to a certain extent. If no survey is to be done, the most important thing is to limit thewarrant to the extent that Red knows and lay down a limit on the amount of the costs that Red will
pay for when any contamination is found. We hope to lead the negotiation so that Red will nothave to conduct a thorough survey, but we will respond flexibly to Blue’s reactions.
Even if a thorough survey is to be done, we would like Blue to pay some of the decontamination
fee, and if possible, to promise that it would not leave the negotiation when any contamination isfound.
As Red is not obliged to conduct a thorough survey, we will require Blue to pay the survey fee
and the decontamination fee, and will gradually make a compromise. We will avoid shouldering
the entire decontamination fee.
There are other expenses that Blue may require us to pay, such as decontamination fee thatexceeds US$30million, risk of lawsuit, harm to the company’s reputation, production stoppage
during decontamination. In that case, there is a possibility of conceding on the maximum amount
Red will pay. However, we will avoid shouldering the entire amount.
(3) Bottom Line
①If a survey is to be conducted
・Representations and warranties: represent and warrant to the best of our knowledge based on thesurvey. We will also set a limit on the contents and the period of the representation andwarranties.
・Decontamination fee: Blue shall pay for some amount if any contamination is found.
②If no survey is to be conducted
・Representations and warranties: represent and warrant for the 15 years that Red has owned theland.
・Decontamination fee: for any contamination caused by the previous owner, we will set a limit on
the amount that Red will pay. Even if we are to consider risks other than decontamination, such as
lawsuit, charges and fees may exceed US$30million, but we will still set a limit to the amountshouldered by Red.
D. Dealings with Zeta
(1) Goal①About the inquiry
Red will make an inquiry in response to Blue’s demand.
②Fee of inquiryBlue shall pay for the fee of inquiry.

3③Representations and warranties
Red will only represent and warrant for the results of the inquiry. In the case that therepresentations and warranties are violated, Red shall bear responsibilities only for a year.
④Damages that are not included in Red’s representation and warranties
When a transaction with Zeta is found after the closing, even if Red is to compensate for a part ofthe damages, Red will set a limit.
(2) Strategies
Since there are many points in this issue and the negotiation may become complicated, we shalltake initiative in the negotiation and sort out the points one by one.
First we will tell Blue that Red can represent and warrant that there are no direct transactions withZeta. Since we do not know about indirect transactions, even if we are to represent and warrant
for them, we must set a limit on the scope of the representations and warranties.
Even if we are to conduct a survey, we will aim for the conclusion and the closing of the contractby April. As the survey lasts for about 6 months, there is a possibility of concluding the contract
in April and closing the contract after the survey.
By proposing to partially compensate for the drop in the enterprise value or penalties after theconclusion of the contract, we aim to obtain Blue’s agreement on the date of the conclusion andthe closing of the contract as well as to reduce the danger of cancellation between the conclusion
and the closing.
(3) Bottom Line• If Red is to represent and warrant, Red is going to limit the contents of the representations
and warranties, and limit the period for making a claim on damages• Even if the risk of harm is reflected on the purchase price, we must not fall short of thebottom line of (A)pricing.
E. Breakup Fee(1) GoalTo agree on a breakup fee for reasons not attributable to Red.
(2) Strategies
As this is an issue of low priority, we will respond flexibly on the amount of the breakup fee andthe conditions that it accrues, and utilize it as a bargaining chip for other issues. However, if theperiod until closing becomes long with regard to issues such as transactions with Zeta, and there isa high probability that Blue nullifies this agreement, it will be important to set a breakup fee.
(3) Bottom LineWe will not set a breakup fee.

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