SMS : Notice regarding Issuance of Paid-in Stock Options (The 18th Stock Acquisition Rights) with Performance Conditions

July 11, 2022

SMS Co., Ltd.

(Company Code: 2175, TSE Prime Market)

https://www.bm-sms.co.jp/en/

Notice regarding Issuance of Paid-in Stock Options

(The 18th Stock Acquisition Rights) with Performance Conditions

SMS Co., Ltd. (the "Company") hereby announces that, on July 11, 2022, its Board of Directors has resolved to issue the 18th Stock Acquisition Rights (the "Stock Acquisition Rights") to directors and employees of the Company as outlined below, pursuant to the provisions of Articles 236, 238, and 240 of the Companies Act.

The Stock Acquisition Rights will be issued to the subscribers with charge at a fair price and, as such, will not be allotted on the conditions particularly favorable to them. Therefore, the issuance will be conducted without approval of the General Meeting of Shareholders. The Stock Acquisition Rights shall not be issued as compensation to subscribers. Each of the subscribers shall undertake the rights on his/her investment decision.

1. Purpose and Reasons for Issuance of Stock Acquisition Rights
   With the Group mission of "We aim to improve the quality of life by providing information

infrastructure for an aging society," the Company provides more than 40 services in Medical Care, Elderly Care, Healthcare, and Senior Life in Japan and abroad, including career business like recruiting agent, management support platform for elderly care operators (Kaipoke) and medical information service in Asia-Oceania.

Since its establishment, the Company marked rises in sales and profits for 18 consecutive years. To achieve the Group mission, however, we need to continue to grow the existing businesses and promote the development and nurturing of new businesses for further business expansion. Accordingly, the Company has decided to issue the Stock Acquisition Rights with the aim of enhancing directors' and employees' morale and motivation toward business expansion and an increase in corporate value.

As described in "II. Guidelines on Issuance of Stock Acquisition Rights, 3. Details of Stock Acquisition Rights, (6) Conditions for exercising Stock Acquisition Rights," these Stock Acquisition Rights will become exercisable only when the adjusted operating income (*) in the

fiscal year ending March 2025 achieves a predetermined level. The Company has chosen the adjusted operating income as the benchmark because it aims for continued profit growth as an important management objective and the adjusted operating income will be the most appropriate measure of the contribution of directors and employees to the expansion of business and the increase in corporate value. Specifically, the exercisable rate is set based on the growth rate of the adjusted operating income. The exercisable rate shall be: 10% when the adjusted operating income for the fiscal year ending March 2025, exceeds the amount with an average annual growth rate of 10% compared to the adjusted operating income for the fiscal year ended March, 2022; 70% when the adjusted operating income exceeds the amount with an average annual growth rate of 15%; and 100% when the adjusted operating income exceeds the amount with an average annual growth rate of 20%. By clarifying the differences of economic advantages enjoyable depending on the achievement levels of performance targets, this plan is to bolster incentives for directors and employees who are allottees of these Stock Acquisition Rights to achieve the Group's long-term growth.

In the event that all the Stock Acquisition Rights are exercised, the maximum number of shares to be issued will be 192,000 shares, which is approximately 0.22% of the total number of issued shares as of the date of resolution of issuance. However, the Stock Acquisition Rights are exercisable on the condition of the Company's achieving the predetermined performance target and the Company believes that the achievement of the target will help improve the corporate value and shareholder value and contribute to the interests of the existing shareholders. Accordingly, the Company regards that the size of share dilution by issuing the Stock Acquisition Rights comes within a reasonable range.

1. 1. The amount obtained by adding stock-based compensation expenses in the notes to the consolidated financial statements in the Company's annual securities report for the relevant fiscal year, to operating income of the consolidated statement of income in the said report.
2. Guidelines on Issuance of Stock Acquisition Rights

1. Number of Stock Acquisition Rights 1,920 units

The total number of shares that may be delivered upon exercise of Stock Acquisition Rights

shall be 192,000 shares of the Company's common stock. If the number of shares underlying one Stock Acquisition Right is adjusted in accordance with 3. (1) below, the said total number of Stock Acquisition Rights shall be obtained by multiplying the adjusted number of shares underlying one Stock Acquisition Right by the number of Stock Acquisition Rights above.

2. Amount of payment for Stock Acquisition Rights and method of calculation thereof

The issue price shall be 3,200 yen per Stock Acquisition Right. The amount has been determined based on the calculation conducted by Plutus Consulting Co., Ltd. ("Plutus"), an independent appraisal institution, which took information about the Company's share price and others into consideration. In the process of computation, Plutus used the Monte Carlo simulation, a widely used pricing model of an option.

3. Details of Stock Acquisition Rights

(1) Class and number of shares underlying Stock Acquisition Rights

The number of shares underlying one Stock Acquisition Right (the "Number of Shares Granted") shall be 100 shares of the Company's common stock.

If the Company has, subsequent to the allotment date of the Stock Acquisition Rights, conducted a stock split (including, hereinafter, gratis allotment of the Company's common stock) or reverse stock split, the Number of Shares Granted shall be adjusted using the formula shown below; provided that such adjustment shall be made only for the number of shares underlying the unexercised Stock Acquisition Rights at that point in time, and any fraction less than one share resulting from the adjustment shall be rounded down to the nearest whole number:

Adjusted Number of Shares Granted =

Number of Shares Granted before adjustment × Split (or reverse split) ratio

If the Company has, subsequent to the allotment date of the Stock Acquisition Rights, carried out a merger or company split, reduced its stated capital, or otherwise needed to adjust the Number of Shares Granted in a manner similar to these, the Number of Shares Granted shall be appropriately adjusted to the extent deemed reasonable.

(2) Value of property to be contributed upon exercise of Stock Acquisition Rights and methods of calculation thereof

The value of property to be contributed upon exercise of Stock Acquisition Rights shall be determined by multiplying the amount to be paid in per share (the "Exercise Price") by the Number of Shares Granted.

The Exercise Price shall be 2,951 yen (The closing price of the Company's share on the Tokyo Stock Exchange on July 8, 2022, the day immediately prior to the date of the resolution by the Board of Directors of the Company determining the issuance of Stock Acquisition Rights).

If the Company has, subsequent to the allotment date of the Stock Acquisition Rights, effected a stock split or reverse stock split, the Exercise Price shall be adjusted using the following formula, and any fraction less than one yen resulting from the adjustment shall be rounded up to the nearest yen:

1

Adjusted Exercise Price = Exercise Price before adjustment × Split ሺor reverse splitሻ ratio

If the Company has, subsequent to the allotment date of the Stock Acquisition Rights, issued new shares or disposed treasury shares at a price below the market value (meaning a price that is particularly low compared to a fair issue price) of the common stock of the Company (excluding the cases of the issuance of new shares or the disposal of treasury shares due to the exercise of the Stock Acquisition Rights, and the transfer of treasury shares through share exchange), the Exercise Price shall be adjusted using the following formula. Any fraction less than one yen resulting from the adjustment shall be rounded up to the nearest yen:

Adjusted Exercise Price = Exercise Price before adjustment ×

Number of shares outstanding + Number of new shares issued × Amount to be paid in per shareMarket price per share before issuance of new shares

Number of shares outstanding + Number of new shares issued

In the formula above, the "Number of shares outstanding" shall be the total number of issued shares of the Company's common stock, less the number of treasury shares of the Company's common stock; and in the event that treasury shares of the Company's common stock are disposed of, the "Number of new shares issued", "Amount to be paid in per share" and "Market price per share before issuance of new shares" shall be read as the "Number of treasury shares disposed of", "Disposal amount per share " and "Market price per share before disposal," respectively.

Furthermore, if the Company has, subsequent to the allotment date of the Stock Acquisition Rights, carried out a merger with another company, or a company split, or otherwise needs to adjust the Exercise Price in a manner similar to these, the Company may appropriately adjust the Exercise Price to the extent deemed reasonable.

(3) Period during which Stock Acquisition Rights may be exercised

The period during which the Stock Acquisition Rights may be exercised (the "Exercise Period") shall be from July 1, 2025 to June 30, 2030. However, if the final day of the Exercise Period is a Company holiday, the preceding business day shall be the final day.

1. Matters concerning increases in stated capital and legal capital surplus
2. 1. In the event of shares being issued upon exercise of the Stock Acquisition Rights, an increase in the amount of stated capital shall be one-half of the maximum amount of increase in capital, etc., calculated in accordance with Paragraph 1, Article 17 of the Ordinance on Accounting of Companies. Any fraction less than one yen resulting from the calculation shall be rounded up to the nearest yen.
   2. In the event of shares being issued upon exercise of the Stock Acquisition Rights, an increase in the amount of legal capital surplus shall be the amount obtained by subtracting

the increase in capital in the above 1) from the maximum amount of increase in capital, etc. stated in the above 1).

(5) Restriction on acquisition of Stock Acquisition Rights through transfer

Acquiring the Stock Acquisition Rights through transfer shall require approval through a resolution by the Company's Board of Directors.

1. Conditions for exercising Stock Acquisition Rights
2. 1. If the amount of the adjusted operating income in the fiscal year ending March 2025 has exceeded each of the levels stated in (a) to (c) below, a stock acquisition right holder may exercise the number of the Stock Acquisition Rights equivalent to each predetermined rate of the Stock Acquisition Rights allotted to each holder (the "Exercisable Rate").

1. When the adjusted operating income has exceeded 8,532 million yen, the Exercisable Rate shall be 10%
2. When the adjusted operating income has exceeded 9,750 million yen, the Exercisable Rate shall be 70%
3. When the adjusted operating income has exceeded 11,077 million yen, the Exercisable Rate shall be 100%

In determining the values of the adjusted operating income above, the amount calculated below shall be used as a reference value. It is the amount obtained by adding stock-based compensation expenses in the notes to the consolidated financial statements in the Company's annual securities report for the relevant fiscal year, to operating income of the consolidated statement of income in the said report. In case where any indicator used as a reference value should be changed or modified due to the change in the accounting standards and other reasons, the Company shall separately establish an applicable indicator as a reference value through a resolution at a Board of Directors' meeting. In case where there is a fractional number of less than one in the exercisable Stock Acquisition Rights, the number shall be truncated.

1. A Stock Acquisition Rights holder does not need to be a director or an employee of the Company at the time of exercise of the Stock Acquisition Rights. Except when the Board of Directors of the Company separately approves, a Stock Acquisition Rights holder may not exercise the Stock Acquisition Rights in cases where the holder is removed from his/her position or receives disciplinary dismissal, or when there is a case that falls upon any of the items stipulated in the agreement on allotment of the Stock Acquisition Rights that the exercise of the Stock Acquisition Rights shall not be appropriate.
2. Heirs of a stock acquisition right holder may not exercise the Stock Acquisition Rights.
3. In the event that the exercise of Stock Acquisition Rights causes the number of outstanding shares of the Company to exceed its total number of authorized shares, said Stock Acquisition Rights may not be exercised.