1.Aim of the company split

Under the terms of the business integration contract signed by Lawson and Three F on April 13, 2016, the two companies established a new joint-venture L TF Co., Inc. and 89 stores of THREE F stores operated in Chiba and Saitama prefectures were turned into “LAWSON THREE F”double-brand stores. As a result of this effective collaboration, the two companies are now also ready to operate “LAWSON THREE F” double-brand stores in Tokyo and Kanagawa prefecture, and part of Chiba prefecture. The company split is a pre-arranged company split designed to transfer a portion of the rights and obligations relating to THREE F’s convenience store operation. 281 stores/properties currently operating under the THREE F and other brands will sequentially transfer to double-brand stores, starting from summer 2017.

From June 1, 2017, 281 of the above-mentioned stores due to be operated by double-brand “LAWSON THREE F” will be transferred to a new split company, L. TF. PJ. Co., Inc., a new full subsidiary of Three F.

All necessary legal procedures and actions relating to the prohibition of private monopoly have now been completed, and a suspensive condition included stating this company split should not violate anti-trust law.

2.Overview of company split

(1)Schedule for company split

Board meeting to approve company split (Three F)	April 12, 2017
Board meeting to approve company split (Lawson)	April 12, 2017
Signing of company split agreement	April 12, 2017
Shareholders’ meeting (Three F)	May 26, 2017
Tentative effective date	June 1, 2017
Tentative payment date	June 1, 2017

Note: The company split is a simple company split as determined under Item 2, Article 796 of the Companies Act for Lawson, Inc. For that reason, this company split can be executed without seeking prior approval from the general shareholders’ meeting.

(2)Style of company split

The company split is an absorption-type company split. Three F is the split company and Lawson is the succeeding company.

(3)Financial payments relating to the company split

A cash payment of 11,700 million yen is scheduled to be transfered from Lawson to Three F in relation to the company split.

(4) New equity and bond warrants generated by the company split

None

(5)Increase in capital related to the company split

This company split will not generate an increase in Lawson capital.

(6)Rights and obligations to be inherited by the succeeding company

Under the company split, Lawson will inherit a portion of the assets, rights and obligations pertaining to specific businesses.

(7)Expected discharge of obligations

There is not expected to be any problem with the discharge of respective obligations by both Lawson and Three F with respect to the company split.

3.Basis for allocation under company split

(1)Underlying basis and reason for allocation

To ensure a fair and appropriate allocation for the company split, Lawson appointed Mizuho Bank as an independent calculation agent. Mizuho Bank calculated the value of the underlying operations for the company split. Both Lawson and Three F considered the calculations performed by independent calculation agents, and the latest businesses performance by the underlying operations linked to the company split. Both companies also carefully discussed all details relating to the company split. Lawson and Three F then signed the company split agreement based on their judgement that the details written in the segment entitled (3) Financial payments relating to the company split (under 2. Overview of company split) were fair and proper.

(2)Items pertaining to the value calculation

i)Name of calculation agent and relationship with Lawson and Three F

Lawson appointed Mizuho Bank as an independent calculation agent to ensure that the pricing assessment and the overall procedures relating to company split No.1 and No.2 were fair and appropriate. Mizuho Bank conducted a value assessment of the underlying operations for the company split. Mizuho Bank has no special links with the people directly involved in the Lawson and Three F relationship, and no significant vested interest in either Lawson, Inc. or Three F Co., Ltd. Lawson and Three F do conduct regular banking business with Mizuho Bank. However, Mizuho Bank took special measures to prevent any undisclosed information relating to the company split being leaked to staff working in the bank’s financial sections, including staff in the banking and sales offices and other companies in the Mizuho financial group. That action secured the independence required to act as a third-part calculation agent for the company split.

ii)Calculations explained

When calculating the value of the underlying operations for the company split, Mizuho Bank judged it appropriate to base its evaluation on the expected cash flow to be generated from future business. The bank based that decision on the premise that the underying operation for the company split would belong to Lawson. Based on that decision, Mizuho Bank adopted an income approach when calculating the value of the underying operation, using the discounted cash flow (DCF) method.

The business forecasts used to calculate the future value of the underlying operation include some large expected increases, such as an estimated 1,743 million yen year-on-year increase in operating profit for the fiscal year ending February 2019, and a 160 million yen year-on-year increase for the fiscal year ending February 2020. These predictions take into account the gradual fostering of double-brand LAWSON THREE F stores during the near 12-month after the company split takes effect on June 1, 2017, as well as the incurrance of temporary costs during the full switchover period relating to store refurbishment and other investments and the transfer of stores to the new double-brand. Profit generated by the newly opened stores is expected to start contributing to performance in the fiscal year ending February 2019, and sales are then forecast to rise by approximately 2.6% year on year the fiscal year ending 2020. For that reason, while the operation may witness some temrporary falls in profit in the fiscal years ending February 2018 and 2019, the operation is expected to benefit from the earlier investment in terms of higher profits in subsequent business years.

Result of Mizuho Bank’s independent value calculation:
Assumed value (range) (DCF method): 10,171-12,735 million yen

When evaluating the value of the underlying operation, Mizuho Bank used information provided by Lawson, either through public disclosure or specifically for the purpose of the evaluation. All information and documentation provided was assumed to be accurate and comprehensive. Mizuho Bank did not undertake any active checks of the accuracy or entirety of the information. In addition, Mizuho Bank did not conduct its own evaluation, appraisal or measurement of the underlying assets and obligations, or any analysis or evaluation of each individual asset or obligation, nor did it commission a third-party appraisal or measurement of these assets.

Lawson judged the above company split price to be fair after considering a comprehensive range of factors, including Mizuho Bank’s value calculation, and the latest performance and future prospects of the underlying business operation.

4.Overview of Lawson, Inc. and Three F Co., Ltd.