1．Aim of the company splits

• Under the terms of the business integration contract signed by Lawson and Three F on April 13, 2016, the two companies are set to establish a joint-venture company (Three F: 70%, Lawson: 30%) in September 2016 with the aim of operating “LAWSON THREE F” doubled-brand convenience stores in Chiba and Saitama prefectures in Eastern Japan. Company split No.1 is a pre-arranged company split designed to transfer a portion of the rights and obligations relating to THREE F’s convenience store operation. Eighty-seven stores currently operating under the THREE F brand will be systematically turned into double-brand stores, starting from September 2016.
  A fresh company-split agreement was signed on August 4 to facilitate company split No.2 as part of Three F’s plans to reconstruct its store network. Under the agreement, 13 stores currently operated under the THREE F brand will become Lawson brand stores from September 2016.

2．Overview of company splits

(1) Schedule for company split No.1 and No.2

Note: Company split No.1 and No.2 are simple company splits as determined under Item 2, Article 796 of the Companies Act for Lawson, Inc, and Item 2, Article 784 for Three F Co., Ltd. For that reason, both company splits can be executed without seeking prior approval from the respective general shareholders’ meetings.

(2) Style of company splits

Company split No.1 and No.2 are both absorption-type company splits. Three F is the split company and Lawson is the succeeding company.

(3) Financial payments relating to the company splits

A cash payment of 2,954 million yen is scheduled to be transfered from Lawson to Three F in relation to company split No.1.
A cash payment of 406 million yen is scheduled to be transferred from Lawson to Three F in relation to company split No.2.

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

None

(5) Increase in capital related to the company splits

Neither company split No.1 nor company split No.2 will generate an increase in Lawson capital.

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

Through company split No.1 and No.2, Lawson will inherit a portion of the assets, rights and obligations pertaining to specific Three F convenience store operations.

(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 Company split No.1 and No.2.

3．Basis for allocation under company splits No.1 and No.2

(1) Underlying basis and reason for allocation

To ensure a fair and appropriate allocation for company split No.1 and No.2, Lawson appointed Mizuho Bank as an independent calculation agent. Mizuho Bank calculated the value of the underlying operations for company split No.1 and No.2. Both Lawson and Three F took considered the calculations performed by independent calculation agents, and the latest businesses performance by the underlying operations linked to the company splits. Both companies also carefully discussed all details relating to the two company splits. 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 splits (under 2. Overview of company splits) 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 company split No.1 and No.2. 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 splits 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 company split No.1 and No.2.
• ii) Calculations explained
• When calculating the value of the underlying operations for company split No.1 and No.2, 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 underlying operations for company split No.1 would belong to Lawson and the Lawson Three F joint venture company following the split, and tthat he underying operations for company split No.2 would belong to Lawson. Based on that decision, Mizuho Bank adopted an income approach when calculating the value of the underying operations, using the discounted cash flow (DCF) method.
  

Result of Mizuho Bank’s independent value calculation:
Assumed value (range) for company split No.1 using the DCF method: 2,472～3,373 million yen
Assumed value (range) for company split No.2 using the DCF method: 214～467 million yen

Please note, the value calculation for company split No.1 was based on the corporate franchise fee that Lawson would receive from the joint venture company. The corporate franchise fee is expected to reach approximately 138 million yen in fiscal 2016 (the business year ending February 2017) and rise significantly beyond that to approximately 351 million yen in fiscal 2017 (the business year ending February 2018). This is not because we expect sales per store to increase rapidly over this period, but because the fiscal 2016 portion spans only six months from September 2016 to February 2017, and, of that time, we plan to systematically open more stores between September and November 2016. As a result, the contribution period to the company franchise fee could be as low as 4 months in fiscal 2016. The value calculation for company split No.2 includes miscellaneous expenses of 67 million yen linked to a shift of stores to the LAWSON brand. That is expected to generate an operating loss in fiscal 2016. By contrast, we expect to generate an operating profit for fiscal 2017 in the absence of any further reported miscellaneous expenses and an increase in average daily sales. We would not expect to experience such sharp oscillations in profit in future financial periods.

When evaluating the value of the underlying operations, 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 prices 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 operations.

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

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