The transactions pursuant to the share exchange described in this document involve securities of aJapanese company. The share exchange is subject to disclosure requirements of Japan that are different
from those of the United States. Financial information included in this document, if any, was excerpted
from financial statements prepared in accordance with foreign accounting standards that may not becomparable to the financial statements of United States companies.
It may be difficult for you to enforce your rights and any claim you may have arising under the U.S.
federal securities laws, since the issuer is located in Japan and some or all of its officers and directors
reside outside of the United States. You may not be able to sue a Japanese company or its officers ordirectors in a Japanese court for violations of the U.S. securities laws. It may be difficult to compel aJapanese company and its affiliates to subject themselves to a U.S. court’s judgment. You should beaware that the issuer may purchase securities otherwise than under the share exchange, such as in the
open market or through privately negotiated purchases.
This document has been translated from the Japanese-language original for reference purposes only.
In the event of any conflict or discrepancy between this document and the Japanese-language original,
the Japanese-language original shall prevail in all respects.

―1―

(Code 4517)
June 8, 2021
To Our Shareholders,Toshimichi Kunori, President and Representative Director
BIOFERMIN PHARMACEUTICAL CO., LTD.
1-1-2, Sannomiya-cho, Chuo-ku, Kobe

Notice of the Annual Shareholders Meeting
We would like to express our heartfelt gratitude for your ongoing support.
You are hereby notified of the 135th Annual Shareholders Meeting (hereinafter, the “Meeting”) of
Biofermin Pharmaceutical Co., Ltd. (hereinafter, the “Company” or “Biofermin”), to be held as set
forth below.
In order to avoid the risk of COVID-19 infections at the Meeting, we strongly request that ourshareholders refrain from attending the Meeting in person, and instead exercise your voting
rights in writing. Please review the Reference Materials for the Shareholders Meeting below, indicate
your vote for or against the proposals on the enclosed voting card, and mail the voting card so that thecard reaches us by 5:00 p.m. on Wednesday, June 23, 2021 (Japan Time).
1. Date and Time:

10:00 a.m., Thursday, June 24, 2021

2. Place:

7-3-4, Higashi-machi, Ibukidai, Nishi-ku, Kobe
Biofermin Pharmaceutical Co., Ltd., Seishin Business Office
Research and Administration Building 4th Floor Hall

3. Agenda:
MATTERS TO BE REPORTED
Reports on the Business Report and Financial Statements for the 135th
Fiscal Year (from April 1, 2020, to March 31, 2021)
PROPOSED RESOLUTIONSApproval of the Share Exchange Agreement between the Company and
Item 1:Taisho Pharmaceutical Holdings Co., Ltd.
Introduction of the Retirement Benefit Plan with the Abolishment of theItem 2:
Stock Option Plan for Directors (excluding Directors Who Are Audit andSupervisory Committee Members)
Election of Four (4) Directors Who Are Not Audit and Supervisory
Item 3:
Committee Members
Election of One (1) Director Who Is an Audit and Supervisory Committee
Item 4:
MemberElection of Two (2) Substitute Directors (Audit and Supervisory Committee
Item 5:
Members)
End―――――――――――――――――――――― ◇ ――――――――――――――――――――――
If you attend the Meeting in person, please submit the enclosed voting card at the reception desk as your attendance
card.
Souvenirs will not be distributed to reduce the risk of COVID-19 infections transmitted by direct contact. We greatly
appreciate your kind understanding.
If any revisions are made to the Reference Materials for the Shareholders Meeting, the Business Report or the Financial
Statements, the revisions will be posted on the Company’s website on the Internet (https://www.biofermin.co.jp/).

―2―

BALANCE SHEET(As of March 31, 2021)(In thousands of yen)
Item
(Assets)
Current assets
Cash and deposits
Trade accounts receivable
Finished goods
Work in process
Raw materials and supplies
Other current assets

AmountFixed assets---Tangible fixed assets
Buildings
Structures
Machinery and equipment

13,883,216
11,879,731
2,984,277
27,459849,205

Vehicle and delivery
equipment
Tools, furniture and fixtures
Land
Lease assets
Construction in progress--- Intangible fixed assets
Intangible fixed assets--- Investments and otherassetsInvestments in securities
Other investments

Total assets

19,501,722
14,412,558
2,970,142
736,979
892,295
200,351
289,395

Item(Liabilities)
Current liabilities
Trade accounts payable
Other payables
Income taxes payable
Deposits received
Lease obligations
Allowance for sales
promotion expenses
Allowance for bonuses

AmountFixed liabilities
Lease obligations
Deferred tax liabilities
Allowance for retirement
benefits

1,057,717
273
518,981

Other fixed liabilities

12,696

Total liabilities(Net assets)
Shareholders’ equity
Common stock
Capital surplus
Capital reserve

2,943,431

0311,874
4,411,795
1,769
3,293,349
99,26899,2681,904,216
1,831,137
73,07933,384,939

Other capital surplus

1,885,714
12,4791,287,743
243,402
11,386
1,638
107,615
221,448525,766

29,487,281
1,227,000
766,550
734,457
32,093Retained earnings
Legal reserve
Other retained earnings
Reserve for reduction of
acquisition cost of fixed
assetsGeneral reserve
Retained earnings
carried forward
Treasury stock
Valuation and translation
adjustments
Net unrealized gains on othersecurities
Stock acquisition rights

27,786,609
126,750
27,659,859

Total net assets
Total liabilities and net
assets30,441,507(Note) The presented amounts are rounded down to the nearest thousand yen.

―3―

1,187,049
18,892,500
7,580,309(292,878)
910,303
910,303
43,92233,384,939

INCOME STATEMENT(April 1, 2020 through March 31, 2021)(In thousands of yen)AmountItem
Sales

10,811,181

Cost of sales

4,497,234

Gross profit
Selling, general and administrative
expenses
Operating income

6,313,947
4,255,737
2,058,209

Non-operating income

83,986

Interest income

191

Dividend income

74,075

Others9,719

Non-operating expenses

21,282

Loss on disposal of inventories

3,170

Loss on retirement of fixed assets

14,847

Others3,264

Ordinary income

2,120,914

Income before taxes
Corporate tax, inhabitants tax andenterprise tax
Corporation tax, etc. adjustments

2,120,914

Net income

1,548,388

598,684(26,158)(Note) The presented amounts are rounded down to the nearest thousand yen.

―4―

STATEMENT OF CHANGES IN NET ASSETS(April 1, 2020 through March 31, 2021)(In thousands of yen)
Shareholders’ equity
Capital surplus

Common stock
Balance at the beginning of thecurrent period
Changes of items during theperiodCapital reserve

Other capital surplus

1,227,000

734,457

32,093―――

Net income

―

―

―

Repurchase of treasury stock

―

―

―

―

―

―

―

―

―

1,227,000

734,457

32,093

Dividends paid

Net changes of items otherthan shareholders’ equity
Total changes of items during theperiodBalance at the end of the current
period(In thousands of yen)
Shareholders’ equity
Retained earnings
Other retained
earnings (Note 1)

Legal reserve
Balance at the beginning of thecurrent period
Changes of items during theperiodTreasury stock

Total shareholder’sequity126,750

26,829,152(292,492)

28,656,961

Dividends paid―

(717,682)―(717,682)

Net income―

1,548,388―

1,548,388

Repurchase of treasury stock

―

―

(385)

(385)

―

―

―

―

―

830,706(385)

830,320

126,750

27,659,859(292,878)

29,487,281

Net changes of items otherthan shareholders’ equity
Total changes of items during theperiodBalance at the end of the current
period―5―(In thousands of yen)
Valuation and translation
adjustments
Stock acquisition rights
Net unrealized gains onother securities
Balance at the beginning of thecurrent period
Changes of items during theperiodTotal net assets

716,958

33,655

Dividends paid――

(717,682)

Net income――

1,548,388

Repurchase of treasury stock

―

―

(385)

193,345

10,267

203,612

193,345

10,267

1,033,933

910,303

43,92230,441,507

Net changes of items otherthan shareholders’ equity
Total changes of items during theperiodBalance at the end of the current
period(Note 1) Breakdown of other retained earnings
Reserve for
reduction of
acquisition cost of
fixed assets
Balance at the beginning of the
1,188,158
current period
Changes of items during theperiod29,407,574(In thousands of yen)
General reserve

Retained earnings
Total of othercarried forward retained earnings

18,192,500

7,448,494

26,829,152――(717,682)(717,682)

Net income――

1,548,388

1,548,388

Repurchase of treasury stock

―

―

―

―

Reversal of reserve for
reduction of acquisition cost of
fixed assets(1,109)

―

1,109

―

―

700,000(700,000)―(1,109)700,000

131,815

830,706

1,187,049

18,892,500

7,580,309

27,659,859

Dividends paid

Provision of general reserve

Total changes of items during theperiodBalance at the end of the current
period

2. The presented amounts are rounded down to the nearest thousand yen.

―6―

Tables of Explanatory Notes on Unconsolidated Financial Statements
1. Notes on Going Concern Assumption
Not applicable.
2. Notes on Matters concerning Significant Accounting Policies(1) Valuation standards and methods for securities are as follows:
Other securities- Those with fair value
Fair value method based on the market prices, etc. as at the closing date of the
fiscal year
(Valuation differences are all transferred directly to net assets. Selling costs arecalculated by the moving average method.)- Those without fair value
Fair value method by the moving average method(2) Valuation standards and methods for inventories are as follows:
Finished goods, …… Cost method by the gross average method (values on theWork in processbalance sheet are subject to the book value reduction basedon decline in profitability)
Raw materials…… Cost method by the moving average method (values on thebalance sheet are subject to the book value reduction basedon decline in profitability)(3) Tangible fixed assets (excluding lease assets) are depreciated by the fixed rate method.
However, the straight-line method is adopted to the buildings (excluding appurtenances
thereto) acquired on or after April 1, 1998 and the appurtenances to buildings andstructures acquired on or after April 1, 2016.
Their general usable life is as follows:
Buildings and structures
3 to 50 years
Machinery and equipment
8 years
Tools, furniture and fixtures
2 to 20 years(4) Intangible fixed assets (excluding lease assets) are depreciated by the straight-line method.
Software (for internal use) is depreciated by the straight-line method based on the internal
usable period (five years) in the Company.
(5) Lease assets related to finance lease transactions that do not transfer ownership are
depreciated by the straight-line method based on the assumption that the usable life equals
the lease term and the residual value equals zero.
(6) Allowances are recorded by the following methods:(i) Among sales promotion expenses spent for sales promotion activities that the clientcompanies conducted for the products purchased from the Company, the amountestimated to be borne by the Company is recorded as the allowance for sales
promotion expenses.
(ii) Allowance for bonuses is reserved to appropriate the payment of bonuses to
employees, and is recorded based on the estimated amount of bonuses.
(iii) To meet the payment of retirement benefits to employees, the allowance for retirement
benefits is recorded based on the retirement benefit obligations as of the end of the
fiscal year.

―7―

The allowance for retirement benefits and expenses for retirement benefits arecalculated by the simplified method in which the Company’s retirement benefit
obligations are assumed to be equal to the benefits payable for voluntary retirement
at the end of the period.
(7) Consumption taxes, etc. are excluded from each account subject to such taxes.
3. Notes to Balance Sheet
Accumulated depreciation of tangible fixed assets is 15,850,148 thousand yen.
4. Notes to Income Statement
Not applicable.
5. Notes to Statement of Changes in Net Assets(1) Type and number of shares issued as of the end of the current fiscal year
Common stock
12,154,000 shares(2) Type and number of treasury stock as of the end of the current fiscal year
Common stock
192,725 shares(3) Distribution of surplus(i) Amount of surplus distributed in the current fiscal year
Resolution

Type of shares Total dividends

May 12, 2020
Board of Directors Common stock
meeting
October 22, 2020
Board of Directors Common stock
meeting

Dividend per
share

Record date Effective date

358,842thousand yen

30 yenMarch 31,2020

358,839thousand yen

30 yenSeptember December 10,
30, 2020
2020

June 25, 2020(ii) Dividends whose record date belongs to the current fiscal year but become effectivein the following fiscal year
Planned date ofresolution
May 12, 2021
Board of Directors
meetingType of
Dividend
Dividend
Total dividends
Record dateshares payment fundper share

Effective
date

CommonstockJune 25,2021

Retainedearnings

358,838
thousand yen

30 yenMarch 31,2021

(4) Type and number of shares to be subject to the stock acquisition rights issued by theCompany as of the end of the current fiscal year
Common stock
24,800 shares―8―6. Notes on Tax Effect Accounting
Breakdown of major causes of deferred tax assets and deferred tax liabilities(In thousands of yen)
Deferred tax assets
Accrued enterprise tax
Allowance for bonuses
Allowance for retirement benefits
Unpaid retirement benefits to officers
Loss on valuation of investments in securities
Allowance for sales promotion expenses
OthersTotal deferred tax assets

21,46467,763160,884
3,938
55,68032,93057,022399,685

Deferred tax liabilities
Reserve for reduction of acquisition cost of lands
Net unrealized gains on securities
Total deferred tax liabilities(523,396)(395,270)(918,666)

Net deferred tax liabilities(518,981)(Note) The presented amounts are rounded down to the nearest thousand yen.

7. Notes on Financial Instruments(1) Matters related to status of financial instruments(i) Policy on activities concerning financial instruments
As at the end of the current fiscal year, the Company can raise necessary funds fromits internal funds. Surplus funds are managed in limited methods such as a short-termbank deposit.
(ii) Details of financial instruments and risks pertaining to thema. Trade accounts receivable, which is part of the operating receivables, are subject
to the credit risks attributable to customers.
b. All trade accounts payable, which is part of the operating payables, are due within
a year.
c. The breakdown of investments in securities held by the Company as at the end of
the current fiscal year is as follows, and they are subject to volatility risks ofmarket prices.
- Other securitiesThose with fair value･･･Listed stockThose without fair value･･･Unlisted stock(iii) Risk management system for financial instruments
a. Management of credit risk (risk of non-performance of contracts or other acts byclient companies, etc.)
The Company recognizes the due dates and the balances of operating receivables
for each client company in accordance with the sales activity administration rules,
and keeps gathering information to prevent occurrence of bad debts due todeterioration of client companies’ financial position and other status.
b. Market risk
Regarding investments in securities, the Company regularly reviews the fair―9―

values and the financial position of the issuers, and also examines whether toretain the securities.
c. Concentration of credit risk
100% of the operating receivables is for a certain client company as at the closing
date of the current fiscal year.
(2) Matters related to fair values, etc. of financial instruments
The amounts reported in the balance sheet, fair values and differences between them as ofthe end of the current fiscal year are as follows.
Items for which it is deemed extremely difficult to ascertain the fair values are not includedin the following table. (Please see (Note) 2.)(In thousands of yen)
Item(i) Cash and deposits(ii) Trade accounts
receivable(iii) Investments insecurities
Total assets(iv) Trade accounts
payable(v) Other payables(vi) Income taxes
payableTotal liabilities

Amount reported in thebalance sheet
14,412,558

Fair value

Difference

14,412,558―

2,970,142―

1,829,302

1,829,302―

19,212,002

19,212,002―

12,47912,479―1,287,743

1,287,743―

243,402

243,402―

1,543,625

1,543,625―

2,970,142(Note) 1. Matters related to calculation of fair values of financial instruments and to securities
Assets(i) Cash and deposits
Fair values of these are based on book values, which are almost equal to fair values, as all of
the deposits are for a short period of time.
(ii) Trade accounts receivable
Fair values of these are based on book values, which are almost equal to fair values, as they
are settled in a short period of time.
(iii) Investments in securities
Among these securities, fair values of stocks are based on the prices on securities exchanges.
As for other securities, their acquisition costs, amounts reported in the balance sheet anddifferences between them are as follows.
(In thousands of yen)Classification

Those for which amountreported in the balance sheet
exceeds the acquisition costThose for which amountreported in the balance sheet
does not exceed the acquisition
cost

Type

Acquisition cost

Amount reported in
the balance sheet(1) Stocks

517,625

1,829,302

1,311,676(2) Bonds(3) Others

―
―

―
―

―
―

Subtotal

517,625

1,829,302

1,311,676(1) Stocks

―
―
―
―

―
―
―
―

―
―
―
―

517,625

1,829,302

1,311,676(2) Bonds(3) Others
Subtotal

Total

―10―

DifferenceLiabilities(iv) Trade accounts payable
Fair values of these are based on book values, which are almost equal to fair values, as they
are settled in a short period of time.
(v) Other payables
Fair values of these are based on book values, which are almost equal to fair values, as they
are settled in a short period of time.
(vi) Income taxes payable
Fair values of these are based on book values, which are almost equal to fair values, as they
are settled in a short period of time.
2. Items for which it is deemed extremely difficult to ascertain the fair values(In thousands of yen)Classification
Unlisted stocks

Amount reported in the balance sheet
1,835

These are not included in “(iii) Investments in securities” as they do not have market prices and it isdeemed extremely difficult to ascertain the fair values

3. The presented amounts are rounded down to the nearest thousand yen.

8. Notes on Rental and Other Real Estate
The Company owns real estate used for rent in Nagata-ku, Kobe-shi.
The rental and other real estate’s amount reported in the balance sheet, changes during thecurrent period and fair value are as follows.
(In thousands of yen)Amount reported in the balance sheet
Amount at the beginning of theperiodChanges during the period(The breakdown is as follows.)(Change in the classification)(Depreciation cost)
Amount at the end of the period
Fair value at the end of the period

1,030
15,315
15,919(603)
16,346
177,674(Note) 1. The amount reported in the balance sheet is the amount of the acquisition cost less accumulated
depreciation and accumulated impairment loss.
2. As for the changes during the period, the increase was mainly due to the change of classification fromthe business property to the unemployed property (15,919 thousand yen), and the decrease was due tothe depreciation cost (603 thousand yen).
3. The fair value at the end of the period has been calculated by the Company mainly based on the assessedvalue for fixed asset tax.

9. Notes on Profit or Loss under Equity Method, etc.
Not applicable as the Company has no affiliated company.
10. Notes on Transactions with Related Parties(1) Parent company and major shareholders (entity), etc.
Not applicable.

―11―(2) Officers and major shareholders (individuals), etc.
Not applicable.
(3) Subsidiaries, etc.
Not applicable.
(4) Company that is owned by the same parent company, etc.
Type

Name

TaishoSubsidiary
Pharmaof the parent ceuticalcompany
Co.,
Ltd.

Statedcapital Description of
VotingAddress(in millions businessinterests (%)
of yen)Toshi
ma-ku,
Tokyo

29,837

Production
anddistributionofpharmaceut
icals
and
other goods

None

RelationshipAmount of
Description
with thetransactionsofrelevant(in thousands
transactions
partiesof yen)Distributionof theCompany’s
products
An officer
concurrently
serving at
bothcompanies

Distributi
on ofpharmaceuticals
and othergoods

10,811,181

Item

Amount at
the end of
the period(inthousands of
yen)

Trade
account
receivable

2,970,142(Note) 1. Taisho Pharmaceutical Co., Ltd. is a subsidiary of Taisho Pharmaceutical Holdings Co., Ltd.
2. The amount of transactions does not include consumption tax, etc. The amount at the end of the period
includes consumption tax, etc.
Conditions of transactions and the determination policy of them, etc.
When distributing products, the Company delivers them according to the orders from Taisho
Pharmaceutical Co., Ltd. The prices and other conditions shall be specified in the purchase agreements.

11. Notes on Per Share Information(1) Net asset per share
The net asset per share is 2,541.33 yen.
(2) Net income per share in the current period
The net income per share is 129.45 yen in the current period.
Basis of the calculation
Net income in the current period
1,548,388 thousand yen
Amount not attributable to― thousand yen
ordinary shareholders
Average number of shares during
11,961 thousand sharesthe current period
12. Notes on Major Subsequent Events
Not applicable.

―12―Reference Materials for the Shareholders Meeting
Proposed Resolutions and Related Information
Item 1: Approval of the Share Exchange Agreement between the Company and Taisho
Pharmaceutical Holdings Co., Ltd.
The Company and Taisho Pharmaceutical Holdings Co., Ltd. (hereinafter, “Taisho HD”)
resolved at their respective boards of directors meeting held on May 14, 2021 to conduct a shareexchange through which Taisho HD will become a wholly-owning parent company and theCompany will become a wholly-owned subsidiary (hereinafter, the “Share Exchange”), and theCompany executed a share exchange agreement (hereinafter, the “Share Exchange Agreement”)
with Taisho HD on the same day.
Accordingly, the Company requests our shareholders’ approval of the Share Exchange
Agreement.
Taisho HD plans to conduct the Share Exchange through the simplified share exchange
procedure (kani kabushiki kokan) under the provision of Article 796, Paragraph 2 of theCompanies Act, without obtaining approval for the execution of the Share Exchange Agreement
by resolution of its shareholders meeting, and the Company plans to conduct the Share Exchange
after the Share Exchange Agreement is approved at this Meeting, with an effective date of July30, 2021.
Prior to the effective date of the Share Exchange (scheduled on July 30, 2021), the common
stock of the Company (hereinafter, the “Biofermin Shares”) is scheduled to be delisted from theFirst Section of Tokyo Stock Exchange, Inc. (hereinafter, the “TSE”) as of July 28, 2021 (with afinal trading date of July 27, 2021).
The reasons for conducting the Share Exchange, the contents of the Share Exchange Agreement,
and other matters related to this Item are as follows.
1. Reasons for Conducting the Share Exchange
Taisho Group’s mission is “to contribute to society by creating and offering superior
pharmaceuticals and health-related products as well as healthcare-related information andservices in socially responsible ways that enrich people's lives by improving health andbeauty”. As the leading company for domestic OTC pharmaceuticals, the main SelfMedication Operation Group (the group handling OTC pharmaceuticals and health related
products) is strengthening its brand by developing and improving products that meet theneeds of consumers. In addition, the Prescription Pharmaceutical Operation Group is
working on creating distinctive new drugs as an R&D-oriented company, by focusing on thefollowing key domains: “orthopedic disorders”, “metabolic diseases”, “infectious diseases,”and “CNS diseases” where Taisho HD has advantages in sales and development.
Meanwhile, since its establishment in 1917, the Company has specialized in the
manufacture and distribution of lactic acid bacteria products including “Biofermin”,
established the “Biofermin” brand and actively contributed to promoting the health of
consumers. Its philosophy has been “to protect intestinal environments with medicines forlactic acid bacteria and to contribute to a society where all people can lead healthy lives”
since its establishment. To fulfill its mission, the Company aims to expand its business andachieve sustainable growth by developing new products and strengthening its brand value inorder to solve the concerns of, and respond to the needs from, consumers. The Company
also aims to enhance its enterprise value by strengthening its business foundation throughthe promotion of research and development that focuses on probiotics including lactic acidbacteria and the investment in production facilities.
In 2008, Taisho Pharmaceutical Co., Ltd. [Headquarters: Toshima-ku, Tokyo, Chief―13―

Executive Officer: Shigeru Uehara] (hereinafter, “Taisho”) acquired 56.93% of the
Biofermin Shares through a tender offer (in terms of voting rights after the tender offer) andmade the Company its consolidated subsidiary. Since the commencement of the capitalalliance in the same year, Taisho HD and its subsidiaries, Taisho and the Company, haveestablished various cooperative structures, including sales, through the execution of an
exclusive distributorship agreement in 2013 and an increase in shareholding ratio. In termsof the Company’s transactions of OTC drugs and quasi-drugs, Taisho started selling suchdrugs in October 2017, and Taisho has been conducting domestic sales of all products
including prescription drugs since January 2021, and thereby further strengthening thecooperative structures.
Meanwhile, the business environment surrounding both companies has been changing
significantly in recent years. In Taisho Group’s Self-Medication Operation Group, due tothe impacts of the COVID-19 pandemic, the market has drastically changed due to a decline
in the inbound tourism demand as well as changes in consumer needs, living environments
and purchasing behaviors. In its Prescription Pharmaceutical Operation Group, while thedifficulty in developing new drugs has increased, the business environment is becoming
increasingly severe, with the NHI price revision, which was previously implemented once
every two years, being implemented in the off-years as well from fiscal year ending March
31, 2022.
Under such a business environment, Taisho HD believes that, in the mid-and-long termbusiness strategies of Taisho Group’s Self-Medication Operation Group and Prescription
Pharmaceutical Operation Group, the “Biofermin” brand that the Company owns and theknow-how cultivated through technology and experience accumulated over 100 years arerespectively important management assets of Taisho Group, and wishes to pursue theunknown potential of lactic acid bacteria by continuing to bring together the full strengths
of both companies in terms of sales, research and development, quality assurance, andmanufacturing. Further, as for the overseas expansion of the Company, Taisho HD believes
that it can utilize Taisho’s overseas sales networks, which are expanding mainly in Southeast
Asia and Europe, to proceed with the overseas expansion of the Company’s products more
quickly. Based on the above, Taisho HD concluded that conducting the Share Exchange isthe best choice for both Taisho HD and the Company, and at the beginning of February 2021,
Taisho HD proposed the Share Exchange to the Company.
On the other hand, the Company also believes that its business environment is becoming
increasingly severe year by year due to the increasingly competitive environment in recent
years, the NHI price revision in connection with the medical system reform, the decrease,etc. in sales figures and prescription volume resulting from the decrease in the number ofcustomers at drug stores and patients at medical facilities with the public voluntarily
refraining from going outside to prevent the spread of the COVID-19 pandemic.
Under such circumstances, the Company has carefully considered the proposal fromTaisho HD, and Taisho HD and the Company held discussions on several occasions. As aresult, the Company came to the conclusion that becoming a wholly-owned subsidiary of
Taisho HD and deepening the group-wide cooperative structures based on the relationshipof trust that has been cultivated since becoming a consolidated subsidiary of Taisho, andthereby making greater use of Taisho’s solutions and marketing systems than ever before
will contribute to the enhancement of the Company’s enterprise value. In particular, as
described above, the business environment is becoming increasingly severe, and since it has
become necessary to further focus on product development and basic research for future
growth, the Company believes that, through direct communication with Taisho’s sales
divisions, it will become able to share customer information, and develop products andengage in promotional activities more than ever in response to the needs of consumers. In
addition, it believes that technological synergies can be expected, such as sharing Taisho’s―14―

technology in drug developments and the like, which the Company has no previous
experience in. Furthermore, it believes that utilizing Taisho’s overseas sales networks andsharing information from other countries more than ever before are advantages that theCompany, which is seeking to expand its business overseas to achieve sustainable expansion
as the Japanese population is decreasing, can achieve.
As a result, Taisho HD and the Company determined that it is desirable to make Taisho
HD the wholly owning parent company of the Company by conducting the Share Exchange
and to promote the sustainable growth of the Company through the establishment of aflexible and prompt decision making system. Therefore, both companies resolved to conduct
the Share Exchange and executed the Share Exchange Agreement on May 14, 2021.
After conducting the Share Exchange, Taisho HD and the Company will further share
information and human resources between the companies and mutually combine their
management resources more than ever before. In addition, through the Share Exchange, theCompany will be able to eliminate the need to respond to general shareholders as well as thecost of handling and maintaining the listing, dissolve potential conflicts of interest between
Taisho HD and its minority shareholders, establish an efficient management system
including a rapid decision making system, and concentrate management resources on
business strategies. Taisho HD believes that the Share Exchange will enable theimplementation of the Company’s bold and flexible business strategy and significantly
contribute to the continued growth and development of the Company, as well as increase thecorporate value of the entire group from a mid-and-long-term perspective.
2. Contents of the Share Exchange Agreement
The contents of the Share Exchange Agreement executed by the Company and Taisho HD
on May 14, 2021 are set forth in Attachment 1 “Share Exchange Agreement between Taisho
Pharmaceutical Holdings Co., Ltd. and the Company” of the Separate-volume Supplement
to the Reference Materials for the Shareholders Meeting.
3. Matters Concerning the Appropriateness of the Consideration for the Exchange(1) Matters Concerning the Appropriateness of the Total Number of Consideration for the
Share Exchange(I) Details of Allotment in the Share Exchange
Name of Company

Taisho HD(wholly-owning parent
company resulting from theshare exchange)

The Company(wholly-owned subsidiary
resulting from the shareexchange)

Allotment ratio in the Share Exchange

1

0.50

Number of shares to be delivered
Common stock of Taisho HD: 2,164,627 sharesthrough the Share Exchange(scheduled)(Note 1) Allotment ratio pertaining to the Share Exchange
For each share of the Biofermin Shares, 0.50 shares of the common stock of Taisho HD (hereinafter,
the “Taisho HD Shares”) will be allotted and delivered. However, no shares will be allotted in the Share
Exchange for the Biofermin Shares held by Taisho HD (7,632,021 shares as of May 14, 2021).
The abovementioned allotment ratio in the Share Exchange (hereinafter, the “Share Exchange
Ratio”) may be subject to change upon discussion and agreement between both companies in the eventof any material change to the grounds on which the valuation is based.
(Note 2) Number of the shares to be delivered through the Share Exchange
Upon the Share Exchange, Taisho HD will allot and deliver to shareholders of the Company(provided, however, that such shareholders shall exclude Taisho HD) at the time immediately
preceding the time at which Taisho HD acquires all of the Company’s outstanding shares (excluding
the Biofermin Shares held by Taisho HD) through the Share Exchange (hereinafter, the “Record Time”)
the Taisho HD Shares equivalent to the amount obtained by multiplying the Share Exchange Ratio by―15―

the total number of the Biofermin Shares it holds. Upon such delivery, Taisho HD will allot sharesfrom the treasury shares it holds, and will not issue new shares upon the allotment in the Share
Exchange.
By resolution of the board of directors to be held by the day immediately preceding the effective
date of the Share Exchange, the Company plans to cancel all of its treasury shares held at the Record
Time (including the shares acquired in response to dissenting shareholders’ share purchase request
regarding the Share Exchange under Article 785, Paragraph 1 of the Companies Act) on or before theRecord Time. The number of shares to be delivered through the Share Exchange may be subject tochange in the future upon the acquisition or cancellation of treasury shares by the Company or for otherreasons.
(Note 3) Treatment of shares less than one unit
The shareholders of the Company who will hold shares that are less than one unit of the Taisho HD
Shares (less than 100 shares) in conjunction with the Share Exchange will be entitled to use thefollowing program for the Taisho HD Shares. Shares less than one unit are not allowed to be sold in
the financial instruments exchange markets.
Purchase for shares less than one unit (sale of shares less than 100 shares)
Pursuant to the provisions of Article 192, Paragraph 1 of the Companies Act, shareholders who
hold less than one unit of the Taisho HD Shares may request that Taisho HD purchase their sharesless than one unit.
(Note 4) Treatment of fractional shares less than one share
In accordance with Article 234 of the Companies Act and other relevant laws and regulations, Taisho
HD will sell the number of Taisho HD Shares equivalent to the total number of such fractional shares(if there is any fractional share less than one share in the total number, such fractional share shall be
rounded down), and will pay in cash the proceeds of such sale in proportion to such fractional share toshareholders of the Company who will receive the allotment of the Taisho HD Shares for fractions
constituting less than one share under the Share Exchange.

(II) Basis, etc. for Details of Allotment of Shares Pertaining to the Share Exchange(i) Basis and Reasons for Details of Allotment
In order to ensure that the Share Exchange Ratio to be used in the Share Exchange,
which is stated in “(I) Details of Allotment in the Share Exchange” above, will becalculated fairly and appropriately, Taisho HD and the Company have decided toseparately retain a third-party valuation agent that is independent of both companies
to calculate the share exchange ratio. Taisho HD appointed SMBC Nikko Securities
Inc. (hereinafter, “SMBC Nikko Securities), and the Company appointed Daiwa
Securities Co. Ltd. (hereinafter, “Daiwa Securities”) as their third-party valuation
agent, respectively.
As described in “(3) Matters to Be Given Due Consideration so as Not to Harm theInterests of Shareholders of the Company” below, Taisho HD has carefully discussed
and examined the Share Exchange Ratio based on the valuation report of the shareexchange ratio received from SMBC Nikko Securities, which is the third-party
valuation agent of Taisho HD, advice from Anderson Mori & Tomotsune, which is its
legal advisor, results of the due diligence that Taisho HD conducted on the Company
and the like. As a result, since Taisho HD has reached a decision that the Share
Exchange Ratio is appropriate and will contribute to the interests of its shareholders,it has determined that it is appropriate to implement the Share Exchange with the Share
Exchange Ratio.
As described in “(3) Matters to Be Given Due Consideration so as Not to Harm theInterests of Shareholders of the Company” below, the Company has carefully
discussed and examined the Share Exchange Ratio based on the valuation report of theshare exchange ratio received from Daiwa Securities, which is the third-party
valuation agent of the Company, advice from Nakamura, Tsunoda & Matsumoto,which is its legal advisor, results of the due diligence that the Company conducted on
Taisho HD, and instructions and advice received from a special committee comprised―16―

only of members who are independent of, and have no interest in, Taisho HD, whichis the majority shareholder of the Company (hereinafter, the “Special Committee”; forfurther details, see “(3) Matters to Be Given Due Consideration so as Not to Harm theInterests of Shareholders of the Company” below) and contents of the report from theSpecial Committee received on May 14, 2021 (for further details, see “(IV) Outline of
the Report” of “(3) Matters to Be Given Due Consideration so as Not to Harm theInterests of Shareholders of the Company” below) and the like. As a result, since theCompany has reached a decision that the Share Exchange Ratio is appropriate and willcontribute to the interests of its shareholders as explained in “(b) Outline of theValuation” of “(ii) Matters Concerning the Valuation” below, it has determined that it
is appropriate to implement the Share Exchange with the Share Exchange Ratio.
In this way, Taisho HD and the Company have carefully examined the Share
Exchange by referring to the results of the valuation of the share exchange ratio thateach of them were provided by a separate third-party valuation agent and to the resultsof due diligence that they conducted on each other, and have had continuous
negotiations and discussions by comprehensively considering factors including thefinancial conditions, asset conditions and future outlook of both companies. As a result,
Taisho HD and the Company have reached a decision that the Share Exchange Ratio
is appropriate and will contribute to the interests of their respective shareholders, andtherefore, they have concluded that it is appropriate to implement the Share Exchangeusing the Share Exchange Ratio. The Share Exchange Ratio may be amended upon
discussion between the two companies in the event of any material change in theconditions on which the valuation is based in accordance with the Share Exchange
Agreement.
(ii) Matters Concerning the Valuation(a) Names of the Valuation Agents and their Relationships with the Companies
Neither SMBC Nikko Securities, which is the third-party valuation agent of
Taisho HD, nor Daiwa Securities, which is the third-party valuation agent of theCompany, are a related party of Taisho HD or the Company. They are independentvaluation agents and do not have any material interest that must be stated inrelation to the Share Exchange.
(b) Outline of the Valuation
With respect to Taisho HD, SMBC Nikko Securities performed its valuation by
adopting the average market price analysis (in which, SMBC Nikko Securities set
May 13, 2021 as the valuation reference date, and conducted the analysis by using
the average closing price of Taisho HD shares on the first section of the TSE forthe last one month from April 14, 2021 to valuation reference date, for the last
three months from February 15, 2021 to the valuation reference date, and for thelast six months from November 16, 2020 to the valuation reference date) as Taisho
HD is listed in a financial instruments exchange and its market share price exists.
With respect to the Company, SMBC Nikko Securities performed its valuation
by adopting the average market price analysis (in which, SMBC Nikko Securities
set May 13, 2021 as the valuation reference date, and conducted the analysis byusing the average closing price of Biofermin Shares on the first section of the TSE
for the last one month from April 14, 2021 to the valuation reference date, for thelast three months from February 15, 2021 to the valuation reference date, and forthe last six months from November 16, 2020 to the valuation reference date) as
the Company is listed in a financial instruments exchange and its market shareprice exists. SMBC Nikko Securities also used the discounted cash flow method(hereinafter, the “DCF Analysis”) in valuation for the Company so that thevaluation will reflect the future conditions of the Company’s business activities.

―17―

In the DCF Analysis, Taisho HD independently reviewed the financial projections
provided by the Company, and the share price is calculated by discounting thefuture cash flows, which are based on financial projections from the fiscal year
ending March 2022 until the fiscal year ending March 2026, at a certain discountrate to give their present values.
The range of the exchange ratio of Biofermin Shares is as follows where theshare value per share of Taisho HD is 1.
Adopted method
Taisho HD

The Company

Average market priceanalysisAverage market priceanalysis
DCF Analysis

Calculated result of the shareexchange ratio
0.382～0.443
0.439～0.565

When calculating the share exchange ratios above, SMBC Nikko Securities
used information provided by the Company or disclosed publicly on theassumption that all of the materials and information are accurate and complete,
and therefore, SMBC Nikko Securities has not made an independent study of theaccuracy and completeness thereof. Also, SMBC Nikko Securities has not madean independent assessment, appraisal or evaluation and has not requested an
appraisal or evaluation to any third-party agent in connection with the value of
assets or liabilities (including contingent liabilities) of the Company, including theanalysis and assessment of their respective assets and liabilities. The valuation of
the share exchange ratio by SMBC Nikko Securities reflects information andeconomic conditions up to May 13, 2021, and it is assumed that the financial
projections of the Company were reasonably examined or prepared by the
management of both companies based on the best projection and determination
available at that time.
In the financial projections that SMBC Nikko Securities used as a basis for thevaluation in the DCF Analysis, a significant increase or decrease of the profit isexpected. Specifically, as it is expected that its operating profit will decline
significantly, with the effects of the cost for the redevelopment of a factory that
the Company started constructing in April 2021 concentrating in the fiscal year
ending March 2024, the Company expects a significant decrease in profit from thefiscal year ending March 2023, and expects a significant increase in profit in thenext fiscal year ending March 2025 due to the reduction of its burden. The
financial projections do not reflect the implementation of the Share Exchange.
Meanwhile, with respect to Taisho HD, Daiwa Securities performed its
valuation by adopting the market price analysis as Taisho HD is listed in afinancial instruments exchange and its market share price exists. In performing themarket price analysis, Daiwa Securities set May 13, 2021 as the valuationreference date, and used the simple average closing prices of Taisho HD shares on
the first section of the TSE for the last one month, three months and six months
before the valuation reference date.
With respect to the Company, Daiwa Securities performed its valuation by
adopting the market price analysis as the Company is listed in a financial
instruments exchange and its market share price exists. Daiwa Securities also usedthe DCF Analysis in valuation for the Company so that the valuation will reflect
the future conditions of business activities.
In performing the market price analysis, Daiwa Securities set May 13, 2021 as
the valuation reference date, and used the simple average closing prices ofBiofermin Shares on the first section of the TSE for the last one month, three―18―

months and six months before the valuation reference date.
In the DCF Analysis, the enterprise value is appraised by discounting the future
cash flows, which are based on financial projections from the fiscal year ending
March 2022 until the fiscal year ending March 2028 prepared by the Company, ata certain discount rate to give their present values. The perpetual growth method
was used to calculate the continuous value under the DCF Analysis. Specifically,
it is calculated at a discount rate of 7.1% to 8.1% and a permanent growth rate of
0.0% to 0.5%.
The range of the exchange ratio of Biofermin Shares is as follows where theshare value per share of Taisho HD is 1.
Adopted method
Taisho HD
Market price analysis

The Company

Calculated result of the shareexchange ratio

Market price analysis

0.382～0.443

DCF Analysis

0.442～0.539

When calculating the share exchange ratio, Daiwa Securities used information
provided by the Company or disclosed publicly, without modifying it in principle, on
the assumption that all of the materials and information subject to the analysis andexamination are accurate and complete, and that there is no fact that may materiallyaffect the valuation of the share exchange ratio among facts that are not disclosed to
Daiwa Securities. Therefore, Daiwa Securities has not made an independent study of
the accuracy and completeness thereof. Also, Daiwa Securities has not made an
independent assessment, appraisal or evaluation and has not requested an appraisal orevaluation to any third-party agent in connection with the value of assets or liabilities(including contingent liabilities) of the Company, including the analysis and valuationof their respective assets and liabilities. It is assumed that the financial projections of
the Company that were referred to in the valuation were prepared reasonably by the
management of the Company based on the best projection and determination available
at that time. The valuation reflects information and economic situation up to May 13,2021. Daiwa Securities does not express its opinion regarding fairness of the shareexchange ratio to be used in the Share Exchange by providing the result of thevaluation of such ratio. In the financial projections that Daiwa Securities used as abasis for application of the DCF Analysis, a significant increase or decrease of the
profit is expected. Specifically, although the operating profit decreased in the fiscal
year ended March 2021 due to an increase in investments, the Company expects asignificant increase in its profit in the fiscal year ending March 2022 primarily due tothe expected expansion of Shin Biofermin S series with the effect of theaforementioned investments. In the fiscal year ending March 2024, the Company
expects a significant decrease in its profit from the fiscal year ending March 2023
since its operating profit is expected to decline significantly due to the temporary
increase in the cost for the redevelopment of a factory that the Company started
constructing in April 2021. However, as the cost is expected to decrease in the fiscal
year ending March 2025, the Company expects a significant increase in its profit in
the same fiscal year. The financial projections do not reflect the implementation of
the Share Exchange.

―19―(2) Reasons for Selecting the Taisho HD Shares as Consideration for the Share Exchange
Taisho HD and the Company selected the shares of Taisho HD, the wholly-owningparent company resulting from the share exchange, as consideration for the Share
Exchange. The Company believes that the above selection is appropriate, given that the
Taisho HD Shares are listed on the first section of the TSE and that the trading
opportunities are ensured in the market on and after the effective date of the Share
Exchange, and that the shareholders of the Company will also be able to expect to receive
the benefit of the synergies from the Share Exchange.
By conducting the Share Exchange, the Company will become a wholly-owned
subsidiary of Taisho HD on the effective date of the Share Exchange (scheduled to be
July 30, 2021), and Biofermin Shares will be delisted as of July 28, 2021 (the final
trading date is scheduled to be July 27, 2021) in accordance with the TSE’s delisting
criteria. If the planned effective date of the Share Exchange is changed, the delisting date
will also be changed.
Although it will no longer be possible to trade Biofermin Shares on the TSE after its
delisting, Taisho HD shares, which will be allocated to the shareholders of the Company
through the Share Exchange, will remain listed on and can be traded in the TSE evenafter the effective date of the Share Exchange. Therefore, as for the shareholders of theCompany who hold at least 200 shares of the Biofermin Shares as of the Record Time
and, through the Share Exchange, will be allotted at least 100 shares of the Taisho HD
Shares, which collectively constitute one Taisho HD share unit, Taisho HD and theCompany believe that they can continue to provide liquidity for the portion of sharesconstituting at least one share units although such shareholders might also be allotted anumber of shares less than one share unit in proportion to the number of shares they hold.
On the other hand, shareholders of the Company who hold less than 200 shares of the
Biofermin Shares as of the Record Time will be allotted less than 100 shares of the
Taisho HD Shares, which are less than one Taisho HD share unit. They will be granted
a right to receive dividends of Taisho HD with a reference date after the effective dateof the Share Exchange according to the number of the shares less than one share unit,
but such shares cannot be sold in the financial instruments exchange market.
Shareholders who hold shares less than one share unit may request Taisho HD topurchase the shares they hold. For details of such procedures, please see “(Note 3)
Treatment of shares less than one unit” in “(I) Details of Allotment in the Share
Exchange” of “(1) Matters Concerning the Appropriateness of the Total Number ofConsideration for the Share Exchange” above.
For details of handling of fractional shares less than one share in case such fractional
shares remain after the Share Exchange, please see “(Note 4) Treatment of fractional
shares less than one share” in “(I) Details of Allotment in the Share Exchange” of “(1)Matters Concerning the Appropriateness of the Total Number of Consideration for the
Share Exchange” above.
The shareholders of the Company may continue to trade the Biofermin Shares theyhold on the TSE as before and may exercise their legal rights stipulated in the Companies
Act and other relevant laws or regulations until July 27, 2021 (scheduled), which is the
final trading date of shares.
(3) Matters to Be Given Due Consideration so as Not to Harm the Interests of Shareholdersof the Company
As Taisho HD already owns 7,632,021 shares of the Biofermin Shares (the ratio ofvoting rights to total number of issued shares outstanding as of March 31, 2021
(12,154,000 shares) is 63.8%) and the Company is a consolidated subsidiary of Taisho―20―

HD, Taisho HD and the Company determined that it is necessary to ensure the fairnessof the Share Exchange and have implemented measures to ensure the fairness as follows.
(I) Obtaining of Valuation Reports from Independent Third-Party Valuation Agents
Taisho HD appointed SMBC Nikko Securities as its third-party valuation agent,
which is independent of both of Taisho HD and the Company, and obtained a valuation
report for the share exchange ratio dated May 14, 2021. For the outline of the report,
please see “(ii) Matters Concerning the Valuation” of “(II) Basis, etc. for Details of
Allotment of Shares Pertaining to the Share Exchange” of “(1) Matters Concerning theAppropriateness of the Total Number of Consideration for the Share Exchange” above.
On the other hand, the Company appointed Daiwa Securities as its third-party
valuation agent, which is independent of both of Taisho HD and the Company, andobtained a valuation report for the share exchange ratio dated May 13, 2021. The
compensation for Daiwa Securities includes contingent fees to be paid contingent upon
the execution of the Share Exchange. For the outline of the report, please see “(ii)Matters Concerning the Valuation” of “(II) Basis, etc. for Details of Allotment of Shares
Pertaining to the Share Exchange” of “(1) Matters Concerning the Appropriateness of
the Total Number of Consideration for the Share Exchange” above. Neither Taisho HD
nor the Company has obtained a written opinion (fairness opinion) from either of their
third-party valuation agents stating that the Share Exchange Ratio is appropriate or fairfrom a financial perspective.
(II) Advice from Independent Law Firms
Taisho HD appointed Anderson, Mori & Tomotsune, and the Company appointed
Nakamura, Tsunoda & Matsumoto as a legal advisor for the Share Exchange, and they
have received advice from each legal advisor regarding procedures of the Share
Exchange and processes of decision-making method and processes from legal aspects.
Anderson, Mori & Tomotsune and Nakamura, Tsunoda & Matsumoto are independentof both of Taisho HD and the Company, and do not have any material interest in them.
(III) Obtaining of a Report from Special Committee Having No Interest in the Company
In order to ensure that the Company’s decision regarding the Share Exchange is madecarefully, to eliminate the risk of arbitrariness and conflicts of interest in, and ensure
fairness of, the decision-making process by the Company’s board of directors, and to
confirm that the board of directors’ decision to implement the Share Exchange will not
be disadvantageous to the minority shareholders of the Company, the Company has
established the Special Committee on February 17, 2021 that is comprised of thefollowing three persons: Mr. Hitoshi Inuga (an outside director of the Company (an audit
and supervisory committee member)) and Mr. Toru Kawasaki (an outside director of theCompany (an audit and supervisory committee member)) both of whom have no interestin Taisho HD and serve as an outside director of the Company and also as an independent
officer registered on the TSE, and of Mr. Takashi Goto (an attorney at SHIOMIZAKA),an external expert who has no interest in Taisho HD and the Company. When examining
the Share Exchange, the Company has consulted with the Special Committee on thefollowing matters (collectively, the "Matters of Inquiry"): (i) whether the purpose of the
Share Exchange is reasonable (including whether the Share Exchange will contribute to
the enhancement of the Company’s enterprise value), (ii) whether fairness of theconditions of the Share Exchange is ensured, (iii) whether the benefit of shareholders of
the Company is sufficiently considered through fair procedures in the Share Exchange,and (iv) in addition to (i) through (iii) above, whether it can be considered that the Share
Exchange will not to be disadvantageous to the minority shareholders of the Company.
The Company’s board of directors has resolved that the decision of the board
regarding the Share Exchange shall be made with utmost respect to the judgements of
the Special Committee, and that the board shall grant the Special Committee a right toentrust an advisor of the Special Committee with examination of the Matters of Inquiry―21―

above if necessary (in such case, cost of such entrustment shall be borne by theCompany). Exercising this right, the Special Committee has appointed Mr. Shinsuke
Hasegawa (a certified accountant and tax accountant, the representative of Hasegawa
CPA office) as its financial advisor. the Company’s board of directors has resolved that
although negotiations related to the Share Exchange be conducted by the Company’sboard of directors, the board shall ensure that the Special Committee may substantiallyaffect the negotiation process regarding the terms and conditions of the transaction byreporting the status of the negotiation to the Special Committee in a timely manner,hearing their opinion on important aspects and conducting negotiations taking into
consideration instructions and requests from the Special Committee. Also, theCompany’s board of directors has resolved that it shall not execute the share exchange
agreement for the Share Exchange if the Special Committee determines that the shareexchange ratio or other conditions of the Share Exchange are not appropriate.
The Special Committee held 9 meetings in total, which amounted to approximately 9hours and 26 minutes from February 17, 2021 to May 13, 2021. Outside the meetings,
the Special Committee also carefully examined the Matters of Inquiry by expressing
opinions, exchanging information and gathering information through emails and othermeans, and by holding discussions when necessary. More specifically, at the firstmeeting of the Special Committee, the Special Committee approved the appointments,
which were made by the Company, of Daiwa Securities as a financial advisor and a thirdparty valuation agent, and of Nakamura, Tsunoda & Matsumoto as a legal advisor after
confirming that they had no problems with their independence. Also, the Special
Committee has approved the selection of directors at the Company who would beengaged in the examination, negotiations and determinations concerning the Share
Exchange after confirming that they have no problem from the perspective of interests
in Taisho HD. The Special Committee received explanation from the Company and had
a question and answer session with the Company regarding the purpose of the Share
Exchange, the background and circumstances that led to the Share Exchange, the methodof preparation and contents of the Company’s business plan, which forms the basis forvaluation of the share exchange ratio, and the examination system and method ofdecision-making for the Share Exchange, the Company’s view on the proposals fromTaisho HD relating to the Share Exchange, and the impact of the Share Exchange on the
Company’s enterprise value. The Special Committee has sent a questionnaire to Taisho
HD regarding the purpose of the Share Exchange and other matters, and received
explanation from Taisho HD and had a question and answer session with Taisho HD
regarding the purpose of the Share Exchange, the background and circumstances that led
to the Share Exchange, policies after the implementation of the Share Exchange andother matters. The committee also received explanation from Daiwa Securities, which is
the Company’s financial advisor and third-party valuation agent, and had a question andanswer session with Daiwa Securities as to the results of the valuation of the shareexchange ratio and the scheme of the Share Exchange, and carefully examined thesematters based on advice from Mr. Hasegawa on financial aspects. In addition, the Special
Committee received advice from Nakamura, Tsunoda & Matsumoto and had a question
and answer session with it regarding measures to ensure fairness in the procedures of the
Share Exchange, method and process of decision-making by the Company’s board of
directors concerning the Share Exchange, and other measures to avoid conflicts ofinterest. The Special Committee also has collected information on the Share Exchange
from materials relevant to the Share Exchange submitted to them, and has discussed the
Matters of Inquiry based on such information through careful discussions andexaminations. Based on timely reports that the Special Committee has received on the
backgrounds and details of the discussions and negotiations between Taisho HD and theCompany regarding the Share Exchange, the Special Committee has been involved in
the process of negotiations with Taisho HD until the Company received the final―22―

proposal on the Share Exchange Ratio from Taisho HD by holding several discussions
on the method of negotiation and other matters and by expressing its opinion to theCompany. Through these processes, the Special Committee has carefully discussed andconsidered the Matters of Inquiry based on these explanations, valuation results andother materials it examined, and has submitted a report to the Company’s board of
directors on May 14, 2021 stating that the Share Exchange is not found to bedisadvantageous to the Company’s minority shareholders. For the overview of theSpecial Committee’s opinion, please see “(IV) Outline of the Report” below.
(IV) Outline of the Report(i) Whether the purpose of the Share Exchange is reasonable
The Company is engaged in (i) OTC business (manufacture and distribution of OTC
drugs and quasi-drugs that do not require prescriptions at the time of purchase), (ii) PD
business (manufacture and distribution of pharmaceuticals that require prescriptions at
the time of purchase), (iii) overseas business (distribution of lactic acid bacteria products
in Southeast Asian countries including Taiwan and Hong Kong), and (iv) food business(manufacture and distribution of food and supplements containing lactic acid bacteria).
The Company has a history of more than 100 years since its founding. The name of“Biofermin” brand is extremely well recognized among general consumers and theCompany is highly trusted for the products’ quality, efficacy and safety. In relation to
the development of products, the Company possesses lactic acid bacteria strains that havebeen proven to be effective and safe, and also has a human and physical infrastructurethat enables the Company to complete the processes from research and development(cultivation, etc.) to commercialization (drug product formulation and assurance ofquality as pharmaceuticals) by itself. Furthermore, in the sales activities, the Company
sells its products via Taisho HD Group, which is the top OTC product manufacturer, and
it is significantly advantageous for the Company that it can utilize Taisho HD Group’s
sales functions (sales and distribution functions such as sales channels and MRs).
As to the relationship with Taisho HD Group, its parent company, since the Company
became a subsidiary of Taisho HD Group in 2008, the Company has strengthened its
partnership with Taisho HD Group by utilizing Taisho HD Group’s sales and distributionfunctions such as sales channels and MRs in Japan and overseas through exclusive salesof the Company’s products to Taisho HD Group, by receiving support from Taisho HD
Group for the Company’s manufacturing, quality, and research and development, and bycollaborating with Taisho HD Group on joint researches and other projects between thetwo companies.
Regarding the recent business environment, the domestic market for OTC products(antidiarrheal drug and intestinal drug) and PD products (live bacteria products), which
are the main business fields of the Company, has grown steadily over the past ten years.
In response to the growth, the Company’s sales have been growing steadily with theamount over 10 billion yen. However, its sales have declined in the most recent period
due to the impact of the COVID-19 pandemic, and the significance and duration of the
impact caused by the pandemic on the Company’s future businesses are uncertain. In
addition, the Company faces issues such as its dependence on "Shin Biofermin S Fine
Granules" in the OTC business, intensifying competition with other companies in the PD
business and uncertainty in its new businesses such as overseas business and foodbusiness.
The Company and Taisho HD share a common understanding of these the Company’s
management issues, and in order to overcome them, they examine specific qualitativesynergy effects obtained by implementing specific measures. Specifically, in the OTC
business and the PD business, they consider sharing and utilizing technologies and knowhow in research and development, manufacture, quality control and distribution; in theoverseas business, they consider developing and selling the Company’s products forcountries where the Company has not yet expanded its business by referring to―23―

information on regulations, demand of consumers and other relevant matters in eachcountry gathered by using the overseas network of Taisho HD Group; and in the foodbusiness, they consider sharing and utilizing technologies and know-how related todevelopment, manufacture, marketing and distribution.
The above measures accurately grasp the Company’s management issues and areconsistent with the Company’s mid-term policy. In addition, given the relationshipbetween the Company and Taisho HD Group as well as Taisho HD Group’s businessactivities and their results, there are no reason to deny the feasibility of the abovemeasures.
Considering these circumstances, it is possible to deem as reasonable and to accept theCompany’s judgment that the Share Exchange will enable the Company to implement
its bold and flexible business strategy, will contribute significantly to the Company’s
continuous growth and development, and will contribute to the enhancement of theenterprise value of the entire group from the medium-to-long term perspective.
On the other hand, possible disadvantages of the Share Exchange are also examined
specifically to a practically reasonable extent, and no particular irrationality has beenfound in the examination. According to the conclusion of the examination, it cannot be
acknowledged at least, that the Share Exchange will present disadvantages that clearlyexceed the aforementioned advantages. Also, there seems to be no reason to believe that
there is a more effective alternative to the Share Exchange in terms of the enhancementof the Company’s enterprise value.
Accordingly, the Special Committee believes that the Share Exchange will contributeto the enhancement of the Company’s enterprise value and that the purpose of the Share
Exchange is reasonable.
(ii) Whether fairness of the conditions of the Share Exchange is ensured
By giving comprehensive consideration to the fact that (i) the implementation of
measures to ensure fairness, including the establishment and involvement of the Special
Committee, secures a situation which can be equated with that of an arm's lengthtransaction in the process of forming the Share Exchange Ratio, and in fact, an agreement
has been reached through sincere negotiations between the parties, (ii) the valuation
report has been prepared by a third-party agent independent from the Company and
Taisho HD, which is a major company that has many achievements in Japan, and there
are no unreasonable aspects in the financial projection or preconditions, etc., that serveas bases of the valuation and the valuation method and results are deemed reasonable,
and the Share Exchange Ratio is at a level which exceeds the upper limit of the range ofthe average market price method and exceeds the median of the range of the DCF
Analysis, and (iii) it can be evaluated that this project has secured the levels of premiumthat are in no way inferior relative to similar projects, it is presumed that the minority
shareholders of the Company will be able to achieve not only “the values that can beaccomplished without implementing the Share Exchange” but also “the expected effectin the increase of enterprise value through the Share Exchange” to a considerable extent
by receiving the Taisho HD Shares based on the Share Exchange Ratio in the Share
Exchange.
Further, the method of and considerations for the Share Exchange are notdisadvantageous to the minority shareholders of the Company, and therefore, the schemeor other conditions of the transaction are also acceptable.
Based on the above, fairness of the conditions of the Share Exchange is ensured.
(iii) Whether the benefit of shareholders of the Company is sufficiently consideredthrough fair procedures in the Share Exchange
In the Share Exchange, various measures to ensure fairness, such as the establishmentof the Special Committee (including the implementation of practical measures to enhancethe effectiveness of the Special Committee), the early appointment of independent―24―

outside experts (financial advisors and legal advisors), and the obtainment ofprofessional advice and valuation reports, the exclusion of interested parties in thediscussion, negotiation and resolution of the Share Exchange, and the enhancement oftransparency in procedures by fully providing information to minority shareholders, havebeen implemented.
In light of the specific circumstances of the Share Exchange, from the viewpoints ofboth (i) securing a situation which can be equated with that of an arm's length transactionin the process of forming the Share Exchange Ratio and (ii) ensuring opportunities forminority shareholders to make appropriate decisions based on sufficient information, it
is considered that the contents of such measures to ensure fairness are necessary andsufficient with respect to its contents and combinations, and have been actually
implemented in an effective manner.
Based on the above, it is deemed that the benefit of shareholders of the Company issufficiently considered through fair procedures in the Share Exchange.
(iv) In addition to (i) through (iii) above, whether it can be considered that the Share
Exchange will not to be disadvantageous to the minority shareholders of the Company(i) The Share Exchange will contribute to the enhancement of the enterprise valueof the Company and the purposes of the Share Exchange are reasonable
The Company’s sales have declined in the most recent period due to the impact of
the COVID-19 pandemic, and the significance and duration of the impact caused by
the pandemic on the Company’s future businesses are uncertain. In addition, theCompany faces issues such as its dependence on “Shin Biofermin S Fine Granules”
in the OTC business, intensifying competition with other companies in the PD
business and uncertainty in its new businesses such as overseas business and foodbusiness.
In order to overcome the above, the Company and Taisho HD are conducting thefollowing: in the OTC business and the PD business, they consider sharing andutilizing technologies and know-how in research and development, manufacture,quality control and distribution; in the overseas business, they consider developing
and selling the Company’s products for countries where the Company has not yet
expanded its business by referring to information on regulations, demand of
consumers and other relevant matters in each country gathered by using the overseas
network of Taisho HD Group; and in the food business, they consider sharing andutilizing technologies and know-how related to development, manufacture,marketing and distribution. Moreover, the merits of the Share Exchange outweighthe possible disadvantages, and there are no alternative means to enhance theenterprise value other than the Share Exchange, and therefore, the purposes of the
Share Exchange are reasonable.
(ii) Fairness of the conditions of the Share Exchange is ensured
The implementation of measures to ensure fairness, including the establishment
and involvement of the Special Committee, secures a situation which can be equatedwith that of an arm's length transaction in the process of forming the Share Exchange
Ratio. In addition, the valuation report has been prepared by a third-party agent
independent from the Company and Taisho HD, which is a major company that has
many achievements in Japan, and the valuation method and results are reasonable,
and therefore, it can be said that fairness of the conditions of the Share Exchange isensured.
(iii) Whether the Share Exchange was conducted through fair procedures
Measures to ensure fairness, such as the establishment of the Special Committee,
the early appointment of independent outside experts, and the obtainment ofprofessional advice and valuation reports, the exclusion of interested parties in thediscussion, negotiation and resolution of the Share Exchange, and the enhancementof transparency in procedures by fully providing information to minority―25―

shareholders, have been implemented.
From the viewpoints of both securing a situation which can be equated with thatof an arm's length transaction in the process of forming the Share Exchange Ratioand ensuring opportunities for minority shareholders to make appropriate decisions
based on sufficient information, the contents of such measures to ensure fairness arenecessary and sufficient with respect to its contents and combinations, and have been
implemented through fair procedures.
Based on the above, it is considered that the Share Exchange will not bedisadvantageous to the minority shareholders of the Company.
(V) Approval of All Directors Excluding Those Who Have an Interest in the Company(including Audit and Supervisory Committee Members)
Among the seven directors of the Company, Mr. Ken Uehara also serves as a directorof Taisho HD and as Executive Vice President of Taisho, and Mr. Yuji Koyama also
serves as Corporate Officer and Head of Production Headquarters of Taisho. Therefore,
at the meeting of the Company’s board of directors held on May 14, 2021, at which theresolution regarding the Share Exchange was passed, five directors excluding Mr. Ken
Uehara and Mr. Yuji Koyama attended the discussion and passed the resolution with theunanimous approval with a view to avoiding conflicts of interest.
With a view to avoiding the conflicts of interest, Mr. Ken Uehara and Mr. Yuji
Koyama have not been participating in discussions and negotiations concerning the Share
Exchange from the standpoint of the Company.
(4) Matters Concerning the Appropriateness of the Amount of Common Capital andReserves of Taisho HD Which Will Become a Wholly-Owning Parent Company
As a result of the Share Exchange, the amount of common capital of Taisho HD willremain unchanged and the amount of reserves will increase by an amount separately
determined by Taisho HD in accordance with Article 39 of the Regulation on Corporate
Accounting.
The Company has comprehensively considered and reviewed the financial condition,
capital policy and other circumstances of Taisho HD, and has determined that the said
handling was determined within the scope of laws and regulations and is appropriate.
4. Matters of Reference Regarding the Consideration for the Exchange(1) Articles of Incorporation of Taisho HD
The Articles of Incorporation of Taisho HD are as described in Attachment 2“Articles of Incorporation of Taisho Pharmaceutical Holdings Co., Ltd.” of the
Separate-volume Supplement to the Reference Materials for the Shareholders
Meeting.
(2) Matters Concerning the Method of Conversion of the Consideration for the Exchange(I) Market on which the consideration for the exchange is traded
Taisho HD Shares are traded on the first section of the TSE.
(II) Person acting as intermediary, broker, or agency for trading in theconsideration for the exchange
Securities companies nationwide provide the intermediary and broker services
for Taisho HD Shares.
(III) Details of Restriction on the Transfer or Other Disposition of theConsideration for Exchange
Not applicable.
(3) Matter Concerning the Market Price of the Consideration for the ExchangeWith the business day immediately prior to the day on which the execution of the
Share Exchange Agreement was made public (May 14, 2021) as the reference date,―26―

the average closing prices of Taisho HD Shares on the first section of the TSE for
one month, three months and six months are 6,610 yen, 6,923 yen and 6,876 yen,respectively.
The latest market prices of Taisho HD Shares are available on the TSE website(http://www.jpx.co.jp/).
(4) Content of the Balance Sheets of Taisho HD Pertaining to Each Business Year theLast Day of Which Arrived in the Past Five Years
This section is omitted as Taisho HD has filed the annual securities report inaccordance with the provisions of Article 24, Paragraph 1 of the Financial
Instruments and Exchange Act for each fiscal year.
5. Matters Concerning the Appropriateness of the Provisions for Stock Acquisition Rights
Pertaining to a Share Exchange
Not applicable.
6. Matters Concerning Financial Statements, etc.
(1) Details of the Financial Statements, etc. of Taisho HD for the Most Recent Fiscal YearThe details of the financial statements, etc. of Taisho HD for the most recent fiscal year
(fiscal year ended March 2021) are as described in Attachment 3 “Financial Statements, etc.
of Taisho Pharmaceutical Holdings Co., Ltd. for the Most Recent Business Year” of the
Separate-volume Supplement to the Reference Materials for the Shareholders Meeting.
(2) Disposal of Important Property, Burden of Major Obligations, or Any Other Event That
Has Material Impact on the Status of Company Property Occurring After the Last Day of
the Most Recent Business Year of Taisho HD and the Company(I) The Company
The Company resolved at its board of directors meeting held on May 14, 2021 to
execute the Share Exchange Agreement with Taisho HD and executed the Share
Exchange Agreement on the same date. The outline of the Share Exchange Agreement
is as described in “2. Contents of the Share Exchange Agreement” above and Attachment
1 “Share Exchange Agreement between Taisho Pharmaceutical Holdings Co., Ltd. andthe Company” of the Separate-volume Supplement to the Reference Materials for the
Shareholders Meeting.
(II) Taisho HD
Taisho HD resolved at its board of directors meeting held on May 14, 2021 to execute
the Share Exchange Agreement with the Company and executed the Share Exchange
Agreement on the same date. The outline of the Share Exchange Agreement is as
described in “2. Contents of the Share Exchange Agreement” above and Attachment 1“Share Exchange Agreement between Taisho Pharmaceutical Holdings Co., Ltd. and theCompany” of the Separate-volume Supplement to the Reference Materials for the
Shareholders Meeting.

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Item 2: Introduction of the Retirement Benefit Plan with the Abolishment of the Stock Option
Plan for Directors (excluding Directors Who Are Audit and Supervisory Committee Members)
It was approved at the 130th Annual Shareholders Meeting held on June 28, 2016 that the
Chairman of the Board will determine the specific amount of compensation for each Director(excluding Directors who are Audit and Supervisory Committee Members) within the range ofthe total compensation of 200 million yen or less per year (of which, the amount for Outside
Directors is 15 million yen or less per year), and that the amount will be determined by the Boardof Directors. In addition, it was similarly approved at the 130th Annual Shareholders Meeting thatthe amount of compensation for the Directors who are Audit and Supervisory Committee
Members will be determined through discussions by Directors who are Audit and Supervisory
Committee Members within the range of the total amount of compensation of 30 million yen orless per year. Both of the above are in effect to date. Further, as a revision of the compensation
system linked to improvement of corporate value, the retirement benefit plan was abolished as of
the close of the 129th Annual Shareholders Meeting held on June 24, 2015. Currently, theallocation of stock acquisition rights (the amount to be paid for each share to be delivered upon
the exercise of each stock acquisition right shall be 1 yen) as stock-based compensation stock
option, within the range of 35 million yen or less per year, to Directors who are not Audit andSupervisory Committee Members (excluding Outside Directors) (hereinafter, the “Eligible
Directors”), separately from the compensation limit of 200 million yen or less per year, wasapproved at the 130th Annual Shareholders Meeting, and the above is in effect to date.
However, in the event that Item 1 is approved as originally proposed, the Company will become
a wholly-owned subsidiary of Taisho Pharmaceutical Holdings Co., Ltd. (hereinafter, “TaishoHD”) through a share exchange based on the share exchange agreement with Taisho HD(hereinafter, the “Share Exchange Agreement”), and the Share Exchange Agreement provides that
the Company will acquire all of the stock-based compensation stock options without
consideration, and will extinguish the stock-based compensation stock options.
As described above, following the abolishment of the stock-based compensation stock option
plan pursuant to the provisions of the Share Exchange Agreement, in order to provide each
Eligible Director of the Company who is to acquire stock-based compensation stock options
without consideration with economic benefits as cash retirement benefits which are substantiallyequivalent to the stock-based compensation stock options held prior to the acquisition without
consideration, the Company needs to introduce a new retirement benefit plan separately from thecompensation amount for Directors described above.
For the above reasons, subject to the approval of Item 1 as originally proposed, following theabolishment of the stock-based compensation stock option plan, this Item is presented to request
your approval for the introduction of a retirement benefit plan, separately from the compensation
amount for Directors described above. The retirement benefits shall be paid within the range ofan adequate amount in accordance with certain standards stipulated by the Company (in particular,
the economic benefits substantially equivalent to the stock-based compensation stock options heldby each Eligible Director prior to the acquisition without consideration). The time of payment
shall be upon the retirement of each Eligible Director, and the specific amount and valuation
method thereof shall be left entirely to the resolution of the Board of Directors.
The brief biographies of each Eligible Director are as follows.
Name
Hideyuki Waki
Toshimichi Kunori
Hidehiko Kitamura

June 2008
June 2014
June 2020

Brief biography
Assumed the position of Director of the Company (to date)
Assumed the position of Director of the Company (to date)
Assumed the position of Director of the Company (to date)

If this Item is approved at the Meeting, the Company’s Board of Directors is scheduled toresolve the new policy for determining compensation for Directors, which reflects the retirement
benefit plan approved for introduction under this Item, immediately after the close of this Meeting.
In light of the above, the Company has determined that such retirement benefit plan will benecessary and reasonable in accordance with the said policy, and is appropriate.

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