Convening an Extraordinary General Meeting of Shareholders to Appoint Investigators

Yamauchi No.10 Family Office
Hirowaka Murakami, Chief Investment Officer

March 1, 2023

Convening an Extraordinary General Meeting of Shareholders to Appoint Investigators to Identify and Remedy the Governance Failings at Toyo Construction Co., Ltd. (“Toyo”)

Yamauchi-No.10 Family Office LLC (with its affiliates, "YFO") and its group company, WK 1 Limited (together, "Requestors") requested on March 1, 2023 that Toyo convene an extraordinary general meeting of shareholders pursuant to Article 297, Paragraph 1 of the Companies Act to appoint investigators to reveal Toyo’s governance failings and to thereby facilitate and encourage Toyo management, including through shareholders, to improve and remedy these issues for the benefit of all stakeholders (the "Proposal"). For details, please refer to the attached document.

The Requestors aim to build a governance system that can maximize Toyo’s corporate value and shareholder value by conducting this investigation ("Investigation") to fully understand Toyo’s corporate governance problems, and thereby to improve and remedy the governance problems, including by refreshing Toyo’s Board. We ask our fellow shareholders to support the Proposal.
YFO strongly believes that its privatization proposal will maximize the corporate and shareholder value of Toyo, and we remain committed to following through with it. If a sound governance system is established at Toyo through approval of this Proposal and the subsequent refresh of the Board, we are confident that after a fair and truly independent review of the alternatives available to Toyo, a new Board will recommend YFO’s acquisition proposal as the best way to maximize corporate and shareholder value.
YFO believes that its proposed acquisition of Toyo is the strategic alternative that is most accretive to shareholder value and Toyo’s corporate value. However, YFO is also confident that the new Board will properly and fairly confirm (i.e. carry out a “market check”) whether there are any more attractive proposals (meaning concrete and feasible corporate value creation plans or alternatives to realize shareholder value of JPY 1,000 or more per share). Above all, YFO is confident that refreshing the Board will pave the way for Toyo to create long-term corporate value through clear growth strategies in the private sector and in new business areas, while continuing to maintain Toyo’s management structure and business operations to protect Japan's shoreline from natural disasters.
We will separately announce the timing of Toyo’s extraordinary general meeting of shareholders to consider the Proposal and how shareholders can exercise their voting rights¹.

1. Background of Our Proposed Acquisition of Toyo and Our Proposal to Remedy Toyo’s Governance

On March 22, 2022 Toyo’s Board resolved to endorse and recommend a tender offer by Infroneer Holdings, Inc. ("Infroneer") at a price of JPY 770 per share (the “Infroneer Tender Offer”).

On May 18, 2022 YFO made an acquisition proposal at a price of JPY 1,000 per share as a counterbid to the Infroneer Tender Offer. Subsequently, Toyo’s Board withdrew its recommendation to tender into the Infroneer Tender Offer, but maintained its the statement of support for the Infroneer Tender Offer. The Infroneer Tender Offer later failed.
On May 24, 2022, Toyo’s Board decided to seek shareholder approval of a poison pill against YFO’s proposed acquisition at the ordinary general meeting in June. According to multiple media reports, Toyo withdrew the proposal from consideration on June 23, 2022, the day before the ordinary general meeting of shareholders, because there was no prospect of obtaining an adequate number of shareholders’ approval to pass the resolution.
Significant defects in Toyo’s corporate governance were exposed in the course of discussions between YFO and Toyo that lasted more than 270 days – an unusually long period. Specifically:
Toyo managers working closely with President and CEO Takezawa and Toyo’s Board (referred to as "Toyo Managers" and collectively with President and CEO Takezawa as “Toyo Managers Et Al”) agreed to the privatization of Toyo by Infroneer, but continued to otherwise assert the unfounded argument that if “Toyo is delisted by a company other than a maritime construction company, which is in the marine civil engineering business, Toyo will become unable to receive orders for public works projects and Toyo’s business will cease to be viable” (the “Foundation Collapse Theory”) as their sole basis for rejecting YFO’s acquisition proposal and for neglecting to consider the acquisition proposals of other potential buyers.
President and CEO Takezawa of Toyo hand-delivered a letter to the YFO representative stating that he did not agree with YFO’s acquisition proposals before the Toyo board underwent any formal institutional decision making process. Incredibly, the Toyo Managers said that they would have to manufacture another reason for opposing YFO’s acquisition proposal because the Foundation Collapse Theory cannot be made public.
Toyo’s Board failed to control this series of inappropriate responses by the Toyo Managers Et Al described above².
YFO proposes that Toyo refresh its Board, and build a sound governance system overseen by new Board Members truly independent of the entrenched Toyo Managers. This new Board can then establish a reliable structure for Toyo to seriously consider competing acquisition proposals, including YFO’s.

2. The Background to the Proposal of this Investigation

YFO repeatedly pointed out significant corporate governance failures to Toyo’s Board. However, instead of responding to the substance of these allegations, Toyo resorted to surface-level name-calling, arguing that YFO’s press releases contain one-sided, distorted statements and misleading content, and that Toyo has no corporate governance flaws.

As a result, it became clear that Toyo’s Board cannot be expected to clarify, improve, or remedy its corporate governance problems on its own.

If Toyo continues to ignore its corporate governance failings, Toyo will be unable to maximize corporate and shareholder value, and could potentially suffer significant value destruction.

Therefore, in order to maximize Toyo’s value, shareholders have no choice but to appoint investigators independent from both YFO and Toyo, to remedy Toyo’s governance failings.

It is essential to first investigate and understand the governance failings within Toyo’s current Board and management in order for shareholders to make an accurate decision regarding YFO's proposed refreshment of Toyo’s Board and the subsequent evaluation of YFO’s acquisition proposal and other strategic alternatives by the new Board. It is for this reason that the Requestors made this Proposal as a first step toward refreshing Toyo’s Board and unlocking Toyo’s full value.

3. Problems known to the Requestors, and Matters that need to be revealed through this Investigation

We hope that the investigators will review the relevant materials and uncover all the pertinent facts through the Investigation. We believe we are aware of only a small part of Toyo’s governance failings; we trust that independent investigators will reveal the full picture and underlying causes of the following governance failings.

(a) Toyo’s Intentional Concealment of Toyo Board’s Arrangement to Continue in a Managerial Role Following the Closing of the Infroneer Tender Offer

We suspect that Infroneer and either Toyo or some of its Board members intentionally concealed the fact that there was an arrangement (secret agreement) that Toyo Board members would participate in Infroneer’s management of Toyo

We suspect that Infroneer, the tender offeror, and Toyo, the target of the proposed Infroneer Tender Offer, or some of its Board members, secretly agreed that the Board members of Toyo would participate in the management of Infroneer as board members of Infroneer after the completion of the Infroneer Tender Offer, and they intentionally refrained from disclosing this information to avoid being accused of self-dealing.
The Investigation should be carried out to reveal the full extent of the agreement, including any other agreements that should have been disclosed but were not. At the very least, the agreement with the tender offeror should have been disclosed, whether the agreement was in writing or oral, per the requirement to disclose “the existence and content of any agreement between the tender offer and the target company or its officers” and the requirement to disclose “the purpose of the purchase.” In addition, depending on the content of the agreement, Infroneer, the tender offeror, may have promised to provide benefits to the Board members of Toyo, and these benefits (if any) should have been disclosed in Toyo’s opinion statement report.
Toyo argued that because there was no written agreement, disclosure in Infroneer’s tender offer statement and Toyo’s opinion statement was not required. We believe the secret agreement was required to be disclosed and that Toyo intentionally concealed it, which is a major governance failing. In addition, Toyo may not have provided sufficient material for ordinary shareholders to evaluate the appropriateness of the terms and conditions of the transactions, and thereby prevented shareholders from making an informed judgment.

We suspect that the Toyo Board member who led the decision-making process to support and recommend the Infroneer Tender Offer was corresponding with Infroneer regarding the secret agreement and planned to take office as an Infroneer director, and thus made conflicted decisions in his own interests and / or those of third parties at the expense of the interests of all other shareholders and Toyo itself

There may have been a structural conflict of interest, and we suspect that the director may have pushed for decisions that prioritized Infroneer’s profits (a third party) to the detriment of Toyo’s corporate and shareholder value.
The following points are noted in Japan’s Fair M&A Guidelines³:

“With respect to the resolution of the Board of Directors of the target company to approve or reject the M&A transaction, the Companies Act prohibits ‘directors with a special interest’ from participating in the decision. A system in the target company that enables, to the extent possible, an evaluation and negotiation of the proposed transaction independent from the acquiring party should be established in order to eliminate the influence of structural conflicts of interest in the process of formulating the transaction terms. For example, this should be a system that excludes directors with certain interests, including ‘directors with a special interest,’ from evaluating and negotiating the transaction on behalf of the target company not only at the stage of the resolutions by the Board of Directors described above but also, depending on the specific circumstances of such M&A transaction, at the preceding stages of evaluation and negotiation.”

The scope of “Directors with Special Interests” is a matter of interpretation in the context of an acquisition of a subordinate company by a controlling shareholder. YFO believes that the Infroneer Tender Offer qualifies due to Infroneer’s ownership in, and relationship with, Toyo. Moreover, the definition of “Special Interest” must be interpreted broadly to enhance the fairness of the transaction negotiation procedures and thus the transaction terms. For example, it has been noted that “Special Interest” should be interpreted broadly so that directors who agreed to invest in the acquirer or participate in management of the acquirer will be excluded from the decision making process.
Nevertheless, Toyo has placed a Board member who is said to have entered into a secret agreement with Infroneer (and therefore which may be interpreted as having a "Special Interest" under the Fair M&A Guidelines) in a crucial role in its deliberation and decision-making process. The Requestors also suspect that the Infroneer Tender Offer was considered and endorsed by a governance system completely contrary to one that would “enable independent review and negotiation,” as required by the Fair M&A Guidelines.

We suspect that Toyo’s directors were under improper pressure from a third party in the Infroneer Tender Offer and engaged in a decision-making process that prioritized the pursuit of their own interests or the interests of a third party, Infroneer, and in doing so, unfairly decreased profits that should have been received by all other shareholders

The management of Toyo must have been aware of the risk of being terminated if they opposed the Infroneer Tender Offer because Infroneer is the holding company of Maeda Construction Co., Ltd (“Maeda Construction”), which initiated a hostile takeover of Maeda Road Co., Ltd (“Maeda Road”) in 2020 and fully terminated its management thereafter. In fact, Toyo’s management told us that “we feel it was unavoidable to terminate those [Maeda Road incumbent] directors because they acted with hostility [toward the buyer]”. We thus understand that Toyo management was acting out of self-preservation and intentionally conceding to Infroneer’s demands in order to avoid termination following the closing of the Infroneer Tender Offer.
In addition, we suspect that the Board member who entered into a secret agreement to serve on Infroneer’s board led the Board’s review of the Infroneer Tender Offer, and therefore he may have guided the process to prioritize the pursuit of Infroneer’s interests above those of Toyo shareholders.
As a result, Toyo established a special committee on February 24, 2022, prior to the formal declaration of intent by Infroneer on March 2, 2022, and expressed its approval for the Infroneer Tender Offer after only 13 business days.
In addition, an extremely short period of only 8 business days passed from when Infroneer first presented the price of the Infroneer Tender Offer on March 9, 2022 to the time Toyo’s Board voted to approve it on March 22, 2022. This rushed timeframe was not sufficient to allow Toyo’s Board a fulsome opportunity to negotiate to raise the price, and Toyo accepted the first, low offer of JPY 770 per share.

The Toyo Managers explained that the schedule was so exceptionally short because the deadline for completion was set in advance. We suspect that the schedule was arbitrarily set under inappropriate pressure from a third party to ensure that there was not sufficient time to properly analyze the merits of the transaction. We believe that the 8 business day period was not sufficient to ensure that the interests of Toyo’s minority shareholders were not harmed.

Negotiation and Determination Process for the Terms of the Infroneer Tender Offer

(b) Major problems and suspicions that the Requesters are aware of regarding the introduction of the poison pill and proposals for the election of directors at the 100th Ordinary General Meeting of Shareholders

We suspect that the Toyo Board member, who entered into a secret agreement with Infroneer to participate in Infroneer’s board, made the decision to introduce a poison pill against the proposed acquisition by YFO, and led the submission of a proposal to elect a Board member at the general meeting of Toyo shareholders, to prioritize his own interests and / or those of a third party at the expense of the interests of ordinary shareholders and Toyo

As mentioned above, we suspect that there was a structural conflict of interest in which a Toyo Board member who was interested in taking office as a board member of Infroneer may have prioritized his own interests or those of a third party at the expense of the interests of ordinary Toyo shareholders and Toyo itself. As a result, we suspect that the director pushed for decisions that prioritized the pursuit of Infroneer’s (which is simply a third party) interests, despite the lack of a need or reason for the poison pill from the perspective of enhancing Toyo’s corporate value and shareholder value.

Suspicion that the adoption of poison pill was arbitrarily decided to prevent YFO’s acquisition proposal

The Requestors have reason to believe that prior to the introduction of the poison pill, President Takezawa stated to a third party that he had no intention to accept any offer other than the Infroneer Tender Offer.
In addition, despite sufficient time and the provision of sufficient information since the abolition of the poison pill, Toyo has continued to fail to consider YFO’s acquisition proposal for a long period on the grounds of the Foundation Collapse Theory. Toyo has consistently insisted that it will not be able to agree with Toyo’s proposal as it is made on the basis that Toyo will be privatized. In light of Toyo’s subsequent efforts to lead its board of directors to reject our proposal, and its efforts to get us to give up on our acquisition proposal, we have to suspect that the real purpose of the poison pill measures was not, as stated, to secure sufficient time and information to consider our takeover proposal, but instead to prevent YFO’s acquisition proposal without a rational reason.

Suspicion that third parties such as Infroneer were unfairly involved in Toyo’s decision to introduce a poison pill and in the selection of candidates for Toyo’s board

As shown below, we suspect that third parties such as Infroneer were unfairly involved in the decision to introduce a poison pill and select candidates for Toyo’s board.

Based on information possessed by the Requestors, we suspect that Infroneer caused Toyo to appoint a law firm known for its strength in poison pills, and a PR advisor, both of which Infroneer had retained (or had until then been retaining), or made efforts to do so, for the purpose of preventing our counterbid from succeeding.
In addition, based on information possessed by the Requestors, we suspect that Infroneer, a third party, instructed or lobbied Toyo to prevent YFO’s proposed acquisition of Toyo. In addition, we suspect that Toyo was unfairly sharing letters received from YFO and otherwise acting inappropriately viz. Infroneer at Infroneer’s instruction.
Toyo announced the appointment of Masakazu Kawanobe, who served as a director of Infroneer subsidiary Maeda Corporation until 2016 and who had a close relationship with Infroneer, to become an advisor (komon) to Toyo on May 12, 2022. This is an unnatural timing, prior to the ordinary general meeting of shareholders. At the same time, Toyo announced the appointment of Yoichi Kawashima, who had previously served as an executive officer of Infroneer (Maeda Corporation), as a senior managing executive officer of Toyo. In other words, Toyo stopped includihng in the Board certain directors from Infroneer’s board of directors in order to give the appearance that decisions were being made independently of Infroneer, but included former Infroneer officers as advisors and senior managing executive officers in its management team. We suspect that Toyo remained under Infroneer’s influence in substance while attempting to conceal it in this way. In return, we suspect that Infroneer was improperly involved in a secret agreement to support the reappointment of Toyo’s existing directors to the Board, and to adoption the poison pill to stop our own offer.

(c) The main problems and suspicions that the claimants are aware of regarding Toyo’s review and decision-making process for counterbids, including YFO’s proposed acquisition

Suspicion that Toyo adopted a decision making process for YFO’s acquisition proposal that blatantly prioritized the pursuit of the interests of its Board members or third parties at the expense of the interests of ordinary shareholders, depriving Toyo shareholders of the opportunity to tender their shares at an attractive tender offer price, and contrasting sharply with Toyo’s consideration of the Infroneer Tender Offer,

Toyo has not established an effective governance system capable of making appropriate management decisions

We suspect that the Toyo Managers, which are thought to have entered into a secret agreement with Infroneer as a tender offeror to participate in Infroneer’s management, led the discussion and examination process for YFO’s acquisition proposal, which was a counterbid to the Infroneer Tender Offer.
If so, there is a structural conflict of interest that prioritizes the interests of the Toyo Board members and Infroneer, a third party, over the interests of ordinary shareholders and YFO. As a result, an acquisition that is accretive to Toyo’s corporate value and the interests of ordinary shareholders cannot be expected to be conducted on terms favorable to ordinary shareholders. Thus, we suspect that a response and process were implemented for the purpose of prioritizing the pursuit of profits of the Board members themselves or of Infroneer , a third party, without seriously considering other acquisition proposals that would maximize Toyo’s corporate value and contribute to ordinary shareholders’ interests (or an acquisition in which the increase in Toyo’s corporate value is fairly distributed among the parties involved, including ordinary shareholders).
In addition to this structural conflict of interest, the Toyo Managers confirmed that they had “delegated all of their power to Takezawa, or Takezawa held all decision-making power from the outset” (Note: President and CEO: Takezawa). At the same time, we question whether Toyo’s decision-making via President and CEO Takezawa is based solely on his own personal intentions.
If so, we must say that Toyo has yet to build an effective governance system, and that President Takezawa may have facilitated a process that prioritized the pursuit of profits for the directors themselves or for a third party.
In fact, over 270 days have passed and the Toyo Managers have not even started to consider counterbids and have repeatedly insisted to YFO only that if “Toyo is delisted by a company other than a maritime construction company, which is in the marine civil engineering business, Toyo will become unable to receive orders for public works projects and Toyo’s business will cease to be viable”, and tried to get YFO to give up on our proposal. In addition, the Toyo President and CEO Takezawa hand-delivered a letter to the representative of YFO stating that he did not agree with the proposed takeover, without going through any formal institutional decision making process, indicating his intention to reject the proposed takeover.
While YFO has repeatedly pointed out serious corporate governance flaws to Toyo's Board and requested improvements, Toyo has consistently argued that YFO’s press releases contain one-sided, distorted statements and misleading content, and that there are no corporate governance issues.
Therefore, it is clear that the Toyo’s Board has a management system that is faithful to President and CEO Takezawa's wishes, but has not established an effective governance system. In this regard, we strongly suspect that Toyo cannot be expected to clarify, improve, or remedy its corporate governance problems voluntarily on its own.

Toyo did not even begin to consider competing proposals

Toyo publicly disclosed that it had secured an opportunity for other potential acquirers to make competing acquisition proposals in the course of the Infroneer Tender Offer, but then took the inexplicable stance of refusing to give any consideration to multiple competing acquisition proposals as soon as they arose without providing a rational explanation. We suspect that the purported opportunity to consider competing acquisition proposals Toyo offered was not intended to function effectively and was implemented solely to give the (false) formalistic appearance of fairness.
In the disclosure documents, there is no evidence that Infroneer submitted a detailed business plan to be implemented after the proposed acquisition to Toyo in connection with the Infroneer Tender Offer. Instead, Infroneer made the essentially meaningless statement that they would “work together to further increase corporate value by further consolidating the management resources of the tender offeror group, including the target.” In addition, they stated that it is difficult to estimate the proposed synergies in detail. Nonetheless, Toyo has continued to insist that YFO submit a detailed business plan and quantitative analysis (including quantification of synergies and non-synergies) in respect of YFO’s proposed acquisition, a counterbid to the Infroneer Tender Offer.
In addition to management policies and measures to increase corporate value, YFO proposed concrete measures to maintain the foundation of Toyo’s business, explanatory materials that include specific strategic measures to address specific issues faced by Toyo, and the impact of the value creation plan on the corporate value of Toyo. Nevertheless, Toyo publicly claims that it has not yet received enough information from YFO to consider its proposal.
At the time of the Infroneer Tender Offer, Toyo established a special committee on February 24, 2022 – before Infroneer even issued its formal letter of intent on March 2, 2022. The special committee expressed its approval after only 13 business days. In contrast, over 270 days passed since YFO made our initial acquisition proposal on May 18, 2022 without even forming a special being established despite our repeated requests.
The Toyo Managers explained that at the time of the Infroneer Tender Offer, before announcing their support for the Infroneer Tender Offer on March 22, 2022 they took the important initial step of providing explanations to related organizations a month in advance (i.e. before Infroneer had issued its formal letter of intent), in the context of making a decision on the tender offer. On the other hand, despite YFO's repeated requests, Toyo has not facilitated YFO’s explanation of its proposed acquisition to such related organizations, and rejected YFO's suggestion that YFO could come and explain the proposed acquisition together with Toyo if it was difficult for Toyo to do alone.
Furthermore, we suspect that Toyo, in addition to failing to consider the proposed acquisition by YFO, also failed to consider all other counterbids from acquirers that Toyo management found inconvenient. The Toyo Managers explained that other private equity funds also proposed to privatize Toyo, but that Toyo declined the proposals without even considering them on the grounds of the Foundation Collapse Theory. We understand that while Toyo agrees with the Infroneer Tender Offer to privatize Toyo, it does not intend to seriously consider any other proposals to privatize Toyo by third parties, whether or not such proposals will contribute to improving the shareholder value or corporate value of Toyo.

Toyo did not even provide reasonable information to legitimate counterbidders

Despite the fact that YFO’s acquisition proposal is a concrete and actionable, legitimate counterbid, Toyo has refused to provide reasonable information for a long period of time, and has made no attempts to create an environment of equal competition among each bidder. We suspect that a certain bidder who promised to provide benefits to Toyo executives mentioned above was given preferential treatment over other bidders.
YFO requested that Toyo provide the consolidated financial model of the three financial statements relating to Toyo’s future business plan, which is thought to have been provided to another bidder, after having entered into a non-disclosure agreement with Toyo. However, in response, President and CEO Takezawa delivered a letter to the YFO representative stating that he did not agree with YFO’s proposed acquisition, and also expressed his intention to reject the acquisition proposal. Since this date Toyo has still not provided the consolidated financial model (it has only provided the planned values for the income statement).
YFO has also made repeated requests for the planned balance sheet to confirm whether or not it exists. In response, Toyo has repeatedly falsely declared that “[Toyo] didn’t make one” (so it does not exist) and has intentionally concealed information reasonably necessary for YFO to develop detailed measures to improve corporate value. However, after Toyo sent a letter to YFO stating that it did not agree with YFO’s acquisition proposal, and YFO identified serious flaws in Toyo’s governance, in late January 2023, Toyo contradicted its past false responses and provided the planned balance sheet that YFO had requested, albeit a rough version with only numerical values and no explanation for assumptions behind the planned values. Toyo has not yet provided a consolidated financial model of the three financial statements, including the cash flow statement. It is extremely problematic from the viewpoint of fairness that Toyo as the target company does not provide reasonable information to the proposed acquirer, while making excessive requests from the proposed acquirer to provide such information, because it arbitrarily impedes proposals that contribute to the enhancement of corporate value and the interests of ordinary shareholders. The fact that Toyo refused to provide information based on false assertions points toward possible violations of the duty of care and loyalty of the directors.

Toyo has improperly responded, explained or applied pressure to YFO with the intent to cause YFO to abandon, or to facilitate Toyo’s rejection of, YFO’s proposed acquisition of Toyo

Toyo continued to assert to YFO only that “if Toyo is delisted by a company other than a maritime construction company, which is in the marine civil engineering business, Toyo will become unable to receive orders for public works projects and Toyo’s business will cease to be viable” to try and make us abandon our proposed acquisition. However, Toyo expressed its support for the Infroneer Tender Offer in a short period of time, even though Infroneer is not a maritime construction company in the marine civil engineering business.
President and CEO Takezawa of Toyo sent a letter to the YFO representative stating that he did not agree with YFO’s proposed acquisition without going through any formal institutional decision making process, and expressed his intention to reject the proposed acquisition.
In addition, we understand that disclosure of important negotiations reasonably necessary for shareholders and investors is expressly permitted in the non-disclosure agreement between Toyo and YFO. However, Toyo sent letters to YFO regarding the key points in the negotiations regarding YFO’s proposed acquisition (the background leading up to President and CEO Takezawa of Toyo sending a letter to the YFO representative stating that he did not agree with YFO’s proposed acquisition without going through any formal institutional decision making process, and expressing his intention to reject the proposed acquisition) titled “Request and Warning from our Company regarding the Draft Press Release you Shared with us” and “Objections and Requests” and claimed to consider taking legal action if disclosure was made. In this way Toyo sought to pressure YFO to not disclose the content of these important negotiations as it would expose significant governance problems at Toyo and Toyo wanted to hide this (damning) information from its shareholders.
In addition, in a conversation between the Toyo Managers and YFO, Toyo Managers made inappropriate statements and exerted unfair pressure by suggesting that YFO's credibility would be undermined if the acquisition proposal was not withdrawn, saying, "We would not want there to be damage done to the philanthropic work and reputation of the Yamauchi family, and we expect you also would not want this to happen." We suspect that, in this way, Toyo sought and intended to make YFO give up on the acquisition proposal rather than seriously considering it.

Suspicion that actions were taken to purely provide a convenient pretext for rejecting YFO’s acquisition proposal (even though there was no reasonable reason for the rejection)

Toyo Managers Et Al have said that they cannot disclose“that kind of reason [the Foundation Collapse Theory] as the reason for disapproval or opposition, so we must make up some ‘other reason’ for opposition and disclose it,” and “we will have it work on it, but we have to disclose a reason that can be shared externally.” As the Foundation Collapse Theory cannot be disclosed as a reason for rejecting YFO’s acquisition proposal, Toyo’s statements indicated it instead would make up other (false, pretextual) reasons to reject the proposal.
In fact, as mentioned above, while concealing important negotiations regarding YFO’s proposed acquisition of Toyo from shareholders (which also exposes significant governance issues at Toyo) and claiming that YFO’s press releases contain one-sided, distorted statements and misleading content, Toyo also started asserting that YFO has not provided necessary information for the Toyo Board to consider the proposal such as specific measures to improve corporate value and quantitative analysis. We suspect that, in this way, from February 2023 Toyo has started a process intended to create such false pretexts for rejecting YFO’s acquisition proposal.

Toyo’s Board has deliberated, made decisions and made disclosures on the basis of the report from the Toyo Managers Et Al, although Toyo’s Board is aware of the possibility that reports from the Toyo Managers Et Al are false.

The history of past discussions between YFO and the Toyo Managers Et Al as described in Toyo’s letters and disclosures, as well as Toyo’s recognition of the facts, clearly differ from objective records of the facts held by YFO.
We surmise that Toyo’s Board held discussions and made decisions and disclosures based on a false interpretation of facts contained in reports from the Toyo Managers Et Al. YFO has fully explained the true facts several times in letters to the Board and requested that the Board hold discussions and make decisions and disclosures based on an accurate understanding of the facts. However, there have been no signs of improvement. If you read the letter from YFO, you would be aware of the possibility that the information and facts reported by the Toyo Managers Et Al may be incorrect. Nonetheless, we suspect that Toyo’s Board are having discussions and making decisions and disclosures based on erroneous information by believing, without question, the reports from the Toyo Managers Et Al without conducting sufficient information collection or investigation. We believe that this is a serious problem from the perspective of the directors’ duty of care and loyalty.
As Toyo’s decision-making is being carried out faithfully in line with President and CEO Takezawa's wishes, and based on our suspicion that Toyo has not established an effective management structure, we further suspect that the Board has deliberately made decisions and disclosures in line with the opinions of Toyo Managers Et Al despite recognizing that the reports from the Toyo Managers Et Al were false. Accordingly, we believe that Toyo’s management team has failed to fulfill its decision-making and information disclosure responsibilities appropriately as expected of a listed company.
In the same way, we also suspect the Audit & Supervisory Board Members of Toyo are pretending to be ignorant of the improper conduct by the Toyo Managers, including President & CEO Takezawa, as well as Toyo’s Board.

In light of the above, the Requesters believe that it is necessary to reveal at least the following matters through the Investigation.

(1) Regarding the announcement of support for the Infroneer Tender Offer

Whether or not inappropriate pressure or influence was exercised by a third party, such as Infroneer, in Toyo’s decision making regarding the Infroneer Tender Offer (whether or not Toyo carried out a truly independent procedure and decision making process or whether Toyo’s Board prioritized their own interests or the interests of third parties at the expense of the interests of the ordinary shareholders and Toyo.)
Whether there were any agreements or commitments that were not disclosed in the opinion report made by Toyo in respect of the Infroneer Tender Offer or other disclosure materials or other matters that Toyo’s shareholders should have been made aware of
Whether Toyo committed any other governance violation (violation of the duty of loyalty of each board member, etc.)

(2) Introduction of the Poison Pill and Proposal for Appointment of Directors at the 100th Ordinary General Meeting of Shareholders

Whether or not inappropriate pressure or influence was exercised by a third party in the decision of Toyo to implement a poison pill and the election of directors (whether or not Toyo carried out a truly independent procedure and decision making process or whether Toyo’s Board prioritized their own interests or the interests of third parties at the expense of the interests of the ordinary shareholders and Toyo)
Were there any agreements or commitments that were not disclosed in Toyo’s disclosure materials or other matters that Toyo’s shareholders should have been made aware of
Whether Toyo committed any other governance violation (violation of the duty of loyalty of each board member, etc.)

(3) Toyo’s review and decision-making process for competing proposals, including YFO’s acquisition proposal

Whether there were any instances of unfair or inappropriate treatment in considering counterbids, including the YFO offer (compared to Toyo’s consideration of the Infroneer Tender Offer, whether there were any unfair or inappropriate aspects of Toyo’s consideration of counterbids, including YFO’s acquisition proposal, or whether Toyo’s Board prioritized their own interests or the interests of third parties at the expense of the interests of the ordinary shareholders and Toyo.)
In the process of consideration and decision-making of YFO’s acquisition proposal, was there any inappropriate response, explanation or pressure by Toyo in order to cause Toyo to abandon YFO’s acquisition proposal or to induce Toyo’s Board to disagree with the proposal (including any unfair or inappropriate response, non-response, or violation from the perspective of the Corporate Governance Code.)
Whether or not Toyo’s Board held discussions, made decisions, and disclosures based on an erroneous recognition of facts in the course of deliberating on YFO’s acquisition proposal, and whether or not Toyo’s Board failed to collect information and investigate the facts; whether the Board of Directors or the Audit & Supervisory Board members neglected to respond to these matters (including whether there was a duty of care or fiduciary duty to be observed or considered by the Board of Directors or the Audit & Supervisory Board of Toyo or whether there was an unfair or inappropriate response or non-response or violation from the perspective of the Corporate Governance Code)
Whether Toyo committed any other governance violation (violation of the duty of loyalty of each officer, etc.)

¹Neither the Requesters nor any other YFO group company is requesting a power of attorney to exercise voting rights from other shareholders of Toyo in this document.

² For further details, please refer to the following press release issued by YFO to shareholders.

"YFO's New Policy regarding Toyo Construction Co., Ltd." dated January 23, 2023 (https://prtimes.jp/a/?) F=d71768-20230123-37ed4259a9cc2c4a2113376752c52dc1.PDF)

February 7 2023 "New Action Update" at https://prtimes.jp/a/? F=d71768-20230207-bcf36834e5ca0f62bc1febb6313f1f15.PDF)

February 16 2022's thoughts on the "Notice Concerning the Establishment of a Special Committee by Toyo Construction Co., Ltd." and its response policy" (https://prtimes.jp/a/?) F=d71768-20230216-b5c7fe30f64e031b1824f028a48c3122.PDF)

³Guidelines for Fair M&A: Enhancing Corporate Value and Securing Shareholders’ Interests" published by the Ministry of Economy, Trade and Industry on June 28, 2019.