February 7, 2023
To: Shareholders of Toyo Construction Co., Ltd.

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

Update on Our New Policy

We believe that Toyo shareholders are interested to know whether Toyo Construction's management seriously seeks to “maximize shareholder value" and "increase long-term corporate value in order to achieve growth," not just superficially but in substance

Current management has explained that they would find it difficult to achieve – even in a few years – a per share value that exceeds price to book (PBR) based on continued stand-alone operations without a deal pending, while remaining listed.  This would only be about 725 yen per share.

We believe that shareholders are also quite interested in whether or not a tender offer at 1,000 yen per share, clearly beyond the value of the shares based on continued stand-alone operations while remaining listed, will be commenced.

We announced on January 23 ("Our New Policy on Toyo Construction Co., Ltd.") that Toyo has failed to implement measures to increase corporate value above our proposed acquisition price, and discussions around our proposal have continued for more than 250 days, an unusually long span.  In these discussions:

(A) Toyo’s representative director and executive team failed to consider, and rejected, privatization proposals from YFO and other potential acquirors solely on the basis that Toyo’s privatization by a company that is not a maritime construction company would prevent Toyo from winning public works projects and destroy the foundation of Toyo’s business (the "Foundation Collapse Theory").  We do not believe that this theory is  based in fact, and Toyo has not provided any evidence to support this theory. In fact, Toyo’s executive team admitted that they would need to come up with some other reason for rejecting our proposal, since the Foundation Collapse Theory cannot be made public.    Further, Toyo’s representative director personally delivered a letter to our representative stating that Toyo cannot agree to a proposed acquisition.  This decision was made by Toyo’s executive team, without any Board committee or other Board-led process.  

(B) Toyo’s Board and corporate auditors were unable to control this series of inappropriate responses by Toyo’s executive team and directors.  This has left Toyo with an entrenched system where the Board, whom the shareholders entrusted with management, cannot fulfill its responsibilities as shareholders expect.  This is a failure of the most basic of corporate governance concepts –the board of director’s and corporate auditor’s effective oversight of management on behalf of the shareholders.  Changes to Toyo’s board and corporate auditors must be made so that they can properly carry out their most fundamental duty.

By rebuilding Toyo’s board of directors and corporate auditors with our directors and corporate auditor nominees, the new board and corporate auditor will establish a sound governance system that enables Toyo to firmly and independently consider how to increase corporate value as well as evaluate competing acquisition proposals, including ours. Our nominations are not intended to cause Toyo Construction to support our proposed acquisition, but to enable it to sincerely consider our proposed acquisition as well as any other value-maximizing alternative. We expect our nominees (excluding those who hold positions at YFO) will play a central role in assessing the pros and cons of competing acquisition proposals, including ours.

If our nominees are appointed to the Toyo board, the rebuilt board will seriously consider competing acquisition proposals, including ours, and establish a sound governance system  to achieve the following.

1. The new board will build a system that allows competing acquisition proposals, including ours, to be seriously considered, rather than insisting on the Foundation Collapse Theory, which lacks truthfulness and rationality.

2. Although we believe that our proposed acquisition will contribute the most to the shareholder value and corporate value of Toyo, the new board will support a process to confirm that our proposal will maximize Toyo shareholder value.  The board will fairly and appropriately conduct a ‘market check,’ to confirm whether there are other legitimate, attractive proposals that are superior to our 1,000 yen per share acquisition proposal and  concrete, realisticstrategic vision for the company. 

3. If no actionable alternatives emerge that create greater long-term corporate and shareholder value than our acquisition proposal,  the new board will consent to our acquisition proposal at 1,000 yen per share and fulfill its responsibilities as shareholders expect by recommending our proposed tender offer. 

4. The board will continue to maintain Toyo’s business operations to secure Toyo’s social mission and “protect Japan’s coasts from natural disasters.” The board will pursue good management for all stakeholders, including employees and major business partners, and create long-term corporate value through clear growth strategies in the private sector and growth into new business domains.

More details of our proposed measures to improve corporate value, our proposed acquisition proposal and our discussions with Toyo to date will be published in the future to further your understanding as shareholders.

Note: This document is not intended to solicit shareholders of Toyo to provide a power of attorney for exercise of voting rights.  This document is purely for the purpose of providing information regarding our proposal.