YFO and its group company, WK 1 Limited (with YFO, the “Companies”, “we”, “us” or “our”) on March 3, 2023, pursuant to Article 297, Paragraph 1 of the Companies Act, requested that Toyo convene an extraordinary general meeting of shareholders (the “EGM”) and proposed the appointment of investigators as provided in Article 316, Paragraph 2 of the Companies Act (the “Proposal”). 

However, the current management team of Toyo (“Toyo’s Management”) released a press release on March 10, 2023 (Announcement of Response to Shareholders¹ Request to Convene an Extraordinary General Meeting of Shareholders) (“Toyo’s Rejection Press Release”) stating that Toyo’s Management resolved not to convene the EGM. In response, we filed a petition with the Osaka District Court for permission to convene the EGM in accordance with Article 297, Paragraph 4 of the Companies Act. (See Exhibit: “Petition to Convene a General Meeting of Shareholders”).

Our views on Toyo’s Rejection Press Release.

1. We pointed out Toyo’s governance defects and in response Toyo has denied objective facts. Therefore, a review by independent investigators is required to clarify the full picture to allow shareholders to make decisions and to remedy Toyo’s governance defects

As we have previously disclosed to shareholders, we are already aware of certain of Toyo’s governance defects and have announced a policy to rebuild Toyo’s Board of Directors and Audit & Supervisory Board Members at Toyo’s annual general meeting of shareholders scheduled to be held in June 2023 in order to correct such governance defects.

However, Toyo has denied the existence of any of the governance defects we identified and the objective facts based on which we have made these claims. Therefore, the full picture of Toyo’s governance defects continue to be difficult for shareholders to grasp. Accordingly, as described in the press release we issued on March 3, 2023 (About the Convening of an Extraordinary General Meeting of Shareholders [Proposal to Appoint Investigators] to Review, Improve and Remedy the Governance of Toyo Construction) (“YFO Extraordinary General Meeting of Shareholders Press Release”²), we aim to reveal the full picture of the current corporate governance problems of Toyo by holding an investigation (the “Investigation”) pursuant to the Proposal. We also aim to improve and remedy governance problems by rebuilding Toyo’s Board³, and to build a governance system that can maximize Toyo’s corporate and shareholder value.

As stated in the YFO Extraordinary General Meeting of Shareholders Press Release, we have identified Toyo’s governance defects based on objective evidence and concrete facts. However, Toyo has repeatedly asserted that the information that we have disclosed “contains many distorted statements and misleading content” and claimed that “there are no corporate governance problems”. Toyo has tried to manipulate the facts to make it look like there are no governance issues.

Under these circumstances, Toyo continued to make baseless claims that our allegations regarding Toyo’s governance issues “distorted the facts” and there continued to be discrepancies in the information disclosed by us and Toyo. Many people have expressed the opinion that this situation, where the accuracy of information and the severity of Toyo’s defects cannot be objectively confirmed, makes it difficult for shareholders to decide who to believe. Further, it would be beneficial for shareholders and for Toyo to objectively confirm the full picture of governance defects in addition to the defects we have already confirmed in order to clarify the specific matters to be improved and remedied, even if these matters go on to be remedied following the rebuilding of Toyo’s board. 

Therefore, we have made a Proposal for the appointment of investigators that are independent from both us and Toyo to carry out an investigation to (1) provide accurate information for shareholders to decide on the proposed rebuilding of Toyo’s Board and (2) to reveal the full picture of Toyo’s governance defects that we are aware of. We made this proposal with the objective of clarifying the issues that Toyo needs to focus on to improve following our rebuilding of Toyo’s Board and based on the belief that this will allow the reconstruction of a sound governance system at Toyo that will contribute to corporate value and the common interests of shareholders.

In Toyo’s Rejection Press Release, Toyo continued to deny the underlying circumstances giving rise to the governance defects that we have identified. As we believe that the exact facts will be revealed by an independent investigator in any case, we will refrain from making a detailed counter-argument here. However, because Toyo’s Rejection Press Release made it clear that the discrepancies in the information provided by Toyo and us have not been resolved, we believe it has become even more important to carry out the Investigation to provide accurate information to shareholders and to allow them to confirm the facts. 

Further, if the allegations we have made against Toyo were in fact groundless, then this fact would be revealed to shareholders via the investigation. Therefore, were that so, even for the current directors of Toyo, the investigation should be a desirable outcome. The current management of Toyo would have no reason to reject the investigation, as managers entrusted with management of the company by shareholders who should be concerned with fulfilling their responsibility to increase Toyo’s corporate and shareholder value. In Toyo’s Rejection Press Release, Toyo stated that its objective is “to make appropriate information disclosures to our shareholders and other market participants.” However, if the current directors of Toyo sincerely wished to achieve that objective, they should agree to proceed with the Investigation as per our Proposal rather than allowing these discrepancies to persist, unresolved.

Nevertheless, Toyo’s current directors refuse to even attempt to confirm shareholders’ views through the EGM regarding whether it is necessary to clarify the objective facts. Because of this response we are forced to conclude Toyo’s current directors do not wish to reveal the true facts to shareholders through the Investigation and they are trying to conceal these facts. This kind of response may be a manifestation of the problem with Toyo’s current directors, who have failed to transparently disclose information to shareholders.

1. Toyo Management’s claim that the Proposal is for “an unjust purpose” is completely off the mark, and is specious argument designed to manipulate impressions

In Toyo’s Rejection Press Release, Toyo asserted that the Proposal has the unjustified objective of exerting pressure on Toyo’s current directors and special committee to consider the Companies’ acquisition proposal and to derive a favourable decision for the Companies. 

However, as explained above, we seek to provide information for shareholders to make decisions and reveal the facts necessary to rebuild a sound governance system. How can the provision of information to shareholders and the clarification of facts be considered applying pressure to Toyo’s current directors and special committee? This position is difficult to understand. In the first place, if Toyo had no governance defects and serious consideration has been given to counterbids, including our acquisition proposal, then Toyo’s current directors should welcome an investigation to be carried out so that independent investigators can confirm and report that Toyo has taken appropriate actions and that there are no governance defects. Accordingly, it is unlikely that the Investigation by the investigators would put pressure on Toyo’s current directors and special committee to consider the Companies’ acquisition proposal. 

Additionally, we have determined that constructive discussions with Toyo’s current Board of Directors will be difficult, given the significant defects in Toyo’s corporate governance we have identified through the negotiation process so far. We released a new policy which, among other things, aims to reform Toyo’s governance structure to maximize corporate and shareholder value.⁴ Further, we also have doubts about the background to the establishment of the special committee and the appropriateness of the process as described below. Accordingly, we no longer expect Toyo’s current directors or special committee to consider our acquisition proposal. Therefore, we have no reason to put pressure on Toyo’s current directors or special committee to consider it.

Toyo’s Management quickly concluded that they “do not agree with [our] proposed acquisition”, and Toyo’s current President and CEO hand-delivered a letter to YFO’s representative stating that he did not agree with our proposed acquisition. Because of this background, we understand that there is no room for the consideration of acquisition proposals based on privatization and measures to improve corporate value. Toyo’s Management even suggested it would fabricate “other reasons” for rejecting our acquisition proposal that can be publicly disclosed. Following this, Toyo made demands of us and established a special committee 10 months after we made our acquisition proposal in May 2022 and released management policies for the improvement of corporate value. Giving this timing, we suspect that Toyo’s current directors took these steps purely to give the appearance of consideration and to create superficial reasons for rejecting our acquisition proposal. Unless the current directors and special committee provide reasonable explanations for these unnatural and inappropriate processes, we believe that cooperating with a “review by the current directors and special committee which is solely for the purpose of appearances” will only hinder the realization of corporate and shareholder value. We have already communicated this belief to Toyo’s current directors via letters on February 15, 2023 and March 9, 2023. Therefore, Toyo’s Management should be well aware that there is no reason for us to exert pressure on the current directors and special committee to consider the Companies’ acquisition proposal. Despite understanding this, Toyo’s Management have carried out inappropriate impression manipulation to try and warp the perceived objective of the Proposal and claim that the Proposal “exerts pressure” and is for an “unjustified purpose”.

3. Our other thoughts on Toyo’s Rejection Press Release

(1) The concrete bases for our allegations and suspicions

Toyo contends that we have provided no concrete basis for the allegations and suspicions in the YFO Extraordinary General Meeting of Shareholders Press Release. However, all the facts we pointed out are based on objective records in the process of consultations and negotiations with Toyo and have been confirmed by reliable external sources. In the Investigation as well, we intend to submit all the objective records we hold to the independent investigators. We hope that the Investigation by independent investigators will clarify the whole picture and that accurate and objective information will be reported to shareholders.

(2)Timing of the Proposal

In Toyo’s Rejection Press Release, Toyo points out that (i) the Proposal was made just before the report of Toyo’s special committee scheduled for the end of March 2023,⁵ and that (ii) the Investigation’s report may not be released in time for Toyo’s annual general meeting of shareholders in June 2023, when we plan to rebuild Toyo’s Board of Directors. 

However, the schedule of the special committee report was not disclosed until Toyo’s Rejection Press Release was released. Therefore, there could be no connection at all between the timing of the Proposal and the timing of the special committee’s report. This is nothing more than a (knowingly) false accusation. 

Further, even if the report and announcement of the Investigation are not made in time for the Annual General Meeting of Shareholders due to Toyo’s refusal to comply with our lawful demand, or for other reasons, we will not change our policy of rebuilding the Board of Directors, and this Investigation is still necessary in order to improve and remedy Toyo’s governance.

In other words, we have already ascertained that there are defects in Toyo’s governance. If the current governance in form alone with no management body providing effective oversight continues, then Toyo’s management will continue prioritizing their own interests and ideas and make inappropriate decisions such as not considering counterbids in good faith. As a result, decisions on counterbids, including our acquisition proposal, may not be made through a fair process based on consideration of whether or not they are superior in terms of corporate and shareholder value. This could deprive shareholders of the opportunity to realize shareholder value of more than JPY 1,000 per share or realize growth opportunities for the company. Therefore, even if the Investigation’s report is not made in time prior to the annual general meeting of shareholders this year, we will not change our plans to rebuild Toyo’s Board of Directors and Audit & Supervisory Board Members at the annual general meeting of shareholders this year to rebuild a sound governance system and maximize Toyo’s corporate and shareholder value. We will make every effort to gain the support of shareholders. 

Further, the purpose of this Investigation is to clarify specific points that should be improved after the reform of the Board of Directors and Audit & Supervisory Board Members at the annual general meeting of shareholders by clarifying the full picture of governance defects. In any case, we believe that this Investigation is necessary because it will contribute to corporate value and the common interests of shareholders by clarifying important information to shareholders regarding specific measures to improve and remedy Toyo’s governance problems following the reform of the Board of Directors.