Toyo Construction Co., Ltd. (“Toyo”) (Securities Code: 1890) Status of Discussions and the Extension of the Period for the Proposed Acquisition of Toyo in Connection with the Planned Commencement of the Tender Offer for Toyo’s Shares

Yamauchi-No.10 Family Office LLC (formerly VPG LLC) (“YFO”) and KITE Co., Ltd. (together with YFO referred to as the “Companies”) made a legally binding proposal to Toyo to acquire Toyo’s common shares (“Toyo Shares”) in a tender offer pursuant to the Financial Instruments and Exchange Act 1948 Act No. 25 (as amended) (the “Tender Offer”). YFO announced the Tender Offer via a press release dated May 18, 2022, titled “Notice Concerning Planned Commencement of Tender Offer for Shares of Toyo Construction Co., Ltd. (Securities Code: 1890)” (the “Tender Offer Press”) (including subsequent changes and corrections). Unless otherwise expressly defined herein, the terms used herein shall have the meanings ascribed thereto in the Tender Offer Press.

 As stated in the Tender Offer Press, the Companies proposed to conduct a tender offer to purchase Toyo Shares at JPY 1,000 per share with no upper limit on the number of shares to be purchased, subject to conditions such as that the Companies are able to confirm that Toyo’s board of directors shall have approved of, and shall have passed a resolution recommending Toyo’s shareholders tender their shares into, the Tender Offer (“Tender Offer Conditions Precedent”). The Companies proposed to privatize Toyo by means of the Tender Offer (the “Acquisition Proposal”). For details of the Acquisition Proposal, please refer to the Tender Offer Press.

 Subsequently, at Toyo’s annual shareholders meeting held on June 27, 2023 (“AGM”), new directors and audit and supervisory board members, including seven director candidates and one audit & supervisory board member proposed by YFO (and who are independent of the Companies) were elected. As a result, Toyo’s board was newly established with a majority of directors recommended by YFO (the “New Board of Directors”). 

 As previously communicated to shareholders, the Companies held discussions with Shinya Yoshida, Toyo’s Chairman, and Haruhisa Obayashi, Toyo’s President and CEO. The Companies held these discussions as a means of engagement with the New Board of Directors on July 24, 2023. This was done to take steps towards realizing the Companies’ Acquisition Proposal that the Companies believe will contribute to maximizing Toyo’s corporate value and the common interests of shareholders. Based on these discussions, the Companies contacted the New Board of Directors on July 26, 2023, with the aim of facilitating the consideration of the Acquisition Proposal, and on the premise of sincere negotiations based on a relationship of trust with Toyo, to explain that the Acquisition Proposal remains a valid proposal that has not been withdrawn and to indicate how the Companies understand its Acquisition Proposal’s present status and what the Companies consider to be a fair process. Having done so, we requested in writing that Toyo allow the Companies to perform due diligence to enable the Companies to consider raising the proposed Acquisition Proposal price. The Companies requested discussions about the Acquisition Proposal.

 In response, Toyo indicated that the New Board of Directors would like to prioritize reviewing Toyo’s overall management. As a result of discussions between the Companies and Toyo, it was decided that the Companies would first share their vision for Toyo’s growth strategy in their Acquisition Proposal and discuss Toyo’s offshore wind business plan. Therefore, on September 12 and 13, 2023, after entering into a non-disclosure agreement with Toyo for the purposes of such discussions, the Companies and Toyo held a meeting with the New Board of Directors to share the Companies’ envisioned growth strategy in their Acquisition Proposal and discuss Toyo’s offshore wind business plan.

The Companies had proposed a price of JPY 1,000 per Toyo Share in their Acquisition Proposal. However, at the time the Companies had not had the opportunity to carry out due diligence on Toyo. The Acquisition Proposal relied solely on public information, including the financial forecast Toyo announced in its press release supporting Infroneer’s tender offer and recommending tendering on March 22, 2022 (“Financial Forecast”). Accordingly, the Companies’ proposed price in the Acquisition Proposal did not incorporate the upside potential of value enhancement associated with the business plan and growth strategy that would have been discussed and been fleshed out if due diligence had been conducted, nor does it incorporate the consideration of downside risks that could have been confirmed or eliminated through diligence.

On March 23, 2023, approximately one year after the announcement of Financial Forecast, Toyo’s former management announced the “Medium Term Management Plan” (the “New Medium Term Management Plan”). The New Medium Term Management Plan revised the Financial Forecast upwards significantly. Since then, the most recent market price of Toyo Shares has been higher than the Acquisition Proposal price of JPY 1,000 per share. 

Constructive discussions with Toyo’s former management had become difficult prior to the change of the structure to the New Board of Directors at the AGM. The Companies had, based solely on publicly available information, pointed out that there were doubts about the feasibility of the New Medium Term Management Plan, which was significantly revised upward in just one year. Since it is now possible to hold sincere negotiations based on a relationship of trust following the change to the New Board of Directors, the Companies believe it could be possible to increase the offer price in their Acquisition Proposal if it can confirm the feasibility of the upside potential under the New Medium Term Management Plan after conducting due diligence on Toyo and if downside risks can be eliminated. Specifically, by confirming Toyo’s key performance indicator (KPI) targets and specific measures linked to its numerical plan, it will be possible to verify the feasibility of the earnings plan and growth strategy under the New Medium Term Management Plan. The Companies may be able to get comfortable with downside risks, through due diligence on business, accounting, tax, legal, and other areas to confirm that Toyo has no significant contingent liabilities, no legal or regulatory issues, and no contractual issues with a third party that may adversely affect normal operations. If the Companies confirm that there are no other significant accounting, tax, or legal issues that are normally scrutinized in this type of transaction, then the Companies believe that it is possible to set the proposed price in the Acquisition Proposal at JPY 1,255 per share. The proposed price for the new Acquisition Proposal is based on a comprehensive analysis of Toyo’s business and financial state and calculated in accordance with the Companies’ investment decision making criteria and in consideration of the management plan, financial information and other materials Toyo has disclosed as well as the New Medium Term Management Plan Toyo released on March 23, 2023, the feasibility of which the Companies seek to review. YFO’s staff with specialized knowledge and external experts YFO appoints will independently investigate Toyo’s business considering Toyo’s announced plans including the New Medium Term Management Plan. Based on the New Medium Term Management Plan and business forecasts for multiple scenarios, such as upside and downside scenarios through the implementation of measures to enhance corporate value that the Companies have developed independently, the Companies will calculate a new offer price for the Acquisition Proposal, comprehensively taking into consideration the Companies’ cost of capital (expected rate of return) and other factors.

 Based on the above, as of today, the Companies have proposed to Toyo to amend the Acquisition Proposal as follows. The Acquisition Proposal remains a valid legally binding proposal, and the following proposal would amend the Acquisition Proposal subject to the satisfaction of the “Conditions of Amendment” described below. The Companies propose to amend the Acquisition Proposal as follows:

• Tender Offer price to be amended to: JPY 1,255 per share.

• Conditions of Amendment: Due diligence on Toyo is carried out on a basis that is reasonably satisfactory to the Companies. The feasibility of the profit plan and growth strategy under the New Medium Term Management Plan is confirmed (for example, it is confirmed that the target figures for sales and operating income under the New Medium Term Management Plan can be realized at a level of 90% or higher). Through due diligence on Toyo, it is confirmed that Toyo has no significant contingent liabilities, no legal or regulatory issues, no contractual issues with a third party that may adversely affect normal operations, and no other significant accounting, tax, or legal issues that are normally scrutinized in this type of transaction.

• Other than the changes expressly set forth above, there is be no change to the other terms and conditions of the Tender Offer and the conditions precedent to the commencement of the Tender Offer, and the Acquisition Proposal remains in full force and effect.

 The revised Tender Offer price after the above change is a 109.52% premium against the closing price of Toyo Shares of JPY 599 (rounded to the nearest whole number, as are the numbers below) on March 18, 2022, one business day before the announcement of the implementation of the Infroneer tender offer at JPY 770 per share (since the period after that is affected by the Infroneer tender offer, the business day immediately preceding the date of the announcement of the Infroneer tender offer is used as the reference date) on the Tokyo Stock Exchange Prime Market (on or before April 1, 2022, the first section of the Tokyo Stock Exchange). The revised Tender Offer price also offers a 111.99% premium against the simple average closing price of JPY 592 for the prior month, a 117.13% premium against the simple average closing price of JPY 578 for the prior three (3) months, and a 118.26% premium against the simple average closing price of JPY 575 for the past six (6) months. Further, the revised Tender Offer price offers a 3.21% premium against the closing price of Toyo Shares of JPY 1,216 (rounded to the nearest whole number, as are the numbers below) on September 22, 2023, which is one business day before the proposed revised Tender Offer price above. The revised Tender Offer price also provides a premium of 10.96% against the simple average closing price of JPY 1,131 for the past month, 15.24% against the simple average closing price of JPY 1,089 for the past three (3) months, and a premium of 21.37% against the simple average closing price of JPY 1,034 for the past six (6) months. 

 If the aforementioned “Conditions of Amendment” are not satisfied, the Companies will not increase the Acquisition Proposal price, but will instead maintain the Acquisition Proposal price of JPY 1,000 per share. Therefore, based on such proposed prices, the Companies intend to continue to engage in earnest discussions with Toyo regarding the Acquisition Proposal.

 Although the initial proposal to acquire Toyo Shares at JPY 1,000 per share is (as before) not conditioned on the availability of external financing, the new proposal to acquire Toyo Shares at JPY 1,255 per share assumes financing from some external financial institutions. After conducting due diligence, we will consider financing at an appropriate level from the perspective of capital efficiency and the optimal capital structure for Toyo.

 In addition, the Companies have decided to postpone the planned time of commencement of the Tender Offer until late December 2023, in consideration of the continuation of discussions with the New Board of Directors and the review process of the New Board of Directors discussed above. The Companies believe that if Toyo responds to the Companies’ due diligence requests and provides information, the Companies can start the Tender Offer by late December 2023, after completing the due diligence period of approximately one month and preparing the documents necessary for the commencement of the Tender Offer in a period of one month to one and a half months.

 The Companies will announce if any material progress is made in the discussions with Toyo (it will be disclosed to two or more media organizations or published on the Yamauchi-No.10 Family Office website). Further, the Companies will promptly make a public announcement in the event there is a significant change (including the postponement or advancement of the commencement date of the Tender Offer) in the status of the satisfaction of the Tender Offer Conditions Precedent discussed above prior to late December 2023 (i.e. the Companies being able to confirm that Toyo’s board of directors shall have approved of, and shall have passed a resolution recommending Toyo’s shareholders tender their shares into, the Tender Offer).