Megmilk Snow Brand : 【Delayed】Continuation of the Policy Against Large-scale Purchases of Shares in the Company (Buyout Prevention Measure)

May 18, 2021

Note: This document has been translated from a part of the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

Company name: MEGMILK SNOW BRAND Co., Ltd.

Representative: Keiji Nishio, Representative Director and President (Stock code: 2270, TSE 1st Section/SSE)

Contact: Kentaro Watanabe General Manager

Public Relations & Investor Relations Department (Phone: [phone])

Continuation of the Policy Against Large-scale Purchases of Shares in the Company (Buyout Prevention Measure)

At the 9th Annual General Meeting of Shareholders held on June 27, 2018, the Company received approval from shareholders for the continuation of "Policy Against Large-scale Purchases of Shares in the Company (hereinafter the Policy)," but this will expire at the conclusion of this Annual General Meeting of Shareholders.

After considering the Policy after the expiration, the Company resolved at a Board of Directors Meeting held on May 18, 2021, with the unanimous approval of eight Directors including three independent External Directors, to propose the continuation of the Policy at this Annual General Meeting of Shareholders.

The basic approach of the Company's corporate governance is to enhance corporate value by ensuring transparency in management, strengthening oversight functions from outside the Company, and establishing a management structure that can respond swiftly to changes in the market. Over the past three years, the Company has worked to strengthen corporate governance by establishing a Board of Directors structure with a one-third ratio of independent External Directors, and by establishing the Nomination Advisory Committee and the Compensation Advisory Committee. The Company will continue to work on strengthening corporate governance as it believes that stronger corporate governance will help to deter the management team from arbitrarily applying the Policy.

Under these circumstances, approval by shareholders of this proposal to continue with the Policy is requested.

Please refer to the following for the key points, purpose, necessity, changes and summary of the Policy.

1. About the Policy

The Policy refers to the rules for large-scale purchases (below, "Large-scale Purchase Rules") established in advance in preparation for the emergence of a large-scale purchaser who holds an ownership ratio of 20% or more of the Company's shares, etc.

*Refer to 5. below for details on the rules for large-scale purchase.

2. Purpose of the Policy

The purpose of continuing the Policy is twofold.

1. To ensure sufficient information and time for consideration in order for shareholders to make an appropriate decision on whether or not to approve a large-scale purchase.
   The Company's shareholders are not limited to general investors, but also include diverse groups consisting of dairy farmers, producer groups, related industries, and consumers. For such shareholders, we believe that the impact on the Company's management philosophy, management policy, business activities, etc., as well as the impact on the dairy industry and related industries, are important factors to consider, in addition to the impact of a large-scale purchase of shares, etc. on the management of
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the Company, when deciding whether to approve a large-scale purchase of shares, etc.

1. To prevent buyouts that significantly harm the Company's corporate value, and to ensure corporate value and shareholder interests.
   The evaluation and consideration of the information provided by the large-scale purchaser and the enacting of countermeasures shall be consulted with the Independent Committee, and shall be fully evaluated and considered by a third party.

3. Necessity of the Policy

1. Responsibility for shareholders

The Company believes that, as long as the Company's shares are listed on securities exchanges, its shares should be traded freely, and even in the event that large-scale purchases of shares are made without the consent of the Board of Directors, the final decision should be left to the shareholders.

However, recently in the capital market, some large-scale purchases of shares, etc., have been made without sufficient information disclosure to shareholders, investors and other stakeholders regarding the investment purpose, etc., and therefore it is not unlikely that such purchases (abusive acquisition) may damage the Company's corporate value and shareholder interests. While the Financial Instruments and Exchange Act provides for certain restrictions regarding buyouts, such as the granting of questioning rights, large-scale purchases within the market are not subject to such restrictions. In addition, in cases such as abusive acquisition, it is assumed that it may not be possible to secure sufficient preparation time to consider information on a large-scale acquisition and the response policy, and as a result, it can be assumed that it may not be possible to provide sufficient time for shareholders to make decisions. In fact, in recent years, there have been cases in which a contingency-type buyout prevention measures was introduced in response to a large-scale purchase after the buyout prevention measures had been abolished, and a resolution to activate the measure was passed at an extraordinary general meeting of shareholders.

In addition, there is an option to implement a third-party allotment or introduce buyout prevention measures on an emergency basis in the event of a contingency such as a large-scale purchase, instead of introducing buyout prevention measures in advance. However, there are questions as to the fact that such measures would dilute the value of stocks held by shareholders who did not receive the allotment, and that the introduction of emergency buyout prevention measures would not necessarily reflect the judgment of shareholders in an appropriate manner, as such matters are not stipulated in the rules of the stock exchange.

As stated in (1) of "2. Purpose of the Policy" above, the Company's shareholders hold our shares in various capacities and for various purposes. Therefore, it believes that it is extremely important to secure the necessary information and a reasonable period of time for consideration in order for the shareholders to make an appropriate decision from their respective standpoints on large-scale purchases of shares. In the case of a so-called abusive acquisition, the information required by shareholders and a sufficient period of time for examination are not always guaranteed, and as a result, corporate value and the common interests of shareholders may be damaged. In preparation for this, the Company believes that it is desirable to ask shareholders to understand and approve the details and purpose of the anti-buyout measures in advance, and therefore requests the continuation of the Policy.

(2) Responsibility for society

The Group has its roots in a dairy producers' organization, and has been operating under the corporate philosophy of "contributing to dairy farming production," in addition to "focus on customers" and "put our hearts into milk." This corporate philosophy is the Group's reason for being and social mission, and the Group believes that it will never change in the future.

In addition, dairy products are commodities with limited global trade volume, and there are concerns that supply-demand balances will tighten in the near future. Against this backdrop, in order to meet the expectations of many shareholders regarding the medium- and long-term enhancement of the corporate value, the Group intends to continue to contribute to the strengthening and sustainable development of the dairy production base, which is the source of the corporate value and development.

Therefore, the Company believes it is necessary to be prepared for companies, etc. that do not agree with the corporate philosophy of the Group and pursue short-term profits with no regard for the enhancement of corporate value over the medium to long term.

The Group will continue to play a considerable role in domestic dairy farming, and realize growth and development of the Company and dairy farming through the contribution to dairy production.

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4. Changes

The content is identical to that approved at the 9th Annual General Meeting of Shareholders, except for the effective period (until the conclusion of the 15th Annual General Meeting of Shareholders).

5. Large-scale Purchase Rules

1. Fundamentals of Large-scale Purchase Rules and definition of large-scale purchase

The fundamentals of the Large-scale Purchase Rules under the buyout prevention measure are as follows.

1. Sufficient information from the large-scale purchaser is provided in advance to the Board of Directors of the Company
2. The large-scale purchase is commenced after the elapse of a fixed evaluation period of the Board of Directors of the Company in relation to the provided information

A "large-scale purchase" is defined as the following actions, and neither are applicable if the Board of Directors of the Company has given prior consent.

1. Purchase of shares, etc.1 with the intent to give a designated shareholder group2 a share, etc. ownership ratio3 of 20% or more
2. Public offering4 of shares, etc.5 with the intent to give a designated shareholder group6 a share, etc. ownership ratio7 of 20% or more

(2) Submission of a Letter of Intent to Conduct a Large-scale Purchase

In the event that a large-scale purchaser wishes to conduct a large-scale purchase, the large-scale purchaser must submit in advance to the Board of Directors of the Company a "Letter of Intent to Conduct a Large-scale Purchase" (hereinafter "Letter of Intent") stating intent to comply with the Large-scale Purchase Rules. The Letter of Intent must include the "name and address of the large- scale purchaser," "governing law of establishment," "name of representative," "domestic contact information," "summary of proposed large-scale purchase," "number of shares held by the large-scale purchaser and joint holders," and "pledge to adhere to the Large-scale Purchase Rules."

Upon receipt of a Letter of Intent from a large-scale purchaser, the Board of Directors of the Company will make prompt disclosure.

(3) Provision of large-scale purchase information

The large-scale purchaser must provide to the Board of Directors of the Company sufficient information (hereinafter "Large-scale Purchase Information") such that shareholders and the Board of Directors of the Company can evaluate and consider the large-scale purchase.

Within five business days of receiving the Letter of Intent, the Board of Directors of the Company will submit an initial list of the Large-scale Purchase Information to the large-scale purchaser that must be provided to the Company with the deadline for a reply determined.

Additionally, the Board of Directors of the Company will swiftly provide initial information that is received to an Independent Committee. The Independent Committee will confirm the content of the initial information, and in the event that it finds that the information is insufficient as Large-scale Purchase Information, it will thereupon set a deadline for the reply, and recommend to the Board of Directors of the Company to acquire additional information until it has sufficient Large-scale Purchase Information.

Once the Independent Committee determines that it has received sufficient information, it will notify the Board of Directors of the Company to notify the large-scale purchaser in writing that the submission of Large-scale Purchase Information is complete, and to disclose the information. Additionally, if the Large-scale Purchase Information is deemed to be necessary for shareholders to make decisions, the Independent Committee will recommend to the Board of Directors of the Company to disclose the information, either in whole or in part, at an appropriate timing.

1. Refers to shares, etc. pursuant to Article 27-23, Paragraph 1 of the Financial Instruments and Exchange Act.
2. Refers to holders pursuant to Article 27-23, Paragraph 1 of the Financial Instruments and Exchange Act (including parties that are included in holders pursuant to Article 27-23, Paragraph 3 of the same Act) and joint holders pursuant to Article 27-23, Paragraph 5 (including parties that are included in joint holders pursuant to Article 27-23, Paragraph 6 of the same Act).
3. Refers to share, etc. ownership ratio pursuant to Article 27-23, Paragraph 4 of the Financial Instruments and Exchange Act.
4. Refers to a public offering pursuant to Article 27-2, Paragraph 6 of the Financial Instruments and Exchange Act.
5. Refers to shares, etc. pursuant to Article 27-2, Paragraph 1 of the Financial Instruments and Exchange Act.
6. Refers to the purchaser and special related party pursuant Article 27-2, Paragraph 7 of the Financial Instruments and Exchange Act.
7. Refers to share, etc. ownership ratio pursuant to Article 27-2, Paragraph 8 of the Financial Instruments and Exchange Act.
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The Board of Directors of the Company, in line with recommendations from the Independent Committee, will disclose that the submission of the Large-scale Purchase Information is complete, and disclose the Large-scale Purchase Information, either in whole or in part.

1. Information to be requested by the Company
   Main items to be requested as Large-scale Purchase Information from the large-scale purchaser are as

follows.

1. Details of the large-scale purchaser and its Group

Specific name, capital structure or primary investors, past experience and history, business description, financial description, experience in similar company or business with the Company, segment information if in a similar business, and experience, target, and result of past large-scale purchases, etc. for joint holders or special related parties (for funds, including fund members and other members)

1. Intent, method, and content of large-scale purchase

Intent, timing of purchase, method of purchase, price and type of compensation for purchase, structure for related transactions, legality of the method of purchase, etc.

1. Basis for compensation for purchase

Calculation figures, facts serving as the basis for calculations, calculation methods, person or company responsible for calculations, price effect forecasted to result from the large-scale purchase and its calculation basis, and the portion of the former comprising the price effect appropriated to other shareholders and its calculation basis, etc.

1. Support for purchase funds

Method of raising funds, presence or not and specific name of party providing funds (including substantial provider of funds), transactions related to raising funds

1. Management policy and business plan for the Company subsequent to completion of large-scale purchase
   Feasibility and foreseeable risks of the business plans associated with intended management policy, business plan, financial plan, capital measures, and asset use measures of the Company and the Group
2. Synergistic effects attained between the large-scale purchaser and the Company subsequent to growth in transactions after completion of the large-scale purchase
3. Policy and effect for stakeholders (employees of the Company, partners, customers, regional societies) of the Company
4. Specific measures to avoid conflicts of interest with other shareholders of the Company
5. Other information that is reasonably required by the Board of Directors of the Company or the Independent Committee

(5) Evaluation period

Depending upon the content of the large-scale purchase, the Board of Directors of the Company will set a period to evaluate, consider, negotiate, form an opinion, prepare alternative proposals, etc. (hereinafter the "Evaluation Period") of the large-scale purchase of either a. or b. below. The large- scale purchase may only be implemented after the following periods have elapsed.

1. 60 days: For purchases of the Company's stock, etc. that are market purchases with cash provided as compensation
2. 90 days: Other large-scale purchases

The above periods include time required for the Independent Committee to consider the large-scale purchase and to recommend to the Board of Directors of the Company whether or not to implement countermeasures.

However, the Independent Committee recommendation to the Board of Directors to extend the Evaluation Period within the scope required for the Board of Directors of the Company to consider the content of the large-scale purchase, negotiate with the large-scale purchaser, prepare alternative proposals, etc. In the event that the Board of Directors of the Company resolves to extend the Evaluation Period, the reason for extending the Evaluation Period, the length of the extension, and other relevant items that should be disclosed shall be promptly notified to the large-scale purchaser and information disclosed after the Board of Directors Meeting at which the extension is resolved.

(6) Opinions and alternative proposals by the Board of Directors

Within the Evaluation Period, the Board of Directors of the Company, in cooperation with the Independent Committee, shall evaluate and consider the Large-scale Purchase Information provided

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by the large-scale purchaser from the viewpoint of whether or not the large-scale purchase will be profitable for the corporate value of the Company and its shareholders. The Board of Directors of the Company shall discuss and negotiate with the large-scale purchaser as required, request improvements to the large-scale purchaser regarding the content of the large-scale purchase proposal, or may present an alternative proposal to shareholders.

6. Response in the event that a large-scale purchase is implemented

If the Board of Directors of the Company, after evaluating and considering the content of the Large- scale Purchase Information, and discussing and negotiating with the large-scale purchaser, determines that any of the following apply to the large-scale purchase and that it is appropriate to enact countermeasures, countermeasures as defined in the buyout prevention measure can be implemented as shown below, regardless of whether or not the Evaluation Period has passed.

(1) If the Large-scale Purchase Rules are not followed

If the large-scale purchaser does not follow the Large-scale Purchase Rules, the Board of Directors of the Company, while fully respecting the recommendation by the Independent Committee described in 7. below, may enact gratis allotment of stock acquisition rights or other countermeasures allowed by the Board of Directors under by the Companies Act, other laws and regulations, and the Articles of Incorporation of the Company.

These countermeasures will not harm general shareholders, but the large-scale purchaser that does not follow the Large-scale Purchase Rules may be financially harmed, and the large-scale purchaser will be warned not to begin a large-scale purchase while ignoring the Large-scale Purchase Rules.

(2) If the Large-scale Purchase Rules are followed

If the large-scale purchaser follows the Large-scale Purchase Rules, even if the Board of Directors of the Company is against the large-scale purchase, the Board of Directors of the Company will only announce its opinion against the large-scale purchase, present an alternative proposal to shareholders, and ask for understanding on an individual basis, and in principle shall not enact countermeasures. As a result, whether or not to comply with a purchase proposal from a large-scale purchaser shall be decided by the shareholders after comparison between the large-scale purchaser's purchase proposal, alternative proposals presented by the Board of Directors of the Company, and management policies for the medium to long term to improve the corporate value of the Company, etc. However, even if the Large-scale Purchase Rules are followed, if any of the following apply to the large-scale purchase, and there is a possibility that it will significantly harm the corporate value and shareholder interests of the Company, the Board of Directors of the Company, while fully respecting the recommendation by the Independent Committee described in 7. below, may enact appropriate countermeasures.

1. Greenmailer: Without intent to engage in management of the Group, intent to artificially inflate the Company's stock price and sell the stock back to the Company
2. Scorched earth management: After temporarily controlling management of the Group, intent to transfer the intellectual property, know-how, primary transaction partners and customers of the Group to the large-scale purchaser or its Group companies, etc.
3. Asset diversion: After controlling management of the Group, intent to divert the assets of the Group as collateral for liabilities or resources for the large-scale purchaser or its Group companies, etc.
4. Temporary high dividends: After temporarily controlling management of the Group, intent to sell or dispose assets of the Group such as real estate, securities, etc., and temporarily pay out high dividends, or to sell shares at a high price upon the stock price rising as a result of the high dividends
5. Oppressive two-stage purchase: Failing to invite the purchase of all shares via the initial purchase and setting or not disclosing unfavorable conditions for the second purchase, etc., substantially forcing shareholders to sell their shares

(3) Method to determine implementation of countermeasures

Based on information obtained from the Large-scale Purchase Information provided by the large- scale purchaser and other research, the Board of Directors of the Company, while seeking advice from financial advisors, lawyers, etc., will consider factors such as if the large-scale purchaser is genuinely seeking to participate in management of the Company, and whether or not the large-scale purchase and proposal will be beneficial to the corporate value and shareholder interests of the Company, and while fully respecting the recommendation of the Independent Committee as described in 7. below,

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