Oasis Calls for CEO Dismissal, Submits Shareholder Proposals for New Directors at Hokuetsu AGM (Securities Code: 3865 JT)

Oasis Management Company Ltd. (“Oasis”) is the manager to funds that beneficially own approximately 18% of Japanese paper manufacturer Hokuetsu Corporation (3865 JT) (“Hokuetsu” or the “Company”). Oasis has adopted the Japan FSA’s “Principles of Responsible Institutional Investors” (a/k/a the Japan Stewardship Code) and in line with those principles, Oasis monitors and engages with its investee companies.

Oasis has been engaging with Hokuetsu since 2019 in an effort to help improve the Company’s corporate governance and corporate value. However, Oasis firmly believes that CEO & President Sekio Kishimoto’s poor leadership and a lack of oversight by the Company’s current independent directors are holding Hokuetsu back from achieving its full potential.

Mr. Kishimoto and Hokuetsu’s independent directors have a long track record of governance and business management missteps, including:

• A long history of failure to realize synergies with Daio Paper Corp. (“Daio”) and refusal to sell Hokuetsu’s strategic shareholdings, incurring significant economic loss;
• Announcing a Strategic Alliance with Daio, of which the economic benefits to the Company are only nominal due to regulatory constraints and the inherent conflict of interests between the two parties;
• Overseeing subpar Company performance during extremely long tenures; and
• Failure to implement effective and meaningful corporate governance, as demonstrated in the reinstatement of a poison pill to protect their vested interests.

Therefore, we urge fellow shareholders to act now to hold management accountable, improve corporate governance, and help build a better Hokuetsu by voting FOR Oasis’s proposals at the upcoming AGM:

• Dismissal of Mr. Kishimoto as a director
• Dismissal of Mr. Iwata, Mr. Nakase, Mr. Kuramoto and Ms. Nihei as independent directors
• Election of five highly qualified, truly independent, and diverse independent director candidates (Ms. Shiba, Mr. Nysten, Mr. Nakajima, Mr. Baisley and Mr. Watanabe)
• Introduction of a new compensation plan for the independent directors:

• Determination of individual base remuneration for independent directors
• Determination of remuneration for granting restricted stock to independent directors

Background – Corporate Governance Failures at Hokuetsu

We believe the Company’s corporate governance framework has been rendered ineffective by Mr. Kishimoto’s effective control over the board. The independent directors have failed to provide appropriate oversight, and thus have failed in their duty to hold him accountable for his track record of shortcomings during his 16-year tenure as CEO and President.

These governance shortcomings are perhaps best exemplified by the Company’s December 2023 reinstatement of a poison pill aimed at preventing Daio Kaiun from increasing its stake. Hokuetsu had previously abolished its poison pill in June 2022.

Based upon publicly available information, there is no reason to believe that Daio Kaiun was accumulating its equity stake with an intention to acquire managerial control. In the absence of such an attempt to acquire managerial control, we can hardly believe that the poison pill was justifiable as a means to protect the Company’s stakeholders. Instead, Oasis believes that the poison pill was used by Mr. Kishimoto and his Hokuetsu directors to preserve their managerial positions against Daio Kaiun’s plan to vote against their nomination as directors.

We note this is in direct contradiction to the Ministry of Economy, Trade and Industry (METI) Guidelines for Corporate Takeovers:

“[T]akeover response policies should not be intended to protect or entrench management from ‘parties who are undesirable to the incumbent management’.”¹

As noted, Oasis has been engaging closely with the Company, both privately and publicly, over the span of several years, addressing a host of operational and governance improvements. Regrettably, the Company has consistently failed to respond to our efforts for change. Despite Oasis’s repeated requests, and notwithstanding our status as the Company’s largest shareholder for years, and current status as the Company’s second-largest shareholder, we have been granted an audience with Mr. Kishimoto just once, in December 2023, after five years of engagement.

Engaging with shareholders is a fundamental duty of management under the Corporate Governance Code. We see this reluctance alone, over the past five years, as a serious breach of governance.

In what appears to be management’s latest attempt to protect its own interests and positions at the Company from facing accountability, in its announcement published on April 23, Hokuetsu has publicly called into question the accuracy of Oasis’s large shareholder reports with respect to Oasis’s holdings in the Company. This statement by the Company is not only inaccurate and baseless, but also defamatory and extremely reckless, and demonstrates the failures of corporate governance plaguing the Company that must be remedied through the appointment of truly independent directors at the upcoming AGM.

Finally, in a recent correspondence, the Company charged that, should Oasis’s proposals succeed at the AGM, Oasis would, through the independent directors, effectively gain control over the Company. We are shocked and deeply dismayed by this gross misunderstanding and misinterpretation of both our intentions and the fundamental principles of corporate governance. We categorically state that our director candidates are truly independent and have been selected based on their expertise, integrity, and commitment to upholding the highest standards of corporate governance. Their role is to serve the best interests of all shareholders, and not to advance any particular agenda.

We firmly believe that our proposals for a change at the board level will lay a crucial foundation for Hokuetsu to enhance its corporate governance and embark on a trajectory of improving corporate value for the benefit of all stakeholders.

Seth Fischer, Founder and Chief Investment Officer of Oasis, said:

“Mr. Kishimoto and Hokuetsu’s independent directors have acted against shareholder interests by reintroducing a poison pill. This Company deserves new independent directors to help guide Hokuetsu to overcome its challenges, like navigating the shrinking paper products market, pursuing decarbonization and logistics reforms, and fostering sustainable growth. We urge all shareholders to vote to remove Mr. Kishimoto and all four incumbent independent directors to restore appropriate governance and empower Hokuetsu to realize its full potential.”

We call on all shareholders who care about improving Hokuetsu’s governance and corporate value to vote FOR Oasis’s proposal to dismiss Mr. Kishimoto as President and Representative Director, dismiss all four incumbent independent directors, and to elect the five highly qualified, independent, and diverse director candidates nominated by Oasis as independent directors at Hokuetsu’s AGM.

To learn more about Oasis’s proposals, please visit www.hokuetsucorpgov.com. We welcome all stakeholders to contact Oasis at [email protected] to help improve Hokuetsu’s Corp Gov through accountability now.

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Oasis Management Company Ltd. manages private investment funds focused on opportunities in a wide array of asset classes across countries and sectors. Oasis was founded in 2002 by Seth H. Fischer, who leads the firm as its Chief Investment Officer. More information about Oasis is available at https://oasiscm.com. Oasis has adopted the Japan FSA’s “Principles of Responsible Institutional Investors” (a/k/a Japan Stewardship Code) and in line with those principles, Oasis monitors and engages with our investee companies.

The information contained in this press release (referred to as the "Document") is an information resource for shareholders in Hokuetsu offered by Oasis, the investment manager to funds that are shareholders of Hokuetsu (the "Oasis Funds"). The Document is not intended to solicit or seek shareholders' agreements to jointly exercise any voting rights with Oasis. Shareholders that have an agreement to jointly exercise their voting rights are regarded as Joint Holders under the Japanese large shareholding disclosure rules and they must file notification of their aggregate share ownership with the relevant Japanese authority for public disclosure under the Financial Instruments and Exchange Act. Oasis does not intend to be subjected to such notification requirement. The Document exclusively represents the opinions, interpretations, and estimates of Oasis in relation to the upcoming 186^th Ordinary General Meeting of Shareholders of the Company. Oasis is expressing those opinions solely in its capacity as an investment advisor to the Oasis Funds.

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