*President and Vice President Aoki sold themselves options worth JPY7.256bn for only JPY52.5mn

*The issuance of these highly dilutive options followed an unusual downward forecast revision, temporarily depressing Kusuri No Aoki’s share price

*The Company’s auditor, KPMG AZSA, resigned shortly after options issued

*Oasis recommends shareholders vote AGAINST the re-election of the Company’s president and the vice president, and the election of the Company’s newly proposed outside director candidate Mr. Hiromitsu Fujii

*Oasis recommends shareholders vote FOR Oasis’s independent Outside Director candidate and its proposed governance best practice measures to improve oversight and protect stakeholder interests from governance abuse 

 More information available at www. KusuriNoAokiCorpGov.com

Oasis Management Company Ltd. (“Oasis”) is the manager to funds that beneficially own 5.5% of drugstore operator Kusuri No Aoki Holdings Co., Ltd. (3549 JT) (“Kusuri No Aoki” or “Aoki” or the “Company”). Oasis has adopted the Japan FSA’s “Principles of Responsible Ownership” (a/k/a the Japan Stewardship Code) and in line with those principles, Oasis monitors and engages with its investee companies.

Oasis, a long-term shareholder of Aoki, urges fellow shareholders to hold the Aoki family leadership accountable at the upcoming Annual General Meeting of Shareholders (“AGM”) for a tenure of neglect of stakeholder interests. Under their leadership, Aoki has experienced several serious governance breaches, including a suspicious stock option issued to President Hironori Aoki and Vice President Takanori Aoki granting them the right to buy approximately JPY24bn of shares for JPY52.5mn, while the Company’s disclosures state the options were worth JPY7.256bn. The stock options were issued shortly after the Company made unusual downward revisions to forecasts, significantly depressing the stock price.

Oasis urges Aoki shareholders to vote AGAINST:

Oasis also urges shareholders to vote FOR our proposed independent Outside Director candidate to enhance Aoki’s oversight and protect the interests of stakeholders against the governance abuses under the Aoki Family control.

Under the leadership of Mr. Hironori Aoki and Mr. Takanori Aoki, Aoki has been plagued by serious corporate governance failures, continued breaches of minority shareholder interests, and underperformance compared to peers. Aoki’s governance practices and disclosures are currently only working for the benefit of its Founding Family, which can be evidenced by the governance abuses that the Board has overseen over the recent years, which include (but are not limited to):

1. Highly Dilutive Stock Option Sold to Founding Family Members at a Steep Discount and a Questionable Time: In FY2020, Aoki’s Board approved the issuance of stock options to President Hironori Aoki and his brother, Vice President Takanori Aoki. The disclosed fair value of the stock options was JPY7.256bn, but the Aoki brothers only paid JPY52.5mn to acquire the options, a 99.28% discount. The Company’s auditor, KPMG AZSA, resigned after the issuance of the stock options. The issuance followed a highly questionable downward revision in the Company’s earnings forecast which led to a significant drop in its share price. The issuance, which could dilute shareholders an estimated 11.1%, if exercised, was approved by a Board resolution, circumventing the need for shareholder approval. Following the issuance of the stock options, the Company’s full year results for the 2020 fiscal year were not only stronger than the revised-down forecast, but also stronger than the initial forecast, resulting in the share price normalizing. However, the Company claims this was neither a favorable issuance nor compensation to the Aoki brothers. We have serious doubts about this explanation, and other family-related transactions raise further concerns.
2. Potential Misuse of Corporate Assets by the Founding Family: Oasis also has serious concerns about the potential misuse of corporate assets by Mr. Keisei Aoki -- the founder and father to the current President and Vice President -- as the Company owns part of a large (1,700 square meter) complex where he is understood to be residing. The concerns surrounding the potential inappropriate use of corporate assets by Founding Family members, at the expense of all stakeholders, require immediate, clear, and factual answers from Aoki’s Board to its stakeholders.

These instances of governance abuses make it clear that Aoki’s Board is focused primarily on the interests of the Founding Family as opposed to those of all stakeholders. Oasis is not alone in this assessment, with a number of institutional investors and third-party research firms regularly highlighting the lack of independence on Aoki’s Board serving as a potential risk to the interests of wider stakeholders. Aoki has not only ignored such concerns, but the Board appears to have actively worked to disregard independent opinion by recommending to shareholders a former employee with a poor performance track-record as an “independent” Outside Director at the 2023 AGM in a blatant effort to fill its empty board seat and block Oasis’s proposal for a truly independent director.

Aoki has also sheltered the Board from any meaningful dialogue with its shareholders. Oasis has repeatedly requested to meet with President Hironori Aoki since November 2022. Despite our frequent requests to engage with the President, Oasis has been consistently ignored. This refusal to engage with Oasis not only falls short of meeting the recommendations of Japan’s Corporate Governance Code, but also serves to demonstrate the severity of the Aoki Family entrenchment and lack of appropriate counterbalances on the Board. Having engaged with countless Japanese companies, Oasis considers Aoki’s lack of responsiveness to shareholder concerns and disregard to shareholder interests to be one of the worst in Japan. The Company’s Outside Directors have also refused to meet with Oasis’s proposed independent Outside Director candidate without providing any reasonable explanations.

It is evident that the Board’s current composition, with three out of five Inside Directors from the founding Aoki family, has failed to provide the necessary level of oversight to protect the interests of stakeholders against inherent conflicts of interest that may exist within the Board. As such, Oasis is proposing a truly independent, highly qualified Outside Director to provide a necessary counterbalance to the Aoki family’s influence. Oasis’s proposed director candidate, Mr. Yoshiaki Ikei, brings a wealth of valuable experience in corporate management that could significantly benefit the Company’s corporate governance and long-term corporate value.

Although the Company has nominated its own new Outside Director candidate, Oasis has serious reservations about his suitability given his questionable management capabilities, history of running insolvent businesses, and potential lack of independence due to his past employment with the Company.

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

“The Aoki family’s excessive influence over the Company has prioritized their interests above all other shareholders. President Hironori Aoki and Vice President Takanori Aoki must be held accountable for these corporate governance failures. Shareholders must unite for accountability and push for reform that will benefit all of the Company’s stakeholders, including its customers, employees, suppliers, and shareholders. We demand better corporate governance for a better Kusuri No Aoki.”

Oasis urges all shareholders to VOTE FOR Oasis’s proposals (Agenda item #4-8) and VOTE AGAINST the re-election of President Hironori Aoki and Vice President Takanori Aoki (Agenda item #2) and Aoki’s newly proposed director candidate, Mr. Hiromitsu Fujii (Agenda item #2).

For more information, please visit www.KusuriNoAokiCorpGov.com. We welcome all stakeholders to contact Oasis at info@KusuriNoAokiCorpGov.com to help improve Kusuri No Aoki’s corporate governance.

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 Kusuri No Aoki offered by Oasis, the investment manager to funds that are shareholders of Kusuri no Aoki (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.

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