The Truth Behind the 'Call Option' in the Youngpoong-MBK Management Cooperation Agreement… Controversy Over Breach of Fiduciary Duty by Youngpoong's Board Amid 'Tens of Billions of Won Loss Risk'

*This content was translated by AI.View Original

The specific terms of the management cooperation agreement signed by Youngpoong and Advisor Jang Hyeong-jin (hereinafter referred to as the Youngpoong side) with private equity firm MBK Partners (Korea Enterprise Investment Holdings, hereinafter referred to as MBK) in their bid to seize control of Korea Zinc's board of directors have been officially disclosed for the first time. As suspicions of "selling Korea Zinc shares at undervalued prices," which had been continuously raised in the capital markets, were confirmed with specific figures, ripples are spreading throughout the entire capital market alongside controversies over allegations of breach of fiduciary duty against Youngpoong's board members.

■ The Call Option Value Revealed… '700,000 Won + 5% Annual Interest' Per Share

According to legal and financial investment industry sources, Youngpoong signed a management cooperation agreement with the MBK side on September 13, 2024, during the process of conducting a public tender offer for Korea Zinc shares. It was revealed that this agreement included a strong 'call option (right to demand purchase of shares)' clause allowing the MBK side to purchase the 2,570,901 shares of Korea Zinc previously held by Youngpoong at '700,000 won + 5% annual additional interest' per share.

The reference date for exercising this call option is specified in the disclosure document as the day that first occurs: either "two years after the completion of the public tender offer" or "the day on which directors recommended by Youngpoong and MBK hold a majority of Korea Zinc's board of directors (the date of securing control in this case)." As Youngpoong and the MBK side faced difficulties in their initial plan to secure control, such as gaining a majority on Korea Zinc's board, market attention naturally focused on October 17 (the option reference date), which marks two years from the completion of the public tender offer.

■ MBK Holding the Sword vs. Youngpoong Offering Explanations… Dispute Over the Truth

As the controversy spread, the MBK side distributed a press reference material on the 19th, stating that "the relevant call option has not yet been exercised, and MBK Partners cannot exercise it before recovering its investment in Korea Zinc," attempting to quell the situation.

However, as detailed contents of the disclosure document submitted by the Youngpoong side became known, MBK's explanation appeared to lose credibility. According to the conditions stated in the document, the call option held by MBK allows them to demand that Youngpoong transfer all or part of the option-target shares to a new shareholder or a designated third-party buyer, either in a lump sum or in installments, within three months from the date the grounds for exercise arise (the call option exercise deadline).

In other words, unless there is an additional separate agreement, MBK holds the "absolute sword" that allows them to choose the most advantageous timing and exercise their rights at any time within the three-month period. Doubts are growing that such a clear clause was downplayed or omitted during market explanations.

■ Concerns of 'Up to Tens of Billions of Won' in Losses

The part drawing the most attention in the market is the scale of Youngpoong's financial losses. Over the past three months, Korea Zinc's stock price soared from a low of 836,000 won to a high of 1,430,000 won per share, continuing its upward trajectory.

Even based on simple calculations, if MBK exercises the call option at around 700,000 won per share, Youngpoong would have to transfer the shares at a loss of several hundred thousand won per share compared to selling them directly on the market, amounting to up to tens of billions of won in total. It is pointed out that this creates an unequal structure where MBK gains massive capital gains without even considering the additional interest, while Youngpoong's corporate entity and minority shareholders must bear the corresponding losses entirely.

Some suggest the possibility that a new agreement was recently reached regarding the exception clause in parentheses within the document: "if the parties separately agree, on the date determined by their agreement." However, capital market experts unanimously stated, "If this clause had been invoked to change the conditions, it would be an immediate case requiring a corrected disclosure," and "Given that no related disclosure was made, there is a very high probability that the contract terms remain valid."

■ Legal Community: "High Likelihood of Breach of Fiduciary Duty Even Before Actual Exercise"

The confirmation of this call option value is expected to be the decisive smoking gun in determining whether Youngpoong's board members are guilty of 'breach of fiduciary duty.' The legal community warns that they may already be subject to judicial punishment even before MBK actually exercises the call option and causes final damage to Youngpoong.

A criminal law specialist lawyer explained, "According to Supreme Court precedents, even if actual property damage to the company is not yet confirmed, breach of fiduciary duty is legally considered complete at the point when a contract imposing unilaterally unfavorable legal obligations or creating risks without alternatives is signed."

The lawyer further analyzed, "If Youngpoong's board approved poison pill clauses that could expose the company to the risk of losses in the tens of billions of won range with full knowledge, this constitutes a breach of duty that betrays the principle of good faith toward shareholders and has a very high likelihood of meeting the core elements of breach of fiduciary duty."

Ultimately, as it becomes difficult to avoid criticism for sacrificing the interests of the corporate entity for the collective purpose of reclaiming control, it is predicted that class action lawsuits by minority shareholders and additional legal offensives from the Korea Zinc side will follow, placing the alliance between Youngpoong and MBK on a new test.

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*This content was translated by AI.View Original