KZ Precision: "Youngpoong dodges the 'core' issue and repeats the same points… must explain how the call option fixed price was changed"

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Amid allegations of breach of fiduciary duty surrounding the call option clause in the management cooperation agreement between Youngpoong and MBK Partners (hereinafter MBK), KZ Precision issued a statement criticizing Youngpoong's position as "a hollow explanation that skirts the core issue."

KZ Precision urged that Youngpoong must clearly explain to shareholders and the market the true reason why it abandoned the "tender offer price linkage clause" for its core asset, Korea Zinc shares, and changed the contract to a fixed-price method.

Youngpoong and MBK's special purpose vehicle (SPV), Korea Enterprise Investment Holdings, signed a management cooperation agreement when they launched a tender offer for Korea Zinc on September 13, 2024. It is known that this agreement included a call option covering the 2.57 million shares of Korea Zinc held by Youngpoong.

The biggest controversy lies in the method used to determine the option price. The initial contract was designed so that if the tender offer price for Korea Zinc rose, the exercise price of the call option would also increase accordingly. However, this condition was abruptly changed one day before the tender offer price was raised. After the change, the call option price was fixed at 700,000 won per share plus an annual interest rate of 5%. Subsequently, the initial tender offer price of 660,000 won rose consecutively to 750,000 won and then to 830,000 won.

In response, the market and media have raised the possibility that a breach of fiduciary duty may have occurred, noting that Youngpoong could suffer greater losses if the rights are exercised during a period of rising stock prices. This is why questions have been raised as to whether Youngpoong was aware of the potential for loss at the time the contract was signed, and why the price-linked structure was changed to a fixed-price method that could be more disadvantageous to Youngpoong.

In a recent statement, Youngpoong stated that under the amended management cooperation agreement, an annual 5% is added to the initial benchmark price of 700,000 won, making the current option exercise price 770,000 won. It also emphasized that this constitutes "long-term investment" because it can continuously receive dividends from Korea Zinc and has a put option set as consideration, allowing for stable recovery of the investment.

However, KZ Precision pointed out that Youngpoong's explanation is obscuring the essence. It noted that there was no explanation whatsoever as to why the contract terms were changed in a way that could be detrimental to Youngpoong right before the tender offer price increase. In particular, critics argue that it is highlighting only the favorable aspects while concealing risks, given that the call option in question can be exercised within a short period after a certain point in time and is designed so that MBK decides whether and when to exercise it.

KZ Precision emphasized that if Youngpoong truly believes there are no problems with the contract, it should not merely claim it is a normal contract by excerpting only some conditions, but must transparently disclose the relevant supporting materials.

As specific materials to resolve the suspicions, it cited ▲the full text of the initial management cooperation agreement and subsequent amended agreements, ▲the basis for option price calculation and valuation results, and ▲board meeting minutes and external advisory documents.

A KZ Precision official stated, "They must explain the reason for abandoning the tender offer price linkage clause for Korea Zinc shares, one of their core assets, and identify the decision-making body that led to the change to a fixed price," adding, "This is the minimum responsibility they bear as shareholders and toward the market as a major listed company."

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*This content was translated by AI.View Original