Hive "Isu Man's Return to SM Management and Producing Is Unfounded"

Summary of Stock Purchase Agreement Commitments Released
"Shareholders' Meeting Voting Rights Delegated to HYBE"
"Lee Soo-man Allowed Only Overseas Producing for 3 Years"

[Asia Economy Reporter Kim Heeyoon] HYBE, the largest shareholder of SM Entertainment (hereafter SM), has dismissed rumors circulating that former Chief Producer Lee Soo-man (hereafter former Chief) would return to SM.

Bang Si-hyuk, Chairman of HYBE, Lee Soo-man, former Chief Producer of SM.

On the afternoon of the 10th, HYBE released a statement regarding the purchase of shares held by the former Chief, stating that various misunderstandings have arisen and to clarify, they disclosed a summary of the assurances included in the stock purchase agreement signed with the former Chief.

In a statement released that morning, HYBE announced, "We have signed a contract to acquire 14.8% of shares held by SM founder and former Chief Producer Lee Soo-man for 422.8 billion KRW."

Amid escalating conflicts between the current SM management and the former Chief, the industry speculated that the former Chief might become involved again in SM’s management and producing activities.

As the controversy spread, HYBE responded by revealing assurances including non-compete and non-solicitation clauses, cooperation obligations such as delegation of voting rights, rights to request purchase of remaining shares, and obligations to resolve shareholding and transactional relationships with affiliated companies of the target company.

First, HYBE disclosed the non-compete and non-solicitation clauses stating, "The former Chief can only perform producing work overseas for the next three years and cannot employ SM employees or sign contracts with SM artists during this period."

According to the summary, the former Chief is limited to producing activities overseas for the next three years and the number of shares held under this stock purchase agreement is restricted, making it unlikely that he will exercise management rights or return as a producer in the future.

Additionally, HYBE revealed cooperation obligations including delegation of voting rights, stating that the former Chief has agreed to delegate his voting rights to HYBE at SM’s 2023 regular shareholders’ meeting and to actively cooperate in appointing directors designated by HYBE through shareholder proposals thereafter.

Since the former Chief is obligated to delegate voting rights to HYBE at the 2023 regular shareholders’ meeting and cooperate in director appointments designated by HYBE, it will be difficult for him to exercise management rights or intervene in personnel matters at SM going forward.

Furthermore, HYBE explained its position on the right to request purchase of remaining shares, stating, "The former Chief holds the right to request purchase of the remaining shares (868,948 shares of SM), and this right can be exercised immediately after the corporate merger approval of HYBE and SM Entertainment."

HYBE also emphasized, "Because acquiring all shares of the largest shareholder requires prior corporate merger notification, simultaneous public tender offers for minority shareholders’ shares were not possible. Therefore, we signed a sales contract for the maximum number of shares available from the largest shareholder and simultaneously proceeded with a public tender offer for minority shareholders’ shares to secure sufficient shares before applying for merger approval. Afterward, the former Chief can exercise the right to request purchase of the remaining shares."

HYBE added its stance on the obligation to sell shares of affiliated companies and resolve transactional relationships, stating, "The former Chief has agreed to sell all shares of Dream Maker and SM Brand Marketing held by himself and related parties to HYBE, and also agreed not to receive any remaining royalties."

HYBE explained, "This agreement with the former Chief was made to improve SM’s governance structure. By purchasing the former Chief’s shares in affiliated companies, we decided to settle his personal shareholdings in SM and its subsidiaries. We also mutually agreed to remove the remaining royalties, which had been raised as an issue in the media, from a magnanimous perspective, thereby eliminating SM’s cost burden. Through this agreement, HYBE has resolved most governance issues between the former Chief and SM."

Based on these details, HYBE drew a clear line, stating that any claims that the former Chief will maintain management rights or engage in producing work at SM are "baseless speculation." HYBE further emphasized, "The stock purchase agreement has definitively resolved the issues related to SM’s governance improvement."