Quad Operation "Hailok Korea Board Attempts to 'Neutralize Shareholder Proposal'"

Opposition to Bylaw Amendment Reducing Number of Directors and Auditors
Candidate Lee Junhong Raises Qualification Controversy

Hi-Lok Korea Co., Ltd. (hereinafter referred to as ‘Hi-Lok Korea’) faced issues raised by hedge fund manager Quad Asset Management, which accused the company of attempting to nullify shareholder proposals at its March regular general meeting of shareholders. Quad Asset Management, holding a 4.98% stake in Hi-Lok Korea, had previously submitted shareholder proposals including the appointment of two auditors.

On the 6th, Quad Asset Management announced that it had submitted public inquiries and requested responses regarding the agenda items for the regular shareholders’ meeting announced by Hi-Lok Korea on the 2nd. The agenda items proposed by Hi-Lok Korea’s board include amendments to the articles of incorporation to reduce the number of directors and auditors, as well as the appointment of a new full-time auditor, Lee Jun-hong.

In February, Quad Asset Management proposed adding two auditors, citing that the undervaluation of Hi-Lok Korea’s stock was due to a closed decision-making process centered on controlling shareholders and opaque internal transactions. However, Quad views the agenda items presented by the current Hi-Lok Korea board as an attempt to neutralize their shareholder proposals.

A representative from Quad Asset Management stated, "We express serious concerns that Hi-Lok Korea’s board, ahead of this regular shareholders’ meeting, has chosen to reinforce a closed and autocratic governance structure centered on controlling shareholders rather than strengthening the independence and transparency of the audit system."

Quad interpreted the controversy over the qualifications of the new auditor as an intention to keep the full-time auditor position vacant. The candidate for full-time auditor recommended by Hi-Lok Korea’s board, Lee Jun-hong, is claimed to have a possibility of appointment cancellation according to the ‘Public Official Ethics Committee Employment Approval Review Results’ stated in the notice convening the regular shareholders’ meeting.

Lee is currently serving as the chief tax accountant at the tax accounting firm ‘Haein.’ However, Article 16 of the Certified Tax Accountant Act generally prohibits tax accountants from serving as executives of corporations for profit. Accordingly, Quad requests confirmation of whether Lee is a candidate who has legally conducted tax accountant activities and whether he plans to cease tax firm duties if appointed as a full-time auditor.

Quad also demanded clarification on whether the company will continue management activities without a full-time auditor if Lee’s appointment is not approved at the shareholders’ meeting, or if the existing auditor Kang Jin-gu, who has served for 19 years, will continue audit duties. Additionally, they requested an explanation of how the reduction in the number of directors and auditors through amendments to the articles of incorporation benefits all shareholders.

A Hi-Lok Korea representative stated, "As of the end of last year, 34% of domestic and foreign institutional investors and 18% of general shareholders are confirmed shareholders with rights," adding, "Quad Asset Management plans to continue taking all available legal measures to protect shareholder rights on behalf of all shareholders who wish to enhance Hi-Lok Korea’s corporate and shareholder value."