Today's HanmiScience Extraordinary General Meeting... Small Shareholders' Votes Likely to Decide Management Control Outcome

'Majority Stake Secured' Three-Party Alliance Makes Bold Move to Regain Management Rights
66.7% Attendance and Voting Rights Required for Articles of Incorporation Amendment

Industry attention is focused on the extraordinary general meeting of shareholders of Hanmi Science, which will determine the outcome of the management rights dispute within the Hanmi Pharmaceutical Group. With the National Pension Service, holding the casting vote, expressing a 'neutral' stance on exercising its voting rights, the votes of the remaining minority shareholders have become more crucial.

Hanmi Science will hold an extraordinary general meeting at 10 a.m. on the 28th at the Seoul Transportation Hall in Songpa-gu, Seoul. The agenda includes proposals from the three-party coalition consisting of Song Young-sook, Chairwoman of Hanmi Pharmaceutical Group; Lim Ju-hyun, Vice Chairman; and Shin Dong-guk, Chairman of Hanyang Precision: ▲amendment of the articles of incorporation to increase the number of board members from 10 to 11 ▲appointment of two directors, Chairman Shin Dong-guk and Vice Chairman Lim Ju-hyun ▲and a capital reserve reduction proposal submitted by the sibling faction (Lim Jong-hoon, CEO of Hanmi Science, and Lim Jong-yoon, inside director).

This shareholders' meeting is a bold move by the three-party coalition, which holds nearly a majority stake but believes it is difficult to regain management rights under the current articles of incorporation. However, amending the articles requires a special resolution under the Commercial Act, meaning that 66.7% of the voting rights of attendees must approve it, so difficulties are expected.

According to Hanmi Science, the current shareholding structure is 25.6% for the sibling faction, 33.78% for the three-party coalition, 3.10% classified as relatives, 8.09% for the Gahyeon Cultural Foundation and the Lim Seong-gi Foundation, and 5.89% for the National Pension Service. The share acquisition by the private equity fund operator La D?fense Partners, decided after the shareholder registry closure on the 22nd of last month, will not affect this extraordinary general meeting.

However, the National Pension Service, which holds about 6% of the shares, has stated it will remain neutral in this extraordinary general meeting. The National Pension Fund Stewardship Responsibility Committee held a meeting on the 26th and decided to exercise neutrality. The neutral stance means the National Pension Service will distribute its voting rights proportionally according to the votes of other shareholders. The National Pension Service’s voting rights will be dispersed in line with the other shareholders’ votes.

Accordingly, with no clear certainty of victory for either side, the votes of minority shareholders are expected to decide the outcome of the management rights battle. Minority shareholders hold 23.25% of shares as of the end of September. According to industry sources, unlike in the March shareholders' meeting when minority shareholders supported the sibling faction, recent sentiment appears to favor the three-party coalition.

On the 28th, CEO Lim Jong-hoon is entering the meeting room to attend the Hanmi Science extraordinary general meeting held at the Seoul Transportation Center.

The sibling faction’s proposal to use capital reserves rather than retained earnings for a reduction dividend is also seen as a strategy to sway minority shareholders. A reduction dividend is a dividend paid by reducing the company’s capital reserves. Since it is paid directly to shareholders and exempt from dividend income tax unlike regular dividends, it is regarded as a shareholder return policy.

Excluding the voting rights of the National Pension Service and minority shareholders, converting the shares held by direct family members classified as related parties into voting percentages results in 63.71% for the three-party coalition and 36.29% for the sibling faction. The three-party coalition’s voting rate falls short of the special resolution requirement of 66.70% by 2.99 percentage points.

However, unlike the articles amendment, the director appointment agenda is likely to pass since it only requires a majority of the voting rights of attendees. Accordingly, one of Chairman Shin Dong-guk or Vice Chairman Lim Ju-hyun may be appointed to the current board size of 10 members. Currently, Hanmi Science’s board consists of 9 members with a 5 to 4 majority favoring the sibling faction, but with the entry of a three-party coalition member in this meeting, the board could be evenly split 5 to 5.

Meanwhile, both sides continue a mudslinging battle with numerous lawsuits and accusations over Hanmi Science’s management rights. On the 13th, Han Seong-jun, CEO of Core Group and a member of the sibling faction, filed a criminal complaint against Chairwoman Song Young-sook and CEO Park Jae-hyun for breach of trust. On the 15th, Hanmi Science filed complaints against the three-party coalition and companies soliciting proxy voting rights for them for obstruction of business and abuse of authority, and on the 18th, filed complaints against Park Jae-hyun, CEO of Hanmi Pharmaceutical, three other senior executives of the group, and Kim Nam-gyu, CEO of La D?fense Partners, for violations of the Act on the Aggravated Punishment of Specific Economic Crimes (breach of trust and embezzlement) and the Capital Markets Act.

On the 26th, Hanmi Pharmaceutical also filed a complaint against CEO Lim Jong-hoon. Hanmi Pharmaceutical announced that on the 25th it filed a complaint with the Seoul Metropolitan Police Agency against CEO Lim for obstruction of business and also applied for a provisional injunction to prohibit obstruction of business. It claims that CEO Lim has mobilized employees to control and prevent normal management activities such as finance, accounting, human resources, and IT operations of Hanmi Pharmaceutical, a core business company, and has continuously interfered with the execution of duties of the CEO of a separate legal entity.

Additionally, Hanmi Science’s requested extraordinary general meeting of Hanmi Pharmaceutical will be held on the 19th of next month. The agenda includes ▲dismissal of inside director (Executive Director) Park Jae-hyun ▲dismissal of non-executive director Shin Dong-guk ▲appointment of director Park Jun-seok (Vice President of Hanmi Science) ▲appointment of director Jang Young-gil (CEO of Hanmi Precision Chemical), among others.