[Exclusive] Kwon Oil, Chairman of Daemyeong Chemical, Loses First Trial in 50 Billion Won Put Option Lawsuit [Invest&Law]

Court Recognizes Former Modainochip CEO's Stock Purchase Claim
..."Must Pay 50 Billion Won Regardless of Sales Performance"

The court has ruled that Kwon Oh-il, chairman of Daemyung Chemical and a major player in the domestic mergers and acquisitions (M&A) market, must pay approximately 50 billion won as agreed to the former representative of an affiliate who exercised the stock purchase claim right (put option). Chairman Kwon is known in the M&A industry by nicknames such as 'reclusive manager' and 'fashion tycoon.'

According to the investment banking (IB) industry and legal circles on the 15th, the Seoul Central District Court Civil Division 46 (Presiding Judge Kim Hyung-chul) recently ruled in the first trial of a stock purchase price claim lawsuit filed by former Modainochip CEO Park and his brother against Chairman Kwon, stating that "Chairman Kwon must pay former CEO Park and his brother 42.8 billion won, 6.5 billion won, and interest respectively." Chairman Kwon is the largest shareholder of Daemyung Chemical, which has Modainochip as a subsidiary.

This lawsuit originated from the 'Inochip Technology Stock Purchase Agreement' signed by both parties in 2016. That year, the Daemyung Chemical Group pursued a merger by absorption between Inochip Technology and the outlet operator Moda, but former CEO Park initially opposed it, citing concerns that the stock value might decline, then changed his stance after the agreement was signed.

The agreement included a clause that 'the shares held by former CEO Park, totaling 1,644,232 shares, could be sold at 30,000 won per share starting three years later, and Chairman Kwon must pay the stock purchase price within three months after being notified of the intention to exercise the put option.' Subsequently, the Daemyung Chemical Group diversified its business into fashion and logistics by investing in about 300 companies centered around several intermediate holding companies including Modainochip.

In 2023, former CEO Park's side exercised the put option, and when Chairman Kwon failed to fulfill the purchase obligation, they filed a lawsuit. Chairman Kwon's side countered, stating that "the contract was based on Modainochip's electronics division achieving sales of 500 billion won," and "in 2019, Modainochip's sales sharply declined and it recorded an operating loss."

The first trial ruled in favor of former CEO Park, stating that "the stock purchase contract was validly established." The court first noted, "The contract does not specify any conditions related to achieving sales targets, and such content cannot be found in either the draft or revised versions of the agreement."

The court also emphasized that the put option is a right to purchase shares at a fixed price regardless of a decline in stock value. The court stated, "The essence of a put option is to purchase shares at a predetermined price regardless of future stock value decline," and there are many internal and external factors that determine business success or failure, and it is fully foreseeable that targets may not be met.

Furthermore, the court said, "Chairman Kwon claims that the agreement was made to motivate former CEO Park to achieve the targets, but this is difficult to accept," adding, "'The claim by former CEO Park that Chairman Kwon granted the put option to ensure the merger's success' is more persuasive." Chairman Kwon has appealed the first trial ruling.