Plaintiff (Attorney Han Jae-han et al., Counsel for plaintiff-appellant)

Hague Co., Ltd. (Law Firm Thai, Attorney Lee Tae-tae, Counsel for the plaintiff-appellant)

April 24, 2013

Incheon District Court Decision 2012Gahap7096 Decided September 14, 2012

1. Revocation of a judgment of the first instance;

2. As of September 25, 201, the Defendant shall implement the procedure to adjust the exercise price of preemptive rights to the bonds with non-guaranteed interest coupons issued by the Defendant to KRW 798 per share as of September 25, 201.

3. All costs of the lawsuit shall be borne by the defendant.

The same shall apply to the order.

1. Basic facts

A. Issuance of bonds with warrants by the defendant

On June 25, 2009, the Defendant held a board of directors to issue bonds with total face value of KRW 2 billion, KRW 2,580 per share, period for exercising preemptive rights, and KRW 2,580 per share from September 25, 2009 to May 25, 2012, and KRW 5 non-registered bonds with warrant (hereinafter “instant bonds with warrant”) with the maturity date as of June 25, 2012. The instant bonds with warrant were issued in a manner that separates bonds from preemptive rights.

B. Acquisition of Plaintiff’s preemptive right

On November 1, 2010, the Plaintiff acquired the preemptive right equivalent to KRW 500 million of the face value of the instant bonds with warrants from the Nonparty (hereinafter “instant preemptive right”).

(c) Adjustment of the exercise price of preemptive rights;

The Defendant’s public notice of the decision to issue the instant bonds with warrants, minutes of the board of directors, warrant certificates, and register shall provide for the adjustment of the exercise price of the instant bonds with warrants as follows:

1. Table contained in the main sentence; 1. Where a issuing company issues new stocks with consideration or shares-linked bonds at the market price lower, conversion price or exercise price, or where stocks are issued (including where the conversion price or exercise price after the issuance of the relevant new stocks or shares-linked bonds is adjusted later than the exercise price per share of the underwriter) by capitalizing the stock dividends or reserve funds, etc., the exercise price shall be adjusted as follows: The exercise price after adjustment = [(the exercise price before adjustment + the number of new stocks issued + the number of new stocks issued + the number of new stocks issued + the number of new stocks issued) + (the number of new stocks issued + the number of new stocks issued] / (the date of exercise price adjustment) every three months from the date of issuance (hereinafter referred to as “the date of exercise price adjustment”), one-month trading price per week retroactive from the initial date before the initial date, average trading price per week, par value per share price per stock before the exercise price of the new stocks is adjusted to below the exercise price per stock, etc. (hereinafter referred to as “the exercise price before adjustment”).

D. Adjustment of the defendant's exercise price of preemptive right

1) After the issuance of the instant bonds with warrants, the Defendant adjusted the exercise price of the instant preemptive right to new stocks to KRW 840 on September 25, 2009, KRW 640 on December 28, 2009, and KRW 500 on June 25, 2010 (the lowest exercise price per share) by applying the traffic reduction provisions due to the decline in the market price of the Defendant’s stocks.

2) On April 11, 201, the Defendant rendered a decision to reduce capital (on June 23, 2011, applying anti-dilution provisions for reduction of capital, the Defendant applied the anti-dilution provisions on the ground of reduction of capital, thereby adjusting the exercise price of the instant preemptive right to KRW 500,00,000, the exercise price of the previous exercise price of the preemptive right to new shares, to KRW 50,000,000, the previous exercise price of the preemptive right to new shares, by combining ten common shares into one common share (the face value is the same as KRW 500,00,000,000).

[Reasons for Recognition] Uncontentious Facts, Gap 1 through 8, the purport of the whole pleadings

2. Determination on this safety defense

A. The defendant's main defense

The adjustment of the exercise price of the preemptive right is based on the premise of the exercise price of the preemptive right, and it is unlawful to seek adjustment of the exercise price of the preemptive right of this case on the basis of the previous adjustment date of exercise price without exercising the preemptive right.

B. Determination

On the other hand, the plaintiff can only exercise the preemptive right or waive the exercise of the preemptive right by the amount unfairly formed if the defendant fails to perform the procedure of adjustment even though the ground for adjustment of the exercise price of the preemptive right occurred. As such, the plaintiff who acquired the preemptive right of this case is required to exercise the preemptive right by claiming the implementation of the procedure of adjustment in accordance with the adjustment of the exercise price based on the price according to the price fluctuation after the adjustment of exercise price after the adjustment. Furthermore, according to the evidence No. 11, the plaintiff can be acknowledged as being ordered to exercise the preemptive right in accordance with the Incheon District Court 2012Kahap522 on May 18, 2012, before the exercise price of the preemptive right of this case becomes due to the expiration of the period of exercise price of the preemptive right of this case. Accordingly, the plaintiff can exercise the preemptive right of this case by the adjusted amount and the plaintiff's claim cannot be said to be a previous relation of rights. Therefore, the plaintiff's right protection defense of this case is unlawful as it does not have any interest in the protection of rights of the defendant.

3. Judgment on the merits

A. The parties' assertion

1) The plaintiff's assertion

The Defendant adjusted the exercise price of the preemptive right by reason of the reduction of capital following the consolidation of shares, and thereafter there was a reason to adjust the exercise price due to the decline of the share price. As such, the Defendant is obligated to implement procedures to adjust the exercise price of the preemptive right to KRW 798 per share as of September 25, 201, which is the date of exercise adjustment.

2) The defendant's assertion

Since the exercise price is adjusted to the lower limit of the exercise price by the price adjustment due to the price decline, even if the exercise price is adjusted to a higher level by applying anti-dilution provisions due to capital reduction, the exercise price cannot be adjusted again due to the price decline.

B. Determination

1) The issues of the instant case are whether the minimum value of the preemptive rights to new shares may be adjusted to 5,00 won or less in the event that the share price falls again after the dilution clause has been applied due to the Defendant’s consolidation of new shares. Therefore, the anti-dilution clause aims to maintain the economic value of the preemptive rights to be held by the bonds with warrant from the equitable point of view when changes in the structure of the company that issued the bonds with warrant occur. The graphic clause guarantees the value of the investment per se at the time of the conclusion of the bonds with warrant, and thus it is independently applicable to adjustment of the price of the new shares to remove investment risks that the bonds with warrant may incur due to decline in their share price. (2) It is possible to adjust the value of the new shares to the extent that the total value of the new shares can not be adjusted to 0 won or less in the manner of consolidating the existing shares with 10 share price per share price per each time, and thus, it is difficult to adjust the value of the new shares to the extent that the new shares will not be adjusted to 50 won.

2) Ultimately, the lower limit of the exercise price of the instant preemptive right is 500 won, which is the common par value of the Defendant’s issuance. In the event that there are grounds for adjustment under the provisions on the adjustment of the exercise price of the instant preemptive right after the reduction of capital, the Defendant shall implement the procedure to additionally adjust the exercise price of the instant preemptive right. In this case, inasmuch as there is no dispute between the parties on September 25, 201, the exercise price of the instant preemptive right as of September 25, 201, which is the exercise price adjustment date, based on the fact that the exercise price of the instant preemptive right was 798 won per share, the Defendant is obligated to implement the procedure to adjust the exercise price of the instant preemptive right as of September 25, 201.

4. Conclusion

Therefore, the plaintiff's claim shall be accepted with due reason, and the judgment of the court of first instance is unfair with different conclusions, so the judgment of the court of first instance shall be revoked and the defendant shall be ordered to perform the above obligation and it is so decided as per Disposition.

Judges Kim Chang-sik (Presiding Judge)