Legal Considerations GLOBAL PREMIER EXCHANGE

Any foreign applicant seeking to list its shares on KRX must appoint a Korean law firm and a foreign law firm. If the applicant uses a holding company organization, a foreign applicant must appoint a law firm where its subsidiary company is in operation and where its holding company is located. To do this, the company should first select a Korean law firm which would oversee legal issues surrounding the listing on KRX, and then other law firms with the assistance from the Korean law firm.

The law firm in a country where a foreign company is located (a country of foundation, if it’s a holding company) starts legal due diligence on the foreign applicant. The purpose of the legal due diligence is to prepare arrangements necessary for successful listing, analyze risks for investor protection, study legal issues in the relevant countries and issue the legal opinion. To do this, the current status of shareholders, key assets, articles of incorporation and relevant regulations, corporate governance status and trading with stake-holders are usually examined for due diligence. Financial and accounting areas are reviewed by the lead manager and accounting firms. Once the first legal due diligence is completed by the law firm in a foreign country, the Korean law firm will start its review and proceed with field investigation.

KRX requires a foreign applicant to include mandatory items in articles of incorporation to the extent available under the law of the jurisdiction of the foreign firm for Korean investors’ protection. Such mandatory items usually include requirements for convening shareholders meeting, site of the shareholders meeting, appointment of external directors and auditors, preemptive rights, rights of inspection on books and records, minority shareholders’ rights, merger, capital reduction and transfer of business. In addition to revising the articles of incorporation, a foreign applicant needs to revamp its internal regulations including board operation rules, internal controls, regulations on stake holders trading, information disclosure rule, audit committee and non-executive director’s candidate committee, etc.

Except for foreign companies listed on KRX designated exchanges for at least three years, a foreign applicant for listing on KRX is required to organize a board of directors and appoint independent directors. The board of directors should be organized in a way ensuring decision making free from the influence of the largest shareholder. The independent directors constitute one fourth or more of the total number of directors (listed companies with assets totaling 2 trillion KRW or more are required to appoint independent directors constituting the majority of the board). Foreign companies must also appoint full-time statutory auditors in addition to the board of directors. If an audit committee is established instead of these full-time auditors, all members of the committee must serve as independent directors. Accordingly, three independent directors must be appointed. In the event a foreign company has engaged in transactions with its largest shareholders or affiliated companies, or is likely to do so, an insider trading committee must be introduced to ensure the fair trade system. The insider trading committee should be composed of a majority of independent directors.