The Securities and Exchange Law of Korea requires any
investor (together with any special related persons) who
acquires 5% or more of total outstanding shares in a listed
company (or who changes their share ownership by 1% or more
thereafter) to file a report to the Financial Supervisory
Commission of Korea and the Korea Exchange within five days of
the relevant transaction. This filing requirement is referred
to as the 5% rule, which helps to promote transparency in the
market and prevent hostile takeovers. Any investor failing to
comply with the 5% rule can be restricted from exercising their
voting rights and ordered to sell the acquired shares.
The 5% rule under the Securities and Exchange Law has been
amended effective March 29 2005 and the pertinent changes are
An investor is required to declare whether their investment
purpose is to "exercise influence on the management" of an
investee company. Whether or not there is a change in share
ownership, an investor must report if there is any change of
investment purpose (within five days from the date of the
change). Exercising influence on the management includes
appointing and removing officers and amending the investee
company's articles of incorporation.
An investor that filed a report under the 5% rule before the
enforcement of the amended 5% rule (regardless of whether there
is a change in share ownership) is required to re-file between
March 29 and April 2 2005 if their intended investment purpose
is to exercise influence on the management.
Any investor whose reported investment purpose is to
exercise influence on the management of the investee company
will be subject to a cooling-off period of five days from the
date of their report, and will be restricted from exercising
their voting rights or further acquiring any shares in the
investee company during this period.