Inside the contentious contract dividing HYBE and ADOR

HYBE's headquarters in Yongsan District, central Seoul [NEWS1]

At the heart of the intensifying feud between HYBE and ADOR CEO Min Hee-jin is a shareholder contract that the two parties signed in 2021 when ADOR was established.

Min claimed the shareholder agreement was a “slave contract” in her now-viral press conference last week, while HYBE maintains that it is fair.

Under the agreement, Min, who owns 18 percent of shares in ADOR, is allowed to sell 75 percent of her holdings with put option rights starting this November. The remaining stake is contentious because it requires HYBE's permission to sell it to a third party for a certain period.

While this type of condition is not uncommon in certain industries, the flash point is how long Min should be bound to the contract with more restrictive conditions. Both parties declined to comment on the specific period.

According to attorney Roh Jong-eon of Yoon & Roh, if the contract is effective for an infinite period, it could be problematic.

"It is a prevalent practice among companies to ban the selling of shares to a party running a similar business, but if this practice lasts after the executive quits the company, there could be a problem," Roh said.

Min said at the press event last week that she can make a 100 billion won ($72.8 million) profit "without doing anything" but says she is speaking out because she has to, blaming HYBE's negligence over NewJeans and her unfair relationship with HYBE's top executives.

“I’m not interested in money,” Min emphasized.

The 100 billion won refers to Min’s 18 percent stake in ADOR. According to the existing contract between HYBE and Min, Min can sell a 13.5 percent stake in ADOR under the put option starting in November of this year.

If Min exercises the put option, she can obtain approximately 100 billion won based on the current value, applying a stake proportion of 13 times ADOR's average annual operating profit over two years.

In other words, even if Min quits ADOR, she is bound to HYBE under the shareholder contract, and the noncompete clause formed between the two parties prohibits her from starting a similar business or working for a competing company for a certain period.

HYBE rebutted Min’s claim the following day, stating that Min is “not bound forever” under the company.

“[The noncompete clause] is, in fact, a common clause in many industries and [Min’s contract] is not entirely binding forever,” HYBE said. “Min can sell her shares starting in November this year, and if she does, she won’t be subject to the noncompete clause starting in November 2026, when her employment contract expires.”

HYBE said it has offered to extend the put option on Min’s remaining 4.5 percent stake, provided Min works under HYBE until 2029.

“The conditions of the shareholder contract, including the noncompete clause, are commonly drafted between involved parties in any industry; it’s not limited to the entertainment scene,” said attorney Lee Yong-hae of the law firm yh&co.

“Especially with the noncompete clause, it would be considered too beneficial for one party if that condition was not stated in the contract. In return, Min gained production rights [to NewJeans]. Based on the revealed information so far, one couldn't say the contract between HYBE and Min was unfair.”

The shareholder negotiations between HYBE and Min were internally ongoing before the two sides' battle began on April 22, when HYBE announced it had launched a probe against ADOR executives for allegedly trying to seize management control of the label.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]