Press announcement : SM Entertainment CEO leaks

Hello, I'm Lee Sungsoo, CEO of SM Entertainment. Recently, news of the sale of shares of Lee Soo-man, the founder and largest shareholder of SM, has filled the media. Some media outlets said, "We have committed an act of stealing management rights. Even if there was an internal problem, the fact that Lee Soo-man was the founder and major shareholder of SM is clear.

I understand what you're saying. You admit that there was a problem, but it's a major shareholder's problem, so you can't accept improvement measures. Despite such a purposeful response, SM executives and employees are silently doing their best to implement the SM 3.0 growth strategy.

SM announced the SM 3.0 growth strategy on February 3rd as part of its efforts to prevent the company from being privatized by Mr. Lee Soo-man and to run the company for all fans, shareholders and our artists.

In the last part, we presented the IP (Intellectual Property) strategy, i.e., the multi-production strategy. In the remaining two parts, we will announce how SM will further accelerate the SM 3.0 system and make it a company centered on fan shareholder artists, not one individual, so please pay a lot of attention. Today, I'd like to explain in detail how SM came to this situation in front of you.

Mr. Lee Sooman. I will skip the title of teacher during today's presentation. Thank you for your understanding. Starting with the announcement of the first statement, we will now announce all 14 contents of the table of contents in the future through several additional announcements. The order of the presentation will be random during the table of contents.

In 2019, Lee founded CT Planning Limited in Hong Kong with a capital of US$1 million. This CTP is Lee Soo-man's 100% private company, and it is 'Overseas Like Planning'. Since 2019, SM has signed contracts with China's Asaamong, U.S. Capitol Records, and Warner Records, respectively, regarding the distribution of WayV, SuperM, and aespa's global albums/music sources.

However, what is unique here is that "the work is the same as the existing production," and that only the structure of the contract has been deformed through overseas label companies and overseas like-planning CTP. WayV, SuperM, and aespa all produce content on SM, including record/sound sources.

Therefore, in general, SM and its label would have been better off settling their profits first, and then receiving 6% of the like opportunity, that is, Lee Soo-man, for the amount settled in that SM. However, Lee Soo-man ordered to sign a separate contract with each label company on these issues, and he is preempting 6% before settlement between SM and label companies.

Why did they instruct you to change it to such a strange structure? The contract between SM and Like Planning was not properly recognized by the Korea National Tax Service in 2014 and 2021. As a result, SM was forced to pay billions and tens of billions of taxes as reported in the media.

This strange structure of going through overseas, where overseas means "overseas like planning" CTP. Wasn't this to avoid the Korea National Tax Service's surveillance network? I wonder if it is a typical offshore tax evasion that allows profits to be attributed to Hong Kong's CTP through a transaction structure that does not fit the substance. And since CTP gets 6% in advance from each label, the amount CTP receives in the previous cases is twice as much as in the past like planning cases.

Now, there's a much, much more serious problem. This CTP is not a company founded just for the previous three or four transactions. "Global expansion". By applying this structure globally, attempts and instructions to preempt production royalties abroad have been made until recently.

This company called CTP is a separate overseas corporation, not like planning. Previous contracts between CTP and overseas label companies are still alive and will continue to be maintained, "with absolutely nothing to do with the production contract between SM and Like, which ended at the end of last year."

According to Hive and Lee Soo-man's stock trading contract, Lee Soo-man's domestic production is limited for three years, but there is no restriction on overseas production at all. Why did they make an agreement on "overseas production" in this stock trading contract? Did Hive sympathize or acquiesce even though he knew the illegal elements of "Lee Soo-man's overseas private company, CTP"? Or did he sign the contract without knowing?

If you signed a contract without knowing, how can you explain to your shareholders and executives and employees that you missed such an important point because you did not even proceed with due diligence while proceeding with a mega deal worth more than 1 trillion won?

Around December 2022, when the production contract ends, Lee Soo-man instructs, "Do not announce anything about future production plans." Management and production departments have been thinking and preparing for reorganization based on a multi-production center since the end of the contract, but this was "unsense of words." The meaning of Lee Soo-man's end was not the meaning of a new start. Furthermore, in January 2023, Lee Soo-man expressed his intention to pursue private interests more openly.

The following are direct or direct instructions from close aides.

- Make a statement to the media that the artist needs Lee Soo-man.
- Tell the executives and employees to incite them to need Lee Soo-man.
- Lee Soo-man and SM sign a temporary advisory contract in Korea, and give justification for Lee Soo-man's activities.
- In the future, for all albums and artist activities produced abroad, sign a direct contract with an overseas subsidiary owned by Lee Soo-man, that is, CTP.
- Or rather, sign a second production contract with Lee Soo-man in Korea.
- Create a shareholders' meeting team for Lee Soo-man even at a cost of 10 billion won.
- For companies that don't have only this amount, try to reduce their first-quarter sales so that they don't get any sales.
- Consider delaying the release date of the album/sound from mid-February to March 2023 after the release of the album/sound that was completed in December.

The response team of the shareholders' meeting came to be operated with a focus on coming up with measures for Lee Soo-man to return, and the emergency meeting, presided over by Lee Soo-man, continued without much meaning. The current management of SM, including myself, has consistently resisted and is getting tired. Alain called for true corporate governance improvement, otherwise she said she would release Attachment 2 to discredit the company and Lee Soo-man.

Attachment 2 was that even after the end of production, SM paid Lee Soo-man 6% of the previously released album-related sales for 70 years and 3% of management sales for 3 years from 2023. The total amount is estimated to be about 80 billion won.

I was embarrassed. It was a disaster. I no longer had the face to face with SM executives and employees, fans, artists, and all the shareholders who invested in the company. So we discussed with CEO Tak Young-joon and Director Park Joon-young, who are the two in-house directors of the board, and we decided. Let's make a normal decision as a member of the board of directors, no more or no less.

On January 17, 2023, I sent a text message to Lee Soo-man. He said he would make a management judgment as the CEO, not Lee Soo-man's show of hands. And I stopped contacting Lee Soo-man. Everyone who has experienced Lee Soo-man can relate, but it was scary and scary.

Nevertheless, as the CEO, I decided to make a management judgment thinking only about shareholders and companies. I was able to do it thanks to the two company directors who were with me. Accordingly, on January 20, 2023, 12 agreements were made with Lee Chang-hwan, CEO of Alignment Partners. To summarize the agreement in a word, SM said it would break off its relationship with Lee Soo-man, a major shareholder, and run the company through an independent board of directors.

We held a board meeting on January 22, 2023. The outside director, who has to keep the current management in check and play a role for outside shareholders, also abstained. On that day, the board of directors established a temporary outside director candidate recommendation committee and approved the regulations, and appointed two outside directors as independent outside director candidate recommendation committee members. A strange thing happened when outside directors abstained from the resolution of the board of directors, which will be the first step in improving corporate governance.

Lee Soo-man said, "If you want to show your will, you should definitely show it. You have to tell me first that you don't need a teacher anymore. If you're not going to do that, you need a teacher. It's a simple answer. It's not the 4th choice, but we're choosing between the 2 right now. There's nothing ambiguous. You can't be ambiguous right now."

"It's okay. We have tree planting." It's the most popular meme among SM Entertainment executives and employees these days. Since a long time ago, Lee Soo-man has emphasized the development of local entertainment industries such as EDM festivals, auditions, and production, and the construction of smart entertainment cities and music cities with drone station construction as keywords. The country was different, but the development that Lee Soo-man talked about was always the same.

In fact, SM signed MOUs or held meetings with related ministries from various countries at the request of Lee Soo-man, which was widely reported as K Culture's entry into overseas markets through a press release. It looks very plausible on the inside. In fact, within SM, Lee Soo-man was called a personal project rather than entering a new market.

From this period, suddenly, Lee Soo-man is relatively recent. Suddenly, Lee Soo-man emphasized tree planting and insisted that K-pop festivals linked to tree planting should be held in each country. What is the relationship between planting trees and K-pop festivals?

 

Even after the production contract with Like Planning ended, I had to perform SM Town overseas, so I asked them to check the artist schedule and block the schedule.

Although our co-representative indirectly expressed his rejection of such instructions, the secret forces working on the so-called teacher's personal project openly did not cooperate with SM, so SM missed the opportunity to make money. That's what I was talking about that.

However, behind the message advocating sustainability, or ESG, and the call for new market development and cultural exchange, there is Lee Soo-man's desire for real estate business rights. In fact, some countries requested ownership of the site, but it was only possible with the right to use it, so there was a situation where it was coordinated.

What was more serious was that the construction of Music City, which Lee Soo-man claims, was connected to casinos. The founder of K-pop, which has the greatest influence on teenagers and 20s around the world, claims a casino. What on earth does sustainability have to do with tree planting K-pop and casino? Are you going to play K-pop at the casino? Should we go further?

Lee Soo-man even heard and witnessed and stopped many people talking about marijuana law so that many tourists could enjoy casinos and festivals more excitedly. His intention was to create a world of Lee Soo-man in each country in anticipation of the profits generated by these businesses by utilizing the company's infrastructure, employees, and artists for publicity.

In this situation, even if Hive acquires SM, Lee Soo-man's announcement emphasizing that he will not participate in management and production remains more suspicious. Sustainability, which appeared in the official position of announcing the acquisition, is a word that Lee Soo-man uses often recently. Does Hive know the meaning of tree planting sustainability? It's all a problem even if you didn't know and sympathized or SM knew and acquiesced.

Fans and shareholders, let me tell you the real reason why Espa's comeback has been delayed in connection with planting this tree. Why are we moving on from planting trees to Espa's comeback? Listen. I understand that there was a lot of talk about Espa's backlog.

Espa's new album was scheduled to be released around February 20, 2023. Moreover, the first concert since the debut was scheduled to be held for two days on February 25th and 26th of the same month in line with the release schedule of the new album. Fans, Espa members, and our shareholders all looked forward to it. However, as contents announcing the comeback, such as the teaser schedule, were not opened, numerous rumors began to spread among fans and shareholders. My Instagram DM was about to explode.

I'll tell you now. The real reason behind the hiding was really strange greed, stubbornness, and production linked to Lee Soo-man's desire for real estate business, which started with planting trees. Since last year, Lee Soo-man has continuously insisted on K-POP festivals led by tree planting, and has suddenly emphasized sustainability.

Later, on January 1, 2023, the sustainability forum was held and a song called The Cure was released, which was attended by leaders of all groups belonging to SM. It was promoted as an ESG campaign and seemed to pass in the form of an event, but I have already instructed this many AnR team and director Yoo Young-jin to project tree planting and sustainability into all the major songs that will come out of SM.

He also instructed Espa, a group that stands out for this carefully crafted worldview, to sing a song with this tree planting lyrics that does not go well with music. Some of the lyrics contained words that did not fit K-pop, such as "just sustainability, win-win greenism to lower even one degree," and in fact, in the early stages of the lyrics, the word tree planting appears directly. The Espa members were upset and choked up.

So I asked AnR to leave the word "plant this tree" out of this music. Lee Soo-man's unreasonable instructions led to the almost impossible task of linking lyrics that did not match the existing worldview and team color, and this absurd direction forced the production team to create content that no one could relate to relate to.

Our co-representative decided that the release of this song should be canceled for Espa and canceled all production schedules. And Espa's comeback has been pushed back. However, Espa members, all our production departments, and AnR team are working hard to prepare new songs and new contents based on this, and we are planning to make a comeback with Espa's album songs and contents soon. And all the fans who waited for Espa, you can look forward to it.

And everyone, especially the employees who prepared this, please protect SM who is watching this video. Now, in today's statement, I'd like to tell you why I'm proceeding with all this. I had to stop the greed and error of the founder Lee Soo-man here. I thought that was the only way to protect Lee Soo-man, SM Entertainment's executives and employees, and all the shareholders.

Everyone, Kpop has become one of the most influential cultures and content genres in the world right now. And the power is simply enormous. We need to build on this good influence to prepare for our next generation, which is brighter.

Throughout the years of low-salary overtime, unacceptable opinions, and near-dictatorship production, all SM executives and employees have worked with the pride that they are moving globally with our beloved music and culture and have a good influence.

I couldn't do such a wonderful job with a company that was in a mess. We had to stand proudly to our fans all over the world who looked at us and cheered us. As an independent board of directors from major shareholders, we thought we should make efforts to increase the value of all shareholders, not specific shareholders. I think that is the only way to increase shareholder value for all shareholders who have trusted us and become shareholders, and we will do our best to do so.

All employees of SM, we and I will protect you until the end. We want to protect the value and vision of SM that we have created together with you. You have to protect SM with me. To all the fans around the world who love SM and all the shareholders, SM Entertainment will start everything from scratch. That's SM 3.0. Please listen to SM's music again. Thank you.