5. We think the convertible bond issue was a self-dealing transaction.

Because the Samsung Electronics issued the private convertible bonds, which worth 60 billion won, to the chairman's son Lee Jae-Yong (45 billion won) and another Samsung affiliate (15 billion won). We think the purpose of issuing the convertible bonds is to transfer the management power to the chairmans son, thus maintaining family control, because the bonds can be converted to shares of the company. Even though they knew this kind of activity could depress the market price of the outstanding share, they went with it anyway. Also, it harmed the shareholders interest since it diluted their voting rights. The clear evidence is that the price of the conversion bond was set far lower than the market price at that time. The conversion price of the convertible bonds was 7700 won and the holder was able to convert this convertible bond into about 1.25 million shares of common stock. At that time, the market price of the common stock ranges from 85000 to 230000 won per share. (Annual Report 2007). 6. We think the agreement with the Pan-Pacific Industrial Investment is a direct investment of Samsung Electronics into Samsung Motors. Samsung Electronics has entered into a joint-venture agreement with Pan-Pacific Industrial Investments, which is the shareholder of Samsung Motors. According to the agreement, Samsung Electronics is authorized to sell or buy shares of Samsung Motors, which is actually owned by Pan-Pacific at certain exercise price on or before the maturity date. If the stock price of Samsung Motors decreases, Pan-Pacific will exercise the put option and earn a gain. Or if the stock price of Samsung Motors increases, Pan-Pacific will exercise the call option and earn a gain, too. In this way, Pan-Pacific, which is the shareholder of Samsung Motors, has been guaranteed by Samsung Electronics a certain rate of return. So there is no risk for Pan-Pacific, Pan-Pacific will get the guaranteed return no matter what happens. Pan-Pacific seems to be a outsider in this scenario. The guarantee clause is included in the contract because Samsung Electronics wanted to fund Samsung Motors, which is in deep financial trouble and whose problems can be a big threat to the whole company, through an overseas corporation, which is Pan-Pacific Industrial Investments, without violating any laws in Korean. This guarantee clause do change this kind of agreement into a direct investment into Samsung Motors. If we were on the audit committee of the company, we would ask: Why Samsung Electronics had been the largest single investor, who actually acquired a 21.2%

stake in Samsung Motors, at the acquisition cost of 170 billion won. Whats the benefits for Pan-Pacific? Why use call and put options agreement to establish a joint venture?