The Korean Government and Newbridge Capital Ltd., a U.S. investment firm, reached an agreement on the detailed terms of the transaction of Korea First Bank on September 17, 1999. This Terms of Investment is the binding agreement on major terms and conditions which will be the basis for the definite contract. They had exchanged memoranda of understanding on December 31, 1998. Both parties have expressed their interest in concluding the final contract as soon as possible.

The major terms agreed are that Newbridge Capital will invest KRW 500 billion to acquire 51 percent of the shares in Korea First Bank, which are held by the Government, on the condition that the bank shareholders’ equity will be maintained at least at a level equivalent to both 3 percent of total assets and the capital required to meet BIS capital ratio of 10 percent. Newbridge Capital would also invest up to an additional KRW 200 billion in the next 2 years, subject to progress in the management rehabilitation of the bank.

As premium for management rights, the Government will have a warrant exercisable on 5 percent of the total shares of the bank after 3 years, which would enable its participation in the future upside potential of the bank to any extent possible. In the meantime, the bank will be protected against losses arising from a deterioration of the existing loans in two ways. First, the Government would purchase the loans should they default during the next 2 years, or 3 years in the case of workout loans, from the closing. Second, the Government would provide the bank with additional reserves for loan losses, which may be incurred from any asset quality deterioration.

Throughout the negotiation process, the Government placed an emphasis on the need to preserve the bank’s post-sale operational base and facilitate financial support for the existing corporate customers. Especially in this regard, all loans will be retained by the bank except for non-performing loans as classified according to the current Financial Supervisory Service standards.

Definitive agreements of the transaction will be executed shortly, and other various technicalities associated with procedures for transferring management rights to Newbridge will be expedited. This transaction is first ever to sell a domestic bank to a foreign investor. Bringing in foreign experts on management and adopting advanced management skills would underscore the Government’s strong commitment to restructuring the financial sector. The domestic market would undergo changes and the financial services in Korea would improve with enhanced competitiveness.

* Please refer to the attached file for details.