IMPORTANT NOTICE — PROSPECTUS

NOT FOR DISTRIBUTION TO ANYU.S. PERSON OR TO ANY PERSON OR ADDRESS IN THE U.S.

IMPORTANT: You must read the following before continuing. The following applies to the prospectusfollowing this page (the ‘‘Prospectus’’), and you are therefore advised to read this carefully before reading,accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by thefollowing terms and conditions, including any modifications to them any time you receive any information from usas a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALEIN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THESECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), OR THE SECURITIES LAWS OF ANY STATE OF THE U.S.OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE U.S.OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION SUNDER THE SECURITIES ACT), EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN ATRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT ANDAPPLICABLE STATE OR LOCAL SECURITIES LAWS.

IN THE UNITED KINGDOM THE PROSPECTUS IS DIRECTED ONLY AT PERSONS WHO MEET THEFOLLOWING CRITERIA: 1. (A) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TOINVESTMENTS OR (B) ARE PERSONS FALLING WITHIN ARTICLE 49(2)(A) TO (D) (‘‘HIGH NET WORTHCOMPANIES, UNINCORPORATED ASSOCIATIONS ETC’’) OF THE FINANCIAL SERVICES AND MARKETSACT 2000 (FINANCIAL PROMOTION) ORDER 2005 AND 2. (A) MARKET COUNTERPARTIES OR (B)INTERMEDIATE CUSTOMERS (WITHIN THE MEANING OF THE RULES OF THE FINANCIAL SERVICESAUTHORITY (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS ‘‘RELEVANT PERSONS’’). THEPROSPECTUS MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANTPERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THE PROSPECTUS RELATES ISAVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANTPERSONS.

THE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAYNOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BEFORWARDED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY FORWARDING, DISTRIBUTIONOR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TOCOMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THEAPPLICABLE LAWS OF OTHER JURISDICTIONS.

Confirmation of your Representation: In order to be eligible to view the Prospectus or make an investmentdecision with respect to the securities, investors must not be a U.S. person (within the meaning of Regulation Sunder the Securities Act). By accepting this e-mail and accessing the Prospectus, you shall be deemed to haverepresented to us that you are not a U.S. person; the electronic mail address that you have given to us and to whichthis e-mail has been delivered is not located in the U.S., its territories and possessions (including Puerto Rico, theU.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands), any State of theUnited States or the District of Columbia; and that you consent to delivery of the Prospectus by electronictransmission.

You are reminded that the Prospectus has been delivered to you on the basis that you are a person into whosepossession the Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which youare located and you may not, nor are you authorised to, deliver the Prospectus to any other person.

The materials relating to the offering do not constitute, and may not be used in connection with, an offer orsolicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that theoffering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a licensedbroker or dealer in that jurisdiction, the offering shall be deemed to be made by the underwriters or such affiliate onbehalf of the Issuer in such jurisdiction.

The Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via thismedium may be altered or changed during the process of electronic transmission and consequently none of DaiwaSecurities Capital Markets Co. Ltd., Seoul Branch or The Korea Development Bank and any person who controlseither of them nor any director, officer, employee nor agent of it or affiliate of it accepts any liability orresponsibility whatsoever in respect of any difference between the Prospectus as distributed to you herewith inelectronic format and the hard copy version.

You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at yourown risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of adestructive nature.

PROSPECTUS

¥20,000,000,000KAL JAPAN ABS 6 CAYMAN LIMITED

(incorporated with limited liability under the laws of the Cayman Islands)Secured Floating Rate Notes due 2014

The ¥20,000,000,000 Secured Floating Rate Notes due 2014 (the ‘‘Notes’’) of KAL Japan ABS 6 Cayman Limited(the ‘‘Note Issuer’’) will be constituted by a note trust deed (the ‘‘Note Trust Deed’’) dated on or about 27 April,2011 among, inter alios, the Note Issuer and The Bank of New York Mellon, Hong Kong Branch, as trustee for theholders of the Notes (the ‘‘Note Trustee’’). The Notes are expected to be issued on or about 27 April, 2011 (the‘‘Closing Date’’). The Notes are limited recourse obligations of the Note Issuer and will be secured by, inter alia,the ¥20,000,000,000 Variable Rate Bond due 2014 (the ‘‘Bond’’) issued by KAL 6 Asset Securitization SpecialtyCompany (the ‘‘Bond Issuer’’), a Korean limited liability company (yuhanhoesa) incorporated under the ActConcerning Asset Backed Securitization of Korea and the Korean Commercial Code, to the Note Issuer on theClosing Date.

It is expected that the Notes will, when issued, be assigned a ‘‘A1 (sf)’’ rating by Moody’s Investors Service (the‘‘Rating Agency’’). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision,qualification, suspension or withdrawal at any time by the assigning rating organisation.

This Prospectus has been approved by the Central Bank of Ireland (the ‘‘Central Bank’’), as competent authorityunder the Prospectus Directive 2003/71/EC. The Central Bank only approves this Prospectus as meeting therequirements imposed under Irish and EU law pursuant to the Prospectus Directive 2003/71/EC. Application hasbeen made to the Irish Stock Exchange for the Notes to be admitted to the Official List and trading on its regulatedmarket. No assurance can be given that such listing will be obtained on or before the Closing Date, or at all.

Investing in the Notes involves risks. See ‘‘Risk Factors’’ on page 44.

Price: 100%

The Notes are offered through Daiwa Securities Capital Markets Co. Ltd., Seoul Branch and The KoreaDevelopment Bank jointly as the joint arrangers (the ‘‘Joint Arrangers’’), Daiwa Securities Capital Markets Co.Ltd. and The Korea Development Bank jointly as the joint lead managers (the ‘‘Joint Lead Managers’’) and DaiwaCapital Markets Europe Limited and The Korea Development Bank as the initial purchasers (the ‘‘InitialPurchasers’’).

The Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the‘‘U.S. Securities Act’’) or under the securities laws of any state of the United States and, unless so registered, maynot be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined inRegulation S under the U.S. Securities Act (‘‘Regulation S’’)) except pursuant to an exemption from, or in atransaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securitieslaws. Accordingly, the Notes are being offered and sold only outside the United States to non-U.S. persons inaccordance with Regulation S under the U.S. Securities Act.

The Notes will be issued in registered form in the minimum denomination of ¥20,000,000 and integral multiples of¥10,000,000 thereafter. The Notes will be exchangeable and transfers thereof will be registrable at the offices of TheBank of New York Mellon (Luxembourg) S.A., as note registrar (the ‘‘Note Registrar’’). It is expected that theNotes will be delivered through the facilities of Euroclear Bank S.A./N.V. as operator of the Euroclear System(‘‘Euroclear’’) and Clearstream Banking, société anonyme (‘‘Clearstream, Luxembourg’’) on or about 27 April,2011.

DAIWA SECURITIES CAPITAL MARKETS CO. LTD.,SEOUL BRANCH

THE KOREA DEVELOPMENT BANK

Joint Arrangers

The date of this Prospectus is 27 April, 2011

CONTENTS

TRANSACTION SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

RATING OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

TERMS AND CONDITIONS OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

THE RECEIVABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

THE TRUSTOR AND SERVICER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

KOREAN AIR CARGO BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

THE NOTE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

THE BOND ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

THE JAPANESE TRUST AND THE JAPANESE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

THE CREDIT FACILITY PROVIDER AND THE SWAP PROVIDER . . . . . . . . . . . . . . . . . . 111

THE SWAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

KOREAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS . . . 120

CERTAIN LEGAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126

SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136

GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

APPENDIX I AUDITED FINANCIAL STATEMENTS OFKOREAN AIR LINES CO., LTD. (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

APPENDIX II AUDITED FINANCIAL STATEMENTS OF THEKOREA DEVELOPMENT BANK (2009 AND 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1

1

IMPORTANT NOTICE

Prospective investors should rely only on the information contained in this Prospectus or to which

reference is made herein. The Note Issuer has not authorised anyone to provide prospective investors

with information that is different. This document may only be used where it is legal to sell the Notes.

The information in this Prospectus may only be accurate on the date of this Prospectus.

On the Closing Date, the Note Issuer will use the proceeds of the issue of the Notes to subscribe

for the Bond from the Bond Issuer. The Bond Issuer will use the proceeds of the issue of the Bond to

purchase, from the Seller (as defined below), a beneficial interest (the ‘‘Investor Beneficial Interest’’),represented by a Japanese Yen denominated certificate (the ‘‘Investor Beneficial Certificate’’), in the

assets of a trust (the ‘‘Japanese Trust’’) established pursuant to a trust agreement (the ‘‘TrustAgreement’’) dated 11 April, 2011 among, inter alios, Korean Air Lines Co., Ltd. (the ‘‘Trustor’’, the‘‘Seller’’, the ‘‘Servicer’’, ‘‘Korean Air’’, ‘‘KAL’’ or the ‘‘Company’’) and The Bank of New York

Mellon Trust (Japan), Ltd. (the ‘‘Japanese Trustee’’). In accordance with the Trust Agreement, on 21

April, 2011 (the ‘‘Entrustment Date’’), the Trustor has entrusted certain Receivables and on the Closing

Date will entrust the Reserve Funding Amount (each as defined herein) in each case to the Japanese

Trustee. The Bond Issuer, as holder of the Investor Beneficial Certificate, will be entitled to receive

certain distributions from the assets of the Japanese Trust, as more fully described in ‘‘Transaction

Summary — The Trust’’. The Bond Issuer will make payments of interest and principal on the Bond on

each Bond Payment Date (as defined herein) or on the relevant Mandatory Redemption Payment Date

(as defined herein) following and to the extent of receipt of distributions of principal on the Investor

Beneficial Certificate on each Trust Distribution Date (as defined herein) or on the relevant Mandatory

Redemption Payment Date. The Note Issuer will make payments of interest through the Swap

Agreement (as defined herein) and principal on the Notes on each Note Payment Date (as defined

below) following receipt of payments of interest and principal on the Bond from the Bond Issuer.

Interest on the Notes is payable by reference to successive interest periods (each, an ‘‘InterestPeriod’’). Interest will be payable on the Notes monthly in arrear on the 27th day of each month (each,

a ‘‘Note Payment Date’’) commencing in May 2011. If a payment is due on a day which is not a

Business Day (as defined herein), such payment will be made on the next succeeding Business Day,

unless that day falls in the next calendar month, in which case it will be brought forward to the first

preceding Business Day. Interest will accrue on the Principal Amount Outstanding (as defined herein) of

the Notes as of the first day of each relevant Interest Period on the basis of the actual number of days

elapsed in such Interest Period and a 360-day year at a rate per annum equal to the sum of the JPY-

LIBOR-BBA for one month Yen deposits plus a margin of 1.20 per cent. except in relation to the first

Interest Period where JPY-LIBOR-BBA will be determined by way of a linear interpolation of JPY-

LIBOR-BBA for one month Yen deposits and JPY-LIBOR-BBA for two month Yen deposits. ‘‘JPY-LIBOR-BBA’’ means that for an Interest Period the rate for 1 month deposits in Yen which appears on

the Reuters Page 3750 as of 11:00 a.m., London time, on the Interest Determination Date (as defined

herein). If such rate does not appear on the Reuters Page 3750, the rate for that Interest Period will be

determined in accordance with JPY-LIBOR-Reference Banks. ‘‘JPY-LIBOR-Reference Banks’’ means

that the rate for an Interest Period will be determined on the basis of the rates at which 1 month deposits

in Yen are offered by the Reference Banks (as defined herein) in London at approximately 11:00 a.m.,

London time on the Interest Determination Date to prime banks in the London interbank market. The

Note Trustee will request each of the Reference Banks in London to provide a quotation of its rate. If

two quotations are provided, the rate for that Interest Period will be the arithmetic mean of the

quotations. If fewer than two quotations are provided as requested, the rate for that Interest Period will

be the arithmetic mean of the rates quoted by each of the Reference Banks in Tokyo, at approximately

11:00 a.m., Tokyo time, on the first day of that Interest Period for 1 month loans in Yen to leading

European banks.

2

Unless previously redeemed or purchased and cancelled, the Note Issuer will redeem the Notes in

full on the Note Payment Date falling in April 2014 (the ‘‘Note Maturity Date’’) at their Principal

Amount Outstanding together with accrued interest to the Note Maturity Date. However, upon receipt of

a redemption notice in respect of the Bond (the ‘‘Bond Redemption Notice’’) from the Bond Issuer, the

Note Issuer will redeem the Notes, in whole or in part to the extent of funds available therefor in

accordance with the priority of payments set forth in the Note Trust Deed on the next succeeding Note

Payment Date or on the relevant Mandatory Redemption Payment Date, at their Principal Amount

Outstanding on such date together with accrued interest to such date. See ‘‘Terms and Conditions of the

Notes’’.

The Credit Facility Provider (as defined herein) will grant a credit facility (the ‘‘Credit Facility’’)to the Note Issuer enhancing the likelihood of timely payments of interest and principal on the Notes.

It is expected that the Notes will, when issued, be assigned a ‘‘A1 (sf)’’ rating by the Rating

Agency. The rating will relate to the timely payments of interest and principal on the Notes. A rating is

not a recommendation to buy, sell or hold securities, does not address the likelihood or timing of

prepayment and may be subject to revision, qualification, suspension or withdrawal at any time by the

assigning rating organisation. A revision, qualification, suspension or withdrawal of any rating assigned

to the Notes may adversely affect the market price of the Notes.

The Notes have not been and will not be registered under the U.S. Securities Act or under the

securities laws of any state of the United States and, unless so registered, may not be offered or sold

within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S

under the U.S. Securities Act) except pursuant to an exemption from, or in a transaction not subject to,

the registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly,

the Notes are being offered and sold only outside the United States to non-U.S. persons in accordance

with Regulation S under the U.S. Securities Act. See ‘‘Subscription and Sale’’.

Any Definitive Note Certificate (as defined herein) issued in respect of the Notes will bear

restrictive legends and will be subject to the restrictions on transfer as described herein.

The Notes are expected to settle in book-entry form through the facilities of Clearstream,

Luxembourg and Euroclear on or about the Closing Date against payment therefor in immediately

available funds.

The Note Issuer accepts responsibility for all the information included in this Prospectus save for

the Bond Issuer Information, the Japanese Trustee Information, the Credit Facility Provider Information

and the Trustor Information (each as defined below) (the ‘‘Note Issuer Information’’). To the best of

the knowledge and belief of the Note Issuer, the information contained in this Prospectus is in

accordance with the facts and does not omit anything likely to affect the import of such information.

The Bond Issuer is responsible for all of the information included in this Prospectus under ‘‘The

Bond Issuer’’ (the ‘‘Bond Issuer Information’’). To the best of the knowledge and belief of the Bond

Issuer, the Bond Issuer Information contained in this Prospectus is in accordance with the facts and does

not omit anything likely to affect the import of such Bond Issuer Information.

The Japanese Trustee is responsible for all of the information included in this Prospectus under

‘‘The Japanese Trust and the Japanese Trustee’’ (the ‘‘Japanese Trustee Information’’). To the best of

the knowledge and belief of the Japanese Trustee, the Japanese Trustee Information contained in this

Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such

Japanese Trustee Information.

3

The Credit Facility Provider is responsible for all of the information included in this Prospectus

under ‘‘The Credit Facility Provider and the Swap Provider’’ and Appendix II ‘‘Audited Financial

Statements of The Korea Development Bank’’ (the ‘‘Credit Facility Provider Information’’). To the

best of the knowledge and belief of the Credit Facility Provider, the Credit Facility Provider Information

contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect

the import of such Credit Facility Provider Information.

The Trustor is responsible for all of the information included in this Prospectus under ‘‘The

Receivables’’ and ‘‘The Trustor and Servicer’’ and Appendix I ‘‘Audited Financial Statements of Korean

Air Lines Co., Ltd.’’ (the ‘‘Trustor Information’’). To the best of the knowledge and belief of the

Trustor, the Trustor Information contained in this Prospectus is in accordance with the facts and does

not omit anything likely to affect the import of such Trustor Information.

No person is authorised in connection with the issue and sale of the Notes to give any information

or to make any representation not contained in this Prospectus and, if given or made, any such

information or representation not contained herein must not be relied upon as having been authorised by

or on behalf of the Note Issuer, the Bond Issuer, the Trustor, the Servicer, the Joint Arrangers, the Joint

Lead Managers, the Japanese Trustee, the Note Trustee, the Security Agent (as defined herein), the

Agents (as defined herein), the Swap Provider (as defined herein) or the Credit Facility Provider.

Neither the delivery of this Prospectus at any time, nor any sale made in connection herewith, will, in

any circumstance, create an implication that there has been no change in the affairs of the Note Issuer

since the date hereof or that the information contained herein is correct as of any time subsequent to

such date.

None of the Joint Arrangers, the Joint Lead Managers, the Japanese Trustee (other than in respect

of the Japanese Trustee Information), the Bond Issuer (other than in respect of the Bond Issuer

Information), the Note Trustee, the Security Agent, the Agents, the Transaction Administrator, the Credit

Facility Provider (other than in respect of the Credit Facility Provider Information) or the Swap Provider

has separately verified the information contained in this Prospectus. Accordingly, no representation,

warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the

Joint Arrangers, the Joint Lead Managers, the Initial Purchasers, the Japanese Trustee, the Bond Issuer,

the Transaction Administrator, the Note Trustee, the Security Agent, the Agents, the Transaction

Administrator, the Credit Facility Provider or the Swap Provider as to the accuracy or completeness of

the information contained in this Prospectus or any other information supplied in connection with the

Notes. Each person receiving this Prospectus acknowledges that such person has not relied on the Joint

Arrangers, the Joint Lead Managers, the Initial Purchasers, the Japanese Trustee, the Bond Issuer (other

than in respect of the Bond Issuer Information), the Note Trustee, the Security Agent, the Agents, the

Transaction Administrator, the Credit Facility Provider (other than in respect of the Credit Facility

Provider Information) or the Swap Provider nor on any person affiliated with any of them in connection

with its investigation of the accuracy of such information or its investment decision.

This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Note Issuer,

the Bond Issuer, the Trustor, the Servicer, the Joint Arrangers, the Joint Lead Managers, the Initial

Purchasers, the Japanese Trustee, the Note Trustee, the Security Agent, the Agents, the Transaction

Administrator, the Swap Provider or the Credit Facility Provider to subscribe for or purchase any of the

Notes.

Other than the approval of the Central Bank of this Prospectus as a prospectus in accordance with

the Prospectus Directive, and save as mentioned under ‘‘Subscription and Sale’’, no action has been

taken under any regulatory or other requirements of any jurisdiction or will be so taken to permit a

public offering of the Notes or the distribution of this Prospectus in any jurisdiction where action for

that purpose is required. The distribution of this Prospectus and the offering or sale of any Notes in

4

certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are

required by the Note Issuer and the Joint Arrangers to inform them about and to observe any such

restrictions. For a description of certain restrictions on offers and sales of the Notes and the distribution

of this Prospectus, see ‘‘Subscription and Sale’’. This Prospectus does not constitute, and may not be

used for the purposes of, an offer or solicitation by any person in any jurisdiction in which such offer or

solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation.

Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this

Prospectus nor any part of it nor any other prospectus, form of application, advertisement, other offering

material or other information may be issued, distributed or published in any country or jurisdiction

except under circumstances that will result in compliance with all applicable laws, orders, rules and

regulations.

Each person contemplating making an investment in the Notes must make its own investigation

and analysis of the Note Issuer and the terms of the offering including the merits and risks involved, and

its own determination of the suitability of any such investment, with particular reference to its own

investment objectives and experience and any other factors which may be relevant to it in connection

with such investment. Any investor in the Notes should be able to bear the economic risk of an

investment in the Notes for an indefinite period of time.

None of the Note Issuer, the Bond Issuer, the Joint Arrangers, the Joint Lead Managers, the Initial

Purchasers, the Trustor, the Japanese Trustee, the Note Trustee, the Security Agent, the Agents, the

Transaction Administrator, the Swap Provider or the Credit Facility Provider makes any representation

to any investor in the Notes regarding the legality of its investment under any applicable laws.

The contents of this Prospectus should not be construed as providing legal, business, accounting or

tax advice. Each prospective investor should consult its own legal, business, accounting and tax advisers

prior to making a decision to invest in the Notes.

Reference in this Prospectus to ‘‘Japanese Yen’’, ‘‘Yen’’, ‘‘JPY’’ or ‘‘¥’’ are to the lawful

currency for the time being of Japan (‘‘Japan’’). References in this Prospectus to ‘‘KRW’’, ‘‘Won’’ or

‘‘Korean Won’’ are to the lawful currency for the time being of the Republic of Korea (‘‘Korea’’).References in this Prospectus to ‘‘U.S.$’’, ‘‘Dollars’’, ‘‘U.S. dollars’’, ‘‘$’’ or ‘‘USD’’ are to the lawful

currency for the time being of the United States of America (the ‘‘U.S.’’ or the ‘‘United States’’).References in this Prospectus to ‘‘Euro’’ or ‘‘€’’ are to the lawful currency introduced at the

commencement of the third stage of the European Economic and Monetary Union on 1 January, 1999

pursuant to the Treaty establishing the European Community as amended by the Treaty on European

Union. All references to the ‘‘Government’’ herein are references to the Government of Korea.

Discrepancies pertaining to certain tables in this Prospectus are due to rounding.

The language of the Prospectus is English. Certain legislative references and technical terms have

been cited in their original language in order that the correct technical meaning may be ascribed to them

under applicable law.

5

AVAILABLE INFORMATION

The Note Issuer and the Servicer will furnish to the Note Trustee and holders of the beneficial

interests in the Global Note Certificates (as defined herein) as identified by Euroclear and Clearstream,

Luxembourg certain information on a periodic basis. For so long as the Notes are listed on the Irish

Stock Exchange and the rules of such exchange so require, such information will be available during

normal business hours on any Business Day at the registered office for the time being of each of The

Bank of New York Mellon, London Branch as principal paying agent (the ‘‘Principal Paying Agent’’)and The Bank of New York Mellon (Ireland) Limited as Irish paying agent (the ‘‘Irish Paying Agent’’,and together with the Principal Paying Agent, the ‘‘Paying Agents’’).

6

TRANSACTION SUMMARY

The information set out below is a summary of the principal features of the transaction. As this is

a summary, it is qualified in its entirety by reference to the detailed information appearing elsewhere in

this Prospectus and the Transaction Documents (as defined herein).

Summary

Capitalised terms used in this summary section are defined in the more detailed sections below

and in ‘‘The Glossary’’.

On the Closing Date, the Note Issuer will apply the gross proceeds of the issue of ¥20,000,000,000

Secured Floating Rate Notes due 2014 to subscribe for a ¥20,000,000,000 Variable Rate Bond due 2014

from the Bond Issuer. The Bond Issuer will apply the proceeds of the issue of the Bond to purchase the

Investor Beneficial Certificate from the Seller.

7

The Japanese Trust will be established pursuant to the Trust Agreement made between, inter alios,

the Trustor and the Japanese Trustee in accordance with which the Trustor will, on the Entrustment

Date, entrust to the Japanese Trustee the Receivables and on the Closing Date will entrust the Reserve

Funding Amount and the Japanese Trustee will issue the Investor Beneficial Certificate and the Seller

Beneficial Certificate to the Trustor in its capacity as Initial Beneficiary (the ‘‘Initial Beneficiary’’).The Trustor will acknowledge in the Inter-Branch Memorandum that the Investor Beneficial Interest

(represented by the Investor Beneficial Certificate) will be sold by KAL Seoul to the Bond Issuer on the

Closing Date.

The Note Issuer will enter into a Credit Facility Deed with The Korea Development Bank in its

capacity as the Credit Facility Provider on or about 27 April, 2011 in order to support its payment

obligations under the Notes. The Note Issuer entered into a Swap Agreement with The Korea

Development Bank in its capacity as Swap Provider, on 21 April, 2011 in order to hedge its interest rate

exposure under the Notes.

TRANSACTION PARTIES

The Note Issuer

KAL Japan ABS 6 Cayman Limited (the ‘‘Note Issuer’’), an exempted company incorporated with

limited liability in the Cayman Islands and managed by the Note Issuer Administrator (as defined

below).

The Note Issuer’s sole business will be (i) the purchase of the Bond (as defined herein) from the

Bond Issuer (as defined below), (ii) the transfer and assignment to the Note Trustee (as defined below)

of a security interest in substantially all of the Note Issuer’s property and assets (the ‘‘Note SecuredProperty’’), (iii) the issuance of the Notes (as defined herein) and (iv) the entry into and performance of

its obligations under, referred to in, or contemplated by, the Transaction Documents.

The Bond Issuer

KAL 6 Asset Securitization Specialty Company, (the ‘‘Bond Issuer’’), a limited liability special

securitization company (yuhanhoesa) incorporated in Korea.

The sole business of the Bond Issuer will be (i) the purchase from KAL Seoul (as defined below)

of the beneficial interest of the Investor Beneficiary (as defined below) in the Japanese Trust (as defined

herein) (the ‘‘Investor Beneficial Interest’’) represented by a Japanese Yen denominated certificate (the

‘‘Investor Beneficial Certificate’’), created under the Trust Agreement (as defined below) pursuant to a

sale and purchase agreement dated on or about 27 April, 2011 among, inter alios, KAL Seoul, the Bond

Issuer in its capacity as investor beneficiary (the ‘‘Investor Beneficiary’’) and the Japanese Trustee (as

defined below) (the ‘‘Investor Beneficial Interest Sale and Purchase Agreement’’), (ii) the creation of

the Bond Issuer Security (as defined below), (iii) the issuance of the Bond to the Note Issuer and (iv)

any other activities permitted pursuant to the Act Concerning Asset Backed Securitisation of Korea (Law

No. 5555, 16 September, 1998) (the ‘‘ABS Act’’), including entering into agreements necessary for the

performance of its obligations under the transaction specified in the securitisation plan registered with

the Financial Services Commission of Korea (the ‘‘FSC’’).

8

The Trustor

Korean Air Lines Co., Ltd. as trustor (‘‘KAL’’, ‘‘Korean Air’’, the ‘‘Trustor’’ or the

‘‘Company’’) acting through its Tokyo branch (‘‘KAL Tokyo’’):

(a) (i) entrusted on 21 April, 2011 (the ‘‘Entrustment Date’’) all of its rights, title, interest and

benefit (present and future, actual and contingent) in, to and under certain receivables (the

‘‘Receivables’’), owed to the Trustor from time to time by (1) various cargo agents (the

‘‘IATA Agents’’) appointed by the International Air Transport Association (‘‘IATA’’) (on

behalf of the Trustor and the other airlines participating in CASS Japan (as defined below))

from time to time pursuant to various cargo agency agreements (together, the ‘‘IATA AgencyAgreements’’) and payable to the Trustor through CASS Japan, (2) Citibank Japan Ltd. as

successor to Citibank, N.A., Tokyo branch (the ‘‘CASS Bank’’) pursuant to an agreement

(the ‘‘CASS Bank Agreement’’ and, together with the IATA Agency Agreements, the

‘‘IATA-CASS Agreements’’) between IATA (on behalf of the Trustor and the other airlines

participating in CASS Japan) and the CASS Bank relating to the cargo accounts settlement

system operated by IATA in Japan (‘‘CASS Japan’’) and (3) IATA pursuant to the IATA-

CASS Agreements and the KAL-IATA Agreements and the resolutions adopted from time to

time by the permanent conference of members of IATA governing the relationships between

the IATA Agents and the airlines participating in CASS Japan; and

(ii) will entrust on or about 27 April, 2011 (the ‘‘Closing Date’’) ¥980,630,525 (the ‘‘ReserveFunding Amount’’) to fund the Reserve Account (as defined herein); and

will agree to entrust additional monies from time to time to the Japanese Trustee, all pursuant to

the provisions of a trust agreement dated 11 April, 2011, between inter alios, the Trustor and the

Japanese Trustee (the ‘‘Trust Agreement’’);

(b) on the Entrustment Date take receipt of a Japanese Yen denominated certificate (the ‘‘SellerBeneficial Certificate’’) representing the beneficial interest of the Trustor in its capacity as seller

beneficiary (the ‘‘Seller Beneficiary’’) in the Japanese Trust (the ‘‘Seller Beneficial Interest’’);and

(c) on the Closing Date enter into an inter-branch memorandum with Korean Air, acting through its

Seoul Office (‘‘KAL Seoul’’) (the ‘‘Inter-Branch Memorandum’’).

The Servicer

The Trustor will act as the servicer (the ‘‘Servicer’’) for the Japanese Trustee in respect of the

Receivables (the ‘‘Serviced Assets’’). The Servicer may, in the event of a Servicer Termination Event

(as defined herein), be removed as Servicer. See ‘‘— Servicing’’.

The Credit Facility Provider

The Korea Development Bank will act as credit facility provider (the ‘‘Credit Facility Provider’’)and will enter into a credit facility deed with, inter alios, the Note Issuer and the Note Trustee (as

defined below) (the ‘‘Credit Facility Deed’’) to provide a credit facility (the ‘‘Credit Facility’’) in

respect of payments of principal and interest on the Notes and the Note Issuer’s obligations which rank

in priority to, or pari passu with, principal and interest in respect of the Notes. See ‘‘— The Notes —

Credit Facility’’ below.

9

The Japanese Trustee

The Bank of New York Mellon Trust (Japan), Ltd. will act as trustee of the Entrusted Assets (as

defined below) (the ‘‘Japanese Trustee’’).

The Note Trustee

The Bank of New York Mellon, Hong Kong Branch will act as trustee for the holders of the Notes

(the ‘‘Note Trustee’’). The Note Trustee will hold the Note Security on behalf of the Noteholders and

the other Note Secured Parties and will provide certain administrative services to the Note Issuer in

relation to the Note Issuer Obligations (each as defined herein).

The Note Trustee may retire at any time upon giving 90 days notice in writing of such retirement

to the Note Issuer, the Credit Facility Provider and the Trustor. The Note Issuer will appoint a successor

note trustee (with the prior written approval of the Controlling Beneficiary). If the Note Issuer fails to

appoint a new trustee, and the Credit Facility Provider fails to appoint a new trustee, the Note Trustee

shall have the ability to appoint a new trustee acceptable to the Controlling Beneficiary (as defined

below).

The Transaction Administrator, the Bond Issuer Servicer and the Bond Issuer Administrator

The Bond Issuer will appoint The Bank of New York Mellon, Seoul Branch (the ‘‘TransactionAdministrator’’) to provide certain administrative services in relation to the payment obligations of the

Bond Issuer pursuant to the terms of a transaction administration agreement dated 11 April, 2011

between, inter alios, the Bond Issuer and the Transaction Administrator (the ‘‘TransactionAdministration Agreement’’).

The Transaction Administrator may resign its appointment (without giving any reason for such

resignation) at any time after providing a written notice to, inter alios, the Bond Issuer, the Bondholder,

the Credit Facility Provider, the Rating Agency and the Trustor not less than 60 days prior to the

effective date of such resignation; provided, however, that such resignation shall not be effective: (i)

until a successor Transaction Administrator acceptable to the Controlling Beneficiary is appointed by the

Bond Issuer using its best efforts on substantially the same terms and conditions (acceptable to the

Controlling Beneficiary) as the Transaction Administration Agreement; (ii) the successor Transaction

Administrator accepts such appointment; and (iii) the Rating Agency has received prior written notice of

such appointment. If such successor Transaction Administrator has not been appointed within the period

specified above, the Transaction Administrator may appoint a successor Transaction Administrator on

behalf of, and at the expense of, the Bond Issuer; provided, however, that such appointment shall not be

effective: (i) unless approved in writing by the Controlling Beneficiary (such approval not to be

unreasonably withheld, delayed or conditioned); and (ii) the Rating Agency has received prior written

notice of such appointment.

The Bond Issuer (on the instructions of the Controlling Beneficiary) may terminate the

appointment of the Transaction Administrator on written notice to the Transaction Administrator (with a

copy to the Rating Agency, the Trustor, the Servicer and the Account Banks) following the occurrence

of certain events of default by the Transaction Administrator or on the insolvency of the Transaction

Administrator. On and after the date on which the Bond and the Notes have been redeemed in full, the

Bond Issuer (on the instructions of the Credit Facility Provider) may, at any time and at its sole

discretion, terminate the appointment of the Transaction Administrator upon written notice (with a copy

to the Trustor and the Servicer).

10

Pursuant to and in accordance with an agreement dated 11 April, 2011 between The Bank of New

York Mellon, Seoul Branch (the ‘‘Bond Issuer Servicer’’) and the Bond Issuer (the ‘‘Bond IssuerServicing Agreement’’), the Bond Issuer Servicer will provide collection, management and

administrative services to the Bond Issuer in relation to the Investor Beneficial Interest and the

collections thereon.

Pursuant to and in accordance with an agreement dated 11 April, 2011 between Hanul Accounting

Corporation (the ‘‘Bond Issuer Administrator’’) and the Bond Issuer, (the ‘‘Bond IssuerAdministrator Agreement’’), the Bond Issuer Administrator will also provide certain administrative

services to the Bond Issuer.

The Agents

The Note Issuer will appoint The Bank of New York Mellon, London Branch as principal paying

agent and reference agent (the ‘‘Principal Paying Agent’’ and the ‘‘Reference Agent’’) and The Bank

of New York Mellon (Ireland) Limited as paying agent in Ireland (the ‘‘Irish Paying Agent’’), in each

case in respect of the Notes, pursuant to the terms of an agency agreement dated on or about the Closing

Date (the ‘‘Note Agency Agreement’’).

The Note Issuer will appoint The Bank of New York Mellon, Hong Kong Branch as its account

bank (an ‘‘Account Bank’’ and, together with the Note Trustee, the Principal Paying Agent, the

Reference Agent and the Irish Paying Agent, the ‘‘Note Agents’’) in respect of the Note Issuer Account

(as defined herein) pursuant to an account bank agreement dated on or about the Closing Date among

the Note Issuer Account Bank (as defined herein), the Note Issuer, the Note Trustee and the Transaction

Administrator (the ‘‘Note Issuer Account Bank Agreement’’). The Note Issuer will pay all fees, costs,

expenses, indemnities, claims, demands, legal fees, liabilities and other amounts of the Note Agents (the

‘‘Agency Fees’’) up to a maximum amount (the ‘‘Agency Fees Maximum Amount’’) specified in a fee

letter dated on or about the Closing Date and made between the Note Agents and the Note Issuer (the

‘‘Bank of New York Mellon Fee Letter’’).

The Note Issuer will appoint Walkers SPV Limited as note issuer administrator for the Note Issuer

(the ‘‘Note Issuer Administrator’’ and together with the Note Agents and the Bond Agents (defined

below), the ‘‘Agents’’) pursuant to a note administration agreement dated on or about the Closing Date

between the Note Issuer and the Note Issuer Administrator (the ‘‘Note Issuer AdministratorAgreement’’).

The Bond Issuer will appoint The Bank of New York Mellon, Seoul Branch as its account bank

(an ‘‘Account Bank’’) in respect of the Bond Issuer Accounts (as defined herein).

The Security Agent (as defined herein), the Bond Issuer Servicer, The Bank of New York Mellon,

Seoul Branch as the bond registrar (the ‘‘Bond Registrar’’) and the Bond Issuer Administrator are

together referred to as the ‘‘Bond Agents’’).

Any Note Agent (except the Note Trustee) may resign its appointment at any time after providing

a written notice to the Note Issuer (with a copy to, inter alios, the Note Trustee and the Credit Facility

Provider) not less than 60 days prior to the effective date of such resignation; provided that (a) if such

resignation would otherwise take effect less than 30 days before or after the Note Maturity Date or other

date for redemption of the Notes or any Note Payment Date in relation to the Notes, it shall not take

effect until the 30th day following such date; (b) in the case of the Note Registrar, the Paying Agents or

the Reference Agent, such resignation shall not take effect until a successor has been duly appointed and

notice of such appointment has been given to the Noteholders, the Credit Facility Provider and the Note

11

Trustee and, in the case of the Reference Agent, the Swap Provider; and (c) the Controlling Beneficiary

(and, failing the Controlling Beneficiary, the relevant Agent) has given prior written notice to the Rating

Agency.

The appointment of any Note Agent shall terminate forthwith upon the occurrence of one of a

series of events including if (i) a secured party takes possession, or a receiver, manager or other similar

officer is appointed, of the whole or any part of the undertaking, assets and revenues of such Note

Agent; (ii) such Note Agent admits in writing its insolvency or inability to pay its debts as they fall due;

(iii) an administrator or liquidator of such Note Agent or the whole or any part of the undertaking,

assets and revenues of such Note Agent is appointed (or application for any such appointment is made);

(iv) such Note Agent takes any action for a readjustment or deferment of any of its obligations or makes

a general assignment or an arrangement or composition with or for the benefit of its creditors or declares

a moratorium in respect of any of its indebtedness; or (v) in the case of a Paying Agent, such Paying

Agent’s short term unsecured and unguaranteed debt is assigned a rating below ‘‘P-1’’ by the Rating

Agency or any such rating is withdrawn by such Rating Agency.

The Note Issuer may (with the prior written approval of the Controlling Beneficiary) and shall

upon the written direction of the Controlling Beneficiary appoint successor Note Agents and shall

forthwith give notice of any such appointment to the continuing Note Agents, the Noteholders, the

Credit Facility Provider, the Rating Agency, the Note Trustee, the Transaction Administrator and, where

such appointment is in relation to the Reference Agent, the Swap Provider.

The Swap Provider

The Korea Development Bank will act as swap provider (the ‘‘Swap Provider’’) to the Note Issuer

pursuant to the terms of the Swap Agreement (as defined herein) in order to hedge interest rate exposure

on the Notes. For a description of the Swap Agreement and the Swap Provider, see ‘‘— The Notes —

The Swap Agreement’’ below.

The Korea Development Bank will act as calculation agent (the ‘‘Calculation Agent’’) under the

Swap Agreement.

The Controlling Beneficiary

The ‘‘Controlling Beneficiary’’ will be either:

(a) the Credit Facility Provider, unless (i) a Drawdown Trigger Event (as defined herein) has

occurred and is continuing or (ii) the Credit Facility Provider has failed to make any payment

when due under the Credit Facility Deed (or within one Seoul Business Day of the due date

if such failure to pay is due to a technical or administrative failure in the banking system

generally and is unrelated to the Credit Facility Provider); or

(b) the Note Trustee (acting on the instructions of the Noteholders or otherwise in accordance

with the provisions of the Note Trust Deed), if, and for so long as, either of the events

specified in paragraphs (a)(i) and (ii) above has occurred and is continuing;

provided that, if at any time there is on deposit in the Note Issuer Account an amount equal to or

greater than all principal and accrued interest due and payable on the Notes and all amounts ranking in

priority to, or pari passu with, all payments on the Notes on the next Note Payment Date or Mandatory

Redemption Payment Date, the Credit Facility Provider shall be the Controlling Beneficiary

notwithstanding the occurrence or continuation of either of the events specified in paragraphs (a)(i) and

(ii) above.

12

The Joint Lead Managers, Joint Arrangers and Initial Purchasers

The Korea Development Bank and Daiwa Securities Capital Markets Co. Ltd., Seoul Branch will

act as joint arrangers of the offering of the Notes (the ‘‘Joint Arrangers’’), The Korea Development

Bank and Daiwa Securities Capital Markets Co. Ltd. will act as joint lead managers of the offering of

the Notes (the ‘‘Joint Lead Managers’’), and The Korea Development Bank and Daiwa Capital Markets

Europe Limited as initial purchasers of the Notes (the ‘‘Initial Purchasers’’) pursuant to a note

subscription agreement dated on or about 26 April, 2011 (the ‘‘Note Subscription Agreement’’). For adescription of the Note Subscription Agreement, see ‘‘Subscription and Sale’’.

THE NOTES

The Notes

The Note Issuer will issue the ¥20,000,000,000 Secured Floating Rate Notes due 2014 (the

‘‘Notes’’) to investors on the Closing Date. The Notes will be secured by the Note Security. See ‘‘—

Note Security’’ below.

The Notes will be issued initially in registered global form only, without coupons attached, and

will be deposited with The Bank of New York Depository (Nominees) Limited, as common depositary

(the ‘‘Common Depositary’’) for Euroclear and Clearstream, Luxembourg. The Notes are freely

transferable in accordance with their terms and subject to certain restrictions on sales to U.S. persons.

See ‘‘Terms and Conditions of the Notes’’ and ‘‘Subscription and Sale — United States’’. For a

description of the Notes, see ‘‘Terms and Conditions of the Notes’’.

Issue Price

The Notes will be issued at 100 per cent. of their principal amount.

Ratings

The Notes are expected to be rated ‘‘A1 (sf)’’ by Moody’s, (the ‘‘Rating Agency’’).

Note Security

Pursuant to the provisions of a trust deed dated on or about the Closing Date and made between,

among others, the Note Trustee and the Note Issuer (the ‘‘Note Trust Deed’’), the Note Issuer will grant

a security interest (the ‘‘Note Security’’) over the Note Secured Property to the Note Trustee to hold for

the benefit of the Noteholders, the Agents, the Swap Provider, the Note Issuer Administrator, the

Account Bank and the Credit Facility Provider (together, the ‘‘Note Secured Parties’’) to secure all

amounts owed by the Note Issuer to the Note Secured Parties under the Notes or in connection with the

Transaction Documents (together, the ‘‘Note Issuer Obligations’’). For a description of the Note

Security, see ‘‘Terms and Conditions of the Notes’’.

Interest

Interest will be payable on the Notes monthly in arrear on the 27th day of each month (or, if such

day is not a Business Day in Dublin, Hong Kong, London and Tokyo, the next succeeding day which is

a Business Day in such locations) commencing on 27 May, 2011 (each, a ‘‘Note Payment Date’’).‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks and

foreign exchange markets settle payments and are open for general business (including dealing in

foreign currency deposits) in one or more specified locations.

13

Interest on the Notes will be payable by reference to successive interest periods (each, an

‘‘Interest Period’’). The initial Interest Period will commence on (and include) the Closing Date and

end on (but exclude) the initial Note Payment Date. Each successive Interest Period will commence on

(and include) a Note Payment Date and end on (but exclude) the next succeeding Note Payment Date.

Interest will accrue on the Principal Amount Outstanding of the Notes as of the first day of each

relevant Interest Period (after giving effect to any payment of principal of the Notes made on such day)

on the basis of the actual number of days elapsed in such Interest Period and a 360-day year at a rate

per annum equal to the sum of JPY-LIBOR-BBA (as calculated by the Calculation Agent, prior to the

termination of the Swap Agreement, and as calculated by the Note Trustee, after the termination of the

Swap Agreement) for one-month Yen deposits plus a margin of 1.20 per cent.; provided that in relation

to the first Interest Period JPY-LIBOR-BBA will be determined by way of a linear interpolation of JPY-

LIBOR-BBA for one month Yen deposits and JPY-LIBOR-BBA for two month yen deposits in

accordance with the Swap Agreement. ‘‘Principal Amount Outstanding’’ means, on any date, the

principal amount of the Notes on the Closing Date less the aggregate amount of all payments of

principal in respect of the Notes which have been paid on the Notes after the Closing Date and prior to

such date.

Amortisation and Redemption

(a) Note Maturity

Unless previously redeemed in full, the Note Issuer will redeem the Notes, to the extent of funds

available therefor, in full on the Note Payment Date falling in April 2014 (the ‘‘Note Maturity Date’’)at the Note Redemption Amount as at such date.

(b) Controlled Amortisation Period

On each Note Payment Date during the Controlled Amortisation Period (as defined below),

principal in respect of the Notes is scheduled to be paid in instalments (each, a ‘‘ScheduledAmortisation Amount’’) in accordance with the table set out in Note Condition 4 (as defined below)

subject to available funds.

‘‘Controlled Amortisation Period’’ means the period from and including the Closing Date until

the earliest to occur of: (a) the date on which the Early Amortisation Period (as defined below)

commences, (b) the date on which the Enforcement Period (as defined below) commences and (c) the

date on which all Note Issuer Obligations have been paid in full.

‘‘Note Conditions’’ means the terms and conditions of the Notes in the form set out in Schedule 1

to the Note Trust Deed as the same may be modified from time to time in accordance with the terms

thereof, and any reference to a numbered Note Condition will be construed accordingly.

‘‘Note Redemption Amount’’ means, on any date, an amount equal to the Principal Amount

Outstanding of the Notes as at such date plus accrued and unpaid interest thereon to, but excluding, such

date.

(c) Early Amortisation Period/Enforcement Period

On each Note Payment Date following a Trust Distribution Date (as defined below) falling in the

Early Amortisation Period or the Enforcement Period, amounts in respect of principal will be payable on

the Notes up to their Principal Amount Outstanding and, after payment of the Scheduled Amortisation

14

Amount due on such Note Payment Date, in inverse order of the original amortisation schedule, to the

extent of funds available therefor, until the Notes have been repaid in full at the Note Redemption

Amount as at such date.

Early Amortisation Events

An ‘‘Early Amortisation Event’’ means the occurrence of any of the following events:

(a) a final judgment or judgments (which is not or are not appealable or which has not or have

not been stayed pending appeal or as to which all rights of appeal have expired or been

exhausted) will be rendered against the Trustor in excess of KRW10 billion (or an equivalent

amount in another currency) in aggregate and will not be discharged within 30 days of such

final judgment or judgments;

(b) a final judgment or judgments (which is not or are not appealable or which has not or have

not been stayed pending appeal or as to which all rights of appeal have expired or been

exhausted) will be rendered against the Note Issuer for amounts not considered by the

Controlling Beneficiary to be de minimis;

(c) 40 per cent. or more by number of the Trustor’s FATK’s (as defined herein) for the calendar

month immediately preceding the date of calculation are cancelled for any reason;

(d) any Collection is not made free and clear of, and without deduction or withholding for, any

Tax (as defined below);

(e) any Insolvency Event (as defined below) relating to the Trustor, the Bond Issuer, the Note

Issuer or the Servicer occurs under the Laws of Korea, Japan, the Cayman Islands or any

applicable jurisdiction;

(f) the KAL-IATA Agreement is terminated or the Trustor fails to comply with any of its

material obligations thereunder;

(g) the Trustor ceases to be a member of CASS Japan;

(h) any of the Trustor, the CASS Bank, IATA, the Transaction Administrator or the Servicer fails

to make any payment or transfer of funds in accordance with the Transaction Documents or

the IATA Agreements, subject to any applicable grace periods specified therein;

(i) any of the Bond Issuer, the Note Issuer or the Trustor fails to perform or comply with any of

its material obligations under the Transaction Documents which failure is incapable of

remedy, or, if capable of remedy, continues unremedied for a period of 30 days;

(j) any representation, warranty or certification made by the Bond Issuer, the Note Issuer or the

Trustor in the Transaction Documents is or proves to be materially incorrect or misleading

when made;

(k) a Servicer Termination Event occurs;

(l) the Controlling Beneficiary determines (in its reasonable discretion) that a Material Adverse

Change has occurred in respect of the Servicer, the Trustor or the Japanese Trustee or that a

Material Adverse Effect has occurred in respect of the Entrusted Assets;

15

(m) the Debt Service Coverage Ratio is equal to or falls below: 1.8:1;

(n) a Drawdown Trigger Event has occurred;

(o) a Mandatory Redemption Event occurs (whether or not declared by the Controlling

Beneficiary); or

(p) the settlement currency of any of the Entrusted Assets ceases to be Japanese Yen.

‘‘Bond Enforcement Notice’’ means the notice delivered by the Transaction Administrator in

accordance with Bond Condition 6 upon the written request of the Controlling Beneficiary on the

occurrence of a Bond Event of Default.

‘‘CASS Bank Agreement’’ means the bank agreement dated 1 August, 2002 between the CASS

Bank and IATA.

‘‘Debt Service Coverage Ratio’’ means, on each date of calculation thereof, the ratio of: (a) the

aggregate Collections (as defined herein) collected or received during the three immediately preceding

Collection Periods; to (b) the aggregate amounts paid or payable by the Japanese Trustee in respect of

paragraphs (a) to (d) in ‘‘— Application of Funds on Trust Distribution Dates’’ below on the three Trust

Distribution Dates related to such Collection Periods.

‘‘Early Amortisation Period’’ means the period from and including the date on which an Early

Amortisation Event is declared under the Transaction Administration Agreement until the earlier to

occur of (a) the date on which the Enforcement Period commences and (b) the date on which the Note

Issuer Obligations have been paid in full.

‘‘Enforcement Date’’ means the date on which an Enforcement Notice is delivered.

‘‘Enforcement Notice’’ means either a Bond Enforcement Notice or a Note Enforcement Notice.

‘‘Enforcement Period’’ means the period commencing on the Enforcement Date.

‘‘Event of Default’’ means a Bond Event of Default (as defined below) or a Note Event of Default

(as defined below).

‘‘FATKs’’ means Korean Air’s available cargo capacity on flights to and from Japan multiplied by

the distance flown in kilometres.

‘‘Government Entity’’ means any (a) multinational, national, federal, provincial, state, regional,

municipal, local or other government, governmental or public department, central bank, court, tribunal,

arbitral body, commission, board, bureau or agency, domestic or foreign, (b) any subdivision, agent,

commission, board or authority of any of the foregoing or (c) any quasi-governmental or private body

exercising any executive, legislative, judicial, administrative, regulatory, expropriation or taxing

authority under or for the account of any of the foregoing.

‘‘IATA Agreements’’ means, together, the KAL-IATA Agreement and the IATA-CASS

Agreements.

16

‘‘Insolvency Event’’ means in relation to any Person:

(a) a court, agency or supervisory authority having jurisdiction enters a decree or order for the

appointment of a receiver, trustee, examiner, administrator or liquidator for such Person in

any insolvency, bankruptcy, corporate reorganisation, composition, examination, readjustment

of debt, marshalling of assets and liabilities or similar proceedings, or for the winding up or

liquidation of its affairs; or

(b) such Person initiates or consents to the appointment of a receiver, trustee, examiner,

administrator or liquidator in any insolvency, bankruptcy, corporate reorganisation,

composition, examination, readjustment of debt, marshalling of assets and liabilities or

similar proceedings of or relating to such Person or of or relating to substantially all of its

property or such Person makes a conveyance or assignment for the benefit of creditors

generally (or any class of its creditors) or enters into any composition, restructuring or

renegotiation of debt with its creditors generally (or any class of its creditors); or

(c) such Person admits in writing its inability to pay its debts generally as they become due, files

a petition for its bankruptcy, composition or corporate reorganisation, makes an assignment

for the benefit of any class of its creditors or members, enters into a moratorium involving

any of them, or voluntarily suspends payments of its obligations or its liabilities exceed its

assets; or

(d) such Person ceases to carry on all or any substantial part of its business, or threatens to do

so; or

(e) an application or petition for bankruptcy, composition, corporate reorganisation or insolvency

proceedings is filed against such Person and any such petition or application has not been

withdrawn or dismissed by the date of declaration of an Early Amortisation Event, Servicer

Termination Event or Mandatory Redemption Event; or

(f) such Person becomes a failing company (busiljinghukiup) under the Corporate Restructuring

Promotion Act of Korea or any similar applicable law; or

(g) any event analogous or having a similar effect to any of the events described in paragraphs

(a) to (f) above occurs under the Laws of any relevant jurisdiction.

‘‘KAL-IATA Agreement’’ means the agreement dated 28 November, 1979 under which KAL

became a party to CASS Japan.

‘‘Note Enforcement Notice’’ means the notice delivered by the Note Trustee upon the written

request of the Controlling Beneficiary in accordance with Note Condition 8 upon the occurrence of a

Note Event of Default.

‘‘Note Issuer Account Bank’’ means the bank with which the Note Issuer Account is opened

pursuant to Clause 10.1 of the Note Trust Deed.

‘‘Transaction Documents’’ means, together, the Trust Agreement, the Servicing Agreement, the

Transaction Administration Agreement, the Investor Beneficial Interest Sale and Purchase Agreement,

the Inter-Branch Memorandum, the Bond Issuer Servicing Agreement, the Bond Issuer Administrator

Agreement, the Bond Subscription and Agency Agreement, the Japanese Law Security Agreement, the

Note Agency Agreement, the Note Trust Deed, the Credit Facility Deed, the Note Issuer Administrator

Agreement, the Swap Agreement, the Note Subscription Agreement, the Bank Agreements, the Korean

17

Bank Agreements, the Master Definitions Schedule, the Pledge Agreement, the Equity Pledge

Agreement, the Security Assignment, the Closing Cashflow Letter Agreement and any other documents

or agreements in connection therewith.

‘‘Trust Distribution Date’’ means each date falling seven Hong Kong, Seoul and Tokyo Business

Days prior to each Note Payment Date.

(d) Mandatory Redemption

Following the declaration of a Mandatory Redemption Event (as defined below) by the Controlling

Beneficiary (provided that, in respect of paragraph (i) below, no such declaration by the Controlling

Beneficiary shall be required and the occurrence of such event shall be deemed to be the declaration by

the Controlling Beneficiary) and upon receipt of notice thereof from the Note Trustee, the Trustor will

be obliged to entrust the Mandatory Redemption Amount (as defined below) to the Japanese Trustee on

the third Tokyo Business Day after the date of the notice of such Mandatory Redemption Event is issued

by the Note Trustee to the Trustor. The Japanese Trustee will apply the Mandatory Redemption Amount

to redeem the Investor Beneficial Certificate, and consequently the Bond, and the Note Issuer will

redeem the Notes, in whole, to the extent of funds available therefor in accordance with the priority of

payments set forth in ‘‘— Application of Funds on Note Payment Dates’’ below, on the date which is

seven Business Days following such redemption of the Investor Beneficial Certificate, at the Note

Redemption Amount on such date.

A ‘‘Mandatory Redemption Event’’ means the occurrence of any of the following events:

(i) the Debt Service Coverage Ratio falls below 1:1 due to a reduction in Collections as a result

of a decrease in the generation of Receivables;

(ii) the Trustor defaults in the performance of its obligations under the Trust Agreement or the

other Transaction Documents;

(iii) a change in the Control of the Trustor which is not approved by the Controlling Beneficiary

(acting reasonably) (in writing) and of which prior written notice is given to the Rating

Agency;

(iv) the Trustor or the Servicer (if Korean Air is the Servicer) breaches materially any of the

covenants, representations or warranties given by it in any of the Transaction Documents and

such breach, if, in the reasonable opinion of the Controlling Beneficiary, is capable of

remedy, is not remedied within seven Seoul Business Days of the date of such breach;

(v) the Trust Agreement or any other Transaction Document or any authorisation, approval or

licence delivered or required by any Governmental Entity (as defined above) in connection

with the transactions contemplated by the Transaction Documents ceases to be in full force

and effect;

(vi) any judgment is entered against the Trustor by any court in an amount which, when

aggregated with the amount of all other unsatisfied judgments against the Trustor, is likely to

have a Material Adverse Effect (as defined below);

(vii) as a result of a change of law or regulation of any Governmental Entity or for any other

reason, the entrustment of the Entrusted Assets, or any part thereof, to the Japanese Trustee

is held to be invalid or subject to stay or is challenged by the Trustor or any receiver,

liquidator or similar officer of the Trustor or is challenged before any Government Entity;

18

(viii) the Note Trustee ceases to have a first fixed charge or absolute legal assignment over the

Note Secured Property or any part thereof;

(ix) any action or administrative proceeding of or before any court or agency with respect to the

Trustor is commenced which is likely in the reasonable opinion of the Controlling

Beneficiary to have a Material Adverse Effect on the financial condition of, or the cargo

transportation business of, the Trustor;

(x) any Material Adverse Change (as defined below) occurs in respect of the Trustor;

(xi) a Note Event of Default occurs other than as a result of the failure of any of IATA, the

CASS Bank or the IATA Agents to comply with their respective payment obligations under

the IATA Agreements;

(xii) at any time following the declaration by the Controlling Beneficiary of an Early Amortisation

Event, any of the Trustor, the Servicer, the Bond Issuer or the Note Issuer takes any action or

fails to take any action the result of which is, in the reasonable opinion of the Controlling

Beneficiary, to deny the Japanese Trustee, the Transaction Administrator or the Note Trustee

the ability to control or access the Trust Account, the Bond Issuer Accounts or the Note

Issuer Account (each as defined below) respectively;

(xiii) any default occurs on any indebtedness of the Trustor or any default causes (or permits a

holder or a trustee in respect of such indebtedness to cause) the acceleration of principal of

such indebtedness in an aggregate amount in excess of KRW12 billion (or the equivalent

thereof in any other currency);

(xiv) an Advance (as defined below) is made under the Credit Facility Deed other than as a result

of the failure of IATA, the CASS Bank or the IATA Agents to comply with their respective

payment obligations under the IATA Agreements;

(xv) a Bond Event of Default occurs other than as a result of the failure of IATA, the CASS Bank

or the IATA Agents to comply with their respective payment obligations under the IATA

Agreements; or

(xvi) any of the IATA Agreements is terminated; provided that the termination of any of the IATA

Agreements as a result of a replacement or substitution of the CASS Bank with another

account bank in accordance with the IATA Agreements shall not constitute a Mandatory

Redemption Event provided that the replacement clearing bank for the CASS Bank agrees to

be bound by the terms of the CASS Consent.

‘‘Advance’’ means an advance drawn down under the Credit Facility.

‘‘Bank Agreements’’ means, together, the bank agreements dated on or about the Closing Date

among:

(a) the relevant Account Bank and the Transaction Administrator in respect of the Bond Issuer

Accounts (the ‘‘Korean Bank Agreements’’); and (b) the relevant Account Bank and the

Note Trustee in respect of the Note Issuer Account (the ‘‘Note Issuer Account BankAgreement’’).

‘‘Control’’ means the power to direct the management and policies of a Person, directly or

indirectly, whether through the ownership of voting shares, by contract or otherwise.

19

‘‘Mandatory Redemption Amount’’ means the sum of:

(i) the Required Amount (as defined herein) for the relevant Mandatory Redemption Payment

Date; plus

(ii) any other accrued fees and expenses payable by the Japanese Trustee and the Note Issuer up

to (and including) the date on which the Notes are scheduled to be redeemed in full in

accordance with Note Condition 4(d) and not included in (i) above; less

(iii) the aggregate amounts on deposit in the Trust Account, the Reserve Account and the

Collection Account on the date of the Mandatory Redemption Notice.

‘‘Material Adverse Change’’ means, in respect of any Person, an adverse change in the legal

status, business, financial condition, assets or business prospects of that Person which, in the reasonable

opinion of the Controlling Beneficiary, is material and affects that Person’s ability to perform its

obligations under the Transaction Documents.

‘‘Material Adverse Effect’’ means any event or condition which would, in the reasonable opinion

of the Controlling Beneficiary, have a material adverse effect on (a) the collectibility of the Entrusted

Assets, (b) the condition (financial or otherwise), results of operation, businesses or properties of the

Trustor or the Servicer, (c) the ability of the Trustor, the Transaction Administrator or the Servicer to

perform their respective obligations under the Transaction Documents or (d) the interests of the Investor

Beneficiary, the Note Issuer, the Credit Facility Provider or the Noteholders.

‘‘Person’’ includes any individual, company, corporation, firm, partnership, joint venture,

association, organisation, trust, state or agency of a state (in each case, whether or not having separate

legal personality).

Note Events of Default

If any of the events set out in Note Condition 8 occurs, then the Note Trustee, if so requested in

writing by the Controlling Beneficiary, will as soon as practicable (i) declare that an event of default has

occurred under the Notes (a ‘‘Note Event of Default’’) and (ii) deliver a Note Enforcement Notice to the

Note Issuer in accordance with Note Condition 8 declaring that the Notes are, whereupon they will

immediately become, immediately due and payable at the Note Redemption Amount without any further

action or formality.

Withholding Taxes

All payments in respect of the Notes will be made free and clear of, and without withholding or

deduction for or on account of, any present or future Taxes, unless such withholding or deduction is

required by Law. In such event, the Note Issuer will withhold or deduct the relevant amount from such

payment and will not be obliged to make any additional payments in respect of the Notes. ‘‘Taxes’’means any present or future taxes, duties, assessments or governmental charges of whatever nature

imposed or levied by or on behalf of any jurisdiction, including, without limitation, deductions in

respect of withholding taxes, stamp registration or other taxes.

Note Issuer Account

On or before the Closing Date, the Note Trustee will establish a Japanese Yen denominated

segregated account (the ‘‘Note Issuer Account’’) with the Note Issuer Account Bank in the name of the

Note Issuer in order to receive, inter alia, payments from the Transaction Administrator on each Bond

20

Payment Date (as defined herein) in respect of the Bond. The Note Trustee will apply all funds on

deposit in the Note Issuer Account on each Note Payment Date and on any Mandatory Redemption

Payment Date, in the order of priority set out in ‘‘— Application of Funds on Note Payment Dates’’

below.

Other Currencies

If any payments to be made on any Note Payment Date are to be made in a currency other than

Japanese Yen (the ‘‘Other Currency’’), the Note Trustee is authorised to effect all foreign exchange

transactions at the prevailing spot rate of exchange available from the Note Issuer Account Bank for the

conversion of Japanese Yen into such Other Currency (and, if no exchange rate is available from the

Note Issuer Account Bank, at such rate as it is able to obtain) in order to effect the payment in the Other

Currency.

Credit Facility

On the Closing Date, the Credit Facility Provider will make available the Credit Facility to the

Note Issuer up to a commitment amount of ¥20,757,597,790 less the aggregate of (i) the aggregate

amount of all Advances (but excluding any amount of interest, additional interest and compounding and

any amount deemed to be an Advance) made from time to time and (ii) the aggregate of (x) all amounts

paid under items ‘‘first’’, ‘‘second’’ and ‘‘fourth’’ of Clause 8.5 of the Note Trust Deed on all prior Note

Payment Dates and (y) all Fixed Amounts paid on all prior Swap Payment Dates, in each case prior to

the date of determination (save to the extent made with the proceeds of an Advance) (the ‘‘CommitmentAmount’’). Each advance (each, an ‘‘Advance’’) will be deposited by the Credit Facility Provider into

the Note Issuer Account on the date specified in an irrevocable written notice of demand for payment.

Interest will accrue from day to day in respect of each Advance until the repayment thereof in full. The

obligations of the Credit Facility Provider under the Credit Facility Deed are irrevocable and

unconditional and rank at least pari passu with all of its other unsecured and unsubordinated

obligations.

The Note Issuer will repay the Credit Facility Provider in respect of each Advance and other

amounts due under the Credit Facility Deed in accordance with the priority of payments set out in the

Note Trust Deed (as set out in ‘‘— Application of Funds on Note Payment Dates’’ below). The Note

Issuer will pay a fee to the Credit Facility Provider on each Note Payment Date calculated as a

percentage of the Commitment Amount (the ‘‘Credit Facility Provider’s Fee’’), and the obligations of

the Credit Facility Provider under the Credit Facility Deed will remain in full force and effect

notwithstanding the non-payment of such fee.

The occurrence of any of the following events will constitute a ‘‘Drawdown Trigger Event’’under the Credit Facility Deed:

(a) the Credit Facility Provider does not pay principal or interest or premium or deposit in any

sinking fund payment on any debt securities when due and such failure to pay continues for

30 days; or

(b) the Credit Facility Provider defaults in the performance of or breaches any other covenant

(other than a default specified in (a) above and (g) below) in any series of debt securities and

such default continues for a period of 60 days after written notice of the default is given to

the Credit Facility Provider by the holders of at least 10 per cent. of the aggregate principal

amount of the debt securities of any series at the time outstanding; or

21

(c) any obligation for the payment or repayment of money borrowed which is denominated in a

currency other than the currency of Korea (‘‘External Indebtedness’’) of the Credit Facility

Provider in the aggregate principal amount of U.S.$10,000,000 or more either (i) becomes

due and payable prior to the due date for payment thereof by reason of default by the Credit

Facility Provider or (ii) is not repaid at maturity as extended by the period of grace, if any,

applicable thereto, or (iii) any guarantee given by the Credit Facility Provider in respect of

External Indebtedness of any other person is not honoured when due and called; or

(d) Korea declares a moratorium on the payment of any External Indebtedness (including

obligations arising under guarantees) of Korea or Korea becomes liable to repay prematurely

any sums in respect of such External Indebtedness (including obligations arising under

guarantees) as a result of a default under, or breach of the terms applicable to, such External

Indebtedness or such obligations, or Korea ceases to be a member of the International

Monetary Fund or the International Bank for Reconstruction and Development, or the

international monetary reserves of Korea become subject to any lien, charge, mortgage,

encumbrance or other security interest or any segregation or other preferential arrangement

(whether or not constituting a security interest) for the benefit of any creditor or class of

creditors; or

(e) Korea fails to provide the financial support to the Credit Facility Provider stipulated by

Article 44 of The Korea Development Bank Act of 1953, as amended (as of the date of the

debt securities of any series); or

(f) Korea ceases to control (directly or indirectly) the Credit Facility Provider. For the purpose

of this paragraph, ‘‘control’’ means the acquisition or control of a majority of the voting

share capital of the Credit Facility Provider or the right to appoint and/or remove all or the

majority of the members of the Credit Facility Provider’s board of directors or other

governing body, whether obtained directly or indirectly, and whether obtained by ownership

of share capital, the possession of voting rights, contract or otherwise; or

(g) the Credit Facility Provider is adjudicated or found bankrupt or insolvent or any order is

made by a competent court or administrative agency or any resolution is passed by the Credit

Facility Provider to apply for bankruptcy or for judicial composition proceedings with its

creditors or for the appointment of a receiver or trustee or other similar official in insolvency

proceedings in relation to the Credit Facility Provider or a substantial part of the assets of the

Credit Facility Provider or the Credit Facility Provider is liquidated, wound up or dissolved

or the Credit Facility Provider ceases to carry on the whole or substantially the whole of its

business.

Following the occurrence and during the continuation of any Drawdown Trigger Event, the Credit

Facility Provider will no longer be the Controlling Beneficiary (other than in the limited circumstances

specified in ‘‘— Transaction Parties — The Controlling Beneficiary’’ above).

Following the declaration by the Controlling Beneficiary of a Mandatory Redemption Event and

upon receipt of notice from the Transaction Administrator that the amount of funds available to the Note

Issuer for redemption of the Notes is less than the Note Outstanding Amount (as defined below), the

Credit Facility Provider will notify the Note Trustee and the Transaction Administrator in writing as to

whether in its sole discretion (if no Drawdown Trigger Event has occurred) it will, within the limits of

the then available Commitment Amount, make an Advance under the Credit Facility Deed equal to

either (a) the amount by which amounts on deposit in the Note Issuer Account are less than the Note

Outstanding Amount or (b) the Note Collection Shortfall with respect to the Notes scheduled to be paid

on the next succeeding Note Payment Date. If a Drawdown Trigger Event has occurred (whether or not

22

a Mandatory Redemption Event has been declared), the Credit Facility Provider will, within the limits of

the then available Commitment Amount, be obliged to make an Advance equal to the amount by which

amounts on deposit in the Note Issuer Account are less than the Note Outstanding Amount.

‘‘Note Outstanding Amount’’ means, with respect to any day on which the Notes are due to be

prepaid, the aggregate of (a) the Principal Amount Outstanding of the Notes as at the immediately

preceding Note Payment Date (or, if none, the Closing Date), (b) the highest of the (i) aggregate accrued

interest due and payable in respect of the Notes up to (but excluding) such day (ii) the Fixed Amount

due on the next succeeding Swap Payment Date and (iii) the Floating Amount due on the next

succeeding Swap Payment Date and (c) the aggregate of those amounts which are, in accordance with

the Note Trust Deed, due and payable in priority to or pari passu with the amounts due and payable by

the Note Issuer under the Notes.

‘‘Note Collection Shortfall’’ means, with respect to the relevant Note Payment Date, the amount,

if positive, of: (i) the aggregate amounts payable from the Note Issuer Account under paragraphs (a),

(b), (c) and (d) of Clause 8.5 of the Note Trust Deed on such Note Payment Date less (ii) the aggregate

amounts on deposit in the Note Issuer Account on such Note Payment Date (after taking into account

any amounts actually paid, or scheduled to be paid, from the Note Issuer Account on the related Swap

Payment Date in respect of the Fixed Amount and any amounts actually received, or scheduled to be

received, into the Note Issuer Account on the related Swap Payment Date in respect of the Floating

Amount).

The Swap Agreement

The Note Issuer entered into an ISDA Master Agreement, together with a schedule and a

confirmation on 21 April, 2011 (the ‘‘Swap Agreement’’). On the fourth Hong Kong, Dublin, London,

Seoul and Tokyo Business Day preceding each Note Payment Date or, as the case may be, the second

Hong Kong, Seoul and Tokyo Business Day preceding a Mandatory Redemption Payment Date (each, a

‘‘Swap Payment Date’’), the Note Issuer will make a fixed payment to the Swap Provider (each, a

‘‘Fixed Amount’’) and the Swap Provider will make a floating payment to the Note Issuer (each, a

‘‘Floating Amount’’) equal to the interest payable on the Notes on the next Note Payment Date or, as

the case may be, the Mandatory Redemption Payment Date.

The Note Issuer will pay certain charges of the Swap Provider (the ‘‘Swap Provider Charges’’)pursuant to the Swap Agreement and interest thereon, from and including, the relevant Early

Termination Date (as defined in the Swap Agreement) to, but excluding, the date on which such Swap

Provider Charges are paid under the Swap Agreement. The Note Issuer will also pay certain additional

amounts to the Swap Provider arising as a result of the commencement of the Early Amortisation Period,

the Enforcement Period or arising after the Mandatory Redemption Payment Date.

Listing

Application has been made to list the Notes on the Irish Stock Exchange on the Closing Date.

Limited Recourse

Recourse against the Note Issuer, and the liability of the Note Issuer, in relation to its obligations

under the Notes will be limited to the Note Secured Property, including the Bond and the amounts from

time to time available in accordance with, and in the order of priority set out in, the Note Trust Deed.

Noteholders will have no claim or recourse against the Note Issuer in respect of any unsatisfied amounts

after the application in accordance with the Note Trust Deed of the funds comprising the Note Secured

Property and/or representing the proceeds of realisation thereof, and in such event the Notes and all

23

other outstanding obligations of the Note Issuer will be waived and extinguished. The obligations of the

Note Issuer under the Notes and the Transaction Documents are corporate obligations and Noteholders

will have no claim or recourse against any shareholder, employee, officer, director or agent of the Note

Issuer.

No Petition

Each Note Secured Party will agree in the Transaction Documents to which it is a party that it will

not petition a court for, or take any other action or commence any proceedings for, the liquidation,

winding-up, bankruptcy or reorganisation of the Note Issuer, or for the appointment of a receiver,

administrator, administrative receiver, trustee, liquidator, sequestrator or similar officer of the Note

Issuer or of any or all of the Note Issuer’s revenues and assets, until one year and one day after the

payment in full of all amounts owing in respect of the Notes and all other Note Issuer Obligations.

Governing Law

The Investor Beneficial Interest Sale and Purchase Agreement, the Bond Issuer Servicing

Agreement, the Transaction Administration Agreement, the Korean Bank Agreements and the Bond

Issuer Administrator Agreement will be governed by Korean law. The Notes, the Note Trust Deed, the

Note Agency Agreement, the Note Issuer Account Bank Agreement, the Bond, the Bond Subscription

and Agency Agreement, the Credit Facility Deed and the Swap Agreement will be governed by English

law. The Trust Agreement, the Investor Beneficial Interest, the Inter-Branch Memorandum and the

Servicing Agreement will be governed by Japanese law. The Note Issuer Administrator Agreement will

be governed by Cayman Islands law.

THE BOND

The Bond

The Bond Issuer will issue the ¥20,000,000,000 Variable Rate Bond due 2014 (the ‘‘Bond’’) to the

Note Issuer (as ‘‘Bondholder’’) on the Closing Date pursuant to the provisions of a bond subscription

and agency agreement dated on or about the Closing Date among, inter alios, the Bond Issuer, the

Bondholder and the Note Trustee (the ‘‘Bond Subscription and Agency Agreement’’). The Note Issuer

will assign all of its rights to the Bond and its other assets to the Note Trustee as security for, inter alia,

its obligations under the Notes. The Bond will be secured by the Bond Secured Property (as defined

below). See ‘‘— Bond Security’’ below.

Bond Security

The obligations of the Bond Issuer are secured by the pledge and assignment of the Bond Issuer’s

assets and equity pursuant to the Pledge Agreement, the Equity Pledge Agreement, the Security

Assignment and the Japanese Law Security Agreement each as defined below (the ‘‘Bond Security’’).

Pursuant to a pledge agreement dated the Closing Date between, inter alios, the Bond Issuer and

the Security Agent (the ‘‘Pledge Agreement’’), the Bond Issuer has granted a pledge in favour of the

Bond Secured Parties (as defined below) over all of its rights and title to the following assets in order to

secure the Bond Issuer Obligations:

(a) each of the Transaction Administration Agreement, the Bond Issuer Servicing Agreement, the

Bond Issuer Administrator Agreement, the Korean Bank Agreements, the Investor Beneficial

Sale and Purchase Agreement and all other agreements and documents delivered or executed

in connection therewith (the ‘‘Korean Pledged Documents’’);

24

(b) each of the Bond Issuer Accounts, including all sub-accounts, and all balances, credits,

deposits, monies or other sums therein or on deposit or payable or withdrawable therefrom

and any interest accrued or payable thereon; and

(c) all of its other property and assets (to the extent permissible by Law).

Pursuant to an equity pledge agreement dated the Closing Date between, inter alios, the Bond

Issuer and the Equity Pledgors (as defined below) (the ‘‘Equity Pledge Agreement’’), the Equity

Pledgors have granted a pledge in favour of the Bond Secured Parties over all of their rights and title to

their respective Equity Interests in the Bond Issuer to secure the Bond Issuer Obligations. The

authorised equity capital of the Bond Issuer consists of KRW10,000,000 divided into 1,000 units of a

nominal or par value of KRW10,000 each of which has been issued at par and fully paid, with 5 units

being held by the Trustor and 995 units being held by Eun Yun Park (each, an ‘‘Equity Pledgor’’ andan ‘‘Equityholder’’). See ‘‘The Bond Issuer — Equity Capital’’ and ‘‘— Capitalisation and

Indebtedness’’.

The Bank of New York Mellon, Seoul Branch (the ‘‘Security Agent’’) will hold the Bond Security

as agent for the Bond Secured Parties pursuant to the terms of the Transactions Documents.

Pursuant to, and on the terms set out in, the Security Assignment, the Bond Issuer has assigned to

the Bond Secured Parties all of its rights and title to, inter alia, the Bond Subscription and Agency

Agreement and the Bond to secure the Bond Issuer Obligations.

Pursuant to, and on the terms set out in, the Japanese Law Security Agreement, the Bond Issuer

has, in favour of the Security Agent:

(a) granted a pledge over all of its rights in the Investor Beneficial Interest; and

(b) assigned all of its rights, title, interest and benefit under the Trust Agreement and the

Servicing Agreement, in each case to secure the Bond Issuer Obligations.

Each of the Pledge Agreement, the Equity Pledge Agreement, the Security Assignment and the

Japanese Law Security Agreement provide for enforcement of the Bond Security and the exercise of

rights generally by the Security Agent at the written direction of the Note Trustee (acting at the

direction of the Controlling Beneficiary) in relation to the Bond Security upon the service of a Bond

Enforcement Notice.

Proceeds of enforcement of the Bond Security will be applied by the Security Agent in the manner

and order of priority specified in the Pledge Agreement. See ‘‘— Application of Funds on Bond Payment

Dates’’.

‘‘Bond Secured Parties’’ means, together, the Note Trustee (in its individual capacity and not as

trustee for the benefit of the Noteholders), the Bondholder, the Credit Facility Provider, the Swap

Provider, the Calculation Agent, the Agents, the Controlling Beneficiary, the Bond Issuer Administrator

and the Account Banks.

Interest

Interest will be payable on the Bond monthly in arrear on the fifth Business Day preceding each

Note Payment Date (each, a ‘‘Bond Payment Date’’) commencing in May 2011 or, if such day is not a

Business Day, the next succeeding Business Day.

25

Interest on the Bond will be payable by reference to successive interest periods (each, an ‘‘InterestPeriod’’). The initial Interest Period will commence on (and include) the Closing Date and end on (but

exclude) the initial Note Payment Date. Each successive Interest Period will commence on and include a

Note Payment Date and end on (but exclude) the next succeeding Note Payment Date or the date on

which the Bond is redeemed in full, if earlier.

Bond Interest

Interest will be payable in respect of the Bond in respect of an Interest Period in the sum of the

interest amount specified in the table of interest payments (the ‘‘Bond Interest Table’’) set out in Bond

Condition 2 in respect of such Interest Period.

As a separate obligation, the Bond Issuer agrees to pay to the Bondholder an amount (the ‘‘BondAdditional Amount’’) equal to the amount by which the Bond Interest Amount with respect to a Bond

Payment Date is less than the sum of (A) the aggregate of the amounts payable in respect of paragraphs

(a), (b) and (c)(y) of Clause 8.5 of the Note Trust Deed on the immediately succeeding Note Payment

Date and (B) the Fixed Amount payable on the immediately succeeding Swap Payment Date (prior to

the termination of the Swap Agreement) or the Note Interest Amount payable on the immediately

succeeding Note Payment Date (after the termination of the Swap Agreement and prior to the

effectiveness of any replacement swap agreement).

Amortisation and Redemption

(a) Bond Maturity

Unless previously redeemed in full, the Bond Issuer will redeem the Bond, to the extent of funds

available therefor, in full on the Bond Payment Date falling in April 2014 (the ‘‘Bond Maturity Date’’)at its Bond Redemption Amount (as defined below) as at such date.

‘‘Bond Redemption Amount’’ means, at any date, an amount equal to the Principal Amount

Outstanding (as defined below) of the Bond at such date plus accrued and unpaid interest thereon to, but

excluding, such date.

‘‘Principal Amount Outstanding’’ means, in relation to the Bond, on any date, the principal

amount of the Bond on the Closing Date less the aggregate amount of all payments of principal in

respect of the Bond which have been paid on the Bond after the Closing Date to the relevant date.

(b) Controlled Amortisation Period

On each Bond Payment Date during the Controlled Amortisation Period, principal in respect of the

Bond is scheduled to be paid in instalments (as defined below) (each, a ‘‘Scheduled AmortisationAmount’’) in accordance with the schedule set out in Bond Condition 3 subject to available funds.

‘‘Bond Certificate’’ means the Bond in certificated registered form which is issued pursuant to the

Bond Subscription and Agency Agreement in the form, or substantially in the form, set out in the Bond

Subscription and Agency Agreement.

‘‘Bond Conditions’’ means the terms and conditions of the Bond in the form set out in Schedule 1

to the Bond Subscription and Agency Agreement.

26

(c) Early Amortisation Period/Enforcement Period

On each Bond Payment Date following a Trust Distribution Date that falls in the Early

Amortisation Period or the Enforcement Period, amounts in respect of principal will be payable on the

Bond up to the Principal Amount Outstanding in the inverse order of the original amortisation schedule,

to the extent of funds available therefor, until the Bond has been repaid in full at the Bond Redemption

Amount as at such date.

(d) Mandatory Redemption

Following the declaration by the Controlling Beneficiary of a Mandatory Redemption Event in

respect of the Notes and upon receipt of notice thereof from the Transaction Administrator, the Bond

Issuer will redeem the Bond, in whole, to the extent of funds available therefor in accordance with the

priority of payments set forth in ‘‘— Application of Funds on Bond Payment Dates’’ below, on the

relevant Mandatory Redemption Payment Date, at the Bond Redemption Amount on such date.

Bond Events of Default

Bond Condition 6 will define a ‘‘Bond Event of Default’’ to include:

(a) default is made in the repayment of any principal amount of the Bond or in the payment of

any interest in respect of the Bond;

(b) default is made by the Bond Issuer in the performance or observance of any obligation,

condition or provision binding on it under the Transaction Documents to which it is a party

(other than any obligation for the payment of any principal or interest on the Bond) and,

except where in the opinion of the Controlling Beneficiary such default is not capable of

remedy, such default continues for 30 days after written notice delivered by the Security

Agent (acting on the written instructions of the Controlling Beneficiary as aforesaid) to the

Bond Issuer;

(c) an order is made by any competent court or an effective resolution is passed for the winding-

up or dissolution of the Bond Issuer;

(d) (i) the Bond Issuer stops payment of its debts (within the meaning of any applicable

bankruptcy law), or is unable to pay its debts as and when they fall due; (ii) the Bond Issuer

ceases or, through an official action of its director, or meeting of the Equityholders, of the

Bond Issuer, threatens to cease, to carry on all or any substantial part of its business;

(e) one or more final judgments from which no further appeal or judicial review is permissible

under applicable Law are awarded against the Bond Issuer in an aggregate amount in excess

of KRW10,000,000;

(f) proceedings are initiated against the Bond Issuer under any applicable liquidation,

insolvency, composition, re-organisation or other similar laws including, for the avoidance of

doubt, presentation to the court of an application for an administration order, or an

administrative receiver or other receiver, administrator or other similar official is appointed in

relation to the Bond Issuer or in relation to the whole or any substantial part of the

undertaking or assets of the Bond Issuer or an encumbrancer takes possession of the whole or

any substantial part of the undertaking or assets of the Bond Issuer or a distress, execution,

attachment, sequestration, diligence or other process is levied, enforced upon, sued out or put

in force against the whole or any substantial part of the undertaking or assets of the Bond

27

Issuer and, in any of the foregoing cases, it will not be discharged, annulled or withdrawn

within 14 days or earlier if the relevant court has accepted the applications or petitions for

such proceedings;

(g) any decree, resolution, authorisation, approval, consent, filing, registration or exemption

necessary for the execution and delivery of the Bond on behalf of the Bond Issuer and the

performance of the Bond Issuer’s Obligations under the Bond or any of the Transaction

Documents is withdrawn or modified or otherwise ceases to be in full force and effect, or it

is unlawful for the Bond Issuer to comply with, or the Bond Issuer contests the validity or

enforceability of or repudiates, any of its obligations under the Bond, the Bond Subscription

and Agency Agreement or any of the other Transaction Documents;

(h) the Bond Issuer initiates or consents to judicial proceedings relating to itself under any

applicable liquidation, insolvency, composition, reorganisation or other similar laws or makes

a conveyance or assignment for the benefit of its creditors generally (or any class of its

creditors) or enters into an arrangement or composition with its creditors generally (or any

class of its creditors);

(i) any representation or warranty made by the Bond Issuer in any of the Transaction Documents

proves to be incorrect or misleading in any material respect when made;

(j) a Note Event of Default occurs; or

(k) the Bond Security or any part thereof becomes invalid, void or unenforceable.

Upon (i) the declaration of a Bond Event of Default by the Security Agent (acting on the

instructions of the Controlling Beneficiary) and (ii) the delivery of a Bond Enforcement Notice to the

Bond Issuer by the Security Agent (acting on the instructions of the Controlling Beneficiary), the

Enforcement Period will commence with respect to the Bond.

Withholding Taxes

All payments in respect of the Bond will be made free and clear of, and without withholding or

deduction for or on account of, any present or future Taxes, unless such withholding or deduction is

required by Law. In such event, the Bond Issuer will pay, but only to the extent of funds available

therefor in accordance with the priority of payments set forth in the Transaction Administration

Agreement, such additional amount as may be necessary in order that the net amount received by the

Bondholder in respect of the Bond after such withholding or deduction will equal the amount which

would have been received in the absence of such withholding or deduction.

Bond Issuer Accounts

On or before the Closing Date, the Transaction Administrator will establish a Japanese Yen

denominated segregated account with The Bank of New York Mellon, Seoul Branch in the name of the

Bond Issuer (the ‘‘Bond Issuer Yen Account’’) in order to receive payments from the Japanese Trustee

on each Trust Distribution Date under the Investor Beneficial Certificate. Payments in respect of the

Investor Beneficial Certificate will be paid on each Trust Distribution Date (other than following the

declaration of a Mandatory Redemption Event, in which case on the relevant Mandatory Redemption

Payment Date) into the Bond Issuer Yen Account in order to make payments under the Bond on the next

Bond Payment Date or the relevant Mandatory Redemption Payment Date. On or prior to the Closing

Date, the Transaction Administrator will also establish a Japanese Yen denominated segregated account

28

and a Korean Won segregated account with The Bank of New York Mellon, Seoul Branch in the name

of the Bond Issuer (the ‘‘Bond Issuer FX Account’’ and the ‘‘Bond Issuer Won Account’’,respectively, and together with the Bond Issuer Yen Account, the ‘‘Bond Issuer Accounts’’).

‘‘Account Bank’’ means, (i) The Bank of New York Mellon, Seoul Branch in respect of the Bond

Issuer Yen Account, the Bond Issuer Won Account and the Bond Issuer FX Account (ii) The Bank of

New York Mellon, Hong Kong Branch in respect of the Note Issuer Account and (iii) The Bank of New

York Mellon, Tokyo Branch in respect of the Japanese Trust Accounts, or such other bank that is an

Eligible Entity approved by the Transaction Administrator in respect of the Bond Issuer Accounts and

the Note Issuer Account and such other bank as is provided in the Trust Agreement in respect of the

Japanese Trust Accounts.

‘‘Eligible Entity’’ means any entity whose long term bank deposit rating is rated at least ‘‘A2’’

and the short-term bank deposit rating is rated at least ‘‘Prime-1’’ by the Rating Agency; provided that

in respect of the bank at which the Trust Account is opened, any Japanese city bank (toshiginko) or

Japanese trust bank (shintakuginko) whose short-term bank deposit rating is rated at least ‘‘Prime-1’’ by

the Rating Agency; provided further that in the case of each Account Bank, the relevant rating shall be

that of its head office; provided that in the case of the Swap Provider, the long term foreign currency

senior unsecured debt is rated at least ‘‘A2’’ and the short-term foreign currency senior unsecured debt is

rated at least ‘‘Prime-1’’.

Other Currencies

If any payments which are to be made on any Bond Payment Date are to be made in the Other

Currency, the Transaction Administrator is authorised to effect all foreign exchange transactions at the

prevailing spot rate of exchange available from the relevant Account Bank for the conversion of

Japanese Yen into such Other Currency (and, if no exchange rate is available from the relevant Account

Bank, at such rate as it is able to obtain) in order to effect the payment in the Other Currency.

Limited Recourse

Each party to the Transaction Documents will agree that recourse against the Bond Issuer, and the

liability of the Bond Issuer, in relation to its obligations under the Bond will be limited to the Bond

Secured Property and the amounts from time to time available in accordance with, and in the order or

priority set out in, the Transaction Administration Agreement.

No Petition

Each Bond Secured Party will agree in the relevant Transaction Documents that it will not petition

a court for, or take any other action or commence any proceedings for, the liquidation, winding-up,

bankruptcy or reorganisation of the Bond Issuer, or for the appointment of a receiver, administrator,

administrative receiver, trustee, liquidator, sequestrator or similar officer of the Bond Issuer or of any or

all of the Bond Issuer’s revenues and assets, until one year and one day after the payment in full of all

amounts owing in respect of the Bond and of all other obligations of the Bond Issuer.

Registrations

On or before the Closing Date the Bond Issuer will file with the FSC a Securitisation Plan relating

to the purchase by the Bond Issuer of the Investor Beneficial Interest.

29

THE ENTRUSTED ASSETS

Description

The Trustor is a Korean airline operating passenger and cargo services to various domestic and

international destinations. The Trustor is entrusting assets arising in connection with the sale of cargo

transportation on Korean Air’s flights to and from Japan by IATA Agents on behalf of Korean Air and

which are settled through CASS Japan and payable by the CASS Bank to Korean Air.

The assets to be entrusted by the Trustor to the Japanese Trustee are:

(a) on the Entrustment Date, the Receivables; and

(b) on the Closing Date, the Reserve Funding Amount.

Additional monies will be entrusted (i) upon the declaration of a Mandatory Redemption Event,

inter alia, to redeem the Investor Beneficial Certificate and ultimately to pay all amounts owing under

the Notes and (ii) in an amount equal to any CASS Bank Set-off, IATA Set-off or IATA Agent Set-off

from time to time in accordance with the provisions of the Trust Agreement (such additional amounts,

together with the items in paragraphs (a) and (b) above, the ‘‘Entrusted Assets’’).

Pursuant to the Trust Agreement, on the Closing Date the Trustor will entrust the items in

paragraphs (a) and (b) of the Entrusted Assets to the Japanese Trustee.

Perfection

The Trustor will obtain consent from IATA and the CASS Bank (unless not required by the Credit

Facility Provider) (the ‘‘CASS Consent’’) in relation to the entrustment of the Receivables to the

Japanese Trustee. The Trustor will deliver such CASS Consent to the Japanese Trustee on the

Entrustment Date duly executed by the parties thereto and bearing a notarised date stamp (kakutei

hizuke).

To perfect the entrustment of the Receivables owed by the IATA Agents, the CASS Bank and

IATA against third parties, the Trustor will make all necessary filings and registrations with the Quebec

Register of Personal and Movable Real Rights and with the Nakano branch of the Tokyo Legal Affairs

Bureau on or about the Entrustment Date.

SERVICING

Servicing

Pursuant to a servicing agreement dated 11 April, 2011 among, inter alios, the Servicer and the

Japanese Trustee (the ‘‘Servicing Agreement’’), the Japanese Trustee will, pursuant to the instructions

of the Trustor, appoint the Servicer to manage, service, administer and collect the Serviced Assets and

Collections thereon in accordance with the terms of the Servicing Agreement.

The Servicer will perform its services in accordance with its administrative procedures and the

professional standards of care and practice of a prudent cargo receivables servicer managing, servicing,

administering and collecting amounts due in respect of similar cargo receivables and bank accounts in

Japan (the ‘‘Industry Standards’’) and otherwise in accordance with applicable law.

30

Servicer Duties

Under the Servicing Agreement, the Servicer will be required to, inter alia:

(a) manage, service, administer and collect the Serviced Assets and the Collections thereon in

accordance with Industry Standards and the degree of skill and attention of a good faith

manager (zenkan chuigimu);

(b) comply with and perform the other agreements, covenants and obligations on its part set out

in the Servicing Agreement and the other Transaction Documents to which it is a party; and

(c) provide a Monthly Servicer Report (as defined below) to the Trustor (if it is not the

Servicer), the Japanese Trustee, the Investor Beneficiary, the Transaction Administrator, the

Note Trustee, the Credit Facility Provider and the Rating Agency in connection with the

Serviced Assets.

Monthly Servicer Report

On the 3rd day of each month provided that such day is a Hong Kong, Seoul and Tokyo Business

Day and, if such day is not a Business Day in such locations, on the next succeeding Business Day in

such locations, the Servicer will be required to prepare and deliver to, inter alios, the Trustor (if it is not

the Servicer), the Japanese Trustee, the Investor Beneficiary, the Transaction Administrator, the Bond

Issuer Administrator, the Bond Issuer Servicer, the Security Agent, the Credit Facility Provider and the

Rating Agency a report pursuant to the provisions of the Servicing Agreement with respect to activity

during the immediately preceding calendar month (the ‘‘Monthly Servicer Report’’). The Servicer will

also certify in each Monthly Servicer Report that no Servicer Termination Event, Early Amortisation

Event, Potential Early Amortisation Event (as defined below) or Mandatory Redemption Event had

occurred as of the last day of the monthly collection period (each, a ‘‘Collection Period’’) to which

such Monthly Servicer Report relates or that such an event has occurred. The Monthly Servicer Report

will relate to and include all Collections on the Serviced Assets during the relevant Collection Period.

A ‘‘Potential Early Amortisation Event’’ will be defined to mean any condition, event or act

which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration,

demand, determination and/or request and/or the taking of any similar action and/or the fulfilment of

any similar condition, could constitute an Early Amortisation Event.

Servicer Covenants

The Servicer will covenant with each party to the Servicing Agreement that it will, inter alia:

(a) comply at all times with all laws applicable to or in any way affecting the creation and

servicing of the Receivables or the transactions contemplated by the Transaction Documents

where failure to do so would have a Material Adverse Effect;

(b) execute all such further documents and take all such further actions as may be necessary on

the Closing Date or thereafter, in the reasonable opinion of the Japanese Trustee, to ensure

that the Japanese Trustee has an ownership interest in the Receivables to the extent

contemplated by the Transaction Documents and to give effect to the Servicing Agreement;

(c) keep separate and not commingle the Receivables or Collections with any of its assets, except

as contemplated by the Servicing Agreement and the Trust Agreement; and

31

(d) not create or permit to exist any Lien on any Receivables, Collections or other rights

entrusted pursuant to the Trust Agreement, except as permitted or required under the

Transaction Documents.

Servicer Termination Events

The Servicing Agreement will define ‘‘Servicer Termination Event’’ to include, inter alia:

(a) the Servicer defaults in the payment or deposit on the due date of any payment or deposit due

and payable by it under any Transaction Document to which it is a party (other than such

default as may be caused by a technical or administrative error and is remedied within three

Seoul and Tokyo Business Days), including the Servicer’s failure to transfer Collections in

accordance with the Servicing Agreement;

(b) the Servicer defaults in the performance or observance of any of its other covenants and

obligations under any Transaction Document to which it is a party and (except where such

default is incapable of remedy or where no applicable grace period is specified in the relevant

Transaction Document) such default continues unremedied for a period of ten Seoul and

Tokyo Business Days, and which default is, or is likely in the reasonable opinion of the

Japanese Trustee or the Controlling Beneficiary to be, materially prejudicial to the interests

of the Investor Beneficiary;

(c) the Servicer (if it is the Trustor) ceases or proposes to cease to carry on its cargo

transportation business or a substantial part of such business in Japan;

(d) an Insolvency Event occurs in relation to the Servicer; or

(e) there is a suspension, revocation, termination or withdrawal of any approval, authorisation,

consent or licence required by the Servicer to carry out any of its duties or obligations under

any Transaction Document to which it is a party and such suspension, revocation, termination

or withdrawal is not remedied within ten Seoul and Tokyo Business Days thereafter.

Pursuant to the Servicing Agreement, following the occurrence of a Servicer Termination Event

which remains unremedied, the Japanese Trustee, who will act in accordance with the Controlling

Beneficiary’s instructions (including the grant of any waiver of a Servicer Termination Event), may

terminate the appointment of the Servicer provided that the termination of the appointment shall not

become effective until a successor Servicer is appointed and has commenced performance of its services.

The Japanese Trustee may terminate the appointment of the Servicer if, in the reasonable opinion

of the Japanese Trustee:

(a) the Servicer is in breach of any of its material duties under the Servicing Agreement;

(b) the Servicer is unable to accurately perform its duties under the Servicing Agreement; or

(c) it is necessary to protect the interests of the Beneficiaries.

Upon termination of the Servicer’s appointment, the Servicer will be obligated to immediately

deliver or make available to such person as the Japanese Trustee directs, inter alia, all documents, files

and records relating to the Entrusted Assets necessary for the collection thereof or the enforcement of

the rights of the Japanese Trustee therein and all moneys or other assets then held by the Servicer on

behalf of any party (other than the Seller Beneficiary) to any Transaction Document.

32

THE TRUST

The Japanese Trust

The Japanese Trust will be formed pursuant to the Trust Agreement (the ‘‘Japanese Trust’’) for

the purpose of the entrustment by the Trustor of the Entrusted Assets. The Japanese Trustee will operate

and administer the Japanese Trust pursuant to the provisions of the Trust Agreement. The Japanese Trust

will terminate upon the earlier to occur of, inter alia, (i) 27 April, 2016 and (ii) the date on which all

amounts due under the Notes have been paid in full; provided that (except where the Credit Facility

Provider has failed to pay to the Japanese Trustee such fees as specified in the Trustee Fee Letter (as

defined below)) no amounts are outstanding under the Credit Facility Deed on such date.

‘‘Japanese Trustee Fee Letter’’ means the fee letter agreement between, inter alios, the Japanese

Trustee and the Trustor.

The Japanese Trust Accounts

On or before the Closing Date, pursuant to the instructions of the Trustor, the Japanese Trustee

will establish three segregated Japanese Yen-denominated bank accounts in its name with The Bank of

New York Mellon, Tokyo Branch (the ‘‘Collection Account’’, the ‘‘Trust Account’’ and the ‘‘ReserveAccount’’ and together the ‘‘Japanese Trust Accounts’’) for the purpose of, inter alia, collecting

payments on the Receivables (‘‘Collections’’) and making distributions on the Investor Beneficial

Interest and the Seller Beneficial Interest. The Japanese Trustee will not invest amounts standing to the

credit of the Japanese Trust Accounts.

Limited Recourse

Recourse against the Japanese Trustee, and the liability of the Japanese Trustee, in relation to its

obligations under the Investor Beneficial Certificate and the Seller Beneficial Certificate will be limited

to the Entrusted Assets and the amounts from time to time available in accordance with, and in the order

of priority set out in, the Trust Agreement. The holders of the Investor Beneficial Certificate and the

Seller Beneficial Certificate will have no claim or recourse against the Japanese Trust or the Japanese

Trustee in respect of any unsatisfied amounts after the application in accordance with the Trust

Agreement of the funds comprising the Entrusted Assets and/or representing the proceeds of realisation

thereof, and in such event the Investor Beneficial Certificate and the Seller Beneficial Certificate will be

waived and extinguished.

The Reserve Account

The Trustor will entrust ¥980,630,525 to the Japanese Trustee on the Closing Date to fund the

Reserve Account. The Japanese Trustee will maintain the Required Reserve Balance on deposit in the

Reserve Account at all times. The ‘‘Required Reserve Balance’’ means:

(a) if no Event of Default has occurred and no Early Amortisation Event or Mandatory

Redemption Event has been declared by the Controlling Beneficiary, the sum of (i) the

aggregate Senior Investor Beneficial Certificate Obligations (as defined below) due on the

next succeeding two Trust Distribution Dates plus if relevant (ii) the First Trigger Amount

(as defined below) plus if relevant (iii) the Second Trigger Amount (as defined below); and

(b) following the occurrence of an Event of Default or the declaration by the Controlling

Beneficiary of an Early Amortisation Event or a Mandatory Redemption Event, zero.

33

The Japanese Trustee will fund the Reserve Account by transferring amounts from the Trust

Account to the Reserve Account up to the Required Reserve Balance on each Trust Distribution Date (in

accordance with the order of priority set out in ‘‘— Application of Funds on Trust Distribution Dates’’

below) and from the Collection Account to the Reserve Account following the occurrence of a First

Trigger or a Second Trigger. To the extent that the First Trigger or Second Trigger has been Cured (as

defined below), the Japanese Trustee will transfer the balance on deposit in the Reserve Account in

excess of the Required Reserve Balance to the Collection Account.

The Transaction Administrator will notify the Japanese Trustee of the occurrence, continuance or

Cure of a First Trigger or a Second Trigger. A ‘‘First Trigger’’ will occur and be continuing on any

date on which the Debt Service Coverage Ratio is equal to or less than 3:1 but greater than 2.5:1. A

‘‘Second Trigger’’ will occur and be continuing on any date on which the Debt Service Coverage Ratio

is equal to or less than 2.5:1 but greater than 1.8:1.

‘‘Cure’’ or ‘‘Cured’’ means (a) in respect of the First Trigger, the Debt Service Coverage Ratio as

calculated and set out in three consecutive Transaction Administrator Reports is greater than 3:1 and (b)

in respect of the Second Trigger, the Debt Service Coverage Ratio as calculated and set out in three

consecutive Transaction Administrator Reports is greater than 2.5:1.

‘‘First Trigger Amount’’ means either:

(a) following the occurrence of a First Trigger and while it is continuing, an amount equal to the

aggregate of all Senior Investor Beneficial Certificate Obligations payable on the next

succeeding four Trust Distribution Dates; or

(b) on any date on which a First Trigger has been Cured and no further First Trigger has

occurred and is continuing, zero.

‘‘Agency Fees’’ means all fees, costs, expenses, indemnities, claims, demands, legal fees, liabilities

and other amounts specified in The Bank of New York Mellon Fee Letter and/or the Bond Issuer

Administrator Fee Letter as payable by the Bond Issuer and the Note Issuer in accordance with the

provisions of the Transaction Documents to the Bond Agents, the Note Agents, the Account Banks, the

Japanese Trustee and any party as may be notified to the Transaction Administrator by either of the

Bond Issuer or the Note Issuer from time to time.

‘‘Bond Issuer Expenses’’ means all fees, taxes, filing fees, administrative fees or other fees levied

by any Governmental Entity in respect of the Bond Issuer and the service providers to the Bond Issuer.

‘‘Second Trigger Amount’’ means either:

(a) following the occurrence of a Second Trigger and while it is continuing, all amounts payable

to the Seller under the Seller Beneficial Certificate; or

(b) on any date on which a Second Trigger has been Cured and no further First Trigger or

Second Trigger has occurred, zero.

‘‘Seller’’ means Korean Air Lines Co., Ltd. in its capacity as seller of the Investor Beneficial

Certificate.

34

‘‘Senior Bond Issuer Obligations’’ means, in respect of any Bond Payment Date or any relevant

Mandatory Redemption Payment Date, the aggregate amounts payable by the Bond Issuer on such date

in respect of Bond Issuer Expenses, Agency Fees up to the Agency Fees Maximum Amount and interest

on the Bond.

‘‘Senior Investor Beneficial Certificate Obligations’’ means, in respect of any Trust Distribution

Date or any relevant Mandatory Redemption Payment Date, the aggregate amounts payable on such date

in respect of Taxes on the Entrusted Assets, fees and expenses of the Japanese Trustee, Servicer Fees (if

the Servicer is not the Trustor), Senior Bond Issuer Obligations and all amounts in respect of principal

on the Bond.

Collection Account

All Collections received by the Japanese Trustee will be credited to the Collection Account and

transferred to the Trust Account until the Required Amount for the next succeeding Trust Distribution

Date is on deposit in the Trust Account.

On the second Tokyo Business Day after each Collection date (each a ‘‘Cash Release Date’’), theJapanese Trustee will calculate whether the aggregate amounts on deposit in the Trust Account two

Business Days before the relevant Cash Release Date exceed the Required Amount for the next

succeeding Trust Distribution Date. The Japanese Trustee will apply any such amounts in excess of the

Required Amount (each such amount, a ‘‘Cash Release Amount’’) as an advance distribution of

principal on the Seller Beneficial Interest on the relevant Cash Release Date if each of the following

conditions have been satisfied two Business Days before such Cash Release Date (the ‘‘Cash ReleaseConditions’’):

(a) no Early Amortisation Event, Potential Early Amortisation Event, Event of Default, Potential

Event of Default (as defined below) or Second Trigger will have occurred or be continuing

and no Mandatory Redemption Event will have been declared on such date; and

(b) if any First Trigger has occurred or is continuing on such date, the Required Reserve Balance

is on deposit in the Reserve Account on such date.

In the event that the Required Amount for any Trust Distribution Date is not on deposit in the

Trust Account two Business Days prior to the next succeeding Trust Distribution Date, the Japanese

Trustee will transfer amounts to the Trust Account from the Reserve Account until the Required Amount

is on deposit in the Trust Account or until the balance on deposit in the Reserve Account is zero.

‘‘Potential Event of Default’’ means any condition, event or act which, with the lapse of time

and/or the issue, making or giving of any notice, certification, declaration, demand, determination and/or

request and/or the taking of any similar action and/or the fulfilment of any similar condition, could

constitute a Note Event of Default for the purposes of the Notes or a Bond Event of Default for the

purposes of the Bond.

‘‘Required Amount’’ means, in respect of any Trust Distribution Date or any relevant Mandatory

Redemption Payment Date, all amounts payable by the Japanese Trustee in respect of items ‘‘first’’ to

‘‘seventh’’ in ‘‘— Application of Funds on Trust Distribution Dates’’.

35

Sub-Account

On each Collection Date and on any Mandatory Redemption Payment Date, all amounts standing

to the credit of the Collection Account shall be transferred to an administrative sub-account of the Trust

Account established by the Japanese Trustee for the purposes of making payments on each Trust

Distribution Date or on a Mandatory Redemption Payment Date until the Required Account is on

deposit (each a ‘‘Sub-Account’’).

The Japanese Trustee will distribute all amounts on deposit in the Trust Account on each Trust

Distribution Date or on a Mandatory Redemption Payment Date in accordance with the order of priority

set out in ‘‘— Application of Funds on Trust Distribution Dates’’ below.

Withholding Tax

Upon imposition of any withholding or other applicable Taxes on any payment on the Investor

Beneficial Certificate, such payment will be increased by an amount sufficient to result in receipt by the

Investor Beneficiary of a net amount equal to the payment that would have been received absent such

Taxes.

Other Currencies

If any payments to be made on any Trust Distribution Date are to be made in the Other Currency,

the Japanese Trustee is authorised to effect all foreign exchange transactions at the spot rate of exchange

obtained from the Account Bank for the conversion of Japanese Yen into such Other Currency (and, if

no exchange rate is available from the relevant Account Bank, at such rate as it is able to obtain) in

order to effect the payment in the Other Currency.

THE TRUSTOR

Trustor Representations and Warranties

The Trustor will represent and warrant in the Trust Agreement, inter alia:

(a) it is a corporation duly organised and validly existing under the laws of Korea with branches

registered in Japan with full power, authority and legal right to own its properties and

conduct its business and to execute, deliver and perform its obligations under the Transaction

Documents to which it is, or to which it becomes a party;

(b) it is duly qualified to do business in each jurisdiction in which it conducts its business and

has obtained all licenses and approvals required for the conduct of such business in such

jurisdictions;

(c) the execution, delivery and performance of the Transaction Documents to which it is, or to

which it becomes a party, has been duly authorised by all necessary action on its part and all

actions, conditions and things required by the laws of Korea and Japan in connection

therewith have been taken, fulfilled and done;

(d) all actions necessary to ensure the legality and enforceability or admissibility of the

Transaction Documents to which it is, or to which it becomes a party, in Korea and Japan

have been taken;

36

(e) the execution and delivery of the Transaction Documents to which it is, or to which it

becomes a party, by it, the exercise of its rights set out therein, the performance of the

transactions contemplated hereby and thereby and the fulfilment of the terms hereof and

thereof will not conflict with, violate or result in any breach of any of the terms and

provisions of, or constitute (with or without notice or lapse of time or both) a default under,

(i) any indenture, contract, agreement, mortgage, deed of trust or other instrument to which

either it is a party or by which it or any of its properties are bound or (ii) any requirement of

law applicable to it;

(f) there are no litigation, arbitration or administrative proceedings or investigations pending or,

to the best of its knowledge, threatened against it before any court, regulatory body,

administrative agency or other tribunal or governmental instrumentality which relates to the

transactions contemplated by the Transaction Documents to which it is, or to which it

becomes a party, and is likely to have a Material Adverse Effect;

(g) all necessary approvals, licenses, authorisations, consents, orders or other actions of, or

registration or declarations with, any Person or of or with any governmental authority

required in connection with (i) the execution and delivery of the Transaction Documents, (ii)

the performance by it of the transactions contemplated by the Transaction Documents and the

fulfilment by it of the terms thereof and (iii) the operation of its cargo transportation business

to and from Japan have been obtained and have not been withdrawn and it has satisfied all

Korean, Japanese and international regulations to allow it to operate and continue to operate

its cargo transportation business to and from Japan and to conduct its business generally;

(h) its obligations under the Transaction Documents to which it is or to which it becomes a party

rank at least pari passu with all of its other unsecured and unsubordinated indebtedness;

(i) it is not in breach or default under any other agreement to which it is a party or which is

binding on it or any of its assets to an extent or in a manner which is likely to have a

Material Adverse Effect;

(j) no event has occurred on or prior to the Closing Date which adversely affects its operations

or that affects its ability to perform the transactions contemplated by the Transaction

Documents to which it is, or to which it becomes a party;

(k) it is solvent, has adequate capital to conduct its business, its total liabilities do not exceed its

total assets, it has not suspended payments of its indebtedness other than such indebtedness

which is contested by the Trustor in good faith, it is able to pay its debts generally, no

petition has been filed by it or against it under the Bankruptcy Law of Japan, the Civil

Rehabilitation Law of Japan, the Corporate Reorganization Law of Japan or the Debtor

Rehabilitation and Bankruptcy Act of Korea and, after giving effect to the transactions

contemplated in the Transaction Documents to which it is, or to which it becomes a party and

within the reasonably foreseeable future, it shall not be rendered insolvent, shall have

adequate capital to conduct its business, its total liabilities shall not exceed its total assets, it

shall not have suspended payments of its indebtedness, it shall be able to pay its debts

generally, no petitions shall be filed by it or against it under the Bankruptcy Law of Japan,

the Civil Rehabilitation Law of Japan, the Corporate Reorganization Law of Japan or the

Debtor Rehabilitation and Bankruptcy Act of Korea; and

37

(l) it has not taken any corporate action and, to the best of its knowledge, no other steps have

been taken or proceedings been started or threatened against it for bankruptcy, composition,

corporate reorganisation, relief under bankruptcy or insolvency laws, suspension of payments

or the appointment of a receiver, trustee or similar officer of it or any or all of its assets in

any applicable jurisdiction.

Trustor Covenants

The Trustor will covenant in the Trust Agreement, inter alia, that:

(a) except as contemplated by the Transaction Documents, it will not pledge, sell, assign or

transfer to any other Person the Entrusted Assets or pledge, sell, assign or transfer any right

to receive income in respect thereof or grant, create, incur, assume or suffer to exist any Lien

or encumbrance on the Entrusted Assets;

(b) it will not set off any amounts owed by it under the Transaction Documents against amounts

owed to it;

(c) it agrees to comply at all times in all material respects with all Laws applicable to or in any

way affecting the creation and servicing of the Entrusted Assets or the transactions

contemplated in the Transaction Documents;

(d) it will not agree to any payment with respect to the Entrusted Assets to be made other than in

Japanese Yen (unless otherwise with the approval of the Controlling Beneficiary) or to any

account other than to the Trust Account or such other account notified by the Japanese

Trustee to the Trustor from time to time;

(e) it will perform diligently its obligations under the IATA Agreements in accordance with its

usual working practices;

(f) it will not amend or agree to or permit any amendment of or cancel any of the IATA

Agreements without the prior written consent of the Japanese Trustee, the Controlling

Beneficiary and each Beneficiary (such consent not to be unreasonably withheld) and without

delivery of prior written notice to the Rating Agency;

(g) it will comply at all times in all material respects with all domestic and international

regulations relating to the transportation of cargo to and from Japan;

(h) it will maintain, and comply at all times in all material respects with, all licenses, approvals

and consents relating to the transportation of cargo to and from Japan;

(i) it will not permit the ratio of its Adjusted Debt (as defined below) (with respect to itself and

its consolidated Subsidiaries (as defined below)) to its Shareholder’s Equity (as defined

below) to exceed 5:1, as evidenced by the latest available audited annual financial statements

of the Trustor;

(j) it will not permit the ratio of EBITDAR (as defined below) to Interest Expense (as defined

below) to be lower than 1:1, as evidenced by the latest available audited annual financial

statements of the Trustor;

(k) it will use all reasonable efforts to ensure that each of IATA, the CASS Bank and the IATA

Agents complies with their respective obligations under the IATA Agreements;

38

(l) if the CASS Bank fails to perform any of its obligations under the CASS Bank Agreement

and (i) such failure would, in the reasonable opinion of the Controlling Beneficiary, have a

Material Adverse Effect and (ii) such failure is not remedied within 30 days of the date of

such failure, it will replace, or cause IATA to replace, the CASS Bank with another bank

acceptable to the Controlling Beneficiary as soon as practicable thereafter, but in no event

within 30 days after the expiry of such remedy period; and

(m) if IATA fails to perform any of its obligations under the IATA Agreements and (i) such

failure would, in the reasonable opinion of the Controlling Beneficiary, have a Material

Adverse Effect and (ii) such failure is not remedied within 45 days of the date of such

failure, it will implement an alternative system for the invoicing and reporting of, and

collection and remittance of receivables generated from, the sale of cargo transportation on

Korean Air’s flights to and from Japan by IATA Agents on behalf of Korean Air and which

are settled through CASS Japan and payable by the CASS Bank to Korean Air and will take

all actions necessary for the entrustment of such receivables to the Japanese Trustee under

the alternative system so implemented, including without limitation, obtaining consent from

no less than 90 per cent. of the IATA Agents to such entrustment, as soon as practicable

thereafter, but in no event within 45 days after the expiry of such remedy period.

‘‘Adjusted Debt’’ means, as of any date of determination, with respect to the Trustor, the

aggregate of (a) short-term borrowings, (b) bonds, (c) long-term borrowings, (d) long-term obligations

under instalment purchases, (e) long-term obligations under capital lease, (f) guaranteed loans, (g) asset-

backed securitisation loan and (h) the sum of the operating rentals due under aircraft operating leases for

the immediately succeeding twelve month period multiplied by seven.

‘‘EBIT’’ means, for any period, operating income from continuing operations of the Trustor as

determined in accordance with Korean GAAP (as defined below) or IFRS, as applicable (and in any

event excluding extraordinary gains) for such period.

‘‘EBITDAR’’ means, for any period, EBIT for the Trustor, plus the amount of non-cash charges,

including non-cash charges for depreciation and amortisation and rental payments, of the Trustor for

such period.

‘‘IFRS’’ means the International Financial Reporting Standards.

‘‘Interest Expense’’ means, with respect to any period, interest expense (whether cash or

accretion) and rental payments of the Trustor during such period determined in accordance with Korean

GAAP or IFRS, as applicable (excluding, for the avoidance of doubt, interest income) and shall include,

in any event, interest expense with respect to indebtedness of the Trustor.

‘‘Korean GAAP’’ means the generally accepted accounting principles in effect from time to time

in Korea.

‘‘Shareholder’s Equity’’ means, as of any date of determination, the shareholders’ equity, as

reflected on the last available audited annual balance sheet of the Trustor.

‘‘Subsidiary’’ means, with respect to any Person, any corporation of which more than 50 per cent.

of the outstanding capital stock having ordinary voting power to elect a majority of the board of

directors of such corporation (irrespective of whether at the time the capital stock of any other class or

classes of such corporation will or might have voting power upon the occurrence of any contingency) is

at the time directly or indirectly owned by such Person.

39

APPLICATION OF FUNDS

Application of Funds on Trust Distribution Dates

On each Trust Distribution Date relating to a Collection Period and on any relevant distribution

date following the declaration by the Controlling Beneficiary of a Mandatory Redemption Event, all

amounts on deposit in the Trust Account shall, to the extent such sums are available, be applied in or

towards the satisfaction of the following amounts in the following order of priority (and in each case

only and to the extent that payment or provisions of a higher priority have been made in full):

(a) first, to pay any Taxes with respect to the Entrusted Assets;

(b) second, to the Japanese Trustee, to pay the Trustee Fee and the Trust Related Expenses

payable on such distribution date;

(c) third, to the Servicer (if the Servicer is not the Trustor), to pay the Servicer Fees payable on

such distribution date;

(d) fourth, to the Investor Beneficiary, to pay a principal distribution in an amount equal to the

aggregate of (x) Senior Bond Issuer Obligations payable on the following Bond Payment

Date, (after taking into account all amounts on deposit in the Bond Issuer Accounts on such

date); provided, however, that following the declaration by the Controlling Beneficiary of a

Mandatory Redemption Event, the Senior Bond Issuer Obligations payable on the date on

which the Bond is scheduled to be redeemed in accordance with Bond Condition 3; (y) any

Scheduled Amortisation Amounts payable in respect of the Bond on the following Bond

Payment Date; and (z) following the occurrence of an Event of Default or the declaration by

the Controlling Beneficiary of an Early Amortisation Event or a Mandatory Redemption

Event, an amount equal to the aggregate Principal Amount Outstanding under the Bond;

(e) fifth, provided that no Event of Default has occurred and no Early Amortisation Event or

Mandatory Redemption Event has been declared by the Controlling Beneficiary, to the

Reserve Account until the balance on deposit therein equals the Required Reserve Balance;

(f) sixth, to the Investor Beneficiary, to pay an amount equal to the Junior Bond Issuer

Obligations payable on the following Bond Payment Date; provided, however, that, following

the declaration by the Controlling Beneficiary of a Mandatory Redemption Event, an amount

equal to the Junior Bond Issuer Obligations payable on the date on which the Bond is

scheduled to be redeemed in accordance with Bond Condition 3, as principal;

(g) seventh, to the Servicer, to pay the Servicer Fees payable on such distribution date (if the

Servicer is the Trustor) and all accrued and unpaid Servicer Fees for any prior distribution

date and any accrued and unpaid Servicing Expenses; and

(h) eighth, the balance to the Seller Beneficiary, as principal.

40

Application of Funds on Bond Payment Dates

All amounts on deposit in the Bond Issuer Accounts on each Bond Payment Date (or with respect

to items (b) second, (c) third and (d) fourth below, the Designated FX Account) and on a Mandatory

Redemption Payment Date will, to the extent of such sums, be applied in or towards the satisfaction of

the following amounts in the following order of priority (and in each case only and to the extent that

payment or provisions of a higher priority have been made in full):

(a) first, pro rata and pari passu, (x) to pay all Bond Issuer Expenses and (y) to the Bond

Agents and to the Account Banks, to pay the Agency Fees up to the Agency Fees Maximum

Amount payable on such payment date;

(b) second, to the Bondholder, to pay any interest and any Bond Additional Amounts due and/or

accrued due but unpaid on the Bond on such payment date;

(c) third, to the Bondholder, to pay (x) any Scheduled Amortisation Amounts due and/or accrued

due but unpaid on the Bond on such payment date and (y) following the occurrence of an

Event of Default or the declaration by the Controlling Beneficiary of an Early Amortisation

Event or a Mandatory Redemption Event, the aggregate Principal Amount Outstanding under

the Bond;

(d) fourth, pari passu, to the Bondholder and the Bond Agents, to pay an amount equal to the

Junior Bond Issuer Obligations payable on the following Bond Payment Date; and

(e) fifth, the balance, to the Bond Issuer Yen Account.

Application of Funds on Note Payment Dates

All amounts on deposit in the Note Issuer Account on each Note Payment Date and on a

Mandatory Redemption Payment Date (including any amounts received under the Credit Facility Deed

and the Swap Agreement) will, to the extent of such sums, be applied in or towards the satisfaction of

the following amounts in the following order of priority (and in each case only and to the extent that

payment or provisions of a higher priority have been made in full):

(a) first, pro rata and pari passu, (x) to the Note Agents, to pay the Agency Fees up to the

Agency Fees Maximum Amount and (y) to pay all Note Issuer Expenses;

(b) second, to the Credit Facility Provider, to pay the Credit Facility Provider’s Fee payable on

such payment date;

(c) third, pro rata and pari passu, (x) to the Noteholders to pay any interest due and/or accrued

due on the Notes but unpaid on such payment date and (y) to the Swap Provider to pay any

Senior Swap Charges due and/or accrued due and payable on such payment date;

(d) fourth, pro rata and pari passu, to the Noteholders to pay (w) any Scheduled Amortisation

Amounts due and/or accrued due but unpaid on the Notes on such payment date, (x)

following the declaration by the Controlling Beneficiary of an Early Amortisation Event, all

other amounts due and payable under Note Condition (4)(c), (y) following the occurrence of

an Event of Default or a Drawdown Trigger Event, the aggregate Principal Amount

Outstanding under the Notes or (z) following the declaration by the Controlling Beneficiary

of a Mandatory Redemption Event, either the aggregate Principal Amount Outstanding of the

41

Notes or (at the sole discretion of the Credit Facility Provider provided that no Drawdown

Trigger Event has occurred) the Scheduled Amortisation Amounts due on the Notes on such

payment date;

(e) fifth, to the Swap Provider to pay any Junior Swap Charges and Swap Additional Amounts

due or accrued due and payable on such payment date;

(f) sixth, to the Credit Facility Provider, to repay any Advances made and any other amounts due

but unpaid (including accrued interest thereon) under the Credit Facility Deed payable on

such payment date;

(g) seventh, to the Note Agents to pay the balance of the Agency Fees due and/or accrued due

but unpaid on such payment date; and

(h) eighth, the balance, to the Note Issuer Account.

‘‘Agency Fees Maximum Amount’’ means, on any Bond Payment Date or Note Payment Date, the

maximum amount in Yen specified in the Bank of New York Mellon Fee Letter (as defined herein).

‘‘Junior Bond Issuer Obligations’’ means, in respect of any Bond Payment Date or any relevant

payment date following the declaration by the Controlling Beneficiary of a Mandatory Redemption

Event, the aggregate amounts payable by the Bond Issuer on such date in respect of Junior Note Issuer

Obligations and any Agency Fees due and/or accrued due to the Bond Agents in excess of the Agency

Fees Maximum Amount.

‘‘Junior Note Issuer Obligations’’ means, in respect of any Note Payment Date or any relevant

payment date following the declaration by the Controlling Beneficiary of a Mandatory Redemption

Event, the aggregate amounts payable by the Note Issuer on such date in respect of Junior Swap

Charges and the Swap Additional Amounts and repayments of Advances and other amounts due but

unpaid under the Credit Facility Deed and any Agency Fees due and/or accrued due to the Note Agents

in excess of the Agency Fees Maximum Amount.

‘‘Junior Swap Charges’’ means any Swap Charges which are not Senior Swap Charges.

‘‘Note Issuer Expenses’’ means all fees, taxes, filing fees, administrative fees or other fees levied

by any Governmental Entity or any Rating Agency in respect of the Note Issuer or the Notes and the

fees payable to the Note Issuer Administrator under the Note Issuer Administrator Agreement.

‘‘Senior Swap Charges’’ means any Swap Charges payable under the Swap Agreement to the

Swap Provider where the relevant Termination Event (as defined in the Swap Agreement) occurred as a

result of an Illegality or a Tax Event (as defined in the Swap Agreement) or for any reason other than an

Event of Default under the Swap Agreement relating to the Swap Provider or a Termination Event under

the Swap Agreement where the Swap Provider is the sole Affected Party (as defined in the Swap

Agreement).

‘‘Servicer Fees’’ means the capped fees of the Servicer set out in the Servicing Agreement or, if a

Successor Servicer is performing the Services, the fee negotiated at the time of such appointment and

payable to the Servicer or Successor Servicer, as the case may be, in accordance with the provisions of

the Servicing Agreement and the Trust Agreement.

‘‘Servicing Expenses’’ means certain costs and expenses of the Servicer payable in accordance

with the provisions of the Servicing Agreement.

42

‘‘Successor Servicer’’ means a successor servicer nominated by the Japanese Trustee in

accordance with the provisions of the Servicing Agreement.

‘‘Swap Additional Amounts’’ is defined in the Swap Agreement.

‘‘Swap Charges’’ means any amounts payable by the Note Issuer under Section 6(e) of the Swap

Agreement and interest thereon, from and including, the relevant Early Termination Date (as defined in

the Swap Agreement) to, but excluding, the date such amount is paid under Section 6(d)(ii) of the Swap

Agreement.

43

RISK FACTORS

The following is a summary of certain aspects of the offering of the Notes about which prospective

investors should be aware but is not intended to be exhaustive. Prospective investors should carefully

consider the following factors together with the detailed information set out elsewhere in this Prospectus

before deciding to invest in the Notes and seek independent tax, legal and other relevant advice as to the

structure and viability of making an investment in the Notes.

Risks Relating to the Notes

There is currently no secondary market for the Notes and there may be limited liquidity forNoteholders

The Notes comprise a new issue of securities for which there is no current public market. No

assurance can be given that a secondary trading market for the Notes will develop, or, if a secondary

trading market does develop, that it will provide Noteholders with liquidity of investment or that such

liquidity will be sustained. The market value of the Notes may fluctuate depending on factors including,

among others:

(a) prevailing interest rates;

(b) the rating of the Credit Facility Provider;

(c) the condition of the Korean airline industry;

(d) political and economic developments in Japan and Korea; and

(e) market conditions for similar securities.

Consequently, any sale of Notes by Noteholders in any secondary market which may develop may

be at a discount from the original purchase price of such Notes. Application has been made to list the

Notes on the Irish Stock Exchange. The Note Issuer does not intend to apply for listing of the Notes on

any stock exchange other than the Irish Stock Exchange.

The Note Issuer has no operating history

The Note Issuer is a newly-formed entity and has no operating history and no material assets other

than the Bond. The Note Issuer will not engage in any business activity other than the issuance of the

Notes, certain activities conducted in connection with the payment of amounts in respect of the Notes

and other activities incidental or related to the foregoing. Income derived from the Bond will be the

Note Issuer’s principal source of funds.

The Notes are limited recourse obligations of the Note Issuer

The Note Conditions will provide that recourse against the Note Issuer in relation to its obligations

under the Notes and all other obligations under the Transaction Documents will be limited to amounts

from time to time available for such obligations in accordance with the Note Trust Deed. If such

amounts are insufficient to pay in full all amounts due under the Notes after payment of all amounts

having priority over the Notes, the Noteholders will have no further claim against the Note Issuer in

respect of any unpaid amounts and the liability of the Note Issuer with respect to such unpaid amounts

will be extinguished.

44

None of the equityholders, officers, directors or incorporators of the Note Issuer, the Joint

Arrangers, the Japanese Trustee, the Security Agent, the Transaction Administrator, the Swap Provider

and Note Trustee, any of their respective Affiliates or any other person or entity (other than the Note

Issuer) will be obligated to make payments on the Notes. In the absence of the Credit Facility,

Noteholders must rely on payments received in respect of the Bond for the payment of interest on and

principal of the Notes and no assurance can be given that such collections will be sufficient to pay all

amounts due on the Notes.

If the Credit Facility Provider is unable or fails to perform its obligations under the Credit FacilityDeed, the Note Issuer’s ability to make timely and complete payments on the Notes could be adverselyaffected

The payments on the Notes will depend on payments being received by the Note Issuer under the

Bond, which will depend on payments being received by the Bond Issuer under the Investor Beneficial

Certificate which, in turn, will depend on the Collections. If the cashflow generated from the Collections

is not sufficient for the Bond Issuer to meet its payment obligations under the Bond in full and on a

timely basis, the Note Issuer will not have sufficient funds to make payments on the Notes and the

Credit Facility Provider will be required to make payments under the Credit Facility Deed to meet the

shortfall in respect of payments of principal and interest of the Notes and payments in priority to or pari

passu with the principal and interest of the Notes in accordance with the provisions of the Credit

Facility Deed. The Credit Facility will be limited to the Commitment Amount, which will be

¥20,757,597,790 less the aggregate of (i) the aggregate amount of all Advances (but excluding any

amount of interest, additional interest and compounding and any amount deemed to be an Advance)

made from time to time and (ii) the aggregate of (x) all amounts paid under items ‘‘first’’, ‘‘second’’ and

‘‘fourth’’ of Clause 8.5 of the Note Trust Deed on all prior Note Payment Dates and (y) all Fixed

Amounts paid on all prior Swap Payment Dates, in each case prior to the date of determination (save to

the extent made with the proceeds of an Advance). See ‘‘Transaction Summary — Credit Facility’’.

There can be no assurance that the Commitment Amount of the Credit Facility will be sufficient to

enable the Note Issuer to meet its obligations in full or that the Credit Facility Provider will or can meet

its payment obligations under the Credit Facility. Since the rating on the Notes depends on the rating of

the Credit Facility Provider, and since Noteholders must depend on payments by the Credit Facility

Provider under the Credit Facility, in the event the Note Issuer is unable to make timely payment of the

amounts due on the Notes, prospective investors should conduct their own investigation of the Credit

Facility Provider. The obligations of the Credit Facility Provider under the Credit Facility are unsecured

and do not constitute a guarantee of interest on or principal of the Notes.

In the absence of the Credit Facility, Noteholders will have recourse only to the Note Security for

the payment of interest on and principal of the Notes and no assurance can be given that the Note

Security will be sufficient to pay all amounts due on the Notes.

If the Government ceases to exercise control over the Credit Facility Provider, the Credit FacilityProvider may no longer have the benefit, in whole or in part, of the Government support under theKDB Act

As a result of the KDB Act, the Government is generally responsible for the operations of the

Credit Facility Provider and is legally obligated to replenish any deficit that arises if its reserve,

consisting of its surplus and capital surplus items, is insufficient to cover its annual net losses. If the

Credit Facility Provider had insufficient funds to make any payment under any of its obligations, under

the KDB Act the Government would take appropriate steps to enable the Credit Facility Provider to

make such payment when due.

45

Under the KDB Act, as amended in May 2009, the initial sale by the Government of its equityinterest in KDB Financial Group shall be made by May 2014. If the privatisation makes progress, andthe Government ceases to exercise control (directly or indirectly) over the Credit Facility Provider, theCredit Facility Provider may no longer have the benefit, in whole or in part, of the Government supportunder the KDB Act. The Credit Facility Provider would then have to rely on its own resources tocomply with its obligations, including under the Credit Facility. No assurance can be given that, theCredit Facility Provider would have sufficient resources to comply with those obligations, in whole or inpart, and, in that event, the Note Issuer may not be able to make timely payment of the amounts due onthe Notes. See “The Credit Facility Provider and the Swap Provider”.

Withholding taxes under the Notes

All payments in respect of the Notes will be made free and clear of, and without withholding ordeduction for, any present or future Taxes, unless such withholding or deduction is required by law.Neither the Note Issuer nor the Credit Facility Provider shall be obliged to make any additionalpayments as a result of the imposition of such withholding taxes on the Notes. Any amount which theNote Issuer is obliged to withhold or deduct from payments in respect of the Notes on account of Taxwill not be secured by the Credit Facility Provider. The Note Issuer has, however, received anundertaking from the Governor-in-Council of the Cayman Islands that, for a period of twenty years fromthe date of the undertaking, no law imposing any withholding tax shall apply to the Note Issuer or itsoperations. See ‘‘Taxation — Cayman Islands Taxation’’.

The rating on the Notes may be changed at any time and may adversely affect the market price of theNotes

It is a condition to the issuance of the Notes that the Notes be rated ‘‘A1 (sf)’’ by the RatingAgency upon issuance. The rating addresses the full and timely payment of interest and the timelyrepayment of principal on or before the maturity date in accordance with the terms and conditions of theNotes. The rating of the Notes will be based primarily on the rating of the Credit Facility Provider,assessment of relevant structural features of the transaction and the likelihood of the payment of interestand principal on the Notes in a full and timely manner. A rating is not a recommendation to purchase,hold or sell the Notes. No assurance can be given that a rating will remain in effect for any given periodof time or that a rating will not be lowered or withdrawn entirely by an assigning rating agency in thefuture if, in its judgment, circumstances in the future so warrant, such as the insolvency of the CreditFacility Provider. Any decline in the financial position of the Credit Facility Provider or the Note Issuermay impair the ability of the Note Issuer to make payments to the Noteholders under the Notes and/orresult in the rating of the Notes being lowered, suspended or withdrawn entirely. If the rating initiallyassigned to the Notes is subsequently lowered or withdrawn for any reason, no person or entity will beobligated to provide any additional credit enhancement with respect to the Notes and the Credit FacilityProvider’s obligations under the Credit Facility will not be affected. Any reduction or withdrawal of arating may have an adverse effect on the liquidity and market price of the Notes. Any reduction orwithdrawal of a rating will not constitute a Note Event of Default or an event requiring the Note Issuerto redeem any Notes.

Payments on the Notes depend on Collections, the Investor Beneficial Certificate, the Bond, the SwapAgreement and the Credit Facility

The ability of the Note Issuer to meet its obligations to pay interest and principal on the Notes willdepend on timely payments with respect to Collections, payments under the Investor BeneficialCertificate, the Bond, the Swap Agreement and, if necessary, the Credit Facility (in respect of scheduledpayments of interest and payment of principal on the Notes in accordance with the provisions of theCredit Facility Deed) and on the due performance by the other parties to the Transaction Documents oftheir obligations thereunder. Failure of the Note Issuer to receive timely payments under the Bond wouldnot, however, affect the obligations of the Credit Facility Provider under the Credit Facility Deed.

46

Payments of interest with respect to the Bond are at a variable rate whereas payments of interest

with respect to the Notes are at a floating rate. The Note Issuer has entered into a Swap Agreement with

the Swap Provider under which the Swap Provider will make floating rate payments to the Note Issuer

equal to the floating rate payments on the Notes in exchange for fixed rate payments by the Note Issuer

not greater than the variable rate payments made with respect to the Bond. No assurance can be given

that the Swap Provider will comply with its obligations under the Swap Agreement in which event the

Note Issuer may have insufficient funds to make interest payments on the Notes.

The Notes are subject to mandatory redemption under certain circumstances

Upon the declaration by the Controlling Beneficiary of a Mandatory Redemption Event, the Note

Issuer will redeem the Notes, in whole but not in part, on the date which is nine Business Days after the

additional entrustment of Japanese Yen referred to below, at their Note Redemption Amount.

Accordingly, the Bond Issuer will be obliged to redeem the Bond. If a Mandatory Redemption Event is

declared (which includes a breach of any of the warranties with respect to any Entrusted Assets), the

Trustor will be required to entrust to the Japanese Trustee additional Japanese Yen in an amount equal

to the Mandatory Redemption Amount, such amount being sufficient to redeem fully the Investor

Beneficial Certificate on or before the second Business Day following any such additional entrustment.

Such additionally entrusted Japanese Yen shall be credited on such date to the Trust Account and will

be used for redemption of the Investor Beneficial Certificate. No assurance can be given that the Trustor

will have sufficient funds to entrust to the Japanese Trustee such additional Japanese Yen. The

obligations of the Trustor are unsecured. Upon the declaration by the Controlling Beneficiary of a

Mandatory Redemption Event, the Notes may be redeemed other than on a Note Payment Date.

The Investor Beneficial Certificate will be redeemed and therefore the Bond and therefore the

Notes will be redeemed in inverse chronological order to the extent of funds received from the Trustor

with respect to the Mandatory Redemption Amount. Failure by the Trustor to deposit the Mandatory

Redemption Amount in full will result ultimately in a drawing under the Credit Facility (subject to the

available Commitment Amount). However in that event the Credit Facility Provider will have the option

at its sole discretion of making an advance under the Credit Facility equal to either: (i) the amount by

which amounts on deposit in the Note Issuer Account are less than the Note Outstanding Amount; or (ii)

the amount by which amounts on deposit in the Note Issuer Account are less than the aggregate amount

of the next scheduled payment of interest and principal with respect to the Notes and all amounts which

are due and payable in priority to, or pari passu with, interest and principal with respect to the Notes as

at the next following Note Payment Date; provided that, if a Drawdown Trigger Event has occurred, the

Credit Facility Provider shall make within the limits of the then available Commitment Amount an

Advance equal to the amount by which amounts on deposit in the Note Issuer Account are less than the

Note Outstanding Amount.

No investigation has been made in respect of the Note Issuer, the Bond Issuer or the Note Security orthe Bond Security

No investigation, and limited searches and enquiries, have been made by or on behalf of the Note

Issuer, the Joint Arrangers and the Credit Facility Provider, and no investigations, searches and enquiries

have been made by or on behalf of the Agents, in respect of the Note Issuer, the Bond Issuer, the Note

Security or the Bond Security. The Agents shall not be bound or concerned to make any investigation

into the creditworthiness of any party in respect of the Note Security or the Bond Security, the validity

of any of such party’s obligations under or in respect of the Note Security or the Bond Security or any

of the terms of the Note Security or the Bond Security.

47

Risks Relating to the Receivables

Servicing and Ongoing Entrustment

Under the Servicing Agreement, the Trustor as Servicer is responsible for the management,

servicing and administration of the Receivables. Payments with respect to the Receivables will be made

directly to the Collection Account by IATA and/or the CASS Bank.

In connection with the entrustment of money following the declaration by the Controlling

Beneficiary of a Mandatory Redemption Event, if the Trustor is declared bankrupt or is subject to

bankruptcy or corporate rehabilitation proceedings or is otherwise in financial difficulties: (i) at any time

during the period in which it is obligated to entrust such amounts pursuant to the Trust Agreement, there

is a risk that the trustee appointed in such proceedings or other creditors of the Trustor could void such

obligation; and (ii) at the time of or after remitting money to the Japanese Trustee, there is a risk that

the trustee appointed in such proceedings or other creditors of the Trustor could avoid or rescind such

payment and demand the Japanese Trustee to return such moneys to the Trustor. In such event, the

Japanese Trustee would be treated as an unsecured creditor of the Trustor. In addition, the payments of

distributions under the Trust Agreement and, in turn, the payments on the Bond and ultimately the

Notes, may be adversely affected.

Perfection of Entrustment

The perfection of the entrustment of the Receivables against IATA, the CASS Bank (unless not

required by the Credit Facility Provider) and third parties will be completed using procedures under the

Civil Code of Japan by the delivery of written notice to, and the receipt of written consent without

objection with notarial certification (kakutei hizuke) from, IATA and the CASS Bank (unless not

required by the Credit Facility Provider). To perfect, against third parties, the entrustment of all of the

Trustor’s rights, title, interest and benefit (present and future, actual and contingent) in, to and under the

IATA Agency Agreements to the Japanese Trustee, the Trustor will make all filings and registrations

with the Nakano branch of the Tokyo Legal Affairs Bureau on or about the Entrustment Date in

accordance with the Perfection Law. Japanese counsel will opine that the entrustment of the Receivables

to the Japanese Trustee on the Entrustment Date has been, and on the assumption that the relevant

parties comply with their obligations will be, validly perfected against any third party, including a

trustee in bankruptcy or in any reorganisation or civil rehabilitation proceedings of the Trustor, pursuant

to the Civil Code and the Perfection Law, on the assumption that: (i) the Trustor has good and

marketable title to the Receivables free from any security interest, claim or encumbrance of any kind;

(ii) no notice to or consent by any Person bearing a notarial certification (kakutei hizuke) in accordance

with the Civil Code of Japan has been or will be made in connection with any assignment or

entrustment of the Receivables except in accordance with the Transaction Documents; and (iii) no filing

of any registration pursuant to the Perfection Law of Japan has been or will be made in connection with

any assignment or entrustment of the Receivables except in accordance with the Transaction Documents.

As IATA is incorporated in Canada, pursuant to the requirements of Japanese law, the entrustment of

the Receivables will also be perfected in Canada by carrying out the required filings.

True Sale of the Receivables and the Investor Beneficial Interest

Although neither statutory law nor judicial precedents provide significant guidance with respect to

the distinction between a true sale and an assignment by way of security, Japanese counsel will opine

that the entrustment of the Receivables to the Japanese Trustee pursuant to the Trust Agreement is a

transfer of the ownership (and not an assignment by way of security) of the Receivables to the Japanese

Trustee and that the Japanese Trustee, as trustee, owns absolutely the Receivables transferred to it.

Japanese counsel is of the opinion that under Japanese law the entrustment of the Receivables would not

48

be recharacterised as a pledge of, or the granting of any other security interest in, the Receivables, and

Korean counsel to the Joint Arrangers is of the opinion that legal title to the Receivables would not be

part of the Trustor’s estate in insolvency proceedings, except in limited circumstances described in ‘‘—

Servicing and Ongoing Entrustment’’ above.

Korean counsel to the Joint Arrangers will opine that the transfer of the Investor Beneficial Interest

under the Investor Beneficial Interest Sale and Purchase Agreement constitutes or will constitute a sale

of such Investor Beneficial Interest by the Trustor to the Bond Issuer rather than the grant of a security

interest in such Investor Beneficial Interest so that such Investor Beneficial Interest would not be a part

of the Trustor’s bankruptcy estate or assets of the Trustor in the event that the Trustor is in an

insolvency proceeding under the Act on Debtor Rehabilitation and Bankruptcy of Korea.

It should be noted that the above statement is based on certain facts that are and/or will be

represented and warranted as correct by the Trustor under the Trust Agreement and the Investor

Beneficial Interest Sale and Purchase Agreement. No assurance can be made as to the accuracy of such

facts, representations and warranties. A breach of those representations and warranties may affect the

true sale nature of the entrustment of the Receivables and the assignment of the Investor Beneficial

Interest.

If the Trustor enters into insolvency proceedings, a third party such as a bankruptcy trustee could

attempt to characterise the transfer of the Receivables as a borrowing secured by the Receivables.

Although it is considered that any such attempt would be ultimately unsuccessful, it could result in

delays in payments on the Investor Beneficial Interest and, thus, on the Bond and consequently the

Notes.

IATA may set-off amounts due under the Receivables against amounts due by the Trustor to IATA

The documentation governing the relationship between the Trustor and IATA is complex. However

under such documentation, IATA has a right of set off against the Trustor under which IATA can set off

(without limitation or restriction) amounts owed by the Trustor to IATA against amounts owed by IATA

to the Trustor (an ‘‘IATA Set-off’’), including amounts due with respect to the Receivables. This right

of set off is not restricted by the CASS Consent. Any exercise by IATA of this right of set off with

respect to amounts due under the Receivables could result in reduced payments with respect to the

Investor Beneficial Certificate and therefore to the Bond Issuer and consequently the Note Issuer having

insufficient funds to meet their respective obligations under, inter alia, the Bond and the Notes. The

Trustor is obliged, under the Trust Agreement, to entrust to the Japanese Trustee additional Japanese

Yen in an amount equal to the amount set off by IATA. No assurance can be given that the Trustor will

have sufficient funds to entrust to the Japanese Trustee such additional Japanese Yen. To the extent that

the Note Issuer has insufficient funds to comply with its obligations under the Notes, the Note Issuer

will be able to make a drawing under the Credit Facility to the extent of such insufficiency up to the

Commitment Amount.

The CASS Bank may set-off amounts due by the Trustor against amounts due by the CASS Bank tothe Trustor

The CASS Bank may set-off (without limitation or restriction) amounts owed by the Trustor to the

CASS Bank against amounts owed by the CASS Bank to the Trustor (‘‘CASS Bank Set-off’’). This

right of set-off is not restricted by the CASS Consent. Any exercise by the CASS Bank of this right of

set-off with respect to amounts due under Receivables could result in reduced payments with respect to

the Investor Beneficial Certificate and therefore to the Note Issuer having insufficient funds to meet its

obligations under the Notes. The Trustor is obliged, under the Trust Agreement, to entrust to the

Japanese Trustee additional Japanese Yen in an amount equal to the amount set-off by the CASS Bank.

49

No assurance can be given that the Trustor will have sufficient funds to entrust to the Japanese Trustee

such additional Japanese Yen. To the extent that the Note Issuer has insufficient funds to comply with

its obligations under the Notes, the Note Issuer will be allowed to make a drawing under the Credit

Facility to the extent of such insufficiency up to the Commitment Amount.

A Korean court may determine that all or part of the entrustment of the Entrusted Assets to theJapanese Trustee is not valid

Under the Trust Agreement, the Trustor will entrust to the Japanese Trustee, all of its rights, title,

interest and benefit (present and future, actual and contingent) in, to and under the Entrusted Assets on

the Closing Date.

Korean counsel to the Joint Arrangers has advised that they are not aware of any court precedents

as to whether the entrustment of Entrusted Assets pursuant to the Trust Agreement could be cancelled or

avoided under the Civil Code or the Act on Debtor Rehabilitation and Bankruptcy of Korea. Korean

counsel to the Joint Arrangers will opine that, subject to certain assumptions and qualifications set forth

in their opinion, the entrustment of the Entrusted Assets by the Trustor to the Japanese Trustee pursuant

to the Trust Agreement would not be set aside or avoided under the Civil Code or the Act on Debtor

Rehabilitation and Bankruptcy of Korea. There can be, however, no assurance that a Korean court would

not decide otherwise.

Generation of Receivables

Generation of Receivables depends primarily upon the continued operation of Korean Air’s cargo

transportation business on flights operated by Korean Air to and from Japan (the ‘‘Routes’’). Any

significant reduction in Korean Air’s provision of cargo air transportation services on the Routes,

whether resulting from health events, competition, financial condition, market conditions, political

events, labour actions or otherwise, would have an adverse impact on the generation of Receivables and,

consequently, the making of required payments on the Investor Beneficial Certificate, the Bond and

consequently the Notes. See ‘‘The Receivables’’.

Korean Air as Servicer of the Receivables

Under the Servicing Agreement, Korean Air has been appointed as the Servicer and has agreed to

service, manage and administer the Receivables the (‘‘Serviced Assets’’) and the Collections thereon in

accordance with the terms of the Servicing Agreement. There can be no assurance that Korean Air will

continue to operate as Servicer under the Servicing Agreement, or that any successor Servicer will be

able to carry out its duties to the same level of efficiency as Korean Air. In the event that the Servicer

or a successor Servicer is obliged to take any legal action, such action would be required to be

conducted through a qualified lawyer or licensed servicer.

Risk Relating to the Airline Industry

Industry Conditions and Price Competition

Airline profit levels are highly sensitive to, and during recent years have been severely impacted

by, changes in fuel costs, fare levels, customer demand, market conditions, political events and health

events or otherwise. Customer demand and yields, for both cargo and passengers, have been affected by,

among other things, the general state of the economy, international events and actions taken by airlines

with respect to fares.

50

Korean Air estimates that, as at 31 December, 2010, it had 8.2 per cent. market share of the air

cargo transportation business from Japan. In addition to its flight frequency, Korean Air believes that its

marketing strategies and relationships with IATA Agents will ensure that its market share will be

protected.

However, Korean Air faces intense competition from other airlines as well as dedicated cargo

airlines such as Polar Air Cargo, UPS and DHL.

No assurance can be given that competition will not intensify further or that Korean Air will

maintain its current market share or continue to operate the Japan Routes at all. In addition, factors

outside the control of Korean Air could impact cargo tariff and/or passenger fares in the future including

significant industry-wide tariff and/or discounts as well as global economic and health problems.

Aircraft Fuel

Fuel costs (including any applicable taxes) comprise a significant portion of any airline’s costs.

Korean Air is vulnerable to the movement of international crude oil prices and it currently hedges

approximately 10 per cent. of its annual fuel consumption. The remaining 90 per cent. of its annual jet

fuel consumption is procured in spot transactions at the then prevailing market price. Korean Air also

recovers some of its increased costs through use of a fuel surcharge scheme. See ‘‘The Trustor and

Servicer — Risk Management’’. However, its hedging policy may not fully protect the Company from

significant increases in the price of jet fuel in the short-or long-term or may limit the benefit the

Company could derive from significant decreases in the price of jet fuel.

The Company’s reliance on international sources for jet fuel is exacerbated by the fact that Korea

imports 100 per cent. of its crude oil requirements. The Company cannot predict the development of

either short- or long-term jet fuel prices or the availability of fuel. In the event of a fuel supply shortage

resulting from a disruption of oil imports or otherwise, higher fuel prices and, consequently, a

curtailment of the Company’s scheduled services may result. In addition, all fuel costs are U.S. dollar

denominated and therefore subject to the effects of currency exchange fluctuations.

Regulatory Matters

The availability of international routes to Korea’s airlines is regulated by treaties and related

agreements between the Government and foreign governments and the allocation of such available

routes between Korea’s airlines is regulated by the Ministry of Land, Transport and Maritime Affairs

(the ‘‘MLTM’’). The MLTM has established regulatory policies intended to promote controlled growth,

which Korean Air believes will be beneficial to the development of the Korean airline industry. The

regulatory framework within which Korean Air operates can, however, limit its flexibility to respond to

market conditions, competition or changes in its cost structure and the implementation of specific

MLTM policies could adversely affect its operations.

High Operating Leverage

The airline industry is characterised by a high degree of operating leverage. The expenses of each

flight, particularly labour and fuel costs, do not vary proportionately with the amount of cargo or the

number of passengers carried, while revenues generated from a particular flight are directly related to

the amount of cargo and/or the number of passengers carried and the pricing structure of the flight.

Accordingly, a decrease in the amount of cargo and/or the number of passengers carried would result in

a disproportionately greater decrease in profits. See ‘‘The Receivables’’.

51

External Factors

The airline industry has recovered significantly from external factors, such as the terrorist attacks

in the United States on 11 September, 2001, the Iraq war and the Serve Acute Respiratory Syndrome

(‘‘SARS’’) outbreak in 2003. In addition, the global economic financial crisis in 2008 and the spread of

H1N1 virus in 2009 caused a decrease in airline traffic globally.

No assurance can be given that similar events will not occur in the future or that other events will

not occur which will have a material adverse impact on the world economy and air traffic (in particular,

on the Routes) and therefore on the generation of Receivables and ultimately on payments of the Notes.

Risk Relating to Japan

Japanese Economy

After achieving significant economic growth from the 1960s until the early 1990s, the Japanese

economy grew markedly slower during the 1990’s. Japanese banks and financial service companies

encountered problems relating to asset performance during that time. A number of retailers filed for

bankruptcy due to excessive debt and weak profitability as a result of poor domestic consumption. In

addition, a number of banks and financial services companies, as well as several Japanese corporations,

had to restructure their obligations or declare bankruptcy.

In recent years, the Japanese economy has experienced an increase in the inflow of capital, from

both foreign and domestic sources, into failed financial institutions and certain industries that are

currently in the process of consolidation. Investments are expected to assist in the reduction of

unemployment as well as generally improve the weak economic conditions. However, there is no

assurance that this trend will improve conditions in the financial sector or the Japanese economy as a

whole.

There can be no assurance that this recovery will continue and a return to weak economic

conditions could adversely affect the performance of the Routes and the generation of Receivables and

thereby negatively affect the cashflow available to make payments on the Notes.

Natural disasters could affect Korean Air’s business and result in loss of revenue

Any serious disruption at any Korean Air’s customer’s facilities due to hurricane, fire, earthquake,

flood, or any other natural disaster could impair the ability of those customers to use their facilities and,

consequently, potentially reduce the amount of cargo that Korean Air can transport from Japan.

The full effects of the recent earthquakes and tsunami in Japan on Korean Air’s cargo

transportation business in Japan are not yet known. No assurance can be given that such events will not

adversely affect the performance of the Routes, the generation of Receivables and, ultimately, the ability

to make payments on the Notes.

Risk Relating to Korea

The Originator is incorporated in Korea and a substantial part of the Servicer’s operations are

located in Korea. As a result, the Originator, the Servicer and the Bond Issuer are subject to political,

economic, legal and regulatory risks specific to Korea.

52

The legal system in Korea is not as well established or transparent as in the United States or

Western Europe, and in particular the legal rights of creditors or other parties are in many cases not

clear, well established or consistently enforced. In particular, the ABS Act is a relatively new body of

legislation in relation to which Korean judicial consideration has not been given in many cases yet.

Events outside Korea also impact the financial markets and the economy in Korea. Events related

to the terrorist attacks in the United States that took place on 11 September, 2001, recent developments

in the Middle East, including the conflict in Libya and revolutions in Tunisia and Egypt in 2011, higher

oil prices, the worldwide financial market crisis resulting from the U.S. sub-prime mortgage crisis in

2007, the impact on the Japanese economy of the earthquakes and tsunami that recently occurred in the

northeast part of Japan, the general weakness of the global economy and the outbreak of epidemic

diseases (such as severe acute respiratory syndrome, or SARS, and the avian flu) in Asia and other parts

of the world have increased the uncertainty of global economic prospects in general and may continue to

adversely affect the Korean economy for some time. Any future deterioration of the Korean and global

economy could adversely affect the Originator’s business, financial condition and results of operations.

Developments that could hurt Korea’s economy in the future include:

. continuing difficulties in the housing and financial sectors in the United States and elsewhere

and the resulting adverse effects on the global financial markets;

. financial problems relating to Korean conglomerates known as chaebols, or their suppliers,

and their potential adverse impact on Korea’s financial sector, including as a result of recent

investigations relating to unlawful political contributions and corporate accounting fraud or

irregularities by chaebols;

. loss of investor confidence arising from corporate accounting irregularities and corporate

governance issues of certain chaebols;

. a slowdown in consumer spending and the overall economy;

. an unanticipated deterioration of consumer credit quality;

. failure of restructuring of large troubled companies, including troubled credit card companies

and financial institutions;

. adverse changes or volatility in foreign currency reserve levels, commodity prices (including

oil prices), exchange rates (including depreciation of the U.S. dollar or Japanese yen),

interest rates and stock markets;

. increased reliance on exports to service foreign currency debts, which could cause friction

with Korea’s trading partners;

. adverse developments in the economies of countries such as the United States, China and

Japan to which Korea exports, or in emerging marketing economies in Asia or elsewhere that

could result in a loss of confidence in the Korean economy;

. the economic effects of any pending or future free trade agreements;

. the continued emergence of China, to the extent its benefits (such as increased exports to

China) are outweighed by its costs (such as competition in export markets or for foreign

investment and the relocation of the manufacturing base from Korea to China);

53

. geopolitical uncertainty and risk of further terrorist attacks around the world;

. social and labour unrest or declining consumer confidence or spending resulting from lay-

offs, increasing unemployment and lower levels of income;

. a recurrence of severe acute respiratory syndrome, or SARS, or the widespread outbreak of

any similar contagion, in Asia and other parts of the world;

. a decrease in tax revenues and a substantial increase in the Korean Government’s

expenditures for unemployment compensation and other social programmes that, together,

lead to an increased government budget deficit;

. political uncertainty or increasing strife among or within political parties in Korea;

. a deterioration in economic or diplomatic relations between Korea and its trading partners or

allies, including such deterioration resulting from trade disputes or disagreements in foreign

policy;

. hostilities involving oil producing countries in the Middle East and any material disruption in

the supply of oil or increase in the price of oil resulting from those hostilities;

. an increase in the level of tensions or an outbreak of hostilities between North Korea and

Korea and/or the United States;

. a sharp increase in prices recently, interest rate increases and adverse economic effects

resulting therefrom;

. natural disasters that have a significant adverse economic or other impact on Korea or its

major trading partners, such as the earthquake and tsunami that recently occurred in the

northeast part of Japan and any resulting releases of radiation from damaged nuclear power

plants in the area; and

. difficulties that banks may face with respect to project financing loans for real estate

developments, arising from the downturn in the domestic real estate market.

Any developments that could adversely affect Korea’s economic recovery will likely also to have a

material adverse effect on the Originator’s operations (including its cargo transportation business) and

potentially the generation of Receivables.

Labour unrest may increase if the Korean economy experiences a downturn and may disrupt theoperations of the Servicer and its ability to service the Receivables

A downturn in the Korean economy, as well as the associated increase in the number of corporate

restructurings and bankruptcies, may cause large-scale layoffs and increased unemployment in Korea.

Increased unemployment may lead to social unrest and substantially increase the Government’s

expenditure for unemployment compensation and other costs for social programmes. No assurance can

be given that layoffs will not occur in the near future or that labour unrest will not occur. Increasing

unemployment and continuing labour unrest could disrupt the operations of the Servicer and its ability

to service the Receivables and could affect the cashflow of the Collections and financial matters in

Korea generally. These results would be likely to have an adverse effect on Korean economic conditions

and on the Note Issuer’s ability to make payments due under the Notes.

54

Increased tensions between Korea and North Korea may have a material adverse effect on the marketvalue of the Notes

Relations between Korea and North Korea have been tense throughout Korea’s modern history.

The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of

current and future events. In recent years, there have been heightened security concerns stemming from

North Korea’s nuclear weapon and long-range missile programmes and increased uncertainty regarding

North Korea’s actions and possible responses from the international community.

In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation

Treaty. Since the renouncement, Korea, the United States, North Korea, China, Japan and Russia have

held numerous rounds of six party multi-lateral talks in an effort to resolve issues relating to North

Korea’s nuclear weapons programme. Despite some signs of progress at various points in time, in April

2009, after launching a long-range rocket over the Pacific Ocean, which led to protests from the

international community, North Korea announced that it would permanently withdraw from the six-party

talks that began in 2003 to discuss Pyongyang’s path to denuclearisation.

From time to time North Korea has conducted test flights of missiles. On 25 May, 2009, North

Korea conducted its second nuclear test and launched several short-range missiles. In response to such

actions, Korea decided to join the Proliferation Security Initiative, an international campaign aimed at

stopping the trafficking of weapons of mass destruction, over Pyongyang’s harsh rebuke and threat of

war. After the United Nations Security Council passed on 12 June, 2009 a resolution to condemn North

Korea’s second nuclear test and impose tougher sanctions such as a mandatory ban on arms exports,

North Korea announced that it would produce nuclear weapons and take ‘‘resolute military actions’’

against the international community.

In March 2010, a Korean warship was destroyed by an underwater explosion, killing many of the

crewmen on board. In May 2010, the Government formally accused North Korea of causing the sinking

and demanded that North Korea apologise for the act and punish those responsible. The Government has

also been seeking international condemnation against North Korea for the act. North Korea has

threatened retaliation for any attempt to punish it over the incident. On 23 November, 2010, North

Korea reportedly fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near

the maritime border between Korea and North Korea on the west coast of Korea, killing at least two

Korean soldiers and two civilians, wounding many others and setting civilian houses on fire. Korea

responded by firing artillery shells back, while putting the military on its highest level of alert in the

west coast area. The Government condemned North Korea for the act and vowed stern retaliation should

there be further provocation.

There recently has been increased uncertainty about the future of North Korea’s political leadership

and its implications for the economic and political stability of the region. In June 2009, U.S. and Korean

officials announced that Kim Jong-il, the North Korean ruler who reportedly suffered a stroke in August

2008, designated his third son, Kim Jong-un, who is reportedly in his twenties, to become his successor.

In September 2010, Kim Jong-un was made a Daejang, the equivalent of an American Four-Star General

and was named vice chairman of the Central Military Commission of North Korea. The succession plan,

however, remains uncertain. In addition, North Korea’s economy faces severe challenges. For example,

in November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as

part of a currency reform undertaken in an attempt to control inflation and reduce income gaps. In

tandem with the currency redenomination, the North Korean government banned the use or possession

of foreign currency by its residents and closed down privately run markets, which led to severe inflation

and food shortages. Such developments may further aggravate social and political tensions within North

Korea.

55

There can be no assurance that the level of tension and instability in the Korean peninsula will not

escalate in the future, or that the political regime in North Korea may not suddenly collapse. Any further

increase in tension or uncertainty relating to the military or economic stability in the Korean peninsula,

including a breakdown of diplomatic negotiations over the North Korean nuclear programme, the

occurrence of military hostilities or heightened concerns about the stability of North Korea’s political

leadership, could have a material adverse effect on the Korean economy and/or the economies of other

countries in Asia, in general, and the financial condition of the Originator and the Bond Issuer and in

particular the results of their respective operations and also the Obligors’ financial positions. This in

turn could adversely affect the market value of the Notes and the ability of the Note Issuer to make

payments under the Notes promptly when due, if at all.

Other Risks

The Bond Issuer has no operating history

The Bond Issuer is a newly-formed entity and has no operating history and no material assets other

than the Investor Beneficial Interest. The Bond Issuer will not engage in any business activity other than

the issuance of the Bond, certain activities conducted in connection with the payment of amounts in

respect of the Bond and other activities incidental or related to the foregoing. Income derived from the

Investor Beneficial Interest will be the Bond Issuer’s principal source of funds.

Limited recourse obligations of the Bond Issuer

The Bond Conditions will provide that recourse against the Bond Issuer in relation to its

obligations under the Bond and all other obligations under the Transaction Documents will be limited to

amounts from time to time available for such obligations in accordance with the Transaction

Administration Agreement. If such amounts are insufficient to pay in full all amounts due under the

Bond after payment of all amounts having priority over the Bond, the Note Issuer will have no further

claim against the Bond Issuer in respect of any unpaid amounts and the liability of the Bond Issuer with

respect to such unpaid amounts shall be extinguished.

None of the equityholders, officers, directors or incorporators of the Bond Issuer, the Joint

Arrangers, the Japanese Trustee, the Transaction Administrator, the Swap Provider and the Security

Agent, any of their respective Affiliates or any other person or entity (other than the Bond Issuer) will

be obligated to make payments on the Bond. In the absence of the Credit Facility, the Note Issuer must

rely on payments received in respect of the Bond for the payment of interest on and principal of the

Notes and no assurance can be given that such payments will be sufficient to pay all amounts due on the

Notes.

Transfers of the Bond prohibited in certain circumstances

Under the Financial Investment Services and Capital Markets Act and the Regulations on Issuance,

Public Disclosure, etc. of Securities, a transfer of the Bond by the Note Issuer to a Korean Resident (as

such term is defined in the Foreign Exchange Transaction Law of Korea, currently an individual who

has an address or a place of residence in Korea or a legal entity which has its main office in Korea)

within one year of the date of its issuance would necessitate a filing by the Bond Issuer with the

Financial Services Commission of Korea. If the Bond Issuer breaches such prohibition, it may be subject

to sanctions by the Financial Services Commission of Korea. Each of the Note Issuer and the Note

Trustee have covenanted in the Bond Subscription and Agency Agreement and the Note Trust Deed that

it will not transfer the Bond to a Korean Resident within one year of the Closing Date unless permitted

by Korean Law at the relevant time. This may restrict the actions which the Note Trustee may take upon

enforcement of the Note Security.

56

Withholding Taxes under the Bond

All payments in respect of the Bond will be made free and clear of, and without withholding or

deduction for, any present or future Taxes (including Taxes imposed by Korea or Japan), unless such

withholding or deduction is required by law. In that event, the Bond Issuer is obliged to gross up and

otherwise compensate the Bondholder for the lesser amounts that the Bondholder will receive as a result

of the imposition of such Taxes. Income derived from the Investor Beneficial Interest will be the Bond

Issuer’s only source of funds. No assurance can be given that such funds will be sufficient to enable the

Bond Issuer to make such gross-up or compensation payments in full or at all. To the extent that the

Bond Issuer fails to gross up, in part or at all, the Note Issuer will be able to make a drawing under the

Credit Facility to the extent of such shortfall up to the Commitment Amount.

Forward-looking statements are mere reflections of current expectations and are not meant to beguarantees

Included in this Prospectus are various forward-looking statements, including statements regarding

the Bond Issuer’s, the Note Issuer’s and the Trustor’s expectations and projections for future operating

performance and business prospects. The words ‘‘believe’’, ‘‘expect’’, ‘‘anticipate’’, ‘‘estimate’’,

‘‘project’’ and similar words identify forward-looking statements. In addition, all statements other than

statements of historical facts included in this Prospectus are forward-looking statements. These

statements are forward-looking and reflect current expectations of the relevant party. Although such

parties believe that the expectations reflected in the forward-looking statements are reasonable, they can

give no assurance that such expectations will prove to be correct. They are subject to a number of risks

and uncertainties, including changes in the economic and political environments in Korea. In light of the

many risks and uncertainties surrounding Korea, investors should keep in mind that such parties cannot

guarantee that the forward-looking statements described in this Prospectus will prove to be correct. All

subsequent written and oral forward-looking statements attributable to such companies or persons acting

on behalf of such companies are expressly qualified in their entirety by the reference to these risks.

Certain significant differences exist between Korean GAAP, US GAAP and IFRS which might bematerial to the financial information presented in this Prospectus

The audited financial information included in this Prospectus was prepared and is presented in

accordance with Korean GAAP. Significant differences exist between Korean GAAP, US GAAP and

IFRS which might be material to the financial information herein. For example, equity in earnings of

equity method accounted investees, constitutes 15% of Korean Air’s income before income taxes for the

year ended 31 December, 2010. In accordance with accounting principles generally accepted in the

Republic of Korea, Korean Air records such earnings based on limited unaudited financial information

obtained from the investee. The procedures the auditors performed in accordance with Korean auditing

standards with respect to such unaudited financial information of the investee are primarily limited to

analytical procedures and making inquires of the Korean Air because the auditors are not the auditors of

the investees and do not have access to the investees’ financial records or management. These

accounting and auditing practices may be substantially less in scope than generally accepted practices in

other jurisdictions.

In making an investment decision, investors must rely upon their own examination of Korean Air,

the Credit Facility Provider, the terms of this offering and the financial information included in this

Prospectus. Investors should consult their own professional advisors for an understanding of the

differences between Korean GAAP, US GAAP and IFRS and how those differences might affect the

financial information included herein.

57

USE OF PROCEEDS

The gross proceeds of the issue of the Notes (which, for the avoidance of doubt, shall be equal to

the net proceeds), amounting to ¥20,000,000,000, will be applied by the Note Issuer on the Closing Date

in subscribing for the Bond from the Bond Issuer. All fees, commissions and expenses of the Joint

Arrangers and all other initial transaction costs, will be paid separately by the Trustor.

58

RATING OF THE NOTES

The Entrusted Assets and the arrangements for the protection of the Noteholders in the light of the

risks involved have been reviewed by the Rating Agency. It is a condition of the issuance of the Notes

that the Notes are assigned a rating of not less than ‘‘A1 (sf)’’ by the Rating Agency.

A rating is not a recommendation to buy, sell or hold securities, does not address the likelihood or

timing of prepayment, if any, or the receipt of default interest and may be subject to revision,

qualification or withdrawal at any time by the assigning rating organisation.

The credit rating of the Notes included or referred to in this Prospectus will be treated for the

purposes of Regulation (EC) No. 1060/2009 on credit rating agencies (the ‘‘CRA Regulation’’) as

having been issued by the Rating Agency upon registration pursuant to the CRA Regulation. The EU-

based offices of the Rating Agency are established in the European Union and have applied to be

registered under the CRA Regulation although the result of such application has not yet been

determined.

59

TERMS AND CONDITIONS OF THE NOTES

KAL Japan ABS 6 Cayman Limited (the ‘‘Note Issuer’’) has issued the ¥20,000,000,000 Secured

Floating Rate Notes due 2014 (the ‘‘Notes’’) pursuant to resolutions of the board of directors of the

Note Issuer passed on 8 April, 2011 and 20 April, 2011. The Notes are constituted by a trust deed (the

‘‘Note Trust Deed’’) dated on or about 27 April, 2011 (the ‘‘Closing Date’’) between, inter alios, the

Note Issuer and The Bank of New York Mellon, Hong Kong Branch (the ‘‘Note Trustee’’) and are

secured by the security described below. The following terms and conditions of the Notes are subject to

the detailed provisions of the Note Trust Deed and the Note Agency Agreement (as defined below).

The holders of the Notes (the ‘‘Noteholders’’ or ‘‘Holders’’) are entitled to the benefit of and

deemed to have notice of the provisions of: (a) the Note Trust Deed; (b) the note agency agreement

dated on or about the Closing Date between, inter alios, The Bank of New York Mellon, London Branch

(the ‘‘Principal Paying Agent’’, the ‘‘Principal Transfer Agent’’ and the ‘‘Reference Agent’’), TheBank of New York Mellon (Luxembourg) S.A. (the ‘‘Note Registrar’’), The Bank of New York Mellon

(Ireland) Limited (the ‘‘Irish Paying Agent’’), the Note Issuer and the Note Trustee (the ‘‘Note AgencyAgreement’’); (c) the note issuer administrator agreement dated on or about the Closing Date between,

inter alios, Walkers SPV Limited (the ‘‘Note Issuer Administrator’’) and the Note Issuer (the ‘‘NoteIssuer Administrator Agreement’’); (d) the bank agreement dated on or about the Closing Date

between, inter alios, The Bank of New York Mellon, Hong Kong Branch (an ‘‘Account Bank’’), theNote Issuer and the Note Trustee (the ‘‘Note Issuer Account Bank Agreement’’); (e) a fee letter dated

on or about the Closing Date signed by, inter alios, the Note Trustee and the Note Registrar (the ‘‘Bankof New York Mellon Fee Letter’’) (together, the ‘‘Note Transaction Documents’’) and (f) the master

schedule of definitions, interpretation and construction clauses dated 11 April, 2011 signed by, inter

alios, the Transaction Administrator, the Note Trustee and the Note Issuer (the ‘‘Master DefinitionsSchedule’’). Copies of the Note Transaction Documents and the Master Definitions Schedule will be

available for inspection at the Specified Offices of the Principal Paying Agent, the Irish Paying Agent

and at the registered office of the Note Issuer.

Capitalised terms used in these terms and conditions of the Notes (the ‘‘Note Conditions’’) and not

otherwise defined herein bear the meaning ascribed to them in the Master Definitions Schedule.

The holders shown in the records of Euroclear and Clearstream, Luxembourg of book-entry

interests in the Notes are entitled to the benefit of, are bound by, and are deemed to have notice of, all

the provisions of the Note Trust Deed, the Note Agency Agreement and other Transaction Documents

applicable to them.

1. Form, Denomination and Title

(a) Form: The Notes are in fully registered form and will be evidenced by either certificates in

global form (‘‘Global Note Certificates’’) or certificates in definitive form (‘‘Definitive NoteCertificates’’) (each a ‘‘Note Certificate’’) in substantially the forms contained in the Note

Trust Deed. Notwithstanding any other provision herein contained, so long as any of the

Notes are evidenced by Global Note Certificates, each holder of a beneficial interest in such

Notes will be bound by, and will be deemed to have agreed to, the rules and procedures of

the clearing system through which transfers of, and payments of principal of, interest on or

other payments (if any) in respect of, such Notes are made.

(b) Title: Title to the Notes will pass by registration of the interest of the transferee in the

register (the ‘‘Note Register’’) which the Note Issuer will procure to be kept by the Note

Registrar. In these Note Conditions, the ‘‘Holder’’ of a Note means the person in whose

name such Note is for the time being registered in the Note Register (or, in the case of a joint

60

holding, the first named thereof) and ‘‘Noteholder’’ will be construed accordingly. Whilst the

Notes are held in global form, the registered owner of the Notes shall be The Bank of New

York Depository (Nominees) Limited as common depositary (the ‘‘Common Depositary’’)for Euroclear and Clearstream, Luxembourg and the Holder of such Note shall be the person

in whose name such Note is for the time being registered in the Note Register. The Holder of

each Note will (except as otherwise required by law) be treated as the absolute owner of such

Note for all purposes (whether or not it is overdue and regardless of any notice of ownership,

trust or any other interest therein, any writing on the Note Certificate relating thereto (other

than the endorsed form of transfer) or any notice of any previous loss or theft of such Note

Certificate) and no person will be liable for so treating such Holder.

(c) Denominations: The denomination of the Notes is ¥20,000,000 and integral multiples of

¥10,000,000 thereafter.

(d) Transfers: Transfers of interests in the Notes may only be made in accordance with the

legend set forth on the face of the relative Note Certificate. Subject to paragraph (g) below, a

Note may be transferred upon surrender of the relevant Note Certificate, with the form of

transfer endorsed on it duly completed and executed, at the Specified Office of the Note

Registrar or any Transfer Agent, together with such evidence as the Note Registrar or (as the

case may be) such Transfer Agent may reasonably require to prove the title of the transferor

and the authority of the individuals who have executed the form of transfer. The Note

Registrar will register the transfer in question and a new Note Certificate will be issued to the

transferee. In the case of a transfer of part only of the Notes evidenced by a Note Certificate,

the original principal amount of both the part transferred and the balance not transferred must

be of authorised denominations, and a new Note Certificate in respect of the balance not

transferred will be issued to the transferor. Notwithstanding the foregoing, so long as any

Notes are evidenced by Global Note Certificates, transfers of beneficial interests therein will

be made in accordance with the rules of the relevant clearing system as from time to time in

effect. All transfers of Notes and entries on the Note Register are subject to the detailed

regulations concerning the transfer of Notes scheduled to the Note Agency Agreement. The

Note Issuer may amend such regulations with the approval of the Paying Agents, the Transfer

Agents, the Note Registrar and the Note Trustee. No transfer of Notes will be effective unless

and until entered on the Note Register.

(e) Delivery of Note Certificates: Each new Note Certificate to be issued upon a transfer of

Notes will, within seven business days of receipt by the Note Registrar of the form of

transfer, be mailed by uninsured mail at the risk of the Holder entitled to the Notes to the

address specified in the form of transfer. Where only some of the Notes in respect of which a

Note Certificate is issued are to be transferred or redeemed, a new Note Certificate in respect

of the Notes not so transferred or redeemed will, within seven business days of deposit or

surrender of the original Note Certificate with or to the Note Registrar, be mailed by

uninsured mail at the risk of the Holder of the Notes not so transferred or redeemed to the

address of such Holder appearing on the Note Register. For the purposes of this Note

Condition 1, ‘‘business day’’ means any day on which banks are open for business in the

place of the Specified Office of the Note Registrar.

(f) Registration of Note Certificates: Registration of a transfer of Notes will be effected

without charge by or on behalf of the Note Issuer or the Note Registrar, but upon payment

(or the giving of such indemnity as the Note Issuer or the Note Registrar may reasonably

require) in respect of any tax or other governmental charges which may be imposed in

relation to it.

61

(g) Closed Period: No Noteholder may require the transfer of a Note to be registered during the

period of 15 days ending on the due date for any payment of any amount on the Notes.

(h) Regulations Concerning Transfers and Registration: All transfers of Notes and entries on

the Note Register will be made in accordance with the provisions of the Note Agency

Agreement.

(i) Charges on New Note Certificates: The issue of new Note Certificates on transfer will be

effected without charge by the Note Issuer, the Note Registrar or the Transfer Agents but

otherwise at the cost of the transferees who will pay (or give such indemnity as the Note

Registrar or relevant Transfer Agent may require in connection with such transfers) any tax

or other duty or whatever nature which may be levied or imposed in connection with such

transfers.

2. Status and Security

(a) Status: The Notes constitute direct, general, limited recourse, unconditional and

unsubordinated obligations of the Note Issuer, secured in accordance with the provisions of

the Note Trust Deed, as described in paragraph (b) below. The Notes will at all times rank

pari passu among themselves and at least pari passu with all other present and future, direct,

general, unsubordinated and unsecured obligations of the Note Issuer, save for such

obligations as may be preferred by provisions of law that are both mandatory and of general

application.

(b) Security: The obligations of the Note Issuer to the Noteholders under the Notes are secured

by the Note Security (as defined below) pursuant to the provisions of the Note Trust Deed.

Under the Note Trust Deed, the Note Issuer has granted in favour of the Note Trustee:

(i) an absolute assignment by way of first fixed security of all its rights, title, interest and

benefit (present and future, actual and contingent) in, to and under each Transaction

Document to which it is a party, including in each case, without limitation, all its rights

to receive payment of any amounts which may become payable to the Note Issuer

thereunder, its security interest in the Bond Secured Property and all payments received

by the Note Issuer thereunder, all rights to serve notices and/or make demands

thereunder and/or to take such action as is required to cause payments to become due

and payable thereunder, all rights of action in respect of any breach thereof, and all

rights to claim and receive damages or obtain other relief in respect thereof;

(ii) a charge by way of first fixed charge of all its rights, title, interest and benefit (present

and future, actual and contingent) in, to and under all sums of money which may now

be or hereafter are from time to time standing to the credit of the Note Issuer Account

and any other bank account (other than the bank account referred to in paragraph (iv)

below) in which the Note Issuer may at any time acquire any right, title or interest or

benefit, together with all interest accruing from time to time thereon and the debts

represented thereby;

(iii) an absolute assignment by way of first fixed security of all its rights, title, interest and

benefit (present and future, actual and contingent) in, to and under the Bond and all

other contracts, deeds and documents, present and future, to which the Note Issuer is or

may become a party;

62

(iv) a charge by way of first fixed charge of all its rights, title, interest and benefit (present

and future, actual and contingent) in and to all other assets and property that it has

acquired or may acquire (other than the proceeds of the Note Issuer’s share capital, the

U.S.$250 transaction fee and the bank account where such amounts are deposited); and

(v) a charge by way of first floating charge of the whole of its undertaking and all of its

property and assets, whatsoever and wheresoever situate, present and future (other than

the proceeds of the Note Issuer’s share capital, the U.S.$250 transaction fee and the

bank account where such amounts are deposited) to the extent not otherwise effectively

charged by way of fixed charge or otherwise effectively assigned as security under this

Note Condition 2(b).

The Note Trustee (in its capacity as trustee for the benefit of the Noteholders and not in its

individual capacity), the Noteholders, the Note Agents, the Note Issuer Administrator, the Account

Bank, the Swap Provider and the Credit Facility Provider (together, the ‘‘Note Secured Parties’’)have, through the Note Trustee, the benefit of the above described security interests (the ‘‘NoteSecured Property’’) to secure sums due to each of them pursuant to the Notes and the Note

Transaction Documents to which they are a party.

The Note Secured Parties have the benefit of the security (the ‘‘Note Security’’) given by the

Note Issuer to the Note Trustee pursuant to the Note Trust Deed.

(c) Assumption: The Note Trustee will be entitled to assume (without enquiry), for the purpose

of exercising any power, trust, authority, duty or discretion under or in relation to these Note

Conditions or any of the Transaction Documents, that such exercise will not be materially

prejudicial to the interests of the Noteholders if the Rating Agency has confirmed that its

then current rating of the Notes would not be adversely affected by such exercise and if the

Controlling Beneficiary has consented to such exercise in writing.

3. Interest

(a) Accrual of Interest: The Notes will bear interest from and including the Closing Date to

(but excluding) the earlier to occur of (i) the Note Maturity Date and (ii) the date on which

the Principal Amount Outstanding of the Notes is zero in accordance with this Note

Condition 3. Interest will cease to accrue on each Note from the due date for redemption

thereof unless, upon due presentation of such Note, payment of principal is improperly

withheld or refused or default is otherwise made in payment thereof. In such event, interest

will continue to accrue in accordance with this Note Condition 3 (as well after as before

judgment) up to, but excluding, the date on which, upon further presentation thereof,

payment in full of the relevant amount is made or (if earlier) the seventh day after the date

upon which notice is duly given to the Holder of such Note (in accordance with Note

Condition 15) that, upon further presentation thereof being duly made, such payment will be

made; provided that such payment is in fact made.

(b) Note Payment Dates and Interest Periods: Interest will be payable on the Notes monthly in

arrear on the 27th day of each month (each, a ‘‘Note Payment Date’’) commencing on 27

May, 2011. If a payment is due on a day which is not a Business Day in Dublin, London,

Hong Kong and Tokyo, such payment will be made on the next succeeding day which is a

Business Day in such locations unless that day falls in the next calendar month, in which

case the first preceding day which is a Business Day. Interest on the Notes will be payable

by reference to successive interest periods (each, an ‘‘Interest Period’’). The initial Interest

Period will commence on (and include) the Closing Date and end on (but exclude) the initial

63

Note Payment Date. Each successive Interest Period will commence on and include a Note

Payment Date and end on (but exclude) the next succeeding Note Payment Date. A

‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks

and foreign exchange markets settle payments are open for general business in one or more

specified locations.

(c) Note Rate of Interest: The rate of interest (the ‘‘Note Rate of Interest’’) payable in respect

of the Notes in respect of an Interest Period will be the sum of:

(i) (x) prior to the termination of the Swap Agreement, the Floating Rate Option (as

defined in the Swap Agreement) in respect of the relevant Interest Period as

determined by the Calculation Agent (as defined in the Swap Agreement) in

accordance with the provisions of the Swap Agreement; or

(y) after the termination of the Swap Agreement, 1 month JPY-LIBOR-BBA (as

defined in the Master Definitions Schedule) in respect of the relevant Interest

Period as determined by the Note Trustee in accordance with the Note Trust Deed;

and

(ii) a margin of 1.20 per cent. per annum.

The JPY-LIBOR-BBA in respect of the first Interest Period will be determined by way of a

linear interpolation of the 1 month JPY-LIBOR-BBA and the 2 month JPY-LIBOR-BBA by the

Calculation Agent in accordance with the Swap Agreement.

(d) Determination of Interest Amounts: The Reference Agent will, as soon as practicable after

the Interest Determination Date in relation to each Interest Period, calculate the amount of

interest (the ‘‘Note Interest Amount’’) payable in respect of each Note for such Interest

Period. The Note Interest Amount will be calculated by applying the Note Rate of Interest for

such Interest Period to the Principal Amount Outstanding of such Note as at the first day of

such Interest Period (after giving effect to any payment of principal of such Note made on

such day), multiplying the product by the actual number of days elapsed in such Interest

Period divided by 360 and rounding the resulting figure downward, if necessary, to the

nearest Yen.

(e) Publication: The Reference Agent will cause each Note Rate of Interest and Note Interest

Amount determined by it, together with the relevant Note Payment Date, to be notified to the

Note Issuer, the Credit Facility Provider, the Paying Agents, the Note Trustee, the Security

Agent, the Japanese Trustee, the Transaction Administrator, the Swap Provider, the Rating

Agency and each stock exchange (if any) on which the Notes are then listed as soon as

practicable after such determination but in any event not later than two Business Days after

the relevant Interest Determination Date. Notice thereof will also promptly be given to the

Noteholders in accordance with Note Condition 15. The Reference Agent will be entitled to

recalculate any Note Interest Amount (on the basis of the foregoing provisions) without

notice in the event of an extension or shortening of the relevant Interest Period.

64

(f) Certificates to be Final: All notifications, opinions, determinations, certificates,

calculations, quotations and decisions given, expressed, made or obtained for the purposes of

this Note Condition 3 by the Reference Agent will (in the absence of manifest error) be

binding on the Transaction Administrator, the Credit Facility Provider, the Swap Provider,

the Note Issuer, the Note Agents and the Noteholders and (subject as aforesaid) no liability to

any such person will attach to the Reference Agent or (in the circumstances referred to in

paragraph (g) below) the Note Trustee in connection with the exercise or non-exercise by it

of its powers, duties and discretions for such purposes.

(g) Failure of Calculation Agent or Reference Agent: If the Calculation Agent fails at any

time to determine a Note Rate of Interest or the Reference Agent fails at any time to calculate

a Note Interest Amount as aforesaid, the Note Trustee may determine such Note Rate of

Interest in accordance with the Credit Facility Provider’s written instructions, or, if, and for

so long as the Credit Facility Provider is not the Controlling Beneficiary, as the Note Trustee

in its sole discretion considers fair and reasonable in the circumstances (having such regard

as it thinks fit to paragraph (c) above) or (as the case may be) calculate such Note Interest

Amount in accordance with paragraph (d) above, and such determinations and/or calculations

made by the Note Trustee will be deemed to have been made by the Calculation Agent or

Reference Agent, case the case may be.

(h) Limited Recourse: The Note Issuer’s liability to make payments in respect of interest on the

Notes may only be satisfied in accordance with Note Condition 17.

4. Amortisation and Redemption

(a) Redemption on Maturity: Unless previously redeemed in full, the Note Issuer will redeem

the Notes, to the extent of funds available therefor in accordance with the priority of

payments set forth in the Note Trust Deed in full on the Note Payment Date falling in April

2014 (the ‘‘Note Maturity Date’’) at the Note Redemption Amount as at such date. The

‘‘Note Redemption Amount’’ means, on any date, an amount equal to the Principal Amount

Outstanding of the Notes as at such date plus accrued and unpaid interest thereon to, but

excluding, such date.

(b) Controlled Amortisation Period: On each Note Payment Date following a Trust

Distribution Date that falls in the Controlled Amortisation Period, principal in respect of the

Notes will be paid in the following scheduled instalments (each, a ‘‘Scheduled AmortisationAmount’’) with the principal payment in respect of each Note being rounded down to the

nearest Yen.

65

Table 1Scheduled Amortisation Amount

Note Payment Date Falling in:

ScheduledAmortisationAmount (¥)

May 2011 350,000,000June 2011 556,033,007July 2011 549,914,223August 2011 549,826,105September 2011 550,559,970October 2011 552,045,861November 2011 552,031,642December 2011 553,471,961January 2012 553,507,183February 2012 554,245,961March 2012 556,249,696April 2012 555,728,164May 2012 557,054,015June 2012 557,213,419July 2012 558,493,277August 2012 558,702,578September 2012 559,448,290October 2012 560,658,943November 2012 560,943,322December 2012 562,107,679January 2013 562,442,284February 2013 563,192,988March 2013 564,973,652April 2013 564,698,777May 2013 565,746,840June 2013 566,207,608July 2013 567,208,948August 2013 567,720,404September 2013 568,478,153October 2013 569,409,183November 2013 569,996,917December 2013 570,880,916January 2014 571,519,672February 2014 572,282,492March 2014 573,194,485April 2014 573,811,385

Total 20,000,000,000

(c) Early Amortisation Period: On each Note Payment Date following a Trust DistributionDate that falls in the Early Amortisation Period or the Enforcement Period, principal inrespect of the Notes will be repaid, to the extent of funds available therefor in accordancewith the priority of payments set forth in the Note Trust Deed and after payment of theScheduled Amortisation Amount due on such Note Payment Date in inverse order of theamortisation schedule set out in Table 1 above, in an aggregate principal amount equal to thePrincipal Amount Outstanding of the Notes as at such date, until the Notes have beenredeemed in full at the Note Redemption Amount.

66

(d) Mandatory Redemption: Following the declaration by the Controlling Beneficiary of aMandatory Redemption Event and receipt of notice thereof from the Note Trustee, the NoteIssuer will, on the instructions of Note Trustee (acting on the instructions of the CreditFacility Provider), either (i) redeem the Notes on the date which is five London, Hong Kong,Tokyo and Dublin Business Days following the date on which the Bond is redeemedfollowing such Mandatory Redemption Event, in whole at the Note Redemption Amount onsuch date or (ii) redeem the Notes in accordance with the Scheduled Amortisation Amountsset out in Table 1 above in each case to the extent of funds available therefor in accordancewith the priority of payments set forth in the Note Trust Deed on such date; provided that theCredit Facility Provider may only instruct the Note Trustee to instruct the Note Issuer toredeem the Notes in accordance with paragraph (ii) above if the amount received with respectof the Bond is less than the amount required to repay in full the Notes and pay any amountsranking in priority to or pari passu with the Notes.

(e) No Purchase by Note Issuer: The Note Issuer will not be permitted to purchase any of theNotes.

(f) Cancellation: All Notes redeemed in full will be cancelled by the Paying Agents or theNote Registrar to whom such Notes are presented for redemption or surrender, and may notbe resold or reissued.

5. Payments

(a) Payments: Payments of principal and interest on the Notes will be made to the person inwhose name the Note is registered in the Note Register (or to the first-named of jointholders) by electronic funds transfer to the registered account of each Noteholder or bycheque; provided that the Principal Paying Agent will have received the required funds infull from the Note Issuer in accordance with the terms of the Note Agency Agreement. IfDefinitive Note Certificates have been issued, payments of the final amount due in respect ofprincipal will only be made upon evidence of delivery of the Definitive Note Certificates to aPaying Agent. So long as any Notes are evidenced by Global Note Certificates, payments ofprincipal and interest in respect thereof will be made in accordance with the rules andprocedures of the Principal Paying Agent, or the relevant clearing system, as the case maybe, from time to time in effect.

(b) Registered Account and Registered Address: For the purposes of this Note Condition 5, aNoteholder’s ‘‘registered account’’ means the Japanese Yen account maintained by or onbehalf of it with a bank in Tokyo, details of which appear on the Note Register to the closeof business on the 15th day before the due date for payment, and a Noteholder’s ‘‘registeredaddress’’ means its address appearing on the Note Register at that time.

(c) Payments Subject to Fiscal Laws: All payments in respect of the Notes are subject in allcases to any applicable fiscal or other laws and regulations.

(d) Payments on Business Day: Where payment is to be made by electronic funds transfer to aNoteholder’s registered account, payment instructions (for value on the due date or, if thatdate is not a Business Day, for value on the next Business Day) will be initiated and, wherepayment is to be made by cheque, the cheque will be mailed on the due date for payment (orif that date is not a Business Day, on the next Business Day) or, in the case of a payment ofthe final amount due in respect of principal on the relevant Note, on the Business Day onwhich the relevant Definitive Note Certificate is surrendered at the Specified Offices of thePaying Agents or the Note Registrar.

67

(e) No Payment for Delay: Noteholders will not be entitled to any interest or other payment forany delay after the due date in receiving the amount:

(i) if the Noteholder is late in surrendering its Definitive Note Certificate (if required to doso);

(ii) if a cheque mailed in accordance with paragraph (d) above arrives after the due date forpayment; or

(iii) if the due date is not a Tokyo Business Day.

(f) Unpaid Amount: If the amount of principal or interest, if any, which is due on the Notes isnot paid in full, the Note Registrar will annotate the Note Register with a record of theamount of principal or interest, if any, in fact paid.

(g) Specified Offices of Paying Agents and Note Registrar: The initial Paying Agents and theinitial Note Registrar and their respective initial Specified Offices are set out at the end ofeach Note Certificate. The Note Issuer may, subject to the provisions of the Note TransactionDocuments, vary or terminate the appointment of any of the Paying Agents or of any otherNote Agent and appoint additional or other Note Agents. Notice of any such termination orappointment and of any changes in their Specified Offices will be given to the Noteholders inaccordance with Note Condition 15.

(h) Partial Payments: If a Paying Agent makes a partial payment in respect of any Note, theNote Issuer will procure that the amount and date of such payment are noted on the NoteRegister and, in the case of partial payment upon presentation of a Note Certificate, that astatement indicating the amount and the date of such payment is endorsed on the relevantNote Certificate.

6. Covenants

The Note Issuer will covenant in the Note Trust Deed that other than as set out in the NoteTransaction Documents or with the consent in writing of the Controlling Beneficiary at the relevanttime, and until the Release Date, it will, inter alia:

(a) not engage in any business or activity or do anything whatsoever except:

(i) enter into and perform its obligations under the Transaction Documents, the Notes andany agreements contemplated by any of the foregoing;

(ii) enforce any of its rights, whether under any of the documents referred to in sub-paragraph (i) above or otherwise;

(iii) at all times comply with any direction given by the Note Trustee; and

(iv) perform any act incidental to or necessary in connection with the above sub-paragraphs;

(b) not create any Liens (including, without limitation, rights of set-off or counterclaim), exceptthose security interests contemplated in the Note Trust Deed;

(c) not have any subsidiaries (other than in connection with the substitution of the principaldebtor under the Notes as described in the Note Trust Deed);

68

(d) not, subject to paragraphs (a), (b) and (c) above, dispose of or otherwise deal with any of itsproperty or other assets or any part thereof or interest therein (including without limitation itsrights in respect of the agreements referred to in Clauses 5.2(a)(i) and (iii) of the Note TrustDeed);

(e) not pay any dividend or make any other distribution to its shareholders;

(f) not issue any shares (other than such equity as is already in issue on the Closing Date) or anyright, security or instrument convertible into, or exercisable or exchangeable for, any shares;

(g) not purchase, own, lease or otherwise acquire any real property (including office premises orlike facilities) and/or movable property (including obligations or securities);

(h) not consent to any variation of, or exercise any powers of termination, consent or waiverpursuant to, the Notes, the Transaction Documents, or any other agreement relating to theissue of the Notes or any related transactions;

(i) not consolidate or merge with any other legal entity or convey or transfer its properties orassets substantially as an entirety to any person or legal entity or commingle assets withthose of any other entity;

(j) not amend or alter its constitutive documents;

(k) not exercise any voting rights in respect of any Notes held or beneficially owned by it;

(l) not take any action permitting the Note Security not to constitute a valid first prioritysecurity interest over the Note Secured Property;

(m) not open or have an interest in any account whatsoever with any bank or other financialinstitution (other than the Note Issuer Account and any account referred to in Clause5.2(a)(iv) of the Note Trust Deed); and

(n) not have any employees.

7. Taxation

All payments of principal and interest in respect of the Notes by the Note Issuer will be madewithout withholding or deduction for or on account of any present or future taxes, duties, assessments orgovernmental charges of whatever nature imposed or levied by or on behalf of any authority in anyapplicable jurisdiction having power to tax, unless such withholding or deduction is required by law. Ifany such withholding or deduction is required by law, the Note Issuer or the Paying Agents (as the casemay be) will make such payments in accordance with Note Condition 5 after such withholding ordeduction has been made and will account to the relevant authorities for the amount so required to bewithheld or deducted. Neither the Note Issuer nor any of the Paying Agents will be obliged to make anyadditional payments to the holders of the Notes in respect of such withholding or deduction.

8. Note Events of Default

The Note Trustee will, if so requested in writing by the Credit Facility Provider (if the CreditFacility Provider is the Controlling Beneficiary) or, if the Credit Facility Provider is not the ControllingBeneficiary, by or pursuant to an Extraordinary Resolution (as defined in the Note Trust Deed) of theNoteholders, (subject, in each case, to being indemnified and/or secured to its satisfaction; provided that

the indemnity obligations of the Credit Facility Provider in the Note Trust Deed will be deemed to

69

constitute a satisfactory indemnity if the Credit Facility Provider is the Controlling Beneficiary and nosecurity will be necessary) promptly give notice (a ‘‘Note Enforcement Notice’’) to the Note Issuer atany time on or after the occurrence of any of the following events (each, a ‘‘Note Event of Default’’)declaring the Notes to be immediately due and repayable at the Note Redemption Amount whereuponthe Notes will accordingly immediately become due and repayable at the Note Redemption Amountwithout any further action or formality:

(a) default is made in the repayment of any principal amount of any of the Notes or in thepayment of any interest in respect of any of the Notes;

(b) default is made by the Note Issuer in the performance or observance of any obligation,condition or provision binding on it under the Transaction Documents to which it is a party(other than any obligation for the payment of any principal or interest on the Notes) and,except where in the opinion of the Controlling Beneficiary such default is not capable ofremedy, such default continues for 30 days after written notice delivered by the Note Trustee(acting on the written instructions of the Controlling Beneficiary as aforesaid) to the NoteIssuer;

(c) an order is made by any competent court or an effective resolution is passed for the winding-up or dissolution of the Note Issuer;

(d) (i) the Note Issuer stops payment of its debts (within the meaning of any applicablebankruptcy law), or is unable to pay its debts as and when they fall due; or

(ii) the Note Issuer ceases or, through an official action of the board of directors, ormeeting of the shareholders, of the Note Issuer, threatens to cease, to carry on all orany substantial part of its business;

(e) one or more final judgments from which no further appeal or judicial review is permissibleunder applicable law are awarded against the Note Issuer in an aggregate amount in excess ofU.S.$10,000;

(f) proceedings are initiated against the Note Issuer under any applicable liquidation, insolvency,composition, re-organisation or other similar laws including, for the avoidance of doubt,presentation to the court of an application for an administration order, or an administrativereceiver or other receiver, administrator or other similar official is appointed in relation to theNote Issuer or in relation to the whole or any substantial part of the undertaking or assets ofthe Note Issuer or an encumbrancer takes possession of the whole or any substantial part ofthe undertaking or assets of the Note Issuer or a distress, execution, attachment,sequestration, diligence or other process is levied, enforced upon, sued out or put in forceagainst the whole or any substantial part of the undertaking or assets of the Note Issuer and,in any of the foregoing cases, it will not be discharged, annulled or withdrawn within 14days or earlier if the relevant court has accepted the applications or petitions for suchproceedings;

(g) any decree, resolution, authorisation, approval, consent, filing, registration or exemptionnecessary for the execution and delivery of the Notes on behalf of the Note Issuer and theperformance of the Note Issuer’s Obligations under the Notes or any of the TransactionDocuments is withdrawn or modified or otherwise ceases to be in full force and effect, or itis unlawful for the Note Issuer to comply with, or the Note Issuer contests the validity orenforceability of or repudiates, any of its obligations under the Notes, the Note Trust Deed orany of the other Transaction Documents;

70

(h) the Note Issuer initiates or consents to judicial proceedings relating to itself under anyapplicable liquidation, insolvency, composition, reorganisation or other similar laws or makesa conveyance or assignment for the benefit of its creditors generally (or any class of itscreditors) or enters into an arrangement or composition with its creditors generally (or anyclass of its creditors); or

(i) any representation or warranty made by the Note Issuer in any of the Transaction Documentsproves to be incorrect or misleading in any material respect when made.

The Note Issuer will provide written confirmation to the Note Trustee on each anniversary of theClosing Date that, as far as it is aware, no Note Event of Default or other matter which is required to bebrought to the attention of the Note Trustee has occurred.

9. Enforcement

(a) Enforcement Proceedings: If the Credit Facility Provider is not the Controlling Beneficiary,or in relation to the exercise of any Note Trustee Excluded Rights, whether or not the CreditFacility Provider is the Controlling Beneficiary:

(i) the Note Trustee may, at any time at its discretion and without notice, take suchproceedings and/or other action as it may think fit against the Note Issuer or any otherperson to enforce its obligations under the Notes and the other Note TransactionDocuments and, after the Note Security has become enforceable, take such action as itmay think fit to enforce the Note Security; and

(ii) the Note Trustee will not be bound to take any such proceedings or action or give anysuch directions as are referred to in sub-paragraph (i) above, unless so directed inwriting by the Majority Noteholders (provided in each case that the Note Trustee isindemnified and/or secured to its satisfaction).

If the Credit Facility Provider is the Controlling Beneficiary, the Note Trustee will only takeany such proceedings or action as are referred to above (except in relation to the exercise of anyNote Trustee Excluded Rights) if so directed in writing by the Credit Facility Provider; providedthat the Note Trustee is indemnified and/or secured to its satisfaction and provided further that solong as no Drawdown Trigger Event shall have occurred and be continuing, the indemnityobligations of the Credit Facility Provider under the Note Trust Deed will be deemed to constitutea satisfactory indemnity, and no security will be necessary.

(b) Limitation on Noteholders: Enforcement of the Note Security will be the only remedyagainst the Note Issuer available to the Credit Facility Provider or the Note Trustee for therepayment of any sums due in respect of the Notes. No Noteholder will be entitled to proceeddirectly against the Note Issuer or enforce the Note Security unless the Credit FacilityProvider is not the Controlling Beneficiary and the Note Trustee, having become bound so toenforce the Note Security, fails to do so within a reasonable period and such failure will becontinuing.

(c) Following Note Enforcement Notice: Following the service of a Note Enforcement Notice,all amounts received by the Note Trustee under this Note Condition 9 will be applied inaccordance with Clause 8 of the Note Trust Deed.

71

(d) Credit Facility Provider as Controlling Beneficiary: For so long as the Credit FacilityProvider is the Controlling Beneficiary and subject always to the provisions of these NoteConditions and the Note Transaction Documents:

(i) the Note Trustee has agreed to exercise its rights in relation to the Note SecuredProperty (except the Note Trustee Excluded Rights) only with the prior consent of, or atthe direction of, the Credit Facility Provider;

(ii) the Credit Facility Provider will have the sole right, power and authority (and none ofthe other Note Secured Parties will have such right, power or authority) to control and/or direct and/or veto any actions or inactions of the Note Trustee and to direct theexercise of any of the rights of the Note Secured Parties (other than in relation to aBasic Terms Modification (as defined below) and the Note Trustee Excluded Rights)and to waive any breach by any party under any Note Transaction Document or theoccurrence of an Early Amortisation Event or a Note Event of Default;

(iii) the Credit Facility Provider may exercise or direct in writing the exercise of, and theNote Trustee will exercise at the written instructions of the Credit Facility Provider, therights of the Note Secured Parties in respect of the Note Secured Property withoutregard to the interests of any of the Note Secured Parties; and

(iv) if, at any time, whilst any Note Issuer Obligations are or may be outstanding, anyNoteholder receives from the Note Secured Property a payment or distribution in cashor in kind of, or on account of, the Note Issuer Obligations, whether before or after anywinding-up, liquidation or reorganisation of the Note Issuer, which is not permittedunder the Note Trust Deed, it will hold all amounts so received on trust for the NoteTrustee (to the extent possible under applicable law) and will forthwith (in any event)pay any and all such amounts to the Note Trustee.

(e) Assumption: The Note Trustee will be entitled to assume that the Credit Facility Provider isthe Controlling Beneficiary, unless it has been informed in writing otherwise by the CreditFacility Provider, or has actual knowledge that a Drawdown Trigger Event has occurred andis continuing or that the Credit Facility Provider has failed to make an Advance under theCredit Facility Deed. If the Note Trustee has been informed or has actual notice that theCredit Facility Provider is no longer the Controlling Beneficiary, the Note Trustee will assoon as practicable thereafter notify the Noteholders in accordance with Note Condition 15and the Rating Agency.

10. Indemnification of the Note Trustee

(a) Indemnity: Subject to the provisions of the Transaction Documents, the Note Trustee isentitled to be indemnified by the Note Issuer and relieved from responsibility and fromtaking enforcement proceedings or enforcing or directing enforcement of the Note Securityunless indemnified to its satisfaction (subject to the provisions of the Note Trust Deed);provided that so long as no Drawdown Trigger Event will have occurred and be continuing,the indemnity obligations of the Credit Facility Provider under the Note Trust Deed will bedeemed to constitute a satisfactory indemnity, and no security will be necessary.

(b) Business Transactions: The Note Trustee is entitled to enter into business transactions withany of the Note Secured Parties or any other person without accounting to the Noteholdersfor any profit resulting therefrom.

72

(c) Note Trustee not Responsible for Loss: The Note Trustee will not be responsible for anyloss, expense or liability which may be suffered as a result of, inter alia, the Note Trust Deedor any deeds or documents relating thereto or to the Notes being held by any banker, bankingcompany or any company whose business includes undertaking the safe custody of deeds ordocuments or with any lawyer or firm of lawyers on behalf of the Note Trustee.

(d) Note Agents not Agents of Noteholders: In acting under the Note Agency Agreement andin connection with the Notes, the Note Agents act solely as agents of the Note Issuer and (tothe extent provided therein) the Note Trustee and do not assume any obligations towards orrelationships of agency or trust with or for any of the Noteholders.

11. Meetings of Noteholders

(a) Convening Meetings: The Note Trust Deed contains provisions for convening meetings ofNoteholders to consider any matter affecting their interests, including the sanctioning byExtraordinary Resolution of a modification of these Note Conditions or the provisions of anyof the Note Transaction Documents. Subject as provided in the Note Trust Deed, the NoteIssuer is entitled to receive notice of and to attend meetings of the Noteholders.

(b) Quorum: The quorum at any meeting of the Noteholders for passing an ExtraordinaryResolution will be one or more persons being or representing Noteholders holding at least 50per cent. of the then Principal Amount Outstanding of the Notes or, at any adjournedmeeting, one or more persons being or representing Noteholders whatever the aggregatePrincipal Amount Outstanding of the Notes so held or represented by such persons(s), exceptthat, at any meeting the business of which relates to a Basic Terms Modification, thenecessary quorum for passing an Extraordinary Resolution will be one or more persons beingor representing Noteholders holding at least 75 per cent. or, at any such adjourned meeting,25 per cent., of the then Principal Amount Outstanding of the Notes for the time being.

(c) Basic Terms Modification: A ‘‘Basic Terms Modification’’ means any modification to anyNote Transaction Document or other Transaction Document which would:

(i) change any date fixed for payment of principal or interest in respect of the Notes, toreduce the amount of principal or interest payable on any date in respect of the Notes orto alter the method of calculating the amount of any payment in respect of the Notes onredemption or maturity or the date for any such payment;

(ii) effect the exchange or sale of the Notes for or the conversion of the Notes into or thecancellation of the Notes in consideration of shares, stock, notes, bonds and/or otherobligations and/or securities of the Note Issuer or any other company formed or to beformed, or for or into or in consideration of cash, or partly for or into or inconsideration of such shares, stock, notes, bonds and/or other obligations and/orsecurities as aforesaid and partly for or into or in consideration of cash;

(iii) change the currency in which amounts due in respect of the Notes are payable;

(iv) change the quorum required at any meeting of the Noteholders or the majority requiredto pass an Extraordinary Resolution;

(v) amend paragraph 5.2 of Schedule 3 to the Note Trust Deed or the provisos to paragraph6 of Schedule 3 to the Note Trust Deed, Clause 8 to the Note Trust Deed or this NoteCondition 11;

73

(vi) alter the priority of the Note Security or the priority of the application of any proceedsof enforcement of the Note Security under the Note Trust Deed;

(vii) modify any provision of the Credit Facility Deed unless, in the opinion of the NoteTrustee, such modification is not materially prejudicial to the interests of theNoteholders;

(viii) approve the release or termination of the Credit Facility Deed (other than pursuant tothe provisions of the Note Trust Deed) or to approve the substitution of another entityin place of the Credit Facility Provider; or

(ix) modify the provisions of paragraphs (c), (d) or (e) of Note Condition 9, the definitionsof ‘‘Controlling Beneficiary’’ or ‘‘Drawdown Trigger Event’’ set out in the MasterDefinitions Schedule, or any other provision which has the effect of restricting orlimiting the rights of the Credit Facility Provider to direct or instruct the Note Trusteeto take any action under or in connection with the Note Conditions or any TransactionDocument or to give any notice, consent or approval for the purposes of the NoteConditions or any Transaction Document, unless in any such case, in the opinion of theNote Trustee, such modification would not be materially prejudicial to the interests ofthe Noteholders; provided that, no such modification will have any effect unless madewith the consent of the Credit Facility Provider.

No Basic Terms Modification may (i) change the Credit Facility Provider’s obligations underthe Credit Facility Deed without the Credit Facility Provider’s written consent or (ii) in any wayreduce the Credit Facility Provider’s rights as Controlling Beneficiary or (iii) take effect untilwritten notification has been given to the Rating Agency in respect thereof.

(d) Extraordinary Resolution: An Extraordinary Resolution passed at any meeting ofNoteholders will be binding on all Noteholders whether or not they are present at themeeting. The majority required for an Extraordinary Resolution will be 67 per cent. of thevotes cast on the resolution.

12. Modification and Waivers

(a) Note Trustee’s Power to Modify and Waive: Subject to the conditions and qualifications setforth in the Note Trust Deed, the Note Trustee may without the consent of the Noteholders,but, if the Credit Facility Provider is the Controlling Beneficiary, always and only on thewritten instructions of the Credit Facility Provider, with prior notice to the Rating Agency,and, in the event of any material modification, with prior notice to, and the consent of, theIrish Stock Exchange, concur with the Note Issuer or any other relevant parties in making:

(i) any modification of these Note Conditions or any of the Note Transaction Documents(other than a Basic Terms Modification) which in the sole opinion of the Note Trusteeit may be proper to make; provided that the Note Trustee is of the opinion that suchmodification will not be materially prejudicial to the interests of the Noteholders;

(ii) any modification of these Note Conditions or any of the Note Transaction Documentswhich, in the sole opinion of the Note Trustee, is to correct a manifest error or is of aformal, minor or technical nature; or

74

(iii) any waiver or authorisation of any breach or proposed breach of these Note Conditionsor any of the Note Transaction Documents if, in the sole opinion of the Note Trustee,such modification, waiver or authorisation is not materially prejudicial to the interestsof the Noteholders.

Any such modification, waiver or authorisation will be binding on all Noteholders and eachother Note Secured Party and, if the Note Trustee so requires, notice thereof will be given bythe Note Issuer to the Noteholders in accordance with Note Condition 15 as soon aspracticable thereafter.

(b) Note Trustee not Liable for Consequences: Where the Note Trustee is required inconnection with the exercise of its powers, trusts, authorities, duties and discretions to haveregard to the interests of the Noteholders, it will have regard to the interests of theNoteholders as a class and, in particular but without prejudice to the generality of theforegoing, the Note Trustee will not have regard to, or be in any way liable for, theconsequences of such exercise for individual Noteholders resulting from their being for anypurpose domiciled or resident in, or otherwise connected with, or subject to the jurisdictionof, any particular territory. In connection with any such exercise, the Note Trustee will not beentitled to require, and no Noteholder will be entitled to claim, from the Note Issuer or anyother person any indemnification or payment in respect of any tax consequences of any suchexercise upon individual Noteholders.

13. Replacement of Note Certificates

If any Note Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced at theSpecified Offices of the Note Registrar and the Transfer Agent (together, the ‘‘Replacement Agents’’)upon payment by the claimant of the expenses incurred in connection therewith and on such terms as toevidence and indemnity as the Note Issuer, the Credit Facility Provider and/or the Replacement Agentmay reasonably require. Mutilated or defaced Note Certificates must be surrendered to the NoteRegistrar before replacements will be issued.

14. Substitution of Principal Debtor

The Note Trustee may agree, without the consent of the Noteholders (if the Credit FacilityProvider is the Controlling Beneficiary), but with the prior written consent of the Credit FacilityProvider and the Irish Stock Exchange to the substitution of any person in place of the Note Issuer asprincipal debtor under the Note Transaction Documents and the Notes; provided that written notificationhas been given to the Rating Agency and any such substitution will be binding on the Noteholders. Suchsubstitution will be subject to the relevant provisions of the Note Trust Deed and to such amendmentsthereof as the Note Trustee may deem appropriate.

15. Notices

(a) Valid Notices: Any notice to Noteholders will be deemed to have been duly given if suchnotice is published in a leading English language daily newspaper having general circulationin London (which is expected to be the Financial Times) and, for so long as the Notes arelisted on the Irish Stock Exchange and the rules of that exchange so require, by publicationon the website of the Irish Stock Exchange. Any such notice shall be deemed to have beengiven on the date of such publication or, if published more than once or on different dates,on the first date on which publication is made in the manner referred to above. A copy ofeach notice given in accordance with this Note Condition 15 will be provided to the RatingAgency and, for so long as the Notes are listed on the Irish Stock Exchange and the rules ofthat exchange so require, the Irish Stock Exchange.

75

(b) Notices while in Global Form: For so long as the Notes are represented by a Global Noteand such Global Note is held on behalf of Euroclear and/or Clearstream, Luxembourg,notices to Noteholders may be given by delivery of the relevant notice to Euroclear and/orClearstream, Luxembourg (as the case may be) for communication to the relevantaccountholders rather than by publication as required by paragraph (a) above. Any noticedelivered to Euroclear and/or Clearstream, Luxembourg shall be deemed to have been givento Noteholders on the seventh day after the day on which such notice was delivered toEuroclear and/or Clearstream, Luxembourg (as the case may be). So long as the Notes arelisted on the Irish Stock Exchange and the rules of that exchange so require, notices will alsobe published by publication on the website of the Irish Stock Exchange or otherwise inaccordance with paragraph (a) above.

(c) Other methods of notice: The Note Trustee shall be at liberty to approve an alternativemethod of giving notice to Noteholders if, in its opinion, such alternative method isreasonable having regard to market practice then prevailing and to the requirements of theIrish Stock Exchange and provided that notice of such other method is given to theNoteholders in such manner as the Note Trustee shall require.

16. Prescription

Claims for payment of principal and interest will not be enforceable unless a Note is presented forpayment within a period of ten years in respect of principal, or five years in respect of interest,from the payment dates relating thereto.

17. Limited Recourse and No Petition

(a) Limited Recourse: The Noteholders agree that, notwithstanding the covenant in Clause 3.1of the Note Trust Deed in respect of payment of the Note Issuer Obligations, any otherprovision of the Note Trust Deed or any other Note Transaction Document which imposes onthe Note Issuer an obligation at any time to make any payment to any Noteholder, the rightsof recourse of the Noteholders against the Note Issuer, and the liability of the Note Issuer,will be limited to the amounts from time to time available in accordance with, and in theorder of priorities set out in, the Note Trust Deed. Accordingly, no Noteholder will have anyclaim or recourse against the Note Issuer in respect of any amount which is or remains, orwill remain, unsatisfied when no further amounts are receivable or recoverable in respect ofthe Note Secured Property and all funds comprising the Note Secured Property and/orrepresenting the proceeds of realisation thereof have been applied in accordance with theprovisions of the Note Trust Deed, and any unsatisfied amounts will be waived andextinguished; provided that, for the avoidance of doubt, such extinguishment will not in anyway affect the other obligations of the Note Issuer to the Noteholders pursuant to any otherNote Transaction Documents. Additionally, the Noteholders acknowledge the limited recourseprovisions relating to the Bond Issuer contained in the Transaction Documents and the NoteIssuer’s agreement and acceptance of such limited recourse provisions.

(b) No Petition: Each Noteholder further undertakes to the Note Issuer that it will not petition acourt for, or take any other action or commence any proceedings for, the liquidation,winding-up or reorganisation of the Note Issuer, or for the appointment of a receiver,administrator, administrative receiver, trustee, liquidator, sequestrator or similar officer of the

76

Note Issuer or of all or any of the Note Issuer’s revenues and assets, until one year and oneday after the unconditional and irrevocable payment and discharge in full of all sumsoutstanding and owing in respect of the Notes and all other Note Issuer Obligations; providedthat, nothing in this paragraph (b) will:

(i) prevent the Note Trustee (acting on the written instructions of the ControllingBeneficiary) from initiating any such action as aforesaid for the purpose of enforcingthe Note Issuer Obligations or from obtaining a declaratory judgment as to theobligations of the Note Issuer under the Note Transaction Documents owed to anyNoteholder (provided that no action is taken to enforce or implement such judgment);or

(ii) prevent any Noteholder to the Note Transaction Documents from lodging a claim in anyaction as aforesaid which is initiated by any Person (other than the Note Trustee actingon the written instructions of the Controlling Beneficiary).

18. Contracts (Rights of Third Parties) Act 1999

No person will have any right to enforce any term or condition of any Note under the Contracts(Rights of Third Parties) Act 1999.

19. Governing Law

These Note Conditions, the Notes and the Note Transaction Documents (other than the Note IssuerAdministrator Agreement) and any non-contractual obligation arising out of or in connection with theseNote Conditions, the Notes and the Note Transaction Documents (other than the Note IssuerAdministrator Agreement) are each governed by, and will be construed in accordance with, English law.The Note Issuer has irrevocably submitted to the jurisdiction of the English courts for all purposes inconnection with such documents and has designated a person in England to accept service of anyprocess on its behalf.

The Note Issuer Administrator Agreement is governed by and will be construed in accordance withCayman Islands law.

77

THE RECEIVABLES

Overview

Korean Air is a participant in the cargo accounts settlement system operated by IATA in Japan

(‘‘CASS Japan’’). IATA has appointed approximately 131 cargo agents in Japan on behalf of the

airlines participating in CASS Japan pursuant to standard agreements published by IATA for the benefit

of its participating airlines and agents (the ‘‘IATA Agency Agreements’’). Each agent participates in

CASS Japan and is regulated by IATA. See ‘‘— IATA Agents’’ below for information on IATA and the

selection and appointment of cargo agents generally.

Korean Air has appointed approximately 85 of the cargo agents accredited by IATA and

participating in CASS Japan, to act as its agents for the operation of its cargo business in Japan (each,

an ‘‘IATA Agent’’). On the Entrustment Date, the Trustor will entrust to the Japanese Trustee all of its

rights, title, interest and benefit (present and future, actual and contingent) in, to and under any and all

receivables existing as of 8:00 a.m. (Tokyo time) one Tokyo Business Day prior to the Entrustment

Date and all future receivables arising thereafter (together, the ‘‘Receivables’’) which are owed to the

Trustor from time to time by:

(a) the IATA Agents pursuant to the IATA Agency Agreements (the ‘‘IATA AgencyReceivables’’);

(b) Citibank Japan Ltd. as successor to Citibank, N.A., Tokyo Branch (the ‘‘CASS Bank’’)pursuant to an agreement dated 1 August, 2002 (the ‘‘CASS Bank Agreement’’) between

IATA (on behalf of the Trustor and other participating airlines) and the CASS Bank (the

‘‘CASS Bank Receivables’’); and

(c) IATA pursuant to the IATA Agreements and the resolutions adopted from time to time by the

permanent conference of members of IATA governing the relationships between the IATA

Agents and the airlines participating in CASS Japan.

The Trustor will not entrust receivables generated from direct sales by Korean Air of cargo

transportation in Japan. The IATA Agency Receivables and the CASS Bank Receivables are more

particularly described below.

IATA Agency Receivables

Generation of IATA Agency Receivables

The IATA Agency Receivables arise from indirect sales (as defined below) by the IATA Agents on

behalf of Korean Air of Outbound Cargo/Prepaid (each as defined below) and from the collection of

payments on behalf of Korean Air from consignees in respect of Inbound Cargo/Charge Collect (each as

defined below), which are settled through CASS Japan after deduction of certain commissions and taxes

(as described below).

IATA Agents sell cargo transportation on behalf of Korean Air to customers shipping cargo from

Japan (‘‘Outbound Cargo’’). The IATA Agents also collect payments on behalf of Korean Air from

consignees for shipments to Japan (‘‘Inbound Cargo’’). Payment for cargo transportation may be

prepaid by the shipper prior to the shipment (‘‘Prepaid’’) or paid by the consignee upon delivery of the

cargo (‘‘Charge Collect’’). Outbound Cargo/Charge Collect and Inbound Cargo/Prepaid generate

receivables outside Japan and those receivables do not form part of this transaction. The majority of

78

sales of cargo transportation by IATA Agents on behalf of Korean Air (‘‘indirect sales’’) are sales of

Outbound Cargo/Prepaid, and indirect sales have historically represented more than 99 per cent. of

Korean Air’s total cargo sales in Japan.

Outbound Cargo/Prepaid constitutes 99.7 per cent. of Korean Air’s total indirect sales in Japan. As

Charge Collect payments are subject to an additional fee of approximately 5 per cent., the majority of

Korean Air’s cargo shippers in Japan prepay for Outbound Cargo. In addition, consolidated shipments

from Japan of Outbound Cargo from multiple shippers are required to be Prepaid, which are estimated at

approximately 90 per cent. of Japan-sourced cargo traffic.

Korean Air does not sell Outbound Cargo transportation directly to customers and no direct sales

of Inbound Cargo by Korean Air are made.

Charges and Commissions

The charges to shippers or consignees for cargo transportation are negotiated and agreed from time

to time between Korean Air and each IATA Agent. The charges for a shipment are calculated by the

IATA Agent and entered onto a document bearing the unique identifying code of Korean Air and which

evidences the contract between the shipper and Korean Air for the carriage of goods (an ‘‘AirWaybill’’). Additional surcharges, such as fuel surcharges or Charge Collect surcharges, are also

included on the Air Waybill and the total amount is either Prepaid by the shipper or settled Charge

Collect by the consignee against delivery of the cargo. Each Air Waybill is signed by the shipper, or its

agent, the IATA Agent and Korean Air.

The IATA Agents have primary responsibility for the aggregate charges on the Air Waybill when

uploaded to the Korea Air e-office and are obliged to settle the payments through CASS Japan

notwithstanding non-payment by the shipper or consignee.

Prior to settling the charges on each Air Waybill through CASS Japan, each IATA Agent is

entitled to deduct all agreed commissions and taxes. No further commission is payable by Korean Air to

any IATA Agent on an individual basis following receipt of the payment from such IATA Agent by

Korean Air.

CASS Bank Receivables

In addition to the IATA Agency Receivables, Korean Air will entrust to the Japanese Trustee on

the Entrustment Date the CASS Bank Receivables.

Pursuant to the provisions of the CASS Bank Agreement, the CASS Bank will electronically

transfer to Korean Air on each specified remittance date (which will be within one business day after the

payment by the IATA Agents to the CASS Bank) the amounts due to Korean Air. The payments settled

by the IATA Agents through the CASS Bank will, in the absence of payment default, correspond with

the amounts payable to Korean Air.

From the Closing Date, the CASS Bank will be obliged to make all payments in respect of the

CASS Bank Receivables to the Collection Account of the Japanese Trustee until the termination of the

Japanese Trust.

79

IATA Agents

IATA is a non-profit trade association originally established in Havana, Cuba in 1945 and later

incorporated in Montreal, Canada by Special Act of Parliament. It is the successor to the International

Air Traffic Association founded in The Hague in 1919. Its purpose is to promote and facilitate inter-

airline cooperation in air services. As of 1 March, 2011, it had approximately 230 participating airline

members.

IATA currently has approximately 131 cargo agents operating in Japan. In order to qualify as an

IATA Agent, a prospective agent must have ¥50 million capital, comply with various other financial

tests (in certain circumstances) and must employ at least two qualified staff and a minimum of 15

employees. The prospective agent is required to submit application documentation to IATA and an

IATA manager will undertake a financial and physical inspection of the finances and premises of the

prospective agent. A bank guarantee (minimum ¥50 million) is required for all IATA Agents. Agents

which are persistently late settling payments through CASS Japan are issued with an irregularity notice

by IATA and are removed if they receive four such notices. IATA makes inspections of the finances and

physical premises of the cargo agents from time to time.

Settlement

Outbound Cargo/Prepaid

Step 1

Korean Air outbound cargo transportation services are purchased from IATA Agents by customers

paying either in cash and/or by cheque.

80

Step 2

An Air Waybill evidencing the terms of the shipment is completed by the IATA Agent on behalf

of Korean Air and signed by Korean Air, the IATA Agent and the shipper.

Step 3

When an Air Waybill is issued, details of the Air Waybill are uploaded within one day by Koran

Air staff to the Korean Air e-office, a proprietary system of Korean Air. Monthly sales of Korean Air

cargo transportation services by IATA Agents are divided into two sales period (each, a ‘‘cargo salesperiod’’) for each month: the first cargo sales period commences on the 1st day of such month and ends

approximately on the 15th day of such month and the second cargo sales period commences

approximately on the 16th day of such month and ends approximately on the last day of such month. In

October of each year, CASS Japan issues a calendar of the exact dates that will apply during the

following calendar year.

Step 4

Approximately seven days after the end of each cargo sales period, Korean Air uploads to the

CASS-Link a bi-weekly cargo sales report reflecting sales of Korean Air cargo services in such cargo

sales period as uploaded to the Korean Air e-office by the IATA Agents.

Step 5

Based on the sales reports received from Korean Air, CASS-Link reformats the sales data and

prepares bi-weekly cargo sales invoices in respect of each cargo sales period and sends to both Korean

Air and the IATA Agents within ten days after completion of Step 4. In the event that Korean Air or an

IATA Agent disputes a cargo sales invoice, any adjustments are made in the next cargo sales invoice.

Step 6

IATA Agents are required to settle invoices by remitting the relevant amounts to the CASS Bank

within ten days of the completion of Step 5. If a payment is due on a day which is not a Tokyo Business

Day, such payment will be made on the next succeeding Tokyo Business Day.

Step 7

The CASS Bank remits the payments made by the IATA Agents under the invoices to Korean Air

no later than one Tokyo Business Day after receipt from the IATA Agents. Following the entrustment of

the Receivables to the Japanese Trustee on the Closing Date, the CASS Bank will remit all such

amounts to the Collection Account held by the Japanese Trustee.

Inbound Cargo/Charge Collect

The settlement timeline for Inbound Cargo/Charge Collect is essentially the same as for Outbound

Cargo/Prepaid. A Receivable arises when the details of the Air Waybill are uploaded to the Korean Air

e-office by the IATA Agent and the uploading of this information obliges the relevant IATA Agent to

settle the required payment through CASS Japan irrespective of whether the consignee has paid the

IATA Agent or taken delivery of the shipment. The payment sequence then follows Steps 3–7 described

above.

81

Dilution

Korean Air settles all refunds for lost or damaged goods, late delivery or overpayment through

CASS Japan. Adjustments for refunds are made in the next cargo sales report and the relevant IATA

Agent will refund the customer directly.

Historical Generation of Receivables

Table 1 below show historical monthly volume of indirect sales of Outbound Cargo/Prepaid and

Inbound Cargo/Charge Collect in connection with Korean Air’s cargo business in Japan between 2008

and 2010.

Table 1Monthly Receivables Volume

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

(Yen in millions)2008 6,347 6,854 6,660 6,394 6,474 2,375 2,350 2,170 2,081 2,175 1,671 1,336 46,8872009 1,055 1,008 1,075 980 903 1,005 1,086 1,276 1,508 1,947 1,776 2,017 15,636

2010 1,935 2,068 2,253 1,975 2,180 2,254 2,231 2,164 2,379 2,342 2,149 2,335 26,265

Source: Information provided by Korean Air.

82

THE TRUSTOR AND SERVICER

General

Korean Air Lines Co., Ltd (‘‘Korean Air’’ or the ‘‘Company’’) was incorporated by the

Government on 19 June, 1962 under the name Korean National Airline Corporation. The Company was

listed on the Korean Stock Exchange through an initial public offering of 400,000 shares on 18 March,

1966 before being sold to the Hanjin Group (the ‘‘Group’’), whose core business is transportation.

Korean Air is the largest company within the Group measured in terms of assets. Excluding guarantees

arising from previous financing transactions, Korean Air and the other Group companies have each

managed their financial affairs independently since the Asian financial crisis of 1997. Korean Air is

listed on the Korean Stock Exchange and its most recent annual reports are available on its internet

website: www.koreanair.com. Investors in the Company include domestic and foreign individuals as well

as institutions.

As of the end of December 2010, Korean Air had a fleet of 128 aircraft, with passenger and cargo

routes to 113 cities in 39 countries. According to IATA, Korean Air is one of the world’s top 20

international airlines in terms of revenue passenger-kilometres on scheduled flights and the largest

international cargo airline in terms of scheduled freight tonne-kilometres in 2009. The Company

generates revenues primarily through passenger business and cargo business, which together constituted

approximately 89.83 per cent. of its total sales volume between 1 January, 2010 and 31 December,

2010. The Company’s other businesses include aerospace business, catering business, hotel/limousines

business, and in-flight sales.

The Company’s headquarters and registered office are at 1370 Gonghang-dong, Gangseo-gu, Seoul,

Korea 157–721. Korean Air does not currently have an international credit rating.

Group Organisation

The Group was set up by Mr. Choong Hoon Cho in 1945. The Group’s core business is land, sea

and air transportation and currently consists of 40 domestically incorporated companies, of which five

are publicly listed on the Korea Stock Exchange. The Group also has significant overseas operations and

as of April 2011 had a total of 53 overseas subsidiaries.

Hanjin Group reorganised its entities and completed the separation of its non logistics business

from the Group in 2005. As a result, Hanjin Group consists of two major business units: air

transportation and shipping. Financial services and the shipbuilding and construction businesses (i.e.

Hanjin Heavy Industries and Construction, Meritz Securities and Oriental Fire & Marine Insurance)

became independent from the Group with no significant cross shareholding or interests although some

companies still bear the name of Hanjin. Korean Air and its affiliates are core entities of Hanjin Group,

representing 56 per cent. in terms of total assets as at 31 December, 2009 and 51 per cent. in terms of

revenue for the year ended 31 December, 2009.

After the completion of the reorganisation, Hanjin Group ranked 9th among Korean Chaebols in

terms of combined assets at the end of 2009.

The two major business units and responsible CEOs are as shown in the table below. Mr. Y.H.

Cho has been the Chairman of the aviation group since 1999. Mr. Y.H. Cho succeeded as the Group

Chairman in February 2003 after the founder Mr. C.H. Cho passed away in November 2002.

83

Table 1 below shows the management of each of the sub-groups and their principal operating

companies.

Table 1Management of Hanjin Sub-Groups

(as at 31 December, 2010)

Sub-group Chairman President Principal Operating Companies

Aviation Y. H. Cho

(Apr 1999)

C. H.Chi

(Jan 2010)

Korean Air, Hanjin Transportation, Jin Air,

Korea Airport Service, Hanjin Travel, KAL

Hotel Network, Air Total Service, Jungseok

Enterprise, TOPAS, Cybersky, TRAXON

KOREA, Uniconverse, Hanjin Information

Systems & Telecommunication

Shipping E. Y. Choi

(Dec 2009)

Y. M. Kim

(Dec 2009)

Hanjin Shipping Holdings, Hanjin Shipping,

Cyberlogitec

Source: Information provided by Korean Air

Table 2 below shows key financial data for the Group Companies as of 31 December, 2010.

Table 2Key Financials for Hanjin Group Companies as of 31 December, 2010

Company Type of Business RevenueOperatingIncome

NetIncome Assets Liabilities Equity

Debt-to-Equity

Korean Air Air Transport 11,460.5 1,109.6 461.7 17,814.3 14,315.2 3,499.1 409.1%Hanjin Land Transport 1,084.7 28.0 35.2 1,559.4 848.2 711.2 119.2%Korea Airport Service Transportation service 363.7 17.1 56.7 386.5 119.4 267.1 44.7%

Jungseok Enterprise Real estate 34.9 10.9 4.4 371.2 61.8 309.4 19.9%Hanjin Travel Travel 26.2 1.4 3.0 128.4 28.9 99.5 29.0%Hanjin Shipping

Holdings

Real estate 158.7 14.7 141.8 1,088.7 176.4 912.3 19.3%

Hanjin Shipping Sea Transport 9,423.3 629.8 275.4 9,005.6 6,512.7 2,492.9 261.2%Cyberlogitec IT 69.7 5.9 0.5 49.8 7.7 42.1 18.2%

Others 908.3 169.0 54.3 3,065.3 1,806.3 1,259 143.5%

Total 23,530 1,986.4 1033.0 33,469.2 23,876.6 9,592.6 248.9%

Source: Information provided by Korean Air.

84

Management and Shareholders

At present, Korean Air has eleven registered directors, of whom six are external directors. Table 3

below sets out the names, office and business experience of each director.

Table 3Korean Air’s Registered Directors

Name and Position Term of Office and Business Experience

Yang-Ho Cho

Chairman

Chairman of Korean Air since May 1999. President & CEO

(February 1992 to May 1999). Senior Vice President of General

Affairs & Personnel and Planning/Purchasing/System (February

1984–January 1989). Managing Vice President of Purchase and

Maintenance (February 1980–January 1984). Director since August

1979. Named Chairman of Hanjin Group in February 2003. Vice-

Chairman of The Federation of Korean Industries (FKI) since 1996;

Honorary consulate-general to Ireland in Korea since 1995; Board of

Trustees of the University of Southern California since 1997;

Chairman of the Korea-French High Level Businessmen’s Club

since 2000. IATA Board of Governors at present.

Chang-Hoon Chi

Chief Operating Officer

and President

President and COO since January 2010. Regional Manager of the

Passenger Sales office in Seoul (January 2004 to December 2004).

Vice President of Regional Headquarters in China (January 2005).

Managing Vice President of Cargo Business Division (January

2008). Managing Vice President of Cargo Business Division &

NAVOI Project (June 2008). Executive Vice President of Cargo

Business Division & NAVOI Project (July 2009)

Tae-Hee Lee

General Counsel

Director since 1976. Senior Partner at Law offices Lee & Ko until

January 2009

Yong-Won Suh

Executive Vice President

Executive Vice President of Human Resources Division. Director

since 2008

Hang-Jin Cho

Executive Vice President

Executive Vice President of Aerospace Business Division. Director

since 2008

Yun-Woo Lee

External Director/Head

of Audit Committee

Director since 2009. Counsel of Daewoo Securities

Jae-Il Kim

External Director/Audit

Committee

Director since 2002. Professor of Business and Administration in

Seoul National University

Sok-Woo Lee

External Director/Audit

Committee

Director since 2007. Attorney at Doore Law Firm

85

Name and Position Term of Office and Business Experience

Oh-Soo Park

External Director

Director since 2000. Professor of Business and Administration in

Seoul National University.

Hee-Beom Lee

External Director

Director since 2009. President of STX Energy & Heavy Industries

Jung-Taik Hyun

External Director/Audit

Committee

Director since 2010. Professor of International Trade in In-ha

University

Source: Information provided by Korean Air.

Korean Air’s shareholders since 2006 are listed in Table 4 below.

Table 4Korean Air’s Shareholders

Shareholder 2006 2007 2008 2009 2010

Mr. Yang-Ho Cho and Family 11.5% 11.25% 11.1% 11.14% 10.57%

Korean Air Treasury Stock 6.12% 6.07% 6.07% 6.17% 6.07%

Hanjin 9.25% 9.72% 9.72% 9.90% 9.72%

Mirae Asset Global

Investments. Co. Ltd. 5.31% 3.78% 6.58% 3.95% 0.32%

Inha University Foundation 2.67% 2.67% 2.67% 2.71% 2.67%

UBS Hana Asset Management 0.04% 0.91% 1.67% 1.38% 0.10%

Jungseok Foundation 1.92% 1.92% 1.92% 1.96% 1.92%

National Pension Co. 6.25% 8.97% 8.26% 4.67% 7.94%

KTB Asset Management 1.23% 1.76% 0.99% 1.27% 0.91%

Others 55.71% 52.95% 51.02% 56.51% 59.78%

Total 100% 100% 100% 100% 100%

Source: Information provided by Korean Air.

Employees and Labour Relations

As at 31 December, 2010, Korean Air had approximately 18,000 employees, including 5,801 pilots

and flight attendants.

Korean Air has two labour unions: a pilots union, Korean Air Flight Crew Union (‘‘FCU’’) and a

union for non-pilot staff, Korean Air Labour Union (‘‘KALU’’). Among the current employees of

Korean Air, approximately 55 per cent. are KALU members and approximately 10 per cent. are FCU

members. Both unions have the right to negotiate salary and employee welfare related matters with the

management. The salary agreements between the unions and the Company generally last for one year,

with effect from 1 April each year, and the collective agreements, which generally cover other welfare

matters of the employees such as working hours and working environment, usually last for two years.

FCU has had disagreements with management over flight allowances, working hours and

conditions and called a four-day strike in December, 2005. Korean Air and FCU settled the issues and

established a Flight Operations Regulation Enactment Board which gives FCU the right to decide the

86

regulations for new flights. The strike held in December 2005 cost Korean Air approximately KRW8

billion. Korean Air has now implemented a profit sharing system for all staff. Except for the strike in

2005, KALU and FCU have maintained good relationships with Korean Air management.

Table 5 below shows wage and benefit increases for staff since 2000.

Table 5Wage and Benefit Increases

Year

PercentageIncrease ofBase Rate Benefit

2010 5.4% Safety Incentive: 100%*

2009 0.0% None

2008 0.0% None

2007 3.2% Production Incentive: 100%* Safety Incentive: 50%*

2006 5.2% Production Incentive: 100%*

2005 0.0% Production Incentive: 100%*/Profit Sharing: 200%* Safety Incentive: 50%*

Source: Information provided by Korean Air.

* As a % of monthly salary.

Funding and Long-Term Liabilities

Korean Air funds its aircraft acquisition either through foreign export credit agencies (including

the Export-Import Bank of the United States, COFACE of France, Hermes Kreditversicherung-AG of

Germany, and Export Credit Guarantee Department of the United Kingdom) or other global and

domestic financial institutions.

The Korea Development Bank (‘‘KDB’’) is Korean Air’s main creditor bank in respect of secured

lending, including mortgages and aircraft leases. Operational funds have recently been, and the

Company believes will continue to be in the foreseeable future, obtained through the Korean bond and

commercial paper markets.

A substantial portion of the Company’s property, aircraft and equipment has been pledged as

collateral for long-term debt. In addition, a certain portion of long-term debt is guaranteed by Group

affiliates.

As of 31 December, 2010, the Company’s aggregate amount of asset-backed securities was

KRW1,031.2 billion compared with KRW528.5 billion as of 31 December, 2009.

Pursuant to certain guidelines on the rationalisation of the Korean marine industry and the

shipbuilding industry, the Company has assumed certain fixed and suspended liabilities and assets of

Hanjin Shipping Co., Ltd. (‘‘Hanjin Shipping’’) and Hanjin Heavy Industries & Construction Co., Ltd.

(‘‘HHIC’’). As of 31 December, 2010, the aggregate amount of debt assumed from Hanjin Shipping in

equal instalments over 20 years (with a five year grace period) and to be repaid from 2003 to 2017 is

KRW53.1 billion.

Group Guarantees

As of 31 December, 2010, Korean Air had approximately KRW119.6 billion and U.S.$79.3 million

exposure under financial guarantees to Group affiliates, compared with KRW137.0 billion and

U.S.$430.5 million at the end of 2009.

87

Since 1998, Korean Air has not provided guarantees for new transactions, has reduced the balances

of existing guarantees (other than extensions) and maintained a guarantee to equity ratio of below 100

per cent.

Table 6 below shows Korean Air’s exposure under financial guarantees to Group and unrelated

companies.

Table 6Korean Air’s Exposure under Guarantees

Beneficiary Currency

Amounts by Currency(as of

31 December, 2009)

Amounts by Currency(as of

31 December, 2010)

Hanjin Transportation Co., Ltd. KRW 40,300,684,149 35,248,195,508

Hanjin Shipping Co., Ltd. KRW — —

USD 347,646,737 —

Korean Air Terminal Service Co., Ltd. KRW 52,450,678,863 45,690,878,863

USD — —

Jungsuck Enterprise Co., Ltd. KRW 27,031,289,432 23,651,389,432

USD — —

Hanjin Heavy Industries Co., Ltd. KRW 17,255,498,623 15,098,898,623

USD — —

Hanjin International Corporation KRW — —

USD 50,000,000 50,000,000

Grandstar KRW — —

USD 32,942,700 29,282,400

Total KRW 137,038,151,067 119,689,362,425

USD 430,589,437 79,282,400

Source: Information provided by Korean Air.

Government Support

The Korean civil aviation industry is subject to a high degree of regulation by the Korean Ministry

of Land, Transport and Maritime Affairs (‘‘MLTM’’) and is governed by the Aviation Law of the

Republic of Korea. The aviation industry is also subject to the Convention on International Civil

Aviation. Regulations issued or implemented by the MLTM encompass virtually every aspect of airline

operations, including the approval of the establishment of airlines, domestic and international route

allocations, licensing of pilots, operational safety standards, aircraft acquisitions, aircraft airworthiness

certification, aircraft registration standards, aircraft maintenance, air traffic control and standards for

airport operations.

The main goal of the MLTM is to prepare a foundation that will allow safe and convenient air

travel and at the same time enhance Korea’s aviation industry so as to become a leading aviation country

of the 21st century. The MLTM is planning to conclude strategic air services liberalisation agreements

with major countries e.g. China and Japan and to continue route expansion to support expansion of the

national carriers. It also aims to take on a greater role in the air transport community through active

cooperation with International Civil Aviation Organisation as well as with other countries throughout the

world.

88

Description of Fleet

As of 31 December, 2010, Korean Air had a total of 128 aircraft, of which 104 are passenger

aircraft and 24 are cargo aircraft. The average age of Korean Air’s fleet was 10.3 years. The average age

of the passenger and cargo fleet was 10.0 years and 11.5 years, respectively. Based on its fleet

modernisation plan, Korean Air will take delivery of new aircraft from Boeing and Airbus over the next

several years. Korean Air is the first Asian airline to acquire Boeing’s B747-8. The B747-8 will be

delivered between 2013 and 2015. The Company has already placed an order for the B747-8 cargo

aircraft. In addition to the five B747-8I passenger aircraft that have already been ordered, a total of 12

B747-8 next generation aircraft are expected to be added to the fleet. In addition, the ten A380 aircraft

to be delivered between 2011 and 2014 are next generation eco-friendly high-tech aircraft that consume

less fuel, with a noise level and exhaust gases emission lower compared to other large aircraft. The

A380s will be assigned to long-haul routes with high demand, such as Los Angeles and New York. The

new aircraft such as A380 and B747-8F will be delivered from 2011, whereas the A300-600 aircraft will

reach the end of their 20-years term of usage from 2011 and thus are under consideration to be replaced

by other types of aircraft. In relation to its freighters, Korean Air leased out a A300-600F to Uzbekistan

Airways. Korean Air has completed the conversion of eight older B747-400 passenger aircraft to

freighters. Currently, Korean Air only operates a single type of freighter — B747-400F. However, by

2016, it will have new generation aircraft, such as B747-8F and B777F, in its cargo fleet.

Table 7Fleet Profile as of 30 June, 2010

Current(as of 31 December, 2010) 2011 2012 2013 2014

Aircraft Type Owned Leased Total Number of Aircraft

Airbus 300-600 5 3 8 5

Airbus 330-300 14 2 16 16 16 16 16

Airbus 330-200 5 — 5 7 7 9 9

Airbus 380-800 — — — 5 6 8 10

Boeing 737-800 3 11 14 16 20 20 20

Boeing 737-900 12 4 16 16 16 16 16

Boeing 737-900ER — — — 2 4 4 4

Boeing 747-400 17 — 17 16 16 16 16

Boeing 747-8I — — — — — 2 4

Boeing 777-200ER 17 1 18 18 18 18 18

Boeing 777-300 4 — 4 4 4 4 4

Boeing 777-300ER 5 1 6 9 10 11 12

Boeing 787-8 — — — (to be agreed with Boeing)

Total Passenger 82 22 104 114 117 124 129

Boeing 747-400F 22 2 24 23 23 23 23

Boeing 747-8 Freighter — — — 2 3 4 5

Boeing 777F — — — — 2 3 4

Total Cargo 22 2 24 25 28 30 32

Total Fleet 104 24 128 139 145 154 161

Source: Information provided by Korean Air.

89

Flight Safety

Korean Air completed its eleventh consecutive accident-free year of operation in 2010. Safety has

always been a top priority and core value in Korean Air and Korean Air will continuously strive to

improve operational safety and to be known as one of the world’s safest airlines.

In support of this, Korean Air has established the integrated Safety Management IT System named

‘‘SafeNet’’, and that system was launched in October 2009. Through this system Korean Air established

company-wide standardisation of safety data management by (a) encouraging active safety reporting by

all employees, (b) identifying, analysing and correcting any safety hazard before it becomes an issue, (c)

accumulating and utilising safety data. In support of the new Safety Management IT System

environment at Korean Air, the Safety, Security and Compliance Department will:

. continue to provide Korean Air with an invaluable source of expertise in the fields of safety,

security and quality assurance;

. anticipate and identify systemic trends and coordinate/suggest appropriate, scientifically-

based countermeasures targeted at mitigating human errors and wherever possible eliminating

these errors; and

. ensure that positive management control exists over of all critical processes (i.e., those

processes relevant to the safety, quality and security of Korean Air products & services) —

including a well-designed system of procedural controls.

Korean Air also introduced the Human Factors Analysis & Classification System (HFACS),

developed by US experts in 2000, to efficiently manage human-incurred errors that cause 70 per cent. of

flight safety issues. HFAC is a model which classifies human errors into four categories and Korean Air

uses this model to find and analyse the fundamental reasons for non-conforming or safety issues for

employees in quality control and safety and security related departments.

In January 2005, Korean Air became the first carrier in Korea and among the SkyTeam member

airlines to obtain an IOSA (IATA Operational Safety Audit) certificate which is known as an

internationally recognised aviation safety certification authorised by IATA. In September 2006, Korean

Air received a first renewal audit for the IOSA certification, which is effective for two years, and passed

the comprehensive audit without a single adverse finding documented in 758 check items in eight

operational disciplines. The eight areas of IOSA Audit are Organization and Management System, Flight

Operations, Operational Control and Flight Dispatch, Aircraft Engineering and Maintenance, Cabin

Operations, Aircraft Ground Handling, Cargo Operations and Operational Security. In September 2008,

Korean Air received the second renewal audit and passed without a single adverse finding documented

in 914 check items in the eight operational disciplines described above. This audit was conducted

through a documentation audit to verify whether or not the IOSA’s criteria are reflected in Korean Air’s

policies, processes and procedures and through an implementation audit to check whether or not Korean

Air has adhered to such policies, processes and procedures. The audit has been conducted based on the

2nd edition of IOSA Standards Manual, which was more comprehensive and in-depth than before,

following IOSA’s continuous improvement of its standards that are regularly updated and amended to

implement a more strict set of minimum guidelines for the airlines industry, which was more

comprehensive and in-depth than before. In September 2010, Korean Air received the third renewal

audit and passed without a single adverse finding again.

In addition, to strengthening flight safety, Korean Air’s FOQA (Flight Operational Quality

Assurance) animation programme has been up-graded and FOQA irregularities intensively controlled.

This animation programme provides realistic displays by using high-resolution satellite airport

90

photographs and topographical maps. This programme enables realistic safety management. In October

2010, Korean Air introduced a new FOQA system to prepare FOQA analysis capability for the new fleet

(A380, B787), improve flight data analysis process with new system, enhance FOQA risk management

link with SafeNet, and expand analysis capability for MOQA (Maintenance Operational Quality

Assurance) & Fuel management.

Our safety culture will also be increased through safety policy revisions, activation of safety

reporting, and the encouragement of employees’ participation in safety education activities. Korean Air

will continue to advance safety culture including a safety reporting culture which encourages employees

to report safety-related issues, invest in the training of employees and identify additional partnership

opportunities with all Divisions and Departments. Korean Air will also continue to build trust and

improve interfaces with multiple governmental agencies such as the Office of Civil Aviation, Federal

Aviation Administration, European Aviation Safety Agency and the Department of Defence.

Maintenance

As part of its policy on flight safety, Korean Air places great importance on aircraft maintenance.

With about 40 years of experience, Korean Air continuously improves and modernises aircraft

maintenance technology. Its Maintenance & Engineering Division is dedicated to maintenance of civil

aircraft and engines and performs heavy maintenance for all types of airframe which Korean Air

operates including B747-400, B777, B737, A330 and A300-600. In addition, engine overhaul

maintenance is performed for almost every engine type which Korean Air operates such as PW4056

(747-400), CFM56-7 (B737), PW4168 (A330) and PW4158 (A300-600). PW4090 (B777) engine

overhaul maintenance capability is under development in 2011. Airframe heavy maintenance bases are

located at Gimpo, Incheon and Gimhae airport. The engine maintenance centre is located at Bucheon

city near the Gimpo maintenance base at Seoul. With each 2.5 bay hangar at Gimpo and Incheon

maintenance bases, the maintenance for aircraft types equivalent to two Boeing 747 and one Airbus

A300 aircraft can be carried out simultaneously. In the base at Gimhae airport, specialised maintenance

facilities for Boeing 747 aircraft are installed and aircraft painting work for all aircraft of Korean Air is

performed at Gimhae paint hangar.

For its operational performance, Korean Air has received awards from both Boeing and Airbus. In

October 2005, Boeing selected and awarded Korean Air as the ‘‘Outstanding Dispatch Reliability’’

airline for its operations of the B747-400, B777 and B737 aircraft. It was based on the reliability of

aircraft operators that have shown outstanding on-time reliability and operational performance during 5

years from 2000 to 2004. In addition, KAL was awarded the ‘A300-600 Operational Excellence Award’

in November 2009, and the ‘Top Operational Excellence’ for A330 in June 2010 from Airbus. Since

introducing Airbus aircraft to its fleet in 1974, KAL has won awards almost every year for its operation

of the A300, A300-600 and A330 aircraft types.

In 2004, KAL commenced carrying out aircraft heavy maintenance and engine MRO

(‘‘Maintenance, Repair and Overhaul’’) business for overseas commercial airlines. As an example,

Korean Air performed aircraft heavy maintenance (including cabin upgrade modification and fuselage

painting) for United Airlines from 2005 to 2010, and has entered into contracts with Thai Airways for

engine heavy maintenance since 2008. In 2010, KAL recorded U.S.$55 million in sales in maintenance

MRO business. The top three customers for KAL’s MRO business were Thai Airways, United Airlines

and Pratt & Whitney that altogether make up more than 80 per cent. of KAL’s total annual revenues

from its MRO business. Other MRO customers include Jin Air, China Cargo Airlines, GECAS,

Grandstar Cargo, Uzbekistan Airways and Southern Air.

91

Passenger Services

Korean Air’s passenger services currently extend to 103 cities (13 domestic and 90 international)

in 35 countries as of February 2011. In 2010, its passenger business experienced a very significant

rebound in demand driven by a rapid economic recovery, and also the exceptional fast pace of demand

growth in the Korea market. As a result, Korean Air achieved the highest yearly performance in its

history. Total revenues from passenger services increased by 21.2 per cent. and amounted to KRW6.7

trillion in 2010 from KRW5.5 trillion in 2009 constituting 63 per cent. of Korean Air’s total revenues

for that year. International and domestic passenger services comprised approximately 91.5 per cent. and

8.5 per cent. of the total passenger revenues, respectively, in 2010.

Table 8 shows Korean Air’s Passenger route structure.

Table 8Passenger Routes as at February 2011

Destination Routes Destination Cities

Domestic 13 Seoul, Incheon, Pusan, Jeju, Gwangju, Daegu, Yeosu,

Ulsan, Pohang, Jinju, Gunsan, Cheongju, Wonju

Japan 15 Tokyo, Osaka, Nagoya, Fukuoka, Akita, Kagoshima,

Niigata, Sapporo, Okayama, Aomori, Oita, Nagasaki,

Hakodate, Komatsu, Shizuoka

China 22 Beijing, Changsha, Dalian, Guangzhou, Hong Kong,

Jinan, Kunming, Mudanjiang, Qingdao, Shanghai,

Shenyang, Shenzhen, Taipei, Tianjin, Ulaanbaatar,

Weihai, Wuhan, Xian, Xiamen, Yanji, Yantai, Zhengzhou

Southeast Asia 16 Bangkok, Bali, Hanoi, Chiangmai, Hanoi, Ho Chi Minh

City, Jakarta, Kathmandu, Kota Kinabalu, Kuala Lumpur,

Manila, Mumbai, Phnom Penh, Phuket, Siem Reap,

Singapore

Oceania 6 Sydney, Brisbane, Melbourne, Auckland, Guam, Nadi

North Americas 13 L.A., New York, Chicago, San Francisco, Atlanta, Dallas,

Seattle, Washington D.C., Honolulu, Las Vegas, San

Paulo, Vancouver, Toronto

Europe/Middle East/CIS 18 Paris, Frankfurt, London, Zurich, Amsterdam, Rome,

Milan, Madrid, Prague, Vienna, Cairo, Dubai, Tel Aviv,

Istanbul, Moscow, Vladivostok, St. Petersburg, Tashkent

Total 103

Source: Information provided by Korean Air.

92

Table 9 shows Korean Air’s passenger revenue break down by route.

Table 9Passenger Revenue Composition by Route

Passenger 2010 2009 2008 2007 2006

Domestic 8.50% 9.50% 10.60% 11.90% 13.60%

International 91.50% 90.50% 89.40% 88.10% 86.40%

Japan 15.30% 15.60% 13.00% 12.70% 12.80%

China 10.10% 8.90% 10.00% 10.10% 9.70%

Southeast Asia 13.30% 12.40% 12.90% 12.70% 12.00%

Oceania 5.50% 5.90% 6.20% 6.30% 6.30%

North America 32.70% 32.90% 30.30% 29.70% 29.30%

Europe/Middle East/CIS 14.70% 14.90% 17.00% 16.70% 16.20%

Source: Information provided by Korean Air.

Korean Air operates scheduled flights to 15 cities in Japan and one flight from Osaka to Guam (the

‘‘Routes’’). Furthermore, Korean Air has newly opened up an Haneda, Tokyo-Incheon route, with a

daily schedule to attract the demand departing from Japan early in the morning. Korean Air has also

added a route from Cheongju to Osaka, one of the regional airports in Japan. The Japan Routes recorded

KRW130 billion of net profit in 2010 and net profit of KRW43 billion in 2009.

In China, Korean Air provides scheduled flights to 22 cities set out in Table 8 (the ‘‘ChinaRoutes’’). The China Routes delivered a 38% growth in revenue in 2010 compared with 2009, mainly

benefiting from strong Chinese demand with the strength of the Chinese Yuan. Korean Air recorded a

net profit in relation to the China Routes of KRW53 billion in 2010 compared to a net loss of KRW70

billion in 2009.

The Company operates scheduled flights to 16 cities in Southeast Asia including Thailand,

Singapore, the Philippines, Indonesia, Malaysia, India, Vietnam, Nepal and Cambodia (the ‘‘SoutheastAsia Routes’’). In 2010, Korean Air reported a net profit in relation to the Southeast Asia Routes of

KRW43 billion compared to a net loss of KRW53 billion in 2009.

Korean Air also operates scheduled flights to 13 cities in the United States and to Canada (the

‘‘Americas Routes’’), scheduled flights to 18 cities in Europe/Middle East/CIS (the ‘‘Europe Routes’’)and scheduled flights to Guam, Nadi and three cities in Australia and New Zealand (the ‘‘OceaniaRoutes’’).

The key statistics for Korean Air’s international passenger services are compiled by standards

commonly used in the airline industry: revenues, available-seat-kilometres (‘‘ASKs’’), revenue-

passenger-kilometres (‘‘RPKs’’), load factor and yield.

ASKs are a measure of the number of seats made available for sale multiplied by the distance

flown in kilometres on a route. RPKs are a measure of revenue from passengers multiplied by the

distance flown in kilometres on a route. Load factor is a measure of the rate of utilisation of Korean

Air’s capacity and is calculated by dividing RPKs by ASKs. Yield is a measure of the revenue from

each RPK and is measured by dividing revenues by RPKs.

Table 10 below shows Korean Air’s international passenger service statistics since 2009 measured

by revenues, ASKs, RPKs, load factor and yield.

93

Table 10International Passenger Service Statistics as of 31 December, 2010

Description (KRW) 2010 2009 YoY (%)

Revenues (millions) 5,629,435 4,582,991 22.83

ASKs (thousands) 75,181,051 74,898,689 0.38

RPKs (thousands) 57,783,753 52,461,047 10.15

Load Factor (%) 76.86% 70.00% 9.73

Yield (KRW) 97.4 87.4 11.52

Yield (Cent) 8.41 6.85 22.84

Source: Information provided by Korean Air.

Risk Management

In order to create a more stable business environment by minimising or eliminating the risk

associated with volatility of fuel prices, foreign exchange rates and interest rates, Korean Air has

focused on risk management since 2001 and will continue to actively manage risks. The risk

management is divided into two hedges: natural hedging and active hedging. Korean Air’s risk

management strategy is to minimise market risk factors using both natural hedging and active hedging.

Jet Fuel Price: Korean Air’s fuel hedging strategy is the use of a mix of basic hedge and

additional hedge: it intends to hedge regularly 25 per cent. of its fuel consumption regardless of market

condition (‘‘Basic Hedge’’). Currently Korean Air has only hedged 10% of its fuel consumption. In

addition to the Basic Hedge, Korean Air may enter into an additional hedge of up to 50 per cent. of its

fuel consumption if market conditions are favourable compared to a historical price level (‘‘AdditionalHedge’’).

Currency: Over the last few years, Korean Air has tried to eliminate some of its currency risk via

natural hedging of the balance sheet. In other words, Korean Air has increased its Won and Yen

denominated borrowings instead of dollar denominated financing to match its currency cash balances.

Korean Air actively hedges up to 50 per cent. of its currency exposure. Korean Air has entered into a

zero-cost collar to fix FX rate of USD/KRW within a range.

Interest Rate: over the last few years, Korean Air hedged its interest rate risk by increasing fixed

rate financing. Korean Air’s strategy is to keep fixed interest rate debt portion at around 50 per cent. for

overall debts. However, fixed and floating ratios differ by currencies: more than 50 per cent. of USD

denominated debts are floating rate whereas the majority of Won denominated debts are at a fixed rate.

In summary, as of December 2010, 29 per cent. of USD debts, 85 per cent. of Won debts and 64 per

cent. of JPY debts were on fixed rate basis.

Insurance

Korean Air currently has an insurance policy arranged by Marsh Ltd. in respect of its 140 aircraft,

helicopters and other small-sized aircraft (the ‘‘Insurance Policy’’). The insurance coverage is provided

by a syndicate of insurers in the international market. The maximum coverage for hull insurance under

the Insurance Policy is U.S.$260 million per aircraft and an aggregate maximum coverage for liability

under any one accident is U.S.$2.0 billion per aircraft. The deductible amount for each claim in respect

of a Boeing 747, Boeing 777, Airbus A300 or Airbus A330 aircraft is U.S.$1 million and is

U.S.$750,000 in respect of Boeing 737 aircraft. In addition to hull insurance and third party war

liability, the Insurance Policy insures Korean Air for liabilities connected with employees, passengers

and cargo on board each aircraft and general third party liability.

94

Impact of External Factors on Korean Air’s Business

In 2009, the world’s airline industry was hit by a global economic recession that stemmed from the

financial crisis. The confusion in the financial markets and contraction in sentiment across many

countries that followed projected an economic recession that would last a long time. However, as a

result of many countries’ financial stabilisation and expansion policies, the domestic and international

economies witnessed a turnaround in a relatively short period of time.

Historically, around 20 to 30 per cent. of Korean Air’s airline ticket sales are generated from

premium ticket sales (first and business class) which is relatively low in comparison to other airlines

such as Cathay Pacific and Singapore Airlines that generate around 40 per cent. of their ticket sales

from premium ticket sales. As such, compared to other airlines, the effect on Korean Air from a possible

future economic downturn on premium passenger revenue will be relatively small.

The Korean and global economies are expected to climb gradually in 2011. As a result of the

expansion in production and consumption driven by revitalisation of the real economy, both passenger

and cargo transportation are expected to record increased revenues during the current fiscal year.

According to the 2010 survey on airline transport performance carried-out by the MLTM,

international transport passengers showed increase in 2010. Total international transport passengers

increased by 19.5% in 2010 compared to the previous year. International cargo transportation also

increased to 3,330,000 tons, a 1.58% increase over the previous year. With the advent of new low cost

carriers, domestic passenger transportation recorded 20,220,000 passengers in 2010, a 15.3% increase

compared to the previous year. The airline transport business is expected to continue to grow in 2011.

Korean Air’s wholly owned low cost carrier Jin Air was incorporated in January 2008 and started

its first domestic route to and from Kimpo and Jeju in July 2008. After adding another domestic route to

and from Busan and Jeju in April 2009, Jin Air started its first international routes connecting Incheon

and Bangkok. Another international route connecting Incheon and Guam was added in April 2010.

Among the six low cost domestic carriers operating in Korea, Jin Air has around a 24 per cent. share of

the low cost flight market share in terms of number of passengers in 2009.

Beside economic factors, environmental responsibility has been highlighted in the global airline

industry. From 2012, airlines flying in and out of Europe are subject to the regulations for limiting CO2

emissions. Airlines will be required to purchase credits for their CO2 emissions in excess of regulatory

standards through the emissions trading scheme. Korean Airlines has developed a comprehensive

internal procedure that encompasses monitoring, reporting and verification. The Company’s IT systems

are consistently updated to maintain accurate and consistent control of its CO2 emissions.

Marketing and Advertising

In addition to safety considerations, customer service is a key area of focus for Korean Air. The

Company actively advertises its flight services in Korea, Japan and the United States on television

channels, on the internet, in newspapers and magazines.

95

Since 2007, Korean Air has received the awards shown in Table 11 below.

Table 11 Awards

Date Award

December 2010 Global Times: Top 3 International Airline Most Preferred by ChineseGlobal Traveler: Best Business Class Seat Design & Best Airport Staff/GateAgent— Business Traveler: Best Business Class to Asia & Best Asian Airline &Best Airline Advertising Campaign

November 2010 — PAX International: Asia’s Best In-Flight Meal Service Airline— EtQ User Conference: 2010 Excellence Innovation Award— Travel + Leisure: World Top 10 Airline

October 2010 — World Travel Awards: Asia’s Leading Airline for First Class— Condé Nast Traveler: 2010 Global Awards Top 7

September 2010 — Economist: Korean Economy Leader AwardsAugust 2010 Smart Travel Asia: 10 Best Airlines in the WorldJune 2010 Executive Travel: Best Frequent Flyer Program in AsiaMarch 2010 National Geographic Traveler: Best Top 3 International CarrierApril 2009 Global Times China: Most Reliable Foreign Airline in ChinaOctober 2009 Travel + Leisure China: Most Preferred AirlineDecember 2008 Business Traveler USA, 2008 Readers’ Choice Travel Survey, Best Airline

in Asia, Best Business Class to Asia/Trans-pacific, Best Airline AdvertisingCampaign

April 2008 Inside Flyer ‘Freddie Awards’, No. 1 for ‘Best Member Communications,Japan/Pacific/Asia/Australia’, No. 2 for ‘Best Customer Service, Japan/Pacific/Asia/Australia’

December 2007 Business Traveler USA 2007 Readers’ Choice Travel Survey, ‘Best Airlinein Asia’ and ‘Best Transpacific Business Class’

July 2007 Skytrax World Airline Awards: Best Economy ClassMarch 2007 Mercury Award On-board Service Category Gold Prize for ‘A Letter from

Flying Mom’

January 2007 Business Traveler USA ‘Best Business Class to Asia/Trans-Pacific’August 2010 Smart Travel Asia: 10 Best Airlines in the WorldJune 2010 Executive Travel: Best Frequent Flyer Program in AsiaMarch 2010 National Geographic Traveler: Best Top 3 International CarrierApril 2009 Global Times China: Most Reliable Foreign Airline in ChinaOctober 2009 Travel + Leisure China: Most Preferred AirlineDecember 2008 Business Traveler USA, 2008 Readers’ Choice Travel Survey

: Best Airline in Asia: Best Business Class to Asia/Trans-pacific: Best Airline Advertising Campaign

April 2008 Inside Flyer ‘Freddie Awards’: No. 1 for ‘Best Member Communications, Japan/Pacific/Asia/Australia’: No. 2 for ‘Best Customer Service, Japan/Pacific/Asia/Australia’

December 2007 Business Traveler USA 2007 Readers’ Choice Travel Survey: ‘Best Airline in Asia’ and ‘Best Transpacific Business Class’

July 2007 Skytrax World Airline Awards: Best Economy ClassMarch 2007 Mercury Award On-board Service Category Gold Prize for ‘A Letter from

Flying Mom’

January 2007 Business Traveler USA ‘Best Business Class to Asia/Trans-Pacific’

Source: Information provided by Korean Air.

96

Korean Air’s frequent flyer programme, SKYPASS, was introduced in 1984 as the first frequent

flyer programme in Asia. SKYPASS is designed to retain and enhance customer loyalty by offering

awards and services to frequent travelers for their continued patronage. SKYPASS members can earn

mileage by flying on Korean Air, members of SkyTeam and other airlines that participate in the

programme. Mileage can also be earned by using services of other participants in the programme, such

as credit card companies, hotels and car rental companies. SKYPASS mileage can be redeemed for free

or upgraded travel on Korean Air or other participating airlines and for other non travel-awards. As of

31 December, 2010, SKYPASS had approximately 18 million members.

97

KOREAN AIR CARGO BUSINESS

Overview

Korean Air’s cargo transportation operations were launched in 1969 and in 1971 Korean Air

commenced freight services on transpacific routes.

According to data from IATA, Korean Air was ranked first (among IATA member carriers) in

terms of internationally carried freight tonne-kilometres for 2009. Table 1 below shows Korean Air’s

comparative international ranking by IATA from 2004 to 2009 measured by cargo tonnes carried

multiplied by the distance flown in kilometres (‘‘FTKs’’).

Table 1Korean Air Cargo’s International Ranking

Year Korean Air LufthansaSingaporeAirlines

CathayPacific FedEx

(million FTKs)

2004 8,164 8,028 7,143 5,876 5,595

2005 7,982 7,669 7,603 6,458 5,642

2006 8,680 8,077 7,991 6,914 6,136

2007 9,498 8,336 7,945 8,225 6,470

2008 8,822 8,194 7,486 8,245 6,582

2009 8,225 6,660 6,455 7,722 5,808

Source: Information provided by Korean Air.

Korean Air’s cargo business is important to the Company as it provides a stable revenue stream.

Revenues from cargo services constituted 31.6 per cent. of Korean Air’s total revenues in 2010, as

shown by Table 2 below.

Table 2Comparative Percentage of Revenues from Carriage of Passengers and Cargo

2005 2006 2007 2008 2009 2010

(per cent.)

Passengers 60.7 61.9 62.4 65.6 61.8 59.9

Cargo 31.2 29.8 28.6 29.7 27.8 31.6

Source: Information provided by Korean Air.

98

In addition to its ability to carry cargo on its passenger routes, the Company operates cargo only

routes to 44 cities throughout the world, as shown by Table 3 below.

Table 3Freighter Cargo Route Structure

(as at 31 December, 2004)

Destination Cities Destination Cities

Korea 1 Incheon

Japan 2 Tokyo, Osaka

China 7 Shanghai, Tianjin, Beijing, Hong Kong, Hangzhou, Qingdao,

Xiamen

South-East Asia 9 Bangkok, Singapore, Manila, Jakarta, Kuala Lumpur, Penang,

Ho Chi Minh City, Hanoi, Chennai

Oceania 1 Sydney

America 10 Los Angeles, New York, Chicago, Anchorage, Atlanta, Dallas,

San Francisco, Calgary, Toronto, Seattle, Miami

Europe1 14 Paris, Frankfurt, London, Basel, Brussels, Copenhagen, Milan,

Oslo, Vienna, Dubai, Amsterdam, Stockholm, Tel Aviv, Navoi

Total 44

1 Includes the Middle East and Africa.

Source: Information provided by Korean Air.

The Company’s cargo operation statistics are measured by revenues, freight available tonne-

kilometres, revenue freight tonne-kilometres, load factors and yield. Freight available tonne-kilometres

(‘‘FATKs’’) are a measure of the available cargo capacity in tonnes multiplied by the distance flown in

kilometres. Revenue freight tonne-kilometres (‘‘RFTKs’’) are a measure of cargo loads in tonnes

multiplied by the distance flown in kilometres. Load factor is a measure of the rate of utilisation of

Korean Air’s capacity and is calculated by dividing RFTKs by FATKs. Yield is a measure of the

revenue from each RFTK and is measured by dividing revenues by RFTKs. Table 4 below shows

Korean Air’s international cargo service statistics since 2007, measured by revenues, FATKs, RFTKs,

load factor and yield.

Table 4Korean Air International Cargo Service Statistics

2007 2008 2009 2010

Revenue (million) 2,392,200 2,873,211 2,479,866 3,529,943

AFTK (million) 12,992 12,180 11,289 12,666

FTK (million) 9,678 9,005 8,426 9,669

Load Factor (%) 74 74 75 76

Yield (KRW) 247 319 294 365

Source: Information provided by Korean Air.

99

Table 5 below shows the monthly revenues from Korean Air’s cargo operations world-wide from

2007.

Table 5Monthly International Cargo Revenues

2007 2008 2009 2010

January 173,400 201,400 155,462 234,799

February 165,100 195,700 157,498 244,075

March 196,400 236,500 191,654 322,118

April 194,900 238,600 164,534 305,107

May 185,100 240,949 167,533 333,171

June 185,600 247,860 166,007 316,727

July 190,500 263,766 183,993 309,286

August 190,000 254,697 190,838 283,556

September 214,800 258,500 231,735 285,288

October 232,000 281,200 270,210 315,312

November 237,200 251,000 325,559 299,475

December 227,200 202,939 274,852 281,028

Total 2,394,207 2,875,119 2,481,884 3,529,943

Growth Rate (%) 5% 20% –14% 42%

Source: Information provided by Korean Air.

Cargo Fleet

Korean Air’s cargo fleet totaled 24 aircraft as of 31 December, 2010, comprising 16 Boeing 747-

400 freighters and 8 Boeing 747-400ERF aircraft. Korean Air plans to increase its freighter fleet by the

addition of three Boeing 747-800 freighter aircraft and two Boeing 777 freighter aircraft by the end of

2012.

As well as all-cargo freighter aircraft, Korean Air also provides cargo transportation services using

the lower deck of its passenger aircraft. As at 31 December, 2010, Korean Air had 104 passenger

aircraft.

Terminal Facilities

Korean Air has dedicated cargo terminals at key airports including Incheon, Tokyo, Osaka, New

York and Los Angeles. The Terminal-1 at Incheon airport can handle up to 1.35 million tons of cargo

annually and Terminal-2 for handling of other airlines cargo can handle up to 0.26 million tons of cargo

annually.

Korean Air has also developed a new cargo terminal building at New York’s JFK International

Airport with an annual capacity of 200,000 tonnes. Table 6 below shows the comparative capacity of

Korean Air’s cargo terminals by tonnes of annual cargo capacity.

100

Table 6Cargo Terminal Capacity

Airport Opened CapacityOwned/Leased by

Korean Air

(tonnes per year)

Incheon Terminal-1 March 2001 1,350,000 Owned

Incheon Terminal-2 August 2007 260,000 Owned

Los Angeles December 1981 125,000 Owned

New York October 2000 200,000 Owned

Tokyo January 1085 37,000 Leased

Osaka September 1994 40,000 Leased

Source: Information provided by Korean Air.

Japan Routes

Korean Air provides air cargo services using freighters and the lower deck of its passenger aircraft

on 189 one-way flights each week between Japan and Korea and two one-way flights each week

between Tokyo and Los Angeles (together, the ‘‘Japan Routes’’). The final destination of the cargo is

either in Korea or another international destination. Table 7 below shows the final destination of cargo

transported by Korean Air from Japan and the actual volume of cargo carried, and Table 8 shows the

flight frequencies on the Japan Routes by aircraft.

Table 7Final Destination of Japan-sourced Cargo

Destination 2007 2008 2009 2010

(segment tonnes)

Korea 37,209 33,340 32,682 40,746

China1 6,762 5,055 3,134 4,562

Southeast Asia2 19,353 18,502 14,250 18,424

America 27,236 21,272 17,017 20,854

Europe3 20,459 18,941 12,180 18,263

Total 111,019 97,110 79,263 102,849

1 Excludes Hong Kong.2 Includes Hong Kong.3 Includes the Middle East and Africa.

Source: Information provided by Korean Air.

101

Table 8Japan Routes and Weekly Flight Frequency

(as at 4 February, 2011)

Routes from JapanPassengerAircraft Freighters Total

Akita — Seoul 3 — 3

Aomori — Seoul 4 — 4

Fukuoka — Seoul 21 — 21

Kagoshima — Seoul 3 — 3

Nagoya — Seoul 14 — 14

Niigata — Seoul 7 — 7

Oita — Seoul 3 — 3

Okayama — Seoul 7 — 7

Osaka — Seoul 21 4 25

Sapporo — Seoul 10 — 10

Tokyo — Seoul1 28 3 31

Tokyo — Seoul2 7 — 7

Tokyo — Los Angeles3 1 1 2

Fukuoka — Busan 14 — 14

Nagoya — Busan 7 — 7

Osaka — Busan 7 — 7

Tokyo — Busan 7 — 7

Nagoya — Jeju 5 — 5

Osaka — Jeju 7 — 7

Tokyo — Jeju 7 — 7

Total 183 8 191

1 Narita — Incheon.2 Haneda — Gimpo: unless otherwise indicated, flights from Tokyo depart at Narita and flights to Seoul arrive at Incheon.3 Tokyo — Los Angeles: These planes fly between Seoul, via Tokyo, and Los Angeles.

Source: Information provided by Korean Air.

Table 9 below shows Korean Air’s cargo service statistics for the Japan Routes since 2007,

measured by revenues and load factor.

Table 9Cargo Service Statistics for Japan Routes

2007 2008 2009 2010

Revenues1 262,865 255,835 155,105 258,176

Load Factor (%) 86 70 59 69

1 Unit: Revenues = KRW million

Source: Information provided by Korean Air.

Competition

Korean Air competes directly with other Asian airlines for intra-Asia, Asia-Europe and Asia-

United States cargo business. In order to win the competition against other airlines, Korean Air has been

trying to expand its network, develop infrastructure and strengthen its Sky Team alliance partnership.

102

The Japan cargo market is a mature and competitive market with several airlines providing air

cargo services. Major competitors against Korean Air are FedEx, Asiana Airlines, Cathay Pacific and

others as well as the Japanese airlines. Despite severe competition in Japan, the market share of Korean

Air in Japan has grown gradually since 2006. Table 10 shows Japan-sourced cargo traffic and Korean

Air’s share year-on-year, which is measured by carried cargo in tonnes.

Table 10Korean Air’s Market Share

Year Market Korean AirKorean Air

Market Share

2010 1,106,665 102,850 9.3%

2009 850,397 79,263 9.3%

2008 1,155,892 97,108 8.4%

2007 1,315,574 112,552 8.6%

2006 1,321,313 108,848 8.2%

Source: Information provided by Korean Air.

Even though Japanese airlines account for approximately 30% of the Japan cargo market in terms

of cargo fleet, Korean Air has a competitive advantage compared with Japanese airlines. Korean Air has

24 freighters as of 2010 as mentioned above, All Nippon Airways has nine Boeing 763 freighter aircraft

and Nippon Cargo Airlines has ten freighters according to publicly available data as of January 2011.

According to data from Japan’s Ministry of Land, Infrastructure and Transport, market share by all

Japanese airlines was approximately 40 per cent. for the twelve months ending on 31 December, 2010.

Strategic Alliances and Bilateral Agreements

In order to enhance its competitiveness against other airline groupings, Korean Air formed a global

passenger alliance (‘‘SkyTeam’’) together with Delta Air Lines, Air France and AeroMexico on 22 June,

2000. CSA Czech Airlines and Alitalia joined SkyTeam in 2001. KLM joined in 2004 and then Aeroflot

in 2006. The alliance has expanded by the addition of China Southern Airlines, Air Europa, Kenya

Airways in the recent years. Currently, Vietnam Airlines and Tarom Romanian Airlines joined the

alliance last year. The member airlines in the alliance aim to develop a shared system for managing

revenue and expenses, to co-operate on frequent flyer schemes, to share airport facilities, lounges,

resources and information technology and to provide a seamless passenger service around the world.

SkyTeam is now the world’s 2nd largest passenger airline alliance serving 898 destinations in 169

countries with 12,597 daily flights.

Korean Air estimates that the SkyTeam alliance (passenger and cargo) is revenue enhancing as

passengers and cargo are passed on to Korean Air’s network from other SkyTeam airlines’ networks.

The overall profit for Korean Air from SkyTeam’s passenger from codeshare, lounge, joint purchasing

and others is estimated to be approx. U.S.$22 million in 2010. Korean Air anticipates that the benefits

generated in 2011 will be approximately 1.2% increased in comparison to last year.

In September 2000, Korean Air formed a global cargo alliance (‘‘SkyTeam Cargo’’), the current

members of which are Alitalia, CSA-Czech Airlines, Delta Air Lines, KLM and China Southern

Airlines, in addition to Korean Air, AeroMexico and Air France. SkyTeam Cargo is the only existing

Air cargo alliance in the World. Korean Air provides a wide range of air cargo products including

‘‘equation’’, ‘‘variation’’, ‘‘cohesion’’ and ‘‘dimension’’ which are common branded products within the

SkyTeam Cargo alliance. Which product a customer chooses will depend on a number of factors

103

including weight, the commodity of the item to be transported and the speed of delivery required.

Korean Air has also developed a Sky-Bridge System, primarily for the China market, which enables

cargo to be transported to/from Korea by air with the sector to/from China being handled by sea.

Figure 1 below shows the market share in 2009 of SkyTeam Cargo by internationally carried

AFTKs by IATA member airlines only. Figure 1.1 shows the market share in 2009 of Korean Air Cargo

by internationally carried AFTKs in terms of SkyTeam Cargo Alliance.

Korean Air Cargo43%

Sky Team Cargo15.4%

Others84.6%

Market Share in 2009 Sky Team Cargo in 2009

Figure 1 Figure 1.1

Other SKTC

member57%

Source: IATA World Air Transport Statistics

In addition to SkyTeam, Korean Air has revenue pooling, code sharing and block space

arrangements with respect to cargo services with other airlines, as shown in Table 11 below.

Table 11Cargo Bilateral Agreements

Route Group Airline Description

China Air China Code share/unilateral block space1 on Korean Air’s flights

China Cargo Airlines Bilateral block space2

Americas Air Canada Code share/unilateral block space on Korean Air’s flights

Europe Air France Code share/bilateral block space3

British Airways Code share/unilateral block space on Korean Air’s flights

Southeast Asia Garuda Indonesia Code share/unilateral block space on Korean Air’s flights

Vietnam Airlines Code share/unilateral block space on Korean Air’s flights

Japan Nippon Cargo Airlines Bilateral block space

1 Cargo space is sold by one airline to the other airline sharing the airline code.2 Allied airlines agree to sell, purchase and/or swap cargo space with other allied airline without sharing the airline code.3 Cargo space is sold by either airline to the other airline sharing the airline code.

Source: Information provided by Korean Air.

104

THE NOTE ISSUER

General

KAL Japan ABS 6 Cayman Limited (the ‘‘Note Issuer’’) was incorporated as an exempted

company with company number 253425 in the Cayman Islands on 11 March, 2011. The registered office

of the Note Issuer is c/o Walkers SPV Limited, Walker House, 87 Mary Street, George Town, Grand

Cayman KY1-9002, Cayman Islands and its telephone number is 1-345-945-3727.

The Note Issuer is a special purpose vehicle and has no prior operating experience. The Note

Issuer has no subsidiaries.

Principal Activities

The Note Issuer has not engaged, since its incorporation, in any activities other than those

incidental to its incorporation, the authorisation, execution and issue of the Notes, and the documents

and matters referred to or contemplated in this Prospectus to which it is or will be a party and matters

which are incidental or ancillary to the foregoing. The objects of the Note Issuer are set out in Clause 3

of its Memorandum and Articles of Association. As an exempted company, the Note Issuer may not

trade in the Cayman Islands with any person except in furtherance of the business of the Note Issuer

carried on outside the Cayman Islands. The Note Issuer will covenant to observe certain restrictions on

its activities which are defined in Note Condition 6.

Directors and Secretary

The directors of the Note Issuer (together, the ‘‘Board of Directors of the Note Issuer’’) and their

other principal activities and business addresses are:

Directors of the Note Issuer

Name Other Principal Activities Business Address

Rachael Rankin Business person Walker House, 87 Mary Street,

George Town Grand Cayman KY1-9002,

Cayman Islands

Otelia Scott Business person Walker House, 87 Mary Street,

George Town Grand Cayman KY1-9002,

Cayman Islands

The secretary of the Note Issuer is Walkers SPV Limited. The Note Issuer has no employees.

Certain of the affairs of the Note Issuer (including various corporate, secretarial and administrative

services) are managed by Walkers SPV Limited of Walker House, 87 Mary Street, George Town, Grand

Cayman KY1-9002, Cayman Islands, as note issuer administrator (the ‘‘Note Issuer Administrator’’)pursuant to the Note Issuer Administrator Agreement. The Note Issuer Administrator will, inter alia,

provide the services of two or more directors and a secretary to the Note Issuer and will be responsible

for the day to day administration of the Note Issuer.

105

The Note Issuer Administrator may retire at any time upon giving not less than three months notice in

writing of such retirement to the Note Issuer and the Note Trustee; provided that such retirement may

not take effect until a replacement Note Issuer Administrator has been appointed with the approval of

the Note Trustee in accordance with the terms of the Note Issuer Administrator Agreement. The Note

Issuer Administrator may be removed from office upon the Note Issuer giving not less than one month

notice of such removal with the prior written approval of the Note Trustee or without notice in

circumstances, inter alia, where the Note Issuer Administrator has been negligent or fraudulent or there

has been wilful misconduct on its part.

Share Capital

The authorised share capital of the Note Issuer consists of U.S.$50,000 divided into 50,000

ordinary shares of U.S.$1 par value each. 250 ordinary shares have been issued at par, are fully-paid and

are held by Walkers SPV Limited under the terms of a declaration of trust on trust for charitable

purposes.

Capitalisation and Indebtedness

The capitalisation and indebtedness of the Note Issuer, as at the date of this Prospectus, adjusted

for the Notes to be issued on the Closing Date, is as follows:

Capitalisation and Indebtedness Statement of the Note Issuer

As at 20 April, 2011

(U.S.$)

Share Capital250 ordinary shares issued and fully paid 250

Total Share Capital 250

Loan CapitalThe Notes 241,109,1021

Total Loan Capital 241,109,102

Total Capitalisation 241,109,352

1 Rate used to convert U.S.$ to ¥ is U.S.$1 = ¥82.95.

Note: Other than as described above, there has been no material change in the capitalisation of the Note Issuer as at the

date hereof.

Save as disclosed elsewhere in this Prospectus, at the date of this Prospectus, the Note Issuer has

no borrowings or indebtedness in the nature of borrowings (including loan capital issued or created but

unused), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees

or other contingent liabilities.

There are no other outstanding loans or subscriptions, allotments or options in respect of the Note

Issuer.

There has been no material adverse change in the financial position of the Note Issuer since the

date of its incorporation.

106

Financial Year

The financial year of the Note Issuer runs from 1 January to 31 December. There has been no

material change in the activities of the Note Issuer since its incorporation.

The Note Issuer is not required under Cayman Islands law to prepare annual financial statements

or audited accounts.

Annual Notice to Note Trustee

The Note Issuer is required to provide written confirmation to the Note Trustee on an annual basis

in accordance with Note Condition 8 that, as far as it is aware, no Note Event of Default or other matter

which is required to be brought to the attention of the Note Trustee, has occurred.

107

THE BOND ISSUER

General

KAL 6 Asset Securitization Specialty Company (the ‘‘Bond Issuer’’) was incorporated and

registered in Korea (under registration number 110114-0098952) as a Korean securitisation specialty

company (a limited liability company (yuhanhoesa) under the ABS Act and the Korean Commercial

Code) on 17 March, 2011. The registered office of the Bond Issuer is at 1370 Gonghangdong, Gangseo-

gu, Seoul, Korea, 157-721 and its telephone number is 82 2 2656 3958.

The Bond Issuer is a special purpose vehicle and has no prior operating experience. The Bond

Issuer does not have any subsidiaries nor any employees.

None of the Trustor, the Security Agent, the Joint Arrangers and the Joint Lead Managers owns,

directly or indirectly, any of the share capital of the Bond Issuer.

Principal Activities

The principal objects of the Bond Issuer are set out in Clause 3 of its Memorandum and Articles of

Association and are, amongst other things, to carry out activities pursuant to the ABS Act and will

include entering into agreements necessary for the performance of the obligations under the transaction

specified in the Securitisation Plan filed with the Financial Services Commission (the ‘‘FSC’’).

The Bond Issuer has not engaged, since its incorporation, in any material activities other than

those incidental to its incorporation, the authorisation, execution and issue of the Bond, the purchase of

the Investor Beneficial Interest and the matters contemplated in this Prospectus and the Transaction

Documents and the authorisation, execution, delivery and performance of the Transaction Documents to

which it is a party and matters which are incidental or ancillary to the foregoing.

Director

The sole director of the Bond Issuer is Eun Yun Park, whose address is 211-1401 Hanbomido

Mansion, 511, Daechi-dong, Gangnam-gu, Seoul, Korea.

Equity Capital

The authorised equity capital of the Bond Issuer consists of KRW10,000,000 divided into 1,000

units of a nominal or par value of KRW10,000 par value each. 1,000 units have been issued at par, are

fully-paid with 5 units being held by the Trustor and 995 units by Eun Yun Park.

108

Capitalisation and Indebtedness

The capitalisation of the Bond Issuer as at the date of this Prospectus, adjusted for the Bond to be

issued on the Closing Date, is as follows:

Capitalisation and Indebtedness Statement of the Bond Issuer

As at 20 April, 2011

(KRW)

Equity Capital1,000 units of KRW10,000 issued and fully paid 10,000,000

Total Share Capital 10,000,000

Loan CapitalBond 261,200,000,0001

Total Loan Capital 261,200,000,000

Total Capitalisation 261,210,000,000

1 Rate used to convert ¥ to KRW is ¥1 = KRW13.06.

Note: Other than as described above, there has been no material change in the capitalisation of the Bond Issuer as at the

date hereof.

As of the Closing Date, the Bond will be held by the Note Issuer.

Save as disclosed elsewhere in this Prospectus, at the date of this Prospectus the Bond Issuer has

no borrowings or indebtedness in the nature of borrowings (including loan capital issued, or created but

unused), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees

or other contingent liabilities.

There are no other outstanding loans or subscriptions, allotments or options in respect of the Bond

Issuer.

There has been no material adverse change in the financial position of the Bond Issuer since the

date of its incorporation.

Financial Year

The financial year of the Bond Issuer runs from 1 January to 31 December. The first financial year

of the Bond Issuer will end on 31 December, 2011. There has been no material change in the activities

of the Bond Issuer since its incorporation and no financial statements have been made up as at the date

of the registration document.

109

THE JAPANESE TRUST AND THE JAPANESE TRUSTEE

The Japanese Trust has been formed in accordance with the laws of Japan and the provisions of

the Trust Agreement by and between, inter alios, the Trustor and the Japanese Trustee.

The Japanese Trust is governed by the Trust Agreement. Pursuant to, and in accordance with, the

Trust Agreement, the Japanese Trustee will hold, administer and manage the Entrusted Assets, issue the

Beneficial Interests, make periodic payments on the Beneficial Interests and enter into agreements

necessary for the performance of its obligations under the transaction.

The Japanese Trust will terminate upon the earlier to occur of (a) the 27 April, 2016 and (b) the

date on which all amounts due under the Notes have been paid in full; provided that no amounts are

outstanding under the Credit Facility Deed.

The Japanese Trustee is The Bank of New York Mellon Trust (Japan), Ltd., a banking corporation

with a trust business licence incorporated in Japan and a wholly owned subsidiary of The Bank of New

York Mellon.

If at any time the Japanese Trustee will be legally unable to act, has a bankruptcy petition filed

against it or consents to the filing of a bankruptcy petition on its behalf, or is adjudged bankrupt or

insolvent, or a receiver of the Japanese Trustee or of its property will be appointed, or any public officer

takes charge or control of the Japanese Trustee or of its property or affairs for the purpose of

rehabilitation, conservation or liquidation, then the Trustor, with the consent of each of the

Beneficiaries, may remove the Japanese Trustee.

110

THE CREDIT FACILITY PROVIDER AND THE SWAP PROVIDER

The Korea Development Bank assumes no responsibility or liability for the payment by theNote Issuer of any sum due on any of the Notes, by the Bond Issuer of any sum due on the Bond,or by the Japanese Trustee of any sum due on the Investor Beneficial Certificate or the SellerBeneficial Certificate, and assumes no liability for making any payments whatsoever under or withrespect to the transactions contemplated by this Prospectus or any of the documents referred toherein, other than as explicitly and expressly contemplated in the Credit Facility Deed. The KoreaDevelopment Bank is entitled to receive fees under the terms of the Credit Facility Deed.

Overview

The Korea Development Bank (the ‘‘Credit Facility Provider’’) was established in 1954 as a

government-owned financial institution pursuant to The Korea Development Bank Act, as amended (the

‘‘KDB Act’’). Since its establishment it has been the leading bank in Korea with respect to the provision

of long-term financing for projects designed to assist Korea’s economic growth and development. The

Government indirectly owns all of the paid-in capital of the Credit Facility Provider. The registered

office of the Credit Facility Provider is located at 16-3 Yeouido-dong, Yeoungdeungpo-gu, Seoul,

Korea.

In June 2008, the Financial Services Commission announced the Government’s preliminary plan

for the privatisation of the Credit Facility Provider and, in May 2009, the KDB Act was amended to

facilitate such privatisation. The preliminary plan reflected the Government’s intention to nurture a more

competitive corporate and investment banking sector and trigger reorganisation and further advancement

of the Korean financial industry.

As a first step in implementing the privatisation of the Credit Facility Provider, the Government

established KDB Financial Group, or KDBFG, a financial holding company, and Korea Finance

Corporation, or KoFC, a public policy financing vehicle, in October 2009, by spinning off a portion of

its assets, liabilities and shareholders’ equity. In the spinoff, the interests owned by the Credit Facility

Provider in Daewoo Securities Co., Ltd., KDB Asset Management Co., Ltd. and KDB Capital Corp.

were transferred to KDBFG, and the equity holdings of the Credit Facility Provider in certain

government-controlled companies, including Korea Electric Power Corporation, or KEPCO, and certain

companies under restructuring programs, including Hyundai Engineering & Construction Co., Ltd., were

transferred to KoFC. The Government transferred its ownership interest in the Credit Facility Provider to

KDBFG in exchange for all of KDBFG’s share capital on 24 November, 2009 and contributed 94.27%

of KDBFG’s shares to KoFC as a capital contribution on 30 December, 2009. In March 2010, the

Government made a further capital contribution of KRW10.0 billion in cash to KDBFG. As a result, as

of the date of this Prospectus, KoFC, which is wholly owned by the Government, owns 94.2% of

KDBFG’s share capital and the Government directly owns the remaining 5.8% of KDBFG’s share

capital. KDBFG owns 100.0% of the share capital of the Credit Facility Provider.

111

The following diagram shows the ownership structure of the Credit Facility Provider before and

after the spin-off and the share transfer.

Under the KDB Act, as amended in May 2009, the sale of KDBFG’s shares directly or indirectly

owned by the Government is to commence by May 2014, and the Government will guarantee the

payment of the principal of and interest on the foreign currency debt of the Credit Facility Provider with

a maturity of one year or more at the time of issuance (‘‘mid-to-long term foreign currency debt’’)outstanding as of the date of the initial sale of its direct or indirect equity interest in KDBFG, subject to

the authorisation by the National Assembly of the Government guarantee amount. Pursuant to the KDB

Act and the Enforcement Decree of the KDB Act (the ‘‘KDB Decree’’), the Government may also

directly or indirectly guarantee, within the limit and scope determined by the Government and subject to

the authorisation by the National Assembly, the payment of the principal of and interest on the mid-to-

long term foreign currency debt of the Credit Facility Provider incurred during the period when the

Government directly or indirectly owns more than 50% of KDBFG to refinance the foreign currency

debt of the Credit Facility Provider referred to in the preceding sentence, in the event that (i) the

repayment of such outstanding foreign currency debt would be difficult unless the Government provides

a guarantee, (ii) the terms and conditions of such newly incurred foreign currency debt would become

notably unfavourable unless the Government provides a guarantee or (iii) any other circumstances

equivalent to (i) or (ii) above exist, as determined by the Minister of Strategy and Finance. In addition,

the Government’s financial support to the Credit Facility Provider stipulated by Article 44 of the KDB

Act is expected to remain effective for so long as the Government owns, directly or indirectly, a

majority of the share capital of the Credit Facility Provider.

The Credit Facility Provider expects that both it and KoFC will perform policy bank roles until the

Government through KoFC transfers a controlling stake in KDBFG to unrelated third parties and ceases

to hold a majority ownership interest in the Credit Facility Provider. Under the KDB Act, as amended in

May 2009, if the Government ceases to be the controlling shareholder of the Credit Facility Provider,

the Government’s financial support to the Credit Facility Provider stipulated by Article 44 of the KDB

Act is expected to cease to be provided.

However, the implementation of the Government’s privatisation plan may be delayed or changed

depending on a variety of factors, such as domestic and international economic conditions, and the

timing discussed above is only preliminary and is subject to change. There can be no assurance that

such privatisation plan will be implemented as contemplated or that the contemplated privatisation will

be implemented at all.

112

The primary purpose of the Credit Facility Provider, as stated in the KDB Act, the KDB Decree

and its Articles of Incorporation, is to perform business such as the supply of funds to promote the

development of the national economy.

As of 31 December, 2010, the Credit Facility Provider had KRW71,863.2 billion of loans

outstanding (including loans, call loans, domestic usance, bills of exchange bought, local letters of credit

negotiation and loan-type suspense accounts pursuant to the applicable guidelines without adjusting for

allowance for possible loan losses, present value discounts and deferred loan fees), total assets of

KRW113,205.5 billion and total shareholders’ equity of KRW16,228.3 billion, as compared to

KRW76,211.4 billion of loans outstanding, KRW122,333.4 billion of total assets and KRW15,110.7

billion of total shareholders’ equity as of 31 December, 2009. In 2010, the Credit Facility Provider

recorded interest income of KRW4,409.1 billion, interest expense of KRW2,804.0 billion and net

income of KRW1,045.7 billion, as compared to KRW5,374.5 billion of interest income, KRW4,476.9

billion of interest expense and KRW761.1 billion of net income in 2009.

Currently, the Government indirectly holds all of the paid-in capital of the Credit Facility Provider.

In addition to contributions to such capital, the Government provides direct financial support for the

financing activities of the Credit Facility Provider, in the form of loans or guarantees. The Government,

through KDBFG, the sole shareholder of the Credit Facility Provider, has the power to elect or dismiss

the Chairman and Chief Executive Officer of the Credit Facility Provider, members of its board of

directors and auditor. Pursuant to the KDB Act, the Financial Services Commission has supervisory

power and authority over matters relating to the general business of the Credit Facility Provider

including, but not limited to, capital adequacy and managerial soundness.

The Government supports the operations of the Credit Facility Provider pursuant to Article 44 of

the KDB Act. Article 44 provides that ‘‘the annual net losses of the Korea Development Bank shall be

offset each year by the reserve, and if the reserve be insufficient, the deficit shall be replenished by the

Government’’. As a result of the KDB Act, the Government is generally responsible for the operations

of the Credit Facility Provider and is legally obligated to replenish any deficit that arises if its reserve,

consisting of its surplus and capital surplus items, is insufficient to cover its annual net losses. In light

of the above, if the Credit Facility Provider had insufficient funds to make any payment under any of its

obligations, pursuant to the KDB Act the Government would take appropriate steps, such as by making

a capital contribution, by allocating funds or by taking other action, to enable the Credit Facility

Provider to make such payment when due. The provisions of Article 44 do not, however, constitute a

direct guarantee by the Government of the obligations of the Credit Facility Provider under any debt

securities or guarantees, and the provisions of the KDB Act, including Article 44, may be amended at

any time by action of the National Assembly. If the Government ceases to be the controlling shareholder

of the Credit Facility Provider as a result of its privatisation, the Government’s financial support to the

Credit Facility Provider stipulated by Article 44 of the KDB Act is expected to cease to be provided.

In January 1998, the Government amended the KDB Act to:

. subordinate the borrowings of the Credit Facility Provider from the Government to other

indebtedness incurred in its operations;

. allow the Government to offset any deficit that arises if the reserve of the Credit Facility

Provider fails to cover its annual net losses by transferring Government-owned property,

including securities held by the Government, to the Credit Facility Provider; and

. allow direct injections of capital by the Government without prior National Assembly

approval.

113

The Government amended the KDB Act in May 1999 and the KDB Decree in March 2000, to

allow the Financial Services Commission to supervise and regulate the Credit Facility Provider in terms

of capital adequacy and managerial soundness.

In March 2002, the Government amended the KDB Act to enable the Credit Facility Provider,

among other things, to:

. obtain low-cost funds from The Bank of Korea and from the issuance of debt securities (in

addition to already permitted Industrial Finance Bonds), which funds may be used for

increased levels of lending to small and medium size enterprises;

. broaden the scope of borrowers to which the Credit Facility Provider may extend working

capital loans to include companies in the manufacturing industry, enterprises which are

‘‘closely related’’ to enhancing the corporate competitiveness of the manufacturing industry

and leading-edge high-tech companies; and

. extend credits to mergers and acquisitions projects intended to facilitate corporate

restructuring efforts.

In July 2005 and May 2009, the Government amended Article 43 of the KDB Act. The revised

Article 43 provides that:

(1) the annual net profit of the Credit Facility Provider, after adequate allowances are made for

depreciation in assets, shall be distributed as follows:

(i) forty percent or more of the net profit shall be credited to reserve, until the reserve

amounts equal the total amount of paid-in capital; and

(ii) any net profit remaining following the apportionment required under subparagraph (i)

above shall be distributed in accordance with the resolution of the Board of Directors of

the Credit Facility Provider and the approval of its shareholders;

(2) accumulated amounts in reserve may be capitalised; and

(3) any distributions made in accordance with paragraph (1)(ii) above may be in the form of cash

dividends or dividends in kind, provided that any distributions of dividends in kind must be

made in accordance with applicable provisions of the KDB Decree.

In February 2008, the Government further amended the KDB Act, primarily to transfer most of the

Government’s supervisory authority over the Credit Facility Provider from the Ministry of Strategy and

Finance (formerly the Ministry of Finance and Economy) to the Financial Services Commission.

In May 2009, the Government amended the KDB Act to facilitate the privatisation of the Credit

Facility Provider. The amendment provided for, among others:

. the preparation for the transformation of the Credit Facility Provider from a special statutory

entity into a corporation, including the application of the Banking Act as applicable;

. the expansion of the operation scope of the Credit Facility Provider that enables the Credit

Facility Provider to engage in commercial banking activities, including retail banking;

114

. the provision of government guarantees for the mid-to-long term foreign currency debt of the

Credit Facility Provider outstanding at the time of initial sale of the Government’s stake in

KDBFG (subject to the National Assembly’s authorisation of the Government guarantee

amount) and possible guarantees for the foreign currency debt of Credit Facility Provider

incurred for the refinancing of such mid-to-long term foreign currency debt with the

government guarantee during the period when the Government owns more than 50% of the

shares of Credit Facility Provider; and

. the establishment of KDBFG and KoFC and application of the Financial Holding Company

Act to KDBFG.

The revised KDB Act became effective as of 1 June, 2009.

Capitalisation

As of 31 December, 2010, the authorised capital of Credit Facility Provider was KRW15,000

billion and capitalisation was as follows:

Capitalisation as of 31 December, 20101

(KRW billion,unaudited)

Long-term debtWon currency borrowings 3,775.5

Industrial finance bonds 28,254.5

Foreign currency borrowings 1,787.9

Total long-term debt 33,817.92, 3

CapitalPaid-in capital 9,251.9

Capital surplus 46.9

Capital adjustments (9.9)

Retained earnings 6,127.9

Accumulated other comprehensive income 811.6

Total capital 16,228.4

Total capitalisation 50,046.3

1 Except as disclosed in this Prospectus, there has been no material adverse change in the capitalisation of the Credit

Facility Provider since 31 December, 2010.2 The Credit Facility Provider has translated borrowings in foreign currencies into Won at the rate of KRW1,138.9 to

U.S.$1.00, which was the market average exchange rate, as announced by the Seoul Monetary Brokerage Services Ltd.,

on 31 December, 2010.3 As of 31 December, 2010, the Credit Facility Provider had contingent liabilities totalling KRW12,953.3 billion under

outstanding guarantees issued on behalf of its clients.

Source: Information provided by KDB.

Business

Purpose and Authority

Since its establishment, the Credit Facility Provider has been the leading bank in Korea in

providing long-term financing for projects designed to assist the nation’s economic growth and

development.

115

Under the KDB Act, the KDB Decree and its Articles of Incorporation, the primary purpose of the

Credit Facility Provider is to perform business such as the supply of funds to promote the development

of the national economy.

Under the KDB Act, the Credit Facility Provider may:

. carry out activities necessary to accomplish the expansion of the national economy, subject to

the approval of the Financial Services Commission;

. provide loans or discount notes;

. subscribe to, underwrite or invest in securities;

. guarantee or assume indebtedness;

. raise funds by accepting demand deposits and time and savings deposits from the general

public, issuing securities, borrowing from the Government, The Bank of Korea or other

financial institutions, and borrowing from overseas;

. execute foreign exchange transactions, including currency and interest swap transactions;

. provide planning, management, research and other support services at the request of the

Government, public bodies, financial institutions or enterprises; and

. carry out other businesses incidental to the foregoing.

Government Support and Supervision

The Government owns indirectly all of the paid-in capital of the Credit Facility Provider. On 20

February, 2000, the Government contributed KRW100 billion in cash to such capital. On 29 December,

2000, the Credit Facility Provider reduced its paid-in capital by KRW959.8 billion to offset its expected

net loss for the year. To compensate for the resulting deficit under the KDB Act, on 20 June, 2001, the

Government contributed KRW3 trillion in the form of shares of common stock of KEPCO to the capital

of the Credit Facility Provider. On 29 December, 2001, the Government contributed KRW50 billion in

cash to the capital of the Credit Facility Provider. On 13 August, 2003, the Government contributed

KRW80 billion in cash to the capital of the Credit Facility Provider to support its existing fund for

facilitating Korea’s regional economies. On 30 April, 2004, the Government contributed KRW1 trillion

in the form of shares of common stock of KEPCO and Korea Water Resources Corporation to the capital

of the Credit Facility Provider to support its lending to small-and medium-sized companies and to

compensate for its contribution to LG Card Ltd. in the form of loans, cash injections and debt-for-equity

swaps. On 19 December, 2008, the Government contributed KRW500 billion in the form of shares of

common stock of Korea Expressway Corporation to the capital of the Credit Facility Provider and, in

January 2009, the Government contributed KRW900 billion in cash to the capital of the Credit Facility

Provider, in each case to bolster its capital base in order to stabilise the Korean financial market by

supporting small and medium-sized enterprises and providing increased liquidity to corporations. In

October 2009, the paid-in capital of the Credit Facility Provider decreased by KRW400.0 billion in

connection with the establishment by the Government of KDBFG and KoFC by spinning off a portion of

its assets, liabilities and shareholders’ equity (including paid-in capital). Taking into account these

capital contributions and reduction, as of 31 December, 2009, the total paid-in capital of the Credit

Facility Provider was KRW9,241.9 billion. In March 2010, the Government, through KDBFG, made a

further capital contribution of KRW10.0 billion in cash to the capital of the Credit Facility Provider.

116

In addition to capital contributions, the Government directly supports the financing activities of the

Credit Facility Provider by:

. lending the Credit Facility Provider funds to on-lend;

. allowing the Credit Facility Provider to administer Government loans made from a range of

special Government funds;

. allowing the Credit Facility Provider to administer some of The Bank of Korea’s surplus

foreign exchange holdings; and

. allowing the Credit Facility Provider to receive credit from The Bank of Korea.

The Government also supports the operations of the Credit Facility Provider pursuant to Articles

43 and 44 of the KDB Act. Article 43 provides that ‘‘40% or more of the annual net profit of the Korea

Development Bank shall be transferred to reserve, until the reserve amounts equal the total amount of

paid-in capital’’ and that accumulated amounts in reserve may be capitalised. Article 44 provides that

‘‘the net losses of the Korea Development Bank shall be offset each fiscal year by the reserve, and if the

reserve be insufficient, the deficit shall be replenished by the Government.’’

As a result of the KDB Act, the Government is generally responsible for the operations of the

Credit Facility Provider and is legally obligated to replenish any deficit that arises if its reserve,

consisting of its surplus and capital surplus items, is insufficient to cover its annual net losses. In light

of the above, if the Credit Facility Provider had insufficient funds to make any payment under any of its

obligations, under the KDB Act the Government would take appropriate steps, such as by making a

capital contribution, by allocating funds or by taking other action, to enable the Credit Facility Provider

to make such payment when due. The provisions of Article 44 do not, however, constitute a direct

guarantee by the Government of the obligations of the Credit Facility Provider under any debt securities

or guarantees and the provisions of the KDB Act, including Article 44, may be amended at any time by

action of the National Assembly. If the Government ceases to be the controlling shareholder of the

Credit Facility Provider as a result of its privatisation, the Government’s financial support to the Credit

Facility Provider stipulated by Article 44 of the KDB Act is expected to cease to be provided.

Under the KDB Act, the initial sale by the Government of its equity interest in KDBFG shall be

made by May 2014 and the Government will guarantee the payment of the principal of and interest on

the mid-to-long term foreign currency debt outstanding of the Credit Facility Provider as of the date of

the initial sale of its equity interest in KDBFG, subject to the authorisation by the National Assembly of

the Government guarantee amount, pursuant to Article 18-2 of the KDB Act. In addition, under Article

18-2 of the KDB Act, the Government may directly or indirectly guarantee, within the limit and scope

determined by the Government and subject to the authorisation by the National Assembly, the repayment

of the principal of and interest on the mid-to-long term foreign currency debt incurred by the Credit

Facility Provider during the period when the Government directly or indirectly owns more than 50% of

KDBFG to refinance the foreign currency debt of the Credit Facility Provider referred to in the

preceding sentence, in the event that (i) the repayment of the outstanding foreign currency debt of the

Credit Facility Provider would be difficult unless the Government provides a guarantee, (ii) the terms

and conditions of its newly incurred foreign currency debt would become notably unfavourable unless

the Government provides a guarantee or (iii) any other circumstances equivalent to (i) or (ii) above

exist, as determined by the Minister of Strategy and Finance.

117

The Government closely supervises the operations of the Credit Facility Provider in the following

ways:

. the Government, through KDBFG, the sole shareholder of the Credit Facility Provider, has

the power to elect or dismiss its Chairman and Chief Executive Officer, members of the

Board of Directors and Auditor;

. within three months after the end of each fiscal year, the Credit Facility Provider must submit

its financial statements for the fiscal year to the Financial Services Commission;

. the Financial Services Commission has broad authority to require reports from the Credit

Facility Provider on any matter and to examine its books, records and other documents. On

the basis of the reports and examinations, the Financial Services Commission may issue any

orders deemed necessary to enforce the KDB Act;

. the Financial Services Commission must approve the operating manual of the Credit Facility

Provider, which sets out the guidelines for all principal operating matters;

. the Financial Services Commission may supervise the operations of the Credit Facility

Provider to ensure managerial soundness based upon the KDB Decree and the Bank

Supervisory Regulations of the Financial Services Commission and may issue orders deemed

necessary for such supervision; and

. the Credit Facility Provider may amend its Articles of Incorporation only with the approval

of the Financial Services Commission.

In addition, the conditions of the IMF aid package stated that domestic banks in Korea, including

the Credit Facility Provider, should undergo external audits from internationally recognised accounting

firms. Accordingly, the Credit Facility Provider has had its annual financial statements for years

commencing 1998 audited by an external auditor.

Pursuant to its most recently approved program of operations, the Credit Facility Provider expects

to support the reform and restructuring of the Korea’s economic and industrial structure, including

financing of promising small and medium sized enterprises, providing export finance and encouraging

investments in infrastructure necessary to promote consumer demand and industrial reorganisation.

118

THE SWAP

The Note Issuer will enter into the Swap Agreement with The Korea Development Bank (the

‘‘Swap Provider’’) with its principal office at 16-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, 150-973

Korea.

The Swap Agreement is governed by English law and is documented on a standard form published

by the International Swaps and Derivatives Association, Inc. (‘‘ISDA’’) as modified by the schedule

thereto and including the related confirmation. The Swap Agreement is intended to provide a hedge

against mismatches between the amount of interest receivable by the Note Issuer under the Bond and the

rate of interest payable under the Notes.

119

KOREAN FOREIGN EXCHANGE CONTROLS AND SECURITIES REGULATIONS

General

In the past, the Foreign Exchange Management Act (Law No. 4447, 27 December, 1991), asamended, and the Presidential Decree and regulations thereunder (collectively the ‘‘Foreign ExchangeManagement Laws’’) regulated investment in Korean securities by non-residents and issuance ofsecurities outside Korea by Korean companies. With effect from 1 April, 1999, the Foreign ExchangeManagement Laws were abolished and the Foreign Exchange Transaction Act (Law No. 5550, 16September, 1998), as amended, and the Presidential Decree and regulations thereunder (collectively the‘‘FETL’’) were enacted. Under the FETL, many restrictions on foreign exchange transactions have beenreduced and many currency and capital transactions have been liberalised. Although non-residents mayinvest in Korean securities only to the extent specifically allowed by such laws or otherwise permittedby the Ministry of Strategy and Finance (the ‘‘MOSF’’), many approval requirements have been relaxed.The FSC has also adopted, pursuant to its authority under the Financial Investment Services and CapitalMarkets Act, regulations that restrict investment by foreigners (as defined therein) in Korean securities.However, Korean law does not limit the right of non-Koreans to hold securities issued pursuant to theFETL outside Korea.

With effect from 1 January, 2006, the Presidential Decree and regulations under the ForeignExchange Transaction Act have been amended for further liberalisation of foreign exchange transactions.In accordance therewith, certain transactions that previously required approval from the Bank of Koreaor MOSF now require only a report to the Bank of Korea or MOSF, although such report will have to beaccepted by the Bank of Korea or MOSF, as applicable.

Under the FETL, if the Korean government deems that (a) it is necessary in the event of naturaldisasters or the outbreak of any wars or conflict of arms or the occurrence of grave and sudden changesin domestic/foreign economic circumstances or other situations equivalent thereto, the MOSF maytemporarily suspend payments, or the receipt of payments, on the whole or part of transactions to whichthe FETL applies or imposes an obligation on the transaction parties to safekeep or deposit with or sellto, the Bank of Korea, certain Korean governmental agencies, the Foreign Exchange Equalization Fundor financial institutions, the means of payment of the transaction (including any gold, non-negotiablegold coins or other gold products), or (b) the international balance of payments and international financeare confronted or are likely to be confronted with serious difficulty or the movement of capital betweenKorea and foreign jurisdictions causes or is likely to cause a serious obstruction to the conduct ofcurrency policies, exchange rate policies and other macroeconomic policies, the MOSF may take actionto require any person who intends to perform capital transactions (which include, among other things,the generation, alteration or extinction of claims from contracts of deposit, trust, the lending of money,the acquisition of securities, etc.) to obtain permission or to require any person who performs capitaltransactions to deposit part of the payment acquired in such transactions with the Bank of Korea, theForeign Exchange Equalization Fund or financial institutions, in each case subject to certain limitationsthereunder.

Government Review of the Issuance of the Bond and Authorisation for Payments on the Bond

In order for the Bond Issuer to issue the Bond outside Korea, the Bond Issuer is required to file aprior report of the issuance to the MOSF through the Designated FX Bank. There are certain otherregulatory reports that are required under the FETL in connection with the execution, delivery andperformance of the Transaction Documents by the parties thereto.

Under the FSC’s Regulations on Securities Issuance and Disclosure, the transfer of the Bond to aKorean resident (as defined in the FETL) is prohibited during the first year of its issuance except asotherwise permitted by applicable Korean law and regulations.

120

CERTAIN LEGAL CONSIDERATIONS

The following is a summary of certain Korean and Cayman Islands legal issues relevant to

Noteholders. The following summary is not intended to be exhaustive. Prospective investors should

consider the nature of an investment in notes of this type and the political and legal environment of

Korea and the Cayman Islands and should make such further investigations as they, in their sole

discretion, deem appropriate.

Korean Legal Considerations

Enforcement of English or Japanese Judgments in Korea

A judgment duly obtained in the courts of England or Japan will be recognised by Korean courts

without a re-examination of the merits of the case if:

(a) such judgment was finally and conclusively given by a court having valid jurisdiction in

accordance with the international jurisdiction principles under Korean Law and applicable

treaties;

(b) the Bond Issuer, the Trustor or the Japanese Trustee, as the case may be, (i) was served, in a

lawful method, the complaint or document equivalent thereto and notice of hearing date or

order, with sufficient time to prepare for defence thereof in conformity with applicable laws

(except in the case of service by public notice or process similar thereto) or (ii) responded to

the action without being served with process;

(c) such judgment is not contrary to the public policy of Korea; and

(d) judgments of the courts of Korea are accorded reciprocal treatment under the laws of England

or Japan, as the case may be.

Insolvency Laws in Korea

On 2 March, 2005, the National Assembly, the legislature of Korea, passed the Act on Debtor

Rehabilitation and Bankruptcy (the ‘‘Consolidated Insolvency Act’’) which combines and amends the

Bankruptcy Act, Act on Individual Debtor Rehabilitation, Corporate Reorganisation Act and

Composition Act. The Consolidated Insolvency Act became effective from 1 April, 2006, and contains,

among others, the following:

1. provisions applicable to rehabilitation pursuant to Chapter 2 Proceedings, which are based on

the Corporate Reorganisation Act and expand the scope of eligible applicants for Chapter 2

Proceedings to all types of legal entities, including corporations, and unincorporated

foundations or associations, as well as individuals;

2. provisions applicable to bankruptcy proceedings, which are based on the Bankruptcy Act; and

3. provisions applicable to international insolvency proceedings, which have been newly

introduced.

121

When the Consolidated Insolvency Act became effective, all of the previous bankruptcy, corporate

reorganisation and individual rehabilitation procedures, which had been regulated under separate laws,

were consolidated into one law, and composition proceedings which had been permitted under the

Composition Act were abolished. Under the Consolidated Insolvency Act, the petitioner must specify

which procedure it wishes to use.

For a debtor that has filed for a bankruptcy proceeding, after the court issues an order preserving

the debtor’s assets, a receiver will be appointed to liquidate the assets of the debtor and to distribute the

proceeds to its unsecured creditors on a pro-rata basis. Secured creditors remain free to exercise their

interests under the bankruptcy proceedings. On the other hand, the goal of Chapter 2 Proceedings is to

rehabilitate insolvent companies. In a Chapter 2 Proceeding secured creditors will not be able to enforce

their security outside such Chapter 2 Proceeding.

The Consolidated Insolvency Act makes it easier for the court to avoid the debtor’s transactions

with certain shareholders or equityholders of the debtor (‘‘specially related persons’’), by presuming

that the specially related persons acted knowingly in such transactions. In addition, under the previous

law, transactions made by debtors for, or relating to, the grant of security or the extinguishment of

obligations within sixty days before the suspension of payment, without the obligation to do so, may be

avoided. However, the Consolidated Insolvency Act extends this sixty day period to one year in the case

of transactions with specially related persons. Further, under the current law, gratuitous or equivalent

acts performed by the debtor within six months before the suspension of payment, etc. may be avoided,

and the Consolidated Insolvency Act also extends this six-month period to one year with regard to

transactions with specially related persons.

Chapter 2 Proceedings

The Chapter 2 Proceeding (i.e. the rehabilitation proceeding) is designed for use by an insolvent

debtor which desires to rehabilitate itself. This proceeding is tightly controlled by the court so that most

of the material actions or decisions of the debtor may be taken or made only with the approval of the

court.

One of the most significant changes effected through the Consolidated Insolvency Act with respect

to Chapter 2 Proceedings in comparison with corporate reorganisation proceedings under the Corporate

Reorganization Act is that all types of legal entities, including joint stock companies, limited liability

companies, and unincorporated foundations or associations, as well as individuals, can rehabilitate

pursuant to Chapter 2 Proceedings, whereas under the Corporate Reorganization Act, only joint stock

companies were subject to reorganisation proceedings. Although individual debtors can rehabilitate

pursuant to Chapter 2 Proceedings, since this is a new feature of the Consolidated Insolvency Act, it is

not clear how frequently and on what criteria the court will apply such procedures to individual debtors.

In addition, although under the Corporate Reorganization Act, a limited liability company such as the

Bond Issuer has not been subject to corporate reorganisation proceedings because it is not a joint stock

company, it will be subject to Chapter 2 Proceedings under the Consolidated Insolvency Act due to the

expansion of eligible debtors as described above. Another significant change is that, although the

Consolidated Insolvency Act maintains the previous system of appointing a permanent receiver in

Chapter 2 Proceedings, it provides that, in principle, the debtor itself or, in case where the debtor is a

company, its own representative, and not a third party, should be elected as the receiver whereas the

Corporate Reorganization Act used to replace the incumbent management with the receiver appointed by

the court. Further, the Consolidated Insolvency Act, unlike the Corporate Reorganization Act, permits a

legal entity to be appointed as the receiver of the rehabilitation proceeding, in which case this legal

entity shall designate one of its directors to exercise the rights and powers conferred to it as the receiver

and shall report such designation to the court.

122

Under the Consolidated Insolvency Act, the debtor may file a petition to the court for Chapter 2

Proceedings in the case where (i) debts cannot be repaid without causing material damages to the

continuance of the debtor’s business or (ii) any events leading to bankruptcy of the debtor may arise.

Upon the occurrence of any event described in (ii) above, if the debtor is a joint stock company or a

limited liability company, (a) a creditor who has claims in an amount of not less 10 per cent. of the

debtor’s paid-in capital or (b) a shareholder or equityholder who holds shares or equity interest not less

than 10 per cent. of the debtor’s paid-in capital may also apply for Chapter 2 Proceedings. If the debtor

is not a joint stock company or a limited liability company, a creditor who has claims in the amount of

not less than fifty million Won or an equityholder who holds equity interest not less than 10 per cent. of

the debtor’s equity interest can apply for Chapter 2 Proceedings.

When the debtor itself or its creditor or equityholder who satisfies the above requirements applies

for a Chapter 2 Proceeding, the court may, upon request from interested parties or in its sole discretion,

but after hearing the opinion of the management committee, issue a preservation order against individual

assets of the debtor, and may issue an injunction against bankruptcy proceedings or enforcement

proceedings initiated by its secured or unsecured creditors. Further, if the Court determines that the

object of the Chapter 2 Proceedings may not be achieved through individual asset preservation orders, it

may issue a comprehensive injunction against enforcement proceedings initiated by creditors against the

assets of the debtor. If a comprehensive injunction is issued, enforcement proceedings that are already in

progress will be suspended, and the court may cancel such enforcement proceedings upon the request of

the debtor or, as the case may be, the receiver, if deemed necessary for the continuance of the debtor’s

business. However, if the court determines that a creditor may sustain unjust damages as a result of such

comprehensive injunction, the court may revoke the injunction for that particular creditor upon the

request of such creditor.

When the petition for a Chapter 2 Proceeding is filed, the court is required within one month of

the date of petition to determine whether to commence a Chapter 2 Proceeding. Once the

commencement of the Chapter 2 Proceeding is declared, most claims against the debtor that arose prior

to such commencement date are automatically stayed, while claims arising after such commencement

date are generally not subject to the Chapter 2 Proceeding. Also, the court will appoint a permanent

receiver, who has the power to conduct all of the debtor’s business and manage all of the debtor’s

properties, subject to court supervision.

The Consolidated Insolvency Act strengthens the role of the committee of creditors by mandating

its composition, unless the debtor is a small or medium sized enterprise or an individual, and granting

the committee the right to nominate an auditor and to request investigation of the debtor company’s

business status after the approval of the rehabilitation plan.

As a general rule, any creditor whose claim against the debtor arose prior to the commencement of

the Chapter 2 Proceeding, whether secured or unsecured, may not enforce such claims other than as

provided for in the rehabilitation plan adopted at the meeting of interested parties and approved by the

court. The rehabilitation plan may alter or modify the rights of creditors or shareholders. Accordingly,

there can be no assurance that the rights of the creditors, whether secured or unsecured, will not be

adversely affected by a Chapter 2 Proceeding. Further, a creditor who intends to participate in the

rehabilitation plan must file its claim with the court within the period fixed by the court.

Under the Chapter 2 Proceeding, creditors are classified into three basic categories: (i) creditors

with unsecured rehabilitation claims, (ii) creditors with secured rehabilitation claims and (iii) creditors

with claims for common benefits. The former two categories of creditors are subject to Chapter 2

Proceedings and generally may not receive payment or repayment for their respective claims other than

as provided in the rehabilitation plan. Creditors with claims for common benefits are not subject to the

123

rehabilitation plan, and include, among others, those creditors whose claims either arose after the

commencement of the Chapter 2 Proceeding (subject to certain exceptions) or those creditors whose

claims were approved by the court during the preservation period.

In order to encourage mergers and/or acquisitions of insolvent companies, the Consolidated

Insolvency Act loosens the requirements for approval of rehabilitation plans contemplating liquidation,

by requiring the approval of the creditors representing four-fifths of the outstanding amount of secured

claims, whereas the Corporate Reorganization Act required unanimous consent of all secured creditors.

However, in case of rehabilitation plans contemplating the continuance of the debtor’s business

including, without limitation, merger, spin-off or business transfer, the consent of the creditors

representing not less than three-fourths of the amount of secured rehabilitation claims and of the

creditors representing not less than two-thirds of the unsecured rehabilitation claims is required. For

approval of all types of rehabilitation plans, the consent of the shareholders having not less than half of

the voting rights is also required.

If the debtor fails to perform its payment obligations in accordance with the rehabilitation plan,

affected creditors are not permitted to initiate lawsuits or enforce their security interests. Instead, they

(or the receiver of the company) may only request the court to amend the rehabilitation plan. However,

if such amendment could have an adverse effect on creditors with rehabilitation claims or shareholders

of the company, the court may amend the rehabilitation plan only by obtaining an affirmative vote at a

meeting of interested parties. If it becomes apparent, either before or after the court approves the

rehabilitation plan, that the debtor cannot be rehabilitated, the court may, at its sole discretion or upon

request by the receiver or a creditor with a rehabilitation claim, issue an order to discontinue the Chapter

2 Proceeding.

Once the Chapter 2 Proceeding is discontinued and if the court determines the debtor is insolvent,

the court must declare the debtor bankrupt and must initiate the bankruptcy proceeding against the

debtor. The compulsory declaration of bankruptcy in Chapter 2 Proceedings will be limited to those

cases where a final decision has been made to terminate the Chapter 2 Proceedings after the approval of

the rehabilitation plan. Declaration of bankruptcy is optional in cases of:

(i) the dismissal of a petition for the commencement of Chapter 2 Proceedings;

(ii) the non-approval of a rehabilitation plan; and

(iii) an order to terminate Chapter 2 Proceedings before the approval of the rehabilitation plan.

If the bankruptcy proceedings are initiated, unsecured rehabilitation claims are characterised as

general liquidation claims, and creditors with unsecured rehabilitation claims will be paid pursuant to

the bankruptcy proceedings. Creditors with secured rehabilitation claims, on the other hand, may

immediately enforce their security interest once the rehabilitation proceeding is discontinued, provided

however that, if the terms of the secured claim is amended by the rehabilitation plan, such claim may

only be enforced in accordance with such amendment and the original terms shall not be revived.

Bankruptcy Proceeding

The bankruptcy proceeding is a court administered process designed to liquidate an insolvent

debtor’s assets and formally begins upon an adjudication by the court that the debtor is indeed

‘‘bankrupt’’. The court will make its determination as to whether grounds for bankruptcy exist based on

the written pleadings and oral argument of the petitioner. The adjudication of bankruptcy also has the

effect of automatically staying all unsecured creditors from executing their claims against the bankruptcy

estate.

124

The receiver appointed by the court will be vested with the exclusive right to manage and disposeof the bankruptcy estate, and to conduct an investigation and assessment of the bankruptcy estate. TheConsolidated Insolvency Act, unlike the Bankruptcy Act, permits a legal entity to be appointed thereceiver of the bankruptcy proceeding. If a legal entity is appointed the receiver, it shall designate oneof its directors to exercise the right and power conferred to it as receiver and shall report suchdesignation to the court. After reviewing the reports prepared by the receiver, the creditors will have ameeting and vote on a resolution deciding whether to continue or discontinue the debtor business andthe manner of safeguarding the bankruptcy estate.

Subject to certain statutory limitations and approval by the inspection commissioners, the receiverhas the power to liquidate the bankruptcy estate, and to determine the manner and timing of suchliquidation. The receiver distributes the proceeds from the liquidation of the bankruptcy estate to thecreditors in proportion to their claims. The distribution proceeds in several stages. Claims entitled todistribution are differentiated according to the priority of claims. Bankruptcy creditors are classified asfollows, in accordance with their priorities: (i) secured creditors, who have the right to proceed againsttheir securities on the same terms as would be available if the debtor were not in bankruptcy; (ii)creditors with estate claims, which include costs of judicial proceeding, tax claims, wages and paymentof severance, management expenses incurred in connection with management, liquidation anddistribution of the bankruptcy estate, and other claims arising from administration of the bankruptcyestate; (iii) creditors with other statutorily preferred claims (including policyholders’ claims against aninsurance company to the extent of the amount equal to the relevant reserves); (iv) general claims; and(v) less preferred claims. The Consolidated Insolvency Act ensures that the priority rights of tenantsunder the Housing Lease Protection Act and the Commercial Building Lease Protection Act are alsoprotected under bankruptcy proceedings.

International Insolvency Proceedings

The representative in a foreign insolvency proceeding (i.e. a person or entity recognised by theapplicable court as the receiver or representative in the foreign insolvency proceeding) may file with theKorean court for approval of such foreign insolvency proceeding. Once the foreign insolvencyproceeding is approved by the Korean court, the representative in such proceeding may apply forinsolvency proceedings in Korea or participate in the insolvency proceeding that is already in progressin Korea. On the other hand, the receiver or bankruptcy trustee in the insolvency proceeding in Koreamay, for purposes of such proceeding, take actions in foreign jurisdictions to the extent permitted by theapplicable laws.

Cayman Islands Legal Considerations

The Note Issuer has been advised by its Cayman Islands counsel, Walkers, that, although there isno statutory enforcement in the Cayman Islands of judgments obtained in England or Japan, a judgmentobtained in a foreign court (other than certain judgments of a superior court of any state of theCommonwealth of Australia) will be recognised and enforced in the courts of the Cayman Islandswithout any re-examination of the merits at common law, where the judgment (a) is final andconclusive, (b) is one in respect of which the foreign court had jurisdiction over the defendant accordingto Cayman Islands conflict of law rules, (c) is either for a liquidated sum not in respect of penalties ortaxes or a fine or similar fiscal or revenue obligations or, in certain circumstances, for in personam non-money relief, and (d) was neither obtained in a manner, nor is of a kind enforcement of which iscontrary to natural justice or the public policy of the Cayman Islands. Such judgement would berecognised and enforced in the courts of the Cayman Islands by an action commenced on the foreignjudgment in the Grand Court of the Cayman Islands.

A Cayman Islands’ court may stay proceedings if concurrent proceedings are being broughtelsewhere.

125

TAXATION

The following summary is a general description of certain Korean, Japanese, Cayman Islands,

United Kingdom, European Union and Irish tax considerations relating to the purchase, ownership and

disposition of the Notes is based upon laws, regulations, rulings and decisions in effect as of the date of

this Prospectus, all of which are subject to change (possibly with retroactive effect). The summary does

not purport to be a comprehensive description of all the tax considerations that may be relevant to a

decision to purchase, own or dispose of the Notes and does not purport to deal with the consequences

applicable to all categories of investors, some of which may be subject to special rules. Persons

considering the purchase of the Notes should consult their own tax advisor concerning the application

of Korean, Japanese, Cayman Islands, United Kingdom, European Union and Irish tax laws to their

particular situations as well as any consequences of the purchase, ownership and disposition of the

Notes arising under the laws of any other taxing jurisdiction.

Korean Taxation

The information provided below does not purport to be a complete summary of Korean tax law and

practice currently applicable. Prospective investors should consult with their professional advisors.

The taxation of a non-Korean corporation such as the Note Issuer (a ‘‘non-resident’’) depends on

whether the non-resident has a ‘‘permanent establishment’’ (as defined under Korean law) in Korea to

which the relevant Korean source income is attributable or with which the relevant Korean source

income is effectively connected. Non-residents without a permanent establishment in Korea are taxed in

the manner described below. Non-residents with a permanent establishment in Korea are taxed in

accordance with different rules.

Tax on Interest

In principle, interest on the Bond paid to a non-resident such as the Note Issuer by a Korean

company is subject to withholding of Korean income tax at the rate of 14 per cent. unless exempted by

relevant laws or tax treaties. In addition, a tax surcharge, called local income tax, would be imposed at

the rate of 10 per cent. of the income tax (raising the total tax rate to 15.4 per cent.). Tax rates may be

reduced or exempted by applicable tax treaties, conventions or agreements between Korea and the

jurisdiction of the recipient of the interest payment.

The Special Tax Treatment Control Law of Korea (the ‘‘STTCL’’) exempts interest on bonds

denominated in a foreign currency (excluding payments to a Korean corporation or resident) issued by a

Korean company from Korean income tax. The local income tax referred to above is also therefore

eliminated.

Tax on Capital Gains

Korean tax laws currently exclude from Korean taxation gains made by a non-resident without a

permanent establishment in Korea from the sale of securities other than stock or equity securities to non-

residents (unless the sale is to the non-resident’s permanent establishment in Korea). In addition, capital

gains earned by a non-resident from the transfer of certain securities denominated in a foreign currency

taking place outside of Korea are currently exempt from taxation by virtue of the STTCL; provided that

the issuance of securities is deemed to be an overseas issuance under Korean tax law.

126

If a sale of securities issued by a Korean company between non-residents is not exempted under

Korean tax laws or applicable tax treaties, gains made on such sales are subject to Korean taxation at the

lesser of 11 per cent. of the gross realisation proceeds or (subject to the production of satisfactory

evidence of the acquisition costs and certain transaction costs) 22 per cent. of the gain made.

Unless the seller can claim the benefit of an exemption of tax under an applicable treaty or in the

absence of the seller producing satisfactory evidence of its acquisition cost and certain direct transaction

costs in relation to the securities being sold, the purchaser or any other designated withholding agents of

the securities, as applicable, must withhold an amount equal to 11 per cent. of the gross realisation

proceeds.

Stamp Tax and Securities Transaction Tax

No stamp, registration, or similar taxes are payable in Korea on the Transaction Documents;

provided that such documents are executed outside of Korea. If certain Transaction Documents are

executed in Korea, a stamp duty ranging from KRW100 to KRW350,000 would be imposed on each

original document. No securities transaction tax will be imposed on the transfer of the Bond.

Tax Treaties

At the date of this Prospectus, Korea does not have a tax treaty with the Cayman Islands.

Japanese Taxation

Investors should consult their own tax advisers prior to the purchase of the Notes.

Provided that the Note Issuer has a business purpose, is not merely a nominee and is not treated as

a disregarded entity by the Japanese tax authorities, interest paid to the Noteholders should not be

subject to Japanese withholding tax.

Cayman Islands Taxation

The following is a general discussion of certain Cayman Islands tax considerations for prospective

investors in the Notes. The discussion is based upon present law and interpretations of present law, both

of which are subject to prospective and retroactive changes. The discussion does not consider any

investor’s particular circumstances and it is not intended as tax advice. Each prospective investor is

urged to consult its tax adviser about the tax consequences of an investment in the Notes under the laws

of the Cayman Islands, the United States, Japan, Korea, jurisdictions from which the Note Issuer may

derive its income or conduct its activities, and jurisdictions where the investor is subject to taxation.

Withholding Tax

No withholding tax is payable in the Cayman Islands in respect of payments of principal and

interest on the Notes.

Stamp Duty

No stamp duties or similar taxes or charges are payable under the laws of the Cayman Islands in

respect of the execution and issue of the Notes unless they are executed in or brought within (for

example, for the purposes of enforcement) the jurisdiction of the Cayman Islands, in which case stamp

duty of 0.25 per cent. of the face amount thereof may be payable on each Note (up to a maximum of

250 Cayman Islands dollars (‘‘CI$’’) (U.S.$305) unless stamp duty of CI$500 (U.S.$610) has been paid

127

in respect of the entire issue of Notes. The above conversions of Cayman Islands dollars to U.S. dollars

have been made on the basis of U.S.$1.22 to CI$1.00. The holder of any Notes (or the legal personal

representative of such holder) whose Notes are brought into the Cayman Islands may in certain

circumstances be liable to pay stamp duty imposed under the laws of the Cayman Islands in respect of

such Notes. Certificates evidencing registered Notes, to which title is not transferable by delivery, will

not attract Cayman Islands stamp duty. However, an instrument transferring title to a registered Note, if

brought to or executed in the Cayman Islands, would be subject to nominal Cayman Islands stamp duty.

Income Tax; Capital Gains Tax; Estate Duty

The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty,

inheritance tax or gift tax.

Tax Status of the Note Issuer

The Note Issuer has been incorporated under the laws of the Cayman Islands as an exempted

company and, as such, has applied for and obtained an undertaking from the Governor in Cabinet of the

Cayman Islands in the following form:

CAYMAN ISLANDS GOVERNMENTThe Tax Concessions Law

(1999 Revision)

Undertaking as to Tax Concessions

In accordance with Section 6 of the Tax Concessions Law (1999 Revision) the Governor in

Cabinet undertakes with:

KAL JAPAN ABS 6 CAYMAN LIMITED (the ‘‘Company’’)

(a) that no Law which is hereafter enacted in the Islands imposing any tax to be levied on

profits, income, gains or appreciations shall apply to the Company or its operations; and

(b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is in

the nature of estate duty or inheritance tax shall be payable:

(i) on or in respect of the shares debentures or other obligations of the Company; or

(ii) by way of the withholding in whole or in part of any relevant payment as defined in

Section 6(3) of the Tax Concessions Law (1999 Revision).

These concessions shall be for a period of TWENTY years from 29 March, 2011.

United Kingdom Taxation

The following is a summary of the United Kingdom taxation treatment at the date hereof in

relation to deduction of tax on payments of principal and interest in respect of the Notes. The comments

do not address other United Kingdom tax aspects of acquiring, holding or disposing of Notes. The

comments relate only to the position of payment to persons who are absolute beneficial owners of the

Notes. It has been assumed for the purposes of the comments that there will be no substitution of the

Note Issuer. The following is a general guide and should be treated with appropriate caution.

128

Payment of Interest on the Notes

The Notes will constitute ‘‘quoted Eurobonds’’ within the terms of section 882 of the Income Tax

Act 2007 (the ‘‘Act’’) as long as they are and continue to be listed on a ‘‘recognised stock exchange’’,

as defined in section 1005 of the Act. The Irish Stock Exchange qualifies as a ‘‘recognised stock

exchange’’ for these purposes. There is no requirement to withhold or deduct for or on account of

United Kingdom tax in relation to interest payments made in respect of quoted Eurobonds. Accordingly,

provided that the Notes remain so listed when interest is paid, interest on the Notes will be payable

without withholding or deduction on account of United Kingdom tax.

Noteholders who are individuals may note that H.M. Revenue & Customs has power to obtain

information (including the name and address of the beneficial owner of the interest) from any person in

the United Kingdom who either pays interest to or receives interest for the benefit of an individual.

Information obtained may be exchanged by H.M. Revenue & Customs with the tax authorities of other

jurisdictions pursuant to applicable ‘‘Tax Information Exchange Agreements’’, double tax treaties or

European Union Directives.

European Union Savings Directive on the Taxation of Saving Income

On 1 July, 2005 all EU member states, their overseas territories (including the Cayman Islands

where the Note Issuer is incorporated) and a number of non-EU countries (each an ‘‘Applicable State’’)became subject to the provisions of the directive which was adopted by the Council of the European

Union with regard to the taxation of savings income (the ‘‘Directive’’).

The Reporting of Savings Income Information (European Union) Law 2005 (the ‘‘Law’’) gives

effect to the Directive in the Cayman Islands and bilateral agreements between the Cayman Islands and

each EU member state have been or are currently being entered into in order to implement the Directive.

The Law applies if interest payments are made by a paying agent established in the Cayman

Islands to a beneficial owner or residual entity resident for tax purposes in an EU member state. A

paying agent for such purposes is any economic operator who pays interest to, or secures the payment of

interest for, the immediate benefit of the beneficial owner, whether the operator is the debtor of the debt

claim which produces the interest or the operator charged by the debtor or the beneficial owner with

paying interest or securing the payment of interest.

Therefore, for the Law to apply in relation to the Notes:

. the paying agent must be established within the Cayman Islands;

. the beneficial owner of the notes must be an individual resident in an EU member state; and

. the interest payment must fall within the definition as set out in the relevant bilateral

agreement and must not be subject to any exclusions.

If any of these three tests fail, the Law will not apply.

As the Note Issuer has appointed the Principal Paying Agent, based in London, as paying agent in

respect of the Notes, the Law will not initially be applicable to interest payments on the Notes.

However, if at any time the Note Issuer is deemed to be the paying agent (which might occur in

the unlikely event that the Principal Paying Agent should ceases to act as the paying agent and no other

paying agent is appointed), the Law may apply to interest on the Notes. Similarly, if at any time in the

129

future the Note Issuer’s paying agent is established in an Applicable State other than the Cayman

Islands, then the Directive is likely to apply to interest payments made on the Notes and advice should

be sought from the relevant jurisdiction regarding any obligations that arise as a result.

If the Law applies, the paying agent is required to collect personal information regarding the

identity and residence of any beneficial owner who is an EU resident individual and to report such

information, together with details of the income earned on the Notes to the Financial Secretary of the

Cayman Islands. The Financial Secretary is in turn obliged to report such information to the relevant

taxing authority in the EU member state in which the beneficial owner is tax resident.

Prospective investors resident in Member States of the European Union should consult their own

legal or tax advisors regarding the consequences of the Directive in their particular circumstances.

130

SUBSCRIPTION AND SALE

General

Pursuant to a note subscription agreement dated 26 April, 2011, among the Joint Arrangers, the

Trustor, the Credit Facility Provider, the Note Issuer and the Bond Issuer (the ‘‘Note SubscriptionAgreement’’), the Note Issuer has agreed to issue and sell to Daiwa Capital Markets Europe Limited of

5 King William Street, London EC4N 7AX, United Kingdom and The Korea Development Bank of

16-3, Yeouido-dong, Yeongdeungpo-gu, Seoul 150-973, Korea, as initial purchasers of the Notes (the

‘‘Initial Purchasers’’), at 100 per cent. of their principal amount less underwriting commission. The

Note Subscription Agreement provides that the Initial Purchasers are obligated to purchase all of Notes.

The Initial Purchasers propose to offer the Notes initially at the offering price on the cover page of

this Prospectus.

Each purchaser of Notes must comply with all applicable laws and regulations in force in any

jurisdiction in which it offers or sells Notes or possesses or distributes this Prospectus or any part of it

and must obtain any consent, approval or permission required by it for the purchase, offer or sale by it

of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it

makes such purchases, offers or sales and neither the Note Issuer, the Joint Arrangers nor the Joint Lead

Managers will have any responsibility therefor.

Each of the Joint Arrangers and the Joint Lead Managers has agreed to comply with all applicable

laws and regulations in each country or jurisdiction in which it purchases, offers, sells or delivers Notes

or has in its possession or distributes such offering material, in all cases at its own expense.

No action has been taken by the Note Issuer or the Joint Lead Managers that would, or is intended

to, permit a public offer of the Notes in any country or jurisdiction where any such action for that

purpose is required. Accordingly, each of the Joint Arrangers and the Joint Lead Managers has

undertaken that it will not, directly or indirectly, offer or sell any Notes or distribute or publish any

Prospectus, prospectus, form of application, advertisement or other document or information in any

country or jurisdiction except under circumstances that will, to the best of its knowledge and belief,

result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will

be made on the same terms.

Without prejudice to the foregoing, the Note Issuer will have no responsibility for, and each of the

Joint Arrangers and the Joint Lead Managers will obtain any consent, approval or permission required

by it for the subscription, offer or sale by it of the Notes or possession or distribution by it of this

Prospectus or any other offering material under the laws and regulations in force in any jurisdiction to

which it is subject to or in or from which it makes any subscription, offer or sale in relation to the

Notes.

United States

The Notes have not been, and will not be, registered under the United States Securities Act of

1933, as amended (the ‘‘U.S. Securities Act’’) or the state securities law of any state of the United

States. Each of the Joint Arrangers, the Joint Lead Managers and the Note Issuer agree that they will not

offer or sell the Notes within the United States or to, or for the account or benefit of, U.S. persons (as

defined in Regulation S under the U.S. Securities Act), except in accordance with Regulation S or

pursuant to an exemption from, or in a transaction not subject to the registration requirements of the

U.S. Securities Act.

131

Each of the Joint Arrangers, the Joint Lead Managers, the Initial Purchasers and the Note Issuer

has represented and agreed that it will not offer, sell or deliver the Notes in reliance to Regulation S (i)

as part of their distribution at any time or (ii) otherwise, until 40 days after the later of the

commencement of the offering and the Closing Date, within the United States or to, or for the account

or benefit of, U.S. persons and it will have sent to each distributor, dealer or other person receiving a

selling concession or similar fee to which it sells the Notes in reliance to Regulation S during such

distribution compliance period, a confirmation or other notice setting forth the restrictions on offers and

sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Terms

used in the preceding paragraph and in this paragraph have the meanings given to them by Regulation S

under the U.S. Securities Act.

Each holder of the Notes will be deemed to have represented that such holder is aware that the sale

of such Notes to it is being made in reliance on the exemption from registration provided by Regulation

S and understands that the Global Note Certificates, the Definitive Note Certificates and the Coupons

will bear the following legend:

THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.

SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘U.S. SECURITIES ACT’’) OR THE STATE

SECURITIES LAW OF ANY STATE OF THE UNITED STATES. PRIOR TO THE EXPIRATION OF

40 DAYS AFTER THE LATER OF THE COMMENCEMENT OF THE OFFERING OF THE NOTES

AND THE CLOSING DATE (THE ‘‘DISTRIBUTION COMPLIANCE PERIOD’’), SUCH NOTES MAY

NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED OR DELIVERED

DIRECTLY OR INDIRECTLY TO ANY PERSON IN THE UNITED STATES, ITS TERRITORIES OR

POSSESSIONS (THE ‘‘UNITED STATES’’) OR TO ANY U.S. PERSON (AS DEFINED IN

REGULATION S UNDER THE U.S. SECURITIES ACT) OUTSIDE THE UNITED STATES. EACH

HOLDER AND BENEFICIAL OWNER, BY ITS ACCEPTANCE OF THE NOTES, REPRESENTS

THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING AND FOLLOWING

RESTRICTIONS. THIS LEGEND WILL BE REMOVED AFTER THE END OF THE DISTRIBUTION

COMPLIANCE PERIOD, AFTER WHICH THE NOTES WILL NO LONGER BE SUBJECT TO THE

RESTRICTIONS PROVIDED IN THIS LEGEND; PROVIDED THAT AT SUCH TIME AND

THEREAFTER THE OFFER OR SALE OF THE NOTES WOULD NOT BE RESTRICTED UNDER

ANY APPLICABLE SECURITIES LAWS OF THE UNITED STATES.

United Kingdom

Each of the Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has represented

and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause

to be communicated any invitation or inducement to engage in investment activity (within the

meaning of Section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)

received by it in connection with the issue or sale of any Notes in circumstances in which

Section 21(1) of the FSMA does not apply to the Note Issuer or the Credit Facility Provider;

and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to

anything done by it in relation to the Notes in, from or otherwise involving the United

Kingdom.

132

Korea

Each of the Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has represented

and agreed that Notes subscribed by it will be subscribed by it as principal, and that it will not directly

or indirectly offer, sell or deliver any Notes in Korea or to any resident of Korea, or to others for re-

offering or re-sale directly or indirectly in Korea or to any resident of Korea, except as otherwise

permitted by applicable Korean laws and regulations. Each of the Joint Arrangers, the Joint Lead

Managers and the Initial Purchasers has undertaken that it will ensure that any securities dealer to whom

it sells Notes will agree that he is purchasing such Notes as principal and that he will not re-offer or re-

sell any Notes directly or indirectly in Korea or to any resident of Korea, except as aforesaid.

Japan

Each of the Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has represented

and agreed that none of the Notes have been nor will be registered under the Financial Instruments and

Exchange Law of Japan (Law No. 25, 13 April, 1948), as amended (the ‘‘FIEL’’). Each of the Joint

Arrangers, the Joint Lead Managers and the Initial Purchasers has further agreed that it will not offer or

sell any Notes, directly or indirectly, in Japan to, or for the benefit of, any resident of Japan (which term

as used herein means any persons resident in Japan, including any corporation or other entity organised

under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to a

resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise

in compliance with, the FIEL and any other applicable laws, regulations and ministerial guidelines of

Japan.

Cayman Islands

Each of the Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has represented,

warranted and agreed that the public in the Cayman Islands have not and will not be invited to subscribe

for the Notes.

Ireland

Each of the Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has represented

and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer

or sell in Ireland any Notes other than to persons whose ordinary business it is to buy or sell shares or

debentures whether as principal or agent and it has complied with, and will comply with all applicable

provisions of the Companies Act, 1963 TO 2003 of Ireland and the Irish Investment Intermediaries Act,

1995 (as amended) with respect to anything done by it in relation to the Notes in, from or otherwise

involving Ireland.

European Economic Area

In relation to each Member state of the European Economic Area which has implemented the

Prospectus Directive (each, a ‘‘Relevant Member State’’), each of Joint Arrangers, the Joint Lead

Managers and the Initial Purchasers has represented and agreed that with effect from and including the

date on which the Prospectus Directive is implemented in that Relevant Member State (the ‘‘Relevant

133

Implementation Date’’) it has not made and will not make an offer of the Notes to the public in that

Relevant Member State except that it may, with effect from and including the Relevant Implementation

Date, make an offer of the Notes to the public in that Relevant Member State:

(a) at any time to a legal entity which is authorised or regulated to operate in the financial

markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in

securities;

(b) at any time to any legal entity which has two or more of (i) an average of at least 250

employees during the last financial year; (ii) a total balance sheet of more than €43,000,000

and (iii) an annual net turnover of more than €50,000,000, as shown in its last annual or

consolidated accounts; or

(c) to few than 100 natural or legal persons (other than qualified investors as defined in the

Prospectus Directive) subject to obtaining the prior consent of the manager for any such

offer;

(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive.

For purposes of this provision, the expression an ‘‘offer of notes to the public’’ in relation to any

Notes in any Relevant Member State means the communication in any form and by any means

presenting sufficient information on the terms of the offer and the Notes to be offered, so as to enable

an investor to decide to purchase or subscribe for the Notes, as the same may be varied in that Member

State by any measure implementing the Prospectus Directive in that Member State and the expression

‘‘Prospectus Directive’’ means Directive 2003/71/EC and includes any relevant implementing measure

in each Relevant Member State.

Singapore

Each of Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has acknowledged that

this Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore.

Accordingly, each of Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has

represented, warranted and agreed that it has not offered or sold any Notes or caused such Notes to be

made the subject of an invitation for subscription or purchase and will not offer or sell such Notes or

cause such Notes to be made the subject of an invitation for subscription or purchase, and has not

circulated or distributed, nor will it circulate or distribute, this Offering Memorandum or any other

document or material in connection with the offer or sale, or invitation for subscription or purchase, of

such Notes, whether directly or indirectly, to persons in Singapore other than (i) to an institutional

investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’),

(ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in

accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and

in accordance with the conditions of, any other applicable provision of the SFA.

Note:

Where the Notes are subscribed or purchased under Section 275 of the SPA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of whichis to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is anaccredited investor; or

134

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each

beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of theSFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not betransferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made

under Section 275 of the SFA except:

(i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any personarising from an offer referred to in Section 275(1A) or Section 276(4)i)(B) of the SFA;

(ii) where no consideration is or will be given for the transfer;

(iii) where the transfer is by operation of law; or

(iv) as specified in Section 276(7) of the SFA.

Hong Kong

Each of the Joint Arrangers, the Joint Lead Managers and the Initial Purchasers has represented

and agreed that:

(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any

document, any Notes other than (i) to persons whose ordinary business is to buy or sell

shares or debentures (whether as principal or agent), or (ii) to ‘‘professional investors’’ within

the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong (‘‘SFO’’) and

any rules made under the SFO, or (iii) in other circumstances which do not result in the

document being a ‘‘prospectus’’ within the meaning of the Companies Ordinance (Cap. 32) of

Hong Kong (‘‘CO’’) or which do not constitute an offer to the public within the meaning of

the CO; and

(b) unless it is a person permitted to do so under the securities laws of Hong Kong, it has not

issued, or had in its possession and will not issue, or have in its possession for the purposes

of issue (in each case whether in Hong Kong or elsewhere), any advertisement, invitation or

document relating to the Notes which is directed at, or the contents of which are likely to be

accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of

Hong Kong) other than with respect to Notes intended to be disposed of to persons outside

Hong Kong or to be disposed of in Hong Kong only to ‘‘professional investors’’ within the

meaning of the SFO and any rules made under the SFO.

135

GENERAL INFORMATION

(a) The issue of the Notes has been duly authorised by resolutions of the Board of Directors of the

Note Issuer passed on 8 April, 2011 and 20 April, 2011. The issue of the Bond has been

authorised by a resolution of the Equityholders of the Bond Issuer passed on 11 April, 2011. The

Credit Facility will be duly authorised by the Credit Facility Provider on or before the Closing

Date.

(b) Application has been made to list the Notes on the Irish Stock Exchange. So long as the Notes are

listed on the Irish Stock Exchange the Note Issuer will maintain a paying agent in Ireland. The

name of the Irish Paying Agent initially appointed in Ireland is set forth at the end of this

Prospectus.

(c) The Notes have been accepted for clearance through Clearstream, Luxembourg and Euroclear with

the following Common Code and ISIN number:

Common Code and ISIN Number of the Notes

Notes

Common Code: 062133180

ISIN: XS0621331809

(d) Save as disclosed in this Prospectus, since respective date of its incorporation there are no

governmental, legal or arbitration proceedings (including any such proceedings which are pending

or threatened of which the Note Issuer or the Bond Issuer is aware) against or affecting the Note

Issuer or the Bond Issuer which may have, or have had since its incorporation, significant effects

on the Note Issuer’s or the Bond Issuer’s, as the case may be, financial position or profitability.

(e) Save as disclosed in this Prospectus, since its date of incorporation, there has been (i) no material

adverse change in the prospects of the Note Issuer and (ii) no significant change in the financial or

trading position of the Note Issuer.

(f) Save as disclosed in this Prospectus, since 17 March, 2011 (being the date of incorporation of the

Bond Issuer), there has been (i) no material adverse change in the prospects of the Bond Issuer and

(ii) no significant change in the financial or trading position of the Bond Issuer.

(g) Korean Air Lines Co., Ltd. is not, and has not been, involved in any litigation, arbitration or

administrative proceedings which, if adversely decided, may have, or has had during the 12

months preceding the date of this Prospectus, a significant effect on its financial position nor is

aware that any such proceedings are pending or threatened.

(h) The Korea Development Bank is not, and has not been, involved in any litigation, arbitration or

administrative proceedings which, if adversely decided, may have, or has had during the twelve

months preceding the date of this Prospectus, a significant effect on its financial position nor is it

aware that any such proceedings are pending or threatened.

(i) Neither the Note Issuer nor the Bond Issuer has commenced operations or published any audited

financial statements to date. The Note Issuer is not required under Cayman Islands law to prepare

annual financial statements or audited accounts. The Bond Issuer is not required under Korean law

to prepare annual audited accounts. However, if published, such financial statements will be

136

available free of charge during usual business hours at the Specified Offices of the Irish Paying

Agent and at the registered office of the Bond Issuer. The Bond Issuer will not publish any interim

financial statements.

(j) The non-consolidated financial statements of Korean Air Lines Co., Ltd. as of 31 December, 2010

included in this Prospectus, have been audited by KPMG SAMJONG Accounting Corp.,

independent accountants, as stated in the 2010 Annual Report of Korean Air Lines Co., Ltd., an

extract of which appears herein as Appendix 1. Korean Air Lines Co., Ltd. prepares annual

consolidated audited financial statements and quarterly condensed consolidated unaudited interim

financial statements. There has been no material adverse change in the financial or trading position

of Korean Air Lines Co., Ltd. since 31 December, 2010.

(k) The non-consolidated financial statements of The Korea Development Bank as of 31 December,

2009 and 31 December, 2010 included in this Prospectus, have been audited by Ernst & Young

Han Young, independent accountants, as stated in their report appearing herein. The Korea

Development Bank prepares annual consolidated audited financial statements and interim financial

statements. There has been no material adverse change in the financial or trading position of The

Korea Development Bank since 31 December, 2010.

(l) For so long as the Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock

Exchange so require:

(i) executed copies of the following documents in electronic form will be available for

inspection by the Noteholders during usual business hours at the Specified Office of the Irish

Paying Agent and at the registered office of the Note Issuer:

(A) the Note Trust Deed;

(B) the Note Agency Agreement;

(C) the Note Issuer Administrator Agreement;

(D) the Trust Agreement;

(E) the Servicing Agreement;

(F) the Transaction Administration Agreement;

(G) the Master Schedule of Definitions, Interpretation and Construction Clauses;

(H) the Investor Beneficial Interest Sale and Purchase Agreement;

(I) the Bond Issuer Administrator Agreement;

(J) the Bond Subscription and Agency Agreement;

(K) the Bond Issuer Servicing Agreement;

(L) the Credit Facility Deed;

(M) the Swap Agreement;

137

(N) the Bank Agreements;

(O) the Equity Pledge Agreement;

(P) the Pledge Agreement;

(Q) the Security Assignment; and

(R) the Japanese Law Security Agreement.

(ii) copies of the following documents will, when published, be available free of charge during

usual business hours, at the Specified Offices of the Irish Paying Agent and at the registered

office of the Note Issuer:

(A) the constitutional documents of the Note Issuer;

(B) the most recent published audited financial statements of the Note Issuer (if any);

(C) the constitutional documents of the Bond Issuer;

(D) the most recent published audited financial statements of the Bond Issuer (if any);

(E) the most recently published annual audited consolidated financial statements and

quarterly unaudited consolidated interim financial statements of the Trustor; and

(F) the restated charter and by-laws of the Trustor.

(m) Any references to websites and website addresses do not form part of this Prospectus.

(n) The amount of expenses related to the admission of trading of the Notes is expected to be

approximately €8,500.

(o) After the Closing Date, so long as the Notes are outstanding, the Note Trustee will be provided

with monthly reports by the Servicer and the Transaction Administrator in accordance with the

Servicing Agreement and the Transaction Administration Agreement respectively. These reports

will provide information in respect of the relevant reporting period on, among other things, the

amount of Receivables collected during the relevant period and whether or not an Early

Amortisation Event, a Servicer Termination Event, an Event of Default, a Potential Event of

Default or a Mandatory Redemption Event has occurred. Information will also be provided with

respect to payments due on the Bond Payment Dates and the Note Payment Dates. Electronic

copies of such reports will be available for inspection by the Noteholders during usual business

hours at the Specified Offices of the Irish Paying Agent and at the registered office of the Note

Issuer.

138

GLOSSARY

$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5¥ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5€ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5ABS Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Account Bank . . . . . . . . . . . . . . . . . . 11, 29, 60Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Additional Hedge . . . . . . . . . . . . . . . . . . . . 94Adjusted Debt . . . . . . . . . . . . . . . . . . . . . . . 39Advance. . . . . . . . . . . . . . . . . . . . . . . . .19, 21Agency Fees . . . . . . . . . . . . . . . . . . . . . .11, 34Agency Fees Maximum Amount . . . . . . . .11, 42Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Air Waybill . . . . . . . . . . . . . . . . . . . . . . . . 79Americas Routes . . . . . . . . . . . . . . . . . . . . . 93Applicable State . . . . . . . . . . . . . . . . . . . . 129ASKs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93Bank Agreements . . . . . . . . . . . . . . . . . . . . 19Bank of New York Mellon Fee Letter . . . .11, 60Basic Hedge . . . . . . . . . . . . . . . . . . . . . . . . 94Basic Terms Modification . . . . . . . . . . . . . . . 73Board of Directors of the Note Issuer . . . . . . 105Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 24Bond Additional Amount . . . . . . . . . . . . . . . 26Bond Agents. . . . . . . . . . . . . . . . . . . . . . . . 11Bond Certificate . . . . . . . . . . . . . . . . . . . . . 26Bond Conditions . . . . . . . . . . . . . . . . . . . . . 26Bond Enforcement Notice . . . . . . . . . . . . . . . 16Bond Event of Default . . . . . . . . . . . . . . . . . 27Bond Interest Table . . . . . . . . . . . . . . . . . . . 26Bond Issuer . . . . . . . . . . . . . . . . . . . . 1, 8, 108Bond Issuer Accounts . . . . . . . . . . . . . . . . . 29Bond Issuer Administrator . . . . . . . . . . . . . . 11Bond Issuer Administrator Agreement . . . . . . 11Bond Issuer Expenses . . . . . . . . . . . . . . . . . 34Bond Issuer FX Account . . . . . . . . . . . . . . . 29Bond Issuer Information . . . . . . . . . . . . . . . . . 3Bond Issuer Servicer . . . . . . . . . . . . . . . . . . 11Bond Issuer Servicing Agreement . . . . . . . . . 11Bond Issuer Won Account . . . . . . . . . . . . . . 29Bond Issuer Yen Account . . . . . . . . . . . . . . . 28Bond Maturity Date . . . . . . . . . . . . . . . . . . . 28Bond Payment Date . . . . . . . . . . . . . . . . . . . 25Bond Redemption Amount . . . . . . . . . . . . . . 26Bond Redemption Notice . . . . . . . . . . . . . . . . 3Bond Registrar . . . . . . . . . . . . . . . . . . . . . . 11Bond Secured Parties . . . . . . . . . . . . . . . . . . 25Bond Security . . . . . . . . . . . . . . . . . . . . . . . 24Bond Subscription and Agency Agreement . . . 24Bondholder. . . . . . . . . . . . . . . . . . . . . . . . . 24business day . . . . . . . . . . . . . . . . . . . . . . . . 61Business Day . . . . . . . . . . . . . . . . . . . . .13, 64Calculation Agent . . . . . . . . . . . . . . . . . . . . 12

Cash Release Amount . . . . . . . . . . . . . . . . . 35Cash Release Conditions . . . . . . . . . . . . . . . 35Cash Release Date . . . . . . . . . . . . . . . . . . . . 35CASS Bank . . . . . . . . . . . . . . . . . . . . . . 9, 78CASS Bank Agreement . . . . . . . . . . . . 9, 16, 78CASS Bank Receivables. . . . . . . . . . . . . . . . 78CASS Bank Set-off . . . . . . . . . . . . . . . . . . . 49CASS Consent . . . . . . . . . . . . . . . . . . . . . . 30CASS Japan . . . . . . . . . . . . . . . . . . . . . . 9, 78Central Bank . . . . . . . . . . . . . . . . . . . . . . . . 1Charge Collect . . . . . . . . . . . . . . . . . . . . . . 78China Routes . . . . . . . . . . . . . . . . . . . . . . . 93CI$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127Clearstream, Luxembourg . . . . . . . . . . . . . . . . 1Closing Date. . . . . . . . . . . . . . . . . . . . .1, 9, 60CO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135Collection Account . . . . . . . . . . . . . . . . . . . 33Collection Period. . . . . . . . . . . . . . . . . . . . . 31Collections . . . . . . . . . . . . . . . . . . . . . . . . . 33Commitment Amount . . . . . . . . . . . . . . . . . . 21Common Depositary . . . . . . . . . . . . . . . .13, 61Company . . . . . . . . . . . . . . . . . . . 2, 9, 83, 128Consolidated Insolvency Act . . . . . . . . . . . . 121Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Controlled Amortisation Period . . . . . . . . . . . 14Controlling Beneficiary . . . . . . . . . . . . . .12, 74CRA Regulation . . . . . . . . . . . . . . . . . . . . . 59Credit Facility. . . . . . . . . . . . . . . . . . . . . . 3, 9Credit Facility Deed . . . . . . . . . . . . . . . . . . . 9Credit Facility Provider . . . . . . . . . . . . . .9, 111Credit Facility Provider Information . . . . . . . . . 4Credit Facility Provider’s Fee . . . . . . . . . . . . 21Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Cured . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Debt Service Coverage Ratio . . . . . . . . . . . . 16Definitive Note Certificates. . . . . . . . . . . . . . 60Directive . . . . . . . . . . . . . . . . . . . . . . . . . 129Distribution Compliance Period . . . . . . . . . . 132Dollars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Drawdown Trigger Event . . . . . . . . . . . . .21, 74Early Amortisation Event . . . . . . . . . . . . . . . 15Early Amortisation Period. . . . . . . . . . . . . . . 16EBIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39EBITDAR . . . . . . . . . . . . . . . . . . . . . . . . . 29Eligible Entity . . . . . . . . . . . . . . . . . . . . . . 16Enforcement Date . . . . . . . . . . . . . . . . . . . . 16Enforcement Notice . . . . . . . . . . . . . . . . . . . 16Enforcement Period . . . . . . . . . . . . . . . . . . . 30Entrusted Assets . . . . . . . . . . . . . . . . . . . . 2, 9Entrustment Date. . . . . . . . . . . . . . . . . . . . . 25Equity Pledge Agreement . . . . . . . . . . . . . . . 25Equity Pledgor . . . . . . . . . . . . . . . . . . . . . . 25

139

Equityholder . . . . . . . . . . . . . . . . . . . . . . . . 25Euro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Europe Routes . . . . . . . . . . . . . . . . . . . . . . 93Event of Default . . . . . . . . . . . . . . . . . . . . . 16External Indebtedness . . . . . . . . . . . . . . . . . 22FATKs. . . . . . . . . . . . . . . . . . . . . . . . . .16, 99FCU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86FETL. . . . . . . . . . . . . . . . . . . . . . . . . . . . 120FIEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133First Trigger . . . . . . . . . . . . . . . . . . . . . . . . 34First Trigger Amount . . . . . . . . . . . . . . . . . . 34Fixed Amount . . . . . . . . . . . . . . . . . . . . . . . 23Floating Amount . . . . . . . . . . . . . . . . . . . . . 23Foreign Exchange Management Laws . . . . . . 120FSC. . . . . . . . . . . . . . . . . . . . . . . . . . . .8, 108FSMA . . . . . . . . . . . . . . . . . . . . . . . . . . . 132FTKs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98Global Note Certificates . . . . . . . . . . . . . . . . 60Government . . . . . . . . . . . . . . . . . . . . . . . . . 5Government Entity . . . . . . . . . . . . . . . . . . . 16Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83Hanjin Shipping . . . . . . . . . . . . . . . . . . . . . 87HHIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 60IATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9IATA Agency Agreements . . . . . . . . . . . . 9, 78IATA Agency Receivables . . . . . . . . . . . . . . 78IATA Agents . . . . . . . . . . . . . . . . . . . . . 9, 78IATA Agreements . . . . . . . . . . . . . . . . . . . . 78IATA Set-off . . . . . . . . . . . . . . . . . . . . . . . 49IATA-CASS Agreements . . . . . . . . . . . . . . . . 9IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Inbound Cargo . . . . . . . . . . . . . . . . . . . . . . 78indirect sales . . . . . . . . . . . . . . . . . . . . . . . 79Industry Standards . . . . . . . . . . . . . . . . . . . . 30Initial Beneficiary . . . . . . . . . . . . . . . . . . . . . 8Initial Purchasers . . . . . . . . . . . . . . . . 1, 13, 131Insolvency Event . . . . . . . . . . . . . . . . . . . . . 17Insurance Policy . . . . . . . . . . . . . . . . . . . . . 94Inter-Branch Memorandum . . . . . . . . . . . . . . . 9Interest Expense . . . . . . . . . . . . . . . . . . . . . 39Interest Period . . . . . . . . . . . . . . . 2, 14, 26, 63Investor Beneficial Certificate . . . . . . . . . . . 2, 8Investor Beneficial Interest . . . . . . . . . . . . . 2, 8Investor Beneficial Interest Saleand Purchase Agreement . . . . . . . . . . . . . . . 8

Investor Beneficiary. . . . . . . . . . . . . . . . . . . . 8Irish Paying Agent. . . . . . . . . . . . . . . . 6, 11, 60ISDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Japan Routes . . . . . . . . . . . . . . . . . . . . . . 101Japanese Trust . . . . . . . . . . . . . . . . . . . . 2, 33

Japanese Trust Accounts. . . . . . . . . . . . . . . . 33Japanese Trustee . . . . . . . . . . . . . . . . . . . 2, 10Japanese Trustee Fee Letter . . . . . . . . . . . . . 33Japanese Trustee Information . . . . . . . . . . . . . 3Japanese Yen . . . . . . . . . . . . . . . . . . . . . . . . 5Joint Arrangers . . . . . . . . . . . . . . . . . . . . 1, 13Joint Lead Managers . . . . . . . . . . . . . . . . 1, 13JPY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5JPY-LIBOR-BBA . . . . . . . . . . . . . . . . . . . . . 2JPY-LIBOR-Reference Banks . . . . . . . . . . . . . 2Junior Bond Issuer Obligations . . . . . . . . . . . 42Junior Note Issuer Obligations . . . . . . . . . . . 42Junior Swap Charges . . . . . . . . . . . . . . . . . . 42KAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9KAL Seoul . . . . . . . . . . . . . . . . . . . . . . . . . . 9KAL Tokyo . . . . . . . . . . . . . . . . . . . . . . . . . 9KAL-IATA Agreement . . . . . . . . . . . . . . . . . 17KALU . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86KDB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87KDB Act . . . . . . . . . . . . . . . . . . . . . . . . . 111KDB Decree . . . . . . . . . . . . . . . . . . . . . . . 112Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Korean Air . . . . . . . . . . . . . . . . . . . . . .2, 9, 83Korean Bank Agreements . . . . . . . . . . . . . . . 19Korean GAAP. . . . . . . . . . . . . . . . . . . . . . . 39Korean Pledged Documents . . . . . . . . . . . . . 24Korean Won . . . . . . . . . . . . . . . . . . . . . . . . . 5KRW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Maintenance, Repair and Overhaul . . . . . . . . . 91Mandatory Redemption Amount . . . . . . . . . . 20Mandatory Redemption Event . . . . . . . . . . . . 18Master Definitions Schedule . . . . . . . . . . . . . 60Material Adverse Change . . . . . . . . . . . . . . . 20Material Adverse Effect . . . . . . . . . . . . . . . . 20MLTM. . . . . . . . . . . . . . . . . . . . . . . . . .51, 88Monthly Servicer Report . . . . . . . . . . . . . . . 31MOSF . . . . . . . . . . . . . . . . . . . . . . . . . . . 120non-resident . . . . . . . . . . . . . . . . . . . . . . . 126Note Agency Agreement. . . . . . . . . . . . . .11, 60Note Agents . . . . . . . . . . . . . . . . . . . . . . . . 11Note Certificate. . . . . . . . . . . . . . . . . . . . . . 60Note Collection Shortfall . . . . . . . . . . . . . . . 23Note Conditions . . . . . . . . . . . . . . . . . . .14, 60Note Enforcement Notice . . . . . . . . . . . . .17, 70Note Event of Default . . . . . . . . . . . . . . . . . 20Note Interest Amount . . . . . . . . . . . . . . . . . . 64Note Issuer . . . . . . . . . . . . . . . . . . 1, 8, 60, 105Note Issuer Account . . . . . . . . . . . . . . . . . . 20Note Issuer Account Bank . . . . . . . . . . . . . . 17Note Issuer Account BankAgreement . . . . . . . . . . . . . . . . . . . 11, 60, 19

Note Issuer Administrator . . . . . . . . . 11, 60, 105

140

Note Issuer AdministratorAgreement . . . . . . . . . . . . . . . . . . . . . .11, 60

Note Issuer Expenses . . . . . . . . . . . . . . . . . . 42Note Issuer Information . . . . . . . . . . . . . . . . . 3Note Issuer Obligations . . . . . . . . . . . . . . . . 13Note Maturity Date . . . . . . . . . . . . . . . 3, 14, 65Note Outstanding Amount . . . . . . . . . . . . . . 23Note Payment Date . . . . . . . . . . . . . . . 2, 13, 63Note Rate of Interest . . . . . . . . . . . . . . . . . . 64Note Redemption Amount . . . . . . . . . . . .14, 65Note Register . . . . . . . . . . . . . . . . . . . . . . . 60Note Registrar. . . . . . . . . . . . . . . . . . . . . 1, 60Note Secured Parties . . . . . . . . . . . . . . . . . . 13Note Secured Property . . . . . . . . . . . . . . . 8, 63Note Security . . . . . . . . . . . . . . . . . . . . .13, 63Note Subscription Agreement . . . . . . . . . 13, 131Note Transaction Documents. . . . . . . . . . . . . 60Note Trust Deed . . . . . . . . . . . . . . . . . 1, 13, 60Note Trustee . . . . . . . . . . . . . . . . . . . . 1, 10, 60Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . 61Noteholders . . . . . . . . . . . . . . . . . . . . . . . . 60Notes. . . . . . . . . . . . . . . . . . . . . . . . . 1, 13, 60Oceania Routes . . . . . . . . . . . . . . . . . . . . . . 93Other Currency . . . . . . . . . . . . . . . . . . . . . . 21Outbound Cargo . . . . . . . . . . . . . . . . . . . . . 78Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . 6permanent establishment . . . . . . . . . . . . . . . 126Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Pledge Agreement . . . . . . . . . . . . . . . . . . . . 24Potential Early Amortisation Event . . . . . . . . 31Potential Event of Default . . . . . . . . . . . . . . 35Prepaid . . . . . . . . . . . . . . . . . . . . . . . . . . . 78Principal Amount Outstanding. . . . . . . . . .14, 26Principal Paying Agent. . . . . . . . . . . . . 6, 11, 60Principal Transfer Agent. . . . . . . . . . . . . . . . 60Prospectus Directive . . . . . . . . . . . . . . . . . 134Rating Agency . . . . . . . . . . . . . . . . . . . . 1, 13Receivables . . . . . . . . . . . . . . . . . . . . . . 9, 78Reference Agent . . . . . . . . . . . . . . . . . . .11, 60registered address . . . . . . . . . . . . . . . . . . . . 67Regulation S. . . . . . . . . . . . . . . . . . . . . . . . . 1Relevant Implementation Date . . . . . . . . . . . 133Relevant Member State . . . . . . . . . . . . . . . 133Replacement Agents . . . . . . . . . . . . . . . . . . 75Required Amount . . . . . . . . . . . . . . . . . . . . 35Required Reserve Balance . . . . . . . . . . . . . . 33Reserve Account . . . . . . . . . . . . . . . . . . . . . 33Reserve Funding Amount . . . . . . . . . . . . . . . . 9RFTKs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 99Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . 1Routes . . . . . . . . . . . . . . . . . . . . . . . . . .50, 93RPKs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

SafeNet . . . . . . . . . . . . . . . . . . . . . . . . . . . 90SARS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52Scheduled Amortisation Amount . . . . . 14, 26, 65Second Trigger . . . . . . . . . . . . . . . . . . . . . . 34Second Trigger Amount . . . . . . . . . . . . . . . . 34Security Agent . . . . . . . . . . . . . . . . . . . . . . 25Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 34Seller Beneficial Certificate . . . . . . . . . . . . . . 9Seller Beneficial Interest . . . . . . . . . . . . . . . . 9Seller Beneficiary . . . . . . . . . . . . . . . . . . . . . 9Senior Bond Issuer Obligations . . . . . . . . . . . 35Senior Investor BeneficialCertificate Obligations. . . . . . . . . . . . . . . . 35

Senior Swap Charges . . . . . . . . . . . . . . . . . . 42Serviced Assets . . . . . . . . . . . . . . . . . . . . 9, 50Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9Servicer Fees . . . . . . . . . . . . . . . . . . . . . . . 42Servicer Termination Event. . . . . . . . . . . . . . 32Servicing Agreement . . . . . . . . . . . . . . . . . . 30Servicing Expenses . . . . . . . . . . . . . . . . . . . 42SFA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134SFO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135Shareholder’s Equity . . . . . . . . . . . . . . . . . . 39Southeast Asia Routes . . . . . . . . . . . . . . . . . 93specially related persons . . . . . . . . . . . . . . . 122STTCL . . . . . . . . . . . . . . . . . . . . . . . . . . 122Sub-Account . . . . . . . . . . . . . . . . . . . . . . . . 36Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 39Successor Servicer . . . . . . . . . . . . . . . . . . . . 43Swap Additional Amounts . . . . . . . . . . . . . . 43Swap Agreement . . . . . . . . . . . . . . . . . . . . . 23Swap Charges . . . . . . . . . . . . . . . . . . . . . . . 43Swap Payment Date . . . . . . . . . . . . . . . . . . . 23Swap Provider . . . . . . . . . . . . . . . . . . . 12, 119Swap Provider Charges . . . . . . . . . . . . . . . . 20Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Transaction Administration Agreement . . . . . . 10Transaction Administrator. . . . . . . . . . . . . . . 10Transaction Documents . . . . . . . . . . . . . . . . 17Trust Account . . . . . . . . . . . . . . . . . . . . . . . 33Trust Agreement . . . . . . . . . . . . . . . . . . . . 2, 9Trust Distribution Date. . . . . . . . . . . . . . . . . 18Trustor. . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 9Trustor Information . . . . . . . . . . . . . . . . . . . . 4U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5U.S. dollars . . . . . . . . . . . . . . . . . . . . . . . . . 5U.S. Securities Act . . . . . . . . . . . . . . . . .1, 131U.S.$ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5United States . . . . . . . . . . . . . . . . . . . . . . . . 5USD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Won . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Yen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

141

APPENDIX IAUDITED FINANCIAL STATEMENTS OFKOREAN AIR LINES CO., LTD. (2010)

APPENDIX IIAUDITED FINANCIAL STATEMENTS

OF THE KOREA DEVELOPMENT BANK (2009 AND 2010)

Korea Development Bank

Non-consolidated financial statements

Years ended December 31, 2010 and 2009

with independent auditors’ report

Korea Development Bank

Non-consolidated financial statements

Years ended December 31, 2010 and 2009

with independent auditors’ report

Korea Development Bank December 31, 2010 and 2009 Contents

Page Independent auditors’ report 1 Non-consolidated statements of financial position 2-3 Non-consolidated statements of income 4-5 Non-consolidated statements of appropriations of retained earnings 6 Non-consolidated statements of changes in equity 7 Non-consolidated statements of cash flows 8-9 Notes to non-consolidated financial statements 10-63 Internal control over financial reporting review report 64 Report on the operations of the internal control over financial reporting 66

1

Independent auditors’ report The Board of Directors and Stockholder Korea Development Bank We have audited the accompanying non-consolidated statements of financial position of Korea Development Bank (the “Bank”) as of December 31, 2010 and 2009, and the related non-consolidated statements of income, appropriation of retained earnings, changes in equity and cash flows for the years then ended. These non-consolidated financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these non-consolidated financial statements based on our audits. We did not audit the financial statements of Daewoo Shipbuilding & Marine Co., Ltd., (the “Investment”), which is reflected in the accompanying non-consolidated financial statements, using the equity method accounting. The investment represents 1.13% and 0.85% of the Bank’s non-consolidated total assets as of December 31, 2010 and 2009 and 16.72% and 22.38% of the Bank’s non-consolidated income before income taxes for the years then ended, respectively. Those financial statements were audited by other auditors whose report has been furnished to us, and our conclusion, insofar as it related to the amounts included for the Investment is based solely on the report of other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the non-consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the non-consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall non-consolidated financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion based on our audits and the report from other auditors, the non-consolidated financial statements referred to above present fairly, in all material respects, the non-consolidated financial position of the Bank as of December 31, 2010 and 2009 and the non-consolidated results of its financial performance, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of Korea. Accounting principles and auditing standards and their application in practice vary among countries. The accompanying non-consolidated financial statements are not intended to present the financial position, results of financial performance, and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying non-consolidated financial statements are for use by those who are knowledgeable about Korean accounting principles and auditing standards and their application in practice. March 11, 2011 This audit report is effective as of March 11, 2011, the independent auditors’ report date. Accordingly, certain material subsequent events or circumstances may have occurred during the period from the independent auditors’ report date to the time this audit report is used. Such events and circumstances could significantly affect the accompanying non-consolidated financial statements and may result in modifications to this report.

(Korean won in millions)

AssetsCash and due from banks (Notes 3 and 14) ₩ 4,362,556 ₩ 2,965,356 Securities (Notes 4,14 and 15):

Trading securities 1,041,435 615,365 Available-for-sale securities 22,103,632 26,696,990 Held-to-maturity securities 262,218 1,775,932 Equity method investments 4,793,641 2,575,916

28,200,926 31,664,203 Loans receivable, less allowance for possible loan losses of

₩1,944,837 million at December 31, 2010(₩1,413,400 million at December 31, 2009)and less deferred loan fees of ₩25,497 millionat December 31, 2010 (₩12,499 million at December 31, 2009)(Notes 5 and 14) 69,892,913 74,785,455

Property and equipment (Note 6) 525,967 542,190 Other assets:

Allowance for possible losses on other assets (Note 5) (76,098) (52,244)Intangible assets (Note 7) 46,868 40,580 Guarantee deposits 114,054 119,275 Accounts receivable 2,532,625 2,765,603 Accrued income 486,483 514,662 Prepaid expenses 27,983 53,065 Deferred income tax assets (Note 19) 27,315 30,115 Derivative assets (Note 16) 5,881,623 7,675,978 Others (Note 7) 1,182,270 1,229,208

10,223,123 12,376,242

Total assets ₩ 113,205,485 ₩ 122,333,446

See accompanying notes.(Continued)

Korea Development BankNon-consolidated statements of financial positionAs of December 31, 2010 and 2009

2010 2009

2

(Korean won in millions)

Liabilities and equityLiabilities:

Deposits received (Notes 8 and 14) ₩ 18,929,843 ₩ 13,935,926 Borrowing liabilities (Notes 9 and 14) 66,808,191 80,687,788 Other liabilities:

Severance and retirement benefits, less deposits for severance and retirement of ₩73,994 million atDecember 31, 2010 (₩43,881 millionat December 31, 2009) (Note 10) 3,505 19,084

Allowance for possible losses on acceptances and guarantees (Note 11) 109,825 243,561

Allowance for possible losses on unused loan commitments 220,578 188,922 (Note 12)

Due to trust accounts 532,839 455,424 Exchange payable 83,526 11,188 Accounts payable 2,520,909 2,845,307 Accrued expenses 954,661 935,665 Unearned revenues 53,656 58,107 Deposits for letter of guarantees 561,547 106,185 Deferred income tax liabilities (Note 19) 115,809 110,411 Derivative liabilities (Note 16) 4,654,368 6,644,753 Others (Note 13) 1,427,879 980,418

11,239,102 12,599,025 Total liabilities 96,977,136 107,222,739

Equity: Paid-in capital (Note 17) 9,251,861 9,241,861 Capital surplus (Note 17) 46,894 52,168 Capital adjustment (Note 17) (9,921) (1,229)Accumulated other comprehensive income (Notes 4 and 21) 811,662 746,980Retained earnings (Note 17):

Legal reserve 4,658,027 4,353,488 Unappropriated retained earnings 1,469,826 717,439

6,127,853 5,070,927 Total equity 16,228,349 15,110,707

Total liabilities and equity ₩ 113,205,485 ₩ 122,333,446

See accompanying notes.

Korea Development BankNon-consolidated statements of financial position (cont'd)As of December 31, 2010 and 2009

2010 2009

3

Korea Development BankNon-consolidated statements of incomeFor the years ended December 31, 2010 and 2009(Korean won in millions)

2010 2009Operating revenue:

Interest income:Interest on due from banks ₩ 91,187 ₩ 107,448 Interest on securities 919,622 1,513,383 Interest on loans receivable 3,380,289 3,728,081 Others 18,028 25,587

4,409,126 5,374,499 Gain on valuation and disposal of securities:

Gain on disposal of trading securities 54,279 37,919 Gain on valuation of trading securities 4,216 1,492 Gain on disposal of available-for-sale securities 1,343,443 729,754 Gain on disposal of held-to-maturity 4,000 - Gain on disposal of equity method investments 11,146 3,761 Reversal of impairment loss on available-for-sale securities

(Note 4) 23,219 17,041 1,440,303 789,967

Gain on disposal of loans receivable 170,764 101,382 Gain on foreign currency transactions 1,072,300 2,739,820 Fees and commission income 486,536 395,894 Dividends income 55,108 431,746 Other operating income:

Fees and commission from trust accounts 18,171 15,176 Gain from derivatives transactions 6,095,839 13,004,609 Gain from derivatives valuation (Note 16) 3,297,602 3,968,136 Gain on valuation of hedged items (Note 16) 321,999 856,218 Reversal of allowance for possible losses on acceptances

and guarantees (Note 11) 133,705 - Reversal of allowance for possible losses on others 1,365 -

(Note 15)Others 4,858 4,879

9,873,539 17,849,018 Total operating revenue 17,507,676 27,682,326

Operating expenses:Interest expense:

Interest on deposits received 468,167 499,228 Interest on borrowings 488,162 901,820 Interest on debentures 1,828,974 3,048,193 Other interests 18,733 27,674

2,804,036 4,476,915

(Continued)See accompanying notes.

4

Korea Development BankNon-consolidated statements of income (cont'd)For the years ended December 31, 2010 and 2009(Korean won in millions)

2010 2009Loss on valuation and disposal of securities:

Loss on disposal of trading securities ₩ 26,844 ₩ 34,251 Loss on valuation of trading securities 5,588 2,436 Loss on disposal of available-for-sale securities 44,253 80,108 Loss on disposal of held-to-maturity 2,118 - Loss on disposal of equity method investments 3,869 1,025 Impairment loss on available-for-sale securities (Note 4) 169,763 375,372 Impairment loss on equity method investments 2,723 2,786

255,158 495,978Provision for possible loan losses (Note 5) 1,184,436 918,586 Loss on disposal of loans receivable 530,136 119,294 Deposits received (Notes 8 and 14) 1,154,456 3,207,092 Fees and commission expenses 21,720 24,481 General and administrative expenses (Note 18) 419,499 415,482 Other operating expenses:

Provision for possible losseson acceptances and guarantees (Note 11) - 130,183

Provision for possible losses on unused loan commitments (Note 12) 31,392 86,817

Provision for possible losses on other assets (Note 5) 969 - Provision for possible losses on others (Note 15) - 3,249 Loss from derivatives transactions 6,220,579 13,402,609 Loss from derivatives valuation (Note 16) 2,820,059 4,087,998 Loss on valuation of hedged items (Note 16) 612,847 131,584 Utility service fee 784 - Contributions to credit management fund 91,169 93,018 Others 70,871 83,215

9,848,670 18,018,673Total operating expenses 16,218,111 27,676,501

Operating income 1,289,565 5,825

Non-operating income (expense):Gain on disposal of property and equipment, net 126 40Impairment loss on property and equipment (7,174) (10,389)Rental income 1,811 1,732 Gain on valuation of equity method investments, net (Note 4) 187,920 619,941Others, net (17,805) 181,700

164,878 793,024Income before income taxes 1,454,443 798,849 Income tax expense (Note 19) 408,722 37,737 Net income ₩ 1,045,721 ₩ 761,112

See accompanying notes.

5

Korea Development BankNon-consolidated statements of appropriations of retained earningsYears ended December 31, 2010 and 2009(Korean won in millions)

2010 2009Retained earnings before appropriations:

Unappropriated retained earningscarried over from prior year ₩ 412,900 ₩ -

Retained earnings adjustment arising from equity method investments 11,205 (43,673)

Net income for the year 1,045,721 761,112 1,469,826 717,439

Appropriations (2010 proposed): Legal reserve 418,365 304,539 Amortization of discounts on stocks issuance 51 - Dividends 297,910 -

716,326 304,539 Unappropriated retained earnings to be

carried forward to the next year ₩ 753,500 ₩ 412,900

See accompanying notes.

6

(Kor

ean

won

in m

illio

ns)

As

of J

anua

ry 1

, 200

9₩

8,74

1,86

1₩

44,3

73₩

-

₩(2

49,0

14)₩

7,17

8,11

5₩

15,7

15,3

35In

ject

ion

of p

aid-

in c

apita

l90

0,00

0-

-

-

-

90

0,00

0N

et in

com

e-

-

-

-

761,

112

761,

112

Gai

n on

val

uatio

n of

ava

ilabl

e-fo

r-sa

le s

ecur

ities

, net

-

-

-

1,36

6,85

0-

1,

366,

850

Cha

nges

in o

ther

com

preh

ensi

ve in

com

e fro

m v

alua

tion

of e

quity

met

hod

inve

stm

ents

(Not

e 4)

-

-

-

216,

981

-

216,

981

Cha

nges

in n

egat

ive

othe

r com

preh

ensi

ve in

com

e fro

m v

alua

tion

of e

quity

met

hod

inve

stm

ents

(Not

e 4)

-

-

-

33

4,41

9-

33

4,41

9C

hang

es in

reta

ined

ear

ning

s fro

m v

alua

tion

of e

quity

met

hod

inve

stm

ents

(Not

e 4)

-

-

-

-

(4

3,67

3)(4

3,67

3)O

ther

s-

21,3

59(5

,111

)(6

,566

)-

9,

682

Spi

n-of

f(4

00,0

00)

(13,

564)

3,88

2(9

15,6

90)

(2,8

24,6

27)

(4,1

49,9

99)

As

of D

ecem

ber 3

1, 2

009

₩9,

241,

861₩

52,1

68

₩

(1,2

29)₩

746,

980₩

5,07

0,92

7

₩15

,110

,707

As

of J

anua

ry 1

, 201

0₩

9,24

1,86

1₩

52,1

68₩

(1,2

29)₩

746,

980₩

5,07

0,92

7₩

15,1

10,7

07In

ject

ion

of p

aid-

in c

apita

l10

,000

-

-

-

-

10,0

00D

isco

unts

on

stoc

ks is

suan

ce-

-

(5

1)-

-

(51)

Net

inco

me

-

-

-

-

1,

045,

721

1,04

5,72

1G

ain

on v

alua

tion

of a

vaila

ble-

for-

sale

sec

uriti

es, n

et-

-

-

16

,782

-

16,7

82C

hang

es in

oth

er c

ompr

ehen

sive

inco

me

from

val

uatio

nof

equ

ity m

etho

d in

vest

men

ts (N

ote

4)

-

-

-

45,5

75-

45

,575

Cha

nges

in n

egat

ive

othe

r com

preh

ensi

ve in

com

e fro

m v

alua

tion

of e

quity

met

hod

inve

stm

ents

(Not

e 4)

-

-

-

2,

325

-

2,32

5C

hang

es in

reta

ined

ear

ning

s fro

m v

alua

tion

of e

quity

met

hod

inve

stm

ents

(Not

e 4)

-

-

-

-

11

,205

11,2

05O

ther

s-

(5,2

74)

(8,6

41)

-

-

(1

3,91

5)A

s of

Dec

embe

r 31,

201

0₩

9,25

1,86

1₩

46,8

94₩

(9,9

21)₩

811,

662₩

6,12

7,85

3₩

16,2

28,3

49

See

acc

ompa

nyin

g no

tes.

Ret

aine

d To

tal

Paid

-inC

apita

lC

apita

lco

mpr

ehen

sive

capi

tal

surp

lus

adju

stm

ents

inco

me

earn

ings

Kor

ea D

evel

opm

ent B

ank

Non

-con

solid

ated

sta

tem

ents

of c

hang

es in

equ

ityFo

r the

yea

rs e

nded

Dec

embe

r 31,

201

0 an

d 20

09

Acc

umul

ated

oth

er

7

Korea Development BankNon-consolidated statements of cash flowsFor the years ended December 31, 2010 and 2009(Korean won in millions)

Cash flows from operating activities:Net income ₩ 1,045,721 ₩ 761,112Adjustments to reconcile net income to net cash

Provided by (used in) operating activities:Depreciation 17,808 13,901Amortization of intangible assets 12,851 10,951Provision for possible loan losses 1,184,436 967,780Provision for severance and retirement benefits 25,133 28,240Loss on valuation of trading securities, net 1,372 944Impairment losses on available-for-sale securities, net 146,544 358,331Gain on valuation of equity method investments, net (187,920) (619,941)Loss on foreign exchange translations, net 13,156 497,573Gain on disposal of property and equipment, net (126) (40)Loss (gain) on valuation of derivative instruments, net (477,543) 119,862Loss (gain) on fair value hedged items, net 290,848 (724,634)Provision for (reversal of) possible losses on

acceptances and guarantees (133,705) 130,183Provision for possible losses

on unused loan commitments 30,027 86,817Others, net 98,413 (35,903)Changes in operating assets and liabilities:

Trading securities (427,442) (190,618)Available-for-sale securities 4,239,379 596,194Held-to-maturity securities 1,513,714 1,344,000Equity method investments (1,971,868) 697,318Loans receivable 3,918,337 (4,144,097)Accounts receivable 256,832 1,654,226Accrued income 28,179 80,603Prepaid expenses 25,082 141,573Unearned revenues (4,451) (20,036)Deferred income tax liabilities (assets), net (9,282) 1,133,763Derivative instruments, net 281,513 (160,082)Payment of severance and retirement benefits (10,599) (85,526)Due to trust accounts 77,415 33,724Accounts payable (324,398) (1,769,204)Accrued expenses 18,996 (59,467)Others, net 921,246 (858,230)

Total adjustments 9,553,947 (771,795)Net cash provided by (used in) operating activities ₩ 10,599,668 ₩ (10,683)

(Continued)See accompanying notes.

2010 2009

8

Korea Development BankNon-consolidated statements of cash flows (cont'd)For the years ended December 31, 2010 and 2009(Korean won in millions)

Cash flows from investing activities:Acquisition of property and equipment ₩ (12,929) ₩ (9,521)Deposits received (Notes 8 and 14) 4,531 11,985Acquisition of intangible assets (19,139) (23,245)Decrease (increase) in due from bank, net (1,408,023) 1,480,402Decrease (increase) in guarantee deposits 5,221 (7,918)Proceeds from disposal of equity method investments - 1,984

Net cash provided by (used in) investing activities (1,430,339) 1,453,687

Cash flows from financing activities:Repayment of borrowings, net (1,331,124) (769,144)Increase (decrease) in bonds sold

under repurchase agreement (4,024,321) 59,586Proceeds from (repayment of) bills sold 270 (132)Proceeds from (repayment of) debentures, net (8,196,923) 641,648Increase (decrease) in exchange payable, net 72,338 (8,806)Placement (withdrawal) of deposits received, net 7,441,756 (2,261,667)Repayment of certificate of deposits received (2,447,839) (570,936)Proceeds from (repayment of) call money, net (704,258) 1,152,783Injection of paid-in capital 10,000 900,000Discounts on stocks issuance (51) -

Net cash used in financing activities (9,180,152) (856,668)

Decrease in cash and cash equivalents caused by spin-off - (577,701)

Net increase (decrease) in cash and cash equivalents (10,823) 8,635

Cash and cash equivalents at the beginning of the year 66,915 58,280

Cash and cash equivalents at the end of the year ₩ 56,092 ₩ 66,915

See accompanying notes.

2010 2009

9

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

10

1. Bank information Korea Development Bank (the “Bank”) was established in 1954 in accordance with the Korea Development Bank Act of the Republic of Korea to supply and manage major industrial funds for the promotion of the industrial development and advancement of the national economy. The Bank has 47 local branches (HQ branch included), 7 overseas branches, 5 overseas subsidiaries and 2 overseas offices as of December 31, 2010. The Bank is engaged in the banking business under the Korea Development Bank Act and other related regulations and in the trust business in accordance with the Financial Investment Services and Markets Act. The Bank’s spin-off On October 28, 2009, the Bank spun off its public finance unit and financial subsidiaries business support unit into Korea Finance Corporation (“KoFC”) and KDB Financial Group Inc. (“KDBFG”), respectively, new shares of the two new entities were issued and distributed to the Bank’s stockholder at the spin-off date on a pro-rata basis, and the Bank continues its remaining operations. The Bank and the new entities will be jointly and severally liable for all liabilities existing prior to the spin-off.

On November 24, 2009, the Korea government who was also the sole equity owner of the Bank, exchanged the Bank's shares with KDBFG shares at the exchange ratio of 0.163608 KDBFG share for each 1 share of the Bank. Immediately after the completion of the share exchange, the Bank became a fully-owned subsidiary of KDBFG. The capital stock of the Bank amounts to ₩9,251,861 million as of December 31, 2010.

2. Summary of significant accounting policies Basis of financial statement preparation The Bank maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea ( “Korean GAAP”) with the exception of overseas branches and subsidiaries, where the Bank used financial statements prepared in accordance with the financial accounting standards generally accepted in their jurisdictions, with adjustments to align with Korean GAAP if the adjustments materially affects the Bank’s financial statements. Certain accounting principles applied by the Bank that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. In the event of any differences in interpreting the non-consolidated financial statements or the independent auditors’ report thereon, the Korean version, which is used for regulatory reporting purposes, shall prevail. The accompanying non-consolidated financial statements have been condensed, restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements. The significant accounting policies followed by the Bank in preparing the accompanying non-consolidated financial statements are summarized below. 2-1. Recognition of interest income Interest income on loans and investments is recognized on an accrual basis. However, interest income on loans overdue or dishonored is recognized on a cash basis except for those secured and guaranteed by financial institutions for which the interest is recognized on an accrual basis. 2-2. Securities Securities are classified as either trading, held-to-maturity or available-for-sale securities, as appropriate, and are initially measured at cost, including incidental expenses. The Bank determines the classification of its investments after initial recognition, and, where allowed and appropriate, re-evaluates this designation at the end of each reporting period.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

11

2. Summary of significant accounting policies (cont’d)

Securities that are acquired and held principally for the purpose of selling them in the near term are classified as trading securities. Debt securities which carry fixed or determinable principal payments and a fixed maturity are classified as held-to-maturity, if the Bank has the positive intention and ability to hold to maturity. Securities that are not classified as either trading or held-to-maturity are classified as available-for-sale securities. After initial measurement, available-for-sale securities are measured at fair value with unrealized gains or losses being recognized as other comprehensive income in equity. Likewise, trading securities are also measured at fair value after initial measurement, but with unrealized gains or losses reported as part of net income. Held-to-maturity securities are measured at amortized cost after initial measurement. The cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method, of any difference between the initially recognized amount and the maturity amount.

The fair value of trading and available-for-sale securities that are traded actively in the open market (marketable securities) is measured at the closing price of those securities at the reporting date. Non-marketable equity securities are carried at a value announced by a public independent credit rating agency. If application of such measurement method is not feasible, non-marketable equity securities are measured at cost less impairment, if any, subsequent to initial recognition. Non-marketable debt securities are carried at the present value of their future cash flows discounted using an appropriate interest rate which reflects the issuer’s credit rating, as announced by a public independent credit rating agency. When held-to-maturity securities are reclassified to available-for-sale, those securities are accounted for at fair value on the reclassification date and the difference between the fair value and book value is reported in other comprehensive income as a gain or loss on valuation of available-for sale securities. When available-for-sale securities are reclassified to held-to-maturity, gains or losses on valuation of these available-for-sale securities, which had been recorded until the reclassification date, continue to be included in other comprehensive income and are amortized using the effective interest rate method. Such amortization amount is charged to interest income until maturity. Once the reclassification is made, trading securities cannot be reclassified to available-for-sale securities or held-to-maturity securities and vice versa except in rare circumstances only. In addition, when certain trading securities become non-marketable, such securities are reclassified to available-for-sale at fair value as of the reclassification date. If the recoverable amount of a held-to-maturity security and available-for-sale security is less than acquisition cost or carrying value, and such decline is deemed other than temporary, such security is adjusted to its recoverable amount with an impairment loss charged to the statement of income after eliminating any gains and losses previous recorded in other comprehensive income for temporary changes. A subsequent recovery is also recorded in the statement of income to the extent of the previously recorded impairment losses if such recovery is attributable to an event occurring subsequent to the recognition of the impairment losses.

2-3. Equity method investments Investments in entities over which the Bank has control or significant influence are accounted for using the equity method. Investment securities which allow the Bank a significant influence over the investee are valued using the equity method of accounting. The Bank considers that it has a significant influence on an investee if the Bank holds more than 15% of voting shares.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

12

2. Summary of significant accounting policies (cont’d) Under the equity method of accounting, the Bank’s initial investment in an investee is recorded at acquisition cost. Subsequently, the carrying amount of the investment is adjusted to reflect the Bank’s share of income or loss of the investee in the statement of income and share of changes in equity that have been recognized directly in the equity of the investee in the related equity account of the Bank on the statement of financial position. If the Bank’s share of losses of the investee equals or exceeds its interest in the investee, it suspends recognizing its share of further losses. However, if the Bank has other long-term interests in the investee, it continues recognizing its share of further losses to the extent of the carrying amount of such long-term interests. The Bank resumes the application of the equity method if the Bank’s share of income or change in equity of an investee exceeds the Bank’s share of losses accumulated during the period of suspension of the equity method of accounting.

At the date of acquisition, the difference between the acquisition cost of the investee and the Bank’s share of the net fair value of the investee’s identifiable assets and liabilities is accounted for as goodwill or negative goodwill. Goodwill is amortized over its useful life of five years using the straight-line method and the amortization expense is included as part of valuation gain or loss on equity method investments in the statement of income. Negative goodwill is amortized based on the investee’s accounting treatments on the related assets and liabilities and charged or credited to valuation gain or loss on equity method investments in the statement of income. The Bank’s share in the investee’s unrealized profits and losses resulting from transactions between the Bank and its investee is eliminated. 2-4. Allowance for possible loan losses The Bank provides an allowance for possible loan losses based on the borrowers’ future debt servicing ability (forward looking criteria) as determined by a credit rating model developed by the Bank. This credit rating model includes financial and non-financial factors of borrowers and classifies the borrowers’ credit risk. The allowance is determined by applying the following minimum percentages to the various credit risk ratings: Loan classifications Minimum provision percentages (%) Normal 0.85 Precautionary 7 Substandard 20 Doubtful 50 Expected Loss 100 2-5. Troubled debt restructuring If the present value of a loan is different from its book value due to a rescheduling of terms as agreed by the related parties (as in the case of court receivership, court mediation or workout), the difference in present value of the restructured loan payments and book value of the loan is recorded as an allowance for possible loan loss. The difference recorded as an allowance is amortized to current earnings over the related period using the effective interest rate method. The amortization is recorded as interest income. 2-6. Deferred loan fees and expenses The Bank defers and amortizes certain fees received from borrowers and expenses paid to third parties associated with originating certain loans. Such fees and expenses are amortized over the life of the associated loan using the effective interest rate method.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

13

2. Summary of significant accounting policies (cont’d) 2-7. Valuation of long-term receivables (payables) at present value Receivables or payables arising from long-term installment transactions are stated at present value. The difference between the carrying amount of these receivables or payables and their present value is amortized using the effective interest rate method and credited or charged to the statement of income over the installment period. 2-8. Property and equipment Property and equipment are stated at cost, less accumulated depreciation. Maintenance and repairs are expensed in the year in which they are incurred. Expenditures which enhance the value or extend the useful lives of the related assets are capitalized as additions to property and equipment. Depreciation of property and equipment is provided using the straight-line method over the following estimated useful life of assets: Year Buildings 20 ~ 50 Furniture and fixture 10 ~ 40 Computer equipment 4 Vehicles 4 Others 4 Routine maintenance and repairs are charged to expense as incurred. Expenditures which enhance the value or extend the useful life of the related assets are capitalized. 2-9. Intangible assets Intangible assets of the Bank consist of trademarks, development costs and software, which are stated at cost, less accumulated amortization. Intangible assets are amortized using the straight-line method over a period of four to five years.

2-10. Impairment of assets When the recoverable amount of an asset is less than its carrying amount, the decline in value, if material, is deducted from the carrying amount and recognized as an asset impairment loss in the current period. 2-11. Bonds purchased under resale agreement and bonds sold under repurchase agreements Bonds purchased or sold under resale or repurchase agreements are included in loans and borrowings, respectively. The difference between the selling and repurchase price is treated as interest and is accrued evenly over the period covered by the agreements. 2-12. Debenture issuance costs Debenture issuance costs are amortized as an interest expense over the redemption term using the effective interest rate method. 2-13. Accrued severance and retirement benefits In accordance with the Employee Retirement Benefit Security Act and the Bank’s regulations, employees and directors terminating their employment with at least one year of service are entitled to severance and retirement benefits, based on the rates of pay in effect at the time of termination, years of service and certain other factors. The provision is determined based on the amount that would be payable assuming all employees and directors were to terminate their employment at the reporting date. The Bank’s severance and retirement benefits are partly funded through an insurance plan with Samsung Life Insurance, Korea Exchange Bank and LIG Fire Insurance.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

14

2. Summary of significant accounting policies (cont’d) 2-14. Provisions and contingent liabilities Provisions are recognized when the Bank has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made on the amount of the obligation. The provision is used only for expenditures for which the provision was originally recognized. If the effect of the time value of money is material, provisions are stated at present value.

Confirmed acceptances and guarantees, unconfirmed acceptances and guarantees and bills endorsed are not recognized on the statement of financial position, but are disclosed as off-statement of financial position items in the notes to the financial statements. The Bank provides a provision for such off-statement of financial position items, applying a Credit Conversion Factor (“CCF”) and provision rates, and records the provision as an allowance for possible losses on acceptances and guarantees. The Bank provides a provision for a certain portion of unused loan commitments. The Bank records the provision for such unused balances as an allowance for possible losses on unused loan commitments which are calculated by applying a CCF and the minimum required provision percentage given by the Regulation on the Supervision of Banking Business. 2-15. Income taxes Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from, or paid to, the tax authorities. Deferred income taxes are provided using the liability method for the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the accompanying non-consolidated financial statements. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. In addition, current and deferred taxes are charged or credited directly to equity if the tax relates to items that are charged or credited directly to equity. Starting from 2010, KDBFG, the parent company, has adopted a consolidated tax return policy, which is a tax payment system based on the consolidated taxable income (“Consolidated Tax Return”). Any changes in income taxes due to the adoption of Consolidated Tax Return are adjusted to income tax expense account (refer to Note 19). 2-16. Translation of foreign currency and financial statements of overseas branches Transactions involving foreign currencies are recorded at the exchange rates prevailing at the time the transactions are made. Assets and liabilities denominated in foreign currencies are translated into Korean won using the exchange rates provided by Seoul Money Brokerage Service, Ltd., which are in effect on the reporting date. The resulting translation gains or losses are credited or charged to current operations. Accounting records of the overseas branches are maintained in foreign currencies. In translating financial statements of the overseas branches, the Bank applies the appropriate rate of exchange at the reporting date.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

15

2. Summary of significant accounting policies (cont’d) 2-17. Derivative financial instruments Derivative financial instruments are presented as assets or liabilities valued principally at the fair value of the rights or obligations associated with the derivative contracts. The unrealized gain or loss from a derivative transaction with the purpose of hedging the exposure to changes in the fair value of a recognized asset or liability or unrecognized firm commitment is recognized in current operations. For a derivative instrument with the purpose of hedging the exposure to the variability of cash flows of a recognized asset or liability or a forecasted transaction, the hedge-effective portion of the derivative instrument’s gain or loss is deferred as other comprehensive income in equity. The ineffective portion of the gain or loss is charged or credited to current operations. Derivative instruments that do not meet the criteria for hedge accounting, or contracts for which the Bank has not elected hedge accounting are measured at fair value with unrealized gains or losses reported in current operations. 2-18. Accounting for the trust accounts The Bank recognizes, in accordance with the Financial Investment Services and Markets Act, trust fees earned from the trust accounts as income from trust operations. If losses are incurred on trust accounts that have a guarantee of principal repayment, the losses are recognized as a loss from trust operations. 2-19. Changes in accounting estimates The Bank changed its accounting estimate relating to impairment loss on investment securities in 2009 in order to better reflect the Bank’s investment securities position and enhance comparability to other banks. Impairment loss on securities recognized in 2009 amounted to ₩361,117 million. 2-20. Significant judgments and accounting estimates The preparation of financial statements in accordance with Korean GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

3. Cash and due from banks

3-1. Cash and due from banks as of December 31, 2010 and 2009 consist of the following (Korean won in millions): 2010 2009 Cash and cash equivalents: Korean won ₩ 48,496 ₩ 60,073 Foreign currency 7,596 6,842

56,092 66,915 Due from banks: Korean won 3,445,418 1,810,678 Foreign currency 861,046 1,087,763

4,306,464 2,898,441 ₩ 4,362,556 ₩ 2,965,356

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

16

3. Cash and due from banks (cont’d) 3-2. Due from banks in Korean won as of December 31, 2010 and 2009 is as follows (Korean won in millions): Annual interest rate Counterparty(*) Account (%) 2010 2009 Bank of Korea (“BOK”) Reserve deposits with BOK - ₩ 88,165 ₩ 646,172 Kookmin Bank Other deposits 3.1 ~ 3.3 117,466 106,267 Samsung AMC Other deposits 2.3 ~ 2.8 150,000 70,000 KB AMC Other deposits 2.5 ~ 3.0 50,000 60,000 UBS Hana AMC Other deposits 2.5 ~ 3.0 300,000 - HI AMC Other deposits 2.6 ~ 3.1 80,000 30,000 KDB AMC Other deposits 2.4 ~ 3.2 900,000 400,000 Woori AMC Other deposits 2.7 ~ 3.3 400,000 - LS AMC Other deposits 2.6 ~ 3.5 150,000 - EUGENE AMC Other deposits 2.5 ~ 3.2 100,000 60,000 Others Other deposits, etc. - 1,109,787 438,239 ₩ 3,445,418 ₩ 1,810,678 (*) AMC represents Asset Management Company. 3-3. Due from banks in foreign currency as of December 31, 2010 and 2009 is as follows (Korean won in millions): Annual interest rate Counterparty Account (%) 2010 2009 BOK Reserve deposits with BOK - ₩ 75,648 ₩ 59,704 Korea Exchange Bank Time deposits, etc - - 72,274 Woori Bank ” - - 87,570 KDB Ireland Ltd. ” 1.1 ~ 1.9 7,621 54,224 KDB Hungary Ltd. ” 0.9 ~ 1.6 170,835 175,140 Others ” 0.0 ~ 3.9 606,942 638,851 ₩ 861,046 ₩ 1,087,763 3-4. Restricted balances in due from banks as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions): Counterparty 2010 2009 Restriction BOK ₩ 163,813 705,876 Reserve for payment of deposit Kookmin Bank 117,466 106,267 Reserve for payment of principal on behalf of special purpose entities Shinhan Bank 39,743 35,586 Same as the above ICBC Shanghai and Reserve for payment of deposit others 82,086 46,689 by the local law

₩ 403,108 ₩ 894,418

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

17

3. Cash and due from banks (cont’d)

3-5. The maturities of due from banks outstanding as of December 31, 2010 and 2009 are as follows (Korean won in millions):

2010 Foreign Korean won currencies Total

Within 3 months ₩ 3,288,209 ₩ 405,302 ₩ 3,693,511 After 3 months but no later than 6 months 44,878 90,681 135,559 After 6 months but no later than 1 year 112,331 91,112 203,443 After 1 year but no later than 3 years - 273,336 273,336 Later than 5 years - 615 615 ₩ 3,445,418 ₩ 861,046 ₩ 4,306,464

2009 Foreign Korean won currencies Total

Within 3 months ₩ 648,825 ₩ 545,705 1,194,530 After 3 months but no later than 6 months 141,853 73,818 215,671 After 6 months but no later than 1 year - 309,414 309,414 After 1 year but no later than 3 years - 93,408 93,408 Later than 5 years 1,020,000 65,418 1,085,418 ₩ 1,810,678 ₩ 1,087,763 ₩ 2,898,441

3-6. Due from banks by financial institution as of December 31, 2010 and 2009 is as follows (Korean won in millions):

2010 Foreign Counterparty Korean won currencies Total

BOK (Korean central bank) ₩ 88,165 ₩ 75,648 ₩ 163,813 Commercial banks 157,209 716,136 873,345 Others 3,200,044 69,262 3,269,306

₩ 3,445,418 ₩ 861,046 ₩ 4,306,464

2009 Foreign Counterparty Korean won currencies Total

BOK (Korean central bank) ₩ 646,172 ₩ 59,704 ₩ 705,876 Commercial banks 141,853 1,002,320 1,144,173 Others 1,022,653 25,739 1,048,392

₩ 1,810,678 ₩ 1,087,763 ₩ 2,898,441

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

18

4. Securities

4-1. Trading securities

4-1-1. Trading securities as of December 31, 2010 and 2009 consist of the following (Korean won in millions): Fair value (book value) Annual Type interest rate (%) 2010 2009 Securities denominated in

Korean won: Equity securities - ₩ 8,345 ₩ - Debt securities: Government and public bonds 3.0 ~ 5.0 823,528 224,243 Finance bonds 3.4 ~ 3.9 50,928 180,395 Corporate bonds - - 10,050 Commercial papers 2.6 ~ 3.1 138,919 128,880

1,021,720 543,568 Securities denominated in

foreign currency: Equity securities - 17,217 - Debt securities 0.5 ~ 0.6 2,498 71,797 19,715 71,797

₩ 1,041,435 ₩ 615,365

4-1-2. Debt securities included in trading securities as of December 31, 2010 and 2009 consist of the following (Korean won in millions):

2010

Acquisition Fair value Type Par value cost (book value) Government and public bonds ₩ 818,000 ₩ 820,455 ₩ 823,528 Finance bonds 51,000 50,875 50,928 Commercial papers 140,000 138,915 138,919 Bonds denominated

in foreign currency 2,505 2,457 2,498 ₩ 1,011,505 ₩ 1,012,702 ₩ 1,015,873

2009 Acquisition Fair value Type Par value cost (book value) Government and public bonds ₩ 224,000 ₩ 225,768 ₩ 224,243 Finance bonds 181,000 181,086 180,395 Corporate bonds 10,000 10,084 10,050 Commercial papers 130,000 128,881 128,880 Bonds denominated in foreign currency 73,103 70,490 71,797 ₩ 618,103 ₩ 616,309 ₩ 615,365 Debt securities in Korean won are measured based on the lower of the valuation provided by KIS Pricing Inc. or the Korea Asset Pricing Co. Debt securities in foreign currency are measured based on the lower of the valuation provided by NICE Pricing Services Inc. or the Korea Asset Pricing Co.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

19

4. Securities (cont’d)

4-2. Available-for-sale securities 4-2-1. Available-for-sale securities as of December 31, 2010 and 2009 consist of the following (Korean won in millions): Annual interest rate (%) 2010 2009 Securities denominated in

Korean won: Equity securities:

Marketable equity securities - ₩ 964,823 ₩ 1,279,013 Non-marketable equity

securities - 1,265,365 1,750,206 2,230,188 3,029,219 Debt securities:

Government and public bonds 4.3 ~ 5.8 3,723,110 1,082,033

Finance bonds 2.9 ~ 6.5 3,649,045 3,922,907 Corporate bonds 2.0 ~ 20.7 7,104,407 11,897,713

14,476,562 16,902,653 Beneficiary certificates - 1,338,854 2,714,851

18,045,604 22,646,723 Securities denominated in

foreign currency: Equity securities - 12,506 12,651 Debt securities 0.4 ~ 12.4 3,867,953 3,995,283 Beneficiary certificates - 177,569 42,333

4,058,028 4,050,267 ₩ 22,103,632 ₩ 26,696,990 4-2-2. Details of marketable equity securities (including equity securities denominated in foreign currencies) as of December 31, 2010 and 2009 consist of the following (Korean won in millions): 2010 2009 Ownership Fair value Fair value Company (%) (Book value) (Book value) STX Pan Ocean Co., Ltd 14.99 ₩ 353,347 ₩ 348,718 Asiana Airlines Inc 6.85 117,852 44,469 Doosan Heavy Industries and Construction Co., Ltd 1.27 115,565 610,889 KUMHO Industrial Co., Ltd (*) 6.10 85,003 - KUMHO Tire Co., Inc (*) 14.16 74,771 - Ssangyong Cement Industry Co., Ltd (*) 13.81 69,140 94,738 STX Corporation 4.81 68,494 40,375 Taesan LCD Co., Ltd (*) 6.57 17,808 9,995 KOCREF15CR-REIT 15.00 9,374 9,300 Jusung Engeneering Co.,Ltd 1.10 7,600 - SIMPAC Inc 5.24 6,202 3,480 Signetics Corp 3.05 6,085 - Bohae Brewery Co.,Ltd 12.49 5,377 - Hanchang Paper Co.,Ltd(*) 14.12 3,230 4,779 Dongnam Marine Crane Co. Ltd 6.78 3,180 2,305 Others 27,025 112,306 ₩ 970,053 ₩ 1,281,354 (*) Listed shares with disposal restrictions are valued using data provided by independent valuers.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

20

4. Securities (cont’d) 4-2-3. Details of non-marketable equity securities (including equity securities denominated in foreign currencies) as of December 31, 2010 and 2009 consist of the following (Korean won in millions): 2010 2009 Ownership Fair value Fair value Company (%) (Book value) (Book value) Consumer Credit Assistant Fund Co., Ltd 4.67 ₩ 102,198 ₩ 102,198 Pantech Co., Ltd (*) 14.73 101,268 103,762 Sung Jin Geotec Co., Ltd 16.61 97,484 53,054 Hyundai Engineering Co., Ltd 7.42 56,242 5,740 Samsung Total Petrochemicals Co.,Ltd 3.24 43,328 38,391 Korea Securities Finance Corporation 5.19 34,523 29,397 Hwan Young Steel Ind. Co.,Ltd 14.28 32,541 32,983 Nonperforming Asset

Management Fund 10.47 30,901 48,880 Shinbundang Railroad Co., Ltd 10.28 28,881 23,790 Alpha dome City Co.,Ltd. 4.32 19,668 11,800 Econhill Development Co., Ltd 14.00 17,013 17,013 Kangnam Beltway 12.33 15,420 13,973 Korea Integrated Freight Terminal Co.,Ltd 6.85 14,965 14,523 ILJIN Materials Co.,Ltd 9.48 10,026 8,970 GM Korea Company - - 286,543 Samsung Life Insurance Co.,Ltd - - 132,248 Others 668,183 837,251 ₩ 1,272,641 ₩ 1,760,516

(*) Listed shares with disposal restrictions are valued using data provided by independent valuers.

4-2-4. Available-for-sale securities that are restricted as to disposal as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions):

2010 Number Company of shares Book value Restriction term Pantech Co., Ltd 249,427,382 ₩ 101,268 Until December 31, 2011 KUMHO Tire Co., Inc 13,161,600 74,771 Until December 31, 2014 Ssangyong Cement Industry Co.,Ltd 11,090,842 69,140 Not defined Taesan LCD Co., Ltd 7,027,574 17,808 Until December 31, 2013 KUMHO Industrial Co., Ltd 6,633,608 85,003 Until December 31, 2014 Hanchang Paper Co., Ltd 6,409,200 3,230 Until December 31, 2012 Daewoo Electronics Corporation 2,412,662 2,085 Until March 31, 2011 Daehan Shipbuilding Co., Ltd 309,500 2,238 Until December 31, 2013 Young Gwang Stainless Co., Ltd 413,000 772 Until December 31, 2012 ₩ 356,315

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

21

4. Securities (cont’d)

2009 Number Company of shares Book value Disposal restriction

Ssangyong Cement Industry Co.,Ltd. 11,092,842 ₩ 94,738 Not defined

Hanchang Paper Co., Ltd. 9,156,000 4,779 Until August 8, 2010 Daehan Eunpakgy Co., Ltd. 2,815,093 2,846 Until March 27, 2010 Daewoo Electronics

Corporation 2,412,662 1,884 Until March 31, 2011 ₩ 104,247

4-2-5. Debt securities as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 Acquisition Amortized Fair value Par value cost cost (book value) Government and

public bonds ₩ 3,734,000 ₩ 3,746,518 ₩ 3,728,234 ₩ 3,723,110 Finance bonds 3,640,000 3,649,624 3,643,596 3,649,045 Corporate bonds 7,270,847 7,264,824 7,260,899 7,104,407 Bonds denominated

in foreign currencies 3,781,986 3,815,312 3,852,656 3,867,953 ₩ 18,426,833 ₩ 18,476,278 ₩ 18,485,385 ₩ 18,344,515 2009 Acquisition Amortized Fair value Par value cost cost (book value) Government and public bonds ₩ 1,075,000 ₩ 1,131,286 ₩ 1,107,235 ₩ 1,082,033 Finance bonds 3,940,000 3,951,579 3,938,196 3,922,907 Corporate bonds 12,164,678 12,110,014 11,761,369 11,897,713 Bonds denominated in foreign currencies 4,168,939 4,176,729 4,137,007 3,995,283 ₩ 21,348,617 ₩ 21,369,608 ₩ 20,943,807 ₩ 20,897,936 Debt securities in Korean won are measured based on the lower of the valuation provided by KIS Pricing Inc. or the Korea Asset Pricing Co. Debt securities in foreign currency are measured based on the lower of the valuation provided by NICE Pricing Services Inc. or the Korea Asset Pricing Co..

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

22

4. Securities (cont’d) 4-2-6. Beneficiary certificates as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 Accumulated other Acquisition Book value comprehensive cost before valuation income Book value Beneficiary certificates

In Korean won: Bond type ₩ 1,240,000 ₩ 1,240,000 ₩ 22,510 ₩ 1,262,510 MMF type 88,223 74,939 1,405 76,344

1,328,223 1,314,939 23,915 1,338,854 Beneficiary certificates

In foreign currency 201,271 177,083 486 177,569 ₩ 1,529,494 ₩ 1,492,022 ₩ 24,401 ₩ 1,516,423 2009 Accumulated other Acquisition Book value comprehensive cost before valuation income Book value Beneficiary certificates in Korean won: Bond type ₩ 1,640,000 ₩ 1,640,000 ₩ 24,863 ₩ 1,664,863 MMF type 1,023,042 1,009,589 40,399 1,049,988 2,663,042 2,649,589 65,262 2,714,851 Beneficiary certificates in foreign currency 41,883 41,883 450 42,333 ₩ 2,704,925 ₩ 2,691,472 ₩ 65,712 ₩ 2,757,184

4-2-7. Impairment losses on available-for-sale securities for the years ended December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 2009 Equity securities ₩ 116,546 ₩ 220,023 Debt securities 29,758 131,748 Beneficiary certificates 240 6,560 ₩ 146,544 ₩ 358,331 4-3. Held-to-maturity securities 4-3-1. Held-to-maturity securities as of December 31, 2010 and 2009 consist of the following (Korean won in millions): Par value Acquisition cost Book value 2010 2009 2010 2009 2010 2009 Government and public bonds: National housing

bonds ₩ 11,558 ₩ 17,236 ₩ 5,361 ₩ 10,654 ₩ 10,127 ₩ 16,952 Public bonds 124,523 1,708,411 124,523 1,708,411 124,523 1,708,411

136,081 1,725,647 129,884 1,719,065 134,650 1,725,363 Corporate bonds 127,000 50,000 127,000 50,000 127,000 50,000 Others 569 569 566 566 568 569 ₩ 263,650 ₩ 1,776,216 ₩ 257,450 ₩ 1,769,631 ₩ 262,218 ₩ 1,775,932

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

23

4. Securities (cont’d) 4-4. Structured securities included in available-for-sale securities as of December 31, 2010 and 2009 are summarized as follows (USD ($) in thousands, JPY (￥) in millions, CNY (CNY) in millions, GBP (￡) in thousands ): 2010 Type Issuer Par value Issued date Maturity Book value Risk Foreign currencies Stock: Convertible bonds (JPY) Heiwa Real Estate Co., Ltd. ¥ 50 2007.06.15 2012.06.22 ¥ 49 Stock index Mitsubishi Chemical Holdings Co., Ltd. 100 2007.10.09 2013.10.22 97 “ Sharp Co., Ltd. 200 2007.09.07 2013.09.30 196 “ STX Pan Ocean Co., Ltd. 163 2009.11.17 2014.11.20 175 “ Toray Industries Inc. 200 2007.03.06 2014.03.12 195 “ Yamada Denki Co., Ltd. 100 2008.06.24 2015.03.31 95 “ Yamada Denki Co., Ltd. 100 2008.06.26 2015.03.31 95 “ Exchangeable bonds (USD) Zeus (Cayman) Pohang $ 3,688 2009.05.21 2011.08.19 $ 3,700 “ Convertible bonds (CNY) Industrial and Commercial Bank of China CNY 1 2010.08.31 2016.08.31 CNY 2 “ JPY Total ¥ 913 ¥ 902 USD Total $ 3,688 $ 3,700 CNY Total CNY 1 CNY 2 2009 Type Issuer Par value Issued date Maturity Book value Risk Foreign currencies Stock:

Convertible bonds (JPY) Toray Industries Inc. ¥ 200 2007.03.06 2014.03.12 ¥ 190 Stock index “ Heiwa Real Estate Co., Ltd. 50 2007.06.15 2012.06.22 48 “ “ Sharp Co., Ltd. 200 2007.09.07 2013.09.30 190 “ “ LG Display Co., Ltd. 921 2007.10.01 2012.04.18 1,002 “ Mitsubishi Chemical

“ Holdings Co., Ltd. 100 2007.10.09 2013.10.22 90 “ “ Hynix Semicon Inc. 184 2007.12.12 2012.12.14 183 “ “ Yamada Denki Co., Ltd. 100 2008.06.24 2015.03.31 91 “ “ Yamada Denki Co., Ltd. 100 2008.06.26 2015.03.31 91 “ “ KCC Corporation 461 2008.07.03 2012.10.30 480 “ “ KCC Corporation 184 2008.07.03 2012.10.30 186 “ “ KCC Corporation 92 2008.07.04 2012.10.30 93 “ “ KCC Corporation 92 2008.07.16 2012.10.30 93 “ “ KCC Corporation 92 2008.07.17 2012.10.30 93 “ “ LG Display Co., Ltd. 276 2008.09.05 2012.04.18 301 “ “ LG Display Co., Ltd. 184 2008.09.05 2012.04.18 200 “

“ STX Pan Ocean Co., Ltd. 184 2009.11.17 2014.11.20 179 “ Exchangeable bonds Donga Pharmaceutical (JPY) Co., Ltd. 442 2007.08.03 2012.07.05 468 “

“ Donga Pharmaceutical Co., Ltd. 479 2007.08.03 2017.07.05 507 “

Convertible bonds (USD) KCC Corporation $ 1,500 2008.07.02 2012.10.30 $ 1,563 “ “ Hynix Semicon Inc. 1,000 2009.03.17 2012.12.14 994 “ “ Hynix Semicon Inc. 1,000 2009.04.03 2012.12.14 994 “

“ Hynix Semicon Inc. 1,000 2009.04.03 2012.12.14 994 “ “ Hynix Semicon Inc. 1,000 2009.04.17 2012.12.14 994 “ “ LG Display Co., Ltd. 2,000 2009.06.10 2012.04.18 2,176 “ “ Hynix Semicon Inc. 1,000 2009.07.21 2012.12.14 994 “

“ Hynix Semicon Inc. 2,000 2009.07.21 2012.12.14 1,987 “ “ Hynix Semicon Inc. 1,000 2009.07.23 2012.12.14 994 “ “ Hynix Semicon Inc. 1,000 2009.07.23 2012.12.14 994 “ “ Hynix Semicon Inc. 1,000 2009.07.23 2012.12.14 994 “ Exchangeable bonds Daechang Co., Ltd. ￡ - 2009.04.09 2012.08.09 ￡ 110 “

(GBP) Convertible bonds Hynix Semicon Inc. 1,241 2007.12.10 2010.06.14 1,233 “ Exchangeable bonds Zeus (Cayman) Pohang 2,015 2009.05.21 2011.08.19 1,966 “ JPY Total ¥ 4,341 ¥ 4,485 USD Total $ 13,500 $ 13,678 GBP Total ￡ 3,256 ￡ 3,309

(*) Structured securities detailed above are equivalent to ₩17,076 million and ₩78,803 million as of December 31, 2010 and 2009, respectively

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

24

4. Securities (cont’d) 4-5. The maturities of debt securities included in available-for-sale securities and held-to-maturity securities as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Bonds denominated Government Finance Corporate in foreign bonds bonds bonds currencies Total Available-for-sale securities Within 1 year ₩1,628,749 ₩ 2,595,163 ₩ 2,194,444 ₩ 220,539 ₩ 6,638,895 After 1 year but no later than 5 years 1,816,706 1,053,882 4,760,239 1,166,717 8,797,544 After 5 years but no later than 10 years 183,635 - 149,724 382,011 715,370 Later than 10 years 94,020 - - 2,098,686 2,192,706 ₩ 3,723,110 ₩ 3,649,045 ₩ 7,104,407 ₩ 3,867,953 ₩ 18,344,515 Government and public Corporate bonds bonds Others Total Held-to-maturity securities Within 1 year ₩ 1,070 ₩ - ₩ 568 ₩ 1,638 After 1 year

but no later than 5 years 130,110 127,000 - 257,110 After 5 years but no later than 10 years 3,470 - - 3,470 ₩ 134,650 ₩ 127,000 ₩ 568 ₩ 262,218

2009 Bonds denominated Government Finance Corporate in foreign bonds bonds bonds currencies Total Available-for-sale securities Within 1 year ₩ 223,963 ₩ 1,016,402 ₩ 3,584,977 ₩ 1,111,839 ₩ 5,937,181 After 1 year but no later than 5 years 468,327 2,906,505 8,004,792 1,605,684 12,985,308 After 5 years but no later than 10 years 304,839 - 293,768 1,235,564 1,834,171 Later than 10 years 84,904 - 14,176 42,196 141,276 ₩ 1,082,033 ₩ 3,922,907 ₩11,897,713 ₩ 3,995,283 ₩ 20,897,936 Government and public Corporate bonds bonds Others Total Held-to-maturity securities Within 1 year ₩ 882,892 ₩ - ₩ 569 ₩ 883,461 After 1 year

but no later than 5 years 749,729 50,000 - 799,729 After 5 years

but no later than 10 years 92,742 - - 92,742 ₩ 1,725,363 ₩ 50,000 ₩ 569 ₩ 1,775,932

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

25

4. Securities (cont’d)

4-6. Information of the securities 4-6-1. Information of the securities (except for equity method investments) by country of issuance or origination as of December 31, 2010 and 2009 is summarized as follows (Korean won in millions): 2010 Country Amount Ratio (%) Trading securities: Korea ₩ 1,023,949 98.3 China 17,486 1.7 1,041,435 100.0 Available-for-sale securities: Korea 20,767,753 94.0 USA 322,782 1.5 India 150,786 0.7 UK 93,121 0.4 UAE 86,457 0.4 Russia 81,328 0.4 Japan 74,335 0.3 China 22,138 0.1 Other 504,932 2.2 22,103,632 100.0 Held-to-maturity securities Korea 262,218 100.0 ₩ 23,407,285

2009 Country Amount Ratio (%) Trading securities: Korea ₩ 607,761 98.8 USA 7,604 1.2 615,365 100.0 Available-for-sale securities: Korea 25,076,611 93.9 USA 385,590 1.4 India 191,440 0.7 Russia 147,279 0.6 UAE 95,457 0.4 UK 78,125 0.3 Japan 73,878 0.3 Other 648,160 2.4 26,696,990 100.0 Held-to-maturity securities Korea 1,775,932 100.0 ₩ 29,088,287

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

26

4. Securities (cont’d) 4-6-2. Information of the securities (except for equity method investments) by industry as of December 31, 2010 and 2009 is summarized as follows (Korean won in millions): 2010 Industry Amount Ratio (%) Trading securities Financial services ₩ 124,793 12.0 Construction 20,838 2.0 Manufacturing 16,510 1.6 Electricity, gas and water supply 9,930 1.0 Other 869,364 83.4 1,041,435 100.0 Available-for-sale securities Financial services 14,326,852 64.8 Manufacturing 3,287,275 14.9 Construction 1,201,322 5.4 Public sector 939,354 4.2 Electricity, gas and water supply 202,106 0.9 Other 2,146,723 9.8 22,103,632 100.0 Held-to-maturity securities Financial services 107,721 41.1 Public sector 101,000 38.5 Electricity, gas and water supply 3,497 1.3 Other 50,000 19.1 262,218 100.0 ₩ 23,407,285 2009 Industry Amount Ratio (%) Trading securities Financial services ₩ 319,098 51.9 Electricity, gas and water supply 19,822 3.2 Manufacturing 13,505 2.2 Construction 3,300 0.5 Other 259,640 42.2 615,365 100.0 Available-for-sale securities Financial services 14,270,986 53.5 Manufacturing 5,448,414 20.4 Construction 1,983,935 7.4 Public sector 1,981,970 7.4 Electricity, gas and water supply 183,102 0.7 Other 2,828,583 10.6 26,696,990 100.0 Held-to-maturity securities Construction 1,443,600 81.3 Public sector 112,676 6.3

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

27

4. Securities (cont’d) 2009 Industry Amount Ratio (%) Financial services 50,711 2.9 Electricity, gas and water supply 4,313 0.2 Other 164,632 9.3 1,775,932 100.0 ₩ 29,088,287 4-6-3. Information of the securities (except for equity method investments) by type of instrument as of December 31, 2010 and 2009 is summarized as follows (Korean won in millions): 2010 Type Amount Ratio (%) Trading securities Equity securities ₩ 25,562 2.5 Floating rate bonds 2,498 0.2 Fixed rate bonds 1,013,375 97.3 1,041,435 100.0 Available-for-sale securities Equity securities 2,032,779 9.2 Investments in partnerships 209,915 0.9 Fixed rate bonds 15,982,293 78.1 Floating rate bonds 2,362,222 10.7 Beneficiary certificates 1,516,423 1.1 22,103,632 100.0 Held-to-maturity securities Fixed rate bonds 262,218 100.0 ₩ 23,407,285 2009 Type Amount Ratio (%) Trading securities Floating rate bonds ₩ 64,192 10.4 Fixed rate bonds 551,173 89.6 615,365 100.0 Available-for-sale securities Equity securities 2,742,280 10.3 Investments in partnerships 299,590 1.1 Fixed rate bonds 19,721,317 74.0 Floating rate bonds 1,176,619 4.4 Beneficiary certificates 2,757,184 10.2 26,696,990 100.0 Held-to-maturity securities Fixed rate bonds 1,775,932 100.0 ₩ 29,088,287

Kore

a De

velo

pmen

t Ban

k No

tes

to n

on-c

onso

lidat

ed fi

nanc

ial s

tate

men

ts

Dec

embe

r 31,

201

0 an

d 20

09

28

4. S

ecur

ities

(con

t’d)

4-7.

Equ

ity m

etho

d in

vest

men

ts

4-7-

1. E

quity

met

hod

inve

stm

ents

as

of D

ecem

ber 3

1, 2

010

and

2009

are

sum

mar

ized

as

follo

ws

(Kor

ean

won

in m

illion

s):

20

10

20

09

Eq

uity

met

hod

valu

atio

n

Bo

ok v

alue

Oth

er

Pr

opor

tiona

te

Prop

ortio

nate

Ow

ners

hip

Beg

inni

ng

In

crea

se

bef

ore

Earn

ings

R

etai

ned

com

preh

ensi

ve

ne

t ass

et

net a

sset

(%)

b

alan

ce

(d

ecre

ase)

D

ivid

end

v

alua

tion

(loss

)

ear

ning

s

inco

me

Bo

ok v

alue

valu

e

Boo

k va

lue

va

lue

Se

curit

ies:

D

aew

oo S

hipb

uild

ing

&

Mar

ine

Engi

neer

ing

Co.

, Ltd

31.2

6 ₩

1,0

40,4

86 ₩

36

6 ₩

(29,

913)

₩

1,01

0,93

9 ₩

243

,206

₩

(751

) ₩

29

,094

₩ 1

,282

,488

₩

1,2

82,4

88

₩1,

040,

486

₩ 1

,040

,486

KD

B A

sia

Ltd

(*1)

100.

00

21

4,80

7

(5,2

80)

-

2

09,5

27

12

,867

-

6,

102

22

8,49

6

228,

496

21

4,80

6

214,

707

Kore

a B

TL F

und

I

41.6

7

172,

378

46

,875

(8

,199

)

211

,054

1

0,04

3 -

-

22

1,09

7

222,

309

17

2,37

8 17

3,99

4 KD

B Ba

nk

(Hun

gary

) Ltd

(*1)

100.

00

15

1,95

2

(18,

037)

-

13

3,91

5

6,18

5

-

(4

3)

1

40,0

57

140,

057

151

,952

151,

952

KDB

elec

troni

c po

wer

PEF

50.0

0

126,

151

23

,708

(7

,394

)

1

42,4

65

7,

947

-

-

150,

412

14

9,84

0

126,

151

125,

388

Kore

a In

frast

ruct

ure

Fund

II

26

.67

96

,795

18

,369

(4

,635

) 11

0,52

9

4,46

8 -

-

114,

997

11

4,99

7

96,7

95

96,7

95

Ko

rea

Educ

atio

n Fu

nd

50

.00

73

,312

9,

137

(3,9

13)

78

,536

4,

395

-

-

82,9

31

83,6

04

73,3

12

74,2

10

Kor

ea R

ailro

ad F

und

I

50.0

0

73,1

76

58,5

02

(3,6

03)

128

,075

5,08

0 -

- 13

3,15

5 13

3,38

2 73

,176

73

,479

Ko

rea

Infra

stru

ctur

e Fu

nd

85

.00

64

,301

(2

7,19

3)

(4,2

56)

32,

852

3,5

97

- -

36

,449

36

,449

64

,301

64

,301

KD

B Ire

land

Ltd

(*1)

100.

00

62

,390

(1

,534

) -

6

0,85

6

5,

863

-

3,

991

70

,710

70

,710

62

,390

62

,390

M

oorim

P&

P C

o., L

td

-

29

,628

(3

5,73

4)

-

(6

,106

)

6,10

6 -

-

-

-

29,6

28

64,0

16

UzK

DB

Ban

k (*

1)

61

.11

18

,634

(4

58)

-

18,

176

2,

837

-

(3

35)

20,6

78

20,6

77

18,6

34

18,6

03

Banc

o K

DB

Do

Br

azil

S.A

(*1)

100.

00

15

,909

74

,462

-

90

,371

(1

41,7

71)

(276

) (1

,527

) -

(53,

203)

15

,909

15

,909

Se

won

Cor

pora

tion

16

.62

12

,011

-

(6

9)

11

,942

4,

181

-

-

16

,123

16

,123

12

,011

12

,011

G

M K

orea

Com

pany

17.0

2

-

751,

122

-

75

1,12

2

-

-

-

751,

122

47

0,76

2

-

- O

ther

s

-

92,8

33

2,48

5

(525

)

94,7

93

(3

,803

)

3,08

8

(2,9

79)

91,0

99

57

1,45

3

92,8

34

75

,276

2,

244,

763

89

6,79

0 (6

2,50

7)

3,

079,

046

171,

201

2,

061

34

,303

3,

339,

814

3,48

8,14

4

2,24

4,76

3

2,26

3,51

7

Kore

a De

velo

pmen

t Ban

k No

tes

to n

on-c

onso

lidat

ed fi

nanc

ial s

tate

men

ts

Dec

embe

r 31,

201

0 an

d 20

09

29

4. S

ecur

ities

(con

t’d)

20

10

20

09

Eq

uity

met

hod

valu

atio

n

Boo

k va

lue

Oth

er

Pro

porti

onat

e

P

ropo

rtion

ate

Ow

ners

hip

Beg

inni

ng

In

crea

se

bef

ore

Ear

ning

s R

etai

ned

c

ompr

ehen

sive

ne

t ass

et

net a

sset

(%)

b

alan

ce

(d

ecre

ase)

Div

iden

d v

alua

tion

(lo

ss)

ea

rnin

gs

in

com

e

Book

val

ue

va

lue

B

ook

valu

e

valu

e

Oth

er in

vest

men

ts:

KDB

Valu

e P

rivat

e Eq

uity

Fun

d I

77

.02

46

,450

(3

3,20

3)

(17,

757)

(4,5

10)

6,06

2 -

-

1,

552

1,

552

46

,450

46

,450

KD

B Va

lue

Priv

ate

Equi

ty F

und

II

51.9

3

136,

807

(1

41,3

55)

(49,

134)

(53

,682

) 91

,537

-

-

37

,855

37

,855

13

6,80

7

136,

807

KDB

Valu

e P

rivat

e Eq

uity

Fun

d III

69.2

2

62,3

02

- -

62,

302

7,

703

9,

144

(2

,093

) 77

,056

77

,056

62

,302

62

,302

KD

B Va

lue

Priv

ate

Equi

ty F

und

VI

99

.84

-

1,

003,

870

-

1,00

3,87

0 -

-

-

1,

003,

870

1,

003,

870

-

-

KDB

Turn

Aro

und

95

.12

46

,866

5,

800

-

52,6

66

(31,

758)

-

-

20

,908

20

,908

46

,866

46

,866

KD

B Ve

ntur

e M

&A

Pr

ivat

e E

quity

Fun

d

57.5

6

13,5

99

- -

13,

599

8,

260

-

-

21,8

59

21,8

59

13,5

99

13,5

99

KDB

Con

sus

Valu

e

40.5

2

-

253,

845

-

25

3,84

5

(62,

268)

-

1,

877

19

3,45

4

193,

454

-

-

KDB

-Tst

one

Priv

ate

Eq

uity

Fun

d

46.6

7

-

19,4

87

-

1

9,48

7 (7

00)

-

-

18,7

87

18,7

87

-

- O

ther

s

25,1

29

56,1

22

-

81,2

51

(

2,11

7)

-

(

648)

78

,486

77

,288

25

,129

26

,136

33

1,15

3

1,16

4,56

6

(66,

891)

1,42

8,82

8

16,

719

9,

144

(8

64)

1,

453,

827

1,

452,

629

33

1,15

3

332,

160

₩

2,5

75,9

16 ₩

2,0

61,3

56

₩(1

29,3

98) ₩

4,50

7,87

4 ₩

187,

920

₩ 11

,205

₩

33,4

39

₩ 4

,793

,641

₩ 4

,940

,773

₩

2,5

75,9

16 ₩

2,

595,

677

(*1)

For

inve

stm

ents

den

omin

ated

in fo

reig

n cu

rrenc

y, th

e be

ginn

ing

bala

nce

was

tran

slat

ed u

sing

the

exch

ange

rate

at D

ecem

ber 3

1, 2

010.

(*

2) T

he B

ank

obta

ined

the

audi

ted

or re

view

ed fi

nanc

ial s

tate

men

ts o

f the

inve

stee

s, if

ava

ilabl

e, to

app

ly th

e eq

uity

met

hod

of a

ccou

ntin

g. If

they

are

not

av

aila

ble,

the

Ban

k ob

tain

s un

audi

ted

finan

cial

sta

tem

ents

sig

ned

by t

he in

vest

ees’

inte

rnal

aud

itors

and

man

agem

ent.

The

audi

tor

conf

irmed

tha

t th

e in

vest

ees’

una

udite

d fin

anci

al s

tate

men

ts re

flect

ed a

ll si

gnifi

cant

tran

sact

ions

or r

esol

utio

n of

acc

ount

ing

issu

es w

hich

the

Ban

k id

entif

ied.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

30

4. Securities (cont’d)

4-7-2. Changes in the unamortized difference between the Bank’s acquisition cost and the Bank’s portion of the investee’s net asset value at acquisition date for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Amortization Reversal Amortization Reversal Beginning balance ₩ 15,708 ₩ (39,861) ₩ 23,371 ₩ (3,582,458) Increase (decrease) 275,787 32,827 (456) 3,337,519 Amortization or reversal (3,800) 4,116 (7,207) 205,078 Ending balance ₩ 287,695 ₩ (2,918) ₩ 15,708 ₩ (39,861) 4-7-3. Changes in unrealized income (expenses) incurred from transactions with investees for the years ended December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 Beginning Ending balance Increase Decrease balance Daewoo Shipbuilding &

Marine Engineering Co., Ltd. ₩ 19,466 ₩ - ₩ (825) ₩ 18,641

KDB Ireland Ltd. 1,518 - (37) 1,481 KDB Bank (Hungary) Ltd. 99 18 - 117 KDB Asia Ltd. 99 - (36) 63 Banco KDB Do Brasil S.A - 2,520 - 2,520 ₩ 21,182 ₩ 2,538 ₩ (898) ₩ 22,822 2009 Beginning Ending balance Increase Decrease balance KDB Capital Corp. ₩ 3,107 ₩ - ₩ (3,107) ₩ - Daewoo Shipbuilding &

Marine Engineering Co., Ltd. 22,036 - (2,570) 19,466

Korea Aerospace Industries, Ltd. 2,273 - (2,273) -

KDB Ireland Ltd. 1,860 - (342) 1,518 KDB Bank (Hungary) Ltd. - 99 - 99 KDB Asia Ltd. - 99 - 99 Daewoo Securities Co., Ltd. - 670 (670) - ₩ 29,276 ₩ 868 ₩ (8,962) ₩ 21,182

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

31

4. Securities (cont’d) 4-7-4. The condensed financial position and the results of operations of the Bank’s equity method investees as of and for the years ended December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010

Operating Net income Assets Liabilities income(loss) (loss) Securities:

Daewoo Shipbuilding & Marine Engineering Co., Ltd (*) ₩14,176,729 ₩10,133,496 ₩ 12,074,505 ₩ 780,132

KDB Asia Ltd. 796,359 567,926 41,373 12,901 Korea BTL Fund I 533,899 352 12,912 12,146 KDB Bank (Hungary) Ltd 751,621 611,681 91,525 5,879 KDB electronic power PEF 299,730 8,317 8,651 8,265 Korea Infrastructure Fund II 538,289 107,048 14,595 9,331 Korea Education Fund 167,217 9 4,363 4,144 Korea Railroad Fund I 266,781 16 6,364 5,757 Korea Infrastructure Fund 42,897 17 2,268 2,045 KDB Ireland Ltd. 399,602 330,375 25,940 5,862 UzKDB Bank 216,922 183,086 16,364 6,689 Banco KDB Do Brazil S.A. 536,983 592,706 326,884 (144,291) GM Korea Company 7,827,531 5,061,576 12,597,422 585,551

Other investments: KDB Value Private Equity Fund I 2,016 - 8,533 7,871 KDB Value Private Equity Fund II 73,167 277 197,705 176,258 KDB Value Private Equity Fund III 111,646 323 12,439 11,129 KDB Turn Around 30,351 8,372 (31,908) (33,385) KDB Venture M&A

Private Equity Fund 38,223 246 14,996 14,350 2009

Operating Net income Assets Liabilities income (loss) Securities:

Daewoo Shipbuilding & Marine Engineering Co., Ltd. ₩ 16,530,511 ₩13,463,018 ₩ 12,442,519 ₩ 616,385

KDB Asia Ltd. 724,331 509,624 54,210 12,353 Korea Infrastructure Fund II 456,259 93,278 45,832 37,492 KDB Bank(Hungary) Ltd. 860,462 708,610 170,703 4,778 Korea Infrastructure Fund 75,677 29 7,438 6,826 KDB Ireland Ltd. 440,251 379,381 33,970 5,606 Banco KDB Do Brazil S.A 635,338 619,428 531,332 (40,718) UzKDB Bank 143,575 113,133 14,521 6,444

Other investments: KDB Value Private Equity Fund I 60,541 229 51,232 49,391 KDB Value Private Equity Fund II 271,381 1,193 6,251 2,368 KDB Value Private Equity Fund III 94,148 1,261 372 (1,733) KDB Venture M&A

Private Equity Fund 23,777 150 635 (261) National Pension Service 05-4

Saneun Venture Investment Inc 28,766 - 5,232 1,133 (*) Financial information was extracted from the investee’s financial statements.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

32

4. Securities (cont’d) 4-8. The Bank has not applied the equity method accounting for the following investees even though the Bank holds equity interest more than 15% as of December 31, 2010 and 2009 (Korean won in millions, number of shares in thousands): 2010 Number of Ownership Acquisition Book Shares (%) value value Reason Sungjin Geotec Co., Ltd. 6,980 16.61 ₩ 30,000 ₩ 97,484 Non Voting Preferred

Stock A jin Paper & Packing Co., Ltd. 733 25.90 ₩ 4,855 ₩ 9,600 Corporate Restructuring

Promotion Act Others 183,369 98,037 (*) ₩ 218,224 ₩ 205,121 2009 Number of Ownership Acquisition Book Shares (%) value value Reason Pantech Co.,Ltd. 249,427 15.14 ₩ 46,133 ₩ 103,762 Corporate Restructuring Promotion Act. Others 203,927 161,639 (*) ₩ 250,060 ₩ 265,401

(*) In accordance with the Company Reorganization Act, the Corporate Restructuring Promotion Act and others.

4-9. The fair values of investments in listed investees as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Fair value Book value Daewoo Shipbuilding & Marine Engineering Co., Ltd. ₩ 2,180,643 ₩ 1,282,488

Sewon Corporation 10,368 16,123 ₩ 2,191,011 ₩ 1,298,611 2009 Fair value Book value Daewoo Shipbuilding & Marine Engineering Co., Ltd. ₩ 1,046,948 ₩ 1,040,486

Sewon Corporation 8,050 12,011 Moorim P&P Co., Ltd. 31,462 29,628 ₩ 1,086,460 ₩ 1,082,125

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

33

4. Securities (cont’d) 4-10. Restricted securities as of December 31, 2010 are summarized as follows (Korean won in millions): 2010 Type Amount Restriction BOK Available-for-sale ₩ 1,660,336 Collateral for overdrafts securities and others Korea Securities Depository 5,646,299 Collateral relating to Repo “ transactions Others “ 862,961 KDB 1st SPC and others ₩ 8,169,596

5. Loans receivable

5-1. Detail of loans receivable 5-1-1. Total loans receivable as of December 31, 2010 and 2009 consist of the following (Korean won in millions): 2010 2009 Loans in Korean won ₩ 37,838,144 ₩ 36,809,619 Loans in foreign currencies 16,332,079 17,954,984 Bills bought in Korean won 1,889 4,180 Bills bought in foreign currencies 1,719,430 2,315,945 Advance payments on acceptances and guarantees 125,936 75,401 Bonds purchased under resale agreements 1,133,251 950,407 Others 14,712,518 18,100,818 71,863,247 76,211,354 Less allowance for possible loan losses (1,944,837) (1,413,400) Deferred loan fees (25,497) (12,499) Total loans receivable ₩ 69,892,913 ₩ 74,785,455

5-1-2. Loans receivable as of December 31, 2010 and 2009 consist of the following (Korean won in millions): <Loans receivable in Korean won> 2010 2009 Loans for working capital: Industrial fund loans ₩ 12,140,644 ₩ 10,522,291 Overdraft 399,944 407,536 Loans for working capital for small and medium industry 6,370 447,550 Trade notes purchased at a discount 6,000 6,000 Government fund loans 196 392 Others 1,126,040 730,623 13,679,194 12,114,392 Loans for facility developments: Industrial fund loans 20,557,662 21,173,602 Government fund loans 727,513 789,806 Loans to customers

with fund for rational use of energy 1,022,121 923,765 Loans to customers with tourism fund 640,952 721,481 Loans to customers with small and medium company promotion fund 426,826 460,349 Loans to customers with national

investment fund 14,813 15,394

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

34

5. Loans receivable (cont’d) 2010 2009

Loans to customers with industrial technique fund 24,140 51,260

Loans to customers with industrial foundation fund 49 4,013

Others 718,895 555,557 24,132,971 24,695,227 Loans on households: Housing loans in Korean won 25,919 - General purpose loans in Korean won 60 - 25,979 - ₩ 37,838,144 ₩ 36,809,619 <Loans receivable in foreign currency> 2010 2009 Loans for working capital: Loans for working capital in foreign currency ₩ 2,176,067 ₩ 1,859,482 Loans for working capital from foreign country 589,349 548,113 Others 43,735 3,301 2,809,151 2,410,896 Loans for facility developments: Loans for facility development in foreign currency 7,174,421 7,803,036 Off-shore loans in foreign currency 3,668,493 3,418,935 Loans for facility developments from foreign country 2,336,946 2,746,163 Loans to international bank for reconstruction and development - 1,417,786 Loans to Japan Bank for International corporation 343,068 158,168 13,522,928 15,544,088 ₩ 16,332,079 ₩ 17,954,984 <Other loans receivable> 2010 2009 Debentures accepted by private subscription ₩ 6,724,279 ₩ 11,426,504 Domestic import usance bills 3,500,211 3,683,812 Call loans 2,569,711 1,277,845 Inter-bank loans 1,694,945 1,499,725 Inter-non-bank loans 174,252 178,643 Others 19,383 20,285 Letter of credit 18,664 14,004 Receivables convertible to equity securities 11,073 - ₩ 14,712,518 ₩ 18,100,818

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

35

5. Loans receivable (cont’d) 5-2. Detail of loans in Korean won and loans in foreign currencies by country and industry 5-2-1. Concentrations of loans in Korean won and loans in foreign currencies by country as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions):

2010 2009 Book value Ratio (%) Book value Ratio (%) Korea ₩ 46,197,331 85.27 ₩ 47,826,006 87.33 China 1,856,045 3.43 1,668,939 3.05 Ireland 692,759 1.28 710,249 1.30 USA 355,634 0.66 357,432 0.65 Indonesia 125,399 0.23 168,569 0.31 Others 4,943,055 9.13 4,033,408 7.36 ₩ 54,170,223 100.00 ₩ 54,764,603 100.00 5-2-2. Concentrations of loans in Korean won and loans in foreign currencies by industry as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions):

2010 2009 Book value Ratio (%) Book value Ratio (%) Manufacturing ₩ 32,162,414 59.37 ₩ 32,172,178 58.75 Transportation business 5,596,199 10.33 5,567,665 10.17 Financial services 4,280,395 7.91 3,331,544 6.08 Electricity, Gas and Water Supply 2,044,869 3.77 2,983,588 5.45

Wholesale and retail 1,387,191 2.56 1,649,112 3.01 Public sector and others 740,473 1.37 1,629,681 2.98 Others 7,958,682 14.69 7,430,835 13.56 ₩ 54,170,223 100.00 ₩ 54,764,603 100.00

5-3. The maturity of loans in Korean won and loans in foreign currencies as of December 31, 2010 and 2009 is summarized as follows (Korean won in millions):

2010 Korean Foreign won currencies Total

Within 3 months ₩ 3,666,416 ₩ 1,700,926 ₩ 5,367,342 After 3 months

but no later than 6 months 4,035,731 1,695,579 5,731,310 After 6 months

but no later than 1 year 7,237,977 2,547,314 9,785,291 After 1 year

but no later than 3 years 11,695,101 6,285,890 17,980,991 After 3 years

but no later than 5 years 6,112,629 2,297,592 8,410,221 Later than 5 years 5,090,290 1,804,778 6,895,068 ₩ 37,838,144 ₩ 16,332,079 ₩ 54,170,223

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

36

5. Loans receivable (cont’d)

2009 Korean Foreign won currencies Total

Within 3 months ₩ 4,229,310 ₩ 1,223,726 ₩ 5,453,036 After 3 months

but no later than 6 months 3,254,762 1,938,783 5,193,545 After 6 months

but no later than 1 year 5,725,542 2,706,687 8,432,229 After 1 year

but no later than 3 years 12,349,779 7,088,901 19,438,680 After 3 years

but no later than 5 years 5,733,282 2,945,829 8,679,111 Later than 5 years 5,516,944 2,051,058 7,568,002 ₩ 36,809,619 ₩ 17,954,984 ₩ 54,764,603 5-4. Details of changes in the allowance for possible loan losses for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Loans Others Total 2009 Beginning balance ₩ 1,393,546 ₩ 52,244 ₩ 1,445,790 ₩ 1,026,777 Changes in translation of foreign currency 290 - 290 (2,465) Increase in allowance from loan repurchase 13,227 - 13,227 18,316 Disposal of non-performing loans (98,065) - (98,065) (136,958) Increase in allowance due to early

collection for loans restructured 533 - 533 1,156 Spin-off - - - (33,626) Losses recognized under the equity method

in excess of the investor’s investment 53,202 - 53,202 - Write-offs (578,665) - (578,665) (395,475) Provision for possible loan losses 1,184,436 969 1,185,405 918,586 Transfer to other allowance (39,662) 22,885 (16,777) 49,479 Ending balance ₩ 1,928,842 ₩ 76,098 ₩ 2,004,940 ₩ 1,445,790 The difference between the above allowance for possible loan losses of ₩1,928,842 million and the amount per the statement of financial position of ₩1,944,837 million represents present value discount of loans under restructuring agreements.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

37

5. Loans receivable (cont’d) 5-5. Classification of loans receivable and detail of the allowance for possible loan losses 5-5-1. Details on the allowance for possible loan losses as of December 31, 2010 and 2009 are as follows (Korean won in millions):

2010 2009 Loans:

Loans and Bills bought ₩ 1,416,493 ₩ 1,097,632 Bills bought in foreign currencies 46,712 49,462 Advance payments on acceptances and guarantee 47,917 26,825 Domestic import usance 66,799 62,850 Privately-placed corporate bonds 341,501 152,542 Others 9,420 4,235

1,928,842 1,393,546 Other assets 76,098 52,244 ₩ 2,004,940 ₩ 1,445,790

5-5-2. Details on the classification of loans receivable and the allowance for possible loan losses as of December 31, 2010 and 2009 are as follows (Korean won in millions):

2010 Allowance for Loans receivable possible loan losses Ratio (%) Normal ₩ 61,836,795 ₩ 773,239 1.25 Precautionary 2,404,404 448,863 18.67 Substandard 1,403,379 499,671 35.60 Doubtful 49,740 41,660 83.76 Estimated Loss 165,409 165,409 100.00 ₩ 65,859,727 ₩ 1,928,842 2.93 2009 Allowance for Loans receivable possible loan losses Ratio (%) Normal ₩ 66,797,008 ₩ 719,605 1.08 Precautionary 1,343,173 190,199 14.16 Substandard 1,580,400 418,944 26.51 Doubtful 37,600 22,830 60.72 Estimated Loss 41,968 41,968 100.00 ₩ 69,800,149 ₩ 1,393,546 2.00 Details of the adjustments to loans receivable for purpose of the determination of the allowance for possible loan losses as of December 31, 2010 and 2009 are as follows (Korean won in millions):

2010 2009 Loans receivable ₩ 71,863,247 ₩ 76,211,354 Present value discount (15,995) (19,854) Prepayments regarded as loans - 1,908 Call loans (2,569,711) (1,277,845) Inter-bank loans (1,694,945) (1,499,725) Bonds purchased under resale agreement (1,133,251) (950,407) Others (*) (589,618) (2,665,282) ₩ 65,859,727 ₩ 69,800,149 (*) Others represent loans to or loans guaranteed by the Korean government.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

38

5. Loans receivable (cont’d) 5-5-3. Historical ratios of the allowance for possible loan losses to total loans receivable as of December 31, 2010, 2009 and 2008, are as follows (Korean won in millions):

2010 2009 2008 Total loans receivable ₩ 65,859,727 ₩ 69,800,149 ₩ 67,524,055 Allowance for possible loan losses 1,928,842 1,393,546 1,023,727 Ratio (%) 2.93 2.00 1.52 5-6. Details of restructured loans as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010(*) 2009 Conversion of investment ₩ 220,072 ₩ 76,561 (*) 2010 amount includes ₩140,000 million of corporate bonds in available-for-sale securities, which were converted to equity securities in 2010. 5-7. Unamortized present value discounts originated from troubled debt restructuring as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Original amount Present value before restructuring discount Present value Loans receivable restructured ₩ 89,103 ₩ 15,995 ₩ 73,108 2009 Original amount Present value before restructuring discount Present value Loans receivable restructured ₩ 97,918 ₩ 19,854 ₩ 78,064 5-7-1. Changes in present value discounts originated from troubled debt restructuring for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Beginning balance ₩ 19,854 ₩ 22,408 Increase 224 2,711 Amortization (Interest income, etc) (3,550) (4,095) Reversal (533) (1,170) Ending balance ₩ 15,995 ₩ 19,854 5-8. Changes in deferred loan fees, net of income for the years ended December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 Beginning Ending balance Increase Decrease balance Deferred loan fees, net of income ₩ 12,499 ₩ 21,017 ₩ (8,019) ₩ 25,497

2009 Beginning Ending balance Increase Decrease balance Deferred loan fees, net of income ₩ 1,569 ₩ 20,577 ₩ (9,647) ₩ 12,499

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

39

6. Property and equipment 6-1. Changes in property and equipment for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Beginning Ending balance Acquisition Disposal Other (*) Depreciation balance Land ₩274,212 ₩ 46 ₩ (3,426) ₩ (7,142) ₩ - ₩ 263,690 Buildings 240,403 713 (387) 25 (7,840) 232,914 Structures 5,436 20 - - (348) 5,108 Computer equipment 13,227 6,373 (76) (1) (6,533) 12,990 Vehicles 196 550 (230) 209 (149) 576 Construction

in-progress 14 271 (284) (1) - - Others 8,702 4,956 (2) (29) (2,938) 10,689 ₩542,190 ₩ 12,929 ₩ (4,405) ₩ (6,939) ₩ (17,808) ₩ 525,967 2009 Beginning Ending balance Acquisition Disposal Other (*) Depreciation balance Land ₩319,198 ₩ 21 ₩ (38,958) ₩ (6,049) ₩ - ₩ 274,212 Buildings 288,810 1,695 (36,760) (4,397) (8,945) 240,403 Structures 8,101 - (2,148) - (517) 5,436 Computer equipment 11,049 4,297 - (10) (2,109) 13,227 Vehicles 284 24 (17) (14) (81) 196 Construction

in-progress 49 1,286 (1,321) - - 14 Others 9,074 2,198 (117) (204) (2,249) 8,702 ₩636,565 ₩ 9,521 ₩ (79,321) ₩ (10,674) ₩ (13,901) ₩ 542,190 (*) Others include exchanges differences adjustment and impairment losses for assets denominated in foreign currencies.

The value of the Bank’s land, as determined by the government of the Republic of Korea for tax administration purposes as of December 31, 2010 and 2009 amounted to ₩380,544 million and ₩360,490 million, respectively.

6-2. Insured property and equipment as of December 31, 2010 are summarized as follows (Korean won in millions): 2010 Insured amount Insurance period Buildings & Structures ₩ 221,983 2010.1.12 ~ 2011.1.12 Computer equipment 13,010 Same as the above Others 6,459 Same as the above ₩ 241,452

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

40

7. Other assets

7-1. Changes in intangible assets for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Beginning Ending Type balance Increase Decrease balance Development costs ₩ 32,285 ₩ 13,711 ₩ (9,514) ₩ 36,482 Equipment usage right 323 - (28) 295 Others 7,972 5,428 (3,309) 10,091 ₩ 40,580 ₩ 19,139 ₩ (12,851) ₩ 46,868 2009 Beginning Ending Type balance Increase Decrease balance Development costs ₩ 22,613 ₩ 17,481 ₩ (7,809) ₩ 32,285 Equipment usage right 317 34 (28) 323 Others 6,252 4,834 (3,114) 7,972 ₩ 29,182 ₩ 22,349 ₩ (10,951) ₩ 40,580 7-2. Details of others in other assets as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Accounts receivable related foreign exchange ₩ 933,161 ₩ 1,152,906 Other deposits provided 11,198 7,768 Others 237,911 68,534 ₩ 1,182,270 ₩ 1,229,208

8. Deposits received

8-1. Deposits received as of December 31, 2010 and 2009 consist of the following (Korean won in millions):

2010 2009 Deposits in Korean won:

Demand deposits: Checking accounts ₩ 5,212 ₩ 2,951 Temporary deposits 398,202 212,456 Passbook deposits 8,606 7,639 Others 86 81

412,106 223,127 Time and savings deposits:

Time deposits 11,286,924 3,945,550 Installment savings deposits 175,259 158,280 Corporate savings deposits 4,735,872 4,390,176 Savings deposits 122,442 99,193 Others 1,714 1,714

16,322,211 8,594,913 16,734,317 8,818,040 Deposits in foreign currency:

Demand deposits: Checking accounts 20,239 24,992 Passbook deposits 560 244,624 Temporary deposits 316,823 463 Others 53,956 28,611

391,578 298,690

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

41

8. Deposits received (cont’d) 2010 2009 Time and savings deposits:

Time deposits 667,001 1,234,410 1,058,579 1,533,100 Negotiable certificates of deposits 1,136,947 3,584,786 ₩ 18,929,843 ₩ 13,935,926

8-2. Maturities of deposits received as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 Negotiable Demand Time and saving certificates of deposits deposits deposits Total Within 3 months ₩ 803,684 ₩ 11,813,296 ₩ 840,845 ₩ 13,457,825 After 3 months

but no later than 6 months - 1,977,697 246,556 2,224,253 After 6 months

but no later than 1 year - 1,607,366 16,564 1,623,930 After 1 year

but no later than 3 years - 1,568,110 32,813 1,600,923 After 3 years

but no later than 5 years - 2,615 169 2,784 Later than 5 years - 20,128 - 20,128 ₩ 803,684 ₩ 16,989,212 ₩ 1,136,947 ₩ 18,929,843 2009 Negotiable Demand Time and saving certificates of deposits deposits deposits Total Within 3 months ₩ 521,817 ₩ 6,865,553 ₩ 2,062,155 ₩ 9,449,525 After 3 months

but no later than 6 months - 1,394,007 1,470,305 2,864,312 After 6 months

but no later than 1 year - 1,016,735 25,034 1,041,769 After 1 year

but no later than 3 years - 551,926 27,228 579,154 After 3 years

but no later than 5 years - 1,022 64 1,086 Later than 5 years - 80 - 80 ₩ 521,817 ₩ 9,829,323 ₩ 3,584,786 ₩ 13,935,926

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

42

9. Borrowing liabilities 9-1. Borrowing liabilities as of December 31, 2010 and 2009 consist of the following (Korean won in millions): 2010 2009 Borrowings: Korean won ₩ 4,834,508 ₩ 4,657,164 Foreign currency 11,573,920 13,087,541 16,408,428 17,744,705

Debentures: Korean won 28,046,596 34,938,266 Foreign currency 16,084,037 17,005,852 44,130,633 51,944,118

Other borrowings: Bonds sold under repurchase agreements 5,003,800 9,028,121 Bill sold 270 - Call money 1,270,882 1,975,140 6,274,952 11,003,261

66,814,013 80,692,084 Deferred borrowing fees (5,822) (4,296)

₩ 66,808,191 ₩ 80,687,788 9-2. Borrowings in Korean won as of December 31, 2010 and 2009 consist of the following (Korean won in millions): Annual interest Lender Classifications rate (%) 2010 2009 Ministry of Strategy Borrowings from and Finance government fund 2.5 ~ 6.0 ￦ 803,068 ￦ 848,647 Industrial Bank of Korea Borrowings from industrial technique fund 1.4 ~ 3.8 90,732 144,713 Small & Medium Borrowings from local Business Corp. small and medium

company promotion fund 2.0 ~ 4.0 506,138 557,702 Ministry of Culture Borrowings from tourism and Tourism promotion fund 1.3 ~ 4.0 1,154,203 1,150,502

Korea Energy Borrowings from fund for Management Corporation rational use of energy 0.5 ~ 4.5 1,022,210 923,453

Local governments Borrowings from local small and medium company promotion fund - - 135,381 Others Borrowings from environment improvement support fund 0.0 ~ 6.0 1,258,157 896,766 ￦ 4,834,508 ￦ 4,657,164

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

43

9. Borrowing liabilities (cont’d) 9-3. Borrowings in foreign currency as of December 31, 2010 and 2009 consist of the following (Korean won in millions): Annual interest Lender Classifications rate (%) 2010 2009 JBIC Borrowings from JBIC 1.4~6M Libor+0.8 353,001 167,147 International Bank for Borrowings from Reconstruction and IBRD Development (“IBRD”) - - 1,481,451

Mizuho and others Borrowings from foreign banks 3M Libor+0.5~1.8 1,803,873 1,655,870 6M Libor+0.3~1.0 347,946 316,887 6M EUlibor+0.6 138,059 166,942 2,289,878 2,139,699 DBS Bank and others Off-shore short- term borrowings 0.2 ~ 1.0 124,577 194,766 3M+2.0~6M+3.5 56,945 122,598 6M Libor+0.6~1.3 261,947 36,932 - 93,408 443,469 447,704 Nippon Life Insurance Off-shore long- company and others term borrowings 3M+0.6~1.3 473,241 306,615 6M+0.6~0.7 45,556 216,286 6M EUlibor+0.8~9.1 212,052 198,492 730,849 721,393 JBIC Off-shore borrowings From JBIC 4.3~6M Libor 1.2 65,070 - Others Short-term borrowings in foreign currency 0.0~5.2 6,123,094 6,405,850 6M Libor+0.6~2.1 22,778 72,913 1Y Libor+1.0~4.0 148,057 188,720 - 151,788 6,293,929 6,819,271 Long-term borrowings in foreign currency 0.0~4.7 1,397,724 1,310,876 ₩ 11,573,920 ₩ 13,087,541

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

44

9. Borrowing liabilities (cont’d) 9-4. Debentures in Korean won as of December 31, 2010 and 2009 are as follows (Korean won in millions): Interest rate (%) 2010 2009 Debentures in Korean won 2.5 ~ 12.0 ₩ 28,061,772 35,014,398 Premium on debentures 526 856 Discount on debentures (15,702) (76,988) ₩ 28,046,596 34,938,266 9-5. Debentures in foreign currency as of December 31, 2010 and 2009 are as follows (Korean won in millions): Interest rate (%) 2010 2009 Debentures in foreign currency 0.2 ~ 8.0 ₩ 12,035,309 13,330,315 Premium on debentures 1,435 2,318 Discount on debentures (28,710) (28,530) 12,008,034 13,304,103 Off-shore debentures in foreign currency 0.0 ~ 9.5 4,081,689 3,706,869 Premium on debentures 371 525 Discount on debentures (6,057) (5,645) 4,076,003 3,701,749 ₩ 16,084,037 17,005,852 Pursuant to the Korea Development Bank Act, the Bank has the exclusive right to issue industrial finance bonds. The amount of such bonds issued and guaranteed outstanding provided by the Bank cannot exceed thirty times the aggregate amount of the paid-in capital and legal reserve of the Bank. The industrial finance bonds which are purchased or guaranteed by the government are excluded in calculating the limit. The Bank may, when necessary reused the terms of the bonds or to discharge its obligations arising from the guarantee or acceptance of debts, issue the bonds over that limit. There are no issued industrial finance bonds guaranteed by the Korean government as of December 31, 2010 and 2009. 9-6. Maturities of borrowing liabilities as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Other Borrowings Debentures borrowings Total Within 3 months ₩ 4,935,515 ₩ 4,120,239 ₩ 4,643,427 ₩ 13,699,181 After 3 months but no later than 6 months 2,484,686 3,178,760 1,053,377 6,716,823 After 6 months but no later than 1 year 3,606,985 8,850,038 508,588 12,965,611 After 1 year but no later than 3 years 2,461,888 16,230,151 69,560 18,761,599 After 3 years but no later than 5 years 1,387,136 7,241,330 - 8,628,466 Later than 5 years 1,532,218 4,558,252 - 6,090,470 ₩ 16,408,428 ₩ 44,178,770 ₩ 6,274,952 ₩ 66,862,150

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

45

9. Borrowing liabilities (cont’d) 2009 Other Borrowings Debentures borrowings Total Within 3 months ₩ 4,814,668 ₩ 4,155,583 ₩ 7,417,431 ₩ 16,387,682 After 3 months but no later than 6 months 2,789,616 5,843,274 2,430,195 11,063,085 After 6 months but no later than 1 year 3,181,812 9,110,091 1,114,561 13,406,464 After 1 year but no later than 3 years 4,044,590 18,809,481 41,074 22,895,145 After 3 years but no later than 5 years 1,518,365 10,154,985 - 11,673,350 Later than 5 years 1,395,654 3,978,168 - 5,373,822 ₩ 17,744,705 ₩ 52,051,582 ₩ 11,003,261 ₩ 80,799,548 9-7. Subordinated borrowings as of December 31, 2010 and 2009 are as follows (Korean won in millions): Type Rate (%) 2010 2009 Terms Borrowing from government funds 2.5 ~ 6.0 ₩ 803,068 ₩ 848,647 Installment Borrowing from IBRD - 1,480,890 Installment ₩ 803,068 ₩ 2,329,537

10. Severance and retirement benefits

Changes in severance and retirement benefits for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Beginning balance ₩ 62,965 ₩ 120,251 Payments during the year (10,599) (85,526) Provision for severance and retirement benefits 25,133 28,240 77,499 62,965

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

46

11. Acceptances and guarantees

11-1. Total amount of outstanding acceptances and guarantees and related allowance for possible losses as of December 31, 2010 and 2009 are as follows (Korean won in millions): Acceptances and guarantees Allowance for possible losses 2010 2009 2010 2009 Confirmed guarantees and commitments:

Acceptance on letters of credit ₩ 1,010,387 ₩ 1,225,215 ₩ 10,250 ₩ 8,471 Collateral for loan 641,004 214,645 7,741 2,549 Debt guarantee 124,900 154,772 1,617 1,513 Corporate debentures 102,620 1,210 1,939 10 Foreign banks borrowing 5,087 6,704 43 57 Other acceptances and guarantees

in foreign currency (*) 11,029,918 12,686,138 63,491 203,517 Acceptances for letters of

guarantees for importers 39,383 40,332 2,060 319 12,953,299 14,329,016 87,141 216,436 Unconfirmed guarantees and commitments:

Local letters of credit 436,415 335,904 829 596 Letters of credit 2,671,420 2,573,324 8,427 5,076 Others 6,551,192 7,254,340 13,428 21,453

9,659,027 10,163,568 22,684 27,125 ₩ 22,612,326 ₩ 24,492,584 ₩ 109,825 ₩ 243,561

(*) Other acceptances and guarantees in foreign currency consist of acceptances and guarantees for the return of advances related to export, overseas bidding and contractual obligations and guarantees for other borrowings denominated in foreign currency. 11-2. Details of classification of acceptances and guarantees and allowance for possible losses on acceptances and guarantees as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions):

2010 Acceptances and guarantees Confirmed Unconfirmed Total Outstanding Outstanding Outstanding Ratio amount Allowance amount Allowance amount Allowance (%) Normal ￦ 12,863,720 ￦ 67,170 ￦ 9,397,091 ￦ 16,239 ￦ 22,260,811 ￦ 83,409 0.37 Precautionary 49,387 4,739 233,122 3,263 282,509 8,002 2.83 Substandard 36,361 11,401 16,138 646 52,499 12,047 22.95 Doubtful - - - - - - - Estimated loss 3,831 3,831 12,676 2,536 16,507 6,367 38.57 ￦ 12,953,299 ￦ 87,141 ￦ 9,659,027 ￦ 22,684 ￦ 22,612,326 ￦ 109,825 0.49

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

47

11. Acceptances and guarantees (cont’d)

2009 Acceptances and guarantees Confirmed Unconfirmed Total Outstanding Outstanding Outstanding Ratio amount Allowance amount Allowance amount Allowance (%) Normal ￦ 13,714,033 ￦ 61,453 ￦ 9,776,730 ￦ 17,728 ￦ 23,490,763 ￦ 79,181 0.34 Precautionary 331,786 29,806 233,923 3,275 565,709 33,081 5.85 Substandard 283,197 125,177 152,882 6,115 436,079 131,292 30.11 Doubtful - - - - - - - Estimated loss - - 33 7 33 7 21.21 ￦ 14,329,016 ￦ 216,436 ￦ 10,163,568 ￦ 27,125 ￦ 24,492,584 ￦ 243,561 0.99

11-3. Historical ratios of allowance for possible losses on acceptances and guarantees to total acceptances and guarantees as of December 31, 2010, 2009, and 2008 are as follows (Korean won in millions): 2010 2009 2008 Total acceptances and guarantees ￦ 22,612,326 ￦ 24,492,584 ￦ 31,366,432 Allowance for possible losses on acceptances and guarantees 109,825 243,561 113,669 Ratio (%) 0.49 0.99 0.36

12. Allowances for unused loan commitments

12-1. Unused loan commitments and the related allowances for possible losses as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Allowance for Allowance for Unused loan possible Unused loan possible commitment loan losses commitment loan losses Commitments on loans receivable ₩ 4,550,214 ₩ 29,397 ₩ 4,192,444 ₩ 22,586 Commitments on guarantees

and acceptances 14,254,129 57,558 16,560,056 63,977 Commitments on loan 11,992,994 133,623 12,238,484 102,359 ₩ 30,797,337 ₩ 220,578 ₩32,990,984 ₩ 188,922

12-2. Historical ratios of allowance for losses on unused commitments to total unused commitments as of December 31, 2010, 2009 and 2008, are as follows (Korean won in millions):

2010 2009 2008

Unused commitments ₩ 30,797,337 ₩ 32,990,984 ₩ 25,199,742 Allowance for possible losses on unused commitments 220,578 188,922 102,960

Ratio (%) 0.72 0.57 0.41

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

48

13. Others in other liabilities Others in other liabilities as of December 31, 2010 and 2009 consist of the following (Korean won in

millions):

2010 2009

Accounts payable on unpaid exchange ₩ 930,878 ₩ 641,067 Income taxes payable 361,667 10,182 Withholding taxes 16,132 9,025 Other allowance 2,916 4,281 Others 116,286 315,863 ₩ 1,427,879 ₩ 980,418

14. Assets and liabilities denominated in foreign currencies

Significant assets and liabilities denominated in foreign currencies as of December 31, 2010 and 2009 are as follows (Korean won in millions or U.S. dollar in thousands): USD equivalent (*) Korean won equivalent Account 2010 2009 2010 2009 Assets: Cash on hand $ 6,675 $ 5,879 ₩ 7,596 ₩ 6,842 Due from banks 756,058 931,759 861,046 1,087,763 Trading securities 17,311 61,583 19,715 71,797 Available-for-sale securities 3,563,686 3,472,768 4,058,028 4,050,267 Equity method investments 470,595 451,302 536,995 525,993 Bills purchased 1,510,286 1,986,036 1,719,430 2,315,945 Call loans 1,683,490 615,112 1,917,233 718,012 Loan receivables 14,338,810 15,395,081 16,332,079 17,954,984 Domestic import usance 3,074,098 3,156,358 3,500,211 3,683,812 Receivables 1,231,090 1,429,380 1,402,033 1,667,827 Others 2,219,297 2,543,299 2,541,229 2,972,098 $ 28,871,396 $ 30,048,557 ₩ 32,895,595 ₩ 35,055,340

Liabilities:

Deposits $ 929,475 $ 1,447,526 ₩ 1,315,787 ₩ 1,689,044 Borrowings 10,162,367 11,224,722 11,573,920 13,087,541 Bonds sold under

repurchase agreements 1,035,623 906,067 1,179,471 1,057,020 Call money 386,058 499,086 439,682 582,040 Debentures 10,543,537 11,385,846 12,008,034 13,304,103 Off-shore debentures 3,578,895 3,146,133 4,076,003 3,701,749 Others 3,352,226 3,582,239 3,758,216 3,055,975 $ 29,988,181 $ 32,191,619 ₩ 34,351,113 ₩ 36,477,472

(*) All foreign currencies other than the U.S. dollar are expressed in the equivalent of U.S. dollars at the reporting date.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

49

15. Commitments and contingencies

15-1. Unsettled commitments provided by the Bank as of December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Unsettled commitments: Commitments on loans in Korean won (*) ₩ 11,248,827 ₩ 11,690,299 Commitments on loans in foreign currency 744,167 548,185 Commitments on purchase of securities - 1,000,000 11,992,994 13,238,484 Bonds sold under repurchase agreements 750,570 750,570 ₩ 12,743,564 ₩ 13,989,054

(*) The Bank provided commitments on loans in Korean won amounting to ₩1,648,700 million, related to project financing as of December 31, 2010.

15-2. Securitized loans outstanding as of December 31, 2010 are as follows (Korean won in millions): Subordinated debt securities Disposal Selling held by Collateral Counterparty date Book value price the Bank amount (*1) KDB 1st SPC (*2) 2000.06.08 ₩ 950,627 ₩ 600,000 ₩ 114,314 ₩ 120,266 KDB 2nd SPC (*2) 2000.11.20 914,764 423,600 13,000 80,049 KDB 3rd SPC 2001.09.12 1,793,546 949,900 - - KDB 5th SPC (*2) 2001.12.04 765,358 528,400 74,200 100,101 KDB 6th SPC 2009.11.26 420,631 330,000 117,800 - KDB Champ 1st SPC 2009.03.31 999,583 1,004,493 - - KDB Champ 2nd SPC 2009.05.29 791,941 793,722 - - KDB Champ 3rd SPC 2009.11.10 669,646 669,833 - - KDB Champ 4th SPC 2009.12.09 448,734 449,589 - - Songsan Leesandan SPC 2010.02.25 198,380 200,000 - -

KDB Green Growth Inc. 2010.06.22 208,725 210,000 - - KAMCO 8th JV SPC 2010.12.30 689,043 272,500 - - ₩ 8,850,978 ₩ 6,432,037 ₩ 319,314 ₩ 300,416 (*1) Investment securities are pledged as collateral. (*2) According to the contracts with the counterparties for the above loans sold with a recourse provision, the Bank is liable to the counterparties’ claims of up to 30% of the selling price when the principal or the interest is not repaid according to the payment schedules.

15-3. The Banks’ loans and receivables written-off, for which the contractual rights to cash flows have not expired, amount to ₩2,075,382 million as of December 31, 2010.

15-4. The Bank has outstanding loans receivable amounting to ₩5,122,750 million and holds securities amounting to ₩386,512 million as of December 31, 2010 from companies under workout, court receivership, court mediation or other restructuring process. The Bank provided ₩1,043,927 million of allowances for possible loan losses for such loans. Actual losses from these loans may differ from the allowances provided.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

50

15. Commitments and contingencies (cont’d)

15-5. As of December 31, 2010, the Bank is involved in 14 lawsuits as a plaintiff and 14 lawsuits as a defendant. The aggregate amount of claims as a plaintiff and a defendant amounted to ￦3,739,307 million and ₩366,079 million, respectively. The Bank provided other allowance for loss amounting to ₩1,885 million as of December 31, 2010.

15-6. The financial institution creditors of Renault Samsung Motors (including KDB) filed a lawsuit against Kun-hee Lee and 28 Samsung affiliates (including Samsung Electronics), claiming compensation for delays in payment of liquidated damages and contract bills of ￦2,450 billion based on the agreement signed at August 24, 1999. Regarding the litigation, the financial institution creditors partially won the second judgement at the Seoul High Court, but both parties filed an appeal for the Supreme Court judgement, and were awaiting final decision.

16. Derivative instruments

16-1. The Bank’s derivatives instruments consist of trading derivatives and hedge derivatives, based on the nature of the transaction. The Bank enters into hedge transactions mainly for the purpose of hedging the fair value risk related to changes in fair values of the underlying assets and liabilities.

16-2. The notional amounts outstanding for derivatives contracts and the related valuation gains (losses) for the years ended December 31, 2010 and 2009 are summarized as follows (Korean won in millions): 2010 Notional amounts Valuation gain (loss) Derivative Trading Hedging Trading Hedging asset purpose purpose Total purpose purpose Total (liabilities) Commodity:

Swap ₩ 37,964 ₩ - ₩ 37,964 ₩ (2,137) ₩ - ₩ (2,137) ₩ 183 Option bought 201,773 - 201,773 1,388 - 1,388 7,754 Option sold 201,773 - 201,773 - - - (7,754) 441,510 - 441,510 (749) - (749) 183

Interest: Futures 1,118,528 - 1,118,528 - - - - Swap 318,655,110 25,662,038 344,317,148 29,116 184,461 213,577 259,336 Option bought 2,104,000 - 2,104,000 (587) - (587) 28,097 Option sold 2,860,000 - 2,860,000 - - - (37,091)

324,737,638 25,662,038 350,399,676 28,529 184,461 212,990 250,342 Currency:

Forward 56,199,743 - 56,199,743 (107,497) - (107,497) 617,924 Futures 180,584 - 180,584 - - - - Swap 46,424,949 10,419,452 56,844,401 211,531 142,823 354,354 379,979 Option bought 888,922 - 888,922 (1,306) - (1,306) 27,508 Option sold 614,831 - 614,831 - - - (27,659)

104,309,029 10,419,452 114,728,481 102,728 142,823 245,551 997,752 Stock:

Index forward bought 13,426 - 13,426 - - - -

Option bought 4,121 - 4,121 (141) - (141) 49 Index option

bought 129,357 - 129,357 1,336 - 1,336 8,787 Index forward

sold 1,233 - 1,233 - - - - Option sold 4,121 - 4,121 - - - (4,143) Index option

sold 411,485 - 411,485 - - - (25,715) 563,743 - 563,743 1,195 - 1,195 (21,022) ₩ 430,051,920 ₩ 36,081,490 ₩ 466,133,410 ₩ 131,703 ₩ 327,284 ₩ 458,987 ₩1,227,255

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

51

16. Derivative instruments (cont’d) As of December 31, 2010, the Bank provided ￦32,482 million (￦51,041 million at December 31, 2009) of other allowance due to credit risk of derivative contract counterparty. The decrease of such allowance during 2010 credited to current operation as gain on valuation of derivatives. 2009 Notional amounts Valuation gain (loss) Derivative Trading Hedging Trading Hedging asset purpose purpose Total purpose purpose Total (liability) Commodity:

Forward ₩ 33,003 ₩ - ₩ 33,003 ₩ 33 ₩ - ₩ 33 ₩ 33 Swap 508,101 - 508,101 2,270 - 2,270 2,446 Option bought 119,329 - 119,329 - - - 31,109 Option sold 119,329 - 119,329 - - - (31,109) 779,762 - 779,762 2,303 - 2,303 2,479

Interest: Futures 3,708,545 - 3,708,545 - - - - Swap 294,595,518 19,451,406 314,046,924 18,479 (270,681) (252,202) (234,358) Option bought 1,795,816 - 1,795,816 5,874 - 5,874 26,350 Option sold 3,161,816 150,000 3,311,816 - 6,615 6,615 (44,307)

303,261,695 19,601,406 322,863,101 24,353 (264,066) (239,713) (252,315) Currency:

Forward 49,689,013 - 49,689,013 (419,786) - (419,786) 1,828,320 Futures 597,846 - 597,846 - - - - Swap 44,180,654 10,406,751 54,587,405 611,506 13,199 624,705 (694,001) Option bought 3,526,438 - 3,526,438 (33,621) - (33,621) 256,875 Option sold 2,042,024 - 2,042,024 - - - (102,182)

100,035,975 10,406,751 110,442,726 158,099 13,199 171,298 1,289,012 Stock:

Index forward bought 23,029 - 23,209 - - - -

Option bought 102,630 - 102,630 20 - 20 24,108 Index option

bought 126,255 - 126,255 (2,729) - (2,729) 390 Option sold 114,261 - 114,261 - - - (24,108) Index option

sold 252,486 - 252,486 - - - (8,341) 618,661 - 618,661 (2,729) - (2,709) (7,951) ₩ 404,696,093 ₩ 30,008,157 ₩ 434,704,250 ₩ 182,046 ₩ (250,867) ₩ (68,821) ₩1,031,225

16-3. Unrealized gains and losses from fair value hedge items by type of the underlying assets or liabilities for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Gains Losses Gains Losses Debentures ₩ 267,670 ₩ 556,319 ₩ 803,939 ₩ 71,692 Available-for-sale securities 16,198 25,076 7,332 41,997 Borrowings 38,131 31,452 44,947 17,895 ₩ 321,999 ₩ 612,847 ₩ 856,218 ₩ 131,584

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

52

17. Equity

17-1. Paid-in capital The Bank is authorized to issue 3,000 million shares of stock and issued 1,850 million shares as of December 31, 2010. The total paid-in capital outstanding as of December 31, 2010 is ₩9,251,861 million.

17-2. Capital surplus The Bank utilized ₩5,178,600 million of its paid-in capital in 1998 and 2000 to offset its accumulated deficit amounting to ₩5,134,227 million. The outstanding balance of capital surplus as of December 31, 2010 amount to ₩46,894 million.

17-3. Capital adjustment The outstanding balance of capital adjustment as of December 31, 2010 amounts to ₩9,921 million, including discount on stock issuance amounting to ₩51 million in connection with the injection of paid-in capital on April 1, 2010.

17-4. Legal reserve The Korea Development Bank Act requires the Bank to appropriate at least 40% of net income as a legal reserve. This reserve can be transferred to paid-in capital or used to offset accumulated deficit.

In accordance with the Korea Development Bank Act, the Bank offsets accumulated deficit with reserves. If reserves are insufficient to offset the accumulated deficit, the Korean government is supposed to be responsible for the deficit.

18. General and administrative expenses General and administrative expenses for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Salaries (*) ₩ 219,198 ₩ 216,531 Severance and retirement benefits (*) 25,133 28,240 Other employee benefits (*) 20,615 23,388 Rent (*) 16,863 15,288 Depreciation (*) 17,808 13,901 Amortization (*) 12,851 10,951 Taxes and dues (*) 15,235 15,000 Printing 2,874 5,588 Travel 3,958 3,784 Commission 16,021 16,816 Electronic data processing 28,827 27,518 Training 6,447 7,770 Others 33,669 30,707 ₩ 419,499 ₩ 415,482 (*) These accounts in aggregate amounting to ₩327,703 million and ₩323,299 million for the years ended December 31, 2010 and 2009, respectively, are related to the “added value” disclosure items of the Bank’s operations in accordance with Statements of Korea Accounting Standards 21.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

53

19. Income tax

19-1. Income tax expense for the years ended December 31, 2010 and 2009 is as follows (Korean won in millions): 2010 2009 Current income taxes (*) ₩ 398,246 ₩ (84,810) Change in deferred income tax due to

temporary difference 5,033 306,316 Change in deferred income tax due to

judgement on propriety before tax levying 19,819 - 423,098 221,506 Current and deferred income taxes

recognized directly to equity (12,743) (183,769) Change in deferred income tax due to

consolidated tax returns (1,633) - Income tax expense ₩ 408,722 ₩ 37,737 (*)The additional tax payments or refunds were included in the current income taxes.

19-2. Reconciliations of income tax expense applicable to income before income taxes at the Korea statutory tax rate to income tax expense at the effective income tax rate of the Bank are as follows (Korean won in millions): 2010 2009 Income before income taxes ₩ 1,454,443 ₩ 798,849 Tax at the statutory income tax rate ₩ 351,949 ₩ 183,230 Adjustments:

Non-taxable (deductible) income (expenses), net (9,410) 116,455 Deferred income taxes not recognized 31,406 (113,713) Change in deferred income tax due to consolidated tax returns (1,633) -

Others 36,410 (148,235) 56,773 (145,493) Income tax expense ₩ 408,722 ₩ 37,737

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

54

19. Income tax (cont’d)

19-3. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for corporate income tax reporting purposes. Significant changes in cumulative temporary differences and deferred income tax assets and liabilities for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions):

2010 Deferred

Increase income tax Beginning (decrease) Ending assets (liabilities)

Equity method investments ₩ (983,385) ₩ (120,215) ₩ (1,103,600) ₩ (288,321) Derivatives assets (7,477,411) 1,713,071 (5,764,340) (1,268,155) Derivatives liabilities 6,597,943 (2,001,108) 4,596,835 1,011,304 Loss on valuation of

hedge items 1,029,849 128,269 1,158,118 254,786 Gain on valuation of fair value

hedge in foreign currency (820,822) 65,066 (755,756) (166,266) Loans written-off 539,910 48,921 588,831 129,543 Impairment losses on

investment bonds 525,609 1,567 527,176 115,979 Impairment losses on

investment securities 512,117 (74,374) 437,743 96,303 Others 274,653 418,737 693,390 226,987 ₩ 198,463 ₩ 179,934 ₩ 378,397 ₩ 112,160

2009 Deferred

Increase income tax Beginning (decrease) Ending assets (liabilities)

Equity method investments ₩ (5,204,542) ₩ 4,221,157 ₩ (983,385) ₩ (220,765) Derivatives assets (16,432,776) 8,955,365 (7,477,411) (1,645,030) Derivatives liabilities 15,560,594 (8,962,651) 6,597,943 1,451,547 Loss on valuation of

hedge items 2,358,612 (1,328,763) 1,029,849 226,567 Gain on valuation of fair value

hedge in foreign currency (1,770,893) 950,071 (820,822) (180,581) Loans written-off 1,003,803 (463,893) 539,910 118,780 Impairment losses on

investment bonds 396,617 128,992 525,609 115,634 Impairment losses on

investment securities 360,184 151,933 512,117 112,666 Others 807,613 (532,960) 274,653 125,632 ₩ (2,920,788) ₩ 3,119,251 ₩ 198,463 ₩ 104,450 (*) The above temporary differences did not include deferred income tax assets (liabilities) of foreign branches and charged directly to equity.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

55

19. Income tax (cont’d)

19-4. Deferred income tax assets (liabilities) recognized in the statement of financial position as of December 31, 2010 and 2009 consist of the following (Korean won in millions): 2010 2009 Cumulative temporary differences ₩ 378,397 ₩ 198,463 Tax rate (%) (*1) (*1) Tax effects arising from

cumulative temporary differences 83,276 44,160 Unrealizable deferred

income tax assets (*2) (28,884) (60,289) Deferred income tax assets arising from

cumulative temporary differences 112,160 104,450 Deferred income tax recognized

directly to equity (227,969) (215,226) Others - 365 Deferred income tax liabilities (115,809) (110,411) Deferred income tax assets of

foreign branches (*3) 27,315 30,115 Net deferred income tax liabilities ₩ (88,494) ₩ (80,296) (*1) Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse (the income tax rate of 24.2% and 22% is applied for calculation until 2011 and after 2012, respectively). (*2) The Bank did not recognize deferred income tax liabilities amounting to ₩131,285 million for temporary differences relating to valuation of equity investments and the amount was determined based on the ratio of dividend tax exemption rate under the related tax law. (*3) Deferred income tax assets of foreign branches are not offset against the deferred income tax liabilities in accordance with the tax jurisdictions of the foreign branches.

19-5. Details of deferred income taxes charged directly to equity for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 Deferred income Increase tax assets Beginning (decrease) Ending (liabilities) Gain on valuation of

available-for-sale securities ￦ (1,144,779) ￦ 266,161 ￦ (878,618) ￦ (189,871) Loss on valuation of

available-for-sale securities 473,809 (286,071) 187,738 36,583 Gain on valuation of

equity method investments (298,755) (59,458) (358,213) (78,807) Loss on valuation of

equity method investments 9,395 (2,554) 6,841 1,505 Capital surplus (10,006) 6,774 (3,232) (711) Capital adjustments 1,565 11,637 13,202 3,332

₩ (968,771) ₩ (63,511) ₩ (1,032,282) ₩ (227,969)

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

56

19. Income tax (cont’d) 2009 Deferred income Increase tax assets Beginning (decrease) Ending (liabilities) Gain on valuation of

available-for-sale securities ￦ (1,627,444) ￦ 482,665 ￦ (1,144,779) ￦ (245,525) Loss on valuation of

available-for-sale securities 1,407,852 (934,043) 473,809 95,363 Gain on valuation of

equity method investments (78,389) (220,366) (298,755) (65,476) Loss on valuation of

equity method investments 397,459 (388,064) 9,395 2,286 Capital surplus - (10,006) (10,006) (2,210) Capital adjustments - 1,565 1,565 336

₩ 99,478 ₩ (1,068,249) ₩ (968,771) ₩ (215,226)

20. Related party transactions

20-1. The subsidiaries and equity method investees of the Bank as of December 31, 2010 are as follows: Investor Investee Korea Finance Corporation (KoFC) KDBFG, Korea Aerospace Industries, Ltd. KDB Financial Group Inc (KDBFG) KDB, Daewoo Securities Co., Ltd., KDB Capital Corporation, KDB Asset Management Co., Ltd.,

Korea Infrastructure Investments Asset Management Co., Ltd. KDB Korea Infrastructure Fund,

Daewoo Shipbuilding & Marine Engineering Co., Ltd., Korea Marine Finance Co., KDB Value Private Equity Fund II, KDB Value Private Equity Fund III, KDB Venture M&A Private Equity Fund, KDB Turnaround Private Equity Fund, KDB-Tstone Private Equity Fund, Components and Materials M&A Private Equity Fund, KoFC-KDB Materials and Components Investment Fund No.1, KDB Asia Ltd., KDB Ireland Ltd., KDB Bank (Hungary) Ltd., Banco KDB Do Brazil S.A, UzKDB Bank, KDB Value Private Equity Fund VI, KDB Consus Value

20-2. The significant transactions which occurred in the normal course of business with related companies for the years end of December 31, 2010 and 2009, and the related account balances as of December 31, 2010 and 2009, are as follows (Korean won in millions):

2010 2009 Classification Income Expense Income Expense Investor:

KoFC ₩ 32,432 ₩ 9,803 ₩ - ₩ - KDBFG - - - -

Fellow subsidiaries:

Daewoo Securities Co., Ltd. 62 13,675 - - KDB Capital Corporation 1,806 82 - - KDB Asset Management

Co., Ltd. 11,895 1 - -

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

57

20. Related party transactions (cont’d)

2010 2009 Classification Income Expense Income Expense

Korea Infrastructure Investments Asset Management Co., Ltd. - 257 - -

Korea Aerospace Industries, Ltd. 6,765 18 - -

Subsidiaries:

Daewoo Shipbuilding & Marine Engineering Co., Ltd. 13,895 1,790 6,556 8,188

KDB Asia Ltd. 4,357 7 8,968 76 KDB Ireland Ltd. 4,524 16 9,911 86 KDB Bank (Hungary) Ltd. 3,346 - 7,028 - Banco KDB Do Brazil S.A 28,624 - 6,588 - UzKDB Bank 713 18 - - Others 6,765 1,232 - 403

Equity method investees:

Korea Infrastructure Fund II and others 56,191 2,471 11,452 2,480

₩ 171,375 ₩ 29,370 ₩ 50,503 ₩ 11,233 2010 2009 Classification Assets Liabilities Assets Liabilities Investor:

KoFC ₩ 2,923,977 ₩ 234,917 ₩ - ₩ 265,609 KDBFG - 145,750 - 1,865

Fellow subsidiaries:

Daewoo Securities Co., Ltd. 2,938 754,570 - 5,393 KDB Capital Corporation - 37,614 165,990 28,153 KDB AMC. 261,059 - - - Korea Infrastructure

Investments Asset Management Co., Ltd. - 10,330 - 8,999

Korea Aerospace Industries, Ltd. 220,292 4,128 139,331 -

Subsidiaries:

Daewoo Shipbuilding & Marine Engineering Co., Ltd. 1,954,124 19,921 3,145,584 305,936

KDB Asia Ltd. 372,009 1,516 342,773 1,814 KDB Ireland Ltd. 382,732 - 366,213 - KDB Bank (Hungary) Ltd. 212,468 - 261,939 - Banco KDB Do Brazil S.A 430,554 - 513,113 - UzKDB Bank 23,810 - - - Others 1,437,484 410,798 - 10,966

Equity method investees:

Korea Infrastructure Fund II and others 1,955,106 85,765 529,845 115,874

₩ 10,176,553 ₩ 1,705,309 ₩ 5,464,788 ₩ 744,609

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

58

20. Related party transactions (cont’d)

20-3. Guarantee and collateral provided among the Bank and its related parties as of December 31, 2010 and 2009 are summarized as follows (Korean won in millions): Related parties Guarantee Benefactor Beneficiary and collateral 2010 2009 KDB Daewoo Shipbuilding & Marine Engineering Co., Ltd. Guarantee for F/X ₩ 562,893 ₩ 2,690,143 KDB KDB Asia Ltd. Guarantee for F/X 143,513 58,380 KDB Korea Aerospace Industries, Ltd. Guarantee for F/X 220,292 - ₩ 926,698 ₩ 2,748,523

21. Comprehensive income Comprehensive income for the years ended December 31, 2010 and 2009 is as follows (Korean won in millions): 2010 2009 Net income ₩ 1,045,721 ₩ 761,112 Other comprehensive income:

Gain on valuation of available-for-sale securities 19,908 1,469,363 Income taxes effect (3,126) (102,513) Gain on valuation of equity method investments 58,906 265,571 Income taxes effect (13,331) (48,590) Loss on valuation of equity method investments 3,106 365,210 Income taxes effect (781) (30,791)

Comprehensive income ₩ 1,110,403 ₩ 2,679,362

22. Trust business information

22-1. The operations of the trust accounts for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Operating revenue of trust operations: Fees on trust accounts ₩ 18,171 ₩ 15,176 Early termination fees 2 4 ₩ 18,173 ₩ 15,180 Operating expenses of trust operations: Interest due to trust accounts ₩ 8,456 ₩ 12,386

22-2. As of December 31, 2010 and 2009, the Bank is not required to bear the difference between book value and fair value of principal or dividend guaranteed trust accounts as the difference will be appropriated using a special reserve trust account.

23. Cash flow information

Significant non-cash transactions for the years ended December 31, 2010 and 2009 are as follows (Korean won in millions): 2010 2009 Debt-to-equity swap ₩ 220,072 ₩ - Spin-off - 24,903,301

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

59

24. Operating result of the final interim period (unaudited)

Summary of operating results for the three months ended December 31, 2010 and 2009 is as follows (Korean won in thousands except per share amounts): Three months ended December 31, 2010 2009 Operating revenue 3,589,451 4,902,097Operating expenses 2,744,712 5,114,027Operating income (loss) 844,739 (211,930)Net income (loss) 655,187 (146,029)

25. Preparation plan for adoption of Korea International Financial Reporting Standards (K-IFRS)

and implementation status 25-1. Plan and progress of K-IFRS adoption The Bank will adopt K-IFRS for the first time for the financial period beginning after January 1, 2011. As part of the Bank’s K-IFRS implementation plan, the Bank appointed an external advisor to identify and report on the differences between the current accounting standards and K-IFRS related to the Bank. The Bank also formed a task force team in March 2008. Following the completion of identification of accounting policy differences described above, the Bank had conducted the detailed analysis of its financial reporting system requirement and accounting policy changes impacted by the adoption of K-IFRS until August 2008. Based on results of the above analysis, the Bank has finalized the K-IFRS accounting policies to be adopted and mapped out changes to its accounting information system to capture and produce information under K-IFRS. As of December 31, 2010, the Bank has substantially completed the process of developing its accounting information system and modifying its processes that are affected by the adoption of K-IFRS, and the related internal control processes have been reassessed for a smooth transition to K-IFRS. The task force team regularly reports the preparation plans and implementation progress to the Bank’s management and training programs are also regularly provided to the Bank’s employees to develop K-IFRS trained-resources within the Bank.

The Bank has been preparing its financial statements under K-IFRS since the date of transition and onwards, and management of the Bank expects that financial information for the fiscal year 2010 and after will be conformed to K-IFRS.

25-2. First time adoption of K-IFRS

The Bank’s transition and adoption dates of K-IFRS are January 1, 2010 and 2011, respectively. Therefore, the Bank has prepared its opening K-IFRS statement of financial position in accordance with K-IFRS 1101 First-Time Adoption as of January 1, 2010. When preparing the Bank’s opening K-IFRS statement of financial position, some exemptions from other K-IFRS and exceptions to the retrospective application of other K-IFRS have been applied..

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

60

25. Preparation plan for adoption of Korea International Financial Reporting Standards (K-IFRS) and implementation status (cont’d)

25-3. Optional exemptions from other K-IFRS

Optional exemptions other than K-IFRS 1101 First-Time Adoption that the Bank has applied are as follows:

Section Contents

Business combinations

A first-time adopter may elect not to apply K-IFRS 1103 (equivalent to IFRS 3) retrospectively to past business combinations (business combinations that occurred before the date of transition to K-IFRS)

Cumulative translation differences

The cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to K-IFRS.

Investment in subsidiaries, jointly controlled entities and associates

Investment in subsidiaries, jointly controlled entities and associates at the date of transition to K-IFRS has been measured at K-GAAP carrying amount.

Designation of previously recognized financial instruments

K-IFRS 1039 (equivalent to IAS 39) permits a financial product (provided it meets certain criteria) to be designated as a financial product at fair value through profit or available-for-sale financial asset.

25-4. Mandatory exceptions to the retrospective application

Mandatory exceptions to the retrospective application that the Bank has applied are as follows:

Section Contents Derecognition under K-IFRS 1039 (equivalent to IAS 39)

K-IFRS 1039 Financial Instruments: Recognition and Measurement has been applied only for the transactions entered into on or after January 1, 2010.

Exceptions to Hedge accounting

Hedge accounting was applied only for the qualified transactions in accordance with K-IFRS 1039 Financial Instruments: Recognition and Measurement at the date of transition to K-IFRS.

Non-controlling interests A first-time adopter shall apply the following requirements of K-IFRS 1027 (28, 30, 31, 34~37) (equivalent to IAS 27) and K-IFRS 1105 (equivalent to IFRS 5) prospectively from the date of transition to K-IFRS.

25-5. Financial Estimates

When preparing the Bank’s statement of financial position as of January 1, 2010, estimates were

made consistently with the estimates made for the preparation of K-GAAP financial statements on the

same date.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

61

25. Preparation plan for adoption of Korea International Financial Reporting Standards (K-IFRS) and implementation status (cont’d)

25-6. Significant differences in accounting policies The table below describes the major differences that are expected to give rise to a significant impact on the Bank’s financial statements under K-IFRS that are effective as of December 31, 2010. The differences listed below are not exhaustive, and additional areas may be identified in the future as a result of further assessment.

Section K-IFRS K-GAAP

Allowance for possible loan losses

For loans and receivables of which impairment has been objectively incurred, the allowance for possible loan losses is measured at the difference between the carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

The Bank provides an allowance for possible loan losses using the minimum required provision percentage given by the Regulation on the Supervision of Banking Industry.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contract is recognized as a liability and measured at fair value. After initial recognition, the liability will be measured at the higher of: (a) the provision for liability amount for the financial guarantee contract (b) the amount initially recognized less, when appropriate, cumulative amortization

Not applicable.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

62

25. Preparation plan for adoption of Korea International Financial Reporting Standards (K-IFRS) and implementation status (cont’d)

Section K-IFRS K-GAAP

Recognition of accrued interest

Interest revenue is recognized when the economic benefits associated with the transaction is probable and the amount of the revenue can be measured reliably. Interest income on loans overdue until impairment recognition date is measured based on decision that the economic benefits associated with the transaction is probable.

Interest revenue is recognized when the economic benefits associated with the transaction is highly probable and the amount of the revenue can be measured reliably. But, interest income on loans overdue or dishonored is recognized on a cash basis.

Impairment losses for available-for-sale equity instruments

If there is a significant or prolonged decline in an available-for-sale equity instruments below its cost, an impairment loss is recognized in the statement of income. Impairment losses shall not be reversed through profit or loss.

If there is a significant and prolonged decline in an available-for-sale equity instruments below its cost, an impairment loss is recognized in the statement of income. Impairment losses may be reversed through profit or loss.

Investments in a subsidiary, a joint venture, and an associate

Cost method is applied for the investments in a subsidiary, a joint venture, and an associate, which are not held-for-sale (separate financial statement).

Equity method is applied for the Investments in a subsidiary, a joint venture, and an associate, which are not held-for-sale (non-consolidated financial statement).

Employee benefits

The liability for severance and retirement benefits is estimated based on actuarial assumptions and on a discounted basis.

In accordance with the Employee Retirement Benefit Security Act and the Bank’s regulations, employees and directors terminating their employment with at least one year of service are entitled to severance and retirement benefits. An allowance for employee retirement benefits is measured based on the assumption that all employees will leave as of the reporting date.

Non-current assets held for-sale

The Bank classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use and its sale will be highly probable.

Not applicable.

25-7. Changes in in-scope entities for consolidation

A comparison of in-scope entities, when the Bank prepares consolidated financial statements under K-IFRS, is as follows:

Consolidated subsidiaries under

K-GAAP

Consolidated subsidiaries under

K-IFRS Differences

KDB trust accounts KDB trust accounts Under K-IFRS, those trust accounts is included that preserve principals of trust and profits from it.

Korea Development Bank Notes to non-consolidated financial statements December 31, 2010 and 2009

63

25. Preparation plan for adoption of Korea International Financial Reporting Standards (K-IFRS) and implementation status (cont’d)

Consolidated

subsidiaries under K-GAAP

Consolidated subsidiaries under

K-IFRS Differences

DSME Co.,Ltd. - Excluded because the Bank does not have the majority of risks and reward by owning less than 50 percent shares.

Korea Marine Finance Corp. -

Excluded because the Bank does not have the majority of risks and reward by owning less than 50 percent shares.

KDB Tstone PEF - Excluded because KDB Tstone PEF is the joint partner with unlimited liability

- KDB Value PEF I Under K-GAAP, excluded because the PEF is in the liquidation.

- KDB 1st SPC and 15 others

Included because the Bank has the majority of risks and rewards by providing credit line facilities.

- KDB Shipping PEF KL-1and 34 others

Included because the Bank has the majority of risks and reward by owning more than 50 percent shares.

25-8. Financial impact

Financial impact by adopting K-IFRS is based on separate financial statement and could be changed due to results of further analysis, revision of K-IFRS, and others.

Reconciliation between non-consolidated statements of financial position of the Bank at January 1, 2010 under K-GAAP and K-IFRS is summarized as follows (Korean won in millions):

Description Assets Liabilities Equity

K-GAAP ₩ 122,333,446 ₩ 107,222,739 ₩ 15,110,707 Reconciliations:

Allowance for possible loanlosses (*1) 480,763 (203,189) 683,952

Financial guarantee contracts 72,576 140,942 (68,366)

Allowance for severanceand retirement benefits - 46,091 (46,091)

Tax effects (27,315) 118,530 (145,845)Others (*2) (57,607) (75,937) 18,330

Total reconciliations 468,417 26,437 441,980K-IFRS ₩ 122,801,863 ₩ 107,249,176 ₩ 15,552,687

(*1) The allowance for possible loan losses under K-IFRS is measured on incurred loss basis. (*2) Others consist of separate recognition of embedded derivatives of compound financial instruments, recognition of accrued interest of overdue & non-impaired loans and recognition of non-current assets held-for-sale etc.

26. Approval of financial statements The 2010 non-consolidated financial statements were approved by the Board of Directors on March

11, 2011.

64

Internal control over financial reporting review report The Chief Executive Officer KDB

We have reviewed the accompanying management’s report on the operations of the internal control over financial reporting (“ICFR”) of Korea Development Bank (the “Bank”) as of December 31, 2010. The Bank’s management is responsible for the design and operations of its ICFR, including the reporting of its operations. Our responsibility is to review management’s ICFR report and issue a report based on our review. Management’s report on the operations of the ICFR of the Bank states that “Based on the assessment of the operations of the ICFR, the Bank’s ICFR has been effectively designed and has operated as of December 31, 2010, in all material respects, in accordance with the ICFR standard.” We conducted our review in accordance with the ICFR review standards established by the Korean Institute of Certified Public Accountants. These standards require that we plan and perform our review to obtain less assurance than an audit as to management’s report on the operations of the ICFR. A review includes the procedures of obtaining an understanding of the ICFR, inquiring as to management’s report on the operations of the ICFR and performing a review of related documentation within limited scope, if necessary. The Bank’s ICFR consists of an establishment of related policies and organization to ensure that it is designed to provide reasonable assurance on the reliability of financial reporting and the preparation of financial statements for external financial reporting purposes in accordance with accounting principles generally accepted in the Republic of Korea. However, because of its inherent limitations, the ICFR may not prevent or detect material misstatements of the financial statements. Also, projections of any assessment of the ICFR on future periods are subject to the risk that ICFR may become inadequate due to the changes in conditions, or that the degree of compliance with the policies or procedures may be significantly reduced. Based on our review of management’s report on the operations of the ICFR, nothing has come to our attention that causes us to believe that management’s report referred to above is not presented fairly, in all material respects, in accordance with the ICFR standards. We conducted our review of the ICFR in place as of December 31, 2010, and we did not review the ICFR subsequent to December 31, 2010. This report has been prepared for Korean regulatory purposes pursuant to the Act on External Audit for Stock Companies, and may not be appropriate for other purposes or for other users. March 11, 2011

This report is annexed in relation to the audit of the financial statements as of December 31, 2010 and the review of internal accounting control system pursuant to Article 2-3 of the Act on External Audit for Stock Companies of the Republic of Korea.

KDBA~O.:::z.°/2LL-ClE-~

Report on the operations of the intemal controlover financial reporting

I, as the internal control over financial reporting officer ("ICFR Officer")of KDB Bank ("the Bank"), assessed the status of the design and

operations of the Bank's internal control over financial reporting("ICFR") for the year ended December 31, 2010.

The Bank's management including the ICFR Officer IS responsiblefor the design and operations of its ICFR. I, as the ICFR Officer,assessed whether the ICFR has been effectively designed and hasoperated to prevent and detect any error or fraud which may cause anymisstatement of the financial statements, for the purpose of establishingthe reliability of financial reporting and the preparation of financialstatements for external financial reporting purposes. I, as the ICFROfficer, applied the ICFR standards for the assessment of design andoperations of the ICFR.

Based on the assessment of the operations of the ICFR, the Bank'sICFR has been effectively designed and has operated as of December 31,2010, in all material respects, in accordance with the ICFR standard.

March. /0 , 2011

S. <;, ~

This page is intentionally left blank

This page is intentionally left blank

REGISTERED OFFICE OF THE NOTE ISSUERKAL Japan ABS 6 Cayman Limited c/o Walkers SPV Limited

Walker House, 87 Mary Street, George TownGrand Cayman KY1-9002

Cayman Islands

CREDIT FACILITY PROVIDER AND SWAP PROVIDERThe Korea Development Bank

16-3, Yeouido-dong, Yeongdeungpo-guSeoul 150-973, Korea

JOINT ARRANGERS JOINT LEAD MANAGERSDaiwa Securities Capital Markets

Co. Ltd.,Seoul Branch

6th Floor, Hana DaetooSecurities Bldg.

27-3, Yeouido-dongYoungdeungpo-gu

Seoul, Korea 150-705

The Korea Development Bank16-3, Yeouido-dongYeongdeungpo-gu

Seoul 150-973, Korea

Daiwa Securities Capital MarketsCo. Ltd.

1-9-1, Marunouchi, Chiyocla-KuTokyo 100-6753, Japan

The Korea Development Bank16-3, Yeouido-dongYeongdeungpo-gu

Seoul 150-973, Korea

NOTE TRUSTEEThe Bank of New York Mellon,

Hong Kong BranchLevel 24, Three Pacific Place

1 Queen’s Road East, Hong Kong

JAPANESE TRUSTEEThe Bank of New York Mellon Trust (Japan), Ltd.

Fukoku Seimei Building2-2-2, Uchisaiwai-cho, Chiyoda-ku

Tokyo 100-8580, Japan

TRANSACTION ADMINISTRATOR AND SECURITY AGENTThe Bank of New York Mellon, Seoul Branch

23rd Floor, Youngpoong Building33 Seolin-dong, Chongro-gu

Seoul, Korea 110-752

NOTE ISSUER ADMINISTRATORWalkers SPV Limited

Walker House, 87 Mary Street, George TownGrand Cayman KY1-9002

Cayman Islands

BOND ISSUERKAL 6 Asset Securitization Specialty Company

1370 Gonghang-dong, Gangseo-guSeoul, Korea 157-712

IRISH PAYING AGENTThe Bank of New York Mellon (Ireland) Limited

Hanover Building, Windmill LaneDublin 2, Ireland

PRINCIPAL PAYING AGENT, PRINCIPALTRANSFER AGENT AND REFERENCE AGENT

The Bank of New York Mellon, London Branch40th Floor, One Canada Square

London E14 5AL, United Kingdom

NOTE REGISTRARThe Bank of New York Mellon (Luxembourg) S.A.

Vertigo BuildingPolaris, 2-4 rue Eugène Ruppert, L-2453 Luxembourg

LEGAL ADVISERSTo the Joint Arrangers as to English law

O’Melveny & Myers31st Floor, AIA Central

One Connaught Road Central, Hong Kong

To the Joint Arrangers as to Korean lawShin & Kim

6th Floor, ACE Tower, 1-170 Soonhwa-dongChung-ku, Seoul 100-712, Korea

To the Joint Arrangers as to Japanese lawO’Melveny & Myers LLP

Meiji Yasuda Seimei Building, 11th Floor2-1-1, Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan

To the Trustor as to Korean lawLee & Ko

11th Floor, Hanjin Main Building118, 2-ka Namdaemun-ro, Chung-ku, Seoul, Korea

To the Japanese Trustee as to Japanese lawAnderson Mori & Tomotsune

Izumi Garden Tower6-1 Roppongi 1-chome, Minato-ku

Tokyo 106-6036, Japan

To the Credit Facility Provider andthe Swap Provider as to English law

Orrick, Herrington & Sutcliffe43rd Floor, Gloucester Tower

The Landmark15 Queen’s Road Central, Hong Kong

To the Note Trustee as to English lawO’Melveny & Myers LLP

9 Raffles Place#22-01/02 Republic Plaza 1

Singapore 048619

To the Note Issuer as to Cayman Islands lawWalkers

15th Floor Alexandra House18 Chater Road, Central, Hong Kong

LISTING AGENTThe Bank of New York Mellon (Ireland) Limited

Hanover Building, Windmill Lane, Dublin 2, Ireland

AUDITORS TO THE CREDIT FACILITY PROVIDERErnst & Young Han YoungTaeyoung Building, 10-2

Yeouido-dong, Yeongdeungpo-guSeoul 150-777, Korea