Page 1 CONFORMED COPY LOAN NUMBER 3020 HU (Third Industrial Restructuring Project) between HUNGARIAN PEOPLE'S REPUBLIC and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated February 24, 1989 GUARANTEE AGREEMENT AGREEMENT, dated February 24, 1989, between HUNGARIAN PEOPLE'S REPUBLIC (the Guarantor) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Guarantor and the National Bank of Hungary (the Borrower), having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to the Loan Agreement, have requested the Bank to assist in the financing of the Project; (B) by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to extend to the Borrower a loan in various currencies equivalent to one hundred and forty million dollars ($140,000,000), on the terms and condi- tions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Borrower in respect of such loan and to undertake such other obligations as provided in this Agreement; and WHEREAS the Guarantor, in consideration of the Bank's enter- ing into the Loan Agreement with the Borrower, has agreed so to guarantee such obligations of the Borrower; Page 2 NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January 1, 1985, with the last sentence of Section 3.02 deleted (the General Conditions) constitute an integral part of this Agreement. Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee; Provision of Funds Section 2.01. The Guarantor declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, without limitation or restriction upon any of its other obligations under the Guarantee Agreement, hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan, and the punctual performance of all the other obligations of the Borrower, all as set forth in the Loan Agreement. Section 2.02. Without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes, whenever there is reasonable cause to believe that the funds available to the Borrower will be inade- quate to meet the estimated expenditures required for the carrying out of the Project, to make arrangements, satisfactory to the Bank, promptly to provide the Borrower or cause the Borrower to be provided with such funds as are needed to meet such expenditures. ARTICLE III Execution of Part C of the Project Section 3.01. The Guarantor shall carry out and cause to be carried out Part C of the Project with due diligence and effi- ciency and in conformity with appropriate practices, and shall provide, promptly as needed, the funds, facilities, services and other resources required for the purpose. Section 3.02. In order to assist in carrying out Part C of the Project, the Guarantor shall employ consultants with qualifi- cations, experience and terms of reference satisfactory to the Bank. Section 3.03. Except as the Bank shall otherwise agree, procurement of the goods and consultants' services required for Part C of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to the Loan Agreement. Section 3.04. The Guarantor shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, the Guarantor shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any pro- vision thereof. Section 3.05. The Guarantor shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports and maintenance Page 3 and land acquisition, respectively) in respect of Part C of the Project. ARTICLE IV Other Covenants Section 4.01. (a) The Guarantor shall maintain or cause to be maintained records and accounts adequate to reflect in accordance with sound accounting practices the operations, resources and expenditures in respect of Part C of the Project of the depart- ments, agencies and institutes of the Guarantor responsible for the carrying out thereof. (b) The Guarantor shall: (i) have the records and accounts referred to in para- graph (a) of this Section for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than five months after the end of each such year: (A) certified copies of said accounts for such year as so audited; and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information con- cerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. Section 4.02. In order to assist in the achievement of the objectives of the Project, the Guarantor shall carry out programs, as agreed with the Bank, to improve: (a) export credit and insurance services available to exporting enterprises, including the establishment, by June 30, 1990, and operation of an auto- nomous export credit agency; and (b) employment creation in areas experiencing adverse employment impact due to industrial restructuring. ARTICLE V Representative of the Guarantor; Addresses Section 5.01. The First Deputy President or the Managing Director of the Borrower is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Conditions. Section 5.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: National Bank of Hungary Department for International Development Institutions H-1850 Budapest Szabadsag ter 8-9 Hungarian People's Republic Cable address: Telex: BANKO 227267 SMAFU-H, Budapest 225755 BANKO-H or 227028 BANKO-H For the Bank: Page 4 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. HUNGARIAN PEOPLE'S REPUBLIC By /s/ Ferenc Horvath Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Eugenio F. Lari Acting Regional Vice President Europe, Middle East and North Africa