LOAN NUMBER 8518-HR Project Agreement (Innovation and Entrepreneurship Venture Capital Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and HAMAG-BICRO Dated , 2015 LOAN NUMBER 8518-HR PROJECT AGREEMENT Agreement dated , 2015, entered into between INTERNATIONAL BANK FOR CONSTRUCTION AND DEVELOPMENT ("Bank") and HAMAG-BIC ZO ("Project Implementing Entity") ("Project Agreement") in connection with the Loan Agreement ("Loan Agreement") of the same date between the Republic of Croatia ("Borro ver") and the Bank. The Bank and the Project Implementing Entity hereby agree as folloN 's: ARTICLE I -- GENERAL CONDITIONS; DEFINITIONS 1.01. The General Condiiions (as defined in the Appendix to the Loan Agreement) constitute an integra part of this Agreement. 1.02. Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the Loan Agreement or the General Conditions. ARTICLE II - PROJECT 2.01. The Project Implem nting Entity declares its commitment to the objective of the Project. To this end, the Project Implementing Entity shall carry out the Project in accordance with the provisions of Article V of the General Conditions, and shall provide, promptly ai needed, the funds, facilities, services and other resources required for the Proj ct. 2.02. Without limitation i pon the provisions of Section 2.01 of this Agreement, and except as the Bank aid the Project Implementing Entity shall otherwise agree, the Project Implementir g Entity shall carry out the Project in accordance with the provisions of the Sch edule to this Agreement. ARTICLE III - REPRESENTATIVE; ADDRESSES 3.01. The Project Implementing Entity's Representative is the President of its Executive Board. 3.02. The Bank's Address is: Internationa Bank for Reconstruction and Development 1818 H Stre, t, NW Washington DC 20433 United State; of America -2- Cable: Telex: Facsimile: INTBAFPJ.D 248423(MCI) or 1-202-477-6391 Washingtor, D.C. 64145(MCI) 3.03. The Project Implem:-nting Entity's Address is: HAMAG-B [CRO Prilaz Gjure Deleli6a 7 10000 Zagr, -b Facsimile: 385 1 488 1)09 -3- AGREED at Zagreb, Republ c of Croatia, as of the day and year first above written. INT -RNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Authorized Representative Name: 2 ? ih Title: HA4AG-BICRO By Authorized Representative I Na Title: y )~ IDT, (21 By Authorized Representative Name: oi5 £UwA Title:. \I5L -UL ~ c- ~~* -4- SCHEDULE Execution of the Project Section I. Implement ition Arrangements A. Institutional Arran gements 1. The Project Implemcnting Entity shall carry out the Project in accordance with this Agreement, the Loai Agreement and the Project Operations Manual and shall not assign, amend, terminate, abrogate, waive or fail to enforce any provision of the Project Operations D lanual without the prior written agreement of the Bank. 2. The Project Implem:nting Entity shall establish and thereafter maintain a Project Implementation Uni. with competent staff in sufficient numbers satisfactory to the Bank, including the following: (i) a Pr :ject manager with qualifications and experience in equity or qua:;i-equity investments who will be responsible for the overall mar agement of the Project, organization and coordination of all acti iities between parties involved in the Project, reporting to the Bor -ower and the Bank, as well as other institutions represented on the Project Steering Committee, and monitoring the perf :rmance of Project components; (ii) a financial expert who will be responsible for the Project's fina icial management arrangements, such as planning and bud geting, Project accounting and reporting, internal controls, distursements and external audit arrangements; (iii) a procurement expert who will be responsible for overall cooi dination, management and monitoring of procurement; and (iv) a sa eguards expert who will follow and coordinate preparation of environmental due diligence documents. B. Subsidiary Agreement 1 . To facilitate the carr ying out of the Project, the Project Implementing Entity shall enter into a subsidiary agreement between the Borrower and the Project Implementing Entity ("Subsidiary Agreement"), under terms and conditions approved by the Bark, which shall include the following: (a) The Project mplementing Entity will not be required to repay the proceeds of the Loan -eceived from the Borrower. -5- (b) The obligati )ns of the Project Implementing Entity to: (i) comply with the pertinent provisions of the Loan Agreement, as applicable to the Project Implementing Entity; (ii) proc ure a private venture capital management firm to act as the man ager of the PVC Fund, with terms of reference, experience and qualifications acceptable to the Bank ("PVC Management Firm"), in accordance with the provisions set forth in Section III of S-hedule 2 to the Loan Agreement; (iii) esta )lish the PVC Fund with a structure, functions and resp jnsibilities acceptable to the Bank and in accordance with the Alternative Investment Fund Act, the Croatian Company Law, and the Guidelines on State Aid to Promote Risk Finance Inve stments; (iv) as I art of the establishment of the PVC Fund, enter into an agreement with the shareholders referred to in Section IV, Part B, para graph 1 (b)(v) of Schedule 2 to the Loan Agreement (the "PVC Fun,1 Agreement") on terms and conditions acceptable to the Ban c, including, inter alia: (A) the obligation of the Project Imp ementing Entity to, upon approval of any given PVC Inve stment, make available to the PVC Fund a portion of the Loan proc eeds on terms and conditions acceptable to the Bank, as set forti in the POM, including, inter alia, compliance with the Anti- Con uption Guidelines; and (B) the obligation of the PVC Fund to, upon approval of any given PVC Investment, provide equity fina icing (the PVC Sub-financing) to the corresponding PVC Ben ficiary for purposes of financing the PVC Investment pursuant to the pertinent agreement (the "PVC Sub-Financing Agrement") to be entered into between the PVC Fund and said PVC Beneficiary on terms and conditions, acceptable to the Bank, inch iding, inter alia, those set forth in subparagraph (vii) below. (v) ensL re that the PVC Management Firm, on behalf of the PVC Fund1, approves PVC Investments and the related PVC Sub- fina icing in accordance with the eligibility criteria and terms set forth in the Project Operations Manual; (vi) enst re that the PVC Management Firm, on behalf of the PVC Fun1, maintains pre-screening, evaluation and supervision procedures for PVC Investments, acceptable to the Bank; -6- (vii) enst re that each PVC Sub-financing Agreement shall include the following terms and conditions: (1) the PVC Fund shall obtain rights adequate to protect its interests and those of the Project Implementing Entity, the Borrower, and the Bank, including the right to: (A) terminate the right of the PVC Beneficiary to use the proceeds of the PVC Sub-financing, or obtain a refund of all or any part of the amount of the PVC Sub-financing received, upon the PVC Beneficiary's failure to perform any of its obligations under the PVC Sub-financing Agreement; and (B) require each PVC Beneficiary to: (I) carry out its operations with due diligence and efficiency and in accordance with sound technical, economic, financial, managerial, environmental and social standards (including any EIAs, EMPs or other documents required under the Environmental Management Framework) and practices, all satisfactory to the Bank, including in accordance with the provisions of the Anti-Corruption Guidelines applicable to recipients of loan proceeds other than the Borrower; (II) provide, promptly as needed, the resources required for the purpose; (III) maintain policies and procedures adequate to enable it to monitor and evaluate its PVC Activities in accordance with indicators acceptable to the Bank; (IV) maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Bank, both in a manner adequate to -7- reflect its operations, resources and expenditures; (V) at the Bank's or the Borrower's request, have such financial statements audited by independent auditors acceptable to the Bank, in accordance with consistently applied auditing standards acceptable to the Bank, and promptly furnish the statements as so audited to the Borrower and the Bank; (VI) enable the Borrower and the Bank to inspect the PVC Beneficiary's operation and any relevant records and documents; and (VII) prepare and furnish to the Borrower and the Bank all such information as the Borrower or the Bank shall reasonably request relating to the foregoing. (2) the PVC Management Firm, on behalf of the PVC Fund, shall exercise its rights and carry out its obligations under each PVC Sub-financing Agreement in such manner as to protect the interests of the Project Implementing Entity, the Borrower and the Bank and to accomplish the purposes of the Loan. Except as the Bank and the Borrower shall otherwise agree, the PVC Management Firm, on behalf of the PVC Fund, shall not assign, amend, terminate, abrogate, waive or fail to enforce any PVC Sub-financing Agreement or any of its provisions. (viii) man age the Seed Co-Investment ("SCI") Fund pursuant to criteria and limitations set forth in the Project Operations Manual; (ix) deci Je which investments the SCI Fund will make consistent with the criteria set forth in the Act on the Small Business Promotion Dev-,lopment and the Agreement on the Merger of the Business Innc vation Agency of the Republic of Croatia with the Croatian Age icy for SMEs and Investments; (x) enst re that the SCI Fund provides financing to SMEs in the form of a oan, equity investment, or any other type of financing as shall -8- be a greed with the Bank ("SCI Sub-financing"), and complies witf the terms of the Anti-Corruption Guidelines; (xi) mait itain pre-screening, evaluation and supervision procedures for SCI Sub-financing, acceptable to the Bank; and (xii) make each SCI Sub-financing under an SCI Sub-financing Agr,.ement with the respective SCI Beneficiary on terms and conditions approved by the Bank, which shall include the folhwing: (1) the Project Implementing Entity shall obtain rights adequate to protect its interests and those of the Borrower and the Bank, including the right to: (A) suspend or terminate the right of the SCI Beneficiary to use the proceeds of the SCI Sub- financing, or obtain a refund of all or any part of the amount of the SCI Sub-financing then withdrawn, upon the SCI Beneficiary's failure to perform any of its obligations under the SCI Sub- financing Agreement; and (B) require each SCI Beneficiary to: (I) carry out its SCI Subproject with due diligence and efficiency and in accordance with sound technical, economic, financial, managerial, environmental and social standards (including any ElAs, EMPs or other documents required under the Environmental Management Framework) and practices, all satisfactory to the Bank, including in accordance with the provisions of the Anti-Corruption Guidelines applicable to recipients of loan proceeds other than the Borrower; (II) provide, promptly as needed, the resources required for the purpose; (III) procure the goods and services to be financed out of the SCI Sub-financing in -9- accordance with the provisions of this Agreement; (IV) maintain policies and procedures adequate to enable it to monitor and evaluate its SCI Activities in accordance with indicators acceptable to the Bank; (V) maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standards acceptable to the Bank, both in a manner adequate to reflect its operations, resources and expenditures; (VI) at the Bank's or the Borrower's request, have such financial statements audited by independent auditors acceptable to the Bank, in accordance with consistently applied auditing standards acceptable to the Bank, and promptly furnish the statements as so audited to the Borrower and the Bank; (VII) enable the Borrower and the Bank to inspect the SCI Beneficiary's operation and any relevant records and documents; and (VIII) prepare and furnish to the Borrower and the Bank all such information as the Borrower or the Bank shall reasonably request relating to the foregoing. (2) The Project Implementing Entity shall exercise its rights and carry out its obligations under each SCI Sub- financing Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. Except as the Bank and the Borrower shall otherwise agree, the Project Implementing Entity shall not assign, terminate, amend, abrogate, waive or fail to enforce any SCI Sub-financing Agreement or any of its provisions. - 10 - 2. The Project Implernenting Entity shall exercise its rights and carry out its obligations under tl e Subsidiary Agreement in such manner as to protect the interests of the Borrc wer and the Bank and to accomplish the purposes of the Loan. Except as the Bar k and the Borrower shall otherwise agree, the Project Implementing Entity shall not assign, terminate, amend, abrogate, waive or fail to enforce the Subsidia -y Agreement or any of its provisions. C. Anti-Corruption The Project Implem nting Entity shall carry out the Project in accordance with the provisions of the An:i-Corruption Guidelines. D. Safeguards 1. The Project Impleminting Entity shall carry out the Project, and shall ensure that the Project is carrie I out, in accordance with the Environmental Management Framework. 2. The Project Implem.-nting Entity shall ensure that no provision of the EMF is amended, suspended, abrogated, repealed or waived without prior approval by the Bank. 3. (a) The Project [mplementing Entity shall ensure that prior to any PVC Sub- financing or SCI Sub-financing, the Project Implementing Entity or the PVC Manal ement Firm, as the case may be, screens potential PVC Beneficiarie; or SCI Beneficiaries for environmental and social impacts to determine eligibility of a proposed Sub-financing in accordance with the Environmen al Management Framework. (b) For each prc posed Sub-financing requiring an EIA or an EMP, or both an EIA and an I EMP, pursuant to the provisions set forth in the Environmental Managemen: Framework, the Project Implementing Entity is responsible for ensuring that: (i) an E IA or an EMP, or both an EIA and an EMP, is prepared; (ii) sucl EIA or EMP, or both the EIA and the EMP, comply with the proN isions of the Environmental Management Framework; (iii) mea iingful consultations are conducted, and the EIA or EMP, or both EIA and EMP, are adequately disclosed; and (iv) that -ach PVC Beneficiary or SCI Beneficiary, as the case may be, carr es out its activities in compliance with such EIA or EMP or both EIA and EMP. - 11 - 4. No PVC Investment or SCI Subproject shall be eligible for Sub-financing if it involves: (a) any activiti-.s involving the involuntary taking of land resulting in relocation cr loss of shelter, loss of assets or access to assets, loss of income sources or means of livelihood, or involving the involuntary restriction of access to legally designated parks and protected areas; or (b) any activities likely to have significant adverse environmental impacts that are sensitiv -, diverse, or unprecedented, that would be classified as 'Category n' in accordance with the Bank's applicable policies and procedures. 5. The Project Implem nting Entity shall ensure that: (a) the terms of reference for any consultancies n lated to the technical assistance under Part C of the Project shall be satisfactory to the Bank and, to that end, such terms of reference shall require that the advice conveyed and documentation prepared through such technical assistance [e consistent with the requirements of the EMF; (b) technical assistance activities are screened for environmental and social impacts and to determine eligibilit" in accordance with the EMF; and (c) if applicable, the required environmet tal documentation, such as an EMP, is prepared as part of the technical assistance. Section II. Project Mo itoring, Reporting and Evaluation A. Project Reports 1. The Project Implementing Entity shall monitor and evaluate the progress of the Project and prepare Project Reports the Project in accordance with the provisions of Section 5.08(b) of the General Conditions and on the basis of indicators acceptable to the B, nk. Each such Project Report shall cover the period of one calendar semester, a nd shall be furnished to the Borrower not later three weeks after the end of the period covered by such report for incorporation and forwarding by the Borrower to t ie Bank of the overall Project Report. 2. The Project Implem nting Entity shall provide to the Borrower not later than four months after the Clo;ing Date, for incorporation in the report referred to in Section 5.08(c) of the Gener;d Conditions all such information as the Borrower or the Bank shall reasonably req iest for the purposes of that Section. B. Financial Manager ient, Financial Reports and Audits 1. The Project Implementing Entity shall maintain a financial management system and prepare financial statements in accordance with consistently applied accounting standard; acceptable to the Bank, both in a manner adequate to reflect - 12 - the operations and financial condition of the Project Implementing Entity, including the operat: ons, resources and expenditures related to the Project. 2. The Project Impletr enting Entity shall have its financial statements referred to above audited by inc ependent auditors acceptable to the Bank, in accordance with consistently applied iuditing standards acceptable to the Bank. Each audit of these financial statements shall cover the period of one fiscal year of the Project Implementing Entit-. The Project Implementing Entity shall ensure that the audited financial stat ements for each period shall be: (a) furnished to the Borrower and the Bank not lal er than six months after the end of the period; and (b) made publicly available iii a timely fashion and in a manner acceptable to the Bank. 3. The Project Implementing Entity shall ensure that the PVC Management Firm maintains financial management systems and prepares financial statements in accordance with con;istently applied accounting standards acceptable to the Bank, both in a manner ad ,quate to reflect the operations and financial condition of the PVC Management Firm and the PVC Fund separately, including their operations, resources and expen litures related to the Project. 4. The Project Implem nting Entity shall have the financial statements of the PVC Management Firm a id the PVC Fund audited by independent auditors acceptable to the Bank, in accor Jance with consistently applied auditing standards acceptable to the Bank. Each audit of these financial statements shall cover the period of one fiscal year of the "VC Management Firm and the PVC Fund respectively, commencing with tlie fiscal year in which the first withdrawal is made for the Project. 5. The Project Implemc nting Entity shall ensure that the audited financial statements of the PVC Manager nent Firm and the PVC Fund for each period are: (a) furnished to the Bank not later than six (6) months after the end of the period; and (b) made publicly available in a timely fashion and in a manner acceptable to the Bank. 6. The Project Implemi.nting Entity shall prepare and furnish to the Bank, not later than forty-five (45) c ays after the end of each calendar semester, interim unaudited financial reports for the Project covering the semester, in form and substance satisfactory to the Bi nk. Section III. Procuremei it All goods and services required for the Project and to be financed out of the proceeds of the Lo;in shall be procured in accordance with the provisions of Section m of Schedule 2 to the Loan Agreement.