Page 1 CONFORMED COPY LOAN NUMBER 7320-HR BICRO Project Agreement (Science and Technology Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BUSINESS INNOVATION CENTER OF CROATIA Dated September 16, 2005 Page 2 LOAN NUMBER 7320-HR PROJECT AGREEMENT AGREEMENT, dated September 16, 2005, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and BUSINESS INNOVATION CENTER OF CROATIA (BICRO). WHEREAS (A) by the Loan Agreement of even date herewith between the Bank and the Republic of Croatia (the Borrower), the Bank has agreed to make available to the Borrower a loan in an amount equal to thirty-one million Euro (EUR 31,000,000) on the terms and conditions set forth in the Loan Agreement, but only on condition that BICRO agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a Subsidiary Finance Agreement to be entered into between the Borrower and BICRO, a portion of the proceeds of the Loan provided for under the Loan Agreement will be made available to BICRO on the terms and conditions set forth in said Subsidiary Finance Agreement; WHEREAS BICRO, in consideration of the Bank’s entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Unless the context otherwise requires, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) BICRO declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out Part B Page 3 2 - - of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, and managerial practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for Part B of the Project. (b) Without limitation upon the provisions of paragraph (a) of this Section and except as the Bank and BICRO shall otherwise agree, BICRO shall carry out Part B of the Project in accordance with the Implementation Program set forth in Schedule 1 to this Agreement. Section 2.02. Except as the Bank shall otherwise agree, procurement of goods and consultants’ services required for Part B of the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 3 to the Loan Agreement. Section 2.03. (a) BICRO 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, maintenance and land acquisition, respectively) in respect of the Project Agreement. (b) For the purposes of Section 9.07 of the General Conditions and without limitation thereto, BICRO shall: (i) prepare, on the basis of guidelines agreed with the Bank, and furnish to the Bank not later than two (2) months before the Closing Date or such later date as may be agreed for this purpose between the Bank and BICRO, a plan for the future operation of the Project; and (ii) afford the Bank a reasonable opportunity to exchange views with BICRO on said plan. Section 2.04. BICRO shall duly perform all its obligations under the Subsidiary Finance Agreement. Except as the Bank shall otherwise agree, BICRO shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Finance Agreement or any provision thereof. Section 2.05. (a) BICRO shall, at the request of the Bank, exchange views with the Bank with regard to progress of the Project, the performance of its obligations under this Agreement and under the Subsidiary Finance Agreement, and other matters relating to the purposes of the Loan. Page 4 3 - - (b) BICRO shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by BICRO of its obligations under this Agreement and under the Subsidiary Finance Agreement. ARTICLE III Management and Operations of BICRO Section 3.01. BICRO shall carry on its operations and conduct its affairs in accordance with sound administrative, financial, environmental and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. BICRO shall at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and administrative practices. Section 3.03. BICRO shall take out and maintain with responsible insurers, or make other provision acceptable to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.04. BICRO shall maintain satisfactory statutes, policies, by-laws, organizational structures, governance boards and councils, business plans, operating procedures and personnel resources, including program directors and other key staff with job descriptions, qualifications and experience as agreed with the Bank. ARTICLE IV Financial Covenants Section 4.01. (a) BICRO shall maintain a financial management system, including records and accounts, and prepare financial statements, in accordance with consistently applied accounting standards, acceptable to the Bank, and adequate to reflect its operations and financial condition and to register separately the operations, resources and expenditures related to Part B of the Project. Page 5 4 - - (b) BICRO shall: (i) commencing with the fiscal year in which the Effective Date falls, to and including the fiscal year in which the last withdrawal from the Loan is made, have financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year or other period agreed to by the Bank, audited, in accordance with consistently applied auditing standards acceptable to the Bank, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than five (5) months after the end of each such year, or such other period agreed to by the Bank: (A) certified copies of its financial statements for such year or such other period agreed to by the Bank, as so audited; and (B) an opinion on such statements by said auditors, in such scope and detail satisfactory to the Bank; and (iii) furnish to the Bank such other information concerning said records, accounts and financial statements and the audit of such financial statements, and concerning said auditors, as the Bank shall from time to time reasonably request. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 5.02. This Agreement and all obligations of the Bank and of BICRO thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify BICRO thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. Page 6 5 - - ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party’s address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, NW Washington, DC 20433 United States of America Cable address: Telex: Facsimile: INTBAFRAD 248423 (MCI) or Washington, D.C. 64145 (MCI) (202) 477-6391 For BICRO: Planinska 1 10000 Zagreb Republic of Croatia Facsimile: (385-1) 2352 602 Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of BICRO, may be taken or executed by the President of the Management Board, or such other person or persons as the President of the Management Board shall designate in writing, and BICRO Page 7 6 - - shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement to be signed in their respective names in Zagreb, Republic of Croatia, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By: /s/ Anand K. Seth Authorized Representative BUSINESS INNOVATION CENTER OF CROATIA By: /s/ Hrvoje Prpic Authorized Representative Page 8 7 - - SCHEDULE 1 Implementation Program 1. BICRO shall maintain a Project implementation team with terms of reference, staff and other resources satisfactory to the Bank which shall be responsible for the Project implementa tion activities of BICRO and BICRO’s restructuring process. 2. Not later than October 31 of each year during Project execution, BICRO shall submit to the Bank its annual business plan for the following calendar year, which shall include plans for technical assistance, training, study tours and procurement of goods and operating and action plans and shall finalize such plans taking into consideration the Bank’s comments. 3. BICRO shall implement Part B of the Project in accordance with the provisions of the PIP, and shall not amend, waive or abrogate provision of the PIP without prior consent of the Bank. 4. BICRO shall, in coordination with the PMU: (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with the indicators agreed upon between the Bank and BICRO, the carrying out of Part B of the Project and the achievement of the objectives thereof; (b) furnish to the PMU on or about May 31, 2007, a report (mid-term report) integrating the results of the monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the progress achieved in the carrying out of Part B of the Project during the period preceding the date of said report and setting out the measures recommended to ensure the efficient carrying out of Part B of the Project and the achievement of the objectives thereof during the period following such date; (c) review with the PMU and the Bank, by June 30, 2007, or such later date as the Bank shall request, the report referred to in paragraph (b) of this Section, and, thereafter, take all measures required to ensure the efficient implementation of the Project and the achievement of the objectives thereof, based on the conclusions and recommendations of the said report and the Bank views on the matter. 5. BICRO shall make available to eligible Beneficiaries on the basis of Sub-Project Agreements, the proceeds of the Loan allocated from time to time to Category (3) of the Page 9 8 - - table set forth in Schedule 1 to the Loan Agreement to finance Sub-projects, on terms and conditions set forth or referred to in the Annex to this Schedule. Page 10 9 - - Annex To SCHEDULE 1 Terms and Conditions of the Sub-financing 1. BICRO shall provide Sub-financing to eligible Beneficiaries, including: (a) Technology Centers, incubators and Research and Development Centers under Part B.4 of the Project; (b) venture capital funds – under Part B.3 of the Project; (c) private enterprises for technology development financing – under Part B.2 of the Project; and (d) eligible enterprises - under Part B.5 of the Project. Each Beneficiary shall have established, to the satisfaction of BICRO, on the basis of operational guidelines to be adopted by BICRO as agreed with the Bank, that it has a sound structure and the organization, management, business plan, staff and other resources required for the efficient carrying out of the Sub-project. 2. BICRO shall select Sub-projects for financing from the proceeds of the Loan in accordance with the criteria and procedures set forth in the Operational Procedures. 3. Sub-financing made by BICRO may be in a form of a loan, a grant, an equity investment and any other type of financing, as shall be agreed with the Bank and specified in the Operational Procedures. 4. Unless otherwise agreed with the Bank, each Sub-financing shall be co-financed by Beneficiaries as following: (a) for the purposes of paragraph 1(a) of this Annex, the Sub-financing: (i) shall not exceed 50% of total Sub-project cost; and (ii) shall be co- financed by other agencies and 30% by the Beneficiary; (b) for the purposes of paragraph 1(c) of this Annex, Sub-financing: (i) shall not exceed 80% of total Sub-project cost; and (ii) shall be co-financed by other agencies; and (c) for the purposes of paragraph (d) of this Annex, Sub-financing shall not exceed 50% of the total Sub-project cost. 5. Unless otherwise agreed with the Bank, the principal amount of each Sub- financing: (a) referred to in paragraph 1(c) of this Annex shall be limited to an amount of EUR 1 500,000 equivalent; and (b) referred to in paragraph 1(d) of this Annex shall be limited to an amount of EUR 80,000. 6. The first three Sub-projects and non-free-limit Sub-projects shall be subject to prior review by the Bank. For the purposes of the Loan Agreement and this Annex, a free-limit Sub-project shall be a Sub-financing for a Sub-project defined in Page 11 10 - - paragraph 1(a) of this Annex to Schedule 1, and shall be in an amount financed out of proceeds of the Loan and not exceeding the amount, which shall be determined by the Bank based on the experience of the first three Sub- financing contracts, when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan. 7. BICRO shall maintain pre-screening, evaluation and supervision procedures for Sub-projects, acceptable to the Bank. 8. No expenditures for goods or services required for a Sub-project shall be eligible for financing out of the proceeds of the Loan unless: (a) the Sub-financing for such Sub-project shall have been approved by the Bank and such expenditures shall have been made not earlier than one hundred twenty (120) days prior to the date on which the Bank shall have received the application and information required under this paragraph of this Annex in respect of such Sub-financing; or (b) the Sub-financing for such Sub-project shall have been a free-limit Sub- financing which the Bank has authorized withdrawals from the Loan Agreement and such expenditures shall have been made not earlier than 120 days prior to the date on which the Bank shall have received the application and information required under the paragraph 9(a) of this Annex in respect of such Sub-financing; 9. (a) When presenting a Sub-financing (other than a free-limit Sub-financing) to the Bank for approval, BICRO shall furnish to the Bank an application, in form satisfactory to the Bank, together with: (i) a description of the Beneficiary and an appraisal of the Sub-project, including description of expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-financing; and (iii) such other information as the Bank shall reasonably request. (b) Each request by BICRO for authorization to make withdrawals for the Loan Account in respect of a free-limit Sub-financing shall contain: (i) a summary description and evaluation of each Beneficiary and the Sub-project, including description of expenditures proposed to be financed out of the proceeds of the Loan; and (ii) the proposed terms and conditions of the Sub-financing. 10. BICRO shall provide Sub-financing for approved Sub-projects based on Sub- Project Agreements, to be entered into between BICRO and each Beneficiary on terms and conditions satisfactory to the Bank, which shall include, inter alia , the following conditions: Page 12 11 - - (a) Requiring the Beneficiary to carry out and operate the Sub-project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards and to maintain adequate records; (b) requiring that goods and services shall be procured in accordance with commercial practices and other procedures provided in Schedule 4 to the Loan Agreement, and that such goods and services shall be used exclusively in the carrying out of the Sub-project; (c) BICRO shall have the right, by itself or jointly with representative of the Bank, to inspect the goods and the sites, works, plans and construction included in the Sub-project, the operation thereof, and any relevant records and documents; (d) requiring that the Beneficiary shall take out and maintain such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, including such insurance to cover hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Beneficiary to replace or repair such goods; (e) requiring the Beneficiary to carry out and operate the Sub-project in accordance with appropriate health, safety and environmental standards in accordance with legislation of the Republic of Croatia; (f) requiring the Beneficiary to provide all such information as the Bank, through BICRO, shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Beneficiary and to the benefits to be derived from the Sub-project; (g) requiring Technology Centers, Incubators and R&D Centers to outsource their management to non-public entities under the contractual arrangements as agreed with the Bank; and (h) suspend or terminate the right of the Beneficiary to the use of the proceeds of the Loan upon failure by such Beneficiary to perform its obligations under its Sub-Project Agreement with BICRO.