LOAN NUMBER 2263 PO Loan Agreement (Second Small and Medium Scale Industry Development Project) between REPUBLIC OF PORTUGAL and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated , 1983 LOAN NUMBER 2263 PO LOAN AGREEMENT AGREEMENT, dated 2.7 , 1983, between REPUBLIC OF PORTUGAL (hereinafter calle& the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the Project described in Section 3.01 (a) of this Agreement by making th.e Loan as hereinafter provided; (B) the Project %ill be carried out by Instituto de Apoio as Pequenas e Medias Empresas Industriais (hereinafter called IAPMEI) and the participating commercial banks with the Bor- rower's assistance and, as part of such assistance, the Borrower will make available the proceeds of the Loan as hereinafter pro- vided; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in the Project Agreement of even date herewith between the Bank and IAPMEI; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Gua- rantee Agreements of the Bank, dated October 27, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Schedule 3 to this Agreement (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agre1ment, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following addi- tional terms have the following meanings: -2- (a) "Project Agreement" means the agreement between the Bank and IAPMEI of even date herewith, as the same may be amended from time to time, and such term includes all agreements supple- mental to the Project Agreement; (b) "Agency Agreement" means the agreement to be entered into between the Borrower and Banco de Portugal pursuant to Sec- tion 3.01 (d) of this Agreement, as the same may be amended from time to time, and such term includes all schedules Lo the Agency Agreement; (c) "PBI" means Banco de Fomento Nacional, Caixa Geral de Depositos, any Portuguese commercial bank or any Portuguese investment society or other institution authorized to make investment credit operations, which has entered into a protocol with Banco de Portugal and IAPMEI as described in paragraph 7 of Schedule 2 to this Agreement; (d) "Investment Enterprise" means an enterprise to which a PBI proposes or has made a Sub-loan; (e) "Investment Project" means a specific development proj- ect to be carried out by a Investment Enterprise utilizing the proceeds of a Sub-loan; (f) "Sub-loan" means a loan made or proposed to be made by a PBI out of the proceeds of the Loan to an Investment Enterprise for a Investment Project; (g) "Review Note" means a written assessment prepared by IAPMEI's central service responsible for coordination and quality control, in form satisfactory to the Bank, of each Investment Project appraisal report; and (h) "Escudo" and "Esc." mean the currency of the Borrower. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or re- ferred to, an amount in various currencies equivalent to forty million three hundred thousand dollars ($40,300,000). - 3 - Section 2.02. (a) Subject to the provisions of paragraphs (b) and (c) of this Section, Banco de Portugal, acting as agent of the Borrower, may withdraw from the Loan Account the equiva- lent of amounts paid (or, if the Bank shall so agree, amounts to be paid) by the PBIs on account of withdrawals made by an Investment Enterprise under a Sub-loan to meet sixty-five per cent (65%) of the reasonable cost of goods and services required for the Investment Project in respect of which the withdrawal from the Loan Account is requested; provided, however, that no withdrawal shall be made in respect of a Sub-loan unless: (i) the Sub-loan has been approved by the Bank, or (ii) the Sub-loan is a free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account. (b) Free-limit Sub-loans shall be Sub-loans, each for an Investment Project estimated to cost less than Esc. 43,000,000, in October 1982 prices, the foregoing amount being subject to change from time to time as determined by agreement between the Borrower and the Bank. (c) Except as the Bank and the Borrower shall otherwise agree, no withdrawals shall be made on account of (i) expendi- tures prior to the date of this Agreement; (ii) expenditures made in respect of a Sub-loan subject to the Bank's approval more than ninety days prior to the date on which the Bank shall have received the application and information required under Section 2.03 (a) of tiis Agreement; or (iii) expenditures made in respect of a free-limit Sub-loan more than ninety days prior to the date on which Banco de Portugal shall have received from IAPMEI the Review Note required by Section 2.03 (b) of this Agreement. Section 2.03. (a) When presenting a Sub-loan (other than a free limit Sub-loan) to the Bank for approval, the Borrower through IAPMEI shall furnish to the Bank an application and a Review Note for the Sub-loan, and such other information as the Bank shall reasonably request. (b) For each request by Banco de Portugal, on behalf of the Borrower, for authorization to make withdrawals from the Loan Account in respect of a free-limit Sub-loan, the Borrower through IAPMEI shall furnish to the Bank a Review Note. (c) Except as the Bank and the Borrower shall otherwise agree, applications and requests furnished pursuant to the provisions of paragraph (a) and (b) of this Section shall be presented to the Bank on or before September 30, 1986. Section 2.04. Except as the Bank shall otherwise agree, procurement of the goods and civil works required for the Project and to be financed out of the proceeds of the Loan shall be gov- erned by the provisions of paragraph 6 (a) of Schedule 2 to this Agreement. Section 2.05. The Closing Date shall be March 31, 1989 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.06. (a) The Borrower shall pay to the Bank a fee equivalent to three hundred thousand dollars ($300,000). (b) On or promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount of the said fee in such currency or currencies as the Bank shall determine. Section 2.07. The Borrower shall pay to the Bank a commit- ment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.08. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time at a rate per annum for each Interest Period equal to one half percent per annum above the Cost of Qualified Borrowings for the last Semester ending prior to the commencement of such Interest Period. (b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower of the Cost of Qualified Borrowings for such Semester. (c) For purposes of this Section: (i) "Interest Period" means the six-month period commencing on each date specified in Section 2.08 of this Agreement, including the Interest Period in which this Agreement is signed. (ii) "Cost" of Qualified Borrowings means the cost, expressed as a percentage per annum, as reasonably determined by the Bank, provided that the amount of $8,520.5 million referred to in (iii) (B) - 5 - hereunder shall be reckoned at a cost of 10.93% per annum. (iii) "Qualified Borrowings" means (A) outstanding borrowings of the Bank drawn down after June 30, 1982; and (B) until July 1, 1985, the amount of $8,520.5 million (representing borrowings of the Bank between July 1, 1981 and June 30, 1982) less any part thereof repaid earlier than July 1, 1985. (iv) "Semester" means the first six months or the second six months of a calendar year. Section 2.09. Interest and other charges shall be payable semiannually on January 15 and July 15 in each year. Section 2.10. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement. Section 2.11. Banco de Portugal is designated as representa- tive of the Borrower for the purposes of taking any action re- quired or permitted to be taken under the provisions of Section 2.02 (a) of this Agreement and Article V of the General Conditions. ARTICLE III Description of the Project; Use of the Proceeds of the Loan Section 3.01. (a) The purpose of the Project is to assist the Borrower in financing investment promotion and rehabilitation programs for small and medium scale industry in Portugal. The Project consists of the financing of specific development pro- jects through loans to small and medium scale enterprises in Portugal, with special emphasis on smaller and labor-intensive enterprises. (b) The Borrower shall cause the Project to be carried out in accordance with the provisions of Schedule 2 to this Agree- ment, as such Schedule may be amended by agreement between the Borrower and the Bank, with due diligence and efficiency and in conformity with appropriate administrative, financial and industrial practices, and shall provide, promptly as need.d, the - 6 - funds, facilities, services and other resources required for the purpose. (c) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause IAPMEI to perform in accordance with the provisions of the Project Agreement all the obligations of IAPMEI therein set forth, shall take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable IAPMEI to perform such obligations, and shall not take.or permit to be taken any action which would prevent or interfere with such performance. (d) The Borrower shall, in accordance with the provisions of Schedule 2 to this Agreement and through Banco de Portugal acting as its agent in accordance with an Agency Agreement to be entered into between the Borrower and Banco de Portugal, relend to PBIs the proceeds of the Loan, allocated from time to time to Investment Projects, under terms and conditions which shall have been approved by the Bank, including, inter alia, that the foreign exchange risk as well as the interest rate risk shall be borne by the Borrower. (e) The Borrower shall exercise its rights under the Agency Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and, except as the Bank shall otherwise agree, the Borrower shall not assign, amend, abrogate or waive the Agency Agreement or any provision thereof. ARTICLE IV Other Covenants Section 4.01. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, - 7 - unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property or as security for the payment of debt incurred for the purpose of financing the purchase of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturirng not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative sub- division thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.02. The Borrower, in agreement with Banco de Portugal, shall continue to provide to PBIs incentives to participate in the Project, including adding the amounts of the Sub-loans refinanced under the Project to the credit ceiling of the PBI concerned. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified pursuant to paragraph (k) thereof: (a) IAPMEI shall have failed to perform any of its obligations under the Project Agreement. - 8 - (b) As a result of events which have occurred after the date of the Loan Agreement, an extraordinary situation shall have arisen which shall make it improbable that IAPMEI will be able to perform its obligations under the Project Agreement. (c) The legislation under which IAPMEI is established and operating shall have been amended,suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of IAPMEI to perform any of its obligations under the Project Agreement. (d) The Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of IAPMEI or for the suspension of its operations. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: (a) any event specified in paragraphs (a) and (e) of Sec- tion 5.01 of this Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower and IAPMEI; and (b) any event specified in paragraphs (c) and (d) of Sec- tion 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Condi- tions: (a) the Agency Agreement has been executed on behalf of the Borrower and Banco de Portugal; (b) one or more protocols described in paragraph 7 of Schedule 2 to this Agreement has been executed on behalf of, on the one side, Banco de Portugal and IAPMEI, and on the other side, at least three PBIs whose combined assets, as of Octo- ber 31, 1982, account for at least 40% of the total assets in the banking system; and - 9 - (c) Banco de Portugal has opened a special account for the purpose of the Project. Section 6.02. The following are specified as 'additional matters, within the meaning of Section 12.02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished to the Bank: (a) that the Project Agreement has been duly authorized or ratified by IAPMEI, and is legally binding upon IAPMEI in accordance with its terms; and (b) that the' Agency Agreement has been duly authorized or rat .fied by the Borrower and Banco de Portugal and is legally bi "ing upon the Borrower and Banco de Portugal in accordance with its terms. Sectfdn 6.03. The date ,3 USE V 9 ' 1 , is hereby specified for the 'purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrover; Addresses Section 7.01. Except as provided in Section 2.11 of this Agreement, the Minister of the Borrower at the time responsible for Finance is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified- for the purposes of Section 11.01 of the General Conditions. For the Borrower: Ministerio das Financas e do Plano Avenida Infante D. Henrique 100 Lisboa Portugal Cable address: Telex: Dirrecao-Geral 12 764 TRESOR P do Tesouro Lisboa - 10 - For the Bank: 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 representatives thereunto duly authorized, 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. REPUBLIC OF PORTUGAL Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION ANW DEVELOPMENT AByl'j Regional Vice President Europe, Middle East and North Africa - 11 - SCHEDULE 1 Amortization Schedule Payment of Principal Date of Payment Due (Expressed in dollars)* On each January 15 and July 15 beginning January 15, 1987 through January 15, 1998 1,680,000 On July 15, 1998 1,660,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal; see General Conditions, Section 3.04. - 12 - Premiums on Prepaypent The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.04 (b) of the General Conditions: Time of Prepayment Premium The" 'interest rate (ex- pressed as a percentage - per annum) applicable to the balance outstanding on the Loan on the day of prepayment multiplied by: Not more than three years .20 before maturity More than three years .40 but not more than six years before maturity More than six years .73 but not more than eleven years before maturity More than eleven years .87 but not more than thirteen years before maturity More than thirteen years 1.00 before maturity - 13 - SCHEDULE 2 Implementation: Sub-loan and Investment Procedures (1) Functions and Responsibilities of IAPMEI, the PBIs and Banco de Portugal Investment Projects shall be identified and appraised by the PBIs concerned or IAPMEI. In particular, the role and responsibility of IAPMEI and the PBIs shall be based on the following principles: (a) The PBIs shall continue to identify Investment Projects and appraise them in accordance with their standard procedures and the provisions of this Schedule. The PBIs may seek IAPMEI's assistance in the identification and appraisal. However, it is the sole responsibility of the PBI concerned to decide whether to finance the Investment Project and to apply for refinancing to Banco de Portugal. After a Sub-loan shall have been made to an Investment Enterprise the PBI shall supervise the execution of the Invest- ment Project with special emphasis on risk assessment and repay- ment performance. (b) IAPMEI shall identify and appraise Investment Projects, or assist PBIs therein, in accordance with the provisions of this Schedule. IAPMEI's central service responsible for coordination and quality control shall (i) verify that all Investment Projects are technically, financially and economically viable and meet the eligibility criteria specified hereunder; (ii) coordinate the follow-up on project implementation, and (iii) provide Investment Enterprises with, or assist them in obtaining, technical assis- tance, as necessary. IAPMEI shall coordinate with the PBIs the supervision of all Investment Projects and, in the course of supervtsion, focus on the eligibility and technical assistance aspects. IAPMEI shall prepare an annual supervision report covering an agrEed upon sample of Investment Projects, In order to support IAPMEI's overall supervision of these Investment Projects, (i) the PBIs shall be required to furnish to IAPMEI for these Inv7estment Projects an analysis of the Investment Enterprise's repayment - 14 - performance; and (ii) Banco de Portugal shall be required to furnish to IAPMEI an analysis of the respective Sub-loan disbursements. (c) Banco de Portugal shall centralize the administration of the line of credit and be responsible for the refinancing of the Sub-loans in accordance with its standard procedures and the provisions of this Schedule. (2) Eligibility Criteria Sub-loans shall be made only for the purpose of financing Investment Projects which meet the following criteria: (a) The Investment Project must be technically, financially ana eco.omically viable, and must in particular: (i) have a minimum financial rate. of return of 12%, and (ii) in the case of Investment Projects costing more than Esc. 60,000,000 in October 1982 prices have a minimum economic rate of return of 12%. The foregoing does not apply to Investment Projects aimed solely at energy conservation for which the economic and financial viability shall be demonstrated by a payback period test, with a maximum payback period of six years calculated on the basis of the equipment cost and annual energy savings valued at c.i.f. import price of petroleum. (b) The total cost of the Investment Project, including permanent working capital and appropriate contingencies, but excluding the cost of land, shall not exceed: (i) Esc. 50,000,000 in October 1982 prices for Investment Projects aimed soley at energy conservation; and (ii) Esc. 95,000,000 in October 1982 prices for all other Investment Projects. (c) The Investment Enterprise shall be required to provide an equity contribution of not less than 25% of the total cost of the Investment Project. In the case of expansion projects, the equity shall not be less than 25% of the total net value of its fixed assets after the completion of the Investment Project. (d) Investment Enterprises requesting a Sub-loan for expan- sion or modernization of existing facilities shall be eligible only if the total net value of their fixed assets (excluding land), after such expansion or modernization, revalued to October 1982 prices, does not exceed Esc. 245,000,000. (e) The investment cost per job created or maintained by the Investment Enterprise shall -not exceed Esc. 3,000,000 in - 15 - October 1982 prices. The investment cost per job created or main- tained shall be found: (i) in cases of new or expansion projects by dividing the cost of the Investment Project by the number of jobs created; and (ii) in cases of modernization and reorganiza- tion projects by dividing the aggregate of the net fixed assets of the Investment Enterprises after such reorganization or modernization by the number of jobs to be created or maintained. This criterion does not apply to Investment Projects intended solely for quality control or energy conservation. (f) The investment size and cost per job ceilings shall be adjusted twice a year by agreement between the Borrower and the Bank to reflect inflation. (3) Appraisal In appraising Investment Projects, the PBIs and IAPMEI shall pay special attention to: (i) ensuring that existing and new production facilities are properly balanced; (ii) allowing ade- quate provision for price and physical contingencies in the total investment cost; (iii) verifying the availability of equity con- tributions; and (iv) establishing an agreed technical assistance action program and implementation timetable, if necessary. These matters shall be specifically covered in the appraisal reports to be prepared for each Investment Project. (4) Approval Upon notification by the Bank or IAPMEI, as the case may be, of approval of the Investment Project pursuant to paragraphs (a) or (b) of Section 2.03 of this Agreement, and receipt of a statement by the PBI concerned of the PBI's intention to make a Sub-loan for the Investment Project, Banco de Portugal shall open an Investment Project file and keep these documents in said file for review by representatives of the Bank. (5) Financial Procedures and Conditions (a) The equivalent of 65% of the cost of the Investment Project shall be eligible for refinancing by the Borrower acting through Banco de Portugal. Requests for refinancing shall be submitted to Banco de Portugal by the PBIs together with such documentary evidence of the eligibility of such cost for refinancing as Banco de Portugal shall request. - 16 - (b) Requests for the withdrawal of proceeds of the Loan on account of Sub-loans shall be made to the Bank by Banco de Portugal acting as agent of the Borrower. Such requests shall be submitted to the Bank monthly and shall be accompanied by a certificate of Banco de Portugal stating that the disbursements on account of which the withdrawal is requested have been made by the PBI and that documentary evidence of the expenditures on account of which such disbursements were made is available and satisfactory to Banco de Portugal. Upon receipt of the proceeds of the Loan withdrawn, Banco de Portugal shall pass on to the PBIs concerned the Escudo equivalent of such proceeds determined as of the date of withdrawal. Banco de Portugal shall keep said documentary evidence in its Investment Project files for inspection by representatives of the Bank. (c) Banco de Portugal shall collect from the PBIs the debt service payments due from the PBIs on the proceeds of the Loan made available to them by Banco de Portugal. (d) Banco de Portugal shall: (i) maintain records and accounts adequate to reflect in accordance with consistently maintained appropriate accounting practices the amounts received and paid by it in respect of Investment Projects as well as the documentary evidence of expenditures referred to in paragraph (5) (b) hereof; (ii) have such records and accounts for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by the Conselho de Auditoria do Banco de Portugal; (iii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, the report of such audit by said Conselho, of such scope and in such detail as the Bank shall have reasonably requested; and (iv) furnish to the Bank such other information concerning such records and accounts and the audit thereof as the Bank may from time to time reasonably request. (e) Sub-loans shall be made on terms and conditions satisfactory to the Bank, including, inter alia: (i) a repayment period corresponding to the economic life of the facilities to be provided under the Investment Project; provided, however, that such repayment period shall not exceed 12 years and shall include a grace period of not more than 3 years; and (ii) interest at annual rates that apply from time to time to PBI loans for industrial development in Portugal. - 17 - (f) Of each amount payable as interest on a Sub-loan: (i) the PBI shall retain the equivalent of 3.5 percentage points and pay the balance to Banco de Portugal; (ii) Banco de Portugal shall keep the equivalent of 0.75 of a percentage point for its own account and shall pay the equivalent of 1.50 percentage point to IAPMEI; and (iii) thereafter, Banco de Portugal, in accordance with the Agency Agreement, shall pay the balance to the Borrower. (g) Such portion of the several Sub-loan maturities as shall represent the refinanced portion of Sub-loan proceeds, and the portion of interest payable to Banco de Portugal pursuant to the provisions of the preceding paragraph (f), shall be paid on the respective Sub-loan payment dates by the PBIs to Banco de Portugal regardless of payment by the Investment Enterprise. (h) The portion of any maturity or part of a maturity of a Sub-loan which represents the refinanced portion of the Sub-loan proceeds and is repaid in advance of its scheduled payment date to a PBI shall be promptly prepaid by the PBI to Banco de Portugal and by 'anco de Portugal to the Borrower. (6) Sub-loan Agreements (a) As required by Portuguese practice and procedures, Sub-loans shall be made on terms whereby the PBI shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Bank, the Borrower, Banco de Portugal and the PBI, including, in the case of any Sub-loan, the right of the PBI to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and managerial standards, including implementing technical assistance measures, if needed, and to maintain adequate records; (ii) require that: (A) the goods and services to be refinanced in whole or in part by the Borrower through Banco de Portugal shall be purchased at a reasonable price, account being taken also of other relevant factors such as time of delivery and efficiency and reliability of the goods and availability of maintenance facilities and spare - 18 - parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (B) such goods and services shall be used exclusively in the carrying out of the Investment Project; (iii) inspect, by itself or jointly with representatives of the Bank or IAPMEI if the Bank or IAPMEI shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (iv) require that: (A) the Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice, and (B) without any limitation upon the foregoing, such insurance shall cover hazards incident to the acquisition, transportation and delivery of goods refinanced in whole or in part by the Borrower through. Banco de Portugal to the place of use or installation, any indemnity thereunder to be made payable in a currency freely usable by the Investment Enterprise to replace or repair such goods; (v) obtain all such information as the Bank, IAPMEI or the PBI shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise; and (vi) suspend or terminate the right of the Investment Enterprise to the use of the proceeds of the Sub-loan upon failure by such Investment Enterprise to perform its obligations under its contract with the Borrower. (b) Each PBI shall be required to exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank, the Borrower, Banco de Portugal and the PBI; (ii) comply with its obligations under its Protocol; and (iii) achieve the purposes of the Investment Project. - 19 - (7) Protocols The foregoing provisions of this Schedule (except for the provisions of paragraph (5) (d)) and of Sections 2.02 and 2.03 of this Agreement shall be included in one or more protocols to be concluded between, on the one side, Banco de Portugal and IAPMEI, and on the other side, one or more PBIs. Each such protocol shall entitle Banco de Portugal to suspend or terminate the right of any PBI party to the protocol to obtain refinancing of disbursements under Sub-loans. - 20 - SCHEDULE 3 Modifications of the General Conditions For the purposes of the Loan Agreement, the provisions of the General Conditions are modified as follows: (1) The words "Investment Projects" are substituted for the words "the Project" at the end of Section 5.03. (2) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Bank. If (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty days, or (b) by the date specified in paragraph (c) of Section 2.03 of the Loan Agreement no applications or requests permitted under paragraph (a) or paragraph (b) of such Section shall have been received by the Bank in respect of any portion of the Loan, or having been so received, shall have been denied, or (c) after the Closing Date an amount of the Loan shall remain unwithdrawn from the Loan Account, the Bank may by notice to the Borrower terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice such amount or portion of the Loan shall be cancelled." INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this day of IN , 198 FOR SECRETARY