Conformed Copy - L4246 - Investment Recovery Project - Supplemental Letter 1

Page 1 December 4, 1997 International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Re: Loan Number 4246 HR (Investment Recovery Project) Representations Dear Sirs and Mesdames: In connection with the Loan Agreement of even date herewith between the International Bank for Reconstruction and Development (the Bank) and Varazdinska Banka dd. (the Borrower) for the above-mentioned Loan, the Borrower hereby undertakes and warrants to the Bank that: 1. The financial statements dated December 31, 1996, copies of which have been furnished to the Bank, correctly set forth the financial and operating condition of the Borrower as of such date and that since such date there have been no material adverse changes in the financial and operating conditions of the Borrower. 2. The Borrower is not engaged in litigation as plaintiff or defendant, the outcome of which might materially and adversely affect its financial condition. 3. The Borrower has no outstanding agreements or liabilities, contingent or otherwise (including taxes) which might materially and adversely affect its financial condition. 4. No debt of the Borrower is secured by any mortgage, pledge, charge, priority or other lien, and no contract or arrangement exists for the creation of any such mortgage, pledge, charge, priority or other lien. 5. There are no existing defaults in the payment of principal of, or interest or other charges on, any of the debts of the Borrower. 6. The Borrower is not in violation of, and the execution and delivery of the Loan Agreement and the compliance with all its terms do not and will not result in any violation of, any provisions of any existing agreement, franchise, concession, license or permit, or of any provision of any law, statute, decree-law, executive decree, regulation or any other legal rule of a similar nature presently in effect and applicable to the Borrower. 7. The Borrower is a duly existing bank under the laws of the Republic of Croatia, with full authority to carry out its present business, to carry out the project and to Banking Law and of all other legislation presently in force and effect and governing or applicable to the operations of the Borrower, as well as of its Charter dated March 20, 1997, as presently in effect and governing the Borrower. It is our mutual understanding that, in making the Loan and entering into the Loan Agreement with the Borrower, the Bank may rely on the representations contained herein. Very truly yours, VARAZDINSKA BANKA DD. By /s/ Miomir Zuzul Authorized Representative Page 2