Conformed Copy - L7111 - Private Sector Development Project - Loan Agreement

CONFORMED COPY LOAN NUMBER 7111-UA Loan Agreement (Private Sector Development Project) between UKRAINE and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated November 7, 2002  LOAN NUMBER 7111-UA LOAN AGREEMENT AGREEMENT, dated November 7, 2002, between UKRAINE (the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank). WHEREAS (A) the Bank has received a letter dated March 21, 2002, from the Borrower describing a phased program (the Program) designed to strengthen its private sector, and to lay the institutional foundation for the long-term sustainability and development thereof, and declaring the Borrower’s commitment to the implementation of the said Program; (B) the Borrower has requested the Bank’s support in the execution of the Program through a series of loans up to an aggregate amount of sixty million Dollars ($60,000,000) over a period of approximately eight (8) years, to be utilized by the Borrower for implementing the Program; (C) the Borrower, having satisfied itself as to the feasibility and priority of the first phase of the Program (the Project) described in Schedule 2 to this Agreement, has requested the Bank to assist in the financing of the Project; (D) the Borrower intends to contract from the British Department for International Development (DFID) and the Netherlands Minister for Development Cooperation (the Minister) (collectively the Cofinanciers) grants (respectively, the DFID Grant and the Minister Grant) in an aggregate amount equivalent to about four million Dollars ($4,000,000) to assist in financing, respectively, part of the cost of Parts A.1 and B.2 of the Project on the terms and conditions set forth in agreements (respectively, the DFID Grant Agreement and the Minister Grant Agreement) to be entered into between the Borrower and each of the Cofinanciers; (E) the Project will be carried out by the Ukrainian Center for Enterprise Restructuring and Private Sector Development (UCER) with the Borrower’s assistance and, as part of such assistance, the Borrower will make the proceeds of the loan provided for in Article II of this Agreement (the Loan) available to UCER, as set forth in this Agreement; and WHEREAS the Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower in support of the first phase of the Program upon the terms and conditions set forth in this Agreement and in the agreement of even date herewith between the Bank and UCER (the Project Agreement); NOW THEREFORE the parties hereto hereby agree as follows:  -2- ARTICLE I General Conditions; Definitions Section 1.01. The “General Conditions Applicable to Loan and Guarantee Agreements for Fixed-Spread Loans” of the Bank, dated September 1, 1999 (the General Conditions), with the modification set forth below, constitute an integral part of this Agreement: Paragraph (c) of Section 9.07 of the General Conditions is modified to read as follows: “(c) Not later than six (6) months before the Closing Date or such later date as may be agreed for this purpose between the Borrower and the Bank, the Borrower shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by the Borrower and the Bank of their respective obligations under the Loan Agreement and the accomplishment of the purposes of the Loan.” Section 1.02. 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 additional terms have the following meanings: (a) “Fiscal Year” means the twelve-month period corresponding to any of the Borrower’s fiscal years, which period commences on January 1 and ends on December 31 in each calendar year; (b) “MOF” means the Borrower’s Ministry of Finance; (c) “Ordinance 1736” means the Ordinance No. 1736 of the Borrower’s Cabinet of Ministers, dated November 3, 1998, establishing UCER; (d) “Project Agreement” means the agreement between the Bank and UCER of even date herewith, as the same may be amended from time to time; and such term includes all schedules and agreements supplemental to the Project Agreement; (e) “Project Preparation Advance” means the project preparation advance granted by the Bank to the Borrower pursuant to the letter agreement signed on behalf of the Bank on February 22, 2001, and on behalf of the Borrower on April 23, 2001;  -3- (f) “SCRPE” means the Borrower’s State Committee on Regulatory Policy and Entrepreneurship which acts as the agency responsible on behalf of the Borrower on matters related to Project implementation; (g) “Special Account” means the account referred to in Section 2.02 (b) of this Agreement; and (h) “Subsidiary Grant Agreement” means the agreement to be entered into between MOF and SCRPE, both acting on behalf of the Borrower, and UCER pursuant to the provisions of Section 3.01 (b) of this Agreement, as the same may be amended from time to time; and such term includes all schedules to the Subsidiary Grant Agreement. Section 1.03. Each reference in the General Conditions to the Project implementation entity shall be deemed as a reference to UCER. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, an amount equal to thirty million Dollars ($30,000,000), as such amount may be converted from time to time through a Currency Conversion in accordance with the provisions of Section 2.09 of this Agreement. Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan and in respect of the front-end fee referred to in Section 2.04 of this Agreement. (b) The Borrower may, for the purposes of the Project, open and maintain in Dollars a separate special deposit account in a foreign commercial bank (the Special Account) on terms and conditions satisfactory to the Bank, including appropriate protection against set-off, seizure and attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 4 to this Agreement. (c) Promptly after the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn  -4- balance of the authorized amount of the Project Preparation Advance shall thereupon be canceled. Section 2.03. The Closing Date shall be June 30, 2007, or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.04. The Borrower shall pay to the Bank a front-end fee in an amount equal to three hundred thousand Dollars ($300,000). The Borrower agrees that 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 such fee. Section 2.05. The Borrower shall pay to the Bank a commitment charge on the principal amount of the Loan not withdrawn from time to time, at a rate equal to: (i) eighty five one-hundredths of one per cent (0.85%) per annum from the date on which such charge commences to accrue in accordance with the provisions of Section 3.02 of the General Conditions to but not including the fourth anniversary of such date; and (ii) seventy five one-hundredths of one per cent (0.75%) per annum thereafter. Section 2.06. The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, in respect of each Interest Period at the Variable Rate; provided, that upon a Conversion of all or any portion of the principal amount of the Loan, the Borrower shall, during the Conversion Period, pay interest on such amount in accordance with the relevant provisions of Article IV of the General Conditions. Section 2.07. Interest and commitment charges shall be payable semiannually in arrears on April 15 and October 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the provisions of Schedule 3 to this Agreement. Section 2.09. (a) The Borrower may at any time request any of the following Conversions of the terms of the Loan in order to facilitate prudent debt management: (i) a change of the Loan Currency of all or any portion of the principal amount of the Loan, withdrawn or unwithdrawn, to an Approved Currency; (ii) a change of the interest rate basis applicable to all or any portion of the principal amount of the Loan from a Variable Rate to a Fixed Rate, or vice versa; and  -5- (iii) the setting of limits on the Variable Rate applicable to all or any portion of the principal amount of the Loan withdrawn and outstanding by the establishment of an Interest Rate Cap or Interest Rate Collar on said Variable Rate. (b) Any conversion requested pursuant to paragraph (a) of this Section that is accepted by the Bank shall be considered a “Conversion”, as defined in Section 2.01 (7) of the General Conditions, and shall be effected in accordance with the provisions of Article IV of the General Conditions and of the Conversion Guidelines. (c) Without limitation upon the provisions of paragraph (a) of this Section, the Borrower and the Bank hereby agree that unless otherwise notified by the Borrower in accordance with the provisions of the Conversion Guidelines, the interest rate basis applicable to the aggregate principal amount of the Loan withdrawn during each Interest Period shall be changed from the initial Variable Rate to a Fixed Rate for the full maturity of such amount in accordance with the provisions of Article IV of the General Conditions and of the Conversion Guidelines. ARTICLE III Execution of the Project Section 3.01. (a) The Borrower declares its commitment to the objectives of the Project, and, to this end, without any limitation or restriction upon any of its other obligations under the Loan Agreement, shall, through SCRPE: (i) cause UCER to perform in accordance with the provisions of the Project Agreement all the obligations of UCER therein set forth; (ii) take or cause to be taken all action, including the provision of funds, facilities, services and other resources, necessary or appropriate to enable UCER to perform such obligations; and (iii) not take or permit to be taken any action which would prevent or interfere with such performance. (b) The Borrower, acting through MOF, shall make, through SCRPE, the proceeds of the Loan available to UCER on a grant basis under the Subsidiary Grant Agreement, under terms and conditions which shall have been approved by the Bank. (c) The Borrower shall exercise its rights under the Subsidiary Grant 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 Subsidiary Grant Agreement or any provision thereof.  -6- Section 3.02. Except as the Bank shall otherwise agree, procurement of the goods and consultants’ services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 1 to the Project Agreement. Section 3.03. The Bank and the Borrower hereby agree that 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 shall be carried out by UCER pursuant to the provisions of Section 2.03 of the Project Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower, through SCRPE, shall: (i) maintain or cause to be maintained in accordance with sound accounting practices, records and separate accounts reflecting such expenditures; (ii) ensure that all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures are retained until at least one (1) year after the Bank has received the audit report for the Fiscal Year in which the last withdrawal from the Loan Account was made; and (iii) enable the Bank's representatives to examine such records. (b) The Borrower, through SCRPE, shall: (i) have the records and accounts referred to in paragraph (a) (i) of this Section and those for the Special Account 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 six (6) months after the end of each such year the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested, including a separate opinion by said auditors as to whether the statements of  -7- expenditure submitted during such Fiscal Year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals; and (iii) furnish to the Bank such other information concerning said records and accounts and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE V Remedies of the Bank Section 5.01. Pursuant to Section 6.02 (p) of the General Conditions, the following additional events are specified: (a) UCER shall have failed to perform any of its obligations under the Project Agreement. (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 UCER will be able to perform its obligations under the Project Agreement. (c) A situation shall have arisen which shall make it improbable that the Program, or a significant part thereof, will be carried out. (d) The Ordinance 1736 shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the ability of UCER to perform any of its obligations under the Project Agreement. (e) The DFID Grant Agreement and the Minister Grant Agreement shall have failed to become effective by January 1, 2004, or such later date as the Bank may agree; provided, however, that the provisions of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Bank that adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. (f) (i) Subject to subparagraph (ii) of this paragraph, the right of the Borrower to withdraw the proceeds of the DFID Grant or the Minister Grant shall have been suspended, canceled or terminated in whole or in part, pursuant to the terms, respectively, of the DFID Grant Agreement or Minister Grant Agreement providing therefor.  -8- (ii) Subparagraph (i) of this paragraph shall not apply if the Borrower establishes to the satisfaction of the Bank that: (A) such suspension, cancellation or termination is not caused by the failure of the Borrower to perform any of its obligations under such Agreement; and (B) adequate funds for the Project are available to the Borrower from other sources on terms and conditions consistent with the obligations of the Borrower under this Agreement. Section 5.02. Pursuant to Section 7.01 (k) of the General Conditions, the following additional events are specified: (a) The event specified in paragraph (a) of Section 5.01 of this Agreement shall occur and shall continue for a period of sixty (60) days after notice thereof shall have been given by the Bank to the Borrower. (b) The event specified in paragraph (d) of Section 5.01 of this Agreement shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as an additional condition to the effectiveness of the Loan Agreement within the meaning of Section 12.01(c) of the General Conditions, namely, that the Subsidiary Grant Agreement has been executed. 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 approved by UCER, and is legally binding upon UCER in accordance with its terms; and (b) that the Subsidiary Grant Agreement has been duly authorized or approved by the Borrower and UCER and is legally binding upon the Borrower and UCER in accordance with its terms. Section 6.03. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions.  -9- ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower 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: Ministry of Finance 12/2 Hrushevsky St. Kyiv, 01008 Ukraine Telex: Facsimile: 131450 (380-44) 293-8243 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: Facsimile: INTBAFRAD 248423 (MCI) or (1-202) 477-6391 Washington, D.C. 64145 (MCI)  - 10 - 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. UKRAINE By /s/ Kostyantyn Gryshchenko Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Luca Barbone Director Ukraine, Belarus and Moldova Europe and Central Asia  - 11 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollars) to be Financed (1) Goods 324,000 100% of foreign expenditures, 100% of local expenditures (ex-factory cost) and 80% of local expenditures for other items procured locally (2) Consultants’ 28,526,000 100% services (3) Incremental Operating 250,000 100% until Costs June 30, 2004; thereafter, 90% until June 30, 2005; thereafter, 80% until June 30, 2006, and 0% thereafter (4) Refunding of 600,000 Amounts due Project Prepara- pursuant to tion Advance Section 2.02 (c) of this Agreement (5) Fee 300,000 Amount due under Section 2.04 of this ________ Agreement TOTAL 30,000,000  - 12 - 2. For the purposes of this Schedule: (a) the term “foreign expenditures” means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower; (b) the term “local expenditures” means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower; and (c) the term “Incremental Operating Costs” means expenditures incurred to finance reasonable and necessary operating expenses of UCER in respect of its operations and administration of activities under the Project, and which are payable on account of the cost of rent and utilities, office equipment and supplies, maintenance, communication, and transportation, but excluding the salaries of the Borrower’s civil services. 3. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expenditures prior to the date of this Agreement. 4. The Bank may require withdrawals from the Loan Account to be made on the basis of statements of expenditure for expenditures for: (i) goods, under contracts costing less than $100,000 equivalent each, excluding those referred to in paragraphs 2 (a) (i) and 2 (a) (ii) of Part C of Section I of Schedule 1 to the Project Agreement; (ii) services of consulting firms, under contracts costing less than $100,000 equivalent each, excluding those referred to in paragraph 2 (b) of Part D of Section II of Schedule 1 to the Project Agreement; (iii) services of individual consultants, under contracts costing less than $50,000 equivalent each, excluding those referred to in paragraphs 2 (c) (i) and 2 (c) (ii) of Part D of Section II of Schedule 1 to the Project Agreement; and (iv) incremental operating costs, all under such terms and conditions as the Bank shall specify by notice to the Borrower.  - 13 - SCHEDULE 2 Description of the Project The objectives of the Project, which supports the first phase of the Program, are to: (i) create demand for restructuring and constituencies for reform at the enterprise and oblast level, and respond to this demand by creating sustainable institutional capabilities; (ii) create a market for managerial expertise and develop local capabilities to utilize and supply this market; (iii) demonstrate the economic pay-offs resulting from positive restructuring by assuring the sufficient and significant supply response to reforms; and (iv) provide incentives to oblasts' administrations to reduce administrative costs of doing business. The Project consists of the following parts, subject to such modifications thereof as the Borrower and the Bank may agree upon from time to time to achieve such objectives: 1. Provision of technical advisory services to improve the profitability, productivity, and general operational, financial and managerial efficiency of private and privatized enterprises. 2. Provision of technical advisory services to facilitate the development of a highly qualified domestic consulting industry, which thoroughly understands the unique local business and political climate in the process of economic development and transition. 3. Strengthening of constituency for reform at the oblast level consisting of entrepreneurs, managers, local academia, consultants and other stakeholders benefiting from enterprise restructuring and market-friendly business environment, through the training of about 600 business consultants who will provide business advisory services to about 160 enterprises. 1. Design, subcontract and supervision of in-house training courses for selected candidates, including study of one major commercial language, computer skills, and basic management and business communication skills. 2. Enhancing the secondment of selected candidates to selected foreign firms to see how skills, organization and technology are combined to respond to the continuously changing market demands.  - 14 - Provision of technical advisory services and equipment to SCRPE and UCER to facilitate: (i) the selection of appropriate enterprises, and rational implementation of a restructuring framework plan, which sets forth the various obligations and commitments of the enterprise, realistic financing plans, and agreed sanctions for non-compliance; (ii) the management of the work of consulting teams including preparation of Terms of Reference, selection of consulting firms, supervision of consultants' work progress and deliverables, intermediation between enterprises and consultants in cases of the conflict; final quality of approval of consultants’ work, and payment for consultants services; (iii) the continuous and productive dialogue between the Borrower’s agencies and private sector concerning necessary reform measures to facilitate enterprise adjustment to markets; (iv) the selection, recruitment and training of local specialists that will team-up with foreign consultants to ensure the resources of foreign consultants are most effectively utilized and directed where needed; and (v) the organization of on-the-job training for managers of participating enterprises in the leading firms abroad. 1. Provision of technical advisory services and equipment to: (i) introduce performance based incentives into the oblast-level policy process, linking and exit from the project to the improvement of regulatory environment, monitored through bi-annual surveys; (ii) enhancement of institutional capacity of SCRPE to effectively implement State regulatory policy through its regional offices; and (iii) empowering institutions of Civil Society and especially regulatory associations in their relations with local authorities and building local capacity to conduct credible policy research, analyze data and use it for the policy purposes. 2. Carrying out of regular monitoring of the quality of regulatory environment in the regions, through the use of indicators measured by the survey-based research and analysis. *** The Project is expected to be completed by December 31, 2006.  - 15 - SCHEDULE 3 Amortization Schedule 1. The following table sets forth the Principal Payment Dates of the Loan and the percentage of the total principal amount of the Loan payable on each Principal Payment Date (Installment Share). If the proceeds of the Loan shall have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined by the Bank by multiplying: (i) the total principal amount of the Loan withdrawn and outstanding as of the first Principal Payment Date; by (ii) the Installment Share for each Principal Payment Date, such repayment amount to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies. Installment Share Payment Date (Expressed as a %) On each April 15 and October 15 Beginning on April 15, 2010 through April 15, 2021 4.17% And on October 15, 2021 4.09% 2. If the proceeds of the Loan shall not have been fully withdrawn as of the first Principal Payment Date, the principal amount of the Loan repayable by the Borrower on each Principal Payment Date shall be determined as follows: (a) To the extent that any proceeds of the Loan shall have been withdrawn as of the first Principal Payment Date, the Borrower shall repay the amount withdrawn and outstanding as of such date in accordance with paragraph 1 of this Schedule. (b) Any withdrawal made after the first Principal Payment Date shall be repaid on each Principal Payment Date falling after the date of such withdrawal in amounts determined by the Bank by multiplying the amount of each such withdrawal by a fraction, the numerator of which shall be the original Installment Share specified in the table in paragraph 1 of this Schedule for said Principal Payment Date (the Original Installment Share) and the denominator of which shall be the sum of all remaining Original Installment Shares for Principal Payment Dates falling on or after such date, such repayment amounts to be adjusted, as necessary, to deduct any amounts referred to in paragraph 4 of this Schedule, to which a Currency Conversion applies.  - 16 - 3. (a) Withdrawals made within two calendar months prior to any Principal Payment Date shall, for the purposes solely of calculating the principal amounts payable on any Principal Payment Date, be treated as withdrawn and outstanding on the second Principal Payment Date following the date of withdrawal and shall be repayable on each Principal Payment Date commencing with the second Principal Payment Date following the date of withdrawal. (b) Notwithstanding the provisions of sub-paragraph (a) of this paragraph 3, if at any time the Bank shall adopt a due date billing system under which invoices are issued on or after the respective Principal Payment Date, the provisions of such sub- paragraph shall no longer apply to any withdrawals made after the adoption of such billing system. 4. Notwithstanding the provisions of paragraphs 1 and 2 of this Schedule, upon a Currency Conversion of all or any portion of the withdrawn principal amount of the Loan to an Approved Currency, the amount so converted in said Approved Currency that shall be repayable on any Principal Payment Date occurring during the Conversion Period, shall be determined by the Bank by multiplying such amount in its currency of denomination immediately prior to said Conversion by either: (i) the exchange rate that reflects the amounts of principal in said Approved Currency payable by the Bank under the Currency Hedge Transaction relating to said Conversion; or (ii) if the Bank so determines in accordance with the Conversion Guidelines, the exchange rate component of the Screen Rate. 5. If the principal amount of the Loan withdrawn and outstanding from time to time shall be denominated in more than one Loan Currency, the provisions of this Schedule shall apply separately to the amount denominated in each Loan Currency, so as to produce a separate amortization schedule for each such amount.  - 17 - SHEDULE 4 Special Account 1. For the purposes of this Schedule: (a) the term “eligible Categories” means Categories (1) through (3) set forth in the table in paragraph 1 of Schedule 1 to this Agreement; (b) the term “eligible expenditures” means expenditures in respect of the reasonable cost of goods and services required for the Project and to be financed out of the proceeds of the Loan allocated from time to time to the eligible Categories in accordance with the provisions of Schedule 1 to this Agreement; and (c) the term “Authorized Allocation” means an amount equivalent to $1,000,000 to be withdrawn from the Loan Account and deposited into the Special Account pursuant to paragraph 3 (a) of this Schedule; provided, however, that unless the Bank shall otherwise agree, the Authorized Allocation shall be limited to an amount equivalent to $500,000 until the aggregate amount of withdrawals from the Loan Account plus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions shall be equal to or exceed the equivalent of $3,000,000. 2. Payments out of the Special Account shall be made exclusively for eligible expenditures in accordance with the provisions of this Schedule. 3. After the Bank has received evidence satisfactory to it that the Special Account has been duly opened, withdrawals of the Authorized Allocation and subsequent withdrawals to replenish the Special Account shall be made as follows: (a) For withdrawals of the Authorized Allocation, the Borrower shall furnish to the Bank a request or requests for deposit into the Special Account of an amount or amounts which do not exceed the aggregate amount of the Authorized Allocation. On the basis of such request or requests, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount or amounts as the Borrower shall have requested. (b) (i) For replenishment of the Special Account, the Borrower shall furnish to the Bank requests for deposits into the Special Account at such intervals as the Bank shall specify. (ii) Prior to or at the time of each such request, the Borrower shall furnish to the Bank the documents and other evidence required pursuant to paragraph 4 of this Schedule for the payment or payments in respect of which replenishment is requested. On the  - 18 - basis of each such request, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and deposit into the Special Account such amount as the Borrower shall have requested and as shall have been shown by said documents and other evidence to have been paid out of the Special Account for eligible expenditures. All such deposits shall be withdrawn by the Bank from the Loan Account under the respective eligible Categories, and in the respective equivalent amounts, as shall have been justified by said documents and other evidence. 4. For each payment made by the Borrower out of the Special Account, the Borrower shall, at such time as the Bank shall reasonably request, furnish to the Bank such documents and other evidence showing that such payment was made exclusively for eligible expenditures. 5. Notwithstanding the provisions of paragraph 3 of this Schedule, the Bank shall not be required to make further deposits into the Special Account: (a) if, at any time, the Bank shall have determined that all further withdrawals should be made by the Borrower directly from the Loan Account in accordance with the provisions of Article V of the General Conditions and paragraph (a) of Section 2.02 of this Agreement; (b) if the Borrower shall have failed to furnish to the Bank, within the period of time specified in Section 4.01 (b) (ii) of this Agreement, any of the audit reports required to be furnished to the Bank pursuant to said Section in respect of the audit of the records and accounts for the Special Account; (c) if, at any time, the Bank shall have notified the Borrower of its intention to suspend in whole or in part the right of the Borrower to make withdrawals from the Loan Account pursuant to the provisions of Section 6.02 of the General Conditions; or (d) once the total unwithdrawn amount of the Loan allocated to the eligible Categories, minus the total amount of all outstanding special commitments entered into by the Bank pursuant to Section 5.02 of the General Conditions, shall equal the equivalent of twice the amount of the Authorized Allocation. Thereafter, withdrawal from the Loan Account of the remaining unwithdrawn amount of the Loan allocated to the eligible Categories shall follow such procedures as the Bank shall specify by notice to the Borrower. Such further withdrawals shall be made only after and to the extent that the Bank shall have been satisfied that all such amounts remaining on deposit in the Special Account as of the date of such notice will be utilized in making payments for eligible expenditures.  - 19 - 6. (a) If the Bank shall have determined at any time that any payment out of the Special Account: (i) was made for an expenditure or in an amount not eligible pursuant to paragraph 2 of this Schedule; or (ii) was not justified by the evidence furnished to the Bank, the Borrower shall, promptly upon notice from the Bank: (A) provide such additional evidence as the Bank may request; or (B) deposit into the Special Account (or, if the Bank shall so request, refund to the Bank) an amount equal to the amount of such payment or the portion thereof not so eligible or justified. Unless the Bank shall otherwise agree, no further deposit by the Bank into the Special Account shall be made until the Borrower has provided such evidence or made such deposit or refund, as the case may be. (b) If the Bank shall have determined at any time that any amount outstanding in the Special Account will not be required to cover further payments for eligible expenditures, the Borrower shall, promptly upon notice from the Bank, refund to the Bank such outstanding amount. (c) The Borrower may, upon notice to the Bank, refund to the Bank all or any portion of the funds on deposit in the Special Account. (d) Refunds to the Bank made pursuant to paragraphs 6 (a), (b) and (c) of this Schedule shall be credited to the Loan Account for subsequent withdrawal or for cancellation in accordance with the relevant provisions of this Agreement, including the General Conditions.  - 20 - M:\BACKUP\UKRAINE\W-1823NegotiatedLA.doc 3/21/2002 6:14 PM M:\BACKUP\UKRAINE\W-1823NegotiatedLA.doc 2/27/2002 12:45 PM