REPUBLIC OF LITHUANIA LAW ON THE ESTABLISHMENT OF THE LITHUANIAN DEVELOPMENT BANK AND ON THE APPROVAL OF ITS STATUTE The Seimas of the Republic of Lithuania, on the basis of the Joint Declaration of Ministers from Denmark, Finland, Iceland, Norway, Sweden, Estonia, Latvia and Lithuania on the Establishment of a Baltic Investment Program for Small and Medium-Sized Enterprises in Estonia, Latvia and Lithuania, done in Helsinki on 4 March 1992, and the Memorandum of Understanding between the Government of the Republic of Lithuania, the European Bank for Reconstruction and Development, and the Nordic Investment Bank, done in Vilnius on 28 June 1993 hereby passes this Law: 1. To approve the Statute of the Lithuanian Development Bank. 2. To establish that in case of conflict between the Statutes of the Lithuanian Development Bank and the laws and other standard acts of the Republic of Lithuania, the provisions of the Statutes of the Lithuanian Development Bank shall prevail; and 3. To propose to the Government of the Republic of Lithuania to take part in the establishment of the Lithuanian Development Bank. I promulgate this Law passed by the Seimas of the Republic of Lithuania. ALGIRDAS BRAZAUSKAS President of the Republic Vilnius 14 December 1993 No. I-335 Appendix to the Law of the Republic of Lithuania of 14 December 1993 No. I-335 STATUTE OF THE LITHUANIAN DEVELOPMENT BANK CHAPTER 1 GENERAL PROVISIONS Article 1 The Lithuanian Development Bank (LDB) is a stock investment bank to be set up by the Government of Lithuania and the European Bank for Reconstruction and Development (EBRD), with possible participation of other Lithuanian and foreign shareholders. The LDB is guided by the laws of the Republic of Lithuania, this Statute and international banking principles. The LDB is a legal person operating in an independent and autonomous manner. The name of the Bank is: in Lithuanian: Lietuvos Vystymo Bankas (abbreviated form - LVB), in English: Lithuanian Development Bank (abbreviated form - LDB). The seat of the Bank is located in Vilnius. Article 2 The LDB shall be established to promote the economic development of the Republic of Lithuania. Its principal activities shall be the financing of capital investment and related permanent working capital requirements of financially profitable and creditworthy private capital enterprises. In exceptional cases the LDB may also channel resources to state enterprise projects as a trustee or agent for third parties without taking financial risk. In its activities the LDB shall especially promote the establishment and development of small and medium size enterprises and of a capital market in Lithuania. It will only pursue such activities and in such manner as to earn a commercial rate of return. The LDB financing shall be provided for medium and long term, short term loans may be granted only in exceptional cases and with the assent of the Board of Directors. Article 3 The LDB shall be liable for its obligations with all its property. The LDB shall not be liable for the obligations of the state. The state is not liable for the obligations of the LDB, with the exception of cases where the state undertakes such obligations. The LDB shall not be liable for the obligations of its shareholders. The shareholders shall be liable for the obligations of the LDB only to the extent of their commitments to the Bank's capital, but not with their own property. Article 4 The LDB shall guarantee the secrecy of its clients' correspondent accounts and operations. The Board members, President of the LDB, staff of the Bank, auditors and other persons authorized to obtain such information shall be obliged to maintain the secrecy of all information relating to customer accounts and bank operations. Such information may be disclosed only in cases stated by law. Article 5 The LDB may open its affiliates and representative offices in Lithuania and abroad. Article 6 Upon its adoption by the Seimas, the Statute of the LDB shall be registered with the Bank of Lithuania. The LDB may commence activities: upon receiving a license from the Bank of Lithuania and upon the registration of the LDB in the Registration Book of the Bank of Lithuania; and upon presenting to the Bank of Lithuania the LDB auditor's certification that the share capital has been paid-in in accordance with the founding and subscription agreement. The affiliates and representative offices of the LDB shall commence their activities upon their registration in the Registration Book of the Bank of Lithuania. The licence shall be issued free of charge within 30 days from submitting an application and all the requisite documents to the Bank of Lithuania. The application shall be submitted with the following: 1) the founding and subscription agreement between the Government of the Republic of Lithuania and other possible founders, covering: - the Statute of the Bank, - the names of the founders of the Bank and the address of their offices, - the amount of shares subscribed for by each founder, and - the term during which all the shares must be paid for; 2) the minutes of the constitutive meeting of the shareholders covering the elected members to the Board of Directors and the appointed auditors of the Bank; 3) certification from the auditors that the subscribed share capital has been paid-in; 4) name and address of the members to the Board of Directors as well as their alternates; 5) name and address of the President of the Bank; 6) name and address of all persons authorized to sign on behalf of the Bank; and 7) name and address of the affiliates and representative offices of the LDB in Lithuania and abroad. The LDB must present to the Bank of Lithuania for registration all decisions of the shareholders to increase or decrease the share capital of the LDB, to liquidate the LDB or to appoint the liquidators, as well as all decisions to change or supplement the documents and information set forth herein. Article 7 The LDB shall pay the taxes in accordance with the Law on Foreign Investments in the Republic of Lithuania and other laws of the Republic of Lithuania. CHAPTER 2 CAPITAL AND SHARES OF THE LDB Article 8 The initial subscribed share capital of the LDB amounts to ECU five (5) million. The share capital is divided into 50 ordinary registered shares with a par value of ECU 100,000 each. Contributions to the share capital shall be made in accordance with the procedure established in the founding and subscription agreement in cash or in kind. The value of in kind contributions must be duly verified by independent experts and auditors of the Bank. The shares shall be considered to be paid-in by in kind contributions after their evaluation has been confirmed by the General Meeting of Shareholders pursuing from the recommendations of the Board of Directors. Article 9 The share capital of the LDB may be increased as per resolution of the General Meeting: 1) by issue and placement of new payable shares; 2) by transferring part of the restricted or unrestricted reserves to the share capital and thereby increasing the par value of a share or by issuing new free shares; and 3) by using the 1st and the 2nd methods simultaneously. Article 10 The General Meeting of Shareholders shall determine the conditions of subsequent issue of shares, the class and number of shares issued when increasing the capital, subscription terms and procedures. Subscribed shares must be paid-in within the time schedule decided by the General Meeting of Shareholders but within one year from the day of the subscription therefor. Article 11 The reserve capital (restricted reserves) shall be formed by deducting at least 10% of profits annually, until it has reached the level determined by the General Meeting but no less than 1/4 of subscribed share capital. The reserve capital may be used only to cover the losses or to increase the share capital. Article 12 Unrestricted reserves may be formed from the profits left after the deductions in accordance with Article 11 of this Law. Article 13 The shareholder of the LDB shall have the following property and non-property rights: 1) to receive the dividend if it is assigned; 2) to receive part of the property of the Bank under liquidation; 3) to have a priority to subscribe for such part of any increase in the share capital which is proportional to the value of his subscribed for and paid-in shares; 4) to sell or transfer in any other way all or part of his stock to other persons; and 5) to participate in the governing of the Bank in line with Chapter 4 of this Statute. Article 14 The share capital of LDB can be decreased by decision of the General Meeting, taking into consideration the rights of creditors as well as stating the reasons of decrease and setting the procedure of decrease. CHAPTER 3 FUNCTIONS OF THE LDB Article 15 THE LDB shall perform the following operations: 1) shall grant loans in national and foreign currency; 2) shall issue guarantees; 3) shall participate in co-financing activities; 4) shall borrow funds for its own account in foreign and national currency, in Lithuania and abroad, using all relevant financial instrument; 5) shall accept managed funds from Lithuania and abroad directly related to the activities undertaken by the LDB; 6) shall invest its liquid assets in Lithuania and abroad; 7) shall engage in correspondent activities with foreign banks and shall maintain hard currency accounts with these banks; and 8) shall provide advisory services on the issues of project financing. Upon separate authorization from the shareholders, the Bank may make equity investments. Such authorization shall be passed through at the shareholders meeting by at least 2/3 majority vote in accordance with the procedure for conducting the General Meeting of Shareholders. The LDB may engage in other activities relating to its operation. The LDB shall not take deposits or conduct current account business. The Bank shall take into account the potential environmental impact associated with its investment decisions. Article 16 The LDB shall conduct its operations according to the following principles and standards meeting international banking practices: 1) the LDB shall choose clients by itself independently according to project profitability; 2) generally, loans and guarantees shall be granted for medium and long terms; loans may be granted for a short term only in exceptional cases; 3) the LDB may make loans directly to borrowers or indirectly through other banks serving as intermediaries; 4) the LDB shall not incur the foreign exchange risk in its lending and funding operations; 5) in making or guaranteeing a loan, the LDB must obtain adequate security or payment depending on the financial capability of the ultimate borrower to meet contractual obligations; 6) the interest rates charged and other financial conditions fixed by the LDB for its lending and related activities shall be set at levels to cover the operating and financing costs of the LDB as well as to earn a commercial return and to reflect appropriate market terms for the type of investment envisaged; and 7) the LDB shall charge a fee for all its services. Article 17 When performing its operations, the LDB shall in the normal course conform to the following economic standards: 1) the Bank's borrowings may not exceed more than four times the total amount of the Bank's paid-up share capital and reserve capital; 2) equity investments in the share capital of a single enterprise or group of enterprises connected by ownership right may not exceed 25% of the issued capital of the enterprise or group of enterprises and 10% of the Bank's paid-up share capital and reserve capital; 3) the aggregate total of equity investments shall not exceed 75% of the Bank's paid-up share capital and reserve capital; 4) the total commitment to any single enterprise or group of enterprises connected by ownership right (loans guarantees, equity and any other type of assistance) may not exceed 20% of the Bank's paid-up share capital and reserve capital; 5) the total commitment to a single project may not exceed 20% of the Bank's paid-up share capital and reserve capital. If the above standards are not conformed to, the Board of Directors must immediately adopt a decision concerning the term and means of resolution of the non-conformity. The economic standards and reserve requirements established by the Bank of Lithuania shall not be obligatory to the LDB. CHAPTER 4 THE GOVERNING BODIES OF THE LDB Article 18 The governing bodies of the LDB are: 1) the General Meeting of Shareholders; 2) the Board of Directors; and 3) the President. Article 19 The General Meeting of Shareholders is the supreme governing body of the LDB. The annual General Meeting shall be convoked by the Board of Directors no later than within four months from the end of each financial year. Extraordinary General Meetings shall be convoked by the auditors or upon the decision of the Board of Directors adopted on its initiative or whenever requested in writing by the owners of at least 1/10 of all shares. The shareholders must be notified of the General Meeting by registered letters no later that two weeks before the Meeting. Invitations with the enclosed agenda, time and place of the Meeting must be sent to the addresses recorded in the register of shareholders. The following matters shall be within the exclusive competence of the General Meeting: 1) approval of amendments to the Statute of the Bank to be presented to the Seimas; 2) increase and reduction of the share capital and other matters stated in Article 10 of this Statute; 3) approval of the Annual Report of the LDB, the Annual Statement of Accounts, and allocation and distribution of profit and compensation for the losses; 4) election of the auditors and liquidators and establishment of their salaries; 5) election of the members of the Board of Directors and establishment of their salaries; and 6) dissolution or merger of the LDB. The General Meeting may adopt resolutions if the attending shareholders or their proxy have more than 1/2 of the total number of votes. If there is no quorum, the Board of Directors, in compliance with the procedure for convoking Meetings established in Article 19 of this Statute, must immediately convoke a repeat Meeting. Repeat Meeting shall have the right to pass resolutions regardless of the number of the attending shareholders. The General Meeting may resolve only the issues included on the agenda, with the exception of cases when all the shareholders are present in person or by proxy and give their unanimous consent that the issues which are not on the agenda be considered. The General Meeting of Shareholders shall pass its resolutions by more than 2/3 majority of the votes cast in the matters defined in items 1), 2) and 6) of Article 19, whereas all other decisions shall be taken by a majority of the votes cast. General Meetings of Shareholders may be attended by shareholders who own shares registered in the Share Register of the LDB. Each General Meeting shall be recorded by minutes, which must be signed by the secretary and the chairman of the General Meeting. Lithuanian and English shall be used in General Meetings. All resolutions passed by a General Meeting as well as related official documents must be announced in Lithuanian and in English and shall have equal force. Article 20 The Board of Directors shall consist of at least five (5), but not more than nine (9), voting members. Each member shall have an appointed alternate member. The detailed procedure for election to the Board of Directors as well as the number of its members shall be determined by the General Meeting. The right of representation in the Board of Directors shall be determined in proportion to the respective shareholder's subscribed and paid-in shares. The members of the Board of Directors as well as their alternates, except the President, shall be appointed for a three year period. All the members of the Board of Directors must be persons experienced in economic and financial matters and/or in banking. Article 21 Every year, no more than 30 days after annual General Meeting, the Board of Directors shall by simple majority vote elect one of its members as Chairman of the Board of Directors and one member as his deputy. The same person may be elected as Chairman of the Board of Directors for not more than six (6) years in succession. The President shall not be eligible as Chairman or deputy Chairman of the Board of Directors. The members of the Board of Directors shall account for their work to the General Meeting of Shareholders. All the powers of the LDB, except for the powers expressly vested in the General Meeting, shall be vested in the Board of Directors. In this respect the Board of Directors shall especially: 1) direct and supervise the activities and operations of the LDB; 2) appoint and dismiss the President of the LDB; 3) establish the LDB's operational guidelines, approve the Code of the Board of Directors and the annual budget of the LDB; 4) determine the remuneration of the President; 5) submit to the General Meeting of Shareholders the Annual Report of the Bank, the Annual Statement of Accounts, the Auditor's Report and the proposal for allocation and distribution of profit; 6) submit to the General Meeting any proposals to increase or reduce the capital; and 7) approve all investments and loans unless such powers are delegated to the President. Article 22 The meeting of the Board of Directors shall be convoked by the Chairman or, in case of his absence, by his deputy, at least four (4) times a year. A meeting must also be convoked whenever requested by at least two (2) members of the Board of Directors or by the President or by the auditor(s) with the subject of discussion stated. The Board of Directors may pass resolutions if a majority of its members are present in person or by proxy. Decisions of the Board of Directors shall be passed by majority vote of the Members present and voting with the exception of decisions on issues covered in items 2), 3) and 7) of Article 21 which to be taken upon a more than 2/3 majority vote of the Board members present and voting. Each member shall have one vote. In the event of a tie the vote of the Chairman of the meeting shall be decisive. In case of urgency, the Board of Directors may pass its resolutions by letter or telegraphic balloting. Such decisions are deemed to have been passed, as soon as the matter to be decided has been transmitted to all members of the Board of Directors and affirmative written or telegraphic statements from at least a half or, on issues covered in items 2), 3) and 7) of Article 21, of more than 2/3 of all Board members have been received. Written invitations to vote shall be sent by registered mail. Telegraphic invitations to vote shall be confirmed by telegraphic answer without undue delay. The results of voting by mail or by telegraph shall be announced at the next meeting of the Board of Directors. Each meeting of the Board of Directors shall be recorded by the minutes which are to be signed by the Chairman of the meeting and the secretary. All communication and documents related to the activities of the Board of Directors shall be in Lithuanian and in English. Article 23 The day-to-day management of the LDB shall be carried out by the President. The President shall be appointed for the term of five (5) years. He may be repeatedly appointed for another term. The President of the LDB must be a resident of the Republic of Lithuania. The President shall conduct the current business of the LDB under the direction of the Board of Directors. The President shall decide the organizational structure of the Bank, shall be responsible for appointment and dismissal of the staff. The President of the LDB shall be a non-voting member of the Board of Directors. Article 24 Two persons shall be authorized to jointly sign on behalf of the LDB. They may be members of the Board of Directors, the President or persons authorized by the Board of Directors. Article 25 The members of the Board shall be liable to the LDB for the losses inflicted on the Bank by reason of their negligence or deliberately inadequate performance of their duties. CHAPTER 5 ANNUAL REPORT AND DISTRIBUTION OF PROFITS Article 26 The Annual Statement of Accounts must be in accordance with the generally accepted principles of accounting as well as with the standards of accounting in effect in the Republic of Lithuania. The audit report and the principles of auditing must correspond to the generally accepted principles of accounting. The financial accounting of the LDB shall be carried out in the currency of the share capital. Transactions concluded in the national currency of the Republic of Lithuania or in any other currency must be accounted in the Bank accounts according to the exchange rate as fixed by the Bank of Lithuania for the day of the transaction. All transactions concluded in the currency other than the currency of the share capital must be accounted as converted in the currency used for the LDB accounting in accordance with the generally accepted standards. The LDB shall organize its book-keeping, accountancy and statistics as well as prepare and submit reports in accordance with the procedure established by the laws of the Republic of Lithuania. Article 27 The net annual profit after all necessary deductions, including those for loan losses, shall be allocated on the decision of the General Meeting of Shareholders in accordance with the procedure established in Articles 11-13 of this Statute. Article 28 The General Meeting of Shareholders shall determine the amount of dividends according to the recommendations of the Board of Directors. Dividends shall be payable only for the fully paid-in shares. The LDB shall pay dividends, if any, to the shareholders not later than within four weeks after the allocation of profits. CHAPTER 6 SUPERVISING AND AUDITING OF THE LDB'S ACTIVITIES Article 29 The auditing of the LDB shall be carried out by independent external auditors appointed by the General Meeting of Shareholders for the period of one year. The members of the Board of Directors and the staff of the LDB are excluded from being auditors. The auditor must be either a universally recognized international auditing firm or the auditor must represent an auditing firm associated with an internationally recognized auditing firm. Article 30 The auditors shall have access to and shall audit the accounts, book-keeping and operations of the LDB. Article 31 At the request of shareholders representing at least one tenth (1/10) of all shares a special auditor may be appointed to carry out a special auditing of the LDB. Such audit shall be carried out at the expense of the requestor. Article 32 The Board of Directors shall submit to the auditors the Annual Statement of Accounts and the Annual Report no later than within four (4) weeks following the end of the financial year. The auditors shall submit to the Board of Directors the Auditor's Report no later than three weeks before the date of the annual General Meeting. The Board of Directors shall submit to the shareholders the Annual Statement of Accounts, the Annual Report and the Auditor's Report no later than two (2) weeks before the date of the General Meeting. The Annual Statement of Accounts, the Annual Report and the Auditor's Report shall be delivered to the Bank of Lithuania within 30 days from approval thereof by the General Meeting of Shareholders. Article 33 The Bank of Lithuania shall carry out the supervision and auditing of the LDB's activities in pursuance of the Law on the Bank of Lithuania. CHAPTER 7 TERMINATION OF THE LDB'S ACTIVITIES Article 34 The LDB shall terminate its activities by dissolution: 1) by the decision of the General Meeting; 2) in case of insolvency or bankruptcy; or 3) by decision of the court. The issues concerning the termination of the LDB's activities and procedures for the final settlement of debts with creditors shall be determined by the General Meeting of Shareholders. Article 35 The dissolution shall be carried out by liquidators appointed by the General Meeting of Shareholders or, in the case of bankruptcy, by court. At the end of the term of dissolution of the LDB, the liquidators submit to the General Meeting of Shareholders the final report and balance sheet. Article 36 The activities of the liquidators, the current and final reports as well as the balance sheet shall be inspected by the auditors of the LDB who shall submit to the General Meeting of Shareholders the Auditor's Report simultaneously with the current and final reports of the liquidators. Article 37 The assets of the LDB remaining after adjustment of all liabilities, shall be distributed to the shareholders in proportion to their shares in the share capital.