# Commission Implementing Decision of 11 September 2014 on the model of funding agreement for the contribution of the European            Regional Development Fund and the European Agricultural Fund for Rural Development to joint uncapped guarantee and securitisation            financial instruments in favour of small and medium-sized enterprises (2014/660/EU)         

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U.K.

# Commission Implementing Decision

# of 11 September 2014

# on the model of funding agreement for the contribution of the European Regional Development Fund and the European Agricultural                        Fund for Rural Development to joint uncapped guarantee and securitisation financial instruments in favour of small and medium-sized                        enterprises                     

# (2014/660/EU)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down                           common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural                           Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European                           Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing                           Council Regulation (EC) No 1083/2006(1), and in particular the second subparagraph of Article 39(4) thereof,                        

Whereas:

(1)The financial crisis has affected small and medium-sized enterprises (SMEs) in the European Union since 2009 due, *inter alia*, to the deleveraging carried out by European banks in their balance sheets to comply with the capital requirements enshrined                              in Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit                              institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and                              repealing Directives 2006/48/EC and 2006/49/EC(2) and Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements                              for credit institutions and investment firms and amending Regulation (EU) No 648/2012(3). In order to address the resulting potential market failures for financial services and financial instruments for SMEs, the                              European Council has mandated the Commission to explore options for making financial instruments available to SMEs at a pan-European                              level.

(2)The Commission, together with the European Investment Bank (EIB), concluded in December 2013 an *ex-ante* assessment exercise(4) showing a market failure in the provision of finance to viable SMEs in the European Union comprised in an estimated range                              of EUR 20 to 112 billion.

(3)The *ex-ante* assessment stressed the importance of a fast response to the financial crisis affecting SMEs, in the context of a joint European                              effort to revitalize the blocked credit channel to SMEs, stimulate economic growth and counter fragmentation of the internal                              market regarding SMEs access to credit.

(4)One part of this response is to open specific windows within financial instruments set up at Union level under Regulation                              (EU) No 1287/2013 of the European Parliament and of the Council of 11 December 2013 establishing a Programme for the Competitiveness                              of Enterprises and small and medium-sized enterprises (COSME) (2014 — 2020) and repealing Decision No 1639/2006/EC(5) as well as Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing Horizon                              2020 — the Framework Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC(6).

(5)Since Article 17(2) of Regulation (EU) No 1287/2013 (COSME) and Articles 20 and 21) of Regulation (EU) No 1291/2013 establishing                              Horizon 2020 explicitly seek to ensure complementarity and synergies with the European Structural and Investment Funds (ESI                              Funds), another part of the response is to allow Member States to use the European Regional Development Fund (ERDF) and the                              European Agricultural Fund for Rural Development (EAFRD) in order to provide a financial contribution to these financial instruments                              set up at Union level under Article 39(2) of Regulation (EU) No 1303/2013.

(6)These financial instruments set up at Union level are managed indirectly by the Commission with implementation tasks entrusted                              to the EIB or the EIF pursuant to Article 58(1)(c)(iii) and Article 139(4) of Regulation (EU, Euratom) No 966/2012 of the                              European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union                              and repealing Council Regulation (EC, Euratom) No 1605/2002(7), in respect of uncapped guarantees and securitisation financial instruments in favour of SMEs. To that end, the Commission                              has to conclude delegation agreements with the EIB or the European Investment Fund (EIF).

(7)Where a Member State avails itself of the possibility to provide a financial contribution from the ERDF and EAFRD resources                              to the financial instruments set up at Union level, Article 39(4)(c) of Regulation (EU) No 1303/2013 requires the participating                              Member States to conclude a funding agreement with the EIB or the EIF.

(8)The financial instruments set up at Union level can only deliver the desired fast response if their functioning respects two                              conditions. Firstly, uniform conditions and equal treatment for, and among, participating Member States in the utilisation                              of the ERDF and EAFRD resources must be ensured. Secondly, the conditions for the contribution of ERDF and EAFRD resources                              pursuant to any individual funding agreement to be entered into by participating Member States and the EIB or the EIF and                              the conditions contained in the delegation agreements regarding other sources under COSME and Horizon 2020 must be consistent.                              A model of the funding agreement, available to both, the participating Member States and the EIB or the EIF, is the best way                              to ensure the compliance with these conditions. It is therefore necessary to lay down a model of the funding agreement.

(9)In order to ensure an efficient deployment of concerned ERDF and EAFRD resources, the model of the funding agreement should                              include, inter alia, tasks and obligations of the EIB or the EIF such as remuneration, a minimum leverage to be achieved at                              clearly defined milestones, conditions for the creation of new debt finance to the benefit of the SMEs, provisions relating                              to non-eligible activities and exclusion criteria, a schedule of ERDF and EAFRD payments to the financial instruments, penalties                              in the event of non-performance by the concerned financial intermediaries, provisions on the selection of the financial intermediaries,                              provisions on monitoring, reporting, auditing and visibility of the financial instruments and conditions for termination of                              the agreement.

(10)In order to allow for the prompt application of the measures provided for in this Decision, this Decision should enter into                              force on the day following that of its publication in the *Official Journal of the European Union*.

(11)The measures provided for in this Decision are in accordance with the opinion of the Coordination Committee for the European                              Structural and Investment Funds established by Article 150(1) of Regulation (EU) No 1303/2013,

HAS ADOPTED THIS DECISION:

# Article 1U.K.

The model of the funding agreement for the financial contribution of the European Regional Development Fund and the European                     Agricultural Fund for Rural Development to joint uncapped guarantee and securitisation financial instruments in favour of                     small and medium-sized enterprises, which is to be concluded between the European Investment Bank or the European Investment                     Fund and each participating Member State, is set out in the Annex to this Decision.                  

# Article 2U.K.

This Decision shall enter into force on the day following that of its publication in the *Official Journal of the European Union*.                  

Done at Brussels, 11 September 2014.

*For the Commission*                            

*The President*                            

José Manuel Barroso                            

## ANNEXU.K.[MANAGING AUTHORITY OF MEMBER STATE PARTICIPATING IN THE SME INITIATIVE]and[EUROPEAN INVESTMENT FUND]/[EUROPEAN INVESTMENT BANK]MODEL FUNDING AGREEMENT

This Agreement is entered into on [•] 2014, by and between:

[**Managing Authority of Member State participating in the SME Initiative**] (the ‘Managing Authority’) which is represented for the purposes of the signature of this Agreement by [**Name of the person**], [**Function**];                           

and

The [**European Investment Fund**]/[**European Investment Bank**], [15, avenue J.F. Kennedy]/[98-100 Boulevard Konrad Adenauer], [L-2968]/[L-2950] Luxembourg, Luxembourg (the ‘EIF’), which                              is represented for the purposes of the signature of this Agreement by [**Name of the person**], [**Function**]; collectively the ‘Parties’ and, individually, the ‘Party’, as the context may require.                           

WHEREAS:

### (1)Following the conclusions of the European Council of 27 and 28 June 2013, the European Investment Bank (EIB) and the European                        Commission carried out an *ex-ante* assessment aimed at defining the market failure for financial services and available financial instruments for SMEs currently                        existing at a pan-European level (the ‘**Ex-Ante Assessment**’), in the context of a joint European effort to revitalise the blocked credit channel to SMEs, stimulate economic growth                        and counter fragmentation of the internal market regarding SMEs access to credit (the ‘**SME Initiative**’);U.K.

### (2)the Ex-Ante Assessment exercise was concluded in December 2013 and showed a market failure in the provision of finance to                        viable SMEs in **[Name of the Member State]** comprised in an estimated range of EUR [•] to [•] million;U.K.

### (3)on 17 December 2013, Regulation (EU) No 1303/2013 of the European Parliament and the Council of 17 December 2013 laying down                        common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural                        Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European                        Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing                        Council Regulation (EC) No 1083/2006(8) was adopted (the ‘**CPR**’);U.K.

### (4)pursuant to Article 38(1)(a) of the CPR, managing authorities may provide a financial contribution to a financial instrument                        set up at Union level; pursuant to Article 39(2) of the CPR, [**Name of the Member State**] may use up to 7 % of its ERDF and EAFRD aggregate allocation to provide a financial contribution to such financial instruments                        managed indirectly by the European Commission with implementation tasks entrusted to the EIB group (EIB being defined under                        Article 2(23) of the CPR as the European Investment Bank, the European Investment Fund or any subsidiary of the EIB) (the                        ‘**EIB Group**’) pursuant to point (c)(iii) of Article 58(1) and Article 139(4) of the Regulation (EU, Euratom) No 966/2012 of the European                        Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and                        repealing Council Regulation (EC, Euratom) No 1605/2002(9) (Financial Regulation), in respect of [uncapped guarantees providing capital relief to financial intermediaries for new portfolios                        of debt finance to eligible SMEs in accordance with Article 37(4) of the CPR] AND/OR [securitisation, as defined in point                        (61) of Article 4(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential                        requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012(10), of [existing portfolios of debt finance to SMEs and other enterprises with less than 500 employees;] AND/OR [new portfolios                        of debt finance to SMEs] (Option 2); [with pooling of the MS Contribution with contributions from other Member States (Option                        3)];U.K.

### (5)pursuant to Regulation (EU) No 1287/2013 of the European Parliament and of the Council of 11 December 2013 establishing a                        Programme for the Competitiveness of Enterprises and small and medium-sized enterprises (COSME) (2014 — 2020) and repealing                        Decision No 1639/2006/EC(11) (the ‘**COSME Regulation**’), the European Commission has established financial instruments (the ‘**COSME Financial Instruments**’) that aim to facilitate and improve access to finance for SMEs in their start-up, growth and transfer phases, complementary                        to the Member States' use of financial instruments for SMEs at national and regional level; the indicative contribution of                        the European Commission to the COSME Financial Instruments in the 2014-2016 period is envisaged to be up to EUR [•]million;U.K.

### (6)pursuant to Regulation (EU) No 1291/2013 of the European Parliament and of the Council of 11 December 2013 establishing Horizon                        2020 — the Framework Programme for Research and Innovation (2014-2020) and repealing Decision No 1982/2006/EC(12) and pursuant to the Council Decision 2013/743/EU of 3 December 2013 establishing the specific programme implementing Horizon                        2020 — the Framework Programme for Research and Innovation (2014-2020) and repealing Decisions 2006/971/EC, 2006/972/EC, 2006/973/EC,                        2006/974/EC and 2006/975/EC(13) (collectively, the ‘**H2020 Regulation**’), the European Commission has established financial instruments (the ‘**H2020 Financial Instruments**’) that aim to ease access to the risk financing for final recipients carrying out research and innovation projects; the indicative                        contribution of the European Commission to the H2020 Financial Instruments in the 2014-2016 period is envisaged to be up to                        EUR [•] million;U.K.

### (7)on [date] [and on [date], respectively,] the European Commission [, the EIB] and the EIF signed [a] delegation agreement[s]                        (the ‘**Delegation Agreement[s]**’), setting out, inter alia, the terms and conditions applicable to (i) the [COSME Financial Instruments] AND/OR [H2020 Financial                        Instruments] and in particular to the dedicated windows corresponding to different equity-based and debt-based financial products                        (including products proposed in the context of the SME Initiative) also open to contributions from Member States, (ii) the                        contribution of the European Commission to such dedicated windows of the [COSME Financial Instruments] AND/OR [H2020 Financial                        Instruments];U.K.

### (8)in the context of the SME Initiative, the Parties are willing to cooperate in view of the implementation and management of                        [a] dedicated window[s] corresponding to the MS Contribution to the [COSME Financial Instruments] [AND/OR] the [H2020 Financial                        Instruments] (the ‘**Dedicated Window[s]**’), providing [uncapped guarantees for new portfolios of debt finance to eligible SMEs in accordance with Article 37(4) of                        the CPR (Option 1)] [AND/OR] [securitisation, as defined in point (61) of Article 4(1) of Regulation (EU) No 575/2013 [existing                        portfolios of debt finance to SMEs and other enterprises with less than 500 employees;] [AND/OR] [new portfolios of debt finance                        to SMEs] (Option 2); [with pooling of the MS Contribution with contributions from other Member States (Option 3)];U.K.

### (9)pursuant to Article 39(4)(b) of the CPR, on [insert date] 2014, [**Name of the Member State**] submitted to the Commission a single dedicated national programme in relation to its participation in the Dedicated Window[s]                        (the ‘**Single Dedicated National Programme**’). On [insert date] 2014, Decision C(2014)[•] of the European Commission approved the Single Dedicated National Programme;U.K.

### (10)pursuant to Article 39 of the CPR, the conditions to participate in the SME Initiative must be set out in a Funding Agreement                        concluded between each participating Member State and the EIB Group;U.K.

### (11)the Dedicated Window[s] shall be implemented as a part of a compartment of the [COSME Financial Instruments] AND/OR [H2020                        Financial Instruments] dedicated to [NAME OF THE MEMBER STATE] (the ‘**Compartment**’); the Compartment shall also avail of the EU Contribution, as well as of the EIF Contribution and of EIB's and other investors'                        own resources, if applicable, pursuant to the terms and conditions of the Delegation Agreement[s] and any other agreement                        entered into between the EIF and relevant investors, if applicable. In order to take into due consideration the magnitude                        and role of the MS Contribution within the [COSME Financial Instruments] AND/OR [H2020 Financial Instruments], the Parties                        intend to set out a specific governance of the Dedicated Window[s] including, inter alia, an *ad hoc* investors' board having an advisory role and supplementing the provisions of the Delegation Agreement[s] for matters related                        to the MS Contributions;U.K.

### (12)also taking into account the results of the Ex-Ante Assessment and the discussions with relevant institutions and market players                        in order to define the amount of public resources to allocate to the Dedicated Window[s], the Dedicated Window[s] is endowed                        with an indicative MS Contribution equal to [•] EUR million; the indicative EU Contribution in the 2014-2016 period is envisaged                        to be up to [•] EUR million;U.K.

### (13)the set-up of the Dedicated Window[s] is compliant with state aid rules under Union law; [NAME OF THE MEMBER STATE] and the                        EIF acknowledge that the implementation of the Dedicated Window[s] must be compliant with Commission Regulation (EU) No 1407/2013                        of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to *de minimis* aid(14) (*de minimis* Regulation), or Commission Regulation (EU) No 1408/2013 of 18 December 2013 on the application of Articles 107 and 108 of                        the Treaty on the Functioning of the European Union to *de minimis* aid in the agriculture sector(15), or with the relevant General Block Exemption Regulation and that, otherwise, notification to the European Commission for                        individual assessment is required;U.K.

### (14)the signature of this Funding Agreement on behalf of the Managing Authority has been authorised by a [Managing Authority to                        provide];U.K.

### (15)the signature of this Funding Agreement on behalf of the EIF has been authorised by a [EIF to provide];U.K.

the Parties have agreed as follows:

### Article 1U.K.Definitions and Interpretation

Wherever used in this Agreement, the following terms shall have the meanings opposite them:

**‘Business Day’**

means any working day on which the Managing Authority's public services and the EIF are open for business in [Member State                                 place of business] and Luxembourg;                              

**‘Commitment Period’**

means the period during which [NAME OF MEMBER STATE] may commit the MS Contribution from the [NAME OF MEMBER STATE] budget                                 to the EIF for the purposes of the Dedicated Window[s]. The Commitment Period shall expire on 31 December 2016;                              

**‘Compartment’**

has the meaning set out in Recital 11;

**‘COSME Financial Instruments’**

has the meaning set out in Recital 5;

**‘COSME Regulation’**

has the meaning set out in Recital 5;

**‘CPR’**

has the meaning set out in Recital 3;

**‘Dedicated Window[s]’**

has the meaning set out in Recital 8;

**‘Dedicated Window[s] Account[s]’**

means any separate account[s] (i) opened by the EIF in its name at a commercial bank, on behalf of the Managing Authority                                 and (ii) managed on behalf of the Managing Authority in accordance with Article 13 of this Funding Agreement;                              

**‘Delegation Agreement[s]’**

has the meaning set out in Recital 7;

**‘Designated Service’**

means the European Commission's service entrusted with the indirect management of the [COSME Financial Instruments] [AND/OR]                                 [H2020 Financial Instruments]; for the purpose of this Funding Agreement, respectively DG [ENTR AND/OR RTD] of the European                                 Commission or the successor[s] thereto;                              

**‘EAFRD’**

means the European Agricultural Fund for Rural Development;

**‘EIF’**

has the meaning set out in the Preamble;

**‘EIF Activity’**

means the obligations and tasks to be carried out by the EIF under this Funding Agreement;

**‘EIF Contribution’**

means the aggregate amount of financial resources committed by the EIF (including under mandates from EIB but excluding other                                 ESIF resources and resources from the COSME Financial Instrument and the H2020 Financial Instrument) in relation to the Compartment                                 as provided in Article 12;                              

**‘ERDF’**

means the European Regional Development Fund;

**‘EU Contribution’**

means the aggregate amount of any financial resources committed or paid, as the case may be, by the European Commission to                                 the Compartment;                              

**‘Euro Account’**

means an account denominated in Euro, which is part of the Dedicated Window[s] Account[s];

**‘Evaluation’**

means any evaluation or assessment referred to in Article 18 to be carried out in respect of the Dedicated Window[s], with                                 the exclusion of the evaluation provided for in Article 57(3) of the CPR;                              

**‘Exit Policy’**

means the procedure for the distribution of the liquidation proceeds of the Dedicated Window[s] following termination of this                                 Funding Agreement, and in particular (i) the calculation of the balance of the Dedicated Window[s] Account[s] with reference                                 to the MS Contribution after deduction of applicable Management Costs and Fees, (ii) the return of the net balance of the                                 Dedicated Window[s] Account[s] to the Managing Authority and (iii) the closure of Dedicated Window[s] Account[s] [*Procedure shall be further contractually specified*];                              

**‘Final Recipient’**

means an SME receiving New Debt Finance under a Transaction;

**‘Financial Intermediary’**

means financial entities such as a bank, financial institution, fund, entity implementing a guarantee scheme, mutual guarantee                                 organisation, micro-finance institution, leasing company or any other legal person or entity selected by the EIF in accordance                                 with the conditions set out in this Funding Agreement, for an Operation with the objective of implementing the Dedicated Window[s];                                 for the avoidance of doubt, the definition of Financial Intermediary (i) includes also financial entities selected as financial                                 sub-intermediaries by a Financial Intermediary, if applicable; and (ii) does not include counter-parties selected by the EIF                                 for the purposes of asset management carried out by the EIF or, as regards Option 2 in case of true-sale securitisation, the                                 beneficiary of the Guarantee Agreement;                              

**‘Financial Regulation’**

means Regulation (EU, Euratom) No 966/2012, together with its rules of application (Commission Delegated Regulation (EU) No                                 1268/2012 of 29 October 2012 on the rules of application of the Regulation (EU, Euratom) No 966/2012 of the European Parliament                                 and of the Council on the financial rules applicable to the general budget of the Union(16) as they may be amended, supplemented or modified from time to time;                              

**‘Force Majeure’**

means any unforeseeable exceptional situation or event beyond the Parties' control, which prevents either of them from fulfilling                                 any of their obligations under this Funding Agreement, which was not attributable to error or negligence on their part or                                 on the part of their subcontractors and which could not have been avoided by the exercise of appropriate and reasonable due                                 diligence. Any default of a service, defect in equipment or material or delays in making them available, unless they stem                                 directly from a relevant case of *force majeure*, as well as labour disputes or strikes or financial difficulties cannot be invoked as *force majeure*;                              

**‘Funding Agreement’**

means this Funding Agreement as may be amended, supplemented or modified from time to time;

**‘Guarantee Agreement’**

means the Operational Agreement and, in case of true-sale securitisation within Option 2, the guarantee agreement entered                                 into between the EIF and a beneficiary in connection with an Operation;                              

**‘H2020 Financial Instruments’**

has the meaning set out in Recital 6;

**‘H2020 Regulation’**

has the meaning set out in Recital 6;

**‘Implementation Period’**

means the period during which the EIF may commit any part of the MS Contribution to Operations under the Dedicated Window[s].                                 The Implementation Period shall expire on 31 December 2016, with the exclusion of Repayments and Revenues, which may be committed                                 until the winding-up of the Dedicated Window[s];                              

**‘Implementation Strategy’**

means the policy of the EIF concerning the allocation of Operations as set out in Article 4.6;

**‘Internal Control’**

means a process applicable at all levels of management and designed to provide reasonable assurance of achieving the following                                 objectives:                              

effectiveness, efficiency and economy of operations;

reliability of reporting;

safeguarding of assets and information;

prevention, detection, correction and follow-up of fraud and irregularities;

adequate management of the risks relating to the legality and regularity of the financial operations, taking into account                                          the multiannual character of programmes as well as the nature of the payments concerned;                                       

**‘Investors' Board’**

means the steering committee of the Dedicated Window[s] set forth in Article 10;

**‘Leverage Effect’**

means, where relating to this Funding Agreement, the ratio between the New Debt Finance to be provided to Final Recipients                                 under the Dedicated Window[s] and the corresponding MS Contribution or, where relating to a particular Operational Agreement,                                 the ratio between the New Debt Finance to be provided to Final Recipients under such Operational Agreement and the corresponding                                 MS Contribution;                              

**‘Management Costs and Fees’**

means as set out in Article 14;

**‘Managing Authority’**

has the meaning set out in the Preamble;

**‘Milestone’**

means each of the milestones under Article 39(5) of the CPR as set out in Article 7;

**‘MS Contribution’**

means the MS Contribution Committed or the MS Contribution Paid or both, as the case may be;

**‘MS Contribution Committed’**

means the aggregate amount of any commitment appropriations under the budget of the [ERDF Operational Programme] [and the                                 EAFRD rural development programme] in respect of the Dedicated Window[s];                              

**‘MS Contribution Paid’**

means the aggregate amount of any financial resources from the [ERDF Operational Programme] [and the EAFRD rural development                                 programme] paid by the Managing Authority in relation to the Dedicated Window[s] including Revenues and Repayments;                              

**‘New Debt Finance’**

means the new loans, leases or guarantees to Final Recipients originated by the Financial Intermediary no later than 31 December                                 2023 pursuant to the terms and conditions set out in the Operational Agreements;                              

**‘Non-Euro Account’**

means an account denominated in a currency rather than in Euro, which is part of the Dedicated Window[s] Account[s];

**‘OLAF’**

means the European Anti-Fraud Office;

**‘Operation’**

means the set of activities carried out [by the EIF and a Financial Intermediary] ***[for Option 1]*** AND/OR [by the EIF, a Financial Intermediary and other parties] ***[Option 2]***, as further specified in Annex 1, with the objective of implementing the Dedicated Window[s];                              

**‘Operational Agreement’**

means the agreement(s) entered into between [the EIF and a Financial Intermediary setting out terms and conditions of an Operation]                                 ***[for Option 1]*** AND/OR [the EIF and the Financial Intermediary for the origination of New Debt Finance] ***[Option 2]***;                              

**‘Option 1’**

means as set out under Article 5(i);

**‘Option 2’**

means as set out under Article 5(ii);

**‘Option 3’**

means as set out under Article 5(ii);

**‘Payment Request’**

means the payment request referred to in Article 11.3;

**‘Penalties’**

means contractual penalties set out in Article 7 which are payable by a Financial Intermediary pursuant to an Operational                                 Agreement and subject to applicable law;                              

**‘Repayments’**

means amounts resulting from guarantees released, and amounts recovered under the Dedicated Window[s];

**‘Revenues’**

means any revenues, including guarantee fees and interest on amounts on fiduciary accounts, paid to the Dedicated Window[s]                                 Account[s] under the Dedicated Window[s], including any such amounts arising in the context of the Exit Policy;                              

**‘Secretariat’**

means the secretariat to the Investors' Board set out in Article 10;

**‘Single Dedicated National Programme’**

means as set out in Recital 9;

**‘SME’**

means a micro (including individual entrepreneurs/self-employed persons), small and medium enterprise as defined in the Commission                                 Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises(17);                              

**‘SME Initiative’**

has the meaning set out in Recital 1;

**‘Termination Event’**

means any of the events referred to in Article 25.5;

**‘Terms of Reference’**

means the open call for expression of interest prepared by the EIF;

**‘Transaction’**

means the loan, lease or guarantee transaction giving rise to New Debt Finance, entered into between a Financial Intermediary                                 (or a sub-level Financial Intermediary) and a Final Recipient;                              

**‘Treasury Asset Management’**

means the treasury management of the MS Contribution Paid, as further set out in Article 13;

**‘Union Emblem’**

means the logo of the European Union representing twelve yellow stars on a blue background.

In this Agreement, unless the context otherwise requires,

headings are for convenience only and do not affect the construction or the interpretation of any provisions of this Funding                                       Agreement;                                    

words importing the singular include the plural and vice versa;

a reference to an article, section, part or schedule is a reference to that article, section, part of, or schedule to this                                       Funding Agreement.                                    

### Article 2U.K.Purpose and Scope of this Funding Agreement

This Funding Agreement sets out the terms and conditions for the use of the MS Contribution in connection with the implementation                              of the Dedicated Window[s] by the EIF.                           

The indicative amount of MS Contribution to the Dedicated Window[s] shall be an amount up to EUR [•] million.

The Managing Authority hereby mandates the EIF with the implementation and the management of the Dedicated Window[s] in relation                              to the MS Contribution, in the EIF's name and on behalf and at the risk of the Managing Authority, in compliance with the                              provisions of the CPR and of this Funding Agreement.                           

### Article 3U.K.Eligibility and exclusion criteria of the New Debt Finance

The EIF shall commit the MS Contribution to Operations for the creation of New Debt Finance under the Dedicated Window[s]                              supporting SMEs and targeting:                           
                -  the establishment of new enterprises, 
                -  early stage capital (i.e. seed capital and start-up capital), 
                -  expansion capital, 
                -  capital for the strengthening of the general activities of an enterprise, or 
                -  the realisation of new projects, penetration of new markets or new developments by existing enterprises, 

in each case, without prejudice to applicable Union state aid rules, and in accordance with the specific rules of the ERDF                              and EAFRD, as applicable.                           

Within the criteria set out in Article 3.1, the Dedicated Window[s]:

may include investments in both tangible and intangible assets as well as working capital within the limits of applicable                                       Union state aid rules and with a view to stimulating the private sector as a supplier of funding to enterprises. The investments                                       may also include the costs of transfer of proprietary rights in enterprises provided that such transfers take place between                                       independent investors;                                    

shall support investments which are expected to be financially viable and investments that are not physically completed or                                       fully implemented at the date of inclusion in the New Debt Finance; and                                    

shall support Final Recipients that are deemed potentially economically viable at the time of the support of the MS Contribution                                       in accordance with the objectives set out in the CPR, the [COSME Regulation] OR the [H2020 Regulation] as may be further developed                                       in this Funding Agreement.                                    

[The Dedicated Window[s] may only support working capital that is ancillary to, and linked to a new investment in the agriculture                              or forestry sector for an amount which shall not exceed 30 % of the total amount of the Transaction and upon due justification                              acceptable to the Financial Intermediary. For non-agricultural activities, no working capital may be supported.] ***[This paragraph only applies in case of Dedicated Window[s] supported under the EAFRD]***                            

Financial support under the Dedicated Window[s] shall be granted taking into account the exclusion criteria applicable to                              the EU Contribution under [the COSME Financial Instruments] AND/OR [the H2020 Financial instruments] and set out for information                              in Annex 2.                           

The Parties acknowledge that a portion of the New Debt Finance created pursuant to Article 3.1 corresponding to a multiple                              of the EU Contribution under [the COSME Financial Instruments] AND/OR [the H2020 Financial instruments] is subject to provisions                              set out in the Delegation Agreement(s) governing the EU Contribution.                           

### Article 4U.K.General principles related to the implementation and management of the Dedicated Window[s]

The EIF shall implement, manage, monitor and wind-up the Dedicated Window[s] in accordance with the Funding Agreement, applicable                              terms of the CPR, the Delegation Agreement(s), the Financial Regulation and other relevant provisions of Union law, in particular                              state aid rules. In so doing, the EIF shall apply its own rules, policies and procedures as amended, modified or supplemented                              from time to time, good industry practices and appropriate monitoring, control and audit measures as further set out herein.                           

The EIF shall be responsible for the hiring and employment of staff and/or consultants which it may assign to the implementation                              of the Dedicated Window[s] and which shall be under the responsibility of the EIF for the purposes of this Funding Agreement                              and be regulated in all aspects by and be subject to the rules, policies and procedures applied by the EIF in relation to                              its staff and/or consultants.                           

The EIF shall perform its obligations relating to the Dedicated Window[s] as specifically set forth in this Funding Agreement                              with the requisite professional degree of care, efficiency, transparency and diligence, as it applies to the discharge of                              its own affairs.                           

A Party faced with Force Majeure shall notify the other Party without delay, stating the nature, likely duration and foreseeable                              effects. The Parties shall take the necessary measures to limit or minimise costs and possible damages due to Force Majeure.                           

The management and implementation of the Dedicated Window[s] shall be based on the principle of alignment of interests between                              the Parties. As far as the principle of alignment of interests is concerned, the EIF shall comply with the principles set                              out in Article 12 and Annex 1.                           

The allocation of Operations shall be based on the criteria set out in the Implementation Strategy. The EIF shall provide                              to the Managing Authority its Implementation Strategy within [3] months from the signature of this Funding Agreement and shall                              notify the Managing Authority without undue delay of any change to the Implementation Strategy.                           

The MS Contribution shall not generate undue advantages, in particular in the form of undue dividends or profits to third                              parties other than in accordance with this Funding Agreement.                           

Financial support under the Dedicated Window[s] shall not be granted to any Financial Intermediary or Final Recipient that                              are in one of the situations referred to in Article 9.4 [*such conditions shall be contractually further specified*].                           

### Article 5U.K.Objectives and Description of the Dedicated Window[s]

As further specified in Annex 1, the Dedicated Window[s] shall cover the risk of:

portfolios of New Debt Finance through uncapped guarantees providing capital relief subject to relevant rules on capital requirements                              covering up to 80 % of each and every loan in the relevant portfolios (‘**Option 1**’) OR                           

[existing portfolios of loans, leasing or guarantees to SMEs and other enterprises with less than 500 employees] OR [portfolios                              of New Debt Finance] through securitisation, as defined in point (61) of Article 4(1) of Regulation (EU) No 575/2013 (‘**Option 2**’) [with pooling of the MS Contribution with contributions from other Member States (‘**Option 3**’)].                           

### Article 6U.K.Territorial Coverage

The MS Contribution shall be utilised for the purpose of giving rise to New Debt Finance solely to Final Recipients registered                     and operating within the territory [of [NAME OF MEMBER STATE]], according to the following breakdown: [•] [*such conditions shall be contractually further specified*]].                  

### Article 7U.K.Minimum Leverage Effect, Milestones and Penalties

The EIF shall ensure that provisions are included in each Operational Agreement requiring that the Financial Intermediaries                              achieve the following Milestones:                           

at the end of the period comprising [•] months after the signature of the Operational Agreement, the Leverage Effect shall                                       be no lower than [•];                                    

as of the earlier between the date of termination of this Agreement and 31 December 2023, the Leverage Effect shall be no                                       lower than [•].                                    

The EIF shall, as part of the report referred to in Article 16.1, notify in writing the Managing Authority of the achievement                              of a Milestone prior to, or after, the due dates referred to in Article 7.1 and provide the Managing Authority with information                              relating to the volume of New Debt Finance as further provided herein.                           

Each Operational Agreement shall provide for Penalties on the Financial Intermediaries for the ultimate benefit of the Managing                              Authority, indicatively as follows:                           

in case the amount of New Debt Finance originated by the Financial Intermediary under the relevant Operational Agreements                                       is lower than [A] % of the amount of the New Debt Finance agreed therein at the relevant Milestone, a Penalty equal to [X] %                                       of difference between the New Debt Finance agreed and the New Debt Finance originated; or                                    

in case the amount of New Debt Finance originated by the Financial Intermediary under the relevant Operational Agreements                                       is higher than [A] % but lower than [B] % of the amount of the New Debt Finance agreed therein at the relevant Milestones,                                       a Penalty equal to [Y] % of difference between the New Debt Finance agreed and the New Debt Finance originated.                                    

In addition, for a Dedicated Window(s) under Option 2, in case the Financial Intermediary does not achieve a Leverage Effect                              equal at least to 1, a Penalty equal to the difference between the relevant MS Contribution Paid allocated to the relevant                              Operation and the related amount of New Debt Finance originated;                           

[*conditions on the determination and modalities of implementation of Penalties a the level of each Operation shall be contractually                                 specified*]                           

The Managing Authority acknowledges that the Guarantee Agreements and the relevant Operations shall not be affected by a failure                              by the relevant Financial Intermediary to reach leverage requirements set out pursuant to this Funding Agreement or the relevant                              Operational Agreement, as the case may be.                           

The Penalty shall be a one-off amount in relation to each Operation, calculated by the EIF at each Milestone, with the latest                              calculated amounts referred to in Article 7.3 being payable by the Financial Intermediary to EIF under each Operational Agreement                              on the earlier of (x) the termination of the Operational Agreement for reasons attributable to the Financial Intermediary                              or (y) the end of the relevant inclusion period for the origination of New Debt Finance. Such amount shall be paid by the                              EIF to the Managing Authority upon payment by the relevant Financial Intermediary thereof. [*Further conditions may be contractually specified if necessary*]                           

[For the avoidance of doubt, the Penalties shall apply without prejudice to other applicable penalties or fees under the [COSME                              Financial Instruments] OR [H2020 Financial Instruments] Delegation Agreements regarding the respective EU Contribution].                           

### Article 8U.K.Tasks and obligations of the EIF

Following the signature of this Funding Agreement and for the purposes of the implementation of the Operations, the EIF shall                              endeavour to enter into the first Operational Agreement no later than [X] months after signature of this Funding Agreement.                           

Without prejudice to other provisions of this Funding Agreement, the EIF shall:

implement each Dedicated Window under an effective and efficient Internal Control system for the duration of this Funding                                       Agreement;                                    

transpose the applicable terms and conditions of this Funding Agreement in the Operational Agreements with Financial Intermediaries                                       and in particular the provisions on the Leverage Effect referred to in Article 7;                                    

take all decisions to commit funds for Operations and to decommit funds, when appropriate, and notify the Investors' Board                                       accordingly;                                    

negotiate and enter into any and all legal instruments as the EIF in its professional opinion deems appropriate for the implementation,                                       management and, as the case may be, the termination of the Operations;                                    

require the Financial Intermediaries to repay any amount unduly paid to them if any, under the Operational Agreements;

require that Financial Intermediaries undertake under each Operational Agreement to take appropriate steps in order to recover                                       any amount due from the relevant Final Recipients under the related Transactions;                                    

where appropriate and subject to reimbursement of relevant litigation costs under Article 14.9, manage litigation (including,                                       without limitation, commence, conduct, settle and defend) in connection with any Operation;                                    

have the Dedicated Window[s] Account[s] opened, maintained and closed, debit and credit the Dedicated Window[s] Account[s]                                       in accordance with the provisions of this Funding Agreement, make all payments provided for in this Funding Agreement and,                                       otherwise, undertake all transactions contemplated by this Funding Agreement in connection with the Dedicated Window[s] Account[s];                                    

keep separate accounting ledgers and proper and accurate bookkeeping pertaining to the use of the MS Contribution;

take the necessary measures with a view to ensuring protection of personal data in the possession of EIF as required under                                       Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals                                       with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data(18), and subsequent amending acts;                                    

ensure that contractual requirements are included in the Operational Agreements on the passing-on to Final Recipients of the                                       interest rate reduction agreed by the Financial Intermediaries and monitor their implementation;                                    

take such other action as it may deem necessary for the proper implementation and management of the Dedicated Window[s] within                                       the limits set out in this Funding Agreement.                                    

The EIF undertakes to perform all its obligations and tasks under this Funding Agreement with the requisite degree of professional                              care and in particular:                           

to apply professional standards and practices not less favourable than those used for its own activities, taking into account                                       the terms of this Funding Agreement;                                    

to allocate adequate resources to allow for proper implementation and management of the Dedicated Window[s];

to promote the Dedicated Window[s] and assist the Managing Authority in achieving overall visibility of the Union support                                       down the implementation chain to the Final Recipients, as further specified in this Funding Agreement;                                    

not to create any charges, liens, pledges or other encumbrances over any funds held on the Dedicated Window[s] Account[s]                                       (other than as implied by law or customary banking practice);                                    

to carry out the Treasury Asset Management of any balance on the Dedicated Window[s] Account[s] as set out in Article 13 of                                       this Funding Agreement.                                    

[For the avoidance of doubt, the EIF tasks and obligations under this Funding Agreement shall apply without prejudice to other                              relevant obligations of EIF under the [COSME] OR [H2020] Delegation Agreement(s)].                           

### Article 9U.K.Selection of Financial Intermediaries and Operational Agreements

The EIF, under its responsibility, shall select one or more Financial Intermediaries to implement the Dedicated Window[s]                              in accordance with the relevant terms of the [COSME] AND/OR [H2020] Delegation Agreement(s) as applicable. [*Further conditions may be contractually specified if necessary*]                           

The Financial Intermediaries with whom EIF purports to enter into Operational Agreements, shall be selected on the basis of                              EIF's policies and procedures with open, transparent, proportionate and non-discriminatory and objective selection procedures,                              avoiding conflicts of interests, with due account of the nature of the Dedicated Window[s] and the experience and financial                              capacity of the Financial Intermediary. The selection of such Financial Intermediaries shall be made on a continuous basis                              and shall be based on a scoring system to prioritise Financial Intermediaries according to specific criteria.                           

The Operational Agreements concluded by the EIF with Financial Intermediaries shall reflect all applicable obligations of                              the EIF under this Funding Agreement. In particular, such Operational Agreements shall contain provisions concerning the liability                              of Financial Intermediaries with regard to Penalties.                           

The Operational Agreements shall require that for the purpose of the implementation of the Dedicated Window[s], the selected                              Financial Intermediaries in order to:                           

fully cooperate in the protection of the Union's financial interests;

provide for the right of the Managing Authority to comprehensively exercise its competences, shall:

provide OLAF with all the facilities and the information and documentation on Operations concerned to comprehensively exercise                                       its competences allowing it to carry out investigations, including on-the-spot checks and inspections, in accordance with                                       the provisions and procedures laid down in Regulation (EU, Euratom) No 883/2013 of the European Parliament and of the Council                                       of 11 September 2013 concerning investigations conducted by the European Anti-Fraud Office (OLAF) and repealing Regulation                                       (EC) No 1073/1999 of the European Parliament and of the Council and Council Regulation (Euratom) No 1074/1999(19), Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out                                       by the Commission in order to protect the European Communities' financial interests against fraud and other irregularities(20) and Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities financial                                       interests(21), as may be amended, supplemented or modified from time to time, in order to protect the financial interests of the Union,                                       with a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial                                       interests of the Union in connection with any financing operation subject to the Dedicated Window[s];                                    

maintain and be able to produce all the documentation related to the implementation of the Dedicated Window[s] for a period                                       of seven ([7]) years following the end of the Implementation Period or termination of the Operational Agreement or the closure                                       of Operations, whichever period is the longest;                                    

grant access to the European Court of Auditors to all facilities and provide it with all the information which it considers                                       necessary for the performance of its tasks, pursuant to Article 161 of the Financial Regulation;                                    

comply with relevant standards and applicable legislation on the prevention of money laundering, the fight against terrorism                                       and the fight against tax fraud;                                    

transpose the relevant conditions defined in this Article 9.4 and Article 9.5, with respect to any other intermediaries and                                       final recipients, into their agreements with them, save that with respect to Article 9.5, Financial Intermediaries and Final                                       Recipients shall give representations that they are not in an exclusion situation as set out in Annex 2;                                    

undertake not to charge any fee to the EIF in relation to the implementation of Operations;

calculate the gross grant equivalent within the meaning of Article 4(2) of the *de minimis* Regulation for each Transaction according to the formula set out in Annex 1, and report the calculation to the EIF; and                                    

fully pass on to the Final Recipients the entire portion of state aid of the financial benefit arising from the MS Contribution                                       as further specified in Annex 1.                                    

[*Further conditions shall be contractually specified*]                           

Financial Intermediaries that are in one of the situations set out in Annex 2 shall not be selected.

The EIF shall, prior to the signature of an Operational Agreement, inform in writing the Managing Authority of the main elements                              of each Operation as further specified in the Funding Agreement. [*Further conditions shall be contractually specified*]. The EIF shall, without undue delay, notify in writing the Managing Authority of the signature of an Operational Agreement.                           

The EIF shall inform in writing the Managing Authority without undue delay of the partial cancellation, material amendment                              or early termination of an Operational Agreement and the reasons for such situation, as further provided in this Funding Agreement.                              [*Further conditions shall be contractually specified*]                           

### Article 10U.K.Governance

The implementation of the Dedicated Window[s] by the EIF shall be supervised by an investors' board (the ‘**Investors' Board**’). The Investors' Board consists of [4] duly empowered members appointed by, and representing the Managing Authority, [1]                              member appointed by the EIF, [1] observer appointed by the EIB and [2] observers appointed by the European Commission.                           

The Investors' Board shall:

approve the Terms of Reference and where necessary of any amendments or revisions thereof and review calls for proposals submitted                                       by the EIF before their publication;                                    

review the progress in the implementation of the Dedicated Window[s], including achievement of Milestones and pipeline for                                       new Operations;                                    

review and issue opinions on strategic and policy issues relating to the Dedicated Window[s];

give guidance on questions of interpretation of eligibility criteria set out in Articles 3.1 to 3.4;

review the annual reports of the Dedicated Window[s] referred to in Article 16;

review terms of reference for Evaluations and review Evaluation reports, if any, of the Dedicated Window[s];

review proposed adjustments of the Dedicated Window[s] following Evaluation reports referred to in Article 18;

propose amendments to this Funding Agreement, if appropriate;

[other tasks]. [Further conditions may be contractually specified if necessary]

The Investors' Board shall act by consensus and in no circumstance shall undermine any decision taken on the implementation                              of the overall strategy of the [COSME Financial Instruments] [AND/OR] [H2020 Financial Instruments] by the relevant steering                              committee foreseen in the respective Delegation Agreement[s].                           

The Investors' Board shall elect its Chairperson. The Chairperson shall be a representative of the Managing Authority.

The Investors' Board shall convene at the request of any of its members, but shall meet at least [•] a year. Meetings of the                              Investors' Board shall be organised by its Secretariat.                           

The Investors' Board shall adopt its rules of procedure upon a proposal of the Secretariat.

Attendance to the meetings of the Investors' Board shall not be remunerated. The entity that has nominated the member shall                              bear all costs incurred by the member in relation to travelling to and attending any meetings of the Investors' Board.                           

The EIF shall provide the Secretariat in accordance with this Funding Agreement.

The Secretariat shall carry out, inter alia, the following tasks:

organisation of Investors' Board meetings, including drawing up and distribution of Investors' Board documents, agenda and                                       minutes;                                    

any other tasks [as defined in this Funding Agreement] or by the Investors' Board.

communications related to the activities of the Investors' Board shall be channelled through the Secretariat.

### Article 11U.K.MS Contribution

The MS Contribution shall be used exclusively in respect of the Dedicated Window[s] and any Operation relating thereto.

The EIF shall provide the Managing Authority no later than [X] of each year with (i) the pipeline of Operations envisaged                              to be signed in the current year and the proposed amount of MS Contribution to be paid for the current year, (ii) the schedule                              of payments of the proposed amount of MS Contribution to be paid each year until the end of the Commitment Period, including                              applicable management fees (iii) any changes deemed necessary for the notified MS Contribution to be committed in the current                              year.                           

The EIF shall provide the Managing Authority by [X] of each year with revised figures regarding the subparagraph above, if                              necessary.                           

Following due diligence of the Financial Intermediaries which are envisaged to be selected pursuant to Article 9, the EIF                              shall send at any time it deems it necessary a payment request to the Managing Authority, in the form of Annex 3 (the ‘**Payment Request**’). The Payment Request shall include (i) the proposed amount of MS Contribution to cover commitments under Guarantee Agreements                              expected to be signed within the three months following the date of the Payment Request and (ii) a schedule of payments of                              MS Contribution to be paid each year until the end of the Commitment Period in relation to the relevant Operations.                           

A Payment Request may include a proposed amount of MS Contribution of 100 % of the amounts necessary to cover commitments                              under a Guarantee Agreement.                           

Upon receipt of a Payment Request and subject to budget availability, the Managing Authority shall deposit without unreasonable                              delay and in any event before the EIF signs any Guarantee Agreement into the Dedicated Window[s] Account[s] an MS Contribution                              equal to the amount of MS Contribution specified in the Payment Request and shall inform the EIF thereof.                           

The Managing Authority may at any time suspend the payment of the MS Contribution by notifying the EIF that its Payment Request                              cannot be met because:                           

it does not comply in any material respect with the provisions of this Funding Agreement; or

there is serious doubt about the acceptability of the envisaged underlying expenditure; or

information comes to the notice of the Managing Authority indicating a significant deficiency in the functioning of the Internal                                       Control system or that the expenditure certified by the EIF is linked to a serious irregularity and has not been corrected.                                       In this case, the Managing Authority may suspend the payment only if it is necessary to prevent significant damage to its                                       financial interests vis-à-vis the budget of the European Union.                                    

Any such suspension shall be duly substantiated by the Managing Authority and shall not be retroactive. The EIF shall be notified                              as soon as possible of any such suspension, together with the reasons thereof.                           

Suspension shall take effect on the date when the Managing Authority notifies the EIF thereof. The remaining payment period                              shall start to run again from the date on which the requested information or revised documents are received or the necessary                              further checks, including on-the-spot checks, are carried out.                           

If the suspension exceeds [two] months, the EIF may request the Managing Authority to review whether the suspension is to                              be continued.                           

### Article 12U.K.EIF Contribution

The EIF shall contribute the EIF Contribution to the Compartment, in line with the terms defined in Annex 1.

### Article 13U.K.Dedicated Window[s] Account[s] and Treasury Asset Management

The Treasury Asset Management of the Dedicated Window[s] Account[s] shall be carried out by the EIF or any other entity designated                              by it upon approval by the Investors Board, in accordance with the Treasury Asset Management guidelines set out in Annex 4.                           

For each Dedicated Window, the EIF shall open and maintain a Dedicated Window[s] Account [in relation to the resources contributed                              from the ERDF Operational Programme and a Dedicated Window[s] Account in relation to the resources contributed from the EAFRD                              rural development programme] and in accordance with the EIF internal policies and procedures.                           

The MS Contribution to the Dedicated Window[s] shall be paid to the Dedicated Window[s] Account[s] in accordance with Article                              11 of this Agreement.                           

The Dedicated Window[s] Account[s] must at all times and in all respects be used, committed or otherwise disposed of or managed                              in accounting terms separately from other funds or accounts of EIF. All transactions must bear value date.                           

The Dedicated Window[s] Account[s] shall be used exclusively in connection with transactions or Operations in accordance with                              this Funding Agreement.                           

The treasury assets shall be managed in accordance with EIF policies and procedures, the principle of sound financial management                              and in accordance with the principles laid down in Annex 4. These assets will be invested at the risk of the Managing Authority                              (including with respect to negative interest and asset management losses) according to a pre-agreed risk profile and investment                              strategy and, where applicable, asset management guidelines in the form set out in Annex 4.                           

The EIF shall charge a fee to the Managing Authority in accordance with Article 14, in consideration of the Treasury Asset                              Management carried out by the EIF or on its behalf.                           

For the purpose of operating the Dedicated Window[s] Account[s], the EIF shall open and maintain a Euro Account and, if applicable,                              a Non-Euro Account for Operations denominated in a currency other than the Euro.                           

The Dedicated Window[s] Account[s] shall be credited with:

The MS Contribution Paid;

Repayments;

Revenues.

The Dedicated Window[s] Account[s] shall be debited with:

Amounts required in respect of Operations;

Amounts due to the EIF under Article 14;

Amounts repaid to the Managing Authority within the Exit Policy;

Amounts required for the Treasury Asset Management.

The transfer referred to in Article 13.10(c) shall be made to the following bank account of the Managing Authority:

In view of the termination of this Funding Agreement as set out in Article 25, the EIF shall close the Dedicated Window[s]                              Account[s] and notify without undue delay the Managing Authority of such closure.                           

The EIF shall use Revenues and Repayments within the purposes of the Dedicated Window[s], including the payment of the Management                              Costs and Fees and shall maintain records of the use of Revenues and Repayments.                           

[If appropriate, and in any case after the end of the Commitment Period, and no later than [X] of each year, the EIF shall                              notify the Managing Authority of the amount of the MS Contribution Committed and not paid to the Dedicated Window[s] Account[s]                              that is no longer required for the purposes of this Funding Agreement or any Guarantee Agreement, as further provided herein                              [*Further conditions shall be contractually specified*].]                           

[After the end of the Commitment Period and in case of no remaining MS Contribution to be paid, the EIF shall, on an annual                              basis and no later than [X] of each year, notify the Managing Authority of the amounts no longer required in relation to the                              Dedicated Window[s] or any Guarantee Agreement. As a consequence, the Managing Authority may issue a debit note to the EIF                              to recover the corresponding amount back to the Managing Authority budget.]                           

### Article 14U.K.Management Costs and Fees

The Managing Authority shall remunerate the EIF for the EIF Activity through fees comprising (i) an administrative fee, (ii)                              an incentive fee, (iii) a Treasury Asset Management fee and (iv) a reserve fee to cover unforeseen expenditures (collectively,                              the ‘**Management Costs and Fees**’), as further specified in this Article.                           

The Management Costs and Fees shall be debited by the EIF from the Dedicated Window[s] Account[s] upon invoicing to, and review                              by, [*to be contractually further specified*] the Managing Authority and shall constitute the full compensation for the EIF for the EIF Activity. [*Further conditions may be contractually specified if necessary*]                           

The aggregate of the administrative fee and of the incentive fee shall in no case exceed 6 % of the MS Contribution Committed,                              except in duly justified circumstances. Subject to Articles 14.6 and 14.7, the incentive fee shall not be lower than one third                              of the aggregate of the administrative fee and the incentive fee.                           

In addition to the administrative and incentive fees, the Treasury Asset Management fee shall not exceed [1] % [*or otherwise specified in the individual funding agreements*] of the MS Contribution Committed. Furthermore, the reserve fee shall not exceed [0,5] % [*or otherwise specified in the individual funding agreements*] of the MS Contribution Committed.                           

The administrative fee shall constitute the entire compensation for administrative expenses incurred by the EIF in relation                              to the Dedicated Window[s], including, but not limited to: market research, marketing, product development, awareness-raising                              activities, negotiation, monitoring, adaptations to IT systems, legal costs, travel expenses, tax advice, bank charges, sub-contracting                              costs, accounting and reporting, monitoring and controls, the Secretariat, Evaluations (if any), internal and external audit,                              visibility and publicity. It shall take into account costs charged to Financial Intermediaries. [*Further conditions may be contractually specified if necessary*]                           

Subject to the ceilings set out in Article 14.3, the administrative fee shall be paid to the EIF in the following way:

The first part of the administrative fee shall be linked to the establishment of the Dedicated Window[s] and shall be equal                                       to [2] % of the MS Contribution Paid. This amount shall be paid to EIF at the signature of the first Operational Agreement.                                       [*such conditions shall be contractually further specified*]                                    

The remaining part of the administrative fee shall be linked to the implementation, management, monitoring and winding down                                       of the Dedicated Window[s] and shall be paid annually in arrears [*Further conditions may be contractually specified if necessary*].                                    

The incentive fee shall reward the EIF for the achievement of financial and policy-related performance of the Dedicated Window[s].

Subject to the ceiling set out in Article 14.3, the incentive fee shall be paid to the EIF on the basis of achievement of                              performance indicators, notably the Leverage Effect achieved in accordance with the Milestones set out in Article 7. [*Such conditions shall be contractually further specified*]. The incentive fee shall be paid semi-annually in arrears.                           

The Treasury Asset Management fee shall be utilised for treasury management activities.

The reserve fee shall be utilised to cover unforeseen expenditures, e.g. litigation costs. Payment for unforeseen expenditures                              shall be subject to the prior approval by the Managing Authority. [*Further conditions shall be contractually specified*].                           

The Management Costs and Fees shall be covered in the first instance by Revenues and Repayments. If such Revenues and Repayments                              are insufficient, the shortfall shall be covered by the MS Contribution Paid in accordance with the rules set out in this                              Article. Notwithstanding the foregoing, the Managing Authority shall remunerate the EIF for the EIF Activity performed after                              31 December 2023 through fees separate from the Management Costs and Fees further specified in this Funding Agreement. [*Further conditions shall be contractually specified*]                           

### Article 15U.K.Accounting

The EIF shall keep separate Dedicated Window[s] Account[s]s for the activities related to each Financial Instrument in accordance                              with the rules and procedures of the EIF.                           

Financial transaction and financial statements with respect to a Dedicated Window shall be established in accordance with:

the rules and procedures of the EIF as applicable to such Dedicated Window;

and

the accounting rules of the Union set by the Accounting Officer of the European Commission on the basis of the standards set                                       by the Board for International Public Sector Accounting Standards (IPSAS), as may be amended from time to time and communicated                                       in advance by the European Commission to the EIF pursuant to the terms of the Delegation Agreement(s) [*Further conditions may be contractually specified if necessary*].                                    

The EIF shall keep financial and accounting documents concerning the MS Contribution Paid for a term of seven (7) years following                              the end of the Implementation Period or termination of this Funding Agreement or the closure of Operations under a Financial                              Instrument, whichever period is the longest.                           

The EIF shall submit to the Managing Authority the audited financial statements of a Dedicated Window annually.

### Article 16U.K.Operational and financial reporting

The EIF shall report to the Managing Authority in a frequency to be agreed [*Further conditions shall be contractually specified*], the operational aspects of the Dedicated Window[s] in accordance with Annex 5, and namely:                           

identification of the Single Dedicated National Programme and of the priority or measure from which MS Contribution is provided;

description of the Dedicated Window[s] and implementation arrangements;

identification of the Financial Intermediaries;

total amount of MS Contribution Paid by priority or measure under the Single Dedicated National Programme;

total amount of the New Debt Finance originated in the relevant quarter and to date;

total amount of Management Costs and Fees;

the performance of the Dedicated Window[s] including progress in their set-up and in selection of Financial Intermediaries;

total amount of Repayments and Revenues accrued;

progress in achieving the Leverage Effect;

contribution of the Dedicated Window[s] to the achievement of the indicators of the priority or measure concerned within the                                       Single Dedicated National Programme;                                    

number of Final Recipients (total and by Operation);

gross grant equivalent for each Transaction.

[*Further conditions shall be contractually specified*]                           

The EIF shall report to the Managing Authority in the frequency referred to in Article 16.1 on the financial aspects of the                              Dedicated Window[s] in accordance with Annex 6. [*Further conditions shall be contractually specified*]                           

No later than [•] of each year, the EIF shall provide the Managing Authority with an annual report compiling all data gathered                              on any operational and financial aspects of the Dedicated Window[s] since its establishment. This annual report will be disclosed                              for review to the Investors' Board without undue delay. [*Further conditions shall be contractually specified*].                           

The EIF shall communicate to the Managing Authority regular control reports from the external auditors designated in this                              Funding Agreement in the form of a management letter. [*Further conditions shall be contractually specified*]                           

In addition, if necessary the Parties may discuss and agree on additional reporting measures relating to the Operations. [*Further conditions may be contractually specified*]                           

The relevant reporting requirements referred to in Articles 16.1, and 16.2 shall be based on information from time to time                              obtained by EIF under relevant reporting obligations included in the Operational Agreements between the EIF and the Financial                              Intermediaries implementing the Dedicated Window[s]. The Operational Agreement shall require the Financial Intermediaries                              to provide such information to the EIF. [*Further conditions shall be contractually specified*]                           

Reports to be submitted to the Managing Authority shall be expressed in Euro. These reports may be drawn from financial statements                              denominated in other currencies as per the EIF's requirements. Where necessary, amounts shall be converted into Euro. Except                              where provided otherwise in this Funding Agreement, amounts denominated in a currency other than Euro and reported by one                              Party to the other in Euro shall be converted into Euro at the exchange rate prevailing at the relevant reporting date, as                              fixed by the European Central Bank.                           

### Article 17U.K.Audits, Controls and Monitoring

In line with the relevant Union law, the Court of Auditors and the European Commission shall have the power of audit of the                              implementation of the Dedicated Window[s].                           

The EIF shall carry out controls on the implementation of the Dedicated Window[s] in accordance with its rules, policies and                              procedures and this Funding Agreement, including, where appropriate, on-the-spot checks on representative and/or risk-based                              samples of transactions, to ensure that the Dedicated Window[s] are effectively and correctly implemented, and in order, inter                              alia, to prevent and correct irregularities and fraud.                           

In case of suspected fraud, corruption or any other illegal activity affecting the financial interests of the Union, the EIF                              shall inform OLAF without delay and may take, in close cooperation with OLAF, appropriate precautionary measures, including                              measures for the safeguarding of evidence. In the event of irregularities in respect of the MS Contribution, the EIF shall                              inform the Managing Authority without delay and undertake all necessary actions, including legal proceedings, to recover any                              amounts due in accordance with the provisions of the Operational Agreement, in line with Annex 1 and promptly return any recovered                              amounts to the Dedicated Window[s] Account[s].                           

The EIF shall monitor the implementation of the Dedicated Window[s] by means of the reporting and/or financial statements                              provided by the Financial Intermediaries, the internal and external audits available and any controls carried out by them                              or the EIF, including an analysis of the nature and extent of errors and weaknesses identified in the systems as well as corrective                              actions taken or planned. The EIF shall report to the Managing Authority on the material results of such activities.                           

The monitoring of the implementation of the Dedicated Window[s] by the EIF shall be intended to enable the Managing Authority                              to assess (i) whether the Internal Control system is efficient and effective, (ii) whether the MS Contribution has been used                              in compliance with the applicable regulatory and contractual provisions and (iii) the progress towards the achievement of                              policy objectives reflected in the relevant output and result indicators.                           

The Managing Authority may carry out controls and monitoring on the implementation of the Dedicated Window[s] by means of                              its participation in the Investors' Board, through the audited financial statements provided by the EIF according to Article                              15.4.                           

OLAF may carry out investigations, including on-the-spot checks and inspections, in accordance with the provisions and procedures                              laid down in Regulation (EU, Euratom) No 883/2013, Regulation (Euratom, EC) No 2185/96 and Regulation (EC Euratom) No 2988/95,                              as may be amended, supplemented or modified from time to time, in order to protect the financial interests of the Union, with                              a view to establishing whether there has been fraud, corruption or any other illegal activity affecting the financial interests                              of the Union in connection with any financing Operation subject to the Dedicated Window[s].                           

### Article 18U.K.Evaluation

The Parties may agree on any Evaluations to be performed on the implementation of the Funding Agreement on terms further set                              out herein. [*Further conditions may be contractually specified*].                           

The EIF shall require Financial Intermediaries in each Operational Agreement to provide to the EIF information in their possession                              and reasonably required for the performance of an evaluation to be carried out by the European Commission pursuant to Article                              57(3) of the CPR.                           

### Article 19U.K.Procurement of goods, works and services

The procurement of any goods, works or services by the EIF in the context of the Dedicated Window[s] shall be carried out                              in accordance with the applicable rules and procedures adopted by the EIF, taking into account the principles of transparency,                              proportionality, equal treatment, best value for money, avoidance of conflict of interest and non-discrimination in awarding                              contracts provided that, having due regard to cost and duration, sub-contracting would not lead to increased costs over direct                              implementation by the EIF itself. For the avoidance of doubt, such sub-contracting does not refer to the selection of Financial                              Intermediaries pursuant to Article 9.                           

Candidates and tenderers listed in the central exclusion database set-up and operated by the European Commission under Commission                              Regulation (EC, Euratom) No 1302/2008 of 17 December 2008 on the central exclusion database(22) for the purposes of managing Dedicated Window[s] shall not be retained.                           

### Article 20U.K.Visibility

The EIF shall take all appropriate measures provided in this Funding Agreement to publicise the fact that the Dedicated Window[s]                              are co-funded by the [ERDF] OR [EAFRD], and, include the provisions requiring that the requirements under this Article are                              passed through to Financial Intermediaries and to Final Recipients in the relevant contracts. [*Further conditions shall be contractually specified*]                           

The EIF shall require that the information given to the press, the stakeholders, the Financial Intermediaries and the Final                              Recipients of the Dedicated Window[s acknowledge that the Dedicated Window[s] were deployed ‘with funding by the European                              Union’ (in the relevant Union language) and shall display in an appropriate way the Union emblem (twelve yellow stars on a                              blue background) in accordance with the requirements of the Delegation Agreement(s).                           

The EIF shall require that the Financial Intermediary carry out information, marketing and publicity campaigns set out in                              this Funding Agreement [*Further conditions shall be contractually specified*] within the territory of [NAME OF MEMBER STATE], aimed at making the Dedicated Window[s] known within such territory ensuring                              that any documents concerning the support given through the Dedicated Window[s] will contain a statement mentioning that the                              Transaction benefits from support from the European Union pursuant to the‘[SME Initiative], a Dedicated Window[s] with funding                              by the European Union under [ERDF] OR [EAFRD], [COSME] AND/OR [Horizon 2020]’.                           

The size and prominence of the acknowledgement and Union emblem shall be clearly visible in a manner that shall not create                              any confusion regarding the identification of the EIF's activity, and the application to the Dedicated Window[s] of the EIF's                              privileges and immunities.                           

All publications by the EIF specifically relating to the Dedicated Window[s], in whatever form and whatever medium, shall                              carry the following or a similar disclaimer in the relevant Union language: ‘This document has been produced with the financial                              assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the                              European Union.’                           

The Managing Authority shall take all appropriate measures to publicise the fact that the Dedicated Window[s] are co-financed                              by the EIF and, as the case may be, the EIB. Information given to the press, the stakeholders, the Financial Intermediaries                              and the Final Recipients, all related publicity material, official notices, reports, publications and internet-based information                              shall acknowledge that the Dedicated Window[s] was carried out ‘with co-funding by the European Investment Fund [and the European                              Investment Bank]’ (in the relevant Union language) and shall display in an appropriate way the EIF's logo and, and as the                              case may be, the EIB's logo.                           

Subject to applicable confidentiality requirements, upon the first signature of an Operational Agreement, the EIF shall produce                              without undue delay after the signature, a press release in English, which shall be posted on the EIF's website. The EIF shall                              decide on the contents of the press releases.                           

The Parties shall consult each other on progress and situation reports, publications, press releases and updates relevant                              to this Funding Agreement before they are issued or published and shall communicate such documents to each other when they                              are issued.                           

The EIF shall include in each Operational Agreement the requirements of the relevant Delegation Agreements on the awareness                              of the Financial Intermediaries for the support provided by the European Union.                           

### Article 21U.K.Publication of information on Financial Intermediaries

The EIF shall publish annually the names of the Financial Intermediaries supported under the Dedicated Window[s] in accordance                              with the provisions of the Delegation Agreement(s).                           

The criteria for disclosure and the level of detail published shall take into account specificities of the financial sector                              and the nature of the Dedicated Window[s], as well as in accordance with the specific rules of the ERDF and EAFRD, as applicable.                           

### Article 22U.K.Assignment

The Parties shall not transfer, in whole or in part, any of their rights or obligations under this Funding Agreement to any                     third parties without the prior written consent of the other Party.                  

### Article 23U.K.Liability

The EIF shall be liable to the Managing Authority for the performance of its duties and obligations under this Funding Agreement                              with a professional degree of care and diligence and for any loss resulting from its wilful misconduct or gross negligence.                           

*With regard to the implementation of this Funding Agreement, the Managing Authority and the EIF shall negotiate contractual                                 remedies with regard to losses, damages or injuries sustained by the EIF.*]                           

A Party faced with Force Majeure shall not be held to be in breach of its obligations under this Funding Agreement if it has                              been prevented from fulfilling them by Force Majeure.                           

### Article 24U.K.Governing Law and Jurisdiction

This Funding Agreement will be governed by, and construed in accordance with the laws of [*To be contractually specified*], without regard to any applicable principles of conflicts of law.                           

The Parties shall endeavour to settle amicably any dispute or complaint relating to the interpretation, application or performance                              of this Funding Agreement, including its existence, validity or termination.                           

In default of amicable settlement, the Parties agree that *[competent jurisdiction to be contractually specified]* shall have exclusive jurisdiction to settle any dispute in connection with this Funding Agreement.                           

### Article 25U.K.Effectiveness — Termination

This Funding Agreement shall enter into force upon signature by the Parties and shall remain in force until the earlier of                              [31 December 2023] or the occurrence of a Termination Event which has not been cured as provided in Article 25.5.                           

Not later than [6] months prior to [31 December 2023], the Parties shall consult each other regarding the extension of this                              Funding Agreement for a further term.                           

In case of one or more Operational Agreements and/or Guarantee Agreements, as applicable, are still in force as of [31 December                              2023], this Funding Agreement shall be extended upon agreement between the Parties. In lack of such agreement, this Funding                              Agreement shall remain in force only in respect of any actual or contingent liability or exposure under any Operation, until                              any such liability or exposure has been written off or determined to be unrecoverable and any applicable statute of limitation                              has expired.                           

During the term of this Funding Agreement, either Party may at any time terminate this Funding Agreement with immediate effect                              by notifying to the other Party that a Termination Event has occurred.                           

The grounds which may give rise to a Termination Event are set out below:

the Managing Authority may notify a Termination Event in case of:

a failure by the EIF to sign the Operational Agreement related to the amount of MS Contribution included in any Payment Request                                                within the three months following the date of such Payment Request; or                                             

a failure by the EIF to comply with any of its material obligations under this Agreement;

a failure by the EIF to sign the first Operational Agreement in the timeframe set out in Article 8.2;

in each case provided that the Managing Authority has sent a warning notice to the EIF stating the occurrence of such potential                                       Termination Event and the EIF has not cured it within a period of (60) days from the date of receipt of the notice; and                                    

the EIF may notify a Termination Event in case of:

without prejudice to Article 11, a failure by the Managing Authority to deposit without unreasonable delay into the Dedicated                                                Window[s] Account[s] the MS Contribution equal to the amount of MS Contribution specified in a Payment Request; or                                             

a failure by the Managing Authority to comply with any of its material obligations under this Funding Agreement,

in each case provided that the EIF has sent a warning notice to the Managing Authority stating the occurrence of such potential                                       Termination Event and the Managing Authority has not cured it within a period of 60 (sixty) days from the date of receipt                                       of the notice.                                    

Without prejudice to Article 25.9, in case of termination of this Agreement, the EIF shall be released from any obligation                              to perform the EIF Activity as of the effective date of such termination. The Management Costs and Fees to which the EIF would                              be entitled concerning periods prior to the effective date of the termination, shall become due and payable as of such date.                              [*Further conditions may be contractually specified if necessary, including possible adjustments, if any, of the Management                                 Costs and Fees payable upon early termination of this Funding Agreement*]                           

Expenses incurred by any Party in connection with a Termination Event shall be borne by the Party liable for the occurrence                              of such Termination Event.                           

Upon expiration or termination of this Funding Agreement, the net balance of the MS Contribution deposited into the Dedicated                              Window[s] Account[s] shall be returned to the Managing Authority within the Exit Policy. All expenses incurred by the EIF                              in connection with such transfer shall be borne by the Managing Authority and shall be withheld from the MS Contribution to                              be returned, unless such transfer occurs upon termination of this Funding Agreement due to a Termination Event notified by                              the Managing Authority.                           

Termination or expiration of this Funding Agreement shall not affect any Party's rights and obligations accrued or existing                              at the date of such termination or expiration, including, without limitation, any Party's accrued rights and obligations related                              to payment obligations. Upon termination or expiration of this Agreement, this Funding Agreement shall remain in force in                              respect of any actual or contingent liability or exposure under any Operation, until any such liability or exposure has been                              written off or determined to be unrecoverable and any applicable statute of limitation has expired and in particular, EIF                              shall be entitled to retain such amounts as may be required under this Agreement or any Operation Agreement for the payment                              of any amount owed thereto or the satisfaction of any accrued or contingent obligations under outstanding Operations.                           

Should the EIF, in consultation with the European Commission, determine that the aggregate minimum contribution to the Dedicated                              Window[s] representing the sum of the contribution of all participating Member States of the European Union is insufficient                              taking due account of the minimum critical mass defined in the Ex-Ante Assessment, it may notify the Managing Authority that                              a Termination Event has occurred.                           

The provisions of Articles 23 (Liability), 24 (Governing law and jurisdiction), 25 (Effectiveness — Termination) and 26 (Notices                              and Communication), shall survive termination or expiration of this Funding Agreement.                           

In case of winding up of the [COSME Financial Instruments] AND/OR [H2020 Financial Instruments], the Parties shall agree on                              the utilisation of the MS Contribution.                           

### Article 26U.K.Notices and Communications

Notices and communications relating to this Funding Agreement from one Party to the other shall be sent in writing in paper                              or in electronic form, according to the provisions set out in paragraphs 2 and 3 below, using the following communication                              details:                           
                -  For the Managing Authority:  [to be completed]. 
                -  For the EIF:  
European Investment Fund

[Service to be completed]

15, Avenue J.F. Kennedy

2968 Luxembourg (GD Luxembourg)

Contact Person: [to be completed]

Functional e-mail address: [to be completed]
 

Any change made to the above communication details shall have effect only after it has been notified in writing in paper or                              electronic form to the other Party.                           

These notices and communications shall be deemed to have been duly notified when [to be completed].

### Article 27U.K.Amendments and miscellaneous

Any amendment, variation or modification of this Funding Agreement shall require an instrument in writing duly signed by each                              Party and it shall specify the date when it takes effect.                           

The waiver or forbearance of a Party in insisting in any one or more instances upon the performance of any provision of this                              Funding Agreement shall not be construed as a waiver of that Party's rights to future performance of such provision and the                              other Party's obligation in respect of such future performance shall continue in full force and effect.                           

### Article 28U.K.Annexes

The recitals and the following Annexes form an integral part of this Funding Agreement:

:

Term Sheet for the Dedicated Window[s]
            -  Uncapped Guarantee Instrument (Option 1) 
            -  Securitisation Instrument (Option 2) 

:

Exclusion criteria for Financial Intermediaries and Final Recipients and eligibility criteria for the EU Contribution [to                        be provided in part under the specific Funding Agreements]                     

:

Payment Request [to be provided under the specific Funding Agreements]

:

Treasury Asset Management guidelines [to be provided under the specific Funding Agreements]

:

Reporting on the operational aspects of the Dedicated Window[s] [to be provided under the specific Funding Agreements]

:

Reporting on the financial aspects of the Dedicated Window[s] [to be provided under the specific Funding Agreements]

### *ANNEX 1*U.K.

#### **UNCAPPED GUARANTEE** (23) **INSTRUMENT****SME Initiative — option 1**U.K.

##### SME INITIATIVE UNCAPPED GUARANTEE INSTRUMENT — OPTION 1U.K.

This instrument foresees the utilisation of uncapped guarantees provided by the EIF to cover the credit risk of SME loans,                     leases or guarantees. The SME Initiative Uncapped Guarantee Instrument is based on risk retained at different levels by EU                     resources (COSME and/or Horizon 2020), ERDF/EAFRD, together with resources from the EIB Group and potentially alongside national                     promotional banks and national guarantee schemes.                  

Under the SME Initiative Uncapped Guarantee instrument, the EIF would provide uncapped guarantees up to agreed maximum amounts.                     The originating financial institutions shall retain a material interest in their respective guaranteed portfolios, by retaining                     i.e. 20 % economic exposure on each guaranteed loan, in order to ensure the necessary alignment of interest (‘skin in the                     game’).                  

The Financial Intermediaries will individually receive an uncapped guarantee from the EIF in exchange for the payment of a                     guarantee fee. The higher risk of the resulting portfolio will be covered by a combination of MS Contribution and COSME or/and                     Horizon 2020 resources. The lower risk of the resulting portfolio will be retained by a combination of resources from the                     EIB Group up to agreed maximum amounts and potentially national promotional banks and national guarantee schemes. Such unfunded                     risk transfer, allowing for the partial transfer of credit risk to third parties without actually removing the portfolio of                     assets from the balance sheet of the financial institution would provide the opportunity for the originating financial institution                     to obtain regulatory capital relief, where feasible. Such operation would have to take into consideration the relevant country's                     regulatory requirements.                  

The origination, due diligence, documentation and servicing of the portfolio, made of eligible SME loans, leases or guarantees                     Transactions, shall be performed by the Financial Intermediaries in accordance with their usual origination and servicing                     procedures. The Financial Intermediary (or Sub-financial Intermediary in the case of counter-guarantees) shall retain the                     direct client credit relationship with each Final Recipient. The Financial Intermediary will provide information about the                     portfolio on a regular basis to the EIF and the EIF will accordingly pass on all relevant information to risk takers pursuant                     to the relevant agreements.                  

The Financial Intermediary will fully pass on to the SMEs the State Aid Benefit as defined in the indicative terms and according                     to the formula specified under sections 5 and 6 below. Moreover, it is considered that the implicit costs (reputational risk,                     financial risk, administrative risk, risk related to implementation of the compartment(24)) incurred by the Financial Intermediary offset any advantage related to State resources (i.e. the MS contribution) thus ensuring                     that the Financial Intermediary does not benefit from undue aid.                  

Unless expressly provided for, defined terms in this Annex 1 have the same meanings as the corresponding defined terms under                     this model Funding Agreement.                  

###### **Indicative Terms of the Uncapped Guarantees under Option 1**

#### **SECURITISATION INSTRUMENT****SME initiative — option 2**U.K.

##### SME INITIATIVE SECURITISATION INSTRUMENTU.K.

This instrument foresees the utilisation of securitisation transactions backed by SME loans, leases or guarantees where EU                     resources (COSME and/or Horizon 2020), ERDF/EAFRD, together with resources from the EIB Group and potentially alongside national                     promotional banks, national guarantee schemes and other institutional investors, would subscribe or guarantee certain amounts                     at different levels of risks.                  

Under a securitisation instrument, a portfolio of SME eligible financing instruments is used as collateral for tradable securities                     (tranches), diversified by level of risk.                  

Unfunded risk transfer arrangements (synthetic securitisation) would also be possible, allowing for the transfer of credit                     risk to third parties without actually removing the portfolio of assets from the balance sheet of the bank and therefore providing                     the opportunity for the originating bank to obtain regulatory capital relief. Such operations would have to take into consideration                     the relevant country's regulatory requirements.                  

The securitisation instrument will guarantee a significant part of the underlying eligible debt financing portfolio upon an                     undertaking by the relevant Financial Intermediary to create an additional portfolio also by using resources mobilised as                     a result of the securitisation transaction for new SME financing.                  

Under the SME Initiative Securitisation Instrument, the EIF and the EIB (potentially alongside national promotional banks,                     national guarantee schemes and other institutional investors) would subscribe or guarantee certain tranches up to agreed maximum                     amounts. The originating financial institutions shall retain a material interest in the transaction, such as an adequate portion                     (minimum 50 %) of the junior tranche and an adequate exposure to each tranche placed with investors, or similar arrangements,                     in order to ensure the necessary alignment of interest ‘skin in the game’) and to comply with the risk retention requirement                     set out in Directive 2013/36/EU and Regulation (EU) No 575/2013.                  

The rating of the senior and the mezzanine tranches shall be compatible with the risk tolerance of the EIB Group and potentially                     national promotional banks, national guarantee schemes and third party institutional investors who may also invest in the                     senior tranches of such securitisations thus increasing the leverage of committed budgetary resources.                  

Junior and mezzanine tranches not retained by the originator are subscribed by a combination of ERDF/EAFRD, COSME/Horizon                     2020 and EIF's own resources.                  

Managing Authorities who are willing to participate in the guarantee scheme (via the EIF, but at the risk of the ESI Funds                     contribution) guarantee/invest up to 50 % of the Junior tranche.                  

The origination, due diligence, documentation and servicing of the securitised portfolio, made of eligible SME loans, leases                     or guarantees to SME and companies with less than 500 employees, shall be performed by the Financial Intermediaries in accordance                     with their usual origination and servicing procedures. The Financial Intermediaries typically retain the direct client credit                     relationship with each SME. The Financial Intermediaries will provide information about the securitised portfolio as well                     as the Additional Portfolio (newly originated SME financing) on a quarterly basis to the EIB and EIF respectively until termination                     of the securitisation transaction.                  

###### **Indicative Terms of the Securitisation**

### *ANNEX 2***Exclusion criteria for Financial Intermediaries and Final Recipients and eligibility Criteria for the EU contribution**U.K.

#### 1.EXCLUSION CRITERIA FOR FINANCIAL INTERMEDIARIESU.K.

Financial Intermediaries that are in one of the situations below, provided that such situation would, in the professional                     opinion of EIF, affect their ability to implement a Financial Instrument, shall not be selected:                  

they are bankrupt or being wound up, are having their affairs administered by the courts, are the subject of proceedings concerning                              those matters, or are in any analogous situation arising from a similar procedure provided for in national legislation or                              regulations;                           

they have been convicted of an offence concerning their professional conduct by a judgment which has the force of *res judicata*, which would affect their ability to implement a Transaction;                           

they have been the subject of a judgment which has force of *res judicata* for fraud, corruption, involvement in a criminal organisation or any other illegal activity, in each case where detrimental                              to the Union's financial interests;                           

they are guilty of material misrepresentation in supplying information required for selection as a Financial Intermediary;

they are listed in the central exclusion database referred to in Article 9.5(e);

they are incorporated in territories whose jurisdictions do not cooperate with the Union in relation to the application of                              the internationally agreed tax standard, or their tax practices do not follow the principles of the Commission Recommendation                              of 6 December 2012 regarding measures intended to encourage third countries to apply minimum standards of good governance                              in tax matters (C(2012) 8805);                           

their business activity does not comply with the EIF policy in relation to restricted sectors.

Points 2 and 3 shall not apply, where the Financial Intermediaries can demonstrate to EIF's satisfaction that adequate measures                     have been adopted against the persons having power of representation, decision-making or control over them, who are subject                     to a judgement as referred to in Points 2 and 3.                  

#### 2.EXCLUSION CRITERIA FOR FINAL RECIPIENTSU.K.

Final Recipients may not be selected by Financial Intermediaries if they meet one or more of the requirements set out below:

they are not potentially economically viable;

they are incorporated in territories whose jurisdictions do not cooperate with the Union in relation to the application of                              the internationally agreed tax standard, or their tax practices do not follow the Commission Recommendation of 6.12.2012 regarding                              measures intended to encourage third countries to apply minimum standards of good governance in tax matters (C(2012)8805);                           

they are bankrupt or being wound up, are having their affairs administered by the courts, are the subject of proceedings concerning                              those matters, or are in any analogous situation arising from a similar procedure provided for in national legislation or                              regulations;                           

they have been convicted of an offence concerning their professional conduct by a judgment which has the force of res judicata,                              which would affect their ability to pursue their business activity;                           

they have been the subject of a judgment which has force of res judicata for fraud, corruption, involvement in a criminal                              organisation or any other illegal activity, in each case where detrimental to the Union's financial interests;                           

they are guilty of misrepresentation in supplying information required for selection as a Final Recipient;

they are listed in the central exclusion database set up and operated by the Commission under Regulation (EC, Euratom) No                              1302/2008;                           

their business activity consists of one or more of the following:

an illegal economic activity (i.e. any production, trade or other activity, which is illegal under the laws or regulations                                       applicable to the Financial Intermediary or the relevant Final Recipient, including without limitation, human cloning for                                       reproduction purposes);                                    

the production of and trade in tobacco and distilled alcoholic beverages and related products;

the financing of the production of and trade in weapons and ammunition of any kind or military operations of any kind;

casinos and equivalent enterprises;

internet gambling and online casinos;

pornography and prostitution;

nuclear energy;

activities referred to in Article 19 of H2020 Regulation;

the research, development or technical applications relating to electronic data programs or solutions, which aim specifically                                       at supporting any activity referred to under items (a) to (h) above or are intended to enable to illegally enter into electronic                                       data networks or download electronic data.                                    

their business activity does not comply with the EIF policy in relation to restricted sectors;

they received New Debt Finance which does not respect the cumulation rules laid down in the relevant *de minimis* Regulation;                           

they received aid to export-related activities towards third countries or Member States, namely aid directly linked to the                              quantities exported, to the establishment and operation of a distribution network or to other current expenditure linked to                              the export activity;                           

they received aid contingent upon the use of domestic over imported goods.

#### 3.ELIGIBILITY CRITERIA FOR THE EU CONTRIBUTIONU.K.

##### **3.1.****Eligibility criteria for the EU Contribution to the COSME Financial Instruments [to be provided under the specific Funding                           Agreements, subject to agreement between the Commission and the EIF, in the Delegation Agreement for COSME].**U.K.

##### **3.2.****Eligibility criteria for the EU Contribution to the H2020 Financial Instruments [to be provided under the specific Funding                           Agreements, subject to agreement between the Commission and the EIF, in the Delegation Agreement for H2020].**U.K.

1

OJ L 347, 20.12.2013, p. 320.                           

2

OJ L 176, 27.6.2013, p. 338.                           

3

OJ L 176, 27.6.2013, p. 1.                           

4

Commission Staff Working Document SWD(2013) 517 final.

5

OJ L 347, 20.12.2013, p. 33.                           

6

OJ L 347, 20.12.2013, p. 104.                           

7

OJ L 298, 26.10.2012, p. 1.                           

8

OJ L 347, 20.12.2013, p. 320.                           

9

OJ L 298, 26.10.2012, p. 1.                           

10

OJ L 176, 27.6.2013, p. 1.                           

11

OJ L 347, 20.12.2013, p. 33.                           

12

OJ L 347, 20.12.2012, p. 104.                           

13

OJ L 347, 20.12.2013, p. 965.                           

14

OJ L 352, 24.12.2013, p. 1.                           

15

OJ L 352, 24.12.2013, p. 9.                           

16

OJ L 362, 31.12.2012, p. 1.                           

17

OJ L 124, 20.5.2003, p. 36.                           

18

OJ L 8, 12.1.2001, p. 1.                           

19

OJ L 248, 18.9.2013, p. 1.                           

20

OJ L 292, 15.11.1996, p. 2.                           

21

OJ L 312, 23.12.1995, p. 1.                           

22

OJ L 344, 20.12.2008, p. 12.                           

23

‘Uncapped guarantee’ is the term used in Article 39 of the CPR.

24

The specific requirements related to the participation in the compartment include:

Minimum Leverage Effect to achieve a Portfolio with a minimum volume of New Debt Finance, which shall comply with the eligibility                                       requirements for the MS Contribution;                                    

Minimum volume of New Debt Finance which shall also comply with the parameters for the eligibility under COSME and/or under                                       Horizon 2020;                                    

Assessment and control of the eligibility criteria;

Penalties, in case the minimum Leverage Effect is not reached at the milestones and if the State Aid Benefit is not transferred;

Transfer of benefit undertakings, including the assessment of its mechanism and the reporting to EIF;

Calculation of the GGE for each and every loan in the portfolio of new debt finance and the reporting to EIF;

Visibility of the EU support in the contractual documentation with the final recipients and the marketing material;

Audit and monitoring undertakings in relation to the European Commission and the European Court of Auditors.

The above risks and requirements represent an implicit cost for the Financial Intermediary which receives no remuneration                              for the management activities of the Transaction, including no administrative fees and no performance fee.