ANNEX II

COMMUNITY FINANCIAL INSTRUMENTS
I.

Indicative outline of the implementation of the ETF Start-up Scheme
A.

Introduction
The ETF Start-up will be operated by the EIF on a trust basis.
B.

Intermediaries
With regard to venture capital activities, the intermediaries will be selected in conformity with best business and market practice in a fair and transparent manner in order to avoid any distortion of competition, having regard to the aim of working through a wide range of specialised funds.
With regard to the implementation of additional action to promote business incubators, the EIF will rely on the experience acquired by Member States in that area.
C.

Maximum investment
The maximum aggregate investment in an intermediary venture capital fund will be 25 % of the total equity capital held by the relevant fund, or 50 % in exceptional cases such as new funds which are likely to have a particularly strong catalytic role in the development of venture capital markets for a specific technology or in a specific region. No commitment in a single venture capital fund will exceed EUR 10 million other than in exceptional, duly substantiated cases; commitments will not in any case exceed EUR 15 million. The intermediary venture capital funds will comply with established market practices with regard to portfolio diversification.
D.

Investment pari passu
The investment made by the ETF start-up in the intermediary funds will rank pari passu with other equity investors. Any exception to this rule must be subject to the opinion of the Committee referred to in Article 3.
E.

Life of the facility
The ETF Start-up scheme is established as a long-term facility that will usually take 5 to 12 year positions in venture capital funds. In any case, investments will not exceed 16 years from the time of signature of the cooperation agreement between the Commission and the EIF referred to in Annex I.
F.

Realisation of investments
As most of the investments to be made under the ETF Start-up scheme will be in unquoted, illiquid entities, the realisation of those investments will be based on the distribution of the proceeds received by the intermediary funds from the sale of their investments in SMEs.
G.

Reinvestment of proceeds from realised investments
Proceeds from reimbursements effected by the EIF funds may be reinvested during the first four years following 20 December 2000. This period may be extended by up to three years, subject to a satisfactory evaluation of the facility having been made 48 months after 20 December 2000.
H.

Trust account
A separate trust account will be set up within the EIF to hold budgetary funds underpinning the scheme. This account will be interest-bearing; interest earned will be added to the resources of the facility. The investments made by the EIF under the ETF Start-up scheme and the EIF's management fees and other eligible expenses will be debited from, and the proceeds from realised investments will be credited to, the Trust Account. At the end of the fourth year following 20 December 2000 or, provided that the reinvestment period of the scheme is extended, after the end of the extended reinvestment period, any balances on the Trust Account, other than funds committed and not yet drawn down/invested and funds reasonably required to cover eligible costs and expenses, such as the EIF's management fee, will be returned to the general budget of the European Union.
I.

Court of Auditors
Appropriate arrangements will be made to allow the Court of Auditors to exercise its mission and to verify the regularity of the use of the funds.
II.

Indicative outline of the implementation of the SME Guarantee Facility
A.

Introduction
The SME Guarantee Facility will be operated by the EIF on a trust basis.
B.

Intermediaries
Intermediaries are chosen from among the guarantee schemes operating in the Member States within the public or private sector, including mutual guarantee schemes, the EIB or any other appropriate financial institution. Intermediaries will be selected in conformity with best business and market practice in a fair and transparent manner, having regard to:
1. the effect on the volume of financing (loans, investments) made available to SMEs, and/or
2. the effect on the access to finance by SMEs, and/or
3. the effect on risk-taking in SME financing by the intermediary concerned.
C.

Eligible SME lending
The financial criteria governing the eligibility of SME financing for guarantees under the SME Guarantee Facility will be determined individually for each intermediary on the basis of their activities, with the aim of reaching as many SMEs as possible. These rules will reflect market conditions and practices in the relevant territory.
The guarantees and cross-guarantees will mainly be available to cover financing for SMEs with up to 100 employees (with priority given to SMEs with up to 50 employees in respect of specific activities to promote the use of the Internet and e-commerce by small undertakings). Particular attention will be given to financing for the acquisition of intangible assets.
D.

EIF guarantees
The guarantees given by the EIF will relate to individual financing in a specific portfolio of transactions. The guarantees issued by the EIF will cover a part of the risk taken by the financial intermediary in the underlying financing portfolio.
E.

EIF's capped maximum cumulative losses
The EIF's obligation to pay its share of financing losses to the intermediary will continue until the cumulative amount of payments made to cover losses from a specific financing portfolio, reduced where appropriate by the cumulative amount of corresponding loss recoveries, together with other revenue, reaches a pre-agreed amount, after which the EIF's guarantee is automatically cancelled.
F.

EIF pari passu with intermediary
The guarantees given by the EIF will usually rank pari passu with the guarantees or where appropriate with the financing given by the intermediary.
G.

Trust Account
A trust account will be set up within the EIF to hold the budgetary funds underpinning the scheme. This account will be interest bearing; interest earned will be added to the resources of the facility.
H.

EIF's right to withdraw funds from the Trust Account
The EIF will have the right to debit the Trust Account for payments to meet its obligations for the maximum cumulative losses under the guarantee facility, and, subject to agreement by the Commission, any other eligible costs, for example its management fees, eligible legal fees and promotional expenses of the scheme.
I.

Loss recoveries and other revenue payable to the Trust Account
Any moneys recovered from loan losses for which payment has been made under guarantees called, together with any other revenue, will be credited to the Trust Account.
J.

Duration of the Scheme
It is envisaged that the individual SME guarantees will have a maturity of up to 10 years. Any amount outstanding on the Trust Account at the time of expiry of the outstanding guarantees will be repaid to the general budget of the European Union.
K.

Court of Auditors
Appropriate arrangements will be made to allow the Court of Auditors to exercise its mission and to verify the regularity of the use of the funds.
III.

Indicative outline of the implementation of the Seed Capital Action
A.

Introduction
The Seed Capital action will be operated by the EIF.
B.

Court of Auditors
Appropriate arrangements will be made to allow the Court of Auditors to exercise its mission and to verify the regularity of use of the funds.
IV.

Joint European Venture
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Deleted by Decision No 593/2004/EC of the European Parliament and of the Council of 21 July 2004 amending Council Decision 2000/819/EC on a multiannual programme for enterprise and entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2005) (Text with EEA relevance).