Ecuador - Fifth Development Banking Project : Loan 2096 - Loan Agreement - Conformed

DOC Y AL N NUMBER 2096 EC Loan Agreement (Fifth Development Banking Project) between REPUBLIC OF ECUADOR and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated 22 ,1982 LOAN NUMBER 2096 EC LOAN AGREEMENT AGREEMENT, dated APA;4 .22 , 1982, between REPUBLIC OF ECUADOR (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by four loan agreements between the Borrower and the Bank dated, respectively, February 5, 1971 (hereinafter called the 1971 Loan Agreement), August 17, 1973 (hereinafter called the 1973 Loan Agreement), February 18, 1977 (hereinafter called the 1977 Loan Agreement) and December 17, 1979 (hereinafter called the 1979 Loan Agreement), the Bank has made four loans to the Borrower for the purpose of providing financial assistance to development finance companies organized under the laws of the Borrower for investment in productive projects in Ecuador; WHEREAS the Borrower has requested and the Bank has agreed to make a fifth loan to the Borrower, for the purposes and upon the terms and conditions hereinafter set forth; and WHEREAS the development finance companies which will participate in the carrying out of the Project intend to obtain from commercial banks loans in the amount of $40,000,000 equivalent, to assist in the financing of part of the Project; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank dated October 27, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Schedule 3 to this Agreement (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the -2- General Conditions have the respective meanings therein set forth, and the following additional terms have the following meanings: (a) "Banco Central" means Banco Central del Ecuador. (b) "CFN" means' Corporaci6n Financiera Nacional, a deve- lopment finance company established under Supreme Decree No. 1726 of the Borrower, dated August 21, 1964, as amended by Supreme Decree No. 2620 dated December 20, 1977. (c) "COFIEC" means Ecuatoriana de Desarrollo S.A. (Compaffa Financiera), a development finance company incorporated under the Borrower's Finance Companies Act, Decree No. 2646 of November 29,, 1965, and authorized to operate by Acuerdo No. 908 of the Minister of Industries and Commer-e of the Borrower, dated January 7, 1966. (d) "Group I Financieras" means, collectively, CFN and COFIEC. (e) "Group II Financieras" means, collectively, Compaffla Financiera Nacional, Ecuatoriana de Financiamiento, Financiera del Sur, Financiera Iberoamericana, Financiera del Austro, or Financiera Manabi, development finance companies organized under the laws of the Borrower for investment in productive projects in Ecuador, which have signed Project Agreements with the Bank, for the carrying out of the Project described in the 1979 Loan Agreement. (f) "Group III Financiera" means any development finance company, other than -he Group I and Group II Financieras, organized under the laws of the Borrower for investment in productive projects in Ecuador, which has been accepted by the Bank for purposes of participating in the Project. (g) "Financiera" means any Group I, Group II or Group III Financiera, and "Financieras" means, collectively, the Group I, Group II and Group III Financieras. (h) "DFC" means any development finance company organized in accordance with the laws of the Borrower, which, as of the date of this Agreement, has not been accepted by the Bank for purposes of participating in the Project in accordance with Section 5.01 of this Agreement. -3- (i) "CFN Project Agreement" means the Project Agreement of even date herewit,h to be entered into between the Bank and CFN; (j) "Subsidiary Loan Agreement" means the agreement between the Borrower, acting through Banco Central, and a Financiera, referred to in Section 4.01 of this Agreement. (k) "Subsidiary Loan" means a loan made or to be made by the Borrower to a Financiera out of the proceeds of the Loan pursuant to a Subsidiary Loan Agreement. (1) "Sub-loan" means a loan made or proposed to be made by a Financiera out of the proceeds of the Subsidiary Loan to an Investment Enterprise for an Investment Project; and "Free-limit Sub-loan" means a Sub-loan, as so defined, which qualifies as a Free-limit Sub-loan pursuant to the provisions of Section 2.02 (f) of this Agreement. (m) "Investment" means an Investment, other than a Sub-loan, made or proposed to be made by a Financiera out of the proceeds of the Subsidiary Loan in an Investment Enterprise for an Investment Project. (n) "Investment Enterprise" means an enterprise to which a Financiera proposes to make or has made a Sub-loan or in which it proposes to make or has made an Investment. (o) "Investment Project" means a specific development project to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan or Investment. (p) "Sucres" and "S/" mean the currency of the Borrower. (q) "Foreign currency" means any currency other than the currency of the Borrower. (r) "Estatutos" means the Estatutos of a Group I or a Group II or a Group III Financiera, as such Estatutos shall have been defined in the CFN Project Agreement or in the applicable Sub- sidiary Loan Agreement, as the case may be. (s) "Statement of Operating Policies and Procedures" means, as the case may be, the statement of operational and financial policies approved or to be approved by the Board of Directors of a Group I or a Group II or a Group III Financiera, as -4- such statement of operating policies and procedures shall have been defined in the CFN Project, Agreement or in the Subsidiary Loan Agreement, as the case may be,. (t) "Subsidiary" means, with respect to each Financiera or each Investment Enterprise, a company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by such Financiera or such Investment Enterprise; and the term also includes any company of which a majority of the outstanding voting stock is owned or effectively controlled by any one or more Subsidiaries of such Financiera or Investment Enterprise or by such Financiera or such Investment Enterprise and, respectively, one or more of its subsidiaries. (u) "Financial Subsidiary" means a Subsidiary of a Finan- ciera which, in the judgment of the Bank, is engaged or proposes to be engaged in promotional, financial or technical operations which are similar or supplementary to the operations of the applicable Financiera to which it relates. (v) "Regulaci6n" means Regulaci6n 927-76 of the Bor- rower's Monetary Board, dated November 9, 1976, as amended by Regulaci6n 975-77, dated August 18, 1977, and Regulaciones 1123-81 and 1129-81, both dated March 18, 1981, all of the Mone- tary Board, as the same may be amended from time to time. (w) "Prior Loan Agreements" means collectively the 1971 Loan Agreement, the 1973 Loan Agreement, the 1977 Loan Agreement and the 1979 Loan Agreement, and "Fourth Loan" means the loan provided for in the 1979 Loan Agreement. (x) "foreign expenditures" means expenditures in the cur- rency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower. The terms defined importing the singular number import the plural numbers and vice versa. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth -5- or referred to, an amount in various currencies equivalent to sixty million dollars ($60,000,000). Section 2.02. (a) The Borrower may withdraw from the Loan Account amounts expended by the Borrower for an Investment Proj- ect (or, if the Bank shall so agree, to be expended by the Bor- rower for an Investment Project), to finance the reasonable foreign currency cost of goods and services required under a Sub-loan or Investment for the Investment Project in respect of which the withdrawal is requested. (b) except as the Bank shall otherwise agree, the proceeds of the Loan shall be allocated as follows: % of Expen- Amount of the ditures to Category Loan Allocated be Financed (Expressed in Dollars Equivalent) (1) Sub-loans made by Financieras under 59,000,000 100% Part A of the Project (2) Technical Assistance (A) under Part B (i) of the P'oject 200,000 100% of foreign expenditures (B) under Part B (ii) 350,000 100% of of the Project foreign expenditures (C) under Part B (iii) 150,000 100% of of the Project foreign expenditures (D) under Part B (iv) 100,000 100% of of the Project foreign expenditures % of Expen- Amount of the ditures to Category Loan Allocated be Financed (Expressed in Dollars Equivalent) (3) Unallocated 200,000 TOTAL $6o,000,000; provided, however, that in respect of Category (1): (i) an amount of not less than $20,000,000 equivalent shall be utilized in Investment Projects in which the appraisal or the summary descrip- tion of the Investment Project, referred to in Section 2.03 (a) and (b) respectively, shall have reasonably estimated that at least fifty per cent (50%) of the output generated by such Invest- ment Project is to be exported; and (ii) until one year after the Loan becomes effective and subject to the provisions set forth in Schedule 2 to this Agreement, an amount of not less than $15,000,000 equivalent shall be reserved to.Group II and Group III Financieras, in accordance with the allocation set forth in Schedule 4 to this Agreement. (c) The disbursement percentages referred to in paragraph (b) of this Section have been calculated in compliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. (d) Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in paragraph (b) of this Section, if the Bank hap reasonably estimated that the amount of the Loan then allocated to any Category will be insufficient to finance the agreed percentage of all expenditures in that Cate- gory, the Bank may, by notice to the Borrower: (i) reallocate to -7- such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallocation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. (e) Notwithstanding the provisions of paragraph (a) of this Section and except as the Borrower and the Bank shall otherwise agree, no withdrawal shall be made in respect of: (i) expenditures to be financed under a Sub-loan or Investment unless (A) the Sub-loan or Investment has been approved by the Bank or (B) the Sub-loan is a Free-limit Sub-loan for which the Bank has authorized withdrawals from the Loan Account; (ii) expenditures made by an Investment Enterprise in respect of a Sub-loan subject to the Bank's approval, or in respect of an Investment, if such expenditures have been made more than 90 days prior to the date on which the Bank has received in respect of such Sub-loan or Investment the appli- cation and information required by Section 2.03 (a) of this Agreement or, in respect of a Free-limit Sub-loan, more than 90 days prior to the date on which the Bank has received in respect of such Free-limit Sub-loan the request and information required by Section 2.03 (b) of this Agreement; provided, further, that no withdrawal shall be made in respect of expenditures made by an Investment Enterprise in respect of a Sub-loan subject to the Bank's approval or in respect of an Investment or in respect of a Free-limit Sub-loan if such expen- ditures have been made before the date of this Agreement, except that withdrawals in an aggregate amount not to exceed the equivalent of $6,000,000 may be made on account of payments made before that date but after August 31, 1981; (iii) expenditures made by an Investment Enterprise unless the amount to be so withdrawn, or the Sucre equivalent thereof, has been disbursed (or, if the -8- Bank shall have so agreed, shall be required to meet disburseme'nts to be made) by the Borrower to the relevant Financiera pursuant to, and in accordance with, the applicable Subsidiary Loan Agreement; (iv) expenditures made by an Investment Enterprise unless the Bank has received, on behalf of Banco Central or the applicable Financiera, as the case may be, evidence satisfactory to the Bank, including an opinion or opinions satisfactory to the Bank of counsel acceptable to the Bank that: (A) such Financiera has entered into a Subsidiary Loan Agreement; (B) such Subsidiary Loan Agreement and the CFN Project Agreement have been duly authorized or ratified by, and executed and deliv- ered on behalf of, as the case may be, such Finan- ciera, CFN or Banco Central; (C) such Subsidiary Loan Agreement and the CFN Project Agreement constitute a valid and binding obligation of Banco Central and CFN and the Financiera in accordance with its terms; and (D) the conditions precedent to disbursements, if any, under the Subsidiary Loan Agreement have been fulfilled; (v) expenditures made by an Investment Enterprise financed or to be financed by a Group III Financiera, unless the Bank shall have received evidence satisfactory to the Bank that the rele- vant Group III Financiera has approved a Statement of Operating Policies and Procedures satisfactory to the Bank, and the Bank has been furnished with satisfactory evidence that the approval of such statement has been duly authorized by all necessary corporate or governmental action; and (vi) expenditures made by an Investment Enterprise in respect of a Sub-loan subject to the Bank's approval or in respect of a Free-limit Sub-loan: (A) which shall exceed the equivalent of three million dollars ($3,000,000) in a single Investment Enterprise; or (B) in any amount which, if, whenii added to outstanding Sub-loans made to such Invest- ment Enterprise under this Agreement and Prior Lo6n Agreements, the aggregate shall exceed the equiva- lent of four million dollars ($4,000,000). -9- (f) A Free-limit Sub-loan shall be: (i) a Sub-loan made or proposed to be made by either of the Group I Financieras in an amount to be financed out of the proceeds of the Loan for an Investment Project which when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan for the same Investment Project, shall not exceed the sum of two million dollars ($2,000,000) equivalent; or (ii) a Sub-loan made or proposed to be made by a Group II or a Group III Financiera in an anmount to be financed out of the proceeds of the Loan for an Investment Project which when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan for the same Investment Project, shall.not exceed the sum of three hundred and fifty thousand dollars ($350,000) equivalent; provided, however, that with respect to Sub-loans made or proposed to be made by a Group III Financiera, no such Sub-loans shall be deemed to be a Free-limit Sub-loan, regardless of the amount thereof, until the Bank shall have approved two of such Sub-loans. Section 2.03. (a) When presenting a Sub-loan (other than a Free-limit Sub-loan) or an Investment to the Bank for approval, the Borrower shall furnish to the Bank an application, in form satisfactory to the Bank, together with: (i) a description* of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan or Investment, including the schedule of amortization of the Sub-loan or of repayment to the Bank of the amount of the Loan to be used for the Invest- ment; (iii) the evidence required in paragraph (b) of Schedule 2 to this Agreement; and (iv) such other information as the Bank shall reasonably request. (b) Each request by the Borrower for authorization to make withdrawals from the Loan Account in respect of a Free-limit Sub-loan shall contain: (i) a summary description of the Invest- ment Enterprise and the Investment Project, satisfactory to the Bank, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the terms and conditions of the Sub-loan, including the schedule of amortization therefor; (iii) the evidence required by paragraph (b) of Schedule 2 to this Agreement; and (iv) such other information as the Bank shall reasonably request. (c) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions - 10 - of paragraphs (a) and (b) of this Section shall be presented to the Bank on or before December 31, 1984. Section 2.04. Except as the Bank shall otherwise agree, each Financiera shall be eligible to commit the proceeds of the Loan up to aggregate amounts to be determined in accordance with the formula established in Schedule 2 to this Agreement. Section 2.05. The Closing Date shall be December 31, 1986 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.06. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.07. The Borrower shall pay interest at the rate of eleven and three-fifths per cent (11-3/5%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.08. Interest and other charges shall be payable semiannually on June 1 and December 1 each year. Section 2.09. (a) The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement as such Schedule shall be amended from time to time by the Bank to the extent required to: (i) conform in relevant part substantially *to the aggregate of the amortization schedules applicable to Sub-loans and the schedules of repayment to the Bank in respect of Investments, which have been approved or authorized for withdrawals from the Loan Account under Sections 2.02 and 2.03 of this Agreement; and (ii) take into account any cancellation pursuant to Article VI of the General Conditions and any repayments made by the Borrower under Section 2.10 of this Agreement; provided that any such amendments to the amortization schedule permitted hereunder shall not authorize repayments of the principal amount of the Loan beyond the latest repayment date set forth in such Schedule 1. Repayments due hereunder shall be made on June 1 and December 1 in each year. Such amendments of said Schedule 1 shall include amendmients to the table of premiums on prepayment, if necessary. - 11 - (b) The amortization schedule applicable to each Sub-loan and the schedule of repayment to the Bank in respect of each Investment shall provide for an appropriate period of grace not exceeding 3 years or any other period that shall be agreed by the Bank, and, unless the Bank shall otherwise agree: (i) shall not extend beyond fifteen years from the date of this Agreement; and (ii) shall provide for approximately equal semiannual, or more frequent, aggregate payments of principal and interest or approximately equal semiannual, or more frequent, payments of principal. (c) The Borrower shall transmit to the Bank, for its prior approval, any substantial changes proposed to be made by the Financiera in respect of the repayment provisions of any Sub-loan. Section 2.10. Unless the Bank and the Borrower shall other- wise agree: (a) If: (i) a Sub-loan or any part thereof shall be repaid to any of the Financieras in advance of maturity; or (ii) a Sub-loan or an Investment or any part thereof shall be sold, transferred, assigned or otherwise disposed of for value by any of the Financieras; or (iii) any of the Financieras shall repay to the Borrower, in advance of maturity, in whole or in part, any amount lent by the Borrower to any such Financiera under the applicable Subsidiary Loan Agreement, then the Borrower shall promptly notify the Bank and shall repay to the Bank, on the next following interest payment date, together with the premiums specified in Schedule 1 to this Loan Agreement or in any amendment thereof under Section 2.09 (a) of this Agreement, the amount withdrawn from the Loan Account in respect of such Sub-loan or Investment *or part thereof and not theretofore repaid to the Bank. (b) Any amount so repaid by the Borrower shall be applied by the Bank as follows: (i) in the case of a Sub-loan, to the matur- ity or maturities of the Loan in amounts corresponding to the outstanding amounts of the maturity or maturities of the Sub-loan so repaid or disposed of; and (ii) in the case of an Investment, pro rata to the maturity or maturities of the Loan reflecting amounts to be repaid on account of such Investment. (c) Paragraph (b) of Section 3.04 of the General Conditions shall not apply to any repayment made under paragraph (a) of this Section. - 12 - ARTICLE III Description of the Project; Use of the Proceeds of the Loan Section 3.01. (a) The purpose of the Project is to assist the Borrower in financing such productive facilities and resources in Ecuador as will contribute to the economic development of the country. The Project consists of: Part A: financing by the Financieras of Investment Projects through Sub-loans to, and Investments in, Investment Enterprises in accordance with their respective Estatutos and Statements of Operating Policies and Procedures. Part B: (i) provision, through the Ministry of Finance of the Borrower, of advisory services to Financieras with respect to the preparation and appraisal methodology of Investment Projects; (ii) carrying out, through the Superintendencia-de Bancos of the Borrower, of: (a) studies on the financial system of the Borrower; and (b) a program to strengthen the supervisory .and analytical capabilities and the information system of the Superintendencia de Bancos of the Borrower; (iii) carrying out, through the Ministry of Industry, Commerce and Integration of the Borrower, of a study on the industrial incentive measures, includ- ing export promotion measures, taken by the Bor- rower in Ecuador and their potential consequences; and (iv) strengthening of the financial management and accounting systems of CFN. (b) The Borrower shall carry out Part B of the Project with due diligence and efficiency and shall cause each Financiera to carry out Part A of the Project, and CFN, in addition, to carry out Part B (iv) of the Project, and conduct their operations and affairs in accordance with sound financial standards and practices, with qualified management and personnel, and in accord- ance with the provisions of this Agreement, and their Estatutos and Statement of Operating Policies and Procedures. -13- Section 3.02. The Borrower shall cause the Financieras to apply the proceeds of the Loan relent to them by the Borrower exclusively to the financing of Investment Projects in accordance with the provisions of this Agreement and the respective Subsid- iary Loan Agreement, including inter alia and without limitation, provisions ensuring that Sub-loans shall, except as the Borrower and the Bank shall otherwise agree, be on the following financial terms and conditions: (a) the schedule of amortization of each Sub-loan shall be as required by Section 2.09 (b) of this Agreement; (b) the repayment by the Investment Enterprise to the Financiera shall be made in Sucres in the same amount withdrawn by the Financiera under the respective Subsidiary Loan; (c) interest shall be paid by the Investment Enterprise to the Financiera on the outstanding principal of the Sub-loan at an annual rate of fifteen per cent (15%); (d) charges other than interest on the outstanding principal of a Sub-loan shall be paid by the Investment Enterprise at a rate which shall not be lower than the maximum rate applicable to bond financed loans of the same maturity, as provided in Article 2 of the Regulaci6n 1129-81, of the Borrower's Monetary Board; and (e) goods and services financed out of the proceeds of the Sub-loan shall be used exclusively for Investment Projects. Section 3.03. The Borrower shall, not later than December 31, 1982, or when Sub-loans aggregating an amount equivalent to $30,000,000. (thirty million dollars) have been made as provided in Section 2.03 of this Agreement, whichever date comes first, review, with the Bank, and if necessary revise in a manner satis- factory to the Bank, the terms and conditions under which such Sub-loans and similar long-term loans are made by the Financieras and other financial institutions, and under which domestic resources are mobilized by Financieras and other financial insti- tutions. Section 3.04. In order to assist the Borrower in carrying out Part B (i), (ii) and (iii) of the Project, the Borrower shall employ consultants whose qualifications, experience, terms and conditions of employment and terms of reference shall be satis- factory to the Bank; such employment to be made in accordance with - 14 - principles and procedures satisfactory to the Bank on the basis of the "Guidelines on the Use of Consultants by World Bank Borrowers and the World Bank as Executing Agency" published by the Bank in August 1981. Section 3.05. The Borrower shall carry out the studies and program referred to in Part B (ii) of the Project in a timely manner satisfactory to the Bank. Section 3.06. The Borrower shall: (a) not later than December 31, 1982, furnish to the Bank, for comment, the recommendations of the part of the study referred to in Part B (iii) of the Project and not later than March 31, 1983, furnish to the Bank a program of action, satisfactory to the Bank, including the measures to be taken by the Borrower on the basis of the recommendations of such part of the study, and the timetable for the carrying out of such measures; and (b) carry out the programs of action referred to in para- graph (a) of this Section, in accordance with their respective timetable. Section 3.07. The Borrower shall take all measures on its part necessAry to ensure access, by CFN, to local and foreign sources of financing, as required for the efficient and timely carrying out by CFN of its part of Part A of the Project. ARTICLE IV Other Covenants of the Borrower Section 4.01. For the purposes of Sections 3.01 and 3.02 of this Agreement, the Borrower shall enter into a contract with Banco Central on terms and conditions satisfactory to the Bank, causing thereby Banco Central to enter, on behalf of the Borrower, into a Subsidiary Loan Agreement, with each Financiera, on terms and conditions satisfactory to the Bank, including those set forth in Schedule 5 to this Agreement, and except as the Bank shall otherwise agree, the Borrower shall not take or concur in, nor permit Banco Central to take or concur in, any action which would have the effect of amending, abrogating, assigning, sus- pending, or waiving such contract, any Subsidiary Loan Agreement or any provision thereof. - 15 - Section 4.02. (a) Subject to the provisions of paragraph (c) of this Section, the Borrower shall cause Banco Central to exer- cise, its rights under the applicable Subsidiary Loan Agreement in relation to each Financiera, each Investment Project and each Invef-tment Enterprise in such manner as to: (i) protect at all times the interests of the Borrower and the Bank; (ii) comply with its obligations under this Loan Agreement; and (iii) achieve the purposes of the Loan. (b) The Borrower shall promptly take, and cause Banco Central acting on behalf of the Borrower to take, all such action and exercise all such recourse available to it under a Subsidiary Loan Agreement as the Bank shall request in order to ensure the prompt and full performance by such Financiera of its obligations thereunder. (c) The Borrower shall not, without the prior agreement of the Bank, suspend or terminate the right of a Financiera to have access to the proceeds of the Loan under the applicable Subsidiary Loan Agreement with such Financiera, or declare the principal amount of the Subsidiary Loan thereunder due and payable prior to the agreed maturity, unless the right of the Borrower to withdraw the proceeds of the Loan allocated to such Financiera shall have been suspended or terminated by the Bank or the Bank shall have declared the principal amount of the Loan relent to such Finan- ciera to be due and payable immediately, or a default shall have occurred in the due and punctual payment of any monies payable by such Financiera to the Borrower and such default shall continue for thirty days after notice thereof shall have been given by the Borrower to such Financiera. Section 4.03. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or - 16 - permitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or adminis- trative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfactory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative subdi- vision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Bor- rower. Section 4.04. The Borrower covenants that it shall not take or permit any of its political subdivisions or any of its agencies or any agency of its political subdivisions to take any action which would prevent or interfere with the performance by the Borrower, Banco Central and the Financieras of any of the respec- tive covenants, agreements and obligations of the Borrower, Banco Central and the Financieras contained in this Agreement, the contract referred to in Section 4.01 of this Agreement, and the Subsidiary Loan Agreements, and shall take or cause to be taken all reasonable action necessary or appropriate to enable the Borrower, Banco Central and the Financieras to perform such covenants, agreements and obligations. Section 4.05. (a) The Borrower shall hold Financieras harm- less for any loss resulting from changes in the rate of exchange between currencies (including Sucres) with regard to the amounts withdrawn from the Loan Account. (b) The Borrower shall hold CFN harmless for any loss resulting from changes in the rate of exchange between currencies - 17 - (including Sucres) used in CFN's foreign borrowings, and to that effect, whenever CFN shall have paid an obligation denominated in foreign currency, the Borrower shall pay to CFN, within 90 days, an amount in Sucres equal to the negative difference (resulting from changes in the exchange rate) between the amount of such obligation expressed in Sucres at the time such obligation was incurred and at the time it was paid, provided, however, that any positive difference between such amounts shall be deducted by the Borrower from future payments to be made by the Borrower to CFN under the provisions of this Section. (c) Unless the Bank and the Borrower shall otherwise agree, foreign borrowings contracted by CFN after December 31, 1979, shall not be covered by the provisions of paragraph (b) of this Section. (d) The provisions of paragraphs (b) and (c) of this Section replace the provisions of Section 4.06 of the 1979 Loan Agreement. Section 4.06. (a) The Borrower shall furnIsh to the Bank, through Superintendencia de Bancos, all such information as the Bank shall reasonably request concerning the administration, operations and accounts of Banco Central in respect of the Project, and those of Financieras, and the performance by Banco Central of its obligations under the contract referred to in Section 4.01 of this Agreement and the Subsidiary Loan Agreements. (b) The Borrower and the Bank shall: (i) exchange views through their representatives with regard to the performance of the obligations of the Borrower under the contract referred to in Section 4.01 of this Agreement and under the Subsidiary Loan Agreements; and (ii) inform each other of any condition which interferes with, or threatens to interfere with, the performance referred to in (i) above. Section 4.07. (a) The Borrower shall cause CFN not to provide financing to an enterprise or related group of enterprises where CFN's total exposure to such enterprise or related group of enterprises, after providing such financing, shall exceed 10% of CFN's equity; provided, however, that financing which does not meet the above requirement may be provided by CFN if an adequate mechanism, satisfactory to the Borrower and the Bank, is pre- viously established in order to protect CFN's equity from all risks arising from such financing. - 18 - (b) For purposes of this Section: (i) "CFN's total exposure to such enterprise" means the sum of: (A) the total outstanding obligations of the enteprise to CFN including loans, cr6ditos documentarios, guarantees, acceptances, and other credits; and (B) CFN's participation in the enterprise's share capital; (ii) "equity" means paid-in capital, legal reserves, and undistributed profits; and (iii) "related enterprises" means any enterprise which owns or effectively controls a majority of the outstanding voting stock or other proprietary interest of any other enterprise (such company hereinafter called "parent company"), or any company other than the enterprise so owned or effectively controlled by *the parent company. Section 4.08. The Borrower shall cause Banco Central: (a) to open and maintain a special account in which the proceeds of the foreign exchange coverage fee referred to in paragraph (b) of Schedule 5 to this Agreement shall be deposited; (b) to charge to such special account any losses incurred by the Borrower resulting from changes in the rate of exchange between the currencies (including Sucres) disbursed to and those to be repaid by the Borrower under this Agreement; provided, however, that if the balance of such account shall at any time be insufficient for the payment of such losses, the Borrower shall forthwith deposit into such special account any additional funds required for such payment; and (c) after the Loan has been fully repaid to the Bank, to pay to the Borrower any balance remaining in such account. Section 4.09. The Borrower, within six months following the last withdrawal from the Loan Account in respect of the Sub-loans or by such later date as the Bank shall request, shall prepare, - 19 - through its Ministry of Finance and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Investment Projects, their costs and the benefits derived and to be derived from them, the performance by the Borrower, Banco Central, the Financieras and the Bank of their respective obligations under the Loan Agreement and the Subsidiary Loan Agreements and the accomplishment of the purposes of the Loan. Section 4.10. The Borrower shall, not later than June 30, 1983, make available to CFN, on terms and conditions satisfactory to the Bank, funds in an amount equivalent to not less than $20,000,000. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional events are specified: (a) a default shall occur in the due and punctual payment of any amount payable by a Financiera to the Borrower under the applicable Subsidiary Loan Agreement; (b) a default shall occur in the performance of any other obligation (i) on the part of CFN under the CFN Project Agreement; and (ii) on the part of a Financiera under the applicable Sub- sidiary Loan Agreement; (c) a Financiera shall have been unable to pay its debts as they mature or any action or proceeding shall have been taken by a Financiera or by others whereby any of the property of such Financiera shall or may be distributed among its creditors; (d) any loan or credit to a Financiera, having an original maturity of one year or more shall, in accordance with its terms, have become due and payable in advance of maturity as provided in the applicable contractual instruments, or any security for any such loan or credit shall have become enforceable; (e) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of a Financiera or for the suspension of its operations; - 20 - (f) a resolution shall have been passed for the dissolution or liquidation of a Financiera; (g) a change shall have been made in the Estatutos of a Financiera which, in the Bank's judgment, will materially and adversely affect the financial condition or operations of such Financiera; (h) a change not acceptable to the Bank shall have been made in the Statement of Operating Policies and Procedures of a Finan- ciera; (i) a subsidiary or any other entity shall have been created or acquired or taken over by a Financiera, if such creation, acquisition or taking over would materially and adversely affect the conduct of such Financiera's business or such Financiera's financial situation or the efficiency of such Financiera's manage- ment and personnel or the carrying out of the Project; and (j) before the Closing Date, a change not acceptable to the Bank shall have been made in the Regulaci6n, or the Regulaci6n or any provision thereof shall not have been enforced; provided, however, that if any event referred to in'this Section, (other than in paragraph (j) hereof) shall have occurred and be continu- ing, the Bank may at its option suspend the right of the Borrower to make withdrawals from the Loan Account only-.in respect of amounts to be relent to the Financiera in respect of which such event has occurred. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified: (i) any of the events specified in paragraph (a) of Section 5.01 of this Loan Agreement shall occur and shall continue for a period of thirty days; (ii) any of the events specified in paragraph (b) or paragraph (g) or paragraph (i) or paragraph (j) of Section 5.01 of this Loan Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower and such Financiera; and (iii) any of the events specified in paragraph (c) or paragraph (d) or paragraph (e) or paragraph (f) or - 21 - paragraph (h) of Section 5.01 of this Loan Agree- ment shall occur. ARTICLE VI Effective Date; Termination Section 6.01. The following event is specified as addi- tional condition to the effectiveness of this Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions namely that the execution and delivery of the contract referred to in Section 4.01 of this Agreement have been duly authorized and ratified by all corporate and governmental action. Section 6.02. The following is specified as additional matter withia the meaning of Section 12.02 (c) of the General Conditions to be included in the opinion or opinions to be fur- nished to the Bank, namely that the contract referred to in Section 4.01 of this Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and Banco Central and constitutes a valid and binding obligation of the Borrower and Banco Central in accordance with its terms. Section 6.03. The date 2.. 9f;& is hereby speci- fied for the purposes of SecRon 12.04 of' the General Conditions. ARTICLE VII Representative of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America - 22 - Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For the Borrower: Ministerio de Finanzas Quito, Ecuador Cable address: Telex: MINFINANZAS 2358-MINFIN-ED Quito For Banco Central: 10 de Agosto y Brisefo Quito, Ecuador Cable address: Telex: BANCENTRAL 2165 Quito BANCEN ED and for the purpose of any notice or request: required or permitted to be given or made under Article X of the General Conditions, also: Procurador General del Estado Avenida Colombia 248 oficina 904 Quito, Ecuador IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agreement to be signed in their respective names in the District - 23 - of Columbia, United States of America, as of the day and year first above written. REPUBLIC OF ECUADOR By Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Regional Vice President Latin America and the Caribbean - 24 - SCHEDULE 1 Amortization Schedule* Payment of Principal* Payment of Principal (expressed in dollars)** (expressed in dollars)* Related to Part A Related to Part B Date Payment Due of the Project of the Project On June 1, 1985 300,000 40,000 On December 1, 1985 300,000 40,000 On June 1, 1986 300,000 40,000 On December 1, 1986 300,000 40,000 On June 1, 1987 480,000 40,000 On December 1, 1987 840,000 40,000 On June 1, 1988 1,320,000 40,000 On December 1, 1988 1,740,000 40,000 On June 1, 1989 1,850,000 40,000 On December 1, 1989 1,950,000 40,000 On June 1, 1990 2,200,000 40,000 On December 1, 1990 2,460,000 40,000 On June 1, 1991 2,720,000 40,000 On December 1, 1991 2,970,000 40,000 On June 1, 1992 3,070,000 40,000 On December 1, 1992 3,180 300 40,000 On June 1, 1993 3,60 .,000 40,000 On December 1, 1993 4,200,000 40,000 On June 1, 1994 4,200,000 40,000 On December 1, 1994 4,200,000 40,000 On June 1, 1995 4,200,000 40,000 On December 1, 1995 4,200,000 40,000 On June 1, 1996 4,200,000 40,000 On December 1, 1996 4,220,000 80,000 * The figures in this column represent dollar equivalents determined as of the respective dates of withdrawal (see General Conditions, Section 3.04). ** The Amortization Schedule is subject to amendment pursuant to the provisions of Section 2.09 of the Loan Agreement. - 25 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions or to Section 2.09 (a) of the Loan Agreement: Time of Prepayment Premium Not more than three years 2.30% before maturity More than three years but not 4.65% more than six years before matrity More than six years but not 8.50% more than eleven years before maturity More than eleven years but not 10.05% more than thirteen years before maturity More than thirteen years 11.60% before maturity - 26 - SCHEDULE 2 Allocation of the Proceeds of the Loan to the Financieras The proceeds of the Loan shall be made available to the Financieras according to the following formula: (a) Each Financiera shall be eligible to commit funds from the Loan for Investment Projects up to the maximum amount of its quota. The quota of each Financiera at any time shall be deter- mined by the Bank according to the Financiera's mobilization of medium and long-term resources calculated as the sum of the following: (i) the equivalent in dollars of the increase of such Financiera's equity since December 31, 1980 to the date (the Date) such sum is made, multiplied by 0.50; plus (ii) the equivalent in dollars of the increase since December 31, 1980 to the Date, in the aggregate principal amount outstanding of bonds and financial certificates issued by such Financiera or issued by other enterprise and underwritten by such Finan- ciera, to investors other than financial insti- tutions owned by the Borrower, with maturities of more than 6 months but less than 3 years and not subject to any contractual obligation to repurchase such bonds or financial certificates before their maturity, multiplied by 0.40; provided, however, that if such bonds and financial certificates have maturities of (A) more than 3 years but less than 7 years; and (B) more than 7 years, such amounts shall be multiplied by 0.80 and 2.00, respectively; plus (iii) the equivalent in dollars of the sales of shares of enterprises, underwritten by the Financiera since December 31, 1980 to the Date, multiplied by 0.60; plus (iv) the equivalent in dollars of the increase since December 31, 1980 to the Date of the outstanding borrowing (other than bonds, sold and outstanding) - 27 - with maturities of 3 years or more obtained by the Financiera from Ecuadorian sources, multiplied by 0620. (b) When presenting a Sub-loan for approval or authoriza- tion, as the case may be, or an Investment for approval, a Finan- ciera shall present to the Bank, in addition to any other informa- tion required by the provisions of the Loan Agreement, evidence that the proceeds of the Loan to be committed under such Sub-loan or Investment are within such Financiera's quota. (c) The method of calculating the amount of the Loan to be made available to each Financiera set forth in this Schedule may be reviewed and, if necessary, revised from time to time by the Bank after exchanging views with the Borrower and any changes shall be promptly notified by the Bank to the Borrower and to each Financiera. The first such review shall take place not later than December 31, 1982. - 28 - SCHEDULE 3 Modifications of the General Conditions For the purposes of the Loan Agreement, the provisions of the General Conditions are modified as follows: (1) The following subparagraph (d) is added to Section 3.04: "(d) The Bank and the Borrower may from time to time agree upon arrangements for prepayment of the Loan and the application of such prepayment in addition to, or in substitution for, those set forth in paragraph (b) of Sec- tion 3.04." (2) The words "Investment Projects" are added after the words "the Project" at the end of Section 5.03. (3) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Bank. If: (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty-days; or (b) by the date specified in paragraph (c) of Section 2.03 of the Loan Agreement no applications or requests permitted under paragraph (a) or paragraph (b) of such Section shall have been received by the Bank in respect of any portion of the Loan, or having been so received, shall have been denied; or (c) after the Closing Date an amount of the Loan shall remain unwithdrawn from the Loan Account; or (d) the Bank shall have received notice from the Borrower pursuant to Section 6.07 with respect to an amount of the Loan, the Bank may by notice to the Borrower terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice such amount or portion of the Loan shall be cancelled." - 29 - SCHEDULE 4 Allocation of Amounts Reserved to Group II and Group III Financieras For the purposes of Section 2.02 (b) (ii) of this Agreement, the following amounts are reserved to the following Financieras: Compafffa Financiera Nacional - $2,500,000 equivalent Ecuatoriana de Financiamiento - $2,200,000 equivalent Financiera del Sur - $1,100,000 equivalent Financiera Iberoamericana - $2,200,000 equivalent Financiera del Austro - $1,000,000 equivalent Financiera Manabi - $700,000 equivalent Financiera de Guayaquil - $2,500,000 equivalent Financiera Andina - $1,100,000 equivalent FINEC - Compaffia Financiera - $500,000 equivalent Financiera de la Repfblica - $500,000 equivalent Financiera Americana - $700,000 equivalent - 30 - SCHEDULE 5 Terms and Conditions of Subsidiary Loan Agreement Each Subsidiary Loan Agreement shall include, inter alia, provisions: (a) enabling the Borrower to carry out its obligations under the Loan Agreement; (b) requiring Banco Central to charge to each Financiera on the outstanding amount of a Subsidiary Loan interest at an annual rate not exceeding fifteen per cent (15%), including a fifty hundredths per cent (0.50%) service charge and a foreign exchange coverage fee at an annual rate of two and nine-tenths per cent (2.9%); (c) enabling the respective Financiera to make withdrawals from the Loan Account in accordance with the provisions of Sections 2.02 and 2.03 of, and Schedule 2 to, this Agreement; (d) requiring each Financiera: (A) (i) to present Investment Projects to the Bank for approval or for authorization, through the Borrower; (ii) to deliver to the Bank withdrawal applications from the Loan Account as provided in Section 2.03 of the Loan Agreement; and (iii) to furnish to the Borrower and the Bank all such documents and information as required pursuant to such Section; (B) (i) to calculate, in accordance with methods satisfactory to the Bank, the financial and economic rates of return of any project to be financed by the Financiera requiring: (I) the Financiera's medium- and long-term financ- ing of more than the equivalent of $1,000,000; or (II) a Sub-loan or Investment in an amount exceeding the equivalent of $300,000; and - 31 - (ii) to furnish to the Bank information on such rates of return, when presenting an Investment Project to the Bank or whenever the Bank will request such information in connection with projects other than Investment Projects financed by such Financiera; (C) (i) to exercise its rights in relation to each Investment Project financed by it in whole or in part out of the proceeds of the Loan in such manner as to protect its interests and those of the Borrower and the Bank; (ii) to undertake that, unless the Bank shall otherwise agree, any Sub-loan or Investment will be made on terms whereby the Financiera shall obtain, by written agreement with the Investment Enterprise or other appropriate legal means, rights adequate to protect the interests of the Borrower, the Bank and the Financiera, enabling the Borrower to carry out its obligations under the Loan Agreement and including, without limitation, in the case of any such Sub-loan and, to the extent that it shall be appropriate, in the case of any such Investment, the right to: (I) cause such Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound technical, financial and management standards and to maintain adequate records and documents; (II) apply to Sub-loans the financial terms and conditions set forth or referred to in Section 2.04 of the Loan Agreement; (III) cause such Investment Enterprise to use the proceeds of the Loan exclu- sively to finance the goods and services required to carry out the - 32 - Investment Project in respect of which such proceeds were withdrawn and ensure that such goods and services shall be: (1) used exclu- sively in the carrying out of such Investment Project; and (2) pur- chased at a reasonable price, account being taken also of other relevant factors, such as time of delivery and efficiency and reliability of the goods and avail- ability of maintenance and repair facilities and spare parts therefor and, in the case of services, their quality and the competence of the parties rendering them; (IV) ensure the Bank's and the Financiera's rights to inspect such goods and the sites, works, plants and construction included in such Investment Project, the operation thereof and any relevant records and documents; (V) require that such Investment Enter- prise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts as shall be consistent with sound business practice and that, without any limitation upon the foregoing, such insurance shall cover marine, transit and other hazards incident to the acquisi- tion, transportation and delivery of the goods financed out of the proceeds of the Loan to the place of use or installation, and that any indemnity thereunder shall be payable in a currency freely usable by such Investment Enterprise to replace or repair such goods; - 33 - (VI) obtain all such information as the Bank or the Financiera shall reason- ably request relating to the foregoing and to the administration, operations and financial condition of such Investment Enterprise; (VII) establish and amend, if necessary, the amortization schedule applicable to the respective Sub-loan in accordance with the corresponding provisions of the Subsidiary Loan Agreement; and (VIII) suspend or terminate access by such Investment Enterprise to the use of the proceeds of the Loan upon failure by such Investment Enter- prise to perform its obligations to the Financiera; (D) to take such steps, satisfactory to the Bank, as shall be necessary to protect itself against risk ,of loss resulting from changes in the rates of exchange between the various currencies (including Sucres) used in its operations; (E) (i) to furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, the Investment Enterprises, the Investment Projects, the Sub-loans and Invest- ments, and the administration, operations and financial condition of the Financiera (including any proposal to create, acquire or take over a Subsidiary); (ii) to maintain records adequate to record the progress of the Project and of each Investment Project financed by the Financiera (including the cost thereof) and to reflect in accor- dance with consistently maintained sound accounting practices the operations and financial condition of the Financiera, and - 34- shall enable the Bank's representatives to examine such records; (iii) to have its accounts and financial statements (balance sheets,, statements of income and expenses and related statements) for each fiscal year audited by independent auditors acceptable to the Bank in accordance with sound auditing principles consistently applied; (iv) to furnish to the Bank, as soon as available but, in any case, not later than five months after the end of each such year, (I) certified copies of its audited financial statements for such year and (II) the report of such audit by such auditors of such scope and in such detail as the Bank shall have reasonably requested; and (v) furnish to the Bank such other information concerning the accounts and financial state- ments of the Financiera and the audit thereof as the Bank shall from time to time reasonably request. (F) to assure that the purposes of the Loan will be accomplished. To that end, the Bank and the Financiera shall from time to time, at the request of either party, exchange views through their representatives with regard to the progress of the Project, the performance by the Financiera of its obligations under the Subsidiary Loan Agreement, the administration, operations and financial condition of the Financiera and any other matters relating to the purposes of the Loan; (G) to inform promptly the Bank of any condition (including the incurrence of losses by reason of its borrowing operations outside the territories of the Borrower) which interferes with, or threatens to interfere with, the accomplishment of the purposes of the Loan, the maintenance of the service of the Subsidiary Loan or the performance by the Financiera of its obligations under the Subsidiary Loan Agreement. - 35 - (H) not to amend, repeal or fail to comply with its Estatuto or its Statement of Operating Poli- cies and Procedures without the Bank's prior consent; (I) if the Financiera shall sell, lease, transfer, mortgage or otherwise dispose of or encumber its property or assets, except in the ordinary course of its operations and only as permitted by its Statement of Operating Policies and Procedures, and except as the Borrower and the Bank shall otherwise agree, to repay promptly an amount of the Sub- sidiary Loan equivalent to the fair value of such property or assets or make other arrangements satisfactory to the Borrower and the Bank to protect or secure the interests of the Borrower; (J) (i) not to incur or permit any of its Financial Subsidiaries to incur any debt, if, after the incurring of any such debt, the consolidated debt of the Financiera and its Financial Subsidiaries then incurred and outstanding would be greater than ten times the consoli- dated capital and surplus of the Financiera and its Financial Subsidiaries. For the purposes of this paragraph and of paragraph (P) of this Schedule: (I) "dzbt" means any debt incurred or guaran- teed by the Financiera or any of its Financial Subsidiaries; (II) debt shall be deemed to be incurred: (i) under a loan contract or agreement (in- cluding the Subsidiary Loan Agreement), on the date and to the extent that the amount of the loan is drawn down and outstanding pursuant to such contract or agreement; and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee shall have been entered into, but only to the extent that the guaranteed debt is outstanding and unpaid; - 36- (III) "consolidated capital and surplus of the Financiera and its Financial Subsidia- ries" means the aggregate of the total unimpaired capital, legal reserves and unappropriated retained earnings of the Financiera and its Financial Subsidiaries after excluding therefrom such amounts as shall represent: (i) equity interests of the Financiera in any of its Financial Subsidiaries or of any such Financial Subsidiary in the Financiera or in any other of its Financial Subsidiaries; and (ii) provisions for losses on the out- standing amount of all loans and invest- ments made or guarantees given by the Financiera as shall have been determined by the Financiera to be adequate to cover the risk of such losses in accordance with sound business and financial practices and the Financiera's Statement of Operating Policies and Procedures; (IV) "unimpaired capital" means paid-up capital less accumulated losses; and (V) "consolidated debt of the Financiera and its Financial Subsidiaries" means the total outstanding amount of debt of the Financiera and its Financial Subsidia- ries, excluding therefrom any debt owed by the Financiera to any of its Financial Subsidiaries or by any Subsidiary to the Financiera or any other of its Financial Subsidiaries; (ii) Whenever in connection with this paragraph it shall be necessary to value in terms of Sucres debt repayable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable by the Financiera or its Financial Subsidiaries for the pur- poses of servicing such debt; - 37 - (K) to establish and maintain and cause each of its Financial Subsidiaries to establish and maintain such accounting procedures as shall be satisfactory to the Bank to ensure, at all times, the disclosure of any debt of the Financiera or its Financial Subsidiaries, including letters of credit issued or guaranteed by the Financiera or any of its Finan- cial Subsidiaries. (L) if such Financiera is: (i) COFIEC, to have an out- standing balance at any time of its short-term portfolio nor greater than fifty per cent (50%) of its total portfolio; (ii) a Group II Financiera, to have an outstanding balance at any time after December 31, 1981 of the Financiera's short-term portfolio not greater than eighty per cent (80%) of the Financiera's total portfolio, and after Decem- ber 31, 1982 not greater than seventy per cent (70%) of the Financiera's total portfolio; and (iii) a Group III Financiera, to have an outstand- ing balance at any time after December 31, 1982 of the Financiera's short-term portfolio not greater than eighty per cent (80%) of the Financiera's total portfolio, and after December 31, 1983, not greater than seventy per cent (70%) of the Finan- ciera's total portfolio; For purposes of this paragraph, "short-term port- folio" means loans made and guarantees given by the Financiera and its Financial Subsidiaries (includ- ing deudores por aceptaciones, operaciones vencidas and criditos documentarios) having an original final maturity of less than three years; and "total portfolio" means all loans made and guarantees given by the Financiera and its Financial Sub- sidiaries (including deudores por aceptaciones, operaciones vencidas and crfditos documentarios); (M) to take at all times, all steps necessary to maintain its corporate existence and right to carry on operations and to take all steps necessary to maintain and renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. (N) to cause each of its Subsidiaries (if any) to observe and perform the obligations of the - 38 - Financiera under the Subsidiary Loan Agreement to the extent to which such obligations shall or can be applicable thereto, as though such obligations were binding upon each of such Subsidiaries. (0) to take all such steps, satisfactory to the Bank, as shall be necessary to make monthly allocations to its provision for doubtful receivables in order to maintain such provision at a level of not less than one per cent of its outstanding total port- folio, as such term is defined in paragraph (L) of this Schedule; (P) not to make a Sub-loan to or an Investment in an Investment Enterprise exceeding the limits estab- lished in Section 3.04 (b) of this Agreement; (Q) to limit the maximum aggregate exposure of the Financiera to its stockholders with an equity interest of one per cent (1%) or more to two hundred per cent (200%) of the consolidated capital and surplus of the Financiera and its Financial Subsidiaries. For the purposes -f this paragraph, "aggregate exposure of the Financiera to its stockholders" means the sum of all outstanding loans and investments made and guarantees given by the Financiera to its stockholders which form part of the Financiera's total portfolio, as such term is defined in paragraph (L) of this Schedule. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this J day of, 198 . FOR SECRETARY