Mexico - Third Industrial Equipment Fund Project : Loan 1560 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1560 ME Project Agreement (Third Industrial Equipment Fund Project - FONEI) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and BANCO DE MEXICO, S.A. Dated September 27, 1978 LOAN NUMBER 1560 ME PROJECT AGREEMENT AGREEMENT, dated September 27, 1978, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and BANCO DE MEXICO, S.A. (hereinafter called the Trustee). WHEREAS by a trust agreement between the Guarantor and the Trustee, dated October 29, 1971, the Guarantor has entrusted a special fund (Fondo de Equipamiento Industrial) to the Trustee for the purpose of promoting and financing the development of indus- trial and service enterprises designed to increase exports and/or efficiently replace imports; WHEREAS the Guarantor, the Borrower and the Trustee have requested the Bank to assist in financing such development; WHEREAS by the Loan Agreement of even date herewith between the Bank and the Borrower, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to one hundred million dollars ($100,000,000), on the terms and condi- tions set forth in the Loan Agreement, but only on condition that the Trustee agree to undertake such obligations toward the Bank as are hereinafter set forth; WHEREAS the Trustee, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. (a) The Trustee shall by means of FONEI carry out the Project described in the Schedule to this Agreement with - 2 - due diligence and efficiency and in conformity with sound indus- trial, administrative and financial policies and practices and in accordance with the Operating Regulations, and shall, at all times, make available, promptly as needed, such funds and other resources as shall be required to meet FONEI's operating expenses. (b) Except as the Bank shall otherwise agree, and without limitation to the obligations of the Trustee under the preceding paragraph, the Trustee shall: (i) make or cause to be made available to FONEI for purposes of the Project at least $45,000,000 equivalent for a period of not less than 17 years from the date of this Agreement and on such terms and conditions and at such times as shall be required for the carrying out of the Project in accordance with the preceding paragraph; and (ii) inform the Bank of the terms and conditions other than the amortization period on which such funds have been made available to FONEI, and afford the Bank a reasonable opportunity to comment thereon. (c) The Trustee shall consult with the Bank in making any change in the Operating Regulations. Section 2.02. Except as the Bank shall otherwise agree: (a) The Trustee shall, out of FONEI's resources, make FONEI Loans to Participating Intermediaries which shall have made sub-loans to Investment Enterprises for Investment Projects in accordance with the Operating Regulations. (b) Interest on sub-loans shall be payable in accordance with a variable rate to be adjusted, if necessary, every six months so as to make it equal to the prevailing interest rate on the month before that in which the adjustment is made plus two percentage points. (c) The agreements providing for FONEI Loans shall provide that if sub-loans or any part thereof shall be repaid to Parti- cipating Intermediaries in advance of maturity, or if they shall be sold, transferred, assigned or otherwise disposed of for value by the Participating Intermediaries, the Participating Interme- diaries shall repay promptly to the Trustee, the amounts of - 3 - the FONEI Loans corresponding to the sub-loans or parts thereof so repaid in advance or disposed of for value. (d) The Trustee ahall inform the Bank of any substantial change in the repayment provisions of any FONEI Loan. (e) For the purposes of this Section, "prevailing interest rate" means an annual interest rate equal to the average cost of borrowed funds to the financieras operating in Mexico, as calculated monthly by the Trustee, rounded to the nearest quarter of one percentage point. Section 2.03. (a) When presenting a sub-loan (other than a free-limit sub-loan) to the Bank for approval, the Trustee shall furnish to the Bank an application, in form satisfactory to the Bank, together with a description of the Investment Enterprise and an appraisal of the Investment Project (including a descrip- tion of the expenditures proposed to be financed out of the proceeds of the Loan) and the proposed terms and conditions of the sub-loan, and such other information as the Bank shall reasonably request. (b) Each request by the Trustee for authorization to make withdrawals from the Loan Account in respect of a free-limit sub-loan shall contain a summary description of the Investment Enterprise and the Investment Project (including a description of the expenditures proposed to be financed out of the proceeds of the Loan) and the terms and conditions of such free-limiZ sub- loan, and such other information as the Bank shall reasonably request. (c) Except as the Bank and the Trustee shall otherwise agree, the applications and requests to be furnished to the Bank pursuant to paragraph (a) hereof shall be submitted to the Bank before June 30, 1980. Section 2.04. (a) The Trustee undertakes that, unless the Bank shall otherwise agree, all sub-loans will be made on terms whereby the Participating Intermediary shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, rights adequate to protect the interests of the Trustee and the Participating Intermediary including the right of the Participating Intermediary to: (i) require the Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound tech- nical, financial and managerial standards and to maintain adequate -4- records; (ii) require that (A) the goods and services to be financed out of the proceeds of the sub-loan shall be 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 availability of maintenance faci- lities and spare parts therefor, and, in the case of services, of their quality and the competence of the parties rendering them and (B) such goods and services shall be used exclusively in the carrying out of the Investment Project; (iii) inspect, by itself or jointly with representatives of the Bank and the Trustee if the Bank shall so request, such goods and the sites, works, plants and construction included in the Investment Proj- ect, the operation thereof, and any relevant records and docu- ments; (iv) require that the Investment Enterprise 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 such insurance cover marine, transit and other hazards incident to the acquisition, transportation and delivery of goods financed out of the proceeds of the Loan to the place of use or installation, and that any indemnity thereunder be made payable in a cil-rency freely usable by the Investment Enterprise to replace or Lepair such goods; (v) obtain all such information as the Trustee or the Participating Intermediary shall reasonably request relating to the foregoing and to the administration, operations and financial condition of the Investment Enterprise; and (vi) suspend or terminate the right of the Investment Enterprise to the use of the pro- ceeds of the sub-loan upon failure by such Investment Enterprise to perform any of its obligations under its contract with the Participating Intermediary. (b) The Trustee shall cause each Participating Intermediary to exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and the Trustee, (ii) comply with its obligations in respect of the corresponding FONEI Loan, and (iii) achieve the purposes of the Project. Sectiun 2.05. (a) The Trustee shall furnish, or cause to be furnished to the Bank, all such information as the Bank shall reasonably request concerning the Project, the FONEI Loans, the sub-loans, the Investment Enterprises, and the Investment Projects. - 5 - (b) The Trustee: (i) shall maintain or cause to be main- tained records and procedures adequate to record and monitor the progress of the Project to identify the goods and services financed out of the proceeds of the Loan, and (ii) shall furnish to the Bank all such information as the Bank shall reasonably request concerning the Project, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. (c) Promptly after completion of the Project, but in any event not later than one year after the Closing Date or such later date as may be agreed for this purpose between the Trustee and the Bank, the Trustee shall prepare and furnish to the Bank a report on the execution and operation of the Project and its cost and benefits, and on the accomplishment of the purposes of the Loan. Section 2.06. (a) The Trustee shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, the performance of its obligations under this Agree- ment and other matters relating to the purposes of the Loan. (b) The Trustee shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by the Trustee of its obligations under this Agreement. ARTICLE III Other Covenants Section 3.01. The Trustee shall operate FONEI in accordance with sound financial, industrial and administrative policies and practices, under the supervision of experienced and competent management. Section 3.02. The Trustee shall maintain records adequate to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of FONEI and shall cause the Participating Intermediaries to maintain such records for purposes of the Investment Projects financed by them. -6- Section 3.03. The Trustee shall: (a) have an annual audit satisfactory to the Bank made of the accounts and financial statements (balance sheets, statements of income and expenses and related statements) of FONEI for each fiscal year, in accordance with sound auditing principles consistently applied, by independent and qualified auditors appointed by the Guarantor; (b) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (i) certified copies of such financial statements for such year as so audited and (ii) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial statements of FONEI and the audit thereof as the Bank shall from time to time reasonably request. ARTICLE IV Effective Date; Termination Section 4.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 4.02. This Agreement and all obligations of the Bank and of the Trustee thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. ARTICLE V Miscellaneous Provisions Section 5.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address herein- after specified or at such other address as such party shall - 7 - have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. For the Trustee: Banco de M6xico, S.A. 5 de Mayo No. 2 M6xico 1, D.F. Mexico Cable address: BANXICO M6xico 1, D.F. M6xico Section 5.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of the Trustee may be taken or executed by its Director General or such other person or persons as he shall designate in writing, and the Trustee shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 5.03. This Agreement may be executed in several coun- terparts, each of which shall be an original, and all collectively but one instrument. - 8 - 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 of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By Is/ Nicolas Ardito-Barletta Regional Vice President Latin America and the Caribbean BANCO DE MEXICO, S.A. (as Trustee for Fondo de Equipamiento Industrial) By /s/ G. Romero Kolbeck Authorized Representative -9- SCHEDULE 1 Description of the Project The Project consists of a lending program to finance fixed assets and feasibility studies for enterprises in Mexico to manufacture industrial goods and provide services for export or for efficiently substituting imports.