Colombia - Small-Scale Industry Project : Loan 1071 - Project Agreement - Conformed

CONFORMED COPY LOAN NUMBER 1071 CO Project Agreement (Small-Scale Industry Project) BETWEEN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND CORPORACION FINANCIERA POPULAR DATED JANUARY 16, 1975 CONFORMED COPY LOAN NUMBER 1071 CO Project Agreement (Small-Scale Industry Project) BETWEEN INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND CORPORACION FINANCIERA POPULAR DATED JANUARY 16, 1975 PROJECT AGREEMENT AGREEMENT, dated January 16, 1975, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and CORPORACION FINANCIERA POPULAR (hereinafter called CFP), a development finance institution established and operating under the laws and regulations of the Guarantor. WHEREAS by the Loan Agreement of even date herewith between the Banco de la Republica (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower, for relending to CFP, an amount in various currencies equivalent to five million five hundred thousand dollars ($5,500,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that CFP agree to undertake such obligations toward the Bank as hereinafter set forth; and WHEREAS CFP, 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 in the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. CFP shall carry out the Project described in Section 3.01 of the Loan Agreement and conduct its operations and affairs in accordance with sound financial and investment standards and practices, under the supervision of qualified and experienced management and in accordance with its Estatutos and its Declaration of Policies and Procedures. 4 Section 2.02. CFP shall apply the proceeds of the Loan allocated in accordance with Section 3.02(a)(ii), (iii) and (iv) of the Loan Agreement exclusively to the financing of Investment Projects in accordance with the provisions of the Loan Agreement and of this Agreement, including, inter alia, provisions ensuring that sub-loans shall, except as the Guarantor, the Bank and the Borrower shall otherwise agree in respect of a particular sub-loan or, in the event referred to in Section 3.02(a)(iv)(B) of the Loan Agreement, in respect of all sub-loans, be on the following financial terms and conditions: (a) the amortization schedule for each sub-loan shall provide for (1) an appropriate grace period not exceeding three years, (2) repayment terms of not less than four years and of not more than ten years, and (3) approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal, semi-annual, or more frequent, payments of principal; (b) the Investment Enterprise shall repay the principal of each sub-loan in Pesos, such repayment to be made in accordance with either one of the following two methods: (1) the principal amount to be so repaid shall be the amount in Pesos equal to the sum withdrawn by CFP from the Subsidiary Loan Account for the purpose of making the sub-loan in question; or (2) the principal amount to be so repaid shall be the equivalent Pesos of the amount in foreign currency withdrawn by the Borrower from the Loan Account for the purpose of enabling CFP to make the sub-loan in question. (c) The method of repayment of the sub-loan shall be determined by agreement between CFP and the Investment Enterprise as of the date of approval of the Investment Project for which the sub-loan shall be made. (d) The Investment Enterprise shall pay interest on th- outstanding principal of each sub-loan at either one of the following rates: (1) where the repayment method chosen is the one provided in paragraph (b)(1) above, at the rate of 24% per annum; and (2) where the repayment method chosen is the one provided in paragraph (b)(2) above, at the rate of 13-1/2% per annum. Section 2.03. Except as the Bank shall otherwise agree, CFP shall apply the proceeds of the Loan allocated in accordance with Section 3.02(a)(i) of the Loan Agreement exclusively to financing technical assistance, and to ensure that technical assistance investments and technical assistance sub-loans be on the following terms and conditions: (a) the principal amount outstanding of each technical assistance investment shall bear interest at the rate of twelve per cent (12%) per annum; 5 (b) the principal amount outstanding of each technical assistance sub-loan shall bear interest at the rate of fifteen per cent (15%) per annum; and (c) the Investment Enterprise shall repay the principal of each technical assistance sub-loan in Pesos and the principal amount to be so repaid shall be the amount in Pesos equal to the amount drawn by CFP from the Subsidiary Loan Account for the purposes of making the technical assistance sub-loan in question. Section 2.04. (a) CFP shall exercise its rights in relation to each of its Investment Projects financed in whole or in part out of the proceeds of the Loan in such manner as to protect the interests of the Bank, the Borrower and CFP. (b) CFP undertakes that, unless the Bank shall otherwise agree, any sub-loan will be made on terms whereby CFP shall obtain, by written contract with the Investment Enterprise or by other appropriate legal means, adequate rights protecting the interests of the Bank, the Borrower and CFP, enabling the Borrower to carry out its obligations under the Loan Agreement, and including, without limitation, in the case of any such sub-loan the right to: (i) cause such Investment Enterprise to carry out and operate the respective Investment Project with due diligence and efficiency and in accordance with sound technical, managerial and financial standards, including the maintenance of adequate records and documents; (ii) apply to sub-loans the financial terms and conditions set forth or referred to in Section 2.02 hereof; (iii) cause such Investment Enterprise to use the proceeds of the sub-loan exclusively to finance the goods and services required to carry out the Investment Project in respect of which such proceeds were withdrawn and ensure that such goods and services shall be used exclusively in the carrying out of such Investment Project; (iv) ensure the Bank's and CFP'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 Enterprise shall take out and maintain with responsible insurers such insurance, against such 6 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 acquisition, 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; (vi) obtain all such information as the Bank, the Borrower and CFP shall reasonably request relating to the foregoing and to the administration, operations and financial condition of such Investment Enterprise; (vii) suspend or terminate further access by such Investment Enterprise to the use of the proceeds of the Loan upon failure by such Investment Enterprise to carry out the terms of such sub-loan or investment. Section 2.05. (a) CFP shall furnish to the Bank all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, Investment Enterprises, Investment Projects, technical assistance investments, technical assistance sub-loans, and sub-loans, and the administration, c-orations and financial condition of CFP. (b) CFP shall maintain records adequate to record the progress of the Project and of each of the Investment Projects (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of CFP. CFP shall enable the Bank's representatives to examine such records. Section 2.06. (a) CFP shall cooperate fully with the Bank to assure that the purposes of the Loan will be accomplished. To that end, CFP shall from time to time, at the request of the Bank exchange views with the Bank through their representatives with regard to the progress of the Project, the performance by CFP of its obligations under this Agreement, the administration, operations and financial condition of CFP and any other matters relating to the purposes of the Loan. (b) CFP shall promptly inform the Borrower and the Bank of any condition 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 CFP of its other obligations under this Agreement. 7 Section 2.07. CFP shall take such measures and action necessary or convenient for the expansion of its operations and for the improvement of: (a) appraisal and supervision of Investment Projects; (b) its procurement and disbursement procedures; and (c) its liquidity position, as shall be agreed from time to time between the Bank and CFP. Section 2.08. CFP shall take such measures to reduce the amount of CFP's loans overdue and payable as are specified in the Schedule to this Agreement. Section 2.09. CFP shall carry out: (a) an organization study with terms of reference satisfactory to the Bank; and (b) the recommendations of such study in accordance with a timetable and to an extent satisfactory to the Bank. Section 2.10. CFP shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, CFP shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.11. CFP shall inform the Bank of any proposed amendment of O its Estatutos and its Declaration of Policies and Procedures. Section 2.12. CFP shall make arrangements satisfactory to the Bank to cover itself against all foreign exchange risks arising from the holding of Pesos received as repayments of the principal amount of sub-loans made in accordance with Section 2.02(b)(2) of this Agreement until such amounts shall have been paid to the Borrower under the Subsidiary Loan Agreement. ARTICLE III Other Covenants Section 3.01. CFP shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition. Section 3.02. (a) CFP shall establish and maintain: (i) a separate sub-loan account and shall record in it exclusively all receipts and payments for or in connection with sub-loans; and (ii) a separate technical assistance account and shall record in it exclusively all receipts and payments for or in connection with technical assistance investments and technical assistance sub-loans. (b) CFP shall use the funds paid in (i) such sub-loan account exclusively to make further sub-loans, and (ii) in such technical assistance account exclusively to make further technical assistance investments and technical assistance sub-loans. 8 (c) CFP shall enable the Bank's representatives to examine such sub-loan account and such technical assistance account. Section 3.03. CFP shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than four months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) 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 CFP and the audit thereof as the Bank shall from time to time reasonably request. Section 3.04. Except as the Bank shall otherwise agree, CFP shall not incur, or permit any of its Financial Subsidiaries to incur, any debt if, after the incurring of any such debt, the consolidated debt of CFP and all its Financial Subsidiaries then incurred and outstanding would be greater than four times the consolidated capital and surplus of CFP and all its Financial Subsidiaries. For the purposes of this Section: (a) The term "debt" means any debt incurred by CFP or any of its Financial Subsidiaries. (b) Debt shall be deemed to be incurred (i) under a loan contract or agreement, on the date and to the extent that the amount of the loan is drawn down and outstanding pursuant to such a loao contract or agreement, and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into, but only to the extent that the guaranteed debt is outstanding. (c) The term "consolidated debt of CFP and all its Financial Subsidiaries" means the total amount of debt of CFP and all its Financial Subsidiaries, excluding any debt owed by CFP to any Financial Subsidiary or by any Financial Subsidiary to CFP or to any other Financial Subsidiary. (d) The term "consolidated capital and surplus of CFP and all its Financial Subsidiaries" means the aggregate of the total unimpaired paid-up capital and the unallocated surplus and free reserves of CFP and all its Financial Subsidiaries, after excluding therefrom such amounts as shall represent (i) equity interests of CFP 9 in any Financial Subsidiary or of any Financial Subsidiary in CFP or any other Financial Subsidiary and (ii) provisions for probable losses on the outstanding amount of all loans and investments made or guarantees given by CFP as shall have been determined by CFP, to the satisfaction of the auditors referred to in Section 3.03 of this Agreement, to be adequate to cover the risk of such losses in accordance with sound business and financial practices. (e) The term "Financial Subsidiary" as used in this Section means any subsidiary which, in the judgment of the Bank, is engaged in promotional, financial or technical activities similar or complementary to the operations of CFP. (f) Whenever in connection with this Section it shall be necessary to value in terms of Pesos debt payable in a foreign currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by CFP or its Financial Subsidiaries for the purposes of servicing such debt. Section 3.05. CFP shall at all times take all steps necessary to maintain its corporate existence and right to carry on operations and shall 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. Section 3.06. CFP shall cause each of its subsidiaries (if any) to observe and perform the obligations of CFP hereunder to the extent to which such obligations shall or can be applicable thereto, as though such obligations were binding upon each of such subsidiaries. Section 3.07. CFP shall 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 currencies (including Pesos) used in its lending and borrowing operations. Section 3.08. CFP shall amend its Estatutos, in a manner satisfactory to the Bank, to preclude any shareholder other than the Guarantor from having a controlling representation on CFP's Board of Directors or Loan Committee. For the purposes of this paragraph, the term "shareholder" includes any entities in which the shareholder owns a proprietary interest. Section 3.09. CFP shall employ any staff required to- fill in any vacant second-level management positions of CFP in the areas of administration, finance, operations or development. 10 ARTICLE IV Effective Date; Termination; Cancellation and Suspension 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 CFP thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms. Section 4.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Loan Agreement. 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 hereinafter specified or at such other address as such party shall 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. 11 For CFP: Corporaci6n Financiera Popular Calle 17, No 7-43 Bogot6 Colombia Cable address: CORPOPULAR BogotA Section 5.02. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of CFP may be taken or executed by its Gerente General or such other person or persons as he shall designate in writing. Section 5.03. CFP shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of CFP, take any action or execute any documents required or permitted to be taken or executed by CFP pursuant to any of the provisions of this Agreement. Section 5.04. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. 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 /s / Gerald Alter Regional Vice President Latin America and the Caribbean CORPORACION FINANCIERA POPULAR By /s / Rodrigo Escobar Navia Authorized Representative 12 SCHEDULE Control and Reduction of Arrears CFP will initiate a firm and concerted program of action to reduce arrears to more acceptable levels, particularly arrears in excess of one year. This program will, inter alia, include some or all of the following actions: (a) Reviewing the arrears affected portfolio on a case to case basis periodically (for instance every six months) to gain an understanding of the factors contributing to defaults and to identify appropriate measures for recovery. (b) When the arrears are due to interest liability falling due during the construction period or an unrealistic repayment schedule because of inadequate appraisal, evaluating the desirability of rescheduling the financial terms. (c) Regularly reviewing staff levels and assignments of responsibility at branch level to ensure that sufficient resources are being applied to the reduction of arrears and that follow-up procedures are being properly carried out. (d) Ensuring that CFP's interest rate structure does not provide incentives for borrowers to default in the payment of principal or interest to take advantage of lower interest rates offered by the corporation. (e) Exploring, when appropriate, the possibility of reconstructing an ailing enterprise under new management with the assistance of other creditors or related industrial concerns. (f) If other courses of action do not bear results, giving warning of CFP's intention to institute legal proceedings and taking firmer legal actions against defaulting parties than in the past. The position of defaulting concerns will be reviewed periodically and reports submitted to the Board of Directors indicating the actions taken and further action planned. Such reports will be used to ensure that CFP makes adequate provisions from year to year towards bad and doubtful debts.