Ecuador - Third Development Banking Project : Loan 1359 - Project Agreement - 2 - Conformed

CONFORMED COPY LOAN NUMBER 1359 EC PROJECT AGREEMENT (Third Development Banking Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and ECUATORIANA DE DESARROLLO S. A. COMPANIA FINANCIERA Dated February 18, 1977 PROJECT AGREEMENT AGREEMENT, dated February 18, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and ECUATORIANA DE DESARROLLO S.A. COMPARIA FINANCIERA (here- inafter called COFIEC). WHEREAS (A) by the Loan Agreement of even date herewith be- tween Republic of Ecuador (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-six million dollars ($26,000,000), on the terms and conditions set forth in the Loan Agreement for relending to COFIEC, CFN and New Financieras (as such terms have been defined in the Loan Agreement), but only on condition that, inter alia, COFIEC agree to undertake such obligations toward the Bank as hereinafter set forth; WHEREAS COFIEC, 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: -2- 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,and the term "1973 Project Agreement" means the Project Agreement (Second Development Finance Companies Project) between the Bank and COFIEC dated Au- gust 17, 1973. -3- ARTICLE II Execution of the Project Section 2.01. (a) COFIEC shall carry out its part of the Project described in Section 3.01 (a) of the Loan Agreement, conduct its operations and affairs in accordance with sound financial and investment practices and standards under the supervision of qualified and experienced management and in accordance with its Estatutos and its Statement of Operating Policies and Procedures. This paragraph replaces Section 2.01 of the 1973 Project Agreement. (b) Without limiting the generality of the foregoing, COFIEC shall, except as the Bank shall otherwise agree, take all such steps, satisfactory to the Bank, as shall be necessary to: (i) within six months of this Agreement: (A) introduce adjustments in COFIEC's organization, departamentalization and personnel function description to achieve a clear delineation of functions and respon- sibilities of its management, and (B) implement a plan, satisfac- tory to the Bank, for enhancing COFIEC's capacity for project evaluation and supervision; (ii) make, during the calendar years 1977 and 1978, monthly allocations to its provision for doubtful receivables of not less than S/600,000 or of such larger amounts as shall be required to reach, by December 31, 1978 and maintain thereafter up to December 31, 1979, a net provision of not less than 0.8% of the outstanding portfolio; and (iii) maintain the net provision after December 31, 1979 at a level of not less than 1% of such outstanding portfolio. (c) For the purposes of paragraph (b) of this Section: (i) the term "portfolio" includes loans made, or guarantees given by COFIEC (including deudores po. aceptaciones and cr9ditos documentarios); and (ii) the term "net provision" means COFIEC's provision for doubtful receivables at a given time minus any positive difference existing at such time between (A) S/25,700,000 and (B) the aggre- gate amount of COFIEC's receivables which shall have been written off since December 31, 1975. (d) The provisions of this Section replace the provisions of Section 2.01 (b) of the 1973 Project Agreement. Section 2.02. COFIEC shall: (i) enter into a Subsidiary Loan Agreement with the Borrower; (ii) exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the inte- rests of the Borrower, the Bank and COFIEC; and (iii) except as the Bank shall otherwise agree, not take or concur in any action which would have the effect of amending, abrogating, assigning, suspending or waiving the Subsidiary Loan Agreement or any provi- sion thereof. Section 2.03. COFIEC shall be entitled, subject to the provi- sions of the Subsidiary Loan Agreement, to withdraw the proceeds of the Loan as provided in Sections 2.02, 2.03 and 3.02 of the Loan Agreement. Section 2.04. (a) COFIEC shall submit Investment Projects to the Bank for approval or for authorization through the Bor- rower, as well as withdrawal applications from the Loan Account, as provided in Section 2.03 of the Loan Agreement and for such - 5 - purpose it shall furnish to the Borrower and the Bank all such documents and information as are required pursuant to such Section. (b) Without limiting the generality of the foregoing, COFIEC shall calculate, in accordance with methods satisfactory to the Bank, the financial and economic rates of return of: (i) every Investment Project requiring an investment by the Investment Enterprise of more than the equivalent of $250,000; and (ii) every project to be partially or totally financed by COFIEC (other than an Investment Project), requiring an investment by the recipient of COFIEC's financing of more than the equivalent of $500,000, and shall furnish to the Bank information on such rates when submitting an Investment Project to the Bank, or whenever the Bank will request such information in connection with the projects referred to in sub-paragraph (ii) above. Section 2.05. (a) COFIEC shall exercise its rights in rela- tion 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 the interests of the Borrower, the Bank and COFIEC. (b) COFIEC undertakes that, unless the Bank shall otherwise agree, any Sub-loan or Investment will be made on terms whereby COFIEC shall obtain, by written agreement with the Investment En- terprise or other appropriate legal means, rights adequate to pro- tect the interests of the Borrower, the Bank and COFIEC, enabling -6- 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 tech- nical, financial and management standards and to maintain adequate records and documents; (ii) apply to Sub-loans the financial terms and condi- tions set forth or referred to in Section 3.02 (b) of the Loan Agreement; (iii) cause such Investment Enterprise to use the proceeds of the Loan exclusively to finance the goods and services required to carry out the Investment Proj- ect in respect of which such proceeds were with- drawn and ensure that such goods and services shall be used (1) exclusively in the carrying out of such Investment Project and (2) purchased 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 competence of the parties render- ing them; (iv) ensure the Bank's and COFIEC's rights to inspect such goods and the sites, works, plants and con- struction 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 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 tha acquisition, trans- portation and delivery of the goods financed out of the proceeds of the Loan to the place of use or installation, and that any indemity thereunder shall be payable in a currency freely usable by such Investment Enterprise to replace or repair such goods; (vi) obtain all such infbrmation as the Bank or COFIEC shall reasonably request relating to the foregoing and to the administration, operations and financial condition of such Investment Enterprise; (vii) establish and amend the amortization schedule appli- cable to the respective Sub-loan in accordance with the corresponding provisions of the Subsidiary Loan Agreement; and - 8 - (viii) suspend or terminate access by such Investment En- terprise to the use of the proceeds of the Loan upon failure by such Investment Enterprise to per- form its obligations under its agreements with COFIEC. Section 2.06. (a) COFIEC 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 various currencies (including Sucres) used in its operations made or to be made after February 5, 1971. (b) COFIEC shall (i) create and maintain a reserve, in an amount satisfactory to the Bank, to cover the risk of loss result- ing from changes in the rates of exchange between the various currencies (including Sucres) used in its operations made on or before February 5, 1971, and outstanding from time to time, and (ii) review each year, together with its auditors, the adequacy of such reserve and report to the Bank on the findings of such review. Section 2.07. (a) COFIEC 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, the Invest- ment Enterprises, the Investment Projects, the sub-loans and investments, and the administration, operations and financial con- dition of COFIEC (including any proposal to create, acquire or take over a Subsidiary). -9- (b) COFIEC shall maintain records adequate to record the progress of the Project and of each Investment Project financed by COFIEC (including the cost thereof) and to reflect in accor- dance with consistently maintained sound accounting practices the operations and financial condition of COFIEC, and shall enable the Bank's representatives to examine such records. (c) COFIEC shall: (i) have its accounts and financial state- ments (balance sheets, statements of income and expenses and re- lated statements) for each fiscal year audited by independent auditors acceptable to the Bank in accordance with sound auditing principles consistently applied; (ii) furnish to the Bank, as soon as available but, in any case, not later than three months after the end of each such year, (A) certified copies of its au- dited financial statements for such year and (B) the report of such audit by such 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 fi- nancial statements of COFIEC and the audit thereof as the Bank shall from time to time reasonably request. Section 2.08. (a) The Bank and COFIEC shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and COFIEC shall from time to time, at the re- quest of either party, exchange views through their representatives with regard to the progress of the Project, the performance by COFIEC of its obligations under this Project Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of COFIEC and any other matters relating to the purposes of the Loan. - 10 - (b) COFIEC uhall promptly inform the Bank of any condition (including the incurrence of losses by reason of its borrowing operations outside the territories of the Borrower) which inter- feres 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 COFIEC of its obligations under this Project Agreement. Section 2.09. COFIEC shall exchange views with the Bank concerning any proposed amendment of its Estatutos or its Statement of Operating Policies and Procedures. Section 2.10. If COFIEC shall sell, lease, transfer, mortgage or otherwise dispose of or encumber its property or assets, ex- cept in the ordinary course of its operations as set forth in its Statement of Operating Policies and Procedures, COFIEC shall, except as the Borrower and the Bank shall otherwise agree, promptly repay an amount of the Subsidiary Loan equivalent to the fair value of such property or assets or make other arrangements satis- factory to the Borrower and the Bank to protect or secure the in- terests of the Borrower. Section 2.11. Subject to Section 2.12 of this Agreement and except as the Bank and COFIEC shall otherwise agree, COFIEC 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 COFIEC and its Financial Subsidiaries then incurred and outstanding would be greater than eight times the consolidated capital and surplus of COFIEC and its Financial Subsidiaries. - 11 - For the purposes of this Section and of Section 2.12 of this Agreement: (a) "Debt" means any debt incurred or guaranteed by COFIEC or any of its Financial Subsidiaries. (b) Debt shall be deemed to be incurred (i) under a loan contract or agreement (including 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. (c) "Consolidated capital and surplus of COFIEC and its Financial Subsidiaries" means the aggregate of the total unimpaired capital, unappropriated surplus and free reserves of COFIEC and its Financial Subsidiaries after excluding therefrom such amounts as shall represent (i) equity interests of COFIEC in any of its Financial Subsidiaries or of any such Financial Subsidiary in COFIEC or in any other of its Financial Subsidiaries and (ii) pro- visions for probable losses on the outstanding amount of all loans and investments made or guerantees given by COFIEC as shall have been determined by COFIEC to be adequate to cover the risk of such losses in accordance with sound business and financial practices and also with Section 2.01 (b) (ii) and (iii) of this Agreement. - 12 - (d) "unimpaired capital" means paid-up capital less accumu- lated losses. (e) "free reserves" means the aggregate of appropriate re- tained earnings and revaluation of assets. (f) "consolidated debt of COFIEC and its Financial Subsid- iaries" means the total outstanding amount of debt of COFIEC and its Financial Subsidiaries, excluding therefrom any debt owed by COFIEC to any of its Financial Subsidiaries or by any Subsidiary to COFIEC or any other of its Financial Subsidiaries. (g) Whenever in connection with this Section 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 pre- vailing lawful rate of exchange at which such other currency, is at the time of such valuation, obtainable by COFIEC or its Financial Subsidiaries for the purposes of servicing such debt. (h) COFIEC shall establish and shall cause each of its Financial Subsidiaries to establish, such accounting procedures as shall be satisfactory to the Bank, to ensure, at all times, the disclosure of any debt of COFIEC or its Financial Subsidiaries which will have been originated in letters of credit issued or guaranteed by COFIEC or any of its Financial Subsidiaries. - 13 - The provisions of this Section replace the provisions of Section 2.11 of the 1973 Project Agreement. Section 2.12. (a) Notwithstanding the provisions of Section 2.11 of this Agreement, the ratio referred to in such Section may be increased from time to time, with the prior approval of the Bank, up to a maximum of ten times the consolidated capital and surplus of COFIEC and its Financial Subsidiaries. (b) For purposes of paragraph (a) of this Section, the approval of the Bank referred to therein shall be subject to the following conditions: (i) that COFIEC's portfolio quality is satisfactory to the Bank; (ii) that COFIEC's liquidity management, project eval- uation capacity and project supervision are satis- factory to the Bank; and (iii) that a substantially large amount of the incremental lending resources allowed to be raised by any increase referred to in paragraph (a) of this Section shall be raised through the issue, by COFIEC, of bonds, financial certificates, or simi- lar instruments. - 14 - Section 2.13. (a) Except as the Bank and COFIEC shall other- wise agree, the balance outstanding at any time after December 31, 1978 of COFIEC's short- and medium-term portfolio shall not be greater than four times the consolidated capital and surplus of COFIEC and its Financial Subsidiaries. (b) For purposes of this Section, (i) "COFIEC's short- and medium-term portfolio" means loans made and guarantees given by COFIEC and its Financial Subsidiaries (including deudores por aceptaciones and creditos documentarios) having an original final maturity of less than five years, and (ii) the phrase "consolidated capital and surplus of COFIEC and its Financial Subsidiaries" has the same meaning as in Section 2.11 of this Agreement. Section 2.14. (a) COFIEC 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 nec- essary or useful in the conduct of its business. (b) COFIEC shall cause each of its Subsidiaries (if any) to observe and perform the obligations of COFIEC hereunder to the extent to which such obligations shall or can be applicable thereto, as though such obligations were binding upon each of such Subsid- iaries. Section 2.15. Whenever it shall be necessary for the purposes of this Project Agreement (except Sections 2.11 and 2.12 thereof) to determine the value in terms of Sucres of any other currency, such value shall be as determined by the Bank from time to time. - 15 - Section 2.16. COFIEC shall take all necessary measures to amend, to the extent required by the Bank, COFIEC's statement of Operating Policies and Procedures in respect of: (i) the deletion of Article 17 thereof; and (ii) the insertion therein of new Articles reflecting the provisions of Sections 2.11 and 2.13 of this Agreement. - 16 - ARTICLE III Effective Date; Termination; Cancellation and Suspension Section 3.01. This Agreement shall come into force and effect in the date upon which the Loan Agreement becomes effective. Section 3.02. (a) This Agreement and all obligations of the Bank and of COFIEC thereunder shall terminate on the earlier of the following three dates: (i) the date on which the Loan Agreement shall termi- nate in accordance with its terms; or (ii) the date on which the entire aggregate amount of the outstanding principal of, and all interest and other charges which shall have accrued on, every Subsidiary Loan made by the Borrower to COFIEC, shall have been paid by COFIEC; or (iii) the date on which the portion of the principal of the Loan relent to COFIEC shall have been repaid by the Borrower in advance of its agreed maturity in accordance with the terms of the Loan Agreement. (b) If the Loan Agreement shall terminate in accordance with Section 12.04 of the General Conditions, the Bank shall promptly notify COFIEC of this event. Section 3.03. All the provisions of this Agreement shall con- tinue in full force and effect notwithstanding any cancellation or suspension under the Loan Agreement. - 17 - ARTICLE IV Miscellaneous Provisions Section 4.01. No delay in exercising, or onission to exercise any right, power or remedy accruing to any party under this Proj- ect Agreement upon any default shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquies- cence in such default; nor shall the action of such party in re- spect of any default, or any acquiescence in any default, affect or impair any right, power or remedy of such party in respect of any other or subsequent default. Section 4.02. 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 desig- nated by iotice to the party giving such notice or making such re- quest. 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 - 18 - Cable address: INTBAFRAD Washington, D.C. For COFIEC: Ecuatoriana de Desarrollo S.A. (Compafa Financiera) Quito, Ecuador Cable address: COFIEC Quito Section 4.03. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of COFIEC may be taken or executed by its Presidente or such other person or persons as COFIEC shall desig- nate in writing. Section 4.04. COFIEC 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 COFIEC, take any action or execute any documents required or permitted to be taken or executed by COFIEC pursuant to any of the provisions of this Agreement. Section 4.05. This Agreement may be executed in several coun- terparts, each of which shall be an original, and all collectively but one instrument. - 19 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment 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/ Adalbert Krieger Regional Vice President Latin America and the Caribbean ECUATORIANA DE DESARROLLO S.A. COMPAiIA FINANCIERA By /s/ Lucindo Almeida Authorized Representative