Ecuador - Fourth Development Banking Project : Loan 1731 - Project Agreement - 7 - Conformed

LOCUBNTJ LOAN NUMBER 1731 EC Project Agreement (Fourth Development Banking Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and ECUATORIANA DE FINANCIAMIENTO S.A. (ECUFINSA) Dated 0-o0-b 31 , 1980 LOAN NUMBER 1731 EC PROJECT AGREEMENT AGREEMENT, dated OkJL 3( , 1980, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and ECUATORIANA DE FINANCIAMIENTO S.A. (here- inafter called ECUFINSA). WHEREAS by the Loan Agreement Number 1731 EC, dated Decem- ber 17, 1979, between Republic of Ecuador (hereinafter called the Borrower) and the Bank, the Bank has agreed to lend to the Borrower an amount in various currencies equivalent to forty million dollars ($40,000,000) 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 Agree- ment) one of which is ECUFINSA, but only on condition that, inter alia, ECUFINSA agrees to undertake such obligations toward the Bank as hereinafter set forth; and WHEREAS ECUFINSA, in consideration of the Bank's enter- ing 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 conte. 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 following additional terms have the following meanings: (a) "Estatuto" means the estatuto of ECUFINSA, dated July 31, 1975, as amended to the date to this Agreement and as the same may be amended from time to time; (b) "Statement of Operating Policies and Procedures" means ECUFINSA's statement of operational and financial policies approved by ECUFINSA's Board on October 20, 1980, as amended to the date of this Agreement and as such Statement may be amended from time to time; and (c) "Total Portfolio" means all loans and investments made and guarantees given by ECUFINSA and its Financial Subsidiaries -2- (including deudores por aceptaciones, operaciones vencidas and crfditos documentarios). ARTICLE II Execution of the Project Section 2.01. ECUFINSA shall carry out its part of the Project described in Section 3.01 (a) of the Loan Agreement and conduct its operations and affairs in accordance with sound financial and investment practices and standards under the super- vision of qualified and experienced management and in accordance with its Estatuto and its Statement of Operating Policies and Procedures. Section 2.02. ECUFINSA 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 in- terests of the Borrower, the Bank and ECUFINSA; 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 provision thereof. Section 2.03. ECUFINSA shall be entitled, subject to the provisions of the Subsidiary Loan Agreement, to use the proceeds of the Loan as provided in Sections 2.02, 2.03 and 3.02 of the Loan Agreement and in Schedule 2 to such Agreement. Section 2.04. (a) ECUFINSA shall: (i) present Investment Projects to the Bank for approval or for authorization, through the Borrower; (ii) deliver withdrawal applications from the Loan Account as provided in Section 2.03 of the Loan Agreement; and (iii) furnish to the Borrower and the Bank all such documents and information as required pursuant to such Section. (b) ECUFINSA shall calculate, in accordance with methods satisfactory to the Bank, the financial and economic rates of return of any project to be financed by ECUFINSA requiring: (i) ECUFINSA's medium- and long-term financing of more than the equivalent of $500,000; or (ii) a Sub-loan or Investment in an amount exceeding the equivalent of $150,000; and shall 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 financed by ECUFINSA other than Investment Projects. 3 Section 2.05. (a) ECUFINSA 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 ECUFINSA. (b) ECUFINSA undertakes that, unless the Bank shall other- wise agree, any Sub-loan or Investment will be made on terms whereby ECUFINSA 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 ECUFINSA, 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 appro- priate, 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 3.04 of the Loan Agreement; (iii) cause such Investment Enterprise to use the pro- ceeds of the Loan exclusively to finance the goods and services required to carry out the Investment Project in respect of which such pro- ceeds were withdrawn and ensure that such goods and services shall be: (A) used exclusively in the carrying out of such Investment Project; and (B) 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 availability 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 ECUFINSA's rights to inspect such goods and the sites, works, plants and construction included in such Investment Project, -4- 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 fore- going, 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 or ECUFINSA shall reasonably 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 Enterprise to perform its obligations to ECUFINSA. Section 2.06. ECUFINSA 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. Section 2.07. (a) ECUFINSA 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 Investment Enterprises, the Investment Projects, the Sub-loans and Investments, and the administration, operations and financial condition of ECUFINSA (including any proposal to create, acquire or take over a Subsidiary). -5- (b) ECUFINSA shall maintain records adequate to record the progress of the Project and of each Investment Project financed by ECUFINSA (including the cost thereof) and to reflect in accor- dance with consistently maintained sound accounting practices the operations and financial condition of ECUFINSA, and shall enable the Bank's representatives to examine such records. (c) ECUFINSA shall: (i) 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; (ii) furnish to the Bank, as soon as available but, in any case, not later than five months after the end of each such year, (A) certified copies of its audited 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 (.) furnish to the Bank such other information concerning the accounts and financial statements of ECUFINSA and the audit thereof as the Bank shall from time to time reasonably request. Section 2.08. (a) The Bank and ECUFINSA shall cooperate fully to assure that the purposes of the Loan will be accomp- lished. To that end, the Bank and ECUFINSA 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 ECUFINSA of its obligations under this Project Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of ECUFINSA and any other matters relating to the purposes of the Loan. (b) ECUFINSA shall 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 ECUFINSA of its obligations under this Project Agreement. Section 2.09. ECUFINSA shall not amend, repeal -or fail to comply with its Estatuto or its Statement of Operating Poli- cies and Procedures without the Bank's prior consent. Section 2.10. If ECUFINSA 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 -6- as permitted by its Statement of Operating Policies and Proce- dures, ECUFINSA 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 satisfactory to the Borrower and the Bank to protect or secure the interests of the Borrower. Section 2.11. (a) Except as the Bank shall otherwise agree, ECUFINSA shall not incur or permit any of its Financial Subsidi- aries to incur any debt, if, after the incurring of any such debt, the consolidated debt of ECUFINSA and its Financial Subsidiaries then incurred and outstanding would be greater than ten times the consolidated capital and surplus of ECUFINSA and its Financial Subsidiaries. (b) For the purposes of this Section and of'Section 2.15 of this Agreement: (i) "debt" means any debt incurred or guaranteed by ECUFINSA or any of its Financial Subsidiaries; (ii) debt shall be deemed to be incurred: (A) under a loan contract or agreement (including the Sub- sidiary 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 (B) 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; (iii) "consolidated capital and surplus of ECUFINSA and its Financial Subsidiaries" means the aggregate of the total unimpaired capital, legal reserves and unappropriated retained earnings of ECUFINSA and its Financial Subsidiaries after excluding there- from such amounts as shall represent: (A) equity interests of ECUFINSA in any of its Financial Subsidiaries or of any such Financial Subsidiary in ECUFINSA or in any other of its Financial Subsidi- aries; and (B) provisions for losses on the out- standing amount of all loans and investments made or guarantees given by ECUFINSA as shall have been determined by ECUFINSA to be adequate to cover -7- the risk of such losses in accordance with sound business and financial practices and ECUFINSA's Statement of Operating Policies and Procedures; (iv) "unimpaired capital" means paid-up capital less accumulated losses; and (v) "consolidated debt of ECUFINSA and its Financial Subsidiaries" means the total outstanding amount of debt of ECUFINSA and its Financial Subsidiaries, excluding therefrom any debt owed by ECUFINSA to any of its Financial Subsidiaries or by any Subsi- diary to ECUFINSA or any other of its Financial Subsidiaries. (c) 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 ECUFINSA or its Financial Subsidiaries for the purposes of servicing such debt. (d) ECUFINSA shall- establish and maintain and shall 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 ECUFINSA or its Financial Subsidiaries, including letters of credit issued or guaranteed by ECUFINSA or any of its Financial Subsidiaries. Section 2.12. (a) Except as the Bank and ECUFINSA shall otherwise agree, the balance outstanding at any time after December 31, 1980 of ECUFINSA's short-term portfolio shall not be greater than eighty per cent (80%) of its Total Portfolio. (b) For purposes of this Section, "ECUFINSA's short-term portfolio" means loans made and guarantees given by ECUFINSA and its Financial Subsidiaries (including deudores por acepta- ciones, operaciones vencidas and creditos documentarios) having an original final maturity of less than three years. Section 2.13. (a) ECUFINSA 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 husiness. -8- (b) ECUFINSA shall cause each of its Subsidiaries (if any) to observe and perform the obligations of ECUFINSA 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 2.14. ECUFINSA shall, except as the Bank shall otherwise agree, 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 establish by December 31, 1981 and maintain thereafter, such provision at a level of not less than one per cent of its outstanding Total Portfolio. Section 2.15. Except as the Bank shall otherwise agree: (a) ECUFINSA shall not make a Sub-loan to or an Investment in an Investment Enterprise exceeding the limits established in Section 3.02 (b) of the Loan Agreement. (b) ECUFINSA shall limit the maximum aggregate exposure of ECUFINSA 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 ECUFINSA and its Financial Subsidiaries. For the purposes of this paragraph, "aggregate exposure of ECUFINSA to its stockholders" means the sum of all outstanding loans and investments made and guarantees given by ECUFINSA to its stockholders which form part of ECUFINSA's Total Portfolio. ARTICLE III Effective Date; Termination; Cancellation and Suspension Section 3.01. This Agreement shall come into force and effect upon its signature by the Bank and ECUFINSA. Section 3.02. This Agreement and all obligations of the Bank and of ECUFINSA thereunder shall terminate on the earlier of the following three dates: (i) the date on which the Loan Agreement shall terminate 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 ECUFINSA, shall have been paid by ECUFINSA; or -9- (iii) the date on which the portion of the principal of the Loan relent to ECUFINSA shall have been repaid by the Borrower in advance of its agreed maturity in accordance with the terms of the Loan Agreement. Section 3.03. All the provisions of this Agreement shall continue in full force and effect rrotwithstanding any cancellation or suspension under the Loan Agreement. ARTICLE IV Miscellaneous Provisions Section 4.01. No delay in exercising, or omission to exercise any right, power or remedy accruing to any party under this Project Agreement upon any default shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquiescence in such default; nor shall the action of such party in respect 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 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: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) - 10 - For ECUFINSA: Apartado Postal 3900 Guayaquil Ecuador Telex: 3411 ECUFIN ED 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 ECUFINSA may be taken or executed by its Presidente or such other person or persons as ECUFINSA shall designate in writing. Section 4.04. ECUFINSA 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 ECUFINSA, take any action or execute any documents required or permitted to be taken or executed by ECUFINSA pursuant to any of the provisions of this Agreement. Section 4.05. This Agreement may be executed in several counterparts, each of which shall be an original, and all collec- tively 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/ Ze F. Ltu Acting Regional Vice President Latin America and the Caribbean ECUATORIANA DE FINANCIAMIENTO S.A. (ECUFINSA) Authorized Representative 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 &L/ A day of , 1980. FOR SECRETARY