Ecuador - Fourth Development Banking Project : Loan 1731 - Project Agreement - 2 - Conformed

O AL. LOAN NUMBER 1731 EC tOC4ENTS ffD 3 CE A I T SI Project Agreement (Fourth Development Banking Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and CORPORACION FINANCIERA NACIONAL Dated be4twl-; 17 , 1979 LOAN NUMBER 1731 EC PROJECT AGREEMENT AGREEMENT, dated NcoUk& 17 , 1979, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and CORPORACION FINANCIERA NACIONAL (hereinafter called CFN). WHEREAS by the Loan Agreement of even date herewith 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 CFN, COFIEC and New Financieras (as such terms are defined in the Loan Agreement), but only on con- dition that, inter alia, CFN agree to undertake such obligations toward the Bank as hereinafter set forth; and WHEREAS CFN, 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) shall have the respective meanings therein set forth and the term "1977 Project Agreement" means the Project Agreement (Third Development Finance Companies Project) between the Bank and CFN, dated February 18, 1977. ARTICLE II Execution of the Project Section 2.01. (a) CFN 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 supervision of qualified and experienced management and personnel and in accor- dance with its Estatutos and the Statement of Operating Policies and Procedures. -2- Section 2.02. CFN 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 interests of the Borrower, the Bank and CFN; and (iii) 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. CFN shall be entitled, subject to the provi- sions 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) CFN shall: (i) present Investment Projects to the Bank for approval or for authorization through the Bor- rower; (ii) deliver withdrawal applications from the Loan Account, all 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) CFN shall calculate, in accordance with methods satis- factory to the Bank, the financial and economic rates of return of any project to be financed by CFN requiring: (i) medium- or long- term financing by CFN 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 CFN other tlan Investment Projects. (c) For the purposes of this Section "medium- or long-term financing" means an investment, loan or guarantee with a maturity of three or more years. (d) The provisions of this Section replace the provisions of Section 2.03 of the 1977 Project Agreement. Section 2.05. (a) CFN shall 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 the interests of the Borrower, the Bank and CFN. -3- (b) CFN undertakes that, unless the Bank shall otherwise agree, any Sub-loan or Investment will be made on terms whereby CFN shall obtain, by written agreement with the Investment Enter- prise or other appropriate legal means, rights adequate to protect the interests of the Borrower, the Bank and CFN, 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 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 proceeds were withdrawn and ensure that such goods and services shall be: (1) used 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 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 CFN'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 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 indem- nity 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 CFN 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 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 CFN. Section 2.06. (a) CFN 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 CFN (including any proposal to create, acquire or take over a Subsidiary). (b) CFN shall maintain records adequate to record the progress of the Project and of each Investment Project financed by CFN (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of CFN and shall enable the Bank's representatives to examine such records. (c) CFN shall: (i) have its accounts and financial state- ments (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 -5- the end of each such year, certified copies of its audited finan- cial statements for such year and 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 financial statements of CFN and the audit thereof as the Bank shall from time to time reasonably request. Section 2.07. (a) The Bank and CFN shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and CFN shall from time to time, at the request of either party, exchange views through their represen- tatives with regard to the progress of the Project, the perfor- mance by CFN of its obligations under this Project Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of CFN and any other matters relating to the purposes of the Loan. (b) CFN 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 CFN of its obliga- tions under this Agreement. Section 2.08. If CFN 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, CFN shall, except as the Borrower and the Bank shall otherwise agree, promptly repay an amount of the Subsidiary Loan equiva- lent to the fair value of such property or assets or make other arrangements satisfactory to the Borrower and the Bank to pro- tect or secure the interests of the Borrower. Section 2.09. Except as the Bank and CFN shall otherwise agree, CFN shall not incur or permit any of its Financial Subsi- diaries to incur any debt if, after the incurring of any such debt, the consolidated debt of CFN and all its Financial Subsi- diaries then incurred and outstanding would be greater than eight times the consolidated capital and surplus of CFN and its Finan- cial Subsidiaries. For the purposes of this Section: (a) "Debt" means any debt incurred or guaranteed by CFN 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 loan 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 out- standing and unpaid. (c) "Consolidated capital and surplus of CFN and its Finan- cial Subsidiaries" means the aggregate of the total unimpaired capital, legal reserves and unappropriated retained earnings of CFN and its Financial Subsidiaries after excluding therefrom such amounts as shall represent: (i) equity interests of CFN in any of its Financial Subsidiaries or of any such Financial Subsidiary in CFN or in any other of its Financial Subsidiaries; and (ii) provisions for losses on the outstanding amount of all loans and investments made or guarantees given by CFN as shall have been determined by CFN to be adequate to cover the risk of such losses in accordance with sound business and financial practices and also with Section 2.11 (c) (i) of this Agreement. (d) "Unimpaired capital" means paid-up capital less accu- mulated losses. (e) "Consolidated debt of CFN and its Financial Subsid- iaries" means the total amount of debt of CFN and its Financial Subsidiaries, excluding therefrom any debt owed by CFN to any of its Financial Subsidiaries or by any Subsidiary to CFN or any other of its Financial Subsidiaries. (f) 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 CFN or its Financial Subsidiaries for the purposes of servicing such debt. The provisions of this Section replace the provisions of Section 2.11 of the 1977 Project Agreement. -7- Section 2.10. (a) CFN 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. (b) CFN shall cause each of its Subsidiaries (if any) to observe and perform the obligations of CFN 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 2.11. Except as the Bank shall otherwise agree, CFN shall, inter alia, take all such steps, satisfactory to the Bank, as shall be necessary: (a) (i) to prepare and present to the Bank for comment, not later than June 30, 1980, a program aimed at the disposition of current loans, guarantees and equity invest- ments in a single firm, or group of related firms, whose combined amounts shall exceed the exposure limits established in CFN's Statement of Operating Policies and Procedures; and (ii) to carry out such program in a manner and according to a timetable satis- factory to the Bank; (b) (i) 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; not later than June 30, 1980, prepare and furnish to the Bank, for approval, a study to determine reasonable limits to CFN exposure to foreign exchange risks, such study to include a program for reducing current CFN exposure to such risks to such limits and a timetable for its execution, which shall be reviewed annually by CFN and the Bank; (ii) to put into effect such program in a manner satisfactory to the Bank; and (iii) the provisions of this para- graph (b) replace the provisions of Section 2.06 of the 1977 Project Agreement; and (c) (i) maintain, within limits which shall be satisfactory to the Bank, its provisions for losses on the outstanding amount of all loans and investments made or guarantees given by CFN; and (ii) the provisions of this paragraph (c) replace the provisions of paragraph (ii) of Section 2.01 (b) of the 1977 Project Agreement. Section 2.12. Except as the Bank shall otherwise agree, CFN 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. - 8 - Section 2.13. CFN shall take all necessary measures to amend, to the extent required by the Bank, CFN's Statement of Operating Policies and Procedures in respect of: (i) the amendment of Article VII Section 20 thereof to reflect the provisions of Section 2.09 of this Agreement; and (ii) the amendment of Article VII Section 17 thereof to provide for the maintenance of CFN's equity valued in Sueres of constant purchasing power. ARTICLE III Effective Date; Termination; Cancellation and Suspension Section 3.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effec- tive. Section 3.02. (a) This Agreement and all obligations of the Bank and of CFN thereunder shall terminate on the earlier of the following three dates: (i) t le date on which the Loan Agreement shall termi- na.e 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 applicable Subsidiary Loan, shall have been paid by CFN; or (iii) the date on which the portion of the principal of the Loan relent to CFN 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 pursuant to Section 12.04 of the General Conditions, the Bank shall promptly notify CFN of this event. Section 3.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the Loan Agreement. -9- 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: INTBAFRAD Washington, D.C. For CFN: Corporaci6n Financiera Nacional Apartado No. 163 Quito, Ecuador Cable address: CORFINAL Quito - 10 - 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 CFN may be taken or executed by its Gerente General or such other person or persons as CFN shall designate in writing. Section 4.04. CFN 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 CFN, take any action or execute any documents required or permitted to be taken or executed, by CFN 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 I!J~~ j~J7 ~t- Regional Vice President Latin America and the Caribbean CORPORACION FINANCIERA NACIONAL By /31 0 C 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 / Lday of Dele 1971. FOR SECRETARY