Chile - Schwager Project : Loan 0171 - Guarantee Agreement - 2 - Conformed

LOANS NUMBER 171 and 172 CH Supplemental Guarantee Agreement (Lota and Schwager Projects) BETWEEN THE REPUBLIC OF CHILE AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JULY 1, 1964 LOANS NUMBER 171 and 172 CH Supplemental Guarantee Agreement (Lota and Schwager Projects) BETWEEN THE REPUBLIC OF CHILE AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED JULY 1, 1964 Onpplemental Areement AGRZEEMENT, dated July 1, 1964, between INTER- NATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, party of the first part (hereinafter called the Bank) and CORPORACION DE FOMENTO DE LA PRODUCCION and CARBONI- FERA LOTA-SCHWAGER S.A., parties of the second part. WYHEREAS (A) By a loan agreement (hereinafter called the Lota Agreement) dated July 24, 1957 between the Bank and Compania Carbonifera e Industrial de Lota (herein- after called Lota) and Corporaci6n de Fomento de la Pro- ducci6n (hereinafter called Fomento), the Bank made a loan (hereinafter called the Lota loan) to Lota and Fo- mento of an amount in various currencies equivalent to nine million six hundred thousand dollars ($9,600,000), on the terms and conditions set forth in the Lota Agreement; (B) By a loan agreement (hereinafter called the Schwa- ger Agreement) dated July 24, 1957 between the Bank and Compania Carbonifera y de Fundici6n Schwager S.A. (hereinafter called Schwager) and Fomento, the Bank made a loan (hereinafter called the Schwager loan) to Schwager and Fomento of an amount in various currencies equivalent to twelve million two hundred thousand dollars ($12,200,000), on the terms and conditions set forth in the Schwager Agreement; (C) By guarantee agreements (hereinafter called Guar- antee Agreements) dated July 24, 1957 between the Repub- lic of Chile and the Bank, the Republic of Chile (herein- after called the Guarantor) guaranteed the Lota loan and the Schwager loan, on the terms and conditions set forth in the Guarantee Agreements; (D) By mortgage deeds (hereinafter called the 1ort- gages) dated October 5, 1957 and August 31, 1957, Lota and Schwager created, as security for the Lota loan and the 4 Schwager loan respectively, a first mortgage upon the properties referred to in said mortgage deeds, on the terms and conditions therein provided; (E) Desiring to merge into one enterprise, and after having received appropriate governmental authorization, the shareholders of Lota and Schwager held extraordinary general meetings on December 16, 1963, where they adopted Resolutions providing, inter alia, for (i) the merger of Schwager into Lota by means of a transfer to Lota of all the assets and liabilities of Schwager, (ii) the change of Lota's name to Carbonifera Lota-Schwager S.A., and (iii) the increase of Lota's authorized capital and the issuance of new shares to be exchanged for the existing shares of Schwager; (F) On February 29, 1964 the Government of Chile is- sued Decree No. 686 approving the merger of Lota and Schwager, on the terms and conditions established in the Resolutions referred to in (E) above; (G) Carbonifera Lota-Schwager S.A. (hereinafter called the Merged Company) has assumed all the obligations of Schwager, including the obligations of Schwager under the Schwager Agreement; (H) The Bank has been asked to agree to certain modi- fications of the Lota Agreement and the Schwager Agree- ment (hereinafter when collectively referred to called the 1957 Agreements), to which modifications the Guarantor concurs pursuant to the terms of a supplemental agree- ment between the Guarantor and the Bank of even date herewith (hereinafter called the Supplemental Guarantee Agreement) ; and WHEREAS upon the basis inter alia of the foregoing the Bank, Fomento and the Merged Company have agreed to modify the 1957 Agreements upon the terms and conditions hereinafter set forth; Now THEREFORE, it is hereby agreed as follows: 5 ARTICLE I SECTION 1.01. The Merged Company has assumed, and hereby agrees to carry out, all the obligations of Schwager under the Schwager Agreement, and the Bank and Fomento hereby recognize the succession of the Merged Company to the rights of Schwager under the Schwager Agreement, with the same effect as though the Merged Company were substituted for Schwager as a party to such Agreement and as though the words "Carbonifera Lota-Schwager S.A." were substituted for the -words "Compania Carbo- nifera y de Fundici6n Schwager S.A." wherever used therein, subject to the modifications of the Schwager Agree- ment herein provided for. SECTION 1.02. All the rights and obligations of Fomento under the Schwager Agreement shall remain unaltered, except to the extent expressly modified by this Supple- mental Agreement. SECTION 1.03. The Lota Agreement shall continue in full force and effect, subject to the modifications thereof herein provided for, and as though the words "Carbonifera Lota- Schwager S.A." were substituted for the words "Coni- pania Carbonifera e Industrial de Lota". ARTICLE II SECTION 2.01. The Lota Agreement is hereby modified as follows: (a) By the deletion of paragraph (b) in Section 1.02 and the substitution therefor of the following new para- graph, namely: " (b) 'Company' means Carbonifera Lota-Schwager S.A., one of the parties of the second part hereto;" (b) By the addition of the following new paragraphs to Section 1.02, namely: 6 "(f) 'Fomento Agreements' means the agreements be- tween Fomento and the Company and between Fomento and Compania Carbonifera y de Fun- dici6n Schwager S.A. (hereinafter called Schwa- ger), both dated November 4, 1957, providing for the supply of funds for the Project, and in- cludes any modification or supplement thereof. "(g) 'Fomento Loan' means the loans made by Fo- mento to the Company and Schwager pursuant to the Fomento Agreements." (c) By the deletion of Section 2.07 and the substitution therefor of the following new Section, namely: "Section 2.07. Subject to the provisions of Section 2.08 of this Agreement, the Borrowers shall repay the principal of the Loan in accordance with the amortiza- tion schedule set forth in Schedule 1 to this Agree- ment." '(d) By the addition of the following new Section to Arti- cle II, namely: "'Section 2.08. (a) Except as the Bank and Fomento shall otherwise agree, if in any year ending December 31 cash dividend payments by the Company, as per- mitted under Section 5.09 of this Agreement, shall exceed 20o of its available net profit, as defined in Section 5.09 of this Agreement, the Company shall, simultaneously, apply an amount equivalent to any such excess to the repayment in advance of maturity of the principal amount (including premium, if any) of the Loan and of the Fomento Loan, at the time out- standing and unpaid, such repayments to be divided equally between the Bank and Fomento; provided, however, that no such repayment of the principal amount (including premiuni, if any) of the Loan shall be made if the amount so repayable would be less than the equivalent of one thousand dollars. " (b) Except as the Bank and the Company shall otherwise agree, if the Company shall repay in ad- 7 vance of maturity any part of its indebtedness under the Fomento Loan, otherwise than pursuant to para- graph (a) of this Section, the Company shall simul- taneously repay an equal amount of the Loan then outstanding and unpaid; provided, however, that there shall be no prepayment of the Fomento Loan if the amount of such prepayment together with the repay- ment to be made to the Bank as provided herein would reduce the net working capital (as defined in Section 5.09 of this Agreement) of the Company to an amount less than 16%o of the value of coal raised for sale (as defined in Section 5.09 of this Agreement) during the preceding 12 calendar months. "(c) Except as the Bank and the Company shall otherwise agree, any repayment made to the Bank pursuant to paragraphs (a) and (b) of this Section shall be applied to the last maturity of the principal amount of any portions of the Loan then outstanding and unpaid; provided, however, that the Company shall not be obligated to make any prepayment to the Bank and Fomento under paragraph (a) above if it should have prepaid all the maturities due after De- cember 31, 1972 of the Loan or of the Fomento Loan. Said repayments shall be made using the same rate of exchange that would be applicable to scheduled repay- ments of the Loan. " (d) Except as the Bank and the Borrowers shall otherwise agree, any repayment made to Fomento pur- suant to paragraphs (a) and (b) of this Section shall be applied to the last maturity of the principal amount of the Fomento Loan then outstanding and unpaid." (e) By the deletion of the date "Decemuber 31, 1962" in Sections 5.08 and 5.09(2) and the substitution therefor of the date "December 31, 1965". (f) By the addition in Sections 5.14 and 5.15 of the words "the Supplemental Agreement," after the words "this Agreement,". 8 (g) By the deletion of the date "June 30, 1962" in Sec- tion 8.01 and the substitution therefor of the date "De- cember 31, 1965". (h) By the deletion of Section 8.02 and the substitution therefor of the following new Section, namely: "Section 8.02. The following addresses are specified for the purposes of Section 8.01 of the Loan Regula- tions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Alternative address for cablegrams and radio- grams: Intbafrad Washington, D.C. For Fomento: Corporaci6n de Fomento de la Producci6n 80 Pine Street New York, New York United States of America For the Company: Carbonifera Lota-Schwager S.A. Casilla 2056 Santiago, Chile Alternative address for cablegrams and radio- grams: Talo Santiago, Chile." (i) By the addition in Section 8.03 of the words "and the 9 Supplemental Agreement" after the words "this Agree- ment" where those words occur. (j) By the deletion of Schedule 1 and tLe substitution therefor of the following new Schedule, namely: "SCHEDULE 1 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* October 15, 1962 362,000 April 15, 1963 372,000 October 15, 1963 383,000 April 15, 1964 394,000 October 15, 1964 - April 15, 1965 - October 15, 1965 - April 15, 1966 - October 15, 1966 107,000 April 15, 1967 107,000 October 15, 1967 107,000 April 15, 1968 322,000 October 15, 1968 322.000 April 15, 1969 322,000 October 15, 1969 322,000 April 15, 1970 536,000 October 15, 1970 536,000 April 15, 1971 536,000 October 15, 1971 536,000 April 15, 1972 536,000 October 15, 1972 536,000 April 15, 1973 539,000 October 15, 1973 539,000 April 15, 1974 539,000 October 15, 1974 539,000 April 15, 1975 554,000 October 15, 1975 554,000 * To the extent that any part of the Loan is repayable in a currency other than dollars (see Loan Regulations, Section 3.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. 10 Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any part of the principal amount of the Loan pursuant to Section 2.05 (b) of the Loan Regulations or on the prepayment of any Note prior to its maturity pursuant to Section 4.14 of the Loan Agreement: Time of Prepayment Premium Not more than 2 years before maturity .1. 12% More than 2 years but not more than 4 years before maturity ..................... 2% More than 4 years but not more than 8 years before maturity ................... 31/ More than 8 years but not more than 10 years before maturity ................ 4% More than 10 years before maturity ...... 5 /o7 (k) By the deletion of Schedule 2 and the substitution therefor of the following new Schedule, namely: " SCHEDULE 2 Description of Project The Project is an 8-year program for the concentration, modernization and replacement of the Company's produc- tion facilities at the Lota and Schwager mines. It is in- tended to permit an annual production of a total of 1.5 million tons from the mines by the year 1965. However, the program for stone development, and for the purchase of mining machinery has been designed to provide the basic facilities for achieving and maintaining an annual production of 1.9 million tons by the year 1972. The Project at Lota includes: 1. Connecting roadways and ventilation galleries be- tween the new shafts and the old mining areas. These con- nections would be driven in the period from 1957 to 1962. 11 2. New mine development work over an 8-year period beginning in 1957 including the installation of two inclined haulage systems to reach the coal reserves between the 450 and 600 meter levels. The total of connecting and de- velopment drivages amount to about 30 kilometers. Appro- priate equipment for transportation and face work will be acquired. 3. Equipment of one of the new shafts with up-to-date hoisting and decking facilities with a capacity of about 2,000 metric tons per day, and electrification of hoisting equipment of one of the old shafts. 4. The faces will be worked by the long-wall method al- ready practiced at the mine; scraper-chain and power loaders will be used to feed the gate conveyors, and trunk conveyors will move the coal from the gate conveyors to the main loading points. Coal cutters, coal plows, drills, conveyors, steel face supports, steel arches and other items necessary to the completion of the scheme will be procured. 5. Building and equipment of a coal preparation plant with a capacity of about 300 metric tons per hour. 6. Construction and installation of other surface installa- tions including stocking facilities, machine shop, engineers' offices, safety department and lamp room, foremen's build- ing, pithead baths and employees' housing. 7. Acquisition of equipment for mechanization of the accounting department and of trucks for transportation of materials within the surface installations." (1) By the addition of the following new paragraph after paragraph (a) in Schedule 3, namely: "(b) The words 'subject to the provisions of Section 2.08 of the Loan Agreement' shall be added at the end of Section 2.05(a)." (m) By the deletion of paragraph (e) in Schedule 3 and the substitution therefor of the following new paragraph, namely: "(f) Paragraph (c) of Section 5.02 shall read as fol- lows: 12 '(c) A default shall have occurred in the per- formance of any other covenant or agreement on the part of the Borrowers, or either of them, under the Loan Agreement or the Notes, or under the loan agreement of even date here- with between the Bank and Fomento and Com- pania Carbonifera y de Fundici6n Schwager S.A.'" (n) By the addition of the following new paragraphs after paragraph (j) in Schedule 3, namely: "(1) Paragraph 3 of Section 10.01 shall be deleted, and the following shall be substituted therefor: '3. The term "Loan Agreement" means the particular loan agreement to which these Regulations shall have been made applica- ble, as amended from time to time; and such term includes the Supplemental Agreement between the Bank and the Bor- rowers dated July 1, 1964 and all other agreements supplemental to the Loan Agreement and all schedules to the Loan Agreement.' "(m) Paragraph 5 of Section 10.01 shall be deleted, and the following shall be substituted therefor: '5. The term "Guarantee Agreement" means the agreement between a member and the Bank providing for the guarantee of the Loan; and such term includes the Supple- mental Guarantee Agreement between the Guarantor and the Bank dated July 1, 1964, and all other agreements supplemental to the Guarantee Agreement and all schedules to the Guarantee Agreement." (o) By substituting letters (c) (d) (e) (g) (h) (i) (j) (k) (n) (o) (p) (q) for (b) (c) (d) (f) (g) (h) (i) (j) (k) (1) (m) (n) respectively in Schedule 3. (p) By the substitution of the words " Carbonifera Lota- Schwager S.A." for the words " Compailla Carbonifera e Industrial de Lota" where those words occur in Schedule 5-a. 13 (q) By the deletion of the first sentence of the second paragraph in Schedule 5-a and the substitution therefor of the following new sentence, namely: "This note is one of the notes (hereinafter called the Notes) issued or to be issued under a Loan Agreement dated July 24, 1957, between International Bank for Reconstruction and Development (hereinafter called the Bank) and Compaila Carbonifera e Industrial de Lota and Corporaci6n do Fomento do la Producci6n, as modified and supplemented by a Supplemental Agree- ment dated July 1, 1964 between the Bank and the Company and (Corporaci'n de Fonento de la Pro- duccion, providing for a loan (hereinafter called the Loan) of an amount in various currencies equivalent to $9,600,000 and guaranteed by The Republic of Chile pursuant to the provisions of a Guarantee Agree- ment dated July 24, 1957, between The Republic of Chile and the Bank, as modified and supplemented by a Supplemental Guarantee Agreement dated July 1, 1964, between The Republic of Chile and the Bank." (r) By the substitution of the words "Compaifa Ca r- bonifera e Industrial de Lota " for the words ''the Com- pany" in the first sentence of the third paragraph in Sched- ule 5-a. SECTION 2.02. The Schwager Agreement is hereby modi- fled as follows: (a) By the deletion of paragraph (b) in Section 1.02 and the substitution therefor of the following new paragraph, namely: "(b) 'Company' means Carbonifera Lota-Schwager S.A., one of the parties of the second part hereto;" (b) By the addition of the following new paragraphs to Section 1.02, namely: " (f) 'Fomento Agreements' means the agreements between Fomento and the Company and between 14 Fomento and Compania Carbonifera e Indus- trial de Lota (hereinafter called Lota), both dated November 4, 1957, providing for the sup- ply of funds for the Project, and includes any modification or supplement thereof. "(g) 'Fomento Loan' means the loans made by Fo- mento to the Company and Lota pursuant to the Fomento Agreements." (c) By the deletion of Section 2.07 and the substitution therefor of the following new Section, namely: " Section 2.07. Subject to the provisions of Section 2.08 of this Agreement, the Borrowers shall repay the prin- cipal of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement." (d) By the addition of the following new Section to Ar- ticle II, namely: "Section 2.08. (a) Except as the Bank and Fomento shall otherwise agree, if in any year ending December 31 cash dividend payments by the Company, as per- mitted under Section 5.09 of this Agreement, shall exceed 20% of its available net profit, as defined in Section 5.09 of this Agreement, the Company shall, simultaneously, apply an amount equivalent to any such excess to the repayment in advance of maturity of the principal amount (including premium, if any) of the Loan and of the Fomento Loan, at the time out- standing and unpaid, such repayments to be divided equally between the Bank and Fomento; provided, however, that no such repayment of the principal amount (including premium, if any) of the Loan shall be made if the amount so repayable would be less than the equivalent of one thousand dollars. " (b) Except as the Bank and the Company shall otherwise agree, if the Company shall repay in ad- vance of maturity any part of its indebtedness under the Fomento Loan, otherwise than pursuant to para- graph (a) of this Section, the Company shall simul- taneously repay an equal amount of the Loan then 15 outstanding and unpaid; provided, however, that there shall be no prepayment of the Fomento Loan if the amount of such prepayment together with the repay- ment to be made to the Bank as provided herein would reduce the net working capital (as defined in Section 5.09 of this Agreement) of the Company to an amount less than 16%% of the value of coal raised for sale (as defined in Section 5.09 of this Agreement) during the preceding 12 calendar months. " (c) Except as the Bank and the Company shall otherwise agree, any repayment made to the Bank pur- suant to paragraphs (a) and (b) of this Section shall be applied to the last maturity of the principal amount of any portions of the Loan then outstanding and un- paid; provided, however, that the Company shall not be obligated to make any prepayment to the Bank and Fomento under paragraph (a) above if it should have prepaid all the maturities due after December 31, 1972 of the Loan or of the Fomento Loan. Said repayments shall be made using the same rate of exchange that would be applicable to scheduled repayments of the Loan. " (d) Except as the Bank and the Borrowers shall otherwise agree, any repayment made to Fomento pur- suant to paragraphs (a) and (b) of this Section shall be applied to the last maturity of the principal amount of the Fomento Loan then outstanding and unpaid." (e) By the deletion of the words "Director Gerente" in Section 4.11 and the substitution therefor of the words "Gerente General". (f) By the deletion of the date "December 31, 1962" in Sections 5.08 and 5.09 (2) and the substitution therefor of the date "December 31, 1965". (g) By the deletion of the figure "22% "in Section 5.09 (3) and the substitution therefor of the figure "16%%". (h) By the addition in Sections 5.14 and 5.15 of the words "the Supplemental Agreement," after the words "this Agreement,". 16 (i) By the deletion of the date "December 31, 1962" in Section 8.01 and the substitution therefor of the date "De- cember 31, 1965". (j) By the deletion of Section 8.02 and the substitution therefor of the following new Section, namely: "Section 8.02. The following addresses are specified for the purposes of Section 8.01 of the Loan Regula- tions: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Alternative address for cablegrams and radio- grams: Intbafrad Washington, D.C. For Fomento: Corporaci6n de Fomento de la Producci6n 80 Pine Street New York, New York United States of America For the Company: Carbonifera Lota-Schwager S.A. Casilla 2056 Santiago, Chile Alternative address for cablegrams and radio- grams: Talo Santiago, Chile." 17 (k) By the addition in Section 8.03 of the words "and the Supplemental Agreement" after the words "this Agree- ment" where those words occur. (1) By the deletion of Schedule 1 and the substitution therefor of the following new Schedule, namely: "SCHEDULE 1 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* October 15, 1962 April 15, 1963 460,000 October 15, 1963 473,000 April 15, 1964 487,000 October 15, 1964 - April 15, 1965 - October 15, 1965 - April 15, 1966 - October 15, 1966 143,000 April 15, 1967 143,000 October 15, 1967 143,000 April 15, 1968 428,000 October 15, 1968 428,000 April 15, 1969 428,000 October 15, 1969 428,000 April 15, 1970 714,000 October 15, 1970 714,000 April 15, 1971 714,000 October 15, 1971 714,000 April 15, 1972 714,000 October 15, 1972 714,000 April 15, 1973 731,000 Octobe. 15, 1973 731,000 April 15, 1974 731,000 October 15, 1974 731,000 April 15, 1975 716,000 October 15, 1975 715,000 * To the extent that any part of the Loan is repayable in a currency other than dollars (see Loan Regulations, Section 3.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. 18 Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any part of the principal amount of the Loan pursuant to Section 2.05 (b) of the Loan Regulations or on the prepayment of any Note prior to its maturity pursuant to Section 4.14 of the Loan Agreement: Time of Prepayment Premium Not more than 2 years before maturity ... %/o More than 2 years but not more than 4 years before maturity ................ 2o More than 4 years but not more than 8 years before maturity ................ 31/oo More than 8 years but not more than 10 years before maturity ..............4%o More than 10 years before maturity ..... 5%o/ "1 (m) By the deletion of Schedule 2 and the substitution therefor of the following new Schedule, namely: "SCHEDULE 2 Description of Project The Project is an 8-year program for the concentration, modernization and replacement of the Company's produc- tion facilities at the Lota and Schwager mines. It is in- tended to permit an annual production of a total of 1.5 million tons from the mines by the year 1965. However, the program for stone development, and for the purchase of mining machinery has been designed to provide the basic facilities for achieving and maintaining an annual production of 1.9 million tons by the year 1972. The Project at Schwager includes: (1) UNDERGROUND DEVELOPMENT The main cross-cuts driven from the bottom of the exist- ing 900-meter shafts will be prolonged about 2.6 m. and 19 two branch-cuts of about 3.3 km. and 2.0 km. respectively, will be developed from the main cross-cuts. Where these roads cut the seams, laterals will be driven approximately north and south following the strike, and cross-cuts and sub-laterals will be developed to open up the coal faces. The main cross-cut and branch-cuts will form the main haulage system for the new mine. Another set of laterals will be driven at the 750 m. level and interconnected for return airways. Altogether, about 38 km. of development drivages and about 14 km. of road widening will be com- pleted by 1965. Necessary rock-work equipment will be acquired. (2) FACE AND OTHER UNDERGROUND EQUIPMENT The faces will be worked by the long-wall method already practiced at the mine; scraper-chain and power loaders will be used to feed the gate conveyors, and trunk conveyors will move the coal from the gate conveyors to the main loading points. Coal cutters, coal plows, drills, conveyors, steel face supports, steel arches and other items necessary to the completion of the scheme will be procured. Some of this equipment will be used initially in the existing mine and subsequently will be transferred to the new mine. The main underground pumping station and all underground electrical equipment for the new mine will be purchased and installed. (3) UNDERGROUND HAULAGE AND SHAFT HoISTING EQUIPMENT Ninety cm. tracks -will be installed, and trolley locomo- tives, mine cars, and all other equipment necessary to the underground haulage will be procured. A reserve con- verter set for shaft No. 1 will be installed. (4) COAL PREPARATION PLANT The existing coal preparation plant will be overhauled. (5) SURFACE FACILITIES The following additional surface facilities will be con- structed and installed: new workshops including welding, 20 boiler and blacksmith's shops, carpenter's shop, pattern shops, foundry, and vehicle shop; new stores close to the new workshops; an oxygen plant; an outside substation, including transformers, switchgear and choke-type con- densers; and other necessary surface installations such as a check office, control office, pithead baths and lamp room." (n) By the addition of the following new paragraph after paragraph (a) in Schedule 3, namely: "(b) The words 'subject to the provisions of Section 2.08 of the Loan Agreement' shall be added at the end of Section 2.05(a)." (o) By the deletion of paragraph (e) in Schedule 3 and the substitution therefor of the following new paragraph, namely: "(f) Paragraph (c) of Section 5.02 shall read as fol- lows: '(c) A default shaF have occurred in the per- formance of any other covenant or agreement on the part of the Borrowers, or either of them, under the Loan Agreement or the Notes, or under the loan agreement of even date herewith between the Bank and Fomento and Compania Carbonifera e Industrial de Lota.' " (p) By the addition of the following new paragraphs after paragraph (j) in Schedule 3, namely: "(1) Paragraph 3 of Section 10.01 shall be deleted, and the following shall be substituted therefor: '3. The term "Loan Agreement" means the par- ticular loan agreement to which these Reg- ulations shall have been made applicable, as amended from time to time; and such term includes the Supplemental Agreement be- tween the Bank and the Borrowers dated July 1, 1964 and all other agreements sup- plemental to the Loan Agreement and all schedules to the Loan Agreement.' 21 "(m) Paragraph 5 of Section 10.01 shall be deleted, and the following shall be substituted therefor: '5. The term "Guarantee Agreement" means the agreement between a member and the Bank providing for the guarantee of the Loan; and such term includes the Supple- mental Guarantee Agreement between the Guarantor and the Bank dated July 1, 1964, and all other agreements supplemental to the Guarantee Agreement and all schedules to the Guarantee Agreement.' " (q) By substituting letters (c) (d) (e) (g) (h) (i) (j) (k) (n) (o) (p) (q) for (b) (c) (d) (f) (g) (h) (i) (j) (k) (1) (m) (n) respectively in Schedule 3. (r) By the substitution of the words " Carbonifera. Lota- Schwager S.A." for the words "Compafilia Carbonifera y de Fundici6n Schwager S.A." where those words occur in Schedule 5-a. (s) By the deletion of the first sentence of the second paragraph in Schedule 5-a and the substitution therefor of the following new sentence, namely: " This note is one of the notes (hereinafter called the Notes) issued or to be issued under a Loan Agreement dated July 24, 1957, between International Bank for Reconstruction and Development (hereinafter called the Bank) and Compaiia Carbonifera y de Fundici6n Schwager S.A. and Corporaci6n de Fomento de la Producci6n, as modified and supplemented by a Sup- plemental Agreement dated July 1, 1964 between the Bank and the Company and Corporaci6n de Fomento de la Producci6n, providing for a loan (here- inafter called the Loan) of an amount in various currencies equivalent to $12,200,000 and guaranteed by The Republic of Chile pursuant to the provisions 22 of a Guarantee Agreement dated July 24, 1957, be- tween The Republic of Chile and the Bank, as modi- fied and supplemented by a Supplemental Guarantee Agreement dated July 1, 1964 between the Republic of Chile and the Bank." (t) By the substitution of the words "Compafifa Car- bonifera y de Fundici6n Schwager S.A." for the words "the Company" in the first sentence of the third para- graph in Schedule 5-a. ARTICLE III SECTIoN 3.01. The Merged Company shall within sixty days after receipt of a request from the Bank execute and deliver, in form satisfactory to the Bank, such instruments as may be required to modify and supplement the Mort- gages to the effect that the provisions of this Supplemental Agreement be duly incorporated to the extent requested by the Bank in said Mortgages which, in all other aspects, shall remain in full force and effect; and Fomento shall give whatever consent shall be necessary for the proper execution of said instruments. SECTION 3.02. Within thirty days after the execution of the instruments referred to in Section 3.01 above, the Merged Company shall furnish to the Bank an opinion or opinions satisfactory to the Bank of counsel acceptable to the Bank that said instruments have been duly executed and delivered, that they have been duly registered, recorded or filed in all offices or jurisdictions required, and that they constitute valid obligations under the laws of the Guar- antor enforceable in accordance with their terms. SECTION 3.03. Except as the Bank shall otherwise agree, the Merged Company and Fomento shall, not later than October 1, 1964, substitute Notes executed and guaranteed substantially in the form set forth in Schedules 5-a and 23 5-b of the 1957 Agreements, as modified by this Supplemen- tal Agreement, for all Notes issued by Lota and Schwager under the 1957 Agreements and outstanding on that date. The substitution of Notes herein provided for shall be made without charge to the Bank. SECTION 3.04. By agreement between the Bank, the Merged Company and Fomento the mine development pro- grams referred to in Section 5.11(c) of the 1957 Agree- ments have been updated and extended to December 31, 1965. No further changes shall be made in said programs without the agreement of the Bank. ARTICLE IV SECTION 4.01. This Supplemental Agreement shall come into force and effect on the date upon which the Bank dis- patches to the Merged Company, to Fomento and to the Guarantor notice of its acceptance of: (A) evidence that (i) the execution and delivery of this Supplemental Agreement on behalf of Fomento and the Merged Company have been duly authorized or ratified by all necessary corporate and governmental action; (ii) the execution and delivery of the Supplemental Guarantee Agreement on behalf of the Guarantor have been duly au- thorized or ratified by all necessary governmental action; (iii) Fomento and the Merged Company have modified the Fomento Agreements (as defined in the 1957 Agreements) in form satisfactory to the Bank, and such modification has entered into force; and (iv) the transfer of Schwager's assets to the Merged Company has been duly recorded and registered in Chile; and (B) an opinion or opinions satisfactory to the Bank of counsel acceptable to the Bank showing: (a) on behalf of the Merged Company and Fomento (i) that this Supplemental Agreement has been duly authorized or ratified by, and executed 24 and delivered on behalf of, the Merged Com- pany and Fomento; (ii) that the 1957 Agreements as amended by this Supplemental Agreement constitute valid and binding obligations of the Merged Company and Fomento in accordance with their terms as so amended; (iii) that the Notes when executed and delivered by the Merged Company and Fomento pursuant to Section 3.03 of this Supplemental Agreement will constitute valid and binding obligations of the Merged Company and Fomento in accord- ance with their terms and that, except as stated in such opinion, no signatures or formalities other than those provided in the 1957 Agree- ments are required for that purpose; (iv) that the modification of the Fomento Agree- ments referred to in (A) (iii) above has been duly authorized or ratified by, and executed and delivered on behalf of, Fomento and the Merged Company and that the Fomento Agree- ments as so modified constitute a valid and binding obligation of Fomento and the Merged Company in accordance with their terms; and (v) that the transfer of Schwager's assets to the Merged Company has been duly recorded and registered in Chile, and that the Merged Com- pany has full ownership thereof; and (b) on behalf of the Guarantor (i) that the Supplemental Guarantee Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Guar- antor; (ii) that, after this Supplemental Agreement comes into force, the Guarantee Agreements, as mod- 25 ified by the Supplemental Guarantee Agree- ment, will continue to constitute valid and binding obligations of the Guarantor in accord- ance with their terms as so modified; and (iii) that the guarantee on the Notes when executed and delivered in accordance with Section 3.03 of this Supplemental Agreement will consti- tute a valid and binding obligation of the Guar- antor in accordance with its terms and that, except as stated in such opinion, no signatures or formalities other than those provided for in the Guarantee Agreements are required for that purpose. SECTION 4.02. If all acts required to be performed pur- suant to Section 4.01 above shall not have been performed before 60 days after the date of this Supplemental Agree- ment or such other date as shall be agreed upon by the Bank, Fomento and the Merged Company, the Bank may at any time thereafter at its option terminate this Supple- mental Agreement by notice to Fomento and the Merged Company. Upon the giving of such notice this Supple- mental Agreement shall forthwith terminate. SECTION 4.03. Except as the Bank shall otherwise agree, the Merged Company and Fomento shall not amend, as- sign, abrogate or waive any provision of the Fomento Agreements and of their modification referred to in Section 4.01 (A) (iii) above. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Supplemental Agreement to be signed in their respective names and delivered in the District of Columbia, 26 United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By J. BURKE KNAPP Vice President CORPORACION DE FOMENTO DE LA PRODUCCION By JOSE ZABALA Authorized Representative CARBONIFERA LOTA-SCIWAGER S.A. By GUILLERMO VIDELA LIRA Authorized Representative