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

CONFORMED COPY LOAN NUMBER 1359 EC LOAN AGREEMENT (Third Development Banking Project) between REPUBLIC OF ECUADOR and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated February 18, 1977 LOAN AGREEMENT AGREEMENT, dated February 18, 1977, between REPUBLIC OF ECUADOR (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by two loan agreements between the Borrower and the Bank dated, respectively, February 5, 1971, (hereinafter called the 1971 Loan Agreement) and August 17, 1973 (hereinafter called the 1973 Loan Agreement), the Bank made two loans to the Borrower for the purpose of providing financial assistance to Comisi6n de Valores - Corporaci6n Financiera Nacional and to Ecuatoriana de Desarrollo, S.A. (Compahfa Financiera), two development finance companies organized under the laws of the Borrower (hereinafter when collectively referred to called the Old Financieras), for investment in productive projects in Ecuador; and WHEREAS the Borrower has requested and the Bank has agreed to make a third loan to the Borrower, for the purposes and upon the terms and conditions hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- antee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Schedule 2 to this Agreement (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being herein- after called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth, and the following addi- tional terms have the following meanings: (a) "CFN" means Comision de Valores-Corporacign Financiera Nacional a development finance company established under Supreme Decree No. 1726 of the Borrower, dated August 21, 1964. (b) "COFIEC" means Ecuatoriana de Desarrollo S.A. (Compaifa Financiera), a development finance company incorporated under the Borrower's Finance Companies Act, Decree No. 2646 of November 29, 1965, and authorized to operate by Acuerdo No. 908 of the Minister of Industries and Commerce of the Borrower, dated January 7, 1966. -3- (c) "New Financiera" means any development finance company organized under the laws of the Borrower for investment in produc- tive projects in Ecuador, other than the Old Financieras, which has been accepted by the Bank for purposes of participating in the Project in accordance with Section 5.01 of this Agreement. (d) "Financiera" means CFN or COFIEC or any New Financiera, and "Financieras" means, collectively, the Old Financieras and the New Financieras, if any. (e) "DFC" means any development finance company organized in accordance with the laws of the Borrower, which, as of the date of this Agreement, has not been accepted by the Bank for purposes of participating in the Project in accordance with Sec- tion 5.01 of this Agreement. (f) "Project Agreement" means any of the following agree- ments: (i) the agreement of even date herewith between the Bank and CFN (CFN Project Agreement); or (ii) the agreement of even date herewith between the Bank and COFIEC (COFIEC Project Agree- ment); or (iii) each agreement to be entered into between the Bank and a New Financiera as required by Section 5.01(c) of this Agreement; and the term includes any amendment to such agreements. (g) "Subsidiary Loan Agreement" means a loan agreement be- tween the Borrower, acting through Banco Central, and a Financiera, referred to in Sections 4.01 and 1.02 of this Loan Agreement. 14 (h) "Subsidiary Loan" means a loan made or to be made by the Borrower to a Financiera out of the proceeds of the Loan pur- suant to a Subsidiary Loan Agreement. (i) "Sub-loan" means a loan or credit made or proposed to be made by a Financiera out of the proceeds of the Loan to an Invest- ment Enterprise for an Investment Project and "Free-limit Sub- loan" means a Sub-loan, as so defined, whieh qualifies as a Free-limit Sub-loan pursuant to the provisions of Section 2.02(c) of this Agreement. (j) "Investment" means an investment other than a Sub-loan made or proposed to be made by a Financiera out of the proceeds of the Loan in an Investment Enterprise for an Investment Project. (k) "Investment Enterprise" means an enterprise to which a Financiera proposes to make or has made a Sub-loan or in which it proposes to make or has made an Investdent. (1) "Investment Project" means a specific development proj- ect to be carried out by an Investment Enterprise utilizing the proceeds of a Sub-loan or Investment. (m) "Sucres" and "S/" mean the currency of the Borrower. (n) "Foreign currency" means any currency other than Sucres. -5- (o) "Estatutos" means, as the case may be: (1) the Estatutos of CFN, dated August 21, 1964, as amended as of July 9, 1976, date of publication in the Registro Oficial of Borrower's Decree No. 495; (2) the Estatutos of COFIEC, dated November 30, 1965, as amended as of April 25, 1975; and (3) the Estatutos of a New Financiera, as such Estatutos shall have been defined in the applicable Project Agreement. (p) "Statement of Operating Policies and Procedures" means as the case may be, the statement of lending and investments policy approved, respectively, by the Directors of: (1) CFN, on September 30, 1970 as amended as of August 20, 1974, as further amended pursuant to Section 2.16 of the CFN Project Agreement; (2) COFIEC, on November 27, 1968, as amended as of May 30, 1973 as further amended pursuant to Section 2.16 of the COFIEC Project Agreement; and (3) a New Financiera, as specified in the applicable Project Agreement. -6- (q) "Subsidiaries" means, with respect to each Financiera or each Investment Enterprise or DFC, one or more companies of which a majority of the outstanding voting stock or other pro- prietary interest is owned or effectively controlled by such Financiera or such Investment Enterprise or such DFC; and the term also includes any one or more companies of which a majority of the outstanding voting stock is owned or effectively controlled by any one or more Subsidiaries of such Financiera or Investment Enterprise or DFC or by such Financiera or such Investment Enter- prise or such DFC and, respectively, one or more of its Sub- sidiaries. (r) "Financial Subsidiaries" means one or more Subsidiaries which, in the judgment of the Bank, are engaged or propose to be engaged in promotional, financial or technical operations which are similar or supplementary to the operations of the applicable Financiera or DFC. (s) "Banco Central" means Banco Central del Ecuador. (t) "FOPEX" means Fondo de Promoci6n de Exortaciones, a fund established by the Borrower's Decree No. 673, dated July 24, 1972, as amended by the Borrower's Decree No. 208 dated March 11, 1976. (u) "Studies" means a program of studies designed to assist the Borrower in the identification, selection and implementation of capital market policies, instruments, institutions and re- gulations, conducive to channeling a significant share of domestic -7- savings into long term private sector financing. The Studies shall (i) comprise the resource mobilization role of development finance companies, development of new and improved financial instruments, intermediation in the Borrower's private sector savings, func- tioning of secondary markets and distribution of corporate ownership; and (ii) consist of the revision and updating of existing studies on the Borrower's capital market and the carry- ing out of such additional studies as may appear conducive to the preparation by the Borrower of sets of proposed draft legis- lative and other regulatory measures. (v) "Regulacin" means Regulaci6n 927-76 of the Borrower's Monetary Board, dated November 9, 1976. The terms defined importing the singular number import the plural numbers and vice versa. - 8- ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to twenty-six million dollars ($26,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account for amounts expended by the Borrower for expenditures made for an Investment Project or, if the Bank shall so agree, for amounts to be expended by the Borrower for an Investment Project, to finance the reasonable foreign-currency cost of goods and services required under a Sub-loan or Investment for the Investment Project in respect of which the withdrawal is requested. (b) Notwithstanding the provisions of paragraph (a) of this Section and except as the Borrower and the Bank shall other- wise agree, no withdrawal shall be made in respect of: (i) expenditures to be financed under a Sub-loan or Investment unless (A) such Sub-loan or Investment shall have been approved by the Bank or (B) such Sub-loan shall be a Free-limit Sub-loan for which the Bank shall have authorized withdrawals from the Loan Account; -9- (ii) expenditures made by an Investment Enterprise in respect of a Sub-loan subject to the Bank's approval, or in respect of an Investment, if such expendi- tures shall have been made more than ninety days prior to the date on which the Bank shall have received in respect of such Sub-loan or Investment the application and information required by Section 2.03 (a) of this Agreement or, in respect of a Free-limit Sub-loan, more than ninety days prior to the date on which the Bank shall have received in respect of such Free-limit Sub-loan the request and information required by Section 2.03 (b) of this Agreement; provided, fur-her, that no with- drawal shall be made in respect of expenditures made by an Investment Enterprise in respect of a Sub-loan subject to the Bank's approval or in res- pect of an Investment or in respect of a Free-limit Sub-loan if such expenditures shall have been made before the date of this Agreement, except that withdrawals in an aggregate amount not exceeding the equivalent of $1,000,000 may be made in re- spect of expenditures made by an Investment Enterprise before such date but after January 1, 1977 in respect of a Sub-loan subject to the Bank's approval or in respect of an Investment or in respect of a Free-limit Sub-loan if such Sub- loan, or Investment or Free-limit Sub-loan has been made, or if the Bank shall so agree, has been proposed to be made by COFIEC; - 10 - (iii) expenditures made by an Investment Enterprise unless the amount to be so withdrawn, or the Sucre equiva- lent thereof, shall have been disbursed (or, if the Bank shall have so agreed, shall be required to meet disbursements to be made) by the Borrower to the relevant Financiera pursuant to, and in accordance with, the applicable Subsidiary Loan Agreement; (iv) expenditures made by an Investment Enterprise unless the Bank shall have received, on behal'f of Banco Central or the applicable Financiera, as the case may be, evidence satisfactory to the Bank, including an opinion or opinions satisfactory to the Bank of counsel acceptable to the Bank that (A) the applicable Financiera shall have entered into a Project Agreement and a Subsidiary Loan Agreement; (B) such Project Agreement and Subsidiary Loan Agreement have been duly authorized or ratified by, and executed and delivered on be- half of, as the case may be, such applicable Financiera or Banco Central or both; (C) such Proj- ect Agreement constitutes a valid and binding ob- ligation of such Financiera in accordance with its terms; (D) the conditions precedent to disbursements under such Subsidiary Loan Agreement, if any, have been fulfilled and the Subsidiary Loan Agreement constitutes a valid and binding obligation of, respectively, Banco Central (on behalf of the - 11 - Borrower) and such Financiera, in accordance with its terms; provided, however, that the foregoing shall not apply if the applicable Project Agreement and Subsidiary Loan Agreement are the Project Agreement and Subsidiary Loan Agreement referred to, respectively, in para- graphs (b) and (c) of Section 7.01 of this Agreement; (v) expenditures made by an Investment Enterprise, financed or to be financed by CFN, unless the Bank is satisfied that CFN shall have complied, in respect of such Investment Enterprise, with the provisions of Section 2.15 of CFN Project Agreement; (vi) expenditures made by an Investment Enterprise fi- nanced or to be financed by CFN, unless the Bank shall have received, on behalf of CFN, evidence satisfactory to the Bank, including an opinion or opinions satisfactory to the Bank of counsel accept- able to the Bank, that the amenwnents to CFN's Statement of Operating Policies and Procedures re- quired by Section 2.16 of the CFN Project Agreement have been carried out by CFN and duly authorized by all corporate and governmental action; and (vii) expenditures made by an Investment Enterprise fi- nanced or to be financed by COFIEC, unless the Bank shall have received, on behalf of COFIEC, - 12 - evidence satisfactory to the Bank, including an opinion or opinions satisfactory to the Bank of counsel acceptable to the Bank, that the amend- ments to COFIEC's Statement of Operating Policies and Procedures required by Section 2.16 of the COFIEC Project Agreement, have been carried out by COFIEC and duly authorized by all corporate and governmental action. (c) A Free-limit Sub-loan shall be a Sub-loan made or pro- posed to be made by any of the Old Financieras in an amount to be financed out of the proceeds of the Loan for an Investment Project which: (i) when added to any other outstanding amounts financed or proposed to be financed out of the proceeds of the Loan for such Investment Project, shall not exceed the sum of (A) $1,000,000 equivalent, if the Sub-loan in question has been made or has been proposed to be made by CFN; or (B) $750,000 equivalent, if the Sub-loan in question has been made or has been proposed to be made by COFIEC; or (ii) when added to all other Free-limit Sub-loans financed or proposed to be financed out of the proceeds of the Loan by CFN or COFIEC, respectively, shall not exceed the sum of (A), $8,000,000 equivalent, in the case of CFN or (B) $5,000,000 equivalent, in the case of COFIEC. The foregoing amounts shall be subject to change from time to time as determined by the Bank. Section 2.03. (a) When presenting a Sub-loan (other than a Free-limit Sub-loan) or an Investment to the Bank for approval, the Borrower shall furnish to the Bank an application, in form satisfactory to the Bank, together with (i) a description of the Investment Enterprise and an appraisal of the Investment - 13 - Project financed or to be financed thereunder, including a descrip- tion of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the proposed terms and conditions of the Sub-loan or Investment, including the schedule of amortization of the Sub- loan or of repayment to the Bank of the amount of the Loan to be used for the Investment; and (iii) such other information as the Bank shall reasonably request. (b) Each request by the Borrower for authorization to make withdrawals from the Loan Account in respect of a Free-limit Sub- loan shall contain (i) a summary description of the Investment Enterprise and the Investment Project financed or to be financed thereunder, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) the terms and conditions of such Free-limit Sub-loan, including the schedule of amortization therefor; and (iii) such other information as the Bank shall reasonably request. (c) The Borrower shall present to the Bank, immediately upon receipt thereof from any Financiera, and in accordance with the relevant provisions of the applicable Subsidiary Loan Agreement, all requests for (i) the approval of the Bank under paragraph (a) of this Section; (ii) its authorization under paragraph (b) of this Section; and (iii) applications for withdrawals from the Loan Account pursuant to the provisions of Section 2.02 of this Agreement. (d) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions of paragraphs (a) and (b) of this Section shall be presented to the Bank on or before June 30, 1979. Section 2.04. The Closing Date shall be June 30, 1981 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and every Financiera of such later date. Section 2.05. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight and seventy hundredths per cent (8.70%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semi-annually on March 1 and September 1 in each year. Section 2.08. (a) The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement as such Schedule shall be amended from time to time by the Bank to the extent required to: (i) conform in relevant part substantially to the aggregate of the amortization schedules applicable to Sub-loans and the sched- ules of repayment to the Bank in respect of Investments, which - 15 - have been approved or authorized for withdrawals from the Loan Account under Sections 2.02 and 2.03 of this Agreement and (ii) take into account any cancellation pursuant to Article VI of the General Conditions and any repayments made by the Borrower under Section 2.09 of this Agreement; provided that repayments due hereunder shall be made on March I and September 1 in each year. Such amendments of said Schedule 1 shall include amendments to the table of premiums on prepayment, if necessary. (b) The amortization schedule applicable to each Sub-loan and the schedule of repayment to the Bank in respect of each In- vestment shall provide for an appropriate period of grace not ex- ceeding three years, and, unless the Bank and the Borrower shall otherwise agree (i) shall not extend beyond 15 years from the date of this Agreement, and (ii) shall provide for approximately equal semi-annual, or more frequent, aggregate payments of prin- cipal and interest or approximately equal semi-annual, or more frequent, payments of principal. (c) The Borrower shall transmit to the Bank, for its prior approval, any substantial changes proposed to be made by a Financiera in respect of the repayment provisions of any Sub-loan. Section 2.09. Unless the Bank and the Borrower shall other- wise agree: (a) If (i) a Sub-loan or any part thereof shall be repaid to any of the Financieras in advance of maturity, or (ii) a Sub- loan or an Investment or any part thereof shall be sold, trans- ferred, assigned or otherwise disposed of for value by any of the - 16 - Financieras, or (iii) any of the Financieras shall repay to the Borrower, in advance of maturity, in whole or in part, any amount lent by the Borrower to any such Financiera under the applicable Subsidiary Loan Agreement, then the Borrower shall promptly notify the Bank and shall repay to the Bank, on the next following in- terest payment date, together with the premiums specified in Schedule 1 to this Loan Agreement or in any amendment thereof under Section 2.08 (a) of this Loan Agreement, the amount withdrawn from the Loan Account in respect of such Sub-loan or Investment or part thereof and not theretofore repaid to the Bank. (b) Any amount so repaid by the Borrower shall be applied by the Bank as follows: (i) in the case of a Sub-loan, to the maturity or maturities of the Loan in amounts corresponding to the outstand- ing amounts of the maturity or maturities of the Sub-loan so repaid or disposed of, and (ii) in the case of an Investment, Dro rata to the maturity or maturities of the Loan reflecting amounts to be repaid on account of such Investment. (c) Paragraph (b) of Section 3.05 of the General Conditions shall not apply to any repayment made under paragraph (a) of this Section. - 17 - ARTICLE III The Project; Use of the Proceeds of the Loan Section 3.01. (a) The purpose of the Project is to assist the Borrower in financing such productive facilities and resources in Ecuador as will contribute to the economic development of the country. The Project consists in the financing by the Financieras of Investment Projects through Sub-loans to, and Investments in, Investment Enterprises in accordance with the Estatutos and Statements of Operating Policies and Procedures of the Financieras. (b) The Borrower shall cause each Financiera to carry out the Project and conduct its operations and affairs in respect of the Project in accordance with sound financial standards and practices, with qualified management and personnel, and in accordance with the provisions of this Agreement. Section 3.02. (a) Except as the Bank shall otherwise agree, the proceeds of the Loan shall be allocated to the Financieras as follows: (i) until March 31, 1978: Financieras Allocation CFN $13,000,000 COFIEC $10,000,000 New Financieras $ 3,000,000 - 18 - (ii) on or before March 31, 1978, or on such other date as the Bank shall determine, the amount of the Loan allocated to the New Financieras pursuant to sub-paragraph (i) above, shall be further allocated to each New Financiera as the Bank shall determine after exchanging views with the Borrower with regard to such further allocation of the proceeds of the Loan; provided, however, that any portion of the Loan allocated to the New Financieras in accordance with sub-paragraph (i) above which has not been allocated to a specific New Financiera in accordance with this sub-paragraph (ii) shall be reallocated in equal portions to CFN and COFIEC; and (iii) after December 31, 1978, any amount of the Loan allocated to a Financiera in accordance with the foregoing, in respect of which no approvals or authorizations for withdrawals in accordance with Sections 2.02 and 2.03 of this Agreement shall have been given by the Bank, may be reallocated by the Bank as it shall determine after exchanging views with the Borrower with regard to such further reallocation of the proceeds of the Loan for pur- poses of relending to the Financieras. The Bank shall notify any such reallocation to the Borrower and to each relevant Financiera. - 19 - (b) The Borrower shall cause each Financiera to apply the proceeds of the Loan relent to it by the Borrower exclusively to the financing of Investment Projects in accordance with the pro- visions of this Agreement and the applicable Project Agreement and Subsidiary Loan Agreement, including inter alia and without limitation, provisions ensuring that Sub-loans shall, except as the Borrower and the Bank shall otherwise agree, be on the following financial terms and conditions: (i) the schedule of amortization of each Sub-loan shall be as required by Section 2.08 (b) of this Agreement; (ii) the repayment by the Investment Enterprise to the Financiera shall be made in Sucres in an amount equivalent to the amount withdrawn by the Borrower from the Loan Account, determined as of the respective date of each withdrawal under the Subsidiary Loan Agreement for the purpose of making the Sub-loan in question; (iii) interest shall be paid by the Investment Enterprise to the Financiera on the outstanding principal at an annual rate of twelve per cent (12%); and (iv) charges other than interest on the outstanding principal of a Sub-loan shall be paid by the Invest- ment Enterprise at a rate which shall not be lover than the maximum rate applicable to such Sub-Loan under the Regulaci6n minus one percentage point. - 20 - ARTICLE IV Other Covenants of the Borrower Section 4.01. For the purposes of Sections 3.01 (b) and 3.02 of this Agreement, the Borrower shall enter into a contract with Banco Central on terms and conditions satisfactory to the Bank, causing thereby Banco Central to enter, on behalf of the Borrower, into a Subsidiary Loan Agreement, on terms and conditions satis- factory to the Bank, with each Financiera, and except as the Bank shall otherwise agree, the Borrower shall not take or concur in, nor permit Banco Central to take or concur in, any action which would have the effect of amending, abrogating, assigning, suspend- ing, or waiving such contract, any Subsidiary Loan Agreement or any provision thereof. Section 4.02. Each Subsidiary Loan Agreement shall include provisions: (a) enabling the Borrower to carry out its obligations under this Agreement; and (b) allowing to charge to each Financiera on the outstanding amount of a Subsidiary Loan (i) interest at an annual rate not exceeding eight and seventy hundredths per cent (8.70%); and (ii) a foreign exchange coverage fee at an annual rate of either (A) one and seventy five hundredths per cent (1.75%) if the rate of charges other than interest applicable on the Sub-loan made, or to be made, out of the proceeds of the Subsidiary Loan in question (hereinafter called the Rate of Charges) will not exceed - 21 - the minimum level permitted for such Sub-loan by Section 3.02 (b) (iv) of this Agreement, or (B) two per cent (2%) if the Rate of Charges will exceed such minimum level. Section 4.03. (a) Subject to the provisions of paragraph (c) of this Section, the Borrower shall exercise its rights under the applicable Subsidiary Loan Agreement in relation to each Financiera, each Investment Project and each Investment Enterprise in such manner as to: (i) protect at all times the interests of the Bor- rower and the Bank, (ii) comply with its obligations under this Loan Agreement and (iii) achieve the purposes of the Project. (b) The Borrower shall promptly take, and cause Banco Central acting on behalf of the Borrower to take, all such action and ex- ercise all such recourse available to it under a Subsidiary Loan Agreement as the Bank shall request in order to ensure the prompt and full performance by such Financiera of its obligations there- under. (c) The Borrower shall not, without the prior agreement of the Bank, suspend or terminate the right of a Financiera to have access to the proceeds of the Loan under the applicable Subsidiary Loan Agreement with such Financiera, or declare the principal amount of the Subsidiary Loan thereunder due and payable prior to the agreed maturity, unless the right of the Borrower to withdraw the proceeds of the Loan allocated to such Financiera shall have been suspended or terminated by the Bank or the Bank shall have declared the principal amount of the Loan relent to such Financiera to be - 22 - due and payable immediately, or a default shall have occurred in the due and punctual payment of any monies payable by such Financiera to the Borrower and such default shall continue for thirty days after notice thereof shall have been given by the Borrower to such Financiera. Section 4.04. The Borrower shall carry out the Studies as follows: (a) establishing a Capital Market Office (hereinafter called the Office) through which the Studies will be carried out, and charging the Office with such powers and duties as shall be deter- mined by the Borrower after an exchange of views with the Bank; (b) employing financial experts or consultants to the Office whose qualifications, experience and terms and conditions for employment shall be determined by the Borrower after an ex- change of views with the Bank; and (c) affording the Bank a reasonable opportunity to comment on the recommendations of the Studies and on the proposed legis- lation and regulatory measures included in the Studies, before the enactment of such legislation or regulatory measures. Section 4.05. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, special security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of for- eign exchange held under the control or for the benefit of such - 23 - member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the Borrower, in creating or per- mitting the creation of such lien, shall make express provision to that effect; provided, however, that, if for any constitutional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or admini- strative subdivisions, the Borrower shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other public assets satisfac- tory to the Bank. (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking trans- actions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Borrower, of any political or administrative sub- division thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower or any such subdivision, including gold and other foreign exchange assets -2)4 - held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Borrower. Section 4.06. The Borrower covenants that it shall not take or permit any of its political subdivisions or any of its agencies or any agency of its political subdivisions to take any action which would prevent or interfere with the performance by the Borrower, Banco Central and the Financieras of any of the respective covenants, agreements and obligations of the Borrower, Banco Central and the Financieras contained in this Agreement, the contract referred to in Section 4.01 of this Agreement, and the Subsidiary Loan Agreements, and shall take or cause to be taken all reasonable action necessary or appropriate to enable the Borrower, Banco Central and the Financieras to perform such covenants, agreements and obligations. Section 4.07. The Borrower undertakes that, if in any of its fiscal years CFN shall have suffered a loss resulting from changes in the rates of exchange between the various currencies (including Sucres) used in CFN's operations, the amount of which shall have exceeded the total amount of CFN's net profits and free reserves, the Borrower shall forthwith make a contribution to CFN's capital in an amount at least equal to the amount by which such loss ex- ceeded such profits and reserves. For purposes of this Section, (i) the term "free reserves" means all reserves the creation of which was not authorized for a specific purpose, and such term includes the legal reserve of - 25 - CFN; and (ii) the term "net profits" means profits made by CFN in the fiscal year in which such changes in the rate of exchange have taken place and before taking into account any such loss. Section 4.08. (a) The Borrower shall furnish to the Bank all such information as the Bank shall reasonably request con- cerning the administration, operations and accounts of Banco Central in respect of the Project, and the performance by Banco Central of its obligations under the contract referred to in Section 4.01 of this Agreement and the Subsidiary Loan Agreements. (b) The Borrower and the Bank shall: (i) exchange views through their representatives with regard to the performance of the obligations of the Borrower under the contract referred to in Section 4.01 of this Agreement and under the Subsidiary Loan Agreements; and (ii) inform each other of any condition which interferes with, or threatens to interfere with, the performance referred to in (i) above. - 26 - ARTICLE V Participation of New Financieras Section 5.01. (a) Any DFC which shall have met the criteria referred to in paragraph (b) below shall be entitled to be re- viewed by the Bank. Such review shall take place not earlier than September 30, 1977 and not later than March 31, 1978 and shall comprise: (i) the adequacy of such DFC's management and adminis- trative procedures; (ii) such DFC's financial and economic con- ditions; (iii) the capability of such DFC to prepare, evaluate and supervise Investment Projects; and (iv) an assessment of the projects being processed by such DFC. (b) For purposes of qualifying for the review referred to in paragraph (a) of this Section, a DFC shall meet, at the time of such review, the following criteria: (i) a paid-up capital (capital suscripto 1 pagado) amounting to not less than twenty million Sucres (S/20,000,000); (ii) a consolidated debt of the applicable DFC and all its Financial Subsidiaries, then incurred and out- standing, not greater than four times the con- solidated capital and surplus of such applicable DFC and its Financial Subsidiaries; - 27 - (iii) a loan portfolio including not less than five lending operations, having an original final maturity, in terms satisfactory to the Bank, of not less than five years from the date of the respective loan agreement; and (iv) a balance outstanding of short- and medium-term portfolio not greater than four times the con- solidated capital and surplus of such DFC and its Financial Subsidiaries. For the purposes of this paragraph (b): (i) "Debt" means any debt incurred or guaranteed by the applicable DFC or any of its Financial Subsidiaries. (ii) Debt shall be deemed to be incurred (A) under a loan contract or agreement, on the date and to the extent that the amount of the loan is drawn down and outstanding pursuant to such loan 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. - 28 - (iii) "Consolidated capital and surplus of the applicable DFC and its Financial Subsidiaries" means the aggregate of the total unimpaired capital, un- appropriated surplus and free reserves of the specific DFC to be reviewed pursuant to paragraph (a) of this Section and its Financial Subsidiaries after excluding therefrom such amounts as shall represent (a) equity interests of such DFC in any of its Financial Subsidiaries or of any such Sub- sidiary in such DFC or in any other of its Financial Subsidiaries and (b) provisions for probable losses on the outstanding amount of all loans and invest- ments made or guarantees given by such DFC as shall have been determined by such DFC to be adequate to cover the risk of such losses in accordance with sound business and financial practices. (iv) "unimpaired capital" means paid-up capital less accumulated losses. (v) "free reserves" means the aggregate of appropriated retained earnings and revaluation of assets. (vi) "consolidated debt of the applicable DFC and its Financial Subsidiaries" means the total amount of debt of the specific DFC to be reviewed pursuant to paragraph (a) of this Section and its Financial Subsidiaries, excluding therefrom any debt owed by such DFC to any of its Financial Subsidiaries or by any Financial Subsidiary to such DFC or any other of its Financial Subsidiaries. -29- (vii) Whenever in connection with this paragraph (b) 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 prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable by the applicable DFC or its Financial Subsidiaries for the purposes of servicing such debt. (viii) the applicable DFC shall have established and shall have caused each of its Financial Subsidiaries to establish accounting procedures to ensure the disclosure, in a manner satisfactory to the Bank, of any debt of such DFC or its Financial Subsidiaries which will have been originated in letters of credit issued or guaranteed by such DFC or any of its Financial Subsidiaries. (ix) "Short- and medium-term portfolio" means loans made and guarantees given by such DFC and its Financial Subsidiaries (including deudores por aceptaciones and creditos documentarios) having an original final maturity of less than five years. - 30 - (c) Forthwith after the review referred to in paragraph (a) of this Section shall have taken place, the Bank shall (i) in- form the applicable DFC, the Borrower and Banco Central whether or not, in the Bank',V judgment, the reviewed DFC or DFCs are ac- cepted by the Bank as eligible to participate in the Project, and of the amount of the Loan allocated to each New Financiera, if any, in accordance with Section 3.02 (a) (ii) of this Agreement; and (ii) enter in negotiations with each New Financiera for the purpose of entering with such New Financiera into a Project Agreement. - 31 - ARTICLE VI Remedies of the Bank Section 6.01. For the purposes of Section 6.02 of the General Conditions the following additional events are specified: (a) a default shall occur in the due and punctual payment of any amount payable by a Financiera to the Borrower under the applicable Subsidiary Loan Agreement; (b) a default shall occur in the performance of any other obligation on the part of a Financiera under the applicable Proj- ect Agreement or Subsidiary Loan Agreement; (c) a Financiera shall have been unable to pay its debts as they mature or any action or proceeding shall have been taken by a Financiera or by others whereby any of the property of such Financiera shall or may be distributed among its creditors; (d) any loan or credit to a Financiera, having an original maturity of one year or more shall, in accordance with its terms, have become due and payable in advance of maturity as provided in the applicable contractual instruments, or any security for any such loan or credit shall have become enforceable; (e) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablishment of a Financiera or for the suspension of its operations; -32 - (f) a resolution shall have been passed for the dissolution or liquidation of a Financiera; (g) a change shall have been made in the Estatutos of a Financiera which, in the Bank's judgment, will materially and adversely affect the financial condition or operations of such Financiera; (h) a change not acceptable to the Bank shall have been made in the Statement of Operating Policies and Procedures of a Financiera; (i) a subsidiary or any other entity shall have been created or acquired or taken over by a Financiera, if such creation, acquisition or taking over would materially and adversely affect the conduct of such Financiera's business or such Financiera's financial situation or the efficiency of such Financiera's manage- ment and personnel or the carrying out of the Project; and (j) before the Closing Date, a change not acceptable to the Bank shall have been made in the Regulacion, or the Regulacion or any provision thereof shall not have been enforced; provided, however, that if any event referred to in this Section, (other than in paragraph (j)thereof) shall have occurred and be continuing, the Bank may at its option suspend the right of the Borrower to make withdrawals from the Loan Account only in respect of amounts relent or proposed to be relent to the Financiera in respect of which such event has occurred. - 33 - Section 6.02. For the purposes of Section 7.01 of the General Conditions the following additional events are specified: (a) any of the events specified in paragraph (a) or para- graph (d) of Section 6.01 of this loan Agreement shall occur and shall continue for a period of thirty days; (b) any of the events specified in paragraph (b) or para- graph (g) or paragraph (h) or paragraph (i) or paragraph (J) of Section 6.01 of this Loan Agreement shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower and such Financiera; and (c) any of the events specified in paragraph (c) or paragraph (e) or paragraph (f) of Section 6.01 of this Loan Agreement shall occur; provided, however, that if any event giving rise to the declaration referred to in Section 7.01 of the General Conditions is an event specified under Section 6.01 of this Agreement (other than the event referred to in paragraph (J) thereof), the Bank may so declare due and payable only the outstanding amount of the prin- cipal of the Loan which shall be equivalent to the then outstanding principal of the Subsidiary Loan which shall have been relent by the Borrower to the Financiera in respect of which such event has occurred. Payment of such amount shall be applied pro-rata to the several installments of the principal amount of the Loan then outstanding. - 34 - ARTICLE VII Effective Date; Termination Section 7.01. The following events are specified as additional conditions to the effectiveness of this Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions: (a) that the execution and delivery of the contract referred to in Section 4.01 of this Agreement have been duly authorized and ratified by all corporate and governmental action; (b) that the execution and delivery of the Project Agreement related to the Financiera referred to in paragraph (c) of this Section have been duly authorized and ratified by all corporate action; and (c) that the execution and delivery of one Subsidiary Loan Agreement on behalf of the Borrower and one of the Old Financieras have been duly authorized or ratified by all corporate and govern- mental action and that the conditions precedent to initial dis- bursements, if any, under such Subsidiary Loan Agreement, have been fulfilled. Section 7.02. The following is specified as an additional matter within the meaning of Section 12.02 (c) of the General Conditions to be included in the opinion or opinions to be fur- nished to the Bank: - 35 - (a) that the contract referred to in Section 4.01 of this Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and Banco Central and constitutes a valid and binding obligation of the Borrower and Banco Central in accordance with its terms; (b) that the Project Agreement referred to in Section 7.01 (b) of this Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the applicable Financiera and constitutes a valid and binding obligation of such Financiera in accordance with its terms; (c) that the Subsidiary Loan Agreement referred to in Sec- tion 7.01 (c) of this Agreement has been duly authorized or ratified by, and executed and delivered on behalf of, the Borrower and the applicable Financiera and constitutes a valid and biading obligation of, respectively, the Borrower and such Financiera, in accordance with its terms; and Section 7.03. The date of May 20, 1977 is hereby specified for the purposes of Section 12.04 of the General Conditions. - 36 - ARTICLE VIII Representative of the Borrower; Addresses Section 8.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 8.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: 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) For the Borrower: Ministerio de Finanzas Quito Ecuador Cable address: Telex: MINFINANZAS 2358-MINFIN-ED Quito - 37 - and for the purpose of any notice or request required or permitted to be given or made under Article X of the General Conditions, also: Procurador General de la Naci6n Avenida Colombia 248 oficina 904 Quito Ecuador - 38 - 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. REPUBLIC OF ECUADOR By Is! Santiago Sevilla Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean - 39 - SCHEDULE 1 Amortization Schedule* Payment of Principal Date Payment Due (expressed in dollars)** March 1, 1980 635,000 September 1, 1980 665,000 March 1, 1981 690,000 September 1, 1981 720,000 March 1, 1982 755,000 September 1, 1982 785,000 March 1, 1983 820,000 September 1, 1983 855,000 March 1, 1984 895,000 September 1, 1984 935,000 March 1, 1985 975,000 September 1, 1985 1,015,000 March 1, 1986 1,060,000 September 1, 1986 1,105,000 March 1, 1987 1,155,000 September 1, 1987 1,205,000 March 1, 1988 1,255,000 September 1, 1988 1,310,000 March 1, 1989 1,370,000 September 1, 1989 1,430,000 March 1, 1990 1,490,000 September 1, 1990 1,555,000 March 1, 1991 1,620,000 September 1, 1991 1,700,000 * The Amortization Schedule is subject to amendment pursuant to the provisions of Section 2.08 of the Loan Agreement. ** To the extent that any portion of the Loan is repayable i a currency other than dollars (see General Conditions, Sec- tion 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. - 40 - Premiums on Prepayment The following percentages are specified as the premiums pay- able on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions or to Section 2.09 (a) of the Loan Agreement: Time of Prepayment Premium Not more than three years before maturity 1.75% More than three years but not more than six years before maturity 3.50% More than six years but not more than eleven years before maturity 6.40% More than eleven years but not more than thirteen years before maturity 7.55% More than thirteen years before maturity 8.70% - 41 - SCHEDULE 2 Modifications of the General Conditions For the purposes of the Loan Agreement, the provisions of the General Conditions are modified as follows: (1) The following subparagraph (d) is added to Section 3.05: "(d) The Bank and the Borrower may from time to time agree upon arrangements for prepayment of the Loan and the application of such prepayment in addition to, or in sub- stitution for, those set forth in paragraph (b) of Section 3.05." (2) The words "Investment Projects" are substituted for the words "the Project" at the end of Section 5.03. (3) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03 Cancellation by the Bank. If (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty days, or (b) by the date specified in paragraph (c) of Section -42 - 2.03 (d) of the Loan Agreement no applications or requests permitted under paragraph (a) or paragraph (b) of such Section shall have been received by the Bank in respect of any portion of the Loan, or having been so received, shall have been denied, or (c) after the Closing Date an amount of the Loan shall remain unwithdrawn from the Loan Account, the Bank may by notice to the Borrower terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice such amount or portion of the Loan shall be cancelled." (4) The words "to inspect any relevant records and documents in respect of the Project and "are inserted after the word 'Bank"' in the second line of Section 9.01 (c).