1
CONFORMED COPY
================================================================================
INVESTMENT NUMBER 8354
AMENDED AND RESTATED
INVESTMENT AGREEMENT
AMONG
MSF HOLDING LTD.,
MEDICAL SYSTEMS FINANCE S.A.,
ESTOLUR S.A,
HEALTHCARE SYSTEMS FINANCE S.A.,
SISTEMAS FINANCIEROS S.A.,
AND
INTERNATIONAL FINANCE CORPORATION
Dated April 27, 1998
and amended and restated as of September 29, 1998
================================================================================
2
1
TABLE OF CONTENTS
Article or
Section Item Page No.
------- ---- --------
ARTICLE I.......................................................................................1
DEFINITIONS AND INTERPRETATION..................................................................1
Section 1.01. General Definitions.........................................................1
Section 1.02. Financial Definitions......................................................15
Section 1.03. Interpretation.............................................................19
Section 1.04. Business Day Adjustment....................................................19
ARTICLE II.....................................................................................19
THE PROJECT, PROJECT COST AND FINANCIAL PLAN...................................................19
Section 2.01. The Project................................................................19
Section 2.02. Project Cost and Financial Plan............................................20
ARTICLE III....................................................................................21
THE LOAN.......................................................................................21
Section 3.01. The Loan...................................................................21
Section 3.02. Disbursement Procedure.....................................................22
Section 3.03. A Loan Interest............................................................21
Section 3.04. B Loan Interest............................................................22
Section 3.05. Additional Interest........................................................23
Section 3.06. Repayment..................................................................24
Section 3.07. Prepayment.................................................................24
Section 3.08. Fees.......................................................................25
Section 3.09. Currency and Place of Payments.............................................26
Section 3.10. Allocation of Partial Payments.............................................27
Section 3.11. Maintenance Amount.........................................................27
Section 3.12. Funding Costs..............................................................27
Section 3.13. Suspension or Cancellation of Disbursements by IFC.........................28
Section 3.14. Taxes......................................................................29
Section 3.15. Illegality of Participation................................................29
3
2
ARTICLE IV.....................................................................................30
IFC SUBSCRIPTION...............................................................................30
Section 4.01. Subscription and Disbursement..............................................30
Section 4.02. Actions Prohibited until IFC Shares Issued.................................31
Section 4.03. Suspension and Cancellation of IFC Subscription............................32
ARTICLE V......................................................................................32
REPRESENTATIONS AND WARRANTIES.................................................................32
Section 5.01. Representations and Warranties.............................................32
Section 5.02. IFC Reliance...............................................................35
Section 5.03. Rights and Remedies not Limited............................................35
ARTICLE VI.....................................................................................36
CONDITIONS OF DISBURSEMENT AND SUBSCRIPTION....................................................36
Section 6.01. Initial Conditions.........................................................36
Section 6.02. Conditions of all Disbursements and subscription and
disbursement under the IFC Subscription ...................................39
Section 6.03. Additional Conditions for Loan.............................................39
Section 6.04. Additional Conditions for IFC Subscription.................................41
Section 6.05. B Loan Conditions..........................................................41
Section 6.06. Co-Borrowers' Certification................................................41
Section 6.07. Conditions for IFC Benefit.................................................42
Section 6.08. Saving of Rights...........................................................42
ARTICLE VII....................................................................................42
PARTICULAR COVENANTS...........................................................................42
Section 7.01. Affirmative Covenants......................................................42
Section 7.02. Affirmative Covenants Particular to MSF Holding............................48
Section 7.03. Affirmative Covenants Particular to the
Eligible Co-Borrowers......................................................49
Section 7.04. Negative Covenants.........................................................50
Section 7.05. Negative Covenants Particular to MSF Holding...............................52
Section 7.06. Application of Insurance Proceeds..........................................53
Section 7.07. Document Taxes.............................................................53
4
3
ARTICLE VIII...................................................................................53
EVENTS OF DEFAULT..............................................................................53
Section 8.01. Acceleration after Default.................................................53
Section 8.02. Events of Default..........................................................54
Section 8.03. Bankruptcy.................................................................58
Section 8.04. Notice of Events...........................................................58
Section 8.05. Disclosure of Information..................................................58
ARTICLE IX.....................................................................................59
MISCELLANEOUS..................................................................................59
Section 9.01. Joint and Several Obligations..............................................59
Section 9.02. MSF Holding as Agent for Communication.....................................59
Section 9.03. Notices....................................................................59
Section 9.04. English Language...........................................................60
Section 9.05. Expenses...................................................................60
Section 9.06. Financial Calculations.....................................................61
Section 9.07. Termination of Agreement...................................................62
Section 9.08. Applicable Law and Jurisdiction............................................62
Section 9.09. Successors and Assigns.....................................................64
Section 9.10. Amendment..................................................................64
Section 9.11. Counterparts...............................................................64
Section 9.12. Remedies and Waiver........................................................64
Section 9.13. Additional Co-Borrowers....................................................65
ANNEX A........................................................................................67
METHOD OF THE BANK FOR INTERNATIONAL SETTLEMENTS...............................................67
BASLE ACCORD ON BANK CAPITAL ADEQUACY..........................................................67
SCHEDULE 1.....................................................................................99
FORM OF REQUEST FOR DISBURSEMENT (LOAN)........................................................99
SCHEDULE 2....................................................................................103
FORM OF LOAN DISBURSEMENT RECEIPT.............................................................103
5
4
SCHEDULE 3....................................................................................104
FORM OF REQUEST FOR SUBSCRIPTION AND DISBURSEMENT (EQUITY)....................................104
SCHEDULE 4....................................................................................107
FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY...............................................107
SCHEDULE 5....................................................................................109
FORM OF LETTER TO CO-BORROWERS' AUDITORS......................................................109
SCHEDULE 6....................................................................................111
INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF OPERATIONS.....................................111
OPERATIONS....................................................................................111
SCHEDULE 7....................................................................................113
MINIMUM INSURANCE REQUIREMENTS................................................................113
SCHEDULE 8....................................................................................114
FORM OF AGREEMENT OF ADDITIONAL CO-BORROWERS..................................................114
6
BGM&Mdraft26-Aug-98
AMENDED AND RESTATED
INVESTMENT AGREEMENT
AGREEMENT, dated April 27, 1998 and amended and restated as of
September 29, 1998, among MSF HOLDING LTD., a company organized and existing
under the laws of the Commonwealth of the Bahamas ("MSF Holding"), MEDICAL
SYSTEMS FINANCE S.A. ("MSF"), ESTOLUR S.A. ("Estolur"), HEALTHCARE SYSTEMS
FINANCE S.A. ("HSF"), each of them a sociedad anonima, organized and existing
under the laws of Uruguay, and SISTEMAS FINANCIEROS S.A., a sociedad anonima
organized and existing under the laws of Argentina ("MSF Argentina"), and
INTERNATIONAL FINANCE CORPORATION, an international organization established by
Articles of Agreement among its member countries ("IFC").
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. General Definitions. Wherever used in this Agreement,
unless the context otherwise requires, the following terms have the meanings
opposite them:
"A Loan" the loan specified in Section 3.01(a) or, as
the context requires, its principal amount
from time to time outstanding;
"A Loan Disbursement" any disbursement of the A Loan;
"A Loan Interest Rate" for any Interest Period, the rate at which
interest is payable on the A Loan during
that Interest Period, determined in
accordance with Section 3.03;
"Affiliate" in respect of any Person, any entity of
which a company is a Subsidiary; or any
entity in whose share capital a company, any
entity of which a company is a Subsidiary,
or any of their respective
7
2
Subsidiaries has a direct or indirect
interest exceeding twenty-five per cent
(25%);
"Assignment Agreements" the agreements, dated as of April 27, 1998
between Oferil and MSF, on the one hand and
Oferil and HSF, on the other hand, whereby
certain rights under Oferil's portfolio are
assigned to MSF and HSF;
"Auditors" ▇▇▇▇▇ ▇▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇ Auditores or such
other firm of independent public accountants
as the Co-Borrowers, with IFC's consent,
from time to time appoint as the
Co-Borrowers' auditors;
"Authority" any government or governmental,
administrative, fiscal, judicial, or
government-owned, body, department,
commission, authority, tribunal, agency or
entity and any central bank or other
monetary or fiscal authority;
"Authorization" any consent, registration, filing,
agreement, notarization, certificate,
license, approval, permit, authority or
exemption from, by or with any Authority,
whether given by express action or deemed
given by failure to act within any specified
time period and all corporate, creditors'
and shareholders' approvals or consents;
"B Loan" the loan specified in Section 3.01(b) or, as
the context requires, its principal amount
from time to time outstanding;
"B Loan Disbursement" any disbursement of the B Loan;
"B Loan Interest Rate" for any Interest Period, the rate at which
interest is payable on the B Loan during
that Interest Period, determined in
accordance with Section 3.04;
"Bahamas" the Commonwealth of the Bahamas;
8
3
"Bilateral Vendor
Agreements" the agreements between (i) Oldelft
International Trading Co. N.V. (dba
Nucletron B.V.) and Oferil dated as of March
6, 1998; (ii) PIE Medical N.V. and Oferil
dated October 31, 1997; (iii) ▇▇▇▇▇▇▇▇
Medical System International B.V. and Oferil
dated February 21, 1997; and (iv) ADAC
Laboratories and Oferil dated as of
September 30, 1997;
"BIS Guidelines" the Bank for International Settlements'
Basle Accord on Bank Capital Adequacy set
forth in Annex A hereto;
"Borrowing Base Report" The monthly report, in form and substance
acceptable to IFC, provided by the
Co-Borrowers which shall include details as
set forth in the Security Agreements
regarding the Eligible Leases/Loans, the
Eligible Lessees/Borrowers and the IFC/FMO
Security and which sets forth the Loan to
Collateral Value Ratio, the Advance Rate and
the Current Net Equipment Investment Cost as
at the date of such report and the
calculation thereof;
"Business Day" any day other than a Saturday or Sunday, or
a legal holiday on which banks are
authorized or required to be closed in New
York, New York, and, for the purpose of
determining the A Loan Interest Rate and the
B Loan Interest Rate, London, England as
well;
"Co-Borrower" MSF Holding, MSF, Estolur, HSF, MSF
Argentina and such Subsidiaries of MSF
Holding, MSF, Estolur, HSF and MSF Argentina
as may become Co-Borrowers in accordance
with Section 9.13;
"Disbursement" an A Loan Disbursement or a B Loan
Disbursement or both, as the context
requires;
"Dollars" and the sign "$" the lawful currency of the United States of
America;
"Dow ▇▇▇▇▇ Market
9
4
Screen Page" the display of interest settlement rates
(commonly known as LIBOR) for Dollar
deposits in London designated as page 3750
(British Bankers Association (BBA) LIBOR
rates) of the Dow ▇▇▇▇▇ Market Service (or
any other page that replaces page 3750 and
displays BBA London interbank settlement
rates for Dollar deposits);
"DVI" DVI, Inc., a corporation organized and
existing under the laws of the State of
Delaware, USA;
"DVI Financial" DVI Financial Services, Inc., a corporation
organized and existing under the laws of the
State of Delaware, USA and a wholly-owned
Subsidiary of DVI;
"DVI Guarantee Agreement" the guarantee agreement dated as of
September 29, 1998 between DVI and IFC;
"DVI International" DVI International, Inc., a corporation
organized and existing under the laws of the
State of Delaware, USA and a wholly-owned
Subsidiary of DVI;
"Eligible Co-Borrower" MSF, HSF, MSF Argentina and any Person that
becomes a Co-Borrower and is designated as
an Eligible Co-Borrower in accordance with
the provisions of Section 9.13;
"Eligible Leases/Loans" unless otherwise approved by IFC, any lease
or loan made to an Eligible Lessee/Borrower
pursuant to a Lease/Loan Agreement:
(a) which has a term of not less than
three years at the time of execution
of the lease or loan documentation
and, in the case of existing leases
or loans, where not more than 18
months have elapsed from the time of
inception until such leases or loans
are assigned or otherwise
transferred to the MSF Portfolio;
10
5
(b) which is fully documented and (where
required) registered with the
relevant authorities in the country
of the lessee or borrower;
(c) which is considered a trade
obligation in the respective country
and
(d) which is priced at market rates;
"Eligible Lessees/
Borrowers" physician groups, private doctors, health
laboratories, hospitals, clinics, which, to
the extent they are independent legal
entities:
(a) are duly organized and existing
under the laws of their respective
countries where such entities carry
on their respective operations in
which the public sector
participation in their equity does
not exceed forty-nine per cent (49%)
of the total voting rights and are
not managed by the public sector;
(b) are engaged in medical or health
care activities as providers of
diagnostic and therapeutic services
and have obtained all the relevant
medical safety and health
authorizations to operate the
relevant medical equipment;
(c) operate in compliance with local and
international regulations and laws
and medical directives, requirements
and professional codes of conduct
applicable thereto; and
(d) have been and are current on all
their past and present lease and
other financial obligations;
"Event of Default" any one of the events specified in Section
8.02;
11
6
"Financial Plan" the proposed sources of financing for the
Project set out in Section 2.02(b);
"Fiscal Year" the accounting year of the Co-Borrowers
commencing each year on July 1 and ending on
the following June 30 or such other period
(of at least 52 consecutive weeks) as the
Co-Borrowers, with IFC's consent, from time
to time designates as the Co-Borrowers'
accounting year;
"FMO" Nederlandse Financierings-Maatschappij voor
Ontwikkelingbladen N.V., a limited liability
company established under the laws of The
Netherlands;
"FMO Documents" the following agreements:
(i) the investment agreement dated April
27, 1998, as amended as of September
29, 1998, among MSF Holding, MSF,
Estolur, HSF, MSF Argentina and FMO
(the "FMO Investment Agreement");
and
(ii) the share retention, non-competition
and put option agreement dated April
27, 1998, as amended as of September
29, 1998, between FMO and DVI;
"FMO Financing" the investment by FMO in the Co-Borrowers
provided in the FMO Documents;
"FMO Loan" the loan specified in Section 3.01 of the
FMO Investment Agreement, or, as the context
requires, its principal amount from time to
time outstanding;
"Guarantee Agreement" the agreement dated as of April 27, 1998, as
amended from time to time, among DVI and the
Eligible Co-Borrowers whereby DVI guarantees
the Eligible Co-Borrowers against losses
incurred in connection with the purchase by
the Eligible Co-Borrowers of DVI's existing
lease or loan
12
7
receivables on the terms and conditions
specified therein;
"IFC/FMO Security" the security created by or pursuant to the
Security Agreements to secure all amounts
owing by the Co-Borrowers to IFC and FMO
under the Transaction Documents;
"IFC Shares" the Shares subscribed or to be subscribed
for pursuant to the IFC Subscription;
"IFC Subscription" the subscription for Shares by IFC provided
for in Article IV;
"Interest Determination
Date" the second Business Day before the beginning
of each Interest Period;
"Interest Payment Date" any day which is May 15 or November 15 in
any year, provided that, if any such day is
not a Business Day, the Interest Payment
Date which would otherwise fall on that day
shall fall on the immediately succeeding
Business Day;
"Interest Period" each six (6) month period beginning on an
Interest Payment Date and ending on the day
immediately before the next following
Interest Payment Date; except in the case of
the first period applicable to each
Disbursement when it shall mean the period
beginning on the date on which that
Disbursement is made and ending on the day
immediately before the next following
Interest Payment Date;
"Latin American
Countries" countries in Latin America and the Caribbean
which are members of IFC;
"Lease/Loan Agreement" any agreement providing or evidencing an
Eligible Lease/Loan which any of the
Eligible Co-Borrowers may from time to time
enter into with an Eligible Lessee/Borrower,
pursuant to which such Eligible Co-Borrower
leases medical diagnostic, imaging
13
8
and treatment equipment to an Eligible
Lessee/Borrower or provides a loan to fund
the acquisition of such equipment by the
Eligible Lessee/Borrower;
"Letter of Information" the letter dated October 22, 1997, addressed
by DVI to IFC and containing material
information and representations concerning
certain of the Co-Borrowers, the Project,
the Financial Plan, the organization,
operations, affiliations, liabilities and
assets (including any Liens on those assets)
of such Co-Borrowers and any other relevant
matters, and any amendment or supplement to
such letter which is acceptable to IFC;
"Lien" any mortgage, pledge, charge, assignment,
hypothecation, security interest, title
retention, preferential right, trust
arrangement, right of set-off, counterclaim
or bankers lien, privilege or priority of
any kind having the effect of security, any
designation of loss payees or beneficiaries
or any similar arrangement under or in
respect of any insurance policy or any
preference of one creditor over another
arising by operation of law;
"Loan" collectively, the A Loan and the B Loan or,
as the context requires, the principal
amount of the A Loan and the B Loan
outstanding from time to time;
"Maintenance Amount" the amount certified in the Maintenance
Amount Certification to be the net
incremental costs of or reduction in return
of IFC or any Participant in connection with
the making or maintaining of the Loan or its
Participation which result from:
(i) any change in any applicable law or
regulation or directive (whether or
not having force of law) or in its
interpretation or application by any
Authority charged with its
administration; or
14
9
(ii) compliance with any request from, or
requirement of, any central bank or
other monetary or other Authority;
which in any case, after the date of this
Agreement:
(A) imposes, modifies or
makes applicable any
reserve, special deposit or
similar requirements
against assets held by, or
deposits with or for the
account of, or loans by IFC
or a Participant;
(B) imposes a cost on IFC
as a result of IFC having
made the Loan or on the
Participant as a result of
the Participant having
acquired its Participation
or reduces the rate of
return on the overall
capital of IFC or the
Participant which it would
have achieved, had IFC or
such Participant not made
the Loan or acquired its
Participation, as the case
may be;
(C) changes the basis of
taxation on payments
received by IFC in respect
of the Loan or by the
Participant in respect of
its Participation
(otherwise than by a change
in taxation of the overall
net income of IFC or the
Participant imposed by the
jurisdiction of its
incorporation or in which
it books its Participation
or in any political
subdivision of any such
jurisdiction); or
(D) imposes on IFC or the
Participant any other
condition
15
10
regarding the making or
maintaining of the Loan or
its Participation;
but excluding any incremental costs
of making or maintaining a
Participation which are a direct
result of a Participant having its
principal office in any country in
which any of the Co-Borrowers is
incorporated or having or
maintaining a permanent office or
establishment in any country in
which any of the Co-Borrowers is
incorporated, if and to the extent
such permanent office or
establishment acquires such
Participation;
"Maintenance Amount
Certification" a certification furnished from time to time
by IFC (based on a certificate to IFC from
any Participant, if Maintenance Amount
affects its Participation), certifying:
(i) the circumstances giving rise to the
Maintenance Amount;
(ii) that the costs of the Participant
or, as the case may be, IFC, have
increased or the rate of return of
either of them has been reduced;
(iii) that, in the opinion of IFC or, as
the case may be, the Participant, it
has exercised reasonable efforts to
minimize or eliminate such increase
or reduction as the case may be; and
(iv) the Maintenance Amount;
"MSF Portfolio" any Eligible Co-Borrower's portfolio of
Eligible Leases/Loans as documented by
Lease/Loan Agreements;
"Oferil" Oferil S.A., a sociedad anonima organized
and existing under the laws of Uruguay, and
a Subsidiary of DVI;
16
11
"Participant" any Person who acquires a participating
interest in the B Loan;
"Participation" the interest of any Participant in the B
Loan, or as the context requires, in a B
Loan Disbursement;
"Participation Agreement" an agreement between IFC and a Participant
pursuant to which the Participant acquires a
Participation;
"Person" any natural person, corporation, limited
liability company, partnership, firm,
association, joint venture, joint stock
company, trust (including any beneficiary
thereof), unincorporated organization or
government or any agency or political
subdivision thereof, or any other entity,
whether acting in an individual, fiduciary
or other capacity;
"PIE" Philadelphia International Equities Inc., a
corporation organized and existing under the
laws of the State of Delaware, USA;
"Policy/Operating
Guidelines" guidelines adopted by each of the
Co-Borrower's board of directors, which have
been approved by IFC, which cover, among
other things (i) procedures to assess and
monitor Eligible Lessees'/Borrowers'
compliance with medical profession
requirements and health care practices
according to applicable domestic
legislation; (ii) procedures and
authorizations for the professional and
consistent use of hedging instruments and
for investing in securities consistent with
DVI (including DVI Financial) guidelines;
(iii) guidelines on interest rate exposures;
(iv) guidelines on foreign exchange
exposures; and (v) guidelines on the level
of risk concentration per country;
"Potential Event of Default" any event or circumstance which would, with
notice, lapse of time, the making of a
determination
17
12
or any combination thereof, become an Event
of Default;
"Project" the project described in Section 2.01;
"Security Agreements" the agreements evidencing security interests
in receivables under Eligible Leases/Loans
and equipment, granted by the Co-Borrowers
to IFC and FMO, with an aggregate value
satisfactory to IFC or having a value of
1.05 times the outstanding amount of the
Loan and the FMO Loan, including, without
limitation (i) each of the two Open Pledge
Agreements dated as of September 29, 1998
among MSF Holding, MSF, Estolur, HSF, IFC
and FMO; (ii) the Security Agreement dated
as of September 29, 1998 among MSF Holding,
MSF, Estolur, HSF, IFC and FMO; (iii) the
Fiduciary Assignment Agreement dated as of
September 29, 1998 among MSF Holding, MSF,
Estolur, HSF, MSF Argentina, IFC, FMO and
BankBoston N.A.; and (iv) the Trustee
Account and Security Agreement dated as of
September 29, 1998 among MSF, HSF, MSF
Argentina, IFC, FMO, BankBoston N.A. and
BankBoston N.A. acting through its Buenos
Aires, Argentina, Branch, as collateral
agent;
"Servicing Agreement" the agreement dated as of April 27, 1998, as
amended from time to time, among MSF
Holding, MSF, HSF and Estolur whereby
Estolur will provide services and technical
assistance to the Eligible Co-Borrowers on
the terms and conditions specified therein;
"Share Retention, Non-
Competition and Put
Option Agreement" the agreement dated April 27, 1998, as
amended from time to time, among IFC, DVI,
and the Co-Borrowers whereby (i) DVI agrees
to continue to hold directly or indirectly
through its Subsidiaries or Affiliates not
less than forty per cent (40%) of the shares
of MSF Holding; (ii) DVI agrees to develop
its activities in Latin America exclusively
18
13
through the Co-Borrowers and not to compete,
directly or indirectly in any way with the
Co-Borrowers; (iii) MSF Holding agrees to
retain one hundred per cent (100%) of the
shares of MSF, Estolur and HSF, ninety-nine
percent (99%) of the shares of MSF
Argentina, and not less than ninety-nine
percent of the shares of any other
Co-Borrower; and (iv) IFC has the right to
require DVI to purchase its shares in MSF
Holding on agreed terms and conditions;
"Share Subscription
Agreement" the agreement dated as of April 27, 1998
between MSF Holding and PIE providing for
the issuance and subscription of Shares;
"Shareholders Agreement" the Shareholders Agreement dated as of ▇▇▇▇▇
▇▇, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ International, FMO,
PIE and MSF Holding;
"Shares" voting shares in the capital of MSF Holding,
which rank equally in all respects with all
other voting shares in the capital of MSF
Holding;
"Stand-by Loan Facility
Agreement" the agreement dated as of April 27, 1998, as
amended from time to time, between DVI
Financial and the Co-Borrowers whereby DVI
Financial agrees to provide a twenty-five
million Dollar ($25,000,000) stand-by credit
facility;
"Subsidiary" in respect of any Person, any entity:
(i) over fifty percent (50%) of whose
capital is owned, directly or
indirectly, by that Person;
(ii) for which that Person may nominate
or appoint a majority of the members
of the board of directors or Persons
performing similar functions; or
19
14
(iii) which is otherwise effectively
controlled by that Person;
"Technical Assistance
Agreement" the agreement dated as of April 27, 1998, as
amended from time to time, between DVI
Financial and the Co-Borrowers whereby DVI
Financial provides technical advice and
assistance to the Co-Borrowers;
"Transaction Documents" (i) this Agreement;
(ii) the Security Agreements;
(iii) the Share Retention, Non-Competition
and Put Option Agreement;
(iv) the Guarantee Agreement;
(v) the Technical Assistance Agreement;
(vi) the Servicing Agreement;
(vii) the Bilateral Vendor Agreements;
(viii) the Share Subscription Agreement;
(ix) the Shareholders' Agreement;
(x) the FMO Documents;
(xi) the Assignment Agreements;
(xii) the Stand-by Loan Facility
Agreement; and
(xiii) the DVI Guarantee Agreement;
"World Bank" the International Bank for Reconstruction
and Development, an international
organization established by Articles of
Agreement among its member countries.
20
15
Section 1.02. Financial Definitions. Wherever used in this Agreement,
unless the context otherwise requires, the following terms have the meanings
opposite them:
"Advance Rate" the amount which is ninety-five percent
(95%) of the present value of the remaining
payments under the Lease/Loan Receivables
pledged or assigned in guarantee to IFC and
FMO, as security pursuant to the Security
Agreements and in which IFC and FMO have a
perfected and registered first priority
security interest, discounted at the rate of
six-month LIBOR plus 2.75%;
"Capital Adequacy Ratio" the ratio which is not less than ten per
cent (10%) of capital to risk-weighted
assets, computed on the basis of
risk-weighting and other standards of the
BIS Guidelines, (treating leases as if they
were loans) or any other applicable current
or future local capital adequacy requirement
for leasing and other financial
institutions, whichever is higher;
21
16
"Current Net Equipment
Investment Cost" the amount which is the sum of (i) the
remaining Lease/Loan Receivables less
unearned income (i.e. the amount by which
such Lease/Loan Receivables arising under
leases exceeds the cost of the equipment
leased pursuant to such leases and the
interest component of Lease/Loan Receivables
arising under loans) plus (ii) any residual
value of the equipment leased pursuant to
the leases under which such Lease/Loan
Receivables arise;
"Debt" the aggregate of all obligations (whether
actual or contingent) of a Co-Borrower to
pay or repay money including, without
limitation:
(i) all Indebtedness for Money Borrowed;
(ii) the aggregate amount then
outstanding of all liabilities of
any party to the extent a
Co-Borrower guarantees them or
otherwise obligates itself to pay
them to the relevant creditor;
(iii) all liabilities of a Co-Borrower
(actual or contingent) under any
conditional sale or a transfer with
recourse or obligation to
repurchase, including, without
limitation, by way of discount or
factoring of book debts or
receivables;
"Indebtedness for
Money Borrowed" all obligations of a Co-Borrower to repay
money including, without limitation, in
respect of:
(i) borrowed money;
(ii) the outstanding principal amount of
any bonds, notes, loan stock,
commercial paper, acceptance
credits, debentures and bills or
promissory notes drawn, accepted,
endorsed or issued by a Co-Borrower;
22
17
(iii) any credit to a Co-Borrower from a
supplier of goods or under any
installment purchase or other
similar arrangement in respect of
goods or services (except trade
accounts payable within ninety (90)
days in the ordinary course of
business);
(iv) non-contingent obligations of a
Co-Borrower to reimburse any other
Person in respect of amounts paid by
such Person under a letter of credit
or similar instrument (excluding any
such letter of credit or similar
instrument issued for the benefit of
a Co-Borrower in respect of trade
accounts payable within ninety (90)
days in the ordinary course of
business);
(v) amounts raised under any other
transaction having the financial
effect of a borrowing and which
would be classified as a borrowing
(and not as an off-balance sheet
financing) under U.S. generally
accepted accounting principles
consistently applied including,
without limitation, under leases or
similar arrangements entered into
primarily as a means of financing
the acquisition of the asset leased;
and
(vi) any premium payable on a mandatory
redemption or replacement of any of
the foregoing obligations;
"Lease/Loan Loss
Reserve" the total allowance deemed necessary to
cover possible losses arising from
uncollectable amounts in the MSF Portfolio;
"Lease/Loan Receivables" any and all amounts payable to any of the
Eligible Co-Borrowers under Lease/Loan
Agreements and any and all related
insurances;
23
18
"Loan to Collateral
Value Ratio" at any calculation date, (i) the amount of
the Loan and the FMO Loan outstanding on the
calculation date divided by (ii) the net
present value at the calculation date of all
Lease/Loan Receivables assigned to IFC and
FMO under the Security Agreements and in
which IFC and FMO have a perfected and
registered first priority security interest
discounted at the rate of six-month LIBOR
plus 2.75%;
"Long-term Debt" that part of the Debt the final maturity of
which, by its terms or the terms of any
agreement relating to it, falls due more
than one year after the date of its
incurrence;
"Net Financed Assets" all financing provided through Eligible
Leases/Loans outstanding less principal
payments received;
"Portfolio Affected
by Arrears" the aggregate principal amount of leases or
loans made by an Eligible Co-Borrower which
at the time of computation are in default
for at least thirty (30) days;
"Shareholders' Equity" the aggregate of:
(i) the amount paid up or credited as
paid up on the share capital of a
Co-Borrower; and
(ii) the amount standing to the credit of
the reserves of a Co-Borrower
(including, without limitation, any
share premium account and capital
redemption reserve funds);
after deducting from such aggregate any
impairment of the issued share capital of a
Co-Borrower, amounts set aside for dividends
or taxation (including deferred taxation) or
attributable to goodwill or other intangible
assets; and
24
19
"Short-term Debt" all Debt other than Long-term Debt;
Section 1.03. Interpretation. In this Agreement, unless the context
otherwise requires:
(a) headings are for convenience only and do not affect the
interpretation of this Agreement;
(b) words importing the singular include the plural and vice versa;
(c) a reference to a Section, Article, party, Exhibit, Annex or
Schedule is a reference to that Section or Article of, or that party, Exhibit,
Annex or Schedule to, this Agreement;
(d) a reference to a document includes an amendment or supplement to,
or replacement or novation of, that document but disregarding any amendment,
supplement, replacement or novation made in breach of this Agreement; and
(e) a reference to a party to any document includes that party's
successors and permitted assigns.
Section 1.04. Business Day Adjustment. Where the day on or by which a
payment is due to be made is not a Business Day, that payment shall be made on
or by the next succeeding Business Day unless, in the case of payments of
principal or interest, that next succeeding Business Day falls in a different
calendar month, in which case that payment shall be made on the immediately
preceding Business Day. Interest, fees and charges (if any) shall continue to
accrue for the period from the due date which is not a Business Day to that next
succeeding Business Day.
ARTICLE II
THE PROJECT, PROJECT COST AND FINANCIAL PLAN
Section 2.01. The Project. The Project consists of the provision by
Eligible Co-Borrowers to Eligible Lessees/Borrowers of lease financing or loans
25
20
to fund the purchase (principally on a cross border basis in Latin American
Countries) of medical diagnostic, imaging and treatment equipment.
Section 2.02. Project Cost and Financial Plan. (a) The total estimated
cost of the Project, during the first twelve (12) months of operations is the
equivalent of one hundred ten million one-hundred thousand Dollars
($110,100,000).
(b) The proposed sources of financing for the Project are as follows:
$ million
equivalent
----------
Equity in MSF Holding
Voting Shares
PIE 4.2
FMO 2.1
IFC 2.0
DVI 7.7
---
16.0
====
Non-Voting Shares
DVI 4.1
---
Total Equity 20.1
Loans
FMO 25
IFC 40
DVI (Stand-by Facility) 25
Total Loans 90
-------
TOTAL FINANCING 110.1
=======
26
21
ARTICLE III
THE LOAN
Section 3.01. The Loan. On the terms and subject to the conditions of
this Agreement, IFC agrees to lend to the Co-Borrowers:
(a) the A Loan, being fifteen million Dollars ($15,000,000); and
(b) the B Loan, being twenty-five million Dollars ($25,000,000).
Section 3.02. Disbursement Procedure. (a) The Co-Borrowers may request
disbursements of the Loan by delivering to IFC, at least seven (7) Business Days
prior to the proposed date of disbursement, a disbursement request substantially
in the form of Schedule 1 and a receipt substantially in the form of Schedule 2.
(b) IFC shall make Disbursements to the credit of Fleet Bank N.A. in
New York for further credit to the Co-Borrower's account at such bank in such
place as the Co-Borrowers from time to time designate with IFC's consent.
(c) Each Disbursement shall be made in an amount (except with respect
to the last Disbursement) of not less than four million Dollars ($4,000,000).
Section 3.03. A Loan Interest. Subject to Section 3.05, the
Co-Borrowers shall pay interest on the A Loan in accordance with this Section
3.03.
(a) During each Interest Period, the A Loan (or, in respect of the
first Interest Period of each A Loan Disbursement, the amount of that A Loan
Disbursement) shall bear interest at the A Loan Interest Rate (as determined
under subsection (c) or (d) below) for that Interest Period.
(b) Interest on the A Loan shall accrue from day to day, be prorated on
the basis of a 360-day year for the actual number of days in the relevant
Interest Period and be payable in arrears on the Interest Payment Date
immediately following the end of that Interest Period.
(c) The A Loan Interest Rate for any Interest Period shall be two and
three quarters per cent (2.75%) per annum above the rate which appears on the
Dow ▇▇▇▇▇ Market Screen Page in the column headed "USD" as of 11:00 a.m.,
27
22
London time, on the Interest Determination Date for that Interest Period for six
months (or, in the case of the first Interest Period for any A Loan
Disbursement, for one month, two months, three months or six months, whichever
period is closest to the duration of the relevant Interest Period (or, if two
periods are equally close, the longer one)) rounded upward to the nearest three
decimal places.
(d) If, for any reason, IFC cannot determine the A Loan Interest Rate
for any Interest Period from the Dow ▇▇▇▇▇ Market Screen Page (whether as a
result of the discontinuation of the Dow ▇▇▇▇▇ Market Screen Page or otherwise),
IFC shall notify the Co-Borrowers and instead determine that Interest Rate using
the arithmetical average (rounded upward to the nearest three decimal places) of
the offered rates advised to IFC by any three major banks active in the
eurodollar interbank market in London selected by IFC after consultation with
the Co-Borrowers and otherwise in accordance with subsection (c) above.
(e) On each Interest Determination Date for any Interest Period, IFC
shall, in accordance with the relevant subsection above, determine the A Loan
Interest Rate applicable to that Interest Period and promptly notify the
Co-Borrowers of such rate.
(f) The determination by IFC, from time to time, of the A Loan Interest
Rate shall be final and conclusive and shall bind the Co-Borrowers (unless the
Co-Borrowers show to IFC's satisfaction that the determination involves clerical
error).
Section 3.04. B Loan Interest. Subject to Section 3.05, the
Co-Borrowers shall pay interest on the B Loan in accordance with this Section
3.04.
(a) During each Interest Period the B Loan (or, in respect of the first
Interest Period of each B Loan Disbursement, the amount of that B Loan
Disbursement) shall bear interest at the B Loan Interest Rate (as determined
under subsection (c) or (d) below) for that Interest Period.
(b) Interest on the B Loan shall accrue from day to day, be prorated on
the basis of a 360-day year for the actual number of days in the relevant
Interest Period and be payable in arrears on the Interest Payment Date
immediately following the end of that Interest Period.
(c) The B Loan Interest Rate for any Interest Period shall be two and
one quarter per cent (2.25%) per annum above the rate which appears on the Dow
▇▇▇▇▇ Market Screen Page in the column headed "USD" as of 11:00 a.m., London
28
23
time, on the Interest Determination Date for that Interest Period for six months
(or in the case of the first Interest Period for any B Loan Disbursement, for
one month, two months, three months or six months, whichever period is closest
to the duration of the relevant Interest Period (or, if two periods are equally
close, the longer one)) rounded upward to the nearest three decimal places.
(d) If, for any reason, IFC cannot determine the B Loan Interest Rate
for any Interest Period from the Dow ▇▇▇▇▇ Market Screen Page (whether as a
result of the discontinuation of the Dow ▇▇▇▇▇ Market Screen Page or otherwise),
IFC shall notify the Co-Borrowers and instead determine that Interest Rate using
the arithmetical average (rounded upward to the nearest three decimal places) of
the offered rates advised to IFC by any three major banks active in the
eurodollar interbank market in London selected by IFC after consultation with
the Co-Borrowers and otherwise in accordance with subsection (c) above.
(e) On each Interest Determination Date for any Interest Period, IFC
shall, in accordance with the relevant subsection above, determine the B Loan
Interest Rate applicable to that Interest Period and promptly notify the
Co-Borrowers of such rate.
(f) The determination by IFC, from time to time, of the B Loan Interest
Rate shall be final and conclusive and shall bind the Co-Borrowers (unless the
Co-Borrowers show to IFC's satisfaction that the determination involves clerical
error).
Section 3.05. Additional Interest. Without limiting the remedies
available to IFC under this Agreement or otherwise and to the maximum extent
permitted by applicable law, if the Co-Borrowers fail to make:
(a) any payment of principal or interest (including interest payable
pursuant to this Section); or
(b) any other payment;
on or before its due date as specified in this Agreement (whether at stated
maturity or upon prematuring by acceleration or otherwise) or, if not so
specified, as notified by IFC to the Co-Borrowers, the Co-Borrowers shall pay,
in respect of the amount of such payment due and unpaid, interest at the rate of
two and one-half per cent (2.5%) per annum plus the A Loan Interest Rate (if
that amount relates to the A Loan) or plus the B Loan Interest Rate (if that
amount relates to the B Loan), in effect from time to time from the date any
such payment became due until the date of actual payment (as well after as
before judgment). Such
29
24
interest shall be payable on demand, or if not demanded, on each Interest
Payment Date after such failure.
Section 3.06. Repayment. (a) The Co-Borrowers shall repay the A Loan in
full on May 15, 2005:
(b) The Co-Borrowers shall repay the B Loan on the following dates and
in the following amounts:
Date Payment Due Principal Amount Due
---------------- --------------------
November 15, 2000 $4,166,666.67
May 15, 2001 $4,166,666.67
November 15, 2001 $4,166,666.67
May 15, 2002 $4,166,666.67
November 15, 2002 $4,166,666.67
May 15, 2003 $4,166,666.67
(c) Upon each Disbursement, the amount of the B Loan disbursed shall be
allocated for repayment on each of the dates for repayment of principal set out
in the table in subsection (b) above in amounts which are pro rata to the
amounts of the respective installments shown opposite those dates in that table
(with IFC adjusting those allocations as necessary so as to achieve whole
numbers in each case).
Section 3.07. Prepayment. (a) In addition to their rights of prepayment
under Section 3.11, the Co-Borrowers may prepay on any Interest Payment Date all
or any part of the Loan, on not less than sixty (60) days' notice to IFC, but
only if:
(i) the Co-Borrowers simultaneously pay all accrued
interest and Maintenance Amount (if any) on the
amount of the Loan to be prepaid together with all
other amounts then payable under this Agreement;
(ii) for a partial prepayment, such prepayment is an
amount not less than four million Dollars
($4,000,000); and
(iii) if required, the Co-Borrowers shall deliver to IFC,
prior to the date of prepayment, evidence
satisfactory to IFC that all
30
25
necessary governmental approvals in respect of the
prepayment have been obtained.
(b) Amounts prepaid under this Section:
(i) shall be allocated by IFC pro rata between the A Loan
and the B Loan in proportion to their respective
principal amounts outstanding; and
(ii) shall then be applied by IFC to the outstanding
repayment installments of the B Loan in inverse order
of maturity.
(c) Upon delivery of a notice in accordance with subsection (a) above,
the Co-Borrowers shall make the prepayment in accordance with the terms of that
notice.
(d) Any principal amount of the Loan prepaid under this Agreement may
not be re-borrowed.
Section 3.08. Fees. (a) The Co-Borrowers shall pay to IFC a commitment
fee at the rate of one-half of one per cent (1/2%) per annum on that part of
the Loan which from time to time has not been disbursed or canceled. The
commitment fee shall:
(i) begin to accrue, with respect to the A Loan, on April
27, 1998 and, with respect to the amounts of the B
Loan which are committed, on the dates of the
respective Participation Agreements;
(ii) be pro rated on the basis of a 360-day year for the
actual number of days elapsed; and
(iii) be payable semi-annually, in arrears, on the Interest
Payment Dates in each year, the first such payment to
be due on May 15, 1998.
(b) The Co-Borrowers shall also pay to IFC:
(i) a front-end fee for the A Loan of one per cent (1%)
of the amount of the A Loan, to be paid within thirty
(30) days
31
26
after April 27, 1998, but in any event prior to the
date of the first A Loan Disbursement;
(ii) a front-end fee for the B Loan of one per cent (1%)
of the amount of the B Loan, to be paid within thirty
(30) days after the date of the Participation
Agreements, but in any event prior to the date of the
first B Loan Disbursement;
(iii) a syndication fee of one per cent (1%) of the amount
of the B Loan to be paid within thirty (30) days
after the date of the Participation Agreements but in
any event prior to the date of the first B Loan
Disbursement;
(iv) a structuring fee of two hundred thirty thousand
Dollars ($230,000) to be paid no later than April 27,
1998; and
(v) an annual loan administration fee of five thousand
Dollars ($5,000) for each Participant; provided,
however that the aggregate amount of the loan
administration fee shall not exceed fifteen thousand
Dollars ($15,000) per annum.
Section 3.09. Currency and Place of Payments. (a) The Co-Borrowers
shall make all payments of principal, interest, fees, and any other amount due
to IFC under this Agreement in Dollars, in same day funds, at such bank or banks
in New York as IFC from time to time designates.
(b) The tender or payment of any amount payable under this Agreement
(whether or not by recovery under a judgment) in any currency other than Dollars
shall not novate, discharge or satisfy the obligation of the Co-Borrowers to pay
in Dollars all amounts payable under this Agreement except to the extent that
(and as of the date when) IFC actually receives Dollars in its account in New
York.
(c) If a currency other than Dollars is tendered or paid (or recovered
under any judgment) and the amount IFC receives at its designated account in New
York falls short of the full amount of Dollars owed to IFC, then the
Co-Borrowers shall continue to owe IFC, as a separate obligation, the amount of
the shortfall (regardless of any judgment for any other amounts due under this
Agreement).
32
27
(d) Notwithstanding subsections (a) through (c) above, IFC may require
the Co-Borrowers to pay (or reimburse IFC) in any currency other than Dollars
for:
(i) any taxes and other amounts payable under Section
7.07; and
(ii) any fees, costs and expenses payable under Section
9.05; to the extent those taxes, amounts, fees,
costs, and expenses are payable in that other
currency.
Section 3.10. Allocation of Partial Payments. If IFC shall at any time
receive less than the full amount then due and payable to it under this
Agreement, IFC may allocate and apply such payment in any way or manner and for
such purpose or purposes under this Agreement as IFC in its sole discretion
determines, notwithstanding any instruction that the Co-Borrowers may give to
the contrary.
Section 3.11. Maintenance Amount. (a) On each Interest Payment Date,
the Co-Borrowers shall pay, in addition to interest, the amount which IFC from
time to time notifies to the Co-Borrowers in a Maintenance Amount Certification
as being the aggregate Maintenance Amount of IFC and each Participant accrued
and unpaid prior to that Interest Payment Date.
(b) If the Co-Borrowers are required to pay any Maintenance Amount
pursuant to Section 3.11(a), the Co-Borrowers may prepay that part of the Loan
in respect of which the Maintenance Amount is being incurred, in whole but not
in part, in accordance with Section 3.07(a)(i) and (iii).
Section 3.12. Funding Costs. (a) If the Co-Borrowers:
(i) fail to pay any amount due under this Agreement on
its due date, or to borrow in accordance with a
request for disbursement made pursuant to Section
3.02 or to prepay in accordance with a notice of
prepayment; or
(ii) prepay all or any portion of the Loan on a date other
than an Interest Payment Date;
and as a result IFC or any Participant incurs any cost, expense or loss, then
the Co-Borrowers shall immediately pay to IFC the amount which IFC from time to
time notifies to the Co-Borrowers as being the amount of those costs, expenses
and losses incurred.
33
28
(b) For the purposes of this Section, "costs, expenses or losses"
include any interest paid or payable to carry any unpaid amount and any premium,
penalty or expense incurred to liquidate or obtain third party deposits or
borrowings in order to make, maintain or fund all or any part of the Loan,
including damages due on early termination of any swap transactions entered into
by IFC in order to maintain the Loan or the relevant part thereof (but in the
case of a late payment, after taking into account any additional interest
received under Section 3.05).
Section 3.13. Suspension or Cancellation of Disbursements by IFC. (a)
IFC may, by notice to the Co-Borrowers, suspend or cancel the right of the
Co-Borrowers to Disbursements:
(i) if the first Disbursement has not been made by
December 31, 1998, or such other date as the parties
agree;
(ii) if the right of the Co-Borrowers to any subscription
under the IFC Subscription is suspended or canceled
as provided in Section 4.03(a);
(iii) if any Event of Default has occurred and is
continuing or if the Event of Default specified in
Section 8.02(d) is, in the reasonable opinion of IFC,
imminent;
(iv) if at any time in the reasonable opinion of IFC,
there exists any situation which indicates that
performance by any of the Co-Borrowers of any of
their obligations under this Agreement cannot be
expected; or
(v) on or after December 31, 1999.
(b) Upon the giving of any such notice, the right of the Co-Borrowers
to any further Disbursement shall be suspended or canceled as the case may be.
The exercise by IFC of its right of suspension shall not preclude IFC from
exercising its right of cancellation, either for the same or any other reason
specified in subsection (a) above. Upon such cancellation the Co-Borrowers shall
pay to IFC all fees and other amounts accrued (whether or not then due and
payable) under this Agreement up to the date of such cancellation. A suspension
shall not limit any other provision of this Agreement.
34
29
Section 3.14. Taxes. (a) The Co-Borrowers shall pay or cause to be paid
all present and future taxes, duties, fees and other charges of whatsoever
nature, if any, now or in the future levied or imposed by the Government of the
Bahamas, Uruguay, Argentina or any other country in which the Co-Borrowers
operate or by any Authority of or by any organization of which the Bahamas,
Uruguay, Argentina or any other country in which the Co-Borrowers operate is a
member or any jurisdiction through or out of which a payment is made on or in
connection with the payment of any and all amounts due under this Agreement.
(b) All payments of principal, interest and other amounts due under
this Agreement shall be made without deduction for or on account of any such
taxes, duties, fees or other charges.
(c) If the Co-Borrowers are prevented by operation of law or otherwise
from making or causing to be made such payments without deduction, the principal
or (as the case may be) interest or other amounts due under this Agreement shall
be increased to such amount as may be necessary so that IFC receives the full
amount it would have received (taking into account any such taxes, duties, fees
or other charges payable on amounts payable by the Co-Borrowers under this
subsection) had such payments been made without such deduction.
(d) If subsection (c) above applies and IFC so requires, the
Co-Borrowers shall deliver to IFC official tax receipts evidencing payment (or
certified copies of them) within thirty (30) days of the date of payment.
(e) Subsections (a) and (b) above do not apply to taxes, duties, fees
and other charges which directly result from a Participant (or, as the case may
be, a participant with a comparable participation in the A Loan) having its
principal office in the Bahamas, Uruguay, Argentina or any other country in
which any of the Co-Borrowers are organized or having or maintaining a permanent
office or establishment in the Bahamas, Uruguay, Argentina or any other country
in any of which the Co-Borrowers are organized if and to the extent that such
permanent office or establishment acquires the relevant Participation (or a
comparable participation in the A Loan).
Section 3.15. Illegality of Participation. If, after the date of this
Agreement, any change made in any applicable law or regulation or official
directive (or its interpretation or application by any Authority charged with
its administration), makes it unlawful for any Participant to continue to
maintain or to fund its Participation, then the Co-Borrowers shall, upon request
by IFC (but subject to the approval of the relevant Authority of the Bahamas,
▇▇▇▇▇▇▇,
▇▇
▇▇
▇▇▇▇▇▇▇▇▇ or any other jurisdiction, which the Co-Borrowers agree to take all
reasonable steps to obtain as quickly as possible, if such approval is then
required), prepay on the next Interest Payment Date (or upon such earlier date
as IFC may advise the Co-Borrowers is the latest day permitted by the relevant
change of law, regulation or official directive or relevant interpretation or
application) in full that part of the B Loan which IFC advises corresponds to
that Participation, together with all accrued interest, Maintenance Amount (if
any) on that part of the B Loan (and, if such prepayment is not made on an
Interest Payment Date, any amount payable in respect of the prepayment under
Section 3.12). In addition, upon receipt of such request from IFC, the
Co-Borrowers shall have no further right to disbursement of the undisbursed
portion of the B Loan corresponding to that Participation.
ARTICLE IV
IFC SUBSCRIPTION
Section 4.01. Subscription and Disbursement. (a) On the terms and
subject to the conditions of this Agreement, IFC agrees to subscribe and pay for
in Dollars at the price of eight thousand Dollars ($8,000) per share, two
hundred fifty (250) Shares (the "IFC Shares") which shall equal twelve and
one-half per cent (12.5%) of the Shares issued and outstanding after giving
effect to the subscription by IFC.
(b) MSF Holding may request IFC to subscribe for the IFC Shares by
delivering to IFC, at least seven (7) Business Days prior to the proposed date
of subscription, a request in the form of Schedule 3. The request shall be for
the full number of the IFC Shares.
(c) IFC shall disburse under the IFC Subscription to the credit of MSF
Holding at Fleet Bank N.A. or at such other bank in such place as IFC and MSF
Holding from time to time agree.
(d) Upon subscription and payment by IFC under this Section, MSF
Holding shall:
(i) issue to IFC, or as IFC directs, the number of IFC
Shares so subscribed free of all Liens and which
shall rank, to the extent of the capital paid up on
them, pari passu in all respects with all other
Shares, and deliver to IFC, or as IFC
36
31
directs, a share certificate evidencing valid title
to such number of IFC Shares; and
(ii) furnish to IFC evidence satisfactory to IFC that such
number of IFC Shares have been duly and validly
authorized, issued and delivered and that all other
legal requirements in connection with their
authorization, issue and delivery have been duly
satisfied.
(e) Notwithstanding anything contained in this Agreement, IFC may, at
any time and from time to time, in its discretion and without request by MSF
Holding, subscribe and pay, on the terms set out in subsection (a) above, for
any or all of the IFC Shares; provided that the number of Shares which IFC has
agreed to subscribe under subsection (a) above shall thereafter be reduced by
the number of Shares which IFC has subscribed under this subsection (e).
Section 4.02. Actions Prohibited until IFC Shares Issued. Until all of
the IFC Shares have been subscribed or the right of MSF Holding to further
subscriptions has been canceled as provided in Section 4.03, whichever first
occurs:
(a) MSF Holding shall maintain a sufficient number of authorized and
unissued Shares to satisfy in full the exercise of IFC's rights under the IFC
Subscription; and
(b) MSF Holding shall not, unless IFC otherwise agrees:
(i) issue any Shares of any class, except in accordance
with the Financial Plan;
(ii) increase its authorized capital except in accordance
with the provisions of this Agreement;
(iii) change the par value (if any) of, or the rights
attached to, any of its Shares of any class; or
(iv) take any other action by amendment of its Memorandum
and Articles of Association or through
reorganization, consolidation, sale of share capital
or Shares held in treasury, merger or sale of assets,
or otherwise which might result in a dilution of the
interest in MSF Holding represented by the IFC
Shares.
37
32
Section 4.03. Suspension and Cancellation of IFC Subscription. IFC may,
by notice to MSF Holding, suspend or cancel the right of MSF Holding to request
subscription of the unsubscribed part of the IFC Shares:
(a) if the subscription has not been made by the earlier of October 31,
1998 or the date thirty (30) days after the date upon which all required
Authorizations have been obtained or such other date as the parties agree;
(b) if the right of the Co-Borrowers to disbursements of the Loan is
suspended or canceled as provided in Section 3.13;
(c) if any Event of Default has occurred and is continuing, or if the
Event of Default specified in Section 8.02(d) is, in the reasonable opinion of
IFC, imminent;
(d) if, at any time, in the reasonable opinion of IFC, there exists any
situation which indicates that performance by any of the Co-Borrowers of any of
its obligations under this Agreement cannot be expected; or
(e) on or after June 30, 1999.
The exercise by IFC of its right of suspension shall not preclude IFC
from exercising its right of cancellation, either for the same or any other
reason specified in subsection (a) above. A suspension shall not limit any other
provision of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties. Each of the Co-Borrowers
represents and warrants that:
(a) it is a company duly incorporated and validly existing under the
laws of its jurisdiction of formation and has the corporate power to own its
assets, conduct its business as presently conducted and to enter into, observe
and perform its obligations under, the Transaction Documents to which it is a
party or will, in the case of any Transaction Document not executed as at the
date of this Agreement, when that Transaction Document is executed, have the
corporate
38
33
power to enter into, observe and perform its obligations under that Transaction
Document;
(b) each Transaction Document to which it is a party has been, or will
be, duly authorized and executed by it and constitutes, or will, when executed
constitute, valid and legally binding obligations of such Co-Borrower,
enforceable in accordance with its terms (except for the application of any
bankruptcy, insolvency or other laws relating to creditor's rights generally);
(c) neither the making of any Transaction Document to which it is a
party nor (when all the consents referred to in Section 6.01(g) have been
obtained) the compliance with its terms will conflict with or result in a breach
of any of the terms, conditions or provisions of, or constitute a default or
require any consent under, any indenture, mortgage, agreement or other
instrument or arrangement to which any of the Co-Borrowers is a party or by
which it is bound, or violate any of the terms or provisions of any of the
Co-Borrower's Memorandum and Articles of Association, Estatutos, or other
organizational documents, as the case may be, or any judgment, decree or order
or any statute, rule or regulation applicable to any of the Co-Borrowers;
(d) neither such Co-Borrower nor any of its property enjoys any right
of immunity from set-off, suit or execution in respect of its assets or its
obligations under any Transaction Document;
(e) the Information Memorandum dated December 1997 prepared by IFC in
connection with the offering of Participations does not contain any information
which is misleading in any material respect nor does it omit any information
which makes the information contained in it misleading in any material respect;
(f) since the date of the Letter of Information, such Co-Borrower:
(i) has not suffered any material adverse change in its
business prospects or financial condition or incurred
any substantial or unusual loss or liability; and
(ii) has not undertaken or agreed to undertake any
substantial or unusual obligation;
(g) the latest financial statements of such Co-Borrower delivered to
IFC:
39
34
(i) have been prepared in accordance with accounting
principles consistently applied, and present fairly
the financial condition of such Co-Borrower as of the
date as of which they were prepared and the results
of such Co-Borrower's operations during the period
then ended; and
(ii) disclose all liabilities (contingent or otherwise) of
the Co-Borrower, and the reserves, if any, for such
liabilities and all unrealized or anticipated losses
arising from commitments entered into by the
Co-Borrower (whether or not such commitments have
been disclosed in such financial statements);
(h) such Co-Borrower is not a party to or committed to enter into, any
material contract except as follows:
(i) the Tax Free Zone Indirect User Agreement dated
January 30, 1998 between Oferil, HSF and ▇▇▇▇ ▇▇▇▇▇▇
Montevideo; and
(ii) the Tax Free Zone Indirect User Agreement dated
September 8, 1997 between Oferil, MSF and ▇▇▇▇ ▇▇▇▇▇▇
Montevideo;
(i) such Co-Borrower has no outstanding Lien on any of its assets other
than Liens arising by operation of law, and no contracts or arrangements,
conditional or unconditional, exist for the creation by the Co-Borrower of any
Lien, except for the IFC/FMO Security;
(j) all tax returns and reports of the Co-Borrower required by law to
be filed have been duly filed and all tax assessments, fees and other
governmental charges upon the Co-Borrower, or its properties, or its income or
assets, which are due and payable, have been paid, other than those presently
payable without penalty or interest;
(k) such Co-Borrower is not engaged in nor, to the best of its
knowledge, threatened by, any litigation, arbitration or administrative
proceedings, the outcome of which might materially and adversely affect its
business prospects or financial condition or make it improbable that the
Co-Borrower will be able to observe or perform its obligations under this
Agreement;
40
35
(l) to the best of its knowledge and belief, the Co-Borrower is not in
violation of any statute or regulation of any Authority and no judgment or order
has been issued which has or is likely to have any materially adverse effect on
the Co-Borrower's business prospects or financial condition or make it
improbable that such Co-Borrower will be able to observe or perform its
obligations under this Agreement; and
(m) the IFC Shares shall equal twelve and one-half per cent (12.5%) of
the Shares issued and outstanding after giving effect to the subscription by IFC
for the IFC Shares.
Section 5.02. IFC Reliance. (a) Each of the Co-Borrowers acknowledges
that it makes the representations and warranties in Section 5.01 with the
intention of inducing IFC to enter into this Agreement (and the Participants to
enter into the Participation Agreements) and that IFC enters into this Agreement
(and the Participants will enter into the Participation Agreements) on the basis
of, and in full reliance on, each of such representations and warranties.
(b) Each of the Co-Borrowers warrants to IFC (for itself and for the
benefit of the Participants) that each of such representations is true and
correct in all material respects as of the date of this Agreement and that none
of them omits any matter the omission of which makes any of such representations
misleading.
Section 5.03. Rights and Remedies not Limited. IFC's rights and
remedies in relation to any misrepresentation or breach of warranty on the part
of the Co-Borrowers are not prejudiced:
(a) by any investigation by or on behalf of IFC (or the Participants)
into the affairs of any of the Co-Borrowers;
(b) by the execution or the performance of this Agreement (or the
Participation Agreements); or
(c) by any other act or thing which may be done by or on behalf of IFC
(or the Participants) in connection with this Agreement (or the Participation
Agreements) and which might, apart from this Section, prejudice such rights or
remedies.
41
36
ARTICLE VI
CONDITIONS OF DISBURSEMENT AND SUBSCRIPTION
Section 6.01. Initial Conditions. The obligation of IFC to make the
first Disbursement or the subscription and disbursement under the IFC
Subscription is subject to the fulfillment, in a manner satisfactory to IFC,
prior to or concurrently with the making of such first Disbursement or
subscription and disbursement, of the following conditions:
(a) each of the Co-Borrowers has performed all of its obligations due
to be performed under the Transaction Documents in each case due to be performed
prior to the first Disbursement or the subscription and disbursement under the
IFC Subscription;
(b) arrangements satisfactory to IFC have been made with respect to the
installation and operation of an accounting, treasury and cost control system
and a management information system satisfactory to IFC;
(c) each of the Co-Borrowers has insured its properties and business in
accordance with Section 7.01(t) and has provided to IFC copies of all insurance
policies required to be in force as at the date of the first Disbursement or the
subscription and disbursement under the IFC Subscription together with a
certificate of the insurer confirming that such policies are in effect;
(d) the Transaction Documents, each in form and substance satisfactory
to IFC, have been entered into by all parties to them and have become (or, as
the case may be, remain) unconditional and fully effective in accordance with
their respective terms (except for this Agreement having become unconditional
and fully effective, if that is a condition of any of such agreements), and, if
IFC requires, IFC has received a copy of each Transaction Document to which it
is not a party, certified as a true and complete copy by the Co-Borrowers;
(e) [Reserved];
(f) the Memorandum and Articles of Association, Estatutos, or other
organizational documents, as the case may be, of each of the Co-Borrowers are in
form and substance satisfactory to IFC;
(g) the Co-Borrowers have obtained, or made arrangements satisfactory
to IFC for obtaining, all Authorizations for:
42
37
(i) the Loan and the IFC Subscription;
(ii) the carrying on of the business of the Co-Borrowers
as it is presently carried on and is contemplated to
be carried on;
(iii) the carrying out of the Project and the
implementation of the Financial Plan;
(iv) the due execution, delivery, validity and
enforceability of, and performance under, this
Agreement, the Share Retention, Non-Competition and
Put Option Agreement, the Guarantee Agreement, the
Security Agreements, the Share Subscription
Agreement, the Shareholders Agreement, the Technical
Assistance Agreement, the Bilateral Vendor
Agreements, the Servicing Agreement, the FMO
Documents, the Assignment Agreements, the Stand-by
Loan Facility Agreement, and any other documents
necessary or desirable to the implementation of any
of those Agreements or Documents and the issue and
delivery of the IFC Shares; and
(v) the remittance to IFC or its assigns in Dollars of
all monies payable in respect of the Transaction
Documents and the IFC Shares;
and has provided IFC with copies of those Authorizations, certified as true and
complete copies by the Co-Borrowers, if IFC so requires;
(h) IFC has received a legal opinion or opinions, in form and substance
satisfactory to it, from IFC's special counsel in the Bahamas, Uruguay, New
York, Delaware, Massachusetts, Argentina, Brazil, Colombia and such other
jurisdictions as IFC may request (as appropriate and as IFC requires) and
concurred in by counsel for each of the Co-Borrowers, with respect to:
(i) the organization, existence and operations of each of
the Co-Borrowers and its authorized and subscribed
share capital;
(ii) the matters referred to in subsections (d), (f) and
(g) above;
43
38
(iii) the title of the relevant Co-Borrower to, or other
interest of the Co-Borrower in, the assets which are
the subject of the IFC/FMO Security;
(iv) the authorization, execution, validity and
enforceability of this Agreement, the Share
Retention, Non-Competition and Put Option Agreement,
the Guarantee Agreement, the Security Agreements, the
Share Subscription Agreement, the Shareholders
Agreement, the Technical Assistance Agreement, the
Bilateral Vendor Agreements, the Servicing Agreement,
the FMO Documents, the Assignment Agreements, the
Stand-by Loan Facility Agreement, and any other
documents necessary or desirable to the
implementation of any of those Agreements or
Documents;
(v) the compliance with all obligations referred to in
Sections 3.14 and 7.07;
(vi) the priorities or privileges, if any, that creditors
of the Co-Borrowers, other than IFC, may have by
reason of law; and
(vii) such other matters relating to the transactions
contemplated by this Agreement as IFC reasonably
requests;
(i) IFC has received:
(i) (if IFC so requires) the reimbursement of fees and
expenses of IFC's counsel as provided in Section
9.05; and
(ii) the fees specified in Section 3.08 required to be
paid on or before the date of the first Disbursement
or the subscription and disbursement under the IFC
Subscription;
(j) arrangements satisfactory to IFC have been made for appointment of
an agent for service of process pursuant to Section 9.08(c);
(k) IFC has received a copy of the authorization to the Auditors
referred to in Section 7.01(g);
(l) IFC has received evidence, in the form of Schedule 4, of the
authority of the person or persons who will, on behalf of the Co-Borrowers, sign
the requests and certifications provided for in this Agreement, or take any
other
44
39
action or execute any other document required or permitted to be taken or
executed by the Co-Borrowers under this Agreement, and the authenticated
specimen signature of each such person; and
(m) IFC has received a copy of the Policy/Operating Guidelines of the
Co-Borrowers which shall have been agreed upon by the Co-Borrowers and IFC, and
shall have been approved by each Co-Borrower's Board of Directors;
Section 6.02. Conditions of all Disbursements and subscription and
disbursement under the IFC Subscription. The obligation of IFC to make any
Disbursement or the subscription and disbursement under the IFC Subscription is
also subject to the conditions that:
(a) no Event of Default and no Potential Event of Default has occurred
and is continuing;
(b) the proceeds of such Disbursement or subscription and disbursement
under the IFC Subscription are, at the date of the relevant request, needed by
the Co-Borrowers for the purpose of the Project, or will be needed for that
purpose within six (6) months of such date;
(c) since April 27, 1998 nothing has occurred which can reasonably be
expected to materially and adversely affect the carrying out of the Project, any
of the Co-Borrowers or DVI's business prospects or financial condition or make
it improbable that any of the Co-Borrowers will be able to observe or perform
any of its obligations under this Agreement;
(d) since April 27, 1998 none of the Co-Borrowers have incurred any
material loss or liability (except such liabilities as may be incurred in
accordance with Sections 7.02, 7.03 and 7.04); and
(e) the representations and warranties made in Article V are true on
and as of the date of that Disbursement or subscription and disbursement under
the IFC Subscription with the same effect as if such representations and
warranties had been made on and as of the date of that Disbursement or
subscription and disbursement under the IFC Subscription (but in the case of
Section 5.01(c), without the words in parenthesis).
Section 6.03. Additional Conditions for Loan. The obligation of IFC to
make any Disbursement is also subject to the conditions that:
45
40
(a) in the case of the first Disbursement, the IFC Shares have been
subscribed in full;
(b) the proceeds of that Disbursement are not in reimbursement of, or
to be used for, expenditures in the territories of any country which is not a
member of IFC or the World Bank or for goods produced in or services supplied
from any such country;
(c) after giving effect to that Disbursement, none of the Co-Borrowers
would be in violation of:
(i) its Memorandum and Articles of Association,
Estatutos, or other organizational documents, as
appropriate;
(ii) any provision contained in any document to which any
of the Co-Borrowers is a party (including this
Agreement) or by which any of the Co-Borrowers is
bound; or
(iii) any law, rule or regulation directly or indirectly
limiting or otherwise restricting any Co-Borrower's
borrowing power or authority or its ability to
borrow;
(d) (without limiting the generality of subsection (c) above) after
taking account of the amount of that Disbursement MSF Holding shall be in
compliance with the Capital Adequacy Ratio (on a consolidated basis);
(e) such Disbursement is made pro rata with the disbursement of any
other senior loan forming part of the Financial Plan.
(f) the IFC/FMO Security has been duly created and registered as first
priority or first ranking security interests in all assets subject to the
Security Agreements;
(g) the Co-Borrowers shall have perfected and registered first priority
security interests in favor of IFC and FMO over Lease/Loan Receivables such
that, at all times, the Loan to Collateral Value Ratio is no more than 95%; and
(h) after giving effect to that Disbursement, the aggregate amount
outstanding under the Loan would not exceed the lesser of (i) the Advance Rate,
or (ii) the Current Net Equipment Investment Cost.
46
41
(i) IFC has entered into Participation Agreements with Participants for
the acquisition by them of Participations in an aggregate amount equal to the
full amount of the B Loan and those commitments are in full force and effect;
Section 6.04. Additional Conditions for IFC Subscription. The
obligation of IFC to make any subscription and disbursement under the IFC
Subscription is also subject to the conditions that:
(a) immediately after such subscription and disbursement, IFC would not
have subscribed and paid for a higher proportion of the IFC Shares than the
proportion which each of the other shareholders of MSF Holding has by then
subscribed and paid for of the total number of Shares to be subscribed by it in
accordance with the Financial Plan;
(b) DVI International and PIE shall have acquired, or shall
contemporaneously with such subscription acquire, in the aggregate, at least
seventy-four per cent (74%) of the issued voting share capital of MSF Holding on
terms and conditions satisfactory to IFC;
(c) FMO shall have acquired, or shall contemporaneously with such
subscription, acquire, in the aggregate, at least thirteen percent (13%) of the
issued voting share capital of MSF Holding on terms and conditions satisfactory
to IFC; and
(d) all subscribed shares have been paid in full in cash.
Section 6.05. B Loan Conditions. Notwithstanding any other provision of
this Agreement, IFC is not obliged to make:
(a) any B Loan Disbursement, except to the extent that the Participants
provide funds for that B Loan Disbursement under their Participations;
(b) any Disbursement except pro rata from the A Loan and the B Loan to
the extent amounts under the B Loan are committed; and
(c) to the extent amounts have been disbursed under the A Loan prior to
any commitment under the B Loan, any Disbursement except pro rata from the
undisbursed amount of the A Loan and the amount of the B Loan committed and
undisbursed.
Section 6.06. Co-Borrowers' Certification. The Co-Borrowers shall
deliver to IFC:
47
42
(a) as part of each request for Disbursement and for the subscription
and disbursement under the IFC Subscription a certification, substantially in
the form of Schedule 1 or Schedule 3, as the case may be, with respect to the
conditions specified in Sections 6.02, 6.03 and 6.04, as the case may be,
expressed to be effective as of the date of the relevant Disbursement or
subscription and disbursement, and in the case of Section 6.02(d), certified by
the Auditors if IFC so requires;
(b) such evidence as IFC reasonably requests of the proposed
utilization of the proceeds of the relevant Disbursement or subscription and
disbursement or the utilization of the proceeds of any prior Disbursement or
subscription and disbursement; and
(c) if IFC requests, a legal opinion or opinions in form and substance
satisfactory to IFC, of IFC's special counsel in the Bahamas, Uruguay, Argentina
and such other jurisdiction as IFC may reasonably request, and concurred in by
counsel for each of the Co-Borrowers, with respect to any matters relating to
the relevant Disbursement or subscription and disbursement.
Section 6.07. Conditions for IFC Benefit. The conditions in Sections
6.01 through 6.06 are for the benefit of IFC and may be waived only by IFC at
its sole discretion.
Section 6.08. Saving of Rights. Unless IFC otherwise notifies the
Co-Borrowers and without limiting the generality of Section 9.12, the right of
IFC to require compliance with any condition under this Agreement which IFC
waives in respect of any Disbursement or subscription and disbursement shall be
preserved for the purposes of any subsequent Disbursement or subscription and
disbursement.
ARTICLE VII
PARTICULAR COVENANTS
Section 7.01. Affirmative Covenants. Unless IFC otherwise agrees, each
of the Co-Borrowers shall:
(a) carry out the Project and conduct its business with due diligence
and efficiency and in accordance with sound financial and business practices;
48
43
(b) cause the financing specified in the Financial Plan to be applied
exclusively to the Project;
(c) promptly install and maintain the accounting, treasury and cost
control system and management information system referred to in Section 6.01(b),
and an operational and organizational structure satisfactory to IFC and maintain
books of account and other records adequate to reflect truly and fairly the
financial condition of such Co-Borrower and the results of its operations
(including the progress of the Project) in conformity with U.S. generally
accepted accounting principles (with respect to MSF Holding), both U.S.
generally accepted accounting principles and accounting principles which are
generally accepted in Uruguay (with respect to MSF, Estolur and HSF), both U.S.
generally accepted accounting principles and accounting principles which are
generally accepted in Argentina (with respect to MSF Argentina), and both U.S.
generally accepted accounting principles and accounting principles which are
generally accepted in such other countries as IFC may specify (with respect to
each other Co-Borrower), consistently applied;
(d) as soon as available but in any event within sixty (60) days after
the end of each of the first three quarters of each Fiscal Year, deliver to IFC:
(i) two (2) copies of such Co-Borrower's complete
consolidated financial statements in Dollars for such
quarter in form satisfactory to IFC and, if requested
by IFC, certified by an officer of such Co-Borrower;
(ii) a report on any factors materially and adversely
affecting or which might materially and adversely
affect such Co-Borrower's business and operations or
its financial condition;
(iii) during implementation of the Project, a report, in a
form satisfactory to IFC, on the implementation and
progress of the Project, including any factors
materially and adversely affecting or which might
materially and adversely affect the Project or the
implementation of the Financial Plan;
(iv) a statement of all financial transactions between
such Co-Borrower and each of its Subsidiaries and
other Affiliates and a certification by the chief
financial officer of such ▇▇-
▇▇
▇▇
Borrower that those transactions were on the basis of
arms'-length arrangements;
(v) a statement of such Co-Borrower's Indebtedness for
Borrowed Money in respect of hedging transactions as
of the last day of such quarter; and
(vi) a statement of interest and foreign currency
exposures of the Co-Borrowers containing duration
(dynamic gap) analysis as per the last day of such
quarter;
(e) as soon as available but in any event within ninety (90) days after
the end of each Fiscal Year, deliver to IFC:
(i) two (2) copies of its complete consolidated and
audited financial statements in Dollars for such
Fiscal Year (which are in agreement with its books of
account and prepared in accordance with U.S.
generally accepted accounting principles (with
respect to MSF Holding), both U.S. generally accepted
accounting principles and accounting principles which
are generally accepted in Uruguay (with respect to
MSF, Estolur and HSF), both U.S. generally accepted
accounting principles and accounting principles which
are generally accepted in Argentina (with respect to
MSF Argentina), and both U.S. generally accepted
accounting principles and accounting principles which
are generally accepted in such other countries as IFC
may specify (with respect to each other Co-Borrower),
consistently applied, together with the Auditors'
audit report on them, all in form satisfactory to
IFC;
(ii) a copy of any management letter or other
communication from the Auditors to such Co-Borrower
or to its management commenting, with respect to such
Fiscal Year, on, among other things, the adequacy of
such Co-Borrower's financial control procedures,
interest rate and foreign exchange exposures,
accounting systems and management information system;
(iii) a report by the Auditors certifying that, on the
basis of its financial statements, such Co-Borrower
was in compliance with the financial covenants
contained in Sections 7.02,
50
45
7.03 and 7.04 as of the end of the relevant Fiscal
Year or, as the case may be, detailing any
non-compliance;
(iv) a review by such Co-Borrower of the operations of
such Co-Borrower during such Fiscal Year, in a form
satisfactory to IFC, containing the information
listed in Schedule 6; and
(v) a statement by such Co-Borrower of all financial
transactions between such Co-Borrower and each of its
Subsidiaries and other Affiliates during such Fiscal
Year and a certification by the chief financial
officer of such Co-Borrower that those transactions
were on the basis of arms'-length arrangements;
(f) deliver to IFC, promptly following receipt, a copy of any
management letter or other communication sent by the Auditors (or any other
accountants retained by such Co-Borrower) to such Co-Borrower or its management
in relation to the Co-Borrower's financial, accounting and other systems,
management or accounts if not provided pursuant to subsection (e)(ii) above;
(g) authorize, in the form of Schedule 5, the Auditors (whose fees and
expenses shall be for the account of the Co-Borrower) to communicate directly
with IFC at any time regarding the Co-Borrowers accounts and operations and
furnish to IFC a copy of such authorization;
(h) notify IFC not less than ten (10) days before any meeting of its
shareholders including the agenda of the meeting;
(i) promptly deliver to IFC two (2) copies of:
(i) all notices, reports and other communications of such
Co-Borrower to its shareholders; and
(ii) the minutes of all shareholders' meetings;
(j) promptly provide to IFC such information as IFC from time to time
reasonably requests about the Co-Borrower, its assets and the Project;
51
46
(k) permit representatives of IFC to visit any of the premises where
the business of the Co-Borrower is conducted upon notice and during normal
business hours and to have access to its books of account and records;
(l) promptly notify IFC of any proposed change in the nature or scope
of the Project or the business or operations of the Co-Borrower and of any event
or condition which might materially and adversely affect the carrying out of the
Project or the carrying on of the Co-Borrower's business or operations;
(m) promptly notify IFC by facsimile or telex as soon as it becomes
aware of any litigation or administrative proceedings before any Authority or
arbitral body which does or can reasonably be expected to materially and
adversely affect the Co-Borrower, its assets or the Project or the ability of
the Co-Borrower to perform and observe its obligations under any Transaction
Document;
(n) if ▇▇▇▇▇ ▇▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇ Auditores cease to be the auditors of
the Co-Borrower for any reason, appoint and maintain as the auditors of the
Co-Borrower another firm of independent public accountants satisfactory to IFC
and, within thirty (30) days after such appointment, deliver to IFC a copy of an
authorization to such firm in the form of Schedule 5;
(o) obtain and maintain in force (or where appropriate, promptly renew)
all Authorizations necessary for carrying out the Project and the Co-Borrower's
business and operations generally;
(p) perform and observe all the conditions and restrictions contained
in, or imposed on the Company by, any such Authorizations;
(q) from time to time, execute, acknowledge and deliver or cause to be
executed, acknowledged and delivered such further instruments as may reasonably
be requested by IFC for perfecting or maintaining in full force and effect the
perfection of the IFC/FMO Security or for re-registering the IFC/FMO Security or
otherwise to comply with the Co-Borrower's obligations under the Transaction
Documents;
(r) maintain the Policy/Operating Guidelines in force and effect and
operate its business and cause its Subsidiaries to operate their businesses in
accordance therewith and with all applicable regulations governing such business
and operations;
52
47
(s) with respect to the Eligible Co-Borrowers only, enter into,
Lease/Loan Agreements and other contracts that ensure that Eligible Leases/Loans
are made in such form and upon such terms as to confer upon the Eligible
Co-Borrowers valid and enforceable rights, and impose upon the Eligible
Lessees/Borrowers valid and enforceable obligations, including the obligation to
purchase adequate liability insurance, adequate to protect the interests of the
Eligible Co-Borrowers;
(t) perform all of the following:
(i) insure and keep insured its assets and business
operations with sound and reputable insurers, or
effect scheme(s) of self-insurance, or make
alternative arrangements, as outlined in Schedule 7;
(ii) punctually pay any premium, commission and any other
amount necessary for effecting and maintain in force
each insurance policy;
(iii) ensure that every property insurance policy cannot be
terminated by the insurers for any reason (including
failure to pay the premium or any other amount)
unless both IFC and the relevant Co-Borrower receive
at least forty-five (45) days notice;
(iv) deliver to IFC:
(a) within ninety (90) days after the end of
each Fiscal Year a written policy statement
outlining insurance arrangements made by the
relevant Co-Borrower to protect its assets
and operations (as specified in Schedule 7),
and confirming (y) procedures are in place
to monitor insurances on all loans and
leases made under Lease/Loan Agreements and
(z) such loans or leases may be audited by
IFC's representatives;
(b) any information or documents on each
insurance policy IFC requests;
(v) not vary, rescind, terminate, cancel or cause a
material change to any insurance policy; and
53
48
(vi) promptly notify the relevant insurer of any claim by
the relevant Co-Borrower under any policy written by
that insurer and diligently pursue that claim;
(u) maintain separate accounts in which such Co-Borrower shall record:
(i) the amount of all funds disbursed by IFC and paid to IFC under this
Agreement and the dates of such disbursements or payments; (ii) all funds
disbursed by the Co-Borrowers, including the amount paid by MSF to Estolur and
HSF, for the acquisition of goods and equipment leased to Eligible
Lessees/Borrowers and for the provision of services;
(v) maintain a Loan to Collateral Value Ratio no more than 95%; and
(w) collect any amounts which it may be entitled to claim against DVI
pursuant to the Guarantee Agreement.
Section 7.02. Affirmative Covenants Particular to MSF Holding. Unless
IFC otherwise agrees, MSF Holding shall:
(a) cause the Eligible Co-Borrowers to maintain on a consolidated basis
at all times the following financial ratios:
(i) the Capital Adequacy Ratio;
(ii) a Portfolio Affected by Arrears less loss provisions
which shall not exceed twenty percent (20%) of the
total Tier 1 (as defined in the BIS Guidelines)
capital of the Eligible Co-Borrowers as determined in
accordance with the BIS Guidelines; and
(iii) a single client exposure ratio of no more than twenty
percent (20%) of Shareholders' Equity and an exposure
ratio to any company and its Affiliates of no more
than thirty percent (30%) of Shareholders' Equity;
(b) cause the Eligible Co-Borrowers to maintain on a consolidated basis
a diversified vendor portfolio, with no single vendor providing more than (i)
50% of the equipment financed pursuant to Eligible Leases/Loans in the MSF
Portfolio from December 31, 2001 through December 31, 2002, and (ii) 40% of such
equipment thereafter;
54
49
(c) maintain a Lease/Loan Loss Reserve of at least (i) one percent (1%)
of Net Financed Assets during Fiscal Year 1999, (ii) one and one-half percent
(1.5%) of Net Financed Assets during Fiscal Year 2000, and (iii) two percent
(2%) of Net Financed Assets in Fiscal Year 2001 and thereafter; and
(d) provide a Borrowing Base Report to IFC not later than thirty (30)
days after the end of each month.
Section 7.03. Affirmative Covenants Particular to the Eligible
Co-Borrowers. Unless IFC otherwise agrees, the Eligible Co-Borrowers shall:
(a) maintain the following financial ratios on an aggregate basis:
(i) the Capital Adequacy Ratio;
(ii) a Portfolio Affected by Arrears less loss provisions
which shall not exceed twenty percent (20%) of the
total Tier 1 capital (as defined in the BIS
Guidelines) of the Eligible Co-Borrowers, as
determined in accordance with the BIS Guidelines; and
(iii) a single client exposure ratio of no more than twenty
percent ( 20%) of Shareholders' Equity and an
exposure ratio to any company and its Affiliates of
no more than thirty percent (30%) of Shareholders'
Equity;
(b) maintain, on an aggregate basis, a diversified vendor lease
portfolio, with no single vendor representing more than (i) fifty percent (50%)
of the equipment financed pursuant to Eligible Leases/Loans in the MSF Portfolio
from December 31, 2001 through December 31, 2002, and (ii) forty percent (40%)
of such equipment thereafter;
(c) maintain, on an aggregate basis, a Lease/Loan Loss Reserve of at
least (i) one percent (1%) of Net Financed Assets during Fiscal Year 1999, (ii)
one and one half percent (1.5%) of Net Financed Assets during Fiscal Year 2000,
and (iii) two percent (2.0%) of Net Financed Assets in Fiscal Year 2001 and
thereafter; and
(d) in the case of MSF Argentina, as soon as possible after the
execution of this Agreement, change its name from Sistemas Financieros S.A. to
MSF Argentina S.A.
55
50
Section 7.04. Negative Covenants. Unless IFC otherwise agrees, each of
the Co-Borrowers shall not:
(a) incur, assume or permit to exist any indebtedness except:
(i) the Loan;
(ii) the FMO Loan;
(iii) that part of Short-term Debt which is Indebtedness
for Money Borrowed incurred from commercial and/or
investment banks in the ordinary course of business,
not exceeding at any one time outstanding the
equivalent of twenty percent (20%) of the aggregate
principal amount of Eligible Leases/Loans in the MSF
Portfolio; and
(iv) other loans contemplated in the Financial Plan;
(b) enter into any agreement or arrangement to guarantee or, in any way
or under any condition, to become obligated for all or any part of any financial
or other obligation of another Person;
(c) create or permit to exist any Lien on any property, revenues or
other assets, present or future, of any of the Co-Borrowers, except for:
(i) the IFC/FMO Security;
(ii) the naming of IFC as beneficiary under the
Co-Borrower's insurance policies;
(iii) any tax or other Lien arising by operation of law,
provided that such lien is discharged within thirty
(30) days after the date it is created or arises
(unless contested in good faith by any of the
Co-Borrowers, in which case it shall be discharged
within thirty (30) days after final adjudication);
(iv) any banker's right of set-off arising in respect of
Debt permitted by Section 7.04(a)(iii);
(v) Liens on revenues or other assets to secure Debt with
maturities of five years or longer; and
56
51
(vi) Liens on revenues or other assets provided in
connection with securitizations or structured
borrowings approved by IFC;
(d) enter into any transaction except in the ordinary course of
business on the basis of arm's-length arrangements (including, without
limitation, transactions whereby any of the Co-Borrowers might pay more than the
ordinary commercial price for any purchase or might receive less than the full
ex-works commercial price (subject to normal trade discounts) for its products);
(e) enter into any partnership, profit-sharing or royalty agreement or
other similar arrangement whereby any of the Co-Borrower's income or profits
are, or might be, shared with any other Person;
(f) enter into any management contract, except for the Servicing
Agreement, or similar arrangement whereby its business or operations are managed
by any other Person;
(g) form or have any Subsidiary or Affiliate, other than Subsidiaries
and Affiliates existing on April 27, 1998 and disclosed to IFC in writing;
(h) make or permit to exist loans or advances to, or deposits (except
commercial bank deposits in the ordinary course of business) with, other Persons
or investments in any Person or enterprise other than short-term marketable
securities acquired solely to give temporary employment to its idle funds;
(i) change its Memorandum, Articles of Association, Estatutos, or other
organizational documents, as applicable, in any manner which would be
inconsistent with the provisions of any Transaction Document;
(j) change its Fiscal Year;
(k) change the nature or scope of the Project or change the nature of
its present or contemplated business or operations;
(l) other than as contemplated by the Project, sell, transfer, lease or
otherwise dispose of all or a substantial part of its capital assets (whether in
a single transaction or in a series of transactions, related or otherwise and
including, but not limited to, securitizations or loan sales);
(m) undertake or permit any merger, consolidation or reorganization
with any party which is not an Affiliate;
57
52
(n) terminate, amend or grant any waiver in respect of any provision of
any Transaction Document or any agreements evidencing any loans provided under
the Financial Plan; or
(o) prepay (whether voluntarily or involuntarily) or repurchase any
Long-term Debt (other than the Loan, or the FMO Loan) pursuant to any provision
of any agreement or note in respect of that Long-term Debt (other than any
provision which permits prepayment in circumstances where any of the
Co-Borrowers has a liability equivalent to Sections 3.11, and 3.15), unless:
(i) that Long-term Debt is refinanced using new Long-term
Debt on equivalent terms or terms (as to interest
rate and tenor) more favorable to such Co-Borrower;
or
(ii) if IFC so requires, such Co-Borrower
contemporaneously prepays a proportionate amount of
the Loan in accordance with the provisions of Section
3.07 (except that there shall be no minimum amount or
advance notice period for such prepayment);
(p) undertake any type of banking activity or act as a commercial bank
unless: (i) IFC specifically approves of such activity; and (b) such Co-Borrower
is regulated and supervised by the applicable jurisdiction's monetary
authorities;
(q) use the proceeds of any Disbursement in the territories of any
country which is not a member of IFC or the World Bank or for reimbursements of
expenditures in those territories or for goods produced in or services supplied
from those territories; or
(r) issue any shares in its capital, equity-related securities,
warrants, options or other rights to acquire capital stock or securities
convertible into shares of any of the Co-Borrowers, unless IFC shall have
approved such issuance and the Board of Directors of MSF Holding shall have
unanimously approved such issuance;
Section 7.05. Negative Covenants Particular to MSF Holding. Unless IFC
otherwise agrees, MSF Holding shall not:
(a) declare or pay any dividend or make any distribution on its share
capital, or purchase, redeem or otherwise acquire any shares of MSF Holding or
58
53
its Subsidiaries or any option over them, if an Event of Default or Potential
Event of Default has occurred and is continuing;
(b) declare or pay any dividend or make any distribution on its share
capital (other than dividends or distributions payable in shares of MSF
Holding), or purchase, redeem or otherwise acquire any shares of MSF Holding or
its Subsidiaries or any option over them except out of profits earned in the
immediately preceding Fiscal Year (excluding income from revaluations);
(c) cause any of its Subsidiaries to issue any shares in its capital,
equity-related securities, warrants, options or other rights to acquire capital
stock or securities convertible into shares of any of the Co-Borrowers, unless
IFC shall have approved such issuance and the Board of Directors of MSF Holding
shall have unanimously approved such issuance;
Section 7.06. Application of Insurance Proceeds. (a) At its discretion
IFC may remit the proceeds of any insurance paid to it to the relevant
Co-Borrower to repair or replace the relevant damaged assets or may apply such
proceeds to prepay all or any part of the Loan in accordance with Section 3.07;
provided that there shall be no minimum amount or notice period for any such
prepayment.
(b) Each of the Co-Borrowers shall use any insurance proceeds it
receives (whether from IFC or directly from the insurers) for loss of or damage
to any asset solely to replace or repair that asset.
Section 7.07. Document Taxes. (a) The Co-Borrowers shall pay all taxes
(including stamp taxes), duties, fees or other charges payable on or in
connection with the execution, issue, delivery, registration or notarization of
the Transaction Documents, the IFC Shares and any other documents related to
this Agreement.
(b) The Co-Borrowers shall, upon notice from IFC, reimburse IFC or its
assigns for any such taxes, duties, fees or other charges paid by IFC or its
assigns.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Acceleration after Default. If any Event of Default
occurs and is continuing (whether it is voluntary or involuntary, or results
from operation
59
54
of law or otherwise), IFC may, by notice to the Co-Borrowers, require the
Co-Borrowers to repay the Loan or such part of the Loan as is specified in that
notice. On receipt of any such notice, the Co-Borrowers shall immediately repay
the Loan (or that part of the Loan specified in that notice) and all interest
accrued on it and any other amounts then payable under this Agreement. Each of
the Co-Borrowers waives any right it might have to further notice, presentment,
demand or protest in respect of that demand for immediate payment.
Section 8.02. Events of Default. It shall be an Event of Default if:
(a) any of the Co-Borrowers fails to pay when due any part of the
principal of the Loan or any interest on the Loan and such failure continues for
a period of five (5) days;
(b) any of the Co-Borrowers fails to observe or perform any of its
obligations under this Agreement (other than for the payment of the principal
of, or interest on, the Loan), any other Transaction Document or any other
agreement between any of the Co-Borrowers and IFC, and any such failure
continues for a period of thirty (30) days after IFC notifies the Co-Borrowers
of that failure; provided, however that with regard to any Eligible
Co-Borrowers' obligations pursuant to Section 7.03(a)(ii) of this Agreement, if
IFC agrees that such failure cannot be remedied within such thirty (30) day
period, but may be remedied within a reasonably longer period acceptable to IFC,
and the Co-Borrowers notify IFC of a proposed plan to remedy such failure and
IFC approves such plan, with such approval not to be unreasonably withheld, no
Event of Default shall be declared to have occurred, so long as MSF Holding and
the Eligible Co-Borrowers promptly commence to remedy such default and continue
to do so diligently, but in no event shall such cure period extend for more than
forty-five (45) days beyond the initial thirty (30) day period, except where the
relevant Co-Borrowers have formally instituted proceedings to recover equipment,
enforce their security interests or otherwise obtain payment of loans and leases
in default within such forty-five (45) day period and such recovery, enforcement
or payment and remedy of the failure of such Eligible Co-Borrowers to perform
its obligations under Section 7.03 (a) (ii), is reasonably expected to occur
within ninety (90) days after such additional forty-five (45) day period), and
for the purposes of this subsection, a default shall be deemed to have occurred
if the Shareholders of any of the Co-Borrowers cause any of the Co-Borrowers to
take any of the actions prohibited by Section 7.04 unless IFC has given its
prior consent to the taking of any such action;
(c) any representation or warranty made in Article V, in connection
with the execution and delivery of this Agreement, or the IFC Shares, or in
60
55
connection with any request for Disbursement or for subscription and
disbursement under the IFC Subscription under this Agreement or in any other
Transaction Document, is found to be incorrect in any material respect;
(d) any Authority condemns, nationalizes, seizes, or otherwise
expropriates all or any substantial part of the property or other assets of any
Co-Borrower or of its share capital, or assumes custody or control of such
property or other assets or of the business or operations of any Co-Borrower or
of its share capital, or takes any action for the dissolution or
disestablishment of any Co-Borrower or any action that would prevent any
Co-Borrower or its officers from carrying on all or a substantial part of its
business or operations;
(e) a decree or order by a court is entered against any Co-Borrower
other than MSF Holding:
(i) adjudging such Co-Borrower bankrupt or insolvent;
(ii) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or
composition of, or in respect of, such Co-Borrower
under any applicable law;
(iii) appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of such
Co-Borrower or of any substantial part of its
property or other assets; or
(iv) ordering the winding up or liquidation of its
affairs;
or any petition is filed seeking any of the above and is not dismissed within
forty-five (45) days;
(f) any Co-Borrower other than MSF Holding:
(i) requests a moratorium or suspension of payment of
debts from any court;
(ii) institutes proceedings or takes any form of corporate
action to be liquidated, adjudicated bankrupt or
insolvent;
(iii) consents to the institution of bankruptcy or
insolvency proceedings against it;
61
56
(iv) files a petition or answer or consent seeking
reorganization or relief under any applicable law,
consents to the filing of any such petition or to the
appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of
such Co-Borrower or of any substantial part of its
property;
(v) makes a general assignment for the benefit of
creditors; or
(vi) admits in writing its inability to pay its debts
generally as they become due or otherwise becomes
insolvent;
(g) an attachment or analogous process is levied or enforced upon or
issued against any of the material assets of any Co-Borrower and is not
dismissed or released within forty-five (45) days;
(h) MSF Holding:
(i) takes any step (including petition, giving notice to
convene or convening a meeting) for the purpose of
making, or proposes or enters into, any arrangement,
assignment or composition with or for the benefit of
its creditors;
(ii) ceases or threatens to cease to carry on its business
or any substantial part of its business; or
(iii) is unable to pay its debts as they fall due or
otherwise becomes insolvent;
(i) an order is made or an effective resolution passed or analogous
proceedings taken for MSF Holding's winding up, bankruptcy or dissolution or a
petition is presented or analogous proceedings taken for the winding up or
dissolution of MSF Holding;
(j) any encumbrancer lawfully takes possession, or a liquidator,
judicial custodian, receiver, administrative receiver or trustee or any
analogous officer is appointed, of the whole or any material part of the
undertaking or assets of MSF Holding or an attachment, sequestration, distress
or execution (or analogous process) is levied or enforced upon or issued against
any of the material assets or property of MSF Holding;
62
57
(k) any other event occurs which under any applicable law would have an
effect analogous to any of those events listed in subsections (e), (f), (g), (h)
(i) and (j) above;
(l) any of the Co-Borrowers fails to pay any of its Debt (other than
the Loan) which is outstanding under, or to perform any of its obligations
under, any agreement pursuant to which there is outstanding any Debt of any of
the Co-Borrowers in an amount exceeding two hundred thousand Dollars ($200,000),
and such failure continues for more than any applicable period of grace;
(m) any Authorization necessary for any of the Co-Borrowers to perform
and observe its obligations under any Transaction Document is not obtained when
required or is rescinded, terminated, lapses or otherwise ceases to be in full
force and effect, including in respect of the remittance to IFC or its assigns
in Dollars of any amounts payable under any Transaction Document and is not
restored or reinstated within thirty (30) days of notice by IFC to the
Co-Borrowers requiring that restoration or reinstatement;
(n) any provision of any Security Agreement is revoked, terminated or
ceases to be in full force and effect or ceases to provide the security intended
and a first priority Lien on all assets subject thereto, without, in each case,
the prior consent of IFC, or performance of the obligations under any such
document becomes unlawful or any such document is declared to be void or is
repudiated or its validity or enforceability at any time is challenged by any
Person unless, in the case only of a repudiation or challenge, such repudiation
or challenge is withdrawn within thirty (30) days of IFC's notice to the
Co-Borrowers requiring that withdrawal and pending such withdrawal such
repudiation or challenge has no effect;
(o) any provision of any Transaction Document (other than a Security
Agreement) is revoked, terminated or ceases to be in full force and effect
without, in each case, the prior consent of IFC, or performance of the
obligations under any such document becomes unlawful or any such document is
declared to be void or is repudiated or its validity or enforceability at any
time is challenged by any Person and such provision is not restored or replaced
by a provision acceptable to IFC, or such repudiation or challenge is not
withdrawn within thirty (30) days of IFC's notice to the Co-Borrowers requiring
that restoration, replacement or withdrawal and pending such withdrawal such
repudiation or challenge has no effect; or
(p) any Bilateral Vendor Agreement entered into before, on or after the
date of this Agreement:
63
58
(i) is breached by any party to it and such breach can
reasonably be expected to have material adverse
effect on the ability of any of the Co-Borrowers to
perform and observe its obligations under any
Transaction Document; or
(ii) is revoked, terminated or ceases to be in full force
and effect without the prior consent of IFC, or
performance of the obligations under any such
agreement becomes unlawful or any such agreement is
declared to be void or is repudiated or its validity
or enforceability at any time is challenged by any
party to it and such action can reasonably be
expected to have a material adverse effect on the
ability of any of the Co-Borrowers to perform and
observe its obligations under any Transaction
Document.
Section 8.03. Bankruptcy. If any of the Co-Borrowers is liquidated or
declared bankrupt, the Loan, all interest accrued on it and any other amounts
payable under this Agreement will become immediately due and payable without any
presentment, demand, protest or notice of any kind, all of which the
Co-Borrowers waive.
Section 8.04. Notice of Events. If any Event of Default or Potential
Event of Default occurs, the Co-Borrowers shall immediately notify IFC by
facsimile or telex specifying the nature of such Event of Default or Potential
Event of Default and any steps the Co-Borrowers are taking to remedy it.
Section 8.05. Disclosure of Information. (a) IFC may disclose to any
Person for the purpose of exercising any power, remedy, right, authority, or
discretion under this Agreement or any other Transaction Document in connection
with an Event of Default, any documents or records of, or information about, any
Transaction Document, or the assets, business or affairs of any of the
Co-Borrowers.
(b) Each of the Co-Borrowers acknowledges and agrees that,
notwithstanding the terms of any other agreement between any of the Co-Borrowers
and IFC, a disclosure of information by IFC in the circumstances contemplated by
this Section does not violate any duty owed to any of the Co-Borrowers or any
agreement between IFC and any of the Co-Borrowers.
64
59
ARTICLE IX
MISCELLANEOUS
Section 9.01. Joint and Several Obligations. The obligations of the
Co-Borrowers hereunder to make payments of principal, interest and any other
amounts payable under this Agreement when due and to faithfully observe and
perform all conditions and obligations hereunder are joint and several.
Section 9.02. MSF Holding as Agent for Communication. (a) Until the
Loan shall have been repaid in full, any notice, request or other communication
to be given by IFC to any Co-Borrower other than MSF Holding under the terms of
this Agreement and each Transaction Document may, at the option of IFC and
without prejudice to its right to communicate directly with such Co-Borrower, be
addressed to MSF Holding, as agent, which is hereby irrevocably authorized and
directed by each such Co-Borrower to act as agent for it in such matter, and MSF
Holding hereby accepts such appointment.
(b) Each Co-Borrower other than MSF Holding hereby irrevocably appoints
MSF Holding to act as its agent to give any notice, request or other
communication to be given by each such Co-Borrower under the terms of this
Agreement and each Transaction Document, including but not limited to signing
the request and receipt for Disbursements on behalf of such Co-Borrower pursuant
to Section 3.02 and 6.06 of this Agreement, and MSF Holding accepts such
appointment.
Section 9.03. Notices. Any notice, request or other communication to be
given or made under this Agreement shall be in writing. Subject to Sections
7.01(m) and 8.04, the notice, request or other communication may be delivered by
hand, airmail, facsimile or established courier service to the party's address
specified below or at such other address as such party notifies to the other
party from time to time and will be effective upon receipt or, in the case of
delivery by hand or by established courier service, upon refusal to accept
delivery.
For the Co-Borrowers:
▇/▇ ▇▇▇ Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Controller Latin America
65
60
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
For IFC:
International Finance Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: Director, Latin America and Caribbean Department
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy (in the case of notices relating to payments) sent
to the attention of the Manager, Financial Operations Unit,
at:
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Telex: 248423 - World Bank
64145 - World Bank
197688 - World Bank
82987 - World Bank
Cable: CORINTFIN
Washington, D.C.
Section 9.04. English Language. All documents to be furnished or
communications to be given or made under this Agreement shall be in the English
language or, if in another language, shall, if IFC so requests, be accompanied
by a translation into English satisfactory to IFC certified by a representative
of the Co-Borrowers, which translation shall be the governing version between
the Co-Borrowers and IFC.
Section 9.05. Expenses. The Co-Borrowers shall pay to IFC or as IFC may
direct:
(a) the fees and expenses of IFC's counsel in the Bahamas, Uruguay, New
York, Delaware, Massachusetts, Colombia, Argentina, Brazil and any other
66
61
jurisdiction in which any of the Co-Borrowers conducts business or is
incorporated, incurred in connection with:
(i) the preparation of the investment by IFC provided for
under this Agreement;
(ii) the preparation and/or review, execution and, where
appropriate, registration of the Transaction
Documents and any other documents related to them;
(iii) the giving of any legal opinions required by IFC
under this Agreement;
(iv) the administration by IFC of the investment provided
for in this Agreement or otherwise in connection with
any amendment, supplement or modification to, or
waiver under, any of the Transaction Documents;
(v) the registration (where appropriate) and the delivery
of the evidences of indebtedness relating to the Loan
and its disbursement;
(vi) matters pertaining to the IFC Subscription; and
(vii) the occurrence of any Event of Default or Potential
Event of Default;
(b) the costs and expenses incurred by IFC in relation to the
enforcement or protection or attempted enforcement or protection of its rights
under any Transaction Document, or the exercise of its rights or powers
consequent upon or arising out of the occurrence of any Event of Default or
Potential Event of Default, including legal and other professional consultants'
fees.
Section 9.06. Financial Calculations. (a) All financial calculations to
be made under, or for the purposes of, this Agreement shall be determined in
accordance with U.S. generally accepted accounting principles and applied on a
consistent basis and, except as otherwise required to conform to the definitions
contained in Article I or any other provisions of this Agreement, shall be
calculated from the then most recently issued financial statements which each of
the Co-Borrowers is obligated to furnish to IFC under Sections 7.01(d) and (e).
67
62
(b) If any material adverse change in the financial condition of any of
the Co-Borrowers after the end of the period covered by the relevant financial
statements has occurred, such material adverse change shall also be taken into
account in calculating the relevant figures.
Section 9.07. Termination of Agreement. This Agreement shall continue
in force until all monies payable under it have been fully paid in accordance
with its provisions.
Section 9.08. Applicable Law and Jurisdiction. (a) This Agreement is
governed by, and shall be construed in accordance with, the laws of the State of
New York, United States of America.
(b) Each of the Co-Borrowers irrevocably agrees that any legal action,
suit or proceeding arising out of or relating to this Agreement or any other
Transaction Document to which any of the Co-Borrowers is a party may be brought
by IFC in the courts of the State of New York or of the United States of America
located in the Southern District of New York. Final judgment against any of the
Co-Borrowers in any such action, suit or proceeding shall be conclusive and may
be enforced in any other jurisdiction, including the Bahamas, Uruguay, or
Argentina by suit on the judgment, a certified or exemplified copy of which
shall be conclusive evidence of the judgment, or in any other manner provided by
law.
(c) By the execution and delivery of this Agreement, each of the
Co-Borrowers irrevocably submits to the non-exclusive jurisdiction of any such
court in any such action, suit or proceeding and designates, appoints and
empowers CT Corporation System, New York, New York as its authorized agent to
receive for and on its behalf service of any summons, complaint or other legal
process in any such action, suit or proceeding in the State of New York.
(d) Nothing in this Agreement shall affect the right of IFC to commence
legal proceedings or otherwise ▇▇▇ any of the Co-Borrowers in the Bahamas,
Uruguay, Argentina, or any other appropriate jurisdiction, or concurrently in
more than one jurisdiction, or to serve process, pleadings and other legal
papers upon any of the Co-Borrowers in any manner authorized by the laws of any
such jurisdiction.
(e) As long as this Agreement remains in force, each of the
Co-Borrowers shall maintain a duly appointed agent for the service of summons,
complaint and other legal process in New York, New York, United States of
America, for purposes of any legal action, suit or proceeding IFC may bring in
68
63
respect of this Agreement or any other Transaction Document to which the
Co-Borrower is a party. The Co-Borrowers shall keep IFC advised of the identity
and location of such agent.
(f) Each of the Co-Borrowers also irrevocably consents, if for any
reason any of the Co-Borrower's authorized agent for service of process of
summons, complaint and other legal process in any such action, suit or
proceeding is not present in New York, New York, to service of such papers being
made out of those courts by mailing copies of the papers by registered United
States air mail, postage prepaid, to any of the Co-Borrowers at its address
specified in Section 9.01. In such a case, IFC shall also send by telex or
facsimile, or have sent by telex or facsimile, a copy of the papers to such
Co-Borrower.
(g) Service in the manner provided in subsection (f) above in any such
action, suit or proceeding will be deemed personal service, will be accepted by
the Co-Borrowers as such and will be valid and binding upon the Co-Borrowers for
all purposes of any such action, suit or proceeding.
(h) Each of the Co-Borrowers irrevocably waives to the fullest extent
permitted by applicable law:
(i) any objection which it may have now or in the future
to the laying of the venue of any such action, suit
or proceeding in any court referred to in this
Section;
(ii) any claim that any such action, suit or proceeding
has been brought in an inconvenient forum; and
(iii) its right of removal of any matter commenced by IFC
in the courts of the State of New York to any court
of the United States of America.
(i) To the extent that any of the Co-Borrowers may be entitled in any
jurisdiction to claim for itself or its assets immunity in respect of its
obligations under this Agreement or any other Transaction Document to which such
Co-Borrower is a party from any suit, execution, attachment (whether provisional
or final, in aid of execution, before judgment or otherwise) or other legal
process or to the extent that in any jurisdiction such immunity (whether or not
claimed) may be attributed to it or its assets, each of the Co-Borrowers
irrevocably agrees not to claim and irrevocably waives such immunity to the
fullest extent permitted by the laws of such jurisdiction.
69
64
(j) Each of the Co-Borrowers hereby acknowledges that IFC shall be
entitled under applicable law, including the provisions of the International
Organizations Immunities Act, to immunity from a trial by jury in any action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby or any other Transaction Document to which any
of the Co-Borrowers is a party, brought against IFC in any court of the United
States of America. Each of the Co-Borrowers hereby waives any and all rights to
demand a trial by jury in any action, suit or proceeding arising out of or
relating to this Agreement or any other Transaction Document to which any of the
Co-Borrowers is a party or the transactions contemplated by this Agreement or
such Transaction Documents, that is (i) brought against any of the Co-Borrowers,
or (ii) brought against IFC in any forum in which IFC is not entitled to
immunity from a trial by jury.
(k) To the extent that any of the Co-Borrowers may, in any suit, action
or proceeding brought in any of the courts referred to in paragraph (b) above or
a court of the Bahamas, Uruguay, Argentina or elsewhere arising out of or in
connection with this Agreement or any other Transaction Document to which any of
the Co-Borrowers is a party, be entitled to the benefit of any provision of law
requiring IFC in such suit, action or proceeding to post security for the costs
of any of the Co-Borrowers (cautio judicatum solvi), or to post a bond or to
take similar action, each of the Co-Borrowers hereby irrevocably waives such
benefit, in each case to the fullest extent now or in the future permitted under
the laws of the Bahamas, Uruguay, Argentina or, as the case may be, the
jurisdiction in which such court is located.
Section 9.09. Successors and Assigns. This Agreement binds and benefits
the respective successors and assigns of its parties. However the Co-Borrowers
may not assign or delegate any of their respective rights or obligations under
this Agreement without IFC's consent.
Section 9.10. Amendment. Any amendment of any provision of this
Agreement shall be in writing and signed by the parties.
Section 9.11. Counterparts. This Agreement may be executed in several
counterparts, each of which is an original, but all of which together constitute
one and the same agreement.
Section 9.12. Remedies and Waivers. No failure or delay by IFC in
exercising any power, remedy, discretion, authority or other rights under this
Agreement shall waive or impair that or any other right of IFC. No single or
partial exercise of such a right shall preclude its additional or future
exercise. No
70
65
such waiver shall waive any other right under this Agreement. All waivers or
consents given under this Agreement shall be in writing.
Section 9.13. Additional Co-Borrowers. Upon the request of the
Co-Borrowers and with the consent of IFC, any Subsidiary of MSF Holding, MSF,
Estolur, HSF, or MSF Argentina may become a party to and Co-Borrower under this
Agreement by executing and delivering an agreement with IFC and the Co-Borrowers
in the form annexed hereto as Schedule 8 and, if such agreement so provides,
such Co-Borrower shall be an Eligible Co-Borrower; provided, that no such
Subisidary shall become a party to this Agreement, or a Co-Borrower or Eligible
Co-Borrower hereunder, until such agreement in the form of Schedule 8 becomes
effective in accordance with the terms thereof and such Subsidiary becomes a
party to the FMO Investment Agreement on terms satisfactory to IFC.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
in their respective names as of the date first above written.
MSF HOLDING LTD.
By: /sd/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Authorized Representative
71
66
MEDICAL SYSTEMS FINANCE S.A.
By: /sd/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Authorized Representative
ESTOLUR S.A.
By: /sd/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Authorized Representative
HEALTHCARE SYSTEMS FINANCE S.A.
By: /sd/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Authorized Representative
SISTEMAS FINANCIEROS S.A.
By: /sd/ ▇▇▇▇▇ ▇▇▇▇▇▇
Authorized Representative
INTERNATIONAL FINANCE CORPORATION
By /sd/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Manager
Capital Markets Division
Latin America and Caribbean Department
Authorized Representative
72
67
ANNEX A
Page 1 of 32
METHOD OF THE BANK FOR INTERNATIONAL SETTLEMENTS
BASLE ACCORD ON BANK CAPITAL ADEQUACY
Committee on Banking Regulations and Supervisory Practices
July 1988
INTERNATIONAL CONVERGENCE OF CAPITAL
MEASUREMENT AND CAPITAL STANDARDS
Introduction
1. This report presents the outcome of the Committee's(1) work over several
years to secure international convergence of supervisory regulations governing
the capital adequacy of international banks. Following the publication of the
Committee's proposals in December 1987, a consultative process was set in train
in all G-10 countries and the proposals were also circulated to supervisory
authorities worldwide. As a result of those consultations some changes were made
to the original proposals. The present paper is now a statement of the Committee
agreed by all its members. It sets out the details of the agreed framework for
measuring capital adequacy and the minimum standard to be achieved which the
national supervisory authorities represented on the Committee intend to
implement in their respective countries. The framework and this standard have
been endorsed by the Group of Ten central-bank Governors.
2. With a view to implementation as soon as possible, it is intended that
national authorities should now prepare papers setting out their views on the
timetable and the manner in which this accord will be implemented in their
respective countries. This document is being circulated to supervisory
authorities worldwide with a view to encouraging the adoption of this framework
in countries outside the G-10 in respect of banks conducting significant
international business.
------------------
(1) The Basle Committee on Banking Regulations and Supervisory Practices
comprises representatives of the central banks and supervisory authorities of
the Group of Ten countries (Belgium, Canada, France, Germany, Italy, Japan,
Netherlands, Sweden, Switzerland, United Kingdom, United States) and Luxembourg.
The Committee meets at the Bank for International Settlements, Basel,
Switzerland.
73
68
ANNEX A
Page 2 of 32
3. Two fundamental objectives lie at the heart of the Committee's work on
regulatory convergence. These are, firstly, that new framework should serve to
strengthen the soundness and stability of the international banking system; and
secondly that the framework should be fair and have a high degree of consistency
in its application to banks in different countries with a view to diminishing an
existing source of competitive inequality among international banks. The
Committee notes that, in responding to the invitation to comment on its original
proposals, banks have welcomed the general shape and rationale of the framework
and have expressed support for the view that it should be applied as uniformly
as possible at the national level.
4. Throughout the recent consultations, close contact has been maintained
between the Committee in Basle and the authorities of the European Community in
Brussels who are pursuing a parallel initiative to develop a common solvency
ratio to be applied to credit institutions in the Community. The aim has been to
ensure the maximum degree of consistency between the framework agreed in Basle
and the framework to be applied in the Community. It is the Committee's hope and
expectation that this consistency can be achieved, although it should be noted
that regulations in the European Community are designed to apply to credit
institutions generally, whereas the Committee's framework is directed more
specifically with banks undertaking international business in mind.
5. In developing the framework described in this document the Committee has
sought to arrive at a set of principles which are conceptually sound and at the
same time pay due regard to particular features of the present supervisory and
accounting systems in individual member countries. It believes that this
objective has been achieved. The framework provides for a transitional period so
that the existing circumstances in different countries can be reflected in
flexible arrangements that allow time for adjustment.
6. In certain very limited respects (notably as regards some of the risk
weightings) the framework allows for a degree of national discretion in the way
in which it is applied. The impact of such discrepancies on the overall ratios
is likely to be negligible and it is not considered that they will compromise
the basic objectives. Nevertheless, the Committee intends to monitor and review
the application of the framework in the period ahead with a view to achieving
even greater consistency.
74
69
ANNEX A
Page 3 of 32
7. It should be stressed that the agreed framework is designed to establish
minimum levels of capital for internationally active banks. National authorities
will be free to adopt arrangements that set higher levels.
8. It should also be emphasized that capital adequacy as measured by the present
framework, though important, is one of a number of factors to be taken into
account when assessing the strength of banks. The framework in this document is
mainly directed towards assessing capital in relation to credit risk (the risk
of counterparty failure) but other risks, notably interest rate risk and the
investment risk on securities, need to be taken into account by supervisors in
assessing overall capital adequacy. The Committee is examining possible
approaches in relation to these risks. Furthermore, and more generally, capital
ratios, judged in isolation, may provide a misleading guide to relative
strength. Much also depends on the quality of a bank's assets and, importantly,
the level of provisions a bank may be holding outside its capital against assets
of doubtful value. Recognizing the close relationship between capital and
provisions, the Committee will continue to monitor provisioning policies by
banks in member countries and will seek to promote convergence of policies in
this field as in other regulatory matters. In assessing progress by banks in
member countries towards meeting the agreed capital standards, the Committee
will therefore take careful account of any differences in existing policies and
procedures for setting the level of provisions among countries' banks and in the
form in which such provisions are constituted.
9. The Committee is aware that differences between countries in the fiscal
treatment and accounting presentation for tax purposes of certain classes of
provisions for losses and of capital reserves derived from retained earnings may
to some extent distort the comparability of the real or apparent capital
positions of international banks. Convergence in tax regimes, though desirable,
lies outside the competence of the Committee and tax considerations are not
addressed in this paper. However, the Committee wishes to keep these tax and
accounting matters under review to the extent that they affect the comparability
of the capital adequacy of different countries' banking systems.
10. This agreement is intended to be applied to banks on a consolidated basis,
including subsidiaries undertaking banking and financial business. At the same
time, the Committee recognizes that ownership structures
75
70
ANNEX A
Page 4 of 32
and the position of banks within financial conglomerate groups are undergoing
significant changes.
The Committee will be concerned to ensure that ownership structures should not
be such as to weaken the capital position of the bank or expose it to risks
stemming from other parts of the group. The Committee will continue to keep
these developments under review in the light of the particular regulations in
member countries, in order to ensure that the integrity of the capital of banks
is maintained. In the case of several of the subjects for further work mentioned
above, notably investment risk and the consolidated supervision of financial
groups, the European Community has undertaken or is undertaking work with
similar objectives and close liaison will be maintained.
11. This document is divided into four sections. The first two describe the
framework: Section I the constituents of capital and Section II the risk
weighting system. Section III deals with the target standard ratio; and Section
IV with transitional and implementing arrangements.
I. THE CONSTITUENTS OF CAPITAL
(a) Core capital (basic equity)
12. The Committee considers that the key element of capital on which the main
emphasis should be placed is equity capital(2) and disclosed reserves. This key
element of capital is the only element common to all countries' banking systems;
it is wholly visible in the published accounts and is the basis on which most
market judgments of capital adequacy are made; and it has a crucial bearing on
profit margins and a bank's ability to compete. This emphasis on equity capital
and disclosed reserves reflects the importance the Committee attaches to
securing a progressive enhancement in the quality, as well as the level, of the
total capital resources maintained by major banks.(3)
------------------
(2) Issued and fully paid ordinary shares/common stock and non-cumulative
perpetual preferred stock (but excluding cumulative preferred stock).
(3) One member country, however, maintains the view that in international
definition of capital should be confined in core capital elements and indicated
that it would continue to press for the definition to be reconsidered by the
Committee in the years ahead.
76
71
ANNEX A
Page 5 of 32
13. Notwithstanding this emphasis, the member countries of the Committee also
consider that there are a number of other important and legitimate constituents
of a bank's capital base which may be included within the system of measurement
(subject to certain conditions set out in sub-section (b) below).
14. The Committee has therefore concluded that capital, for supervisory
purposes, should be defined in two tiers in a way which will have the effect of
requiring at least 50 per cent of a bank's capital base to consist of a core
element comprised of equity capital and published reserves from post-tax
retained earnings (tier 1). The other elements of capital (supplementary
capital) will be admitted into tier 2 up to an amount equal to that of the core
capital. These supplementary capital elements and the particular conditions
attaching to their inclusion in the capital base are set out below and in more
detail in Annex 1. Each of these elements may be included or not included by
national authorities at their discretion in the light of their national
accounting and supervisory regulations.
(b) Supplementary capital
(i) Undisclosed reserves
15. Unpublished or hidden reserves may be constituted in various
ways according to differing legal and accounting regimes in
member countries. Under this heading are included only
reserves which, though unpublished, have been passed through
the profit and loss account and which are accepted by the
bank's supervisory authorities. They may be inherently of the
same intrinsic quality as published retained earnings, but, in
the context of an internationally agreed minimum standard,
their lack of transparency, together with the fact that many
countries do not recognize undisclosed reserves, either as an
accepted accounting concept or as a legitimate element of
capital, argue for excluding them from the core equity capital
element.
(ii) Revaluation reserves
77
72
ANNEX A
Page 6 of 32
16. Some countries, under their national regulatory or accounting arrangements,
allow certain assets to be revalued to reflect their current value, or something
closer to their current value than historic cost, and the resultant revaluation
reserves to be included in the capital base. Such revaluations can arise in two
ways:
(a) from a formal revaluation, carried through to the balance
sheets of banks' own premises; or
(b) from a notional addition to capital of hidden values which
arise from the practice of holding securities in the balance
sheet valued at historic cost.
Such reserves may be included within supplementary capital
provided that the assets are considered by the supervisory authority to be
prudently valued, fully reflecting the possibility of price fluctuations and
forced sale.
17. Alternative (b) is relevant to those banks whose balance sheets
traditionally include very substantial amounts of equities held in their
portfolio at historic cost but which can be, and on occasions are, realized at
current prices and used to offset losses. The Committee considers these "latent"
revaluation reserves can be included among supplementary elements of capital
since they can be used to absorb losses on a going-concern basis, provided they
are subject to a substantial discount in order to reflect concerns both about
market volatility and about the tax charge which would arise were such gains to
be realized. A discount of 55 per cent on the difference between the historic
cost book value and market value is agreed to be appropriate in the light of
these considerations. The Committee considered, but rejected, the proposition
that latent reserves arising in respect of the undervaluation of banks' premises
should also be included within the definition of supplementary capital.
(iii) General provisions/general loan loss reserves
18. General provisions or general loan-loss reserves are created against the
possibility of future losses. Where they are not ascribed to particular assets
and do not reflect a reduction in the valuation of particular assets, these
reserves qualify for inclusion in capital and it has been agreed that they
should be counted
78
73
ANNEX A
Page 7 of 32
within tier 2. Where, however, provisions have been created against identified
losses or in respect of a demonstrable deterioration in the value of particular
assets, they are not freely available to meet unidentified losses which may
subsequently arise elsewhere in the portfolio and do not possess an essential
characteristic of capital. Such specific or earmarked provisions should
therefore not be included in the capital base.
19. The Committee accepts, however, that, in practice, it is not always possible
to distinguish clearly between general provisions (or general loan loss
reserves) which are genuinely freely available and those provisions which in
reality are earmarked against assets already identified as impaired. This partly
reflects the present diversity of accounting, supervisory, and, importantly
fiscal policies in respect of provisioning and in respect of national
definitions of capital. This means, inevitably, that initially there will be a
degree of inconsistency in the characteristics of general provisions or general
loan-loss reserves included by different member countries within the framework.
20. In the light of these uncertainties, the Committee intends during the
transitional period (see paragraphs 45 to 50 below) to clarify the distinction
made in member countries between those elements which should conceptually be
regarded as part of capital and those which should not qualify. The Committee
will aim to develop before the end of 1990 firm proposals applicable to all
member countries, so as to ensure consistency in the definition of general
provisions and general loan-loss reserves eligible for inclusion in the capital
base by the time the interim and final minimum target standards fall to be
observed.
21. As a further safeguard, in the event that agreement is not reached on the
refined definition of unencumbered resources eligible for inclusion in
supplementary capital, where general provisions and general loan-loss reserves
may include amounts reflecting lower valuations for assets or latent but
unidentified losses present in the balance sheet, the amount of such reserves or
provisions that qualify as capital would be phased down so that, at the end of
the transitional period, such items would constitute no more than 1.25
percentage points, or exceptionally and temporarily up to 2.0 percentage points,
of risk assets within the secondary elements.
79
74
ANNEX A
Page 8 of 32
(iv) Hybrid debt capital instruments
22. In this category fall a number of capital instruments which combine certain
characteristics of equity and certain characteristics of debt. Each of these has
particular features which can be considered to affect its quality as capital. It
has been agreed that, where these instruments have close similarities to equity,
in particular when they are able to support losses on an on-going basis without
triggering liquidation, they may be included in supplementary capital. In
addition to perpetual preference shares carrying a cumulative fixed charged, the
following instruments, for example, may qualify for inclusion: long-term
preferred shares in Canada, titres participatifs and titres subordonnes a duree
indeterminee in France, Genussscheine in Germany, perpetual debt instruments in
the United Kingdom and mandatory convertible debt instruments in the United
States. The qualifying criteria for such instruments are set out in Annex 1.
(v) Subordinated term debt
23. The Committee is agreed that subordinated term debt instruments have
significant deficiencies as constituents of capital in view of their fixed
maturity and inability to absorb losses except in a liquidation. These
deficiencies justify an additional restriction on the amount of such debt
capital which is eligible for inclusion within the capital base. Consequently,
it has been concluded that subordinated term debt instruments with a minimum
original term to maturity of over five years may be included within the
supplementary elements of capital but only a maximum of 50 per cent of the core
capital elements, and subject to adequate amortization arrangements.
(c) Deductions from capital
24. It has been concluded that the following deductions should be made from the
capital base for the purpose of calculating the risk-weighted capital ratio. The
deductions will consist of:
(i) goodwill, as a deduction from tier 1 capital elements;
80
75
ANNEX A
Page 9 of 32
(ii) investments in subsidiaries engaged in banking and financial
activities which are not consolidated in national systems. The
normal practice will be to consolidate subsidiaries for the
purpose of assessing the capital adequacy of banking groups.
Where this is not done, deduction is essential to prevent the
multiple use of the same capital resources in different parts
of the group. The deduction for such investments will be made
against the total capital base. The assets representing the
investments in subsidiary companies whose capital had been
deducted from that of the parent would not be included in
total assets for the purposes of computing the ratio.
25. The Committee carefully considered the possibility of requiring deduction of
banks' holdings of capital issued by other banks or deposit-taking institutions,
whether in the form of equity or of other capital instruments. Several G-10
supervisory authorities currently require such a deduction to be made in order
to discourage the banking system as a whole from creating cross-holdings of
capital, rather than drawing capital from outside investors. The Committee is
very conscious that such double-gearing (or "double-leveraging") can have
systematic dangers for the banking system by making it more vulnerable to the
rapid transmission of problems from one institution to another and some members
consider these dangers justify a policy of full deduction of such holdings.
26. Despite these concerns, however, the Committee as a whole is not presently
in favor of a general policy of deducting all holdings of other banks' capital,
on the grounds that to do so could impede certain significant and desirable
changes taking place in the structure of domestic banking systems.
27. The Committee has nonetheless agreed that:
(a) individual supervisory authorities should be free at their
discretion to apply a policy of deduction, either for all
holdings of other banks' capital, or for holdings which exceed
material limits in relation to the holding bank's capital or
the issuing bank's capital, or on a case-by-case basis;
81
76
ANNEX A
Page 10 of 32
(b) where no deduction is applied, banks' holdings of other banks'
capital instruments will bear a weight of 100 per cent;
(c) in applying these policies, member countries consider that
reciprocal cross-holdings of bank capital designed
artificially to inflate the capital position of the banks
concerned should not be permitted;
(d) the Committee will closely monitor the degree of
double-gearing in the international banking system and does
not preclude the possibility of introducing constraints at a
later date. For this purpose, supervisory authorities intend
to ensure that adequate statistics are made available to
enable them and the Committee to monitor the development of
banks' holdings of other banks' equity and debt instruments
which rank as capital under the present agreement.
II. THE RISK WEIGHTS
28. The Committee considers that a weighted risk ratio in which
capital is related to different categories of asset or
off-balance-sheet exposure, weighted according to broad
categories of relative riskiness, is the preferred method for
assessing the capital adequacy of banks. This is not to say
that other methods of capital measurement are not also useful,
but they are considered by the Committee to be supplementary
to the risk weight approach. The Committee believes that a
risk ratio has the following advantages over the simpler
gearing ratio approach:
(i) it provides a fairer basis for making international
comparisons between banking systems whose structures may
differ;
(ii) it allows off-balance-sheet exposures to be incorporated more
easily into the measure;
(iii) it does not deter banks from holding liquid or other assets
which carry low risk.
82
77
ANNEX A
Page 11 of 32
29. The framework of weights has been kept as simple as possible and only five
weights are used - 0, 10, 20, 50 and 100 per cent. There are inevitably some
broad-brush judgments in deciding which weight should apply to different types
of asset and the weightings should not be regarded as a substitute for
commercial judgment for purposes of market pricing of the different instruments.
30. The weighting structure is set out in detail in Annexes 2 and 3. There are
six aspects of the structure to which attention is particularly drawn.
(i) Categories of risk captured in the framework
31. There are many different kinds of risks against which banks' managements
need to guard. For most banks the major risk is credit risk, that is to say the
risk of counterparty failure, but there are many other kinds of risk - for
example, investment risk, interest rate risk, exchange rate risk, concentration
risk. The central focus of this framework is credit risk and, as a further
aspect of credit risk, country transfer risk. In addition, individual
supervisory authorities have discretion to build in certain other types of risk.
Some countries, for example, will wish to retain a weighting for open foreign
exchange positions or for some aspects of investment risk. No standardization
has been attempted in the treatment of these other kinds of risk in the
framework at the present stage.
32. The Committee considered the desirability of seeking to incorporate
additional weightings to reflect the investment risk in holdings of fixed rate
domestic government securities - one manifestation of interest rate risk which
is of course present across the whole range of a bank's activities, on and off
the balance sheet. For the present, it was concluded that individual supervisory
authorities should be free to apply either a zero or a low weight to claims on
the domestic government (e.g. 10 per cent for all securities or 10 per cent for
those maturing in under one year and 20 per cent for one year and over). All
members agreed, however, that interest rate risk generally required further
study and that if, in due course, further work made it possible to develop a
satisfactory method of measurement for this aspect of risk for the business as a
whole, consideration should be given to applying some appropriate control along
side this credit risk framework. Work is already under way to explore the
possibilities in this regard.
(ii) Country transfer risk
83
78
ANNEX A
Page 12 of 32
33. In addressing country transfer risk, the Committee has been very conscious
of the difficulty of devising a satisfactory method for incorporating country
transfer risk into the framework of measurement. In its earlier, consultative,
paper two alternative approaches were put forward for consideration and comment.
These were, firstly, a simple differentiation between claims on domestic
institutions (central government, official sector and banks) and claims on all
foreign countries; and secondly, differentiation on the basis of an approach
involving the selection of a defined grouping of countries considered to be of
high credit standing.
34. The comments submitted to the Committee by banks and banking associations in
G-10 countries during the consultative period were overwhelmingly in favor of
the second alternative. In support of this view, three particular arguments were
strongly represented to the Committee. Firstly, it was stressed that a simple
domestic/foreign split effectively ignores the reality that transfer risk varies
greatly between different countries and that this risk is of sufficient
significance to make it necessary to ensure that broad distinctions in the
credit standing of industrialized and non-industrialized countries should be
made and captured in the system of measurement, particularly one designed for
international banks. Secondly, it was argued that the domestic/foreign split
does not reflect the global integration of financial markets and the absence of
some further refinement would discourage international banks from holding
securities issued by central governments of major foreign countries as liquid
cover against their Euro-currency liabilities. To that extent a domestic foreign
approach would run counter to an important objective of the risk weighting
framework, namely that it should encourage prudent liquidity management.
Thirdly, and most importantly, the member states of the European Community are
firmly committed to the principle that all claims on banks, central governments
and the official sector within European Community countries should be treated in
the same way. This means that, where such a principle is put into effect, there
would be an undesirable asymmetry in the manner in which a domestic/foreign
split was applied by the seven G-10 countries which are members of the Community
compared with the manner in which it was applied by the non-Community countries.
84
79
ANNEX A
Page 13 of 32
35. In the light of these arguments, the Committee has concluded that a defined
group of countries should be adopted as the basis for applying differential
weighting coefficients, and that this group should be full members of the OECD
or countries which have concluded special lending arrangements with the IMF
associated with the Fund's General Arrangements to Borrow. This group of
countries is referred to as the OECD in the rest of the report.
36. This decision has the following consequences for the weighting structure.
Claims on central governments within the OECD will attract a zero weight (or a
low weight if the national supervisory authority elects to incorporate interest
rate risk); and claims on OECD non-central government public-sector entities
will attract a low weight (see (iii) below). Claims on central governments and
central banks outside the OECD will also attract a zero weight (or a low weight
if the national supervisory authority elects to incorporate investment risk),
provided such claims are denominated in the national currency and funded by
liabilities in the same currency. This reflects the absence of risks relating to
the availability and transfer of foreign exchange on such claims.
37. As regards the treatment of interbank claims, in order to preserve the
efficiency and liquidity of the international interbank market there will be no
differentiation between short-term claims on banks incorporated within or
outside the OECD. However, the Committee draws a distinction between, on the one
hand, short-term placements with other banks which is an accepted method of
managing liquidity in the interbank market and carries a perception of low risk
and, on the other, longer-term cross-border loans to banks which are often
associated with particular transactions and carry greater transfer and/or credit
risks. A 20 per cent weight will therefore be applied to claims on all banks,
wherever incorporated, with a residual maturity of up to and including one year;
longer-term claims on OECD incorporated banks will be weighted at 20 per cent;
and longer-term claims on banks incorporated outside the OECD will be weighted
at 100 per cent.
(iii) Claims on non-central-government, public-sector entities (PSEs)
85
80
ANNEX A
Page 14 of 32
38. The Committee concluded that it was not possible to settle on
a single common weight that can be applied to all claims on domestic
public-sector entities below the level of central government (e.g. states, local
authorities, etc.), in view of the special character and varying
creditworthiness of these entities in different member countries. The Committee
therefore opted to allow discretion to each national supervisory authority to
determine the appropriate weighting factors for the PSEs within that country. In
order to preserve a degree of convergence in the application of such discretion,
the Committee agreed that the weights ascribed in this way should be 0, 10, 20
or 50 per cent for domestic PSEs but that PSEs in foreign countries within the
OECD should attract a standard 20 per cent weight. These arrangements will be
subject to review by the Committee in pursuit of further convergence towards
common weights and consistent definitions in member countries and in the light
of decisions to be taken within the European Community on the specification of a
common solvency ratio for credit institutions.
Commercial companies owned by the public sector will attract a
uniform weight of 100 per cent inter alia in order to avoid competitive
inequality vis-a-vis similar private sector commercial enterprises.
(iv) Collateral and guarantees
39. The framework recognizes the importance of collateral in
reducing credit risk, but only to a limited extent. In view of the varying
practices among banks in different countries for taking collateral and different
experiences of the stability of physical or financial collateral values, it has
not been found possible to develop a basis for recognizing collateral generally
in the weighting system. The more limited recognition of collateral will apply
only to loans secured against cash or against securities issued by OECD central
governments and specified multilateral development banks. These will attract the
weight given to the collateral (i.e. a zero or a low weight). Loans partially
collateralised by these assets will also attract the equivalent low weights on
that part of the loan which is fully collateralised.
86
81
ANNEX A
Page 15 of 32
40. As regards loans or other exposures guaranteed by third parties, the
Committee has agreed that loans guaranteed by OECD central governments, OECD
public sector entities, or OECD incorporated banks will attract the weight
allocated to a direct claim on the guarantor (e.g. 20 per cent in the case of
banks). Loans guaranteed by non OECD incorporated banks will also be recognized
by the application of a 20 per cent weight but only where the underlying
transaction has a residual maturity not exceeding one year. The Committee
intends to monitor the application of this latter arrangement to ensure that it
does not give rise to inappropriate weighting of commercial loans. In the case
of loans covered by partial guarantees, only that part of the loan which is
covered by the guarantee will attract the reduced weight. The contingent
liability assumed by banks in respect of guarantees will attract a credit
conversion factor of 100 per cent (see sub-section (vi) below).
(v) Loans secured on residential property
41. Loans fully secured by mortgage on occupied residential property have a very
low record of loss in most countries. The framework will recognize this by
assigning a 50 per cent weight to loans fully secured by mortgage on residential
property which is rented or is (or is intended to be) occupied by the borrower.
In applying the 50 per cent weight, the supervisory authorities will satisfy
themselves, according to their national arrangements for the provision of
housing finance, that this concessionary weight is applied restrictively for
residential purposes and in accordance with strict prudential criteria. This may
mean, for example, that in some member countries the 50 per cent weight will
only apply to first mortgages creating a first charge on the property; and that
in other member countries it will only be applied where strict, legally-based,
valuation rules ensure a substantial margin of additional security over the
amount of the loan. The 50 per cent weight will specifically not be applied to
loans to companies engaged in speculative residential building or property
development. Other collateral will not be regarded as justifying the reduction
of the weightings that would otherwise apply.(4)
------------------
(4) One member country feels strongly that the lower weight should also apply to
other loans secured by mortgages on domestic property, provided that the amount
of the loan does not exceed 60 per cent of the value of the property as
calculated according to strict legal valuation criteria.
87
82
ANNEX A
Page 16 of 32
transitional period of some four-and-a-half years for any necessary adjustment
by banks who need time to build up to those levels. The Committee fully
recognizes that the transition from existing, sometimes long-established,
definitions of capital and methods of measurement towards a new internationally
agreed standard will not necessarily be achieved easily or quickly.
IV TRANSITIONAL AND IMPLEMENTING ARRANGEMENTS
(i) Transition
45. Certain transitional arrangements have been agreed upon to ensure that there
are sustained efforts during the transitional period to build up individual
banks' ratios towards the ultimate target standard; and to facilitate smooth
adjustment and phasing in of the new arrangements within a wide variety of
existing supervisory systems.
46. The transitional period will be from the date of this paper to the end of
1992, by which latter date all banks undertaking significant cross-border
business will be expected to meet the standard in full (see paragraph 50 below).
In addition, there will be an interim standard to be met by the end of 1990 (see
paragraph 49 below).
47. Initially no formal standard or minimum level will be set. It is the general
view of the Committee, however, that every encouragement should be given to
those banks whose capital levels are at the low end of the range to build up
their capital as quickly as possible and the Committee expects there to be no
erosion of existing capital standards in individual member countries' banks.
Thus, during the transitional period, all banks which need to improve capital
levels up to the interim and final standards should not diminish even
temporarily their current capital levels (subject to the fluctuations which can
occur around the time new capital is raised). A level of 5 per cent attained by
application of the framework and transitional arrangements is considered by some
countries to be a reasonable yardstick for the lower capitalized banks to seek
to attain in the short term. Individual member countries will, of course, be
free to set, and announce, at the outset of the transitional period the level
from which they would expect all their banks to move towards the interim and
final target standard. In order to assess and compare progress during the
initial period of adjustment to end-1990 in a manner which takes account both of
existing supervisory systems and the new
88
83
ANNEX A
Page 17 of 32
arrangements the Committee and individual supervisory authorities will initially
apply the basis of measurement set out in paragraph 48 below.
48. In measuring the capital position of banks at the start of the transitional
period, a proportion of the core capital may be made up of supplementary
elements up to a maximum of 25 per cent of core capital elements, reducing to 10
per cent by end-1990. In addition, throughout the transitional period up to
end-1992, subject to more restrictive policies which individual authorities may
wish to apply, term subordinated debt may be included without limit as a
constituent of supplementary elements and the deduction from tier 1 capital
elements in respect of goodwill may be waived.
49. At end-1990 there will be an interim minimum standard of 7.25 per cent of
which at least half should be core capital. However, between end-1990 and
end-1992 up to 10 per cent of the required core elements may be made up of
supplementary elements. This means, in round figure, a minimum core capital
element of 3.6 per cent of which tier 1 elements should total at least 3.25 per
cent, is to be achieved by the end of 1990. In addition, from end-1990, general
loan loss reserves or general provisions which include amounts reflecting lower
valuations of assets or latent but unidentified losses present in the balance
sheet will be limited to 1.5 percentage points, or exceptionally up to 2.0(5)
percentage points, of risk assets within supplementary elements.
50. At end-1992 the transitional period ends. The minimum standard will then be
8 per cent, of which core capital (tier 1, equity and reserves) will be at least
4 per cent, supplementary elements no more than core capital and term
subordinated debt within supplementary elements no more than 50 per cent of tier
1. In addition, general loan loss reserves or general provisions (having the
characteristics described in paragraph 49) will be limited at end-1992 to 1.25
------------------
(5) These limits would only apply in the event that no agreement is reached on a
consistent basis for including unencumbered provisions or reserves in capital
(see paragraphs 20 and 21).
89
84
ANNEX A
Page 18 of 32
percentage points, or exceptionally and temporarily up to 2.0(6) percentage
points, within supplementary elements.
For ease of reference, the arrangements described in
paragraphs 45 to 50 are summarized in a table at Annex 4.
(ii) Implementation
51. The arrangements described in this document will be implemented at national
level at the earliest possible opportunity. Each country will decide the way in
which the supervisory authorities will introduce and apply these recommendations
in the light of their different legal structures and existing supervisory
arrangements. In some countries, changes in the capital regime may be
introduced, after consultation, relatively speedily without the need for
legislation. Other countries may employ more lengthy procedures, and in some
cases these may require legislation. In due course the member states of the
European Community will also need to ensure that their own domestic regulations
are compatible with the Community's own legislative proposals in this field.
None of these factors needs result in any inconsistency in the timing of
implementation among member countries. For example, some countries may apply the
framework in this report, formally or informally, in parallel with their
existing system, certainly during the initial period of transition. In this way
banks can be assisted to start the necessary process of adjustment in good time
before substantive changes in national systems are formally introduced.
July 1988
------------------
(6) These limits would only apply in the event that no agreement is reached on a
consistent basis for including unencumbered provisions or reserves in capital
(see paragraphs 20 and 21).
90
85
ANNEX A
Page 19 of 32
ANNEX 1
Definition of capital included in the capital base
(To apply at end-1992 - see Annex 4
for transitional arrangements)
A. Capital elements
Tier 1 (a) Paid-up share capital/common stock
(b) Disclosed reserves
Tier 2 (a) Undisclosed reserves
(b) Asset revaluation reserves
(c) General provisions/general loan loss reserves
(d) Hybrid (debt/equity) capital instruments
(e) Subordinated term debt
The sum of Tier 1 and Tier 2 elements will be eligible for
inclusion in the capital base, subject to the following limits.
B. Limits and restrictions
(i) The total of Tier 2 (supplementary) elements will be limited
to a maximum of 100 per cent of the total of Tier 1 elements;
(ii) subordinated term debt will be limited to a maximum of 50 per
cent of Tier 1 elements;
91
86
ANNEX A
Page 20 of 32
(iii) where general provisions/general loan loss reserves include
amounts reflecting lower valuations of asset or latent but
unidentified losses present in the balance sheet, the amount
of such provisions or reserves will be limited to a maximum of
1.25 percentage points, or exceptionally and temporarily up to
2.0 percentage points, of risk assets;(7)
(iv) asset revaluation reserves which take the form of latent gains
on unrealized securities (see below) will be subject to a
discount of 55 per cent.
C. Deductions from the capital base
From Tier 1: Goodwill
From total
capital: (i) Investments in unconsolidated banking and financial
subsidiary companies.
N.B. The presumption is that the framework would be applied on a
consolidated basis to banking groups.
(ii) Investments in the capital of other banks and
financial institutions (at the discretion of national
authorities).
D. Definition of capital elements
------------------
(7) This limit would only apply in the event that no agreement is reached on a
consistent basis for including unencumbered provisions or reserves in capital
(see paragraphs 20 and 21).
92
87
ANNEX A
Page 21 of 32
(i) Tier 1: includes only permanent shareholders' equity (issued and fully
paid ordinary shares/common stock and perpetual non-cumulative
preference shares) and disclosed reserves (created or increased by
appropriations of retained earnings or other surplus, e.g. share
premiums, retained profit,(8) general reserves and legal reserves). In
the case of consolidated accounts, this also includes minority
interests in the equity of subsidiaries which are less than wholly
owned. This basic definition of capital excludes revaluation reserves
and cumulative preference shares.
(ii) Tier 2: (a) undisclosed reserves are eligible for inclusion within
supplementary elements provided these reserves are accepted by the
supervisor. Such reserves consist of that part of the accumulated
after-tax surplus of retained profits which banks in some countries may
be permitted to maintain as an undisclosed reserve. Apart from the fact
that the reserve is not identified in the published balance sheet, it
should have the same high quality and character as a disclosed capital
reserve; as such, it should not be encumbered by any provision or other
known liability but should be freely and immediately available to meet
unforeseen future losses. This definition of undisclosed reserves
excludes hidden values arising from holdings of securities in the
balance sheet at below current market prices (see below).
(b) Revaluation reserves arise in two ways. Firstly, in some
countries, banks (and other commercial companies) are permitted to
revalue fixed assets, normally their own premises, from time to time in
line with the change in market values. In some of these countries the
amount of such revaluations is determined by law. Revaluations of this
kind are reflected on the face of the balance sheet as a revaluation
reserve.
Secondly, hidden values or "latent" revaluation reserves may
be present as a result of long-term holdings of equity securities
valued in the balance sheet at the historic cost of acquisition.
------------------
(8) Including, at national discretion, allocations to or from reserve during the
course of the year from current year's retained profit.
93
88
ANNEX A
Page 22 of 32
Both types of revaluation reserve may be included in Tier 2
provided that the assets are prudently valued, fully reflecting the
possibility of price fluctuation and forced sale. In the case of
"latent" revaluation reserves a discount of 55 per cent will be applied
to the difference between historic cost book value and market value to
reflect the potential volatility of this form of unrealized capital and
the notional tax charge on it.
(c) General provisions/general loan loss reserves: provisions
or loan loss reserves held against future, presently unidentified
losses are freely available to meet losses which subsequently
materialize and therefore qualify for inclusion within supplementary
elements. Provisions ascribed to impairment of particular assets or
known liabilities should be excluded. Furthermore, where general
provisions/general loan loss reserves include amounts reflecting lower
valuations of assets or latent but unidentified losses already present
in the balance sheet, the amount of such provisions or reserves
eligible for inclusion will be limited to a maximum of 1.25 percentage
points, or exceptionally and temporarily up to 2.0 percentage
points.(9)
(d) Hybrid (debt/equity) capital instruments. This heading
includes a range of Instruments which combine characteristics of equity
capital and of debt. Their precise specifications differ from country
to country, but they should meet the following requirements:
- they are unsecured, subordinated and fully paid-up;
- they are not redeemable at the initiative of the
holder or without the prior consent of the
supervisory authority;
- they are available to participate in losses without
the bank being obliged to cease trading (unlike
conventional subordinated debt);
------------------
(9) This limit would apply in the event that no agreement is reached on a
consistent basis for including unencumbered provisions or reserves in capital
(see paragraphs 20 and 21).
94
89
ANNEX A
Page 23 of 32
- although the capital instrument may carry an
obligation to pay interest that cannot permanently be
reduced or waived (unlike dividends on ordinary
shareholders' equity), it should allow service
obligations to be deferred (as with cumulative
preference shares) where the profitability of the
bank would not support payment.
Cumulative preference shares, having these characteristics,
would be eligible for inclusion in this category. In addition, the following are
examples of instruments that may be eligible for inclusion: long-term preferred
shares in Canada, titres participatifs and titres subordonnes a duree
indeterminee in France. Cenusscheine in Germany, perpetual subordinated debt and
preference shares in the United Kingdom and mandatory convertible debt
instruments in the United States. Debt capital instruments which do not meet
these criteria may be eligible for inclusion in item (e).
(e) Subordinated term debt: includes conventional unsecured
subordinated debt capital instruments with a minimum original fixed
term to maturity of over five years and limited life redeemable
preference shares. During the last five years to maturity, a cumulative
discount (or amortization) factor of 20 per cent per year will be
applied to reflect the diminishing value of these instruments as a
continuing source of strength. Unlike instruments included in item (d)
, these instruments are not normally available to participate in the
losses of a bank which continues trading. For this reason these
instruments will be limited to a maximum of 50 per cent of Tier 1.
95
90
ANNEX A
Page 24 of 32
ANNEX 2
Risk weights by category of on-balance-sheet asset
0% (a) Cash(10)
(b) Claims on central governments and central banks
denominated in national currently funded in that
currency
(c) Other claims on OECD(11) central governments(12) and
central banks
(d) Claims collateralised by cash or OECD
central-government securities(13) or guaranteed by
OECD central governments(14)
------------------
(10) Includes (at national discretion) gold bullion held in own vaults or on an
allocated basis to the extent backed by bullion liabilities.
(11) The OECD comprises countries which are full members of the OECD or which
have concluded special lending arrangements with the IMF associated with the
Fund's General Arrangements to Borrow.
(12) Some member countries intend to apply weights to securities issued by OECD
central governments to take account of investment risk. These weights would, for
example, be 10 per cent for all securities or 10 per cent for those maturing in
up to one year and 20 per cent for those maturing in over one year.
(13) Some member countries intend to apply weights to securities issued by OECD
central governments to take account of investment risk. These weights would, for
example, be 10 per cent for all securities or 10 per cent for those maturing in
up to one year and 20 per cent for those maturing in over one year.
(14) Commercial loans partially guaranteed by these bodies will attract
equivalent low weights on that part of the loan which is fully covered.
Similarly, loans partially collateralised by cash or securities issued by OECD
central governments and multilateral development banks will attract low weights
on that part of the loan which is fully covered.
96
91
ANNEX A
Page 25 of 32
0, 10,20 (a) Claims on domestic public-sector entities, excluding
or 50% central government, and loans guaranteed(15) by such
(at national entities
discretion)
20% (a) Claims on multilateral development banks (IBRD, IADB,
AsDB, AfDB, EIB)
(b) Claims on banks incorporated in the OECD and loans
guaranteed(16) by OECD incorporated banks
(c) Claims on banks incorporated in countries outside the
OECD with a residual maturity of up to one year and
loans with a residual maturity of up to one year
guaranteed by banks incorporated in countries outside
the OECD
(d) Claims on non-domestic OECD public-sector entities,
excluding central government, and loans
guaranteed(17) by such entities
------------------
(15) Commercial loans partially guaranteed by these bodies will attract
equivalent low weights on that part of the loan which is fully covered.
Similarly, loans partially collateralised by cash or securities issued by OECD
central governments and multilateral development banks will attract low weights
on that part of the loan which is fully covered.
(16) Claims on other multilateral development banks in which C-10 countries are
shareholding members may, at national discretion, also attract a 20 per cent
weight.
(17) Commercial loans partially guaranteed by these bodies will attract
equivalent low weights on that part of the loan which is fully covered.
Similarly, loans partially collateralised by cash or securities issued by OECD
central governments and multilateral development banks will attract low weights
on that part of the loan which is fully covered.
97
92
ANNEX A
Page 26 of 32
(e) Cash items in process of collection
50% (a) Loans fully secured by mortgage on residential
property that is or will be occupied by the borrower
or that is rented
100% (a) Claims on the private sector
(b) Claims on banks incorporated outside the OECD with a
residual maturity of over one year
(c) Claims on central governments outside the OECD
(unless denominated in national currency - and funded
in that currency - see above)
(d) Claims on commercial companies owned by the public
sector
(e) Premises, plant and equipment and other fixed assets
(f) Real estate and other investments (including
non-consolidated investment participations in other
companies)
(g) Capital instruments issued by other banks (unless
deducted from capital)
(h) All other assets
98
93
ANNEX A
Page 27 of 32
ANNEX 3
Credit conversion factors for off-balance-sheet items
The framework takes account of the credit risk on
off-balance-sheet exposures by applying credit conversion factors to the
different types of off-balance-sheet instrument or transaction. With the
exception of foreign exchange and interest rate related contingencies, the
credit conversion factors are set out in the table below. They are derived from
the estimated size and likely occurrence of the credit exposure, as well as the
relative degree of credit risk as identified in the Committee's paper. "The
management of banks' off-balance-sheet exposures: a supervisory perspective"
issued in March 1986. The credit conversion factors would be multiplied by the
weights applicable to the category of the counterparty for an on-balance-sheet
transaction (see Annex 2).
Instruments
Credit conversion
factors
1. Direct credit substitutes, e.g. general guarantees of indebtedness
(including standby) letters of credit serving as financial guarantees
for loans and securities) and acceptances (including endorsements with
the character of
acceptances) 100%
2. Certain transaction-related contingent items (e.g. performance bonds,
bid bonds, warranties and standby letters of credit related to
particular
transactions) 50%
3. Short-term self-liquidating trade-related
contingencies (such as documentary credits
collateralised by the underlying shipments) 20%
99
94
ANNEX A
Page 28 of 32
4. Sale and repurchase agreements and asset sales with recourse,(18) where
the credit risk remains with the bank 100%
5. Forward asset purchases, forward deposits and partly-paid shares and
securities,(19) which represent commitments with certain drawdown 100%
6. Note issuance facilities and revolving under- writing facilities 50%
7. Other commitments (e.g. formal standby facilities and credit lines)
with an original(20) maturity of over one year 50%
(18) These items are to be weighted according to the type of asset and not
according to the type of counterparty with whom the transaction has
been entered into Reverse _____ (i.e. purchase and resale agreements,
where the bank is the receiver of the asset) are to be treated as
collateralised loans, reflecting the economic reality of the
transaction. The risk is therefore to be measured as an exposure on the
counter. Where the asset temporarily acquired is a security which
attracts a preferential risk weighting, this would be recognized as
collateral and the risk weighting would be reduced accordingly.
(19) These items are to be weighted according to the type of asset and not
according to the type of counterparty with whom the transaction has
been entered into Reverse _____ (i.e. purchase and resale agreements,
where the bank is the receiver of the asset) are to be treated as
collateralised loans, reflecting the economic reality of the
transaction. The risk is therefore to be measured as an exposure on the
counter. Where the asset temporarily acquired is a security which
attracts a preferential risk weighting, this would be recognized as
collateral and the risk weighting would be reduced accordingly.
(20) But see footnote 5 in the main text.
100
95
ANNEX A
Page 29 of 32
8. Similar commitments with an original(21)
maturity of up to one year, or
which can be unconditionally
cancelled at any time 0%
(N.B. Member countries will have some limited discretion to allocate particular
instruments into items 1 to 8 above according to the characteristics of the
instrument in the national market.)
Foreign exchange and interest rate related contingencies
The treatment of foreign exchange and interest rate related
items needs special attention because banks are not exposed to credit risk for
the full face value of their contracts, but only to the potential cost of
replacing the cash flow (on contracts showing positive value) if the
counterparty defaults. The credit equivalent amounts will depend inter alia on
the maturity of the contract and on the volatility of the rates underlying that
type of instrument.
Despite the wide range of different instruments in the market,
the theoretical basis for assessing the credit risk on all of them has been the
same. It has consisted of an analysis of the behavior of matched pairs of swaps
under different volatility assumptions. Since exchange rate contracts involve an
exchange of principal on maturity, as well as being generally more volatile,
higher conversion factors are proposed for those instruments which feature
exchange rate risk. Interest rate contracts(22) are defined to include
single-currency interest rate swaps, basis swaps, forward rate agreements,
interest rate futures, interest rate options purchased and similar instruments.
Exchange rate contracts(23) include
(21) But see footnote 5 in the main text.
(22) Instruments traded on exchanges may be excluded where they are subject
to daily margining requirements. Options purchased over the counter are
included with the same conversion factors as other instruments, but
this decision might be reviewed in the light of future experience.
(23) Instruments traded on exchanges may be excluded where they are subject
to daily margining requirements. Options purchased over the counter are
included with the same conversion factors as other instruments, but
this decision might be reviewed in the light of future experience.
101
96
ANNEX A
Page 30 of 32
cross-currency interest rate swaps, forward foreign exchange contracts, currency
futures, currency options purchased and similar instruments. Exchange rate
contracts with an original maturity of 14 calendar days or less are excluded.
A majority of G-10 supervisory authorities are of the view
that the best way to assess the credit risk on these items is to ask banks to
calculate the current replacement cost by marking contracts to market, thus
capturing the current exposure without any need for estimation, and then adding
a factor (the "add-on") to reflect the potential future exposure over the
remaining life of the contract. It has been agreed that, in order to calculate
the credit equivalent amount of its off-balance-sheet interest rate and foreign
exchange rate instruments under this current exposure method, a bank would sum:
- the total replacement cost (obtained by "marking to
market") of all its contracts with positive value and
- an amount for potential future credit exposure
calculated on the basis of the total notional
principal amount of its book, split by residual
maturity as follows:
Residual maturity Interest Rate Exchange
Rate Contracts Contracts
Less than one year nil 1.0%
One year and over 0.5% 5.0%
No potential credit exposure would be calculated for single
currency/floating interest rate swaps; the credit exposure on these contracts
would be evaluated solely on the basis of their ▇▇▇▇ to market value.
A few G-10 supervisors believe that this two-step approach,
incorporating a "▇▇▇▇ to market" element, is not consistent with the remainder
of the capital framework. They favor a simpler method whereby the potential
credit exposure is estimated against each type of contract and a notional
capital weight allotted, no matter what the market value of the contract might
be at a particular
102
97
ANNEX A
Page 31 of 32
reporting date. It has therefore been agreed supervisory authorities should have
discretion(24) to apply the alternative method of calculation described below,
in which credit conversion factors are derived without reference to the current
market price of the instruments. In deciding on what those notional credit
conversion factors should be, it has been agreed that a slightly more cautious
bias is justified since the current exposure is not being calculated on a
regular basis.
In order to arrive at the credit equivalent amount using this
original exposure method, a bank would simply apply one of the following two
sets of conversion factors to the notional principal amounts of each instrument
according to the nature of the instrument and its maturity:
Maturity(25) Interest Rate Exchange Rate
Contracts Contracts
Less than one year 0.5% 2.0%
One year and less
than two years 1.0% 5.0%
(i.e. 2% + 3%)
For each additional year 1.0% 3.0%
It is emphasized that the above conversion factors, as well as
the "additions" for the current exposure method, should be regarded as
provisional and may be subject to amendment as a result of changes in the
volatility of exchange rates and interest rates.
(24) Some national authorities may permit individual banks to choose which
method to adopt, it being understood that once a bank had chose to
apply the current exposure method, it would not be allowed to switch
back to the original exposure method.
(25) For interest rate contracts, there is national discretion as to whether
the conversion factors are to be based on original or residual maturity
for exchange rate contracts, the conversion factors are to be
calculated according to the original maturity of the instrument.
103
98
ANNEX A
Page 32 of 32
ANNEX 4
TRANSITIONAL ARRANGEMENTS
Initial End-1990 End-1992
1. Minimum standard The level prevailing at 7.25% 8.0%
end-1987
2. Measurement formula Core elements plus 100% Core elements plus 100% Core elements plus 100%
(3.625% plus 3.624%) (4% plus 4%)
3. Supplementary elements Maximum 25% of total Maximum 10% of total
included in core core core (i.e. 0.36%) None
4. Limit on general loan loss No limit 1.5 percentage points, or 1.25 percentage points,
reserves in supplementary exceptionally up to 2.0 or exceptionally and
elements* percentage points temporarily up to 2.0
percentage points
5. Limit on term subordinated
debt in supplementary No limit (at discretion) No limit (at discretion) Maximum of 50% of
elements Tier 1
6. Deduction for goodwill Deducted from Tier 1 Deducted from Tier 1 Deducted from Tier 1
(at discretion) (at discretion)
------------------------------------------------
* This limit would only apply in the event that no agreement is reached
on a consistent basis for including unencumbered provisions or reserves
in capital (see paragraphs 20 and 21).
104
99
SCHEDULE 1
Page 1 of 4
FORM OF REQUEST FOR DISBURSEMENT (LOAN)
(See Sections 3.02 and 6.06)
[MSF HOLDING LETTERHEAD]
[Date]
International Finance Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: [Director, Latin America and the Caribbean Department]
Ladies and Gentlemen:
Investment No. 8354
Request for Loan Disbursement No. [ ]*
1. Please refer to the Investment Agreement (as amended from time to time, the
"Investment Agreement") dated April 27, 1998 and amended and restated as of
September 29, 1998 among MSF Holding Ltd., Medical Systems Finance S.A.,
Estolur, S.A., Healthcare Systems Finance S.A., Sistemas Financieros S.A. and
International Finance Corporation ("IFC"). Terms defined in the Investment
Agreement have their defined meanings whenever used in this request.
2. The Co-Borrowers irrevocably request the disbursement on ____________, 19__
(or as soon as practicable thereafter) of the amount of ____________
(____________) under the Loan (the "Disbursement") in accordance with the
provisions of Section 3.02 of the Investment Agreement. You are requested to pay
such amount to the account in [New York] of [Name of Company], Account No.
____________ at [Name and Address of Bank].
* Each to be numbered in series.
105
100
SCHEDULE 1
Page 2 of 4
3. There is enclosed a signed, stamped, but undated receipt for the amount of
the Disbursement. The Co-Borrowers authorize IFC to date such receipt with the
date of actual disbursement by IFC.
4. For the purpose of Sections 6.02 and 6.03 of the Investment Agreement, each
of the Co-Borrowers further certifies as follows:
(a) no Event of Default and no Potential Event of Default has occurred
and is continuing;
(b) the proceeds of the Disbursement are at the date of this request
needed by the Co-Borrowers for the purpose of the Project, or will be needed for
such purpose within six (6) months of such date;
(c) since April 27, 1998 nothing has occurred which might materially
and adversely affect the carrying out of the Project or any of the Co-Borrower's
or DVI's business prospects or financial condition, or make it improbable that
any of the Co-Borrowers will be able to fulfill any of its obligations under the
Investment Agreement;
(d) since April 27, 1998 none of the Co-Borrowers has incurred any
material loss or liability (except such liabilities as may be incurred by such
Co-Borrower in accordance with Sections 7.02, 7.03 and 7.04 of the Investment
Agreement);
(e) the representations and warranties made in Article V of the
Investment Agreement are true on the date of this request and will be true on
the date of Disbursement with the same effect as if such representations and
warranties had been made on and as of each such date (but in the case of Section
5.01(c), without the words in parenthesis);
(f) the proceeds of that Disbursement are not in reimbursement of, or
to be used for, expenditures in the territories of any country which is not a
member of IFC or the World Bank or for goods produced in or services supplied
from any such country;
106
101
SCHEDULE 1
Page 3 of 4
(g) after giving effect to the Disbursement, none of the Co-Borrowers
will be in violation of:
(i) its Memorandum and Articles of Association, Estatutos
or other organizational documents;
(ii) any provision contained in any document to which such
Co-Borrower is a party (including the Investment
Agreement) or by which such Co-Borrower is bound; or
(iii) any law, rule or regulation, directly or indirectly,
limiting or otherwise restricting such Co-Borrower's
borrowing power or authority or its ability to
borrow; and
(h) (without limiting the generality of subsection (g) above) after
taking account of the amount of that Disbursement MSF Holding shall be in
compliance with the Capital Adequacy Ratio (on a consolidated basis);
(i) such Disbursement is made pro rata with the disbursement of any
other senior loan forming part of the Financial Plan;
(j) the IFC/FMO Security has been duly created and registered as first
priority or first ranking security interests in all assets subject to the
Security Agreements;
(k) the Co-Borrowers have perfected and registered first priority
security interests in favor of IFC and FMO over Lease/Loan Receivables such that
the Loan to Collateral Value Ratio is no more than 95%; and
(l) after giving effect to the Disbursement, the aggregate amount
outstanding under the Loan will not exceed the lesser of (i) the Advance Rate,
or (ii) the Current Net Equipment Investment Cost.
107
102
SCHEDULE 1
Page 4 of 4
The above certifications are effective as of the date of this Request
for Disbursement and shall continue to be effective as of the date of the
Disbursement. If any of these certifications is no longer valid as of or prior
to the date of the requested Disbursement, each of the Co-Borrowers undertakes
to immediately notify IFC.
Yours truly,
MSF HOLDING LTD.
By ________________________
Authorized Representative
Copy to: Manager, Accounting Division
International Finance Corporation
108
103
SCHEDULE 2
Page 1 of 1
FORM OF LOAN DISBURSEMENT RECEIPT
(See Section 3.02 of the Investment Agreement)
[MSF HOLDING'S LETTERHEAD]
[Date]
International Finance Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: Manager, Accounting Division
Ladies and Gentlemen:
Investment No. 8354
Disbursement Receipt No. [ ]* (Loan)
The Co-Borrowers, as defined in the Investment Agreement referred to
below, hereby acknowledge receipt on the date hereof, of the sum of $___________
disbursed to us by International Finance Corporation ("IFC") under the Loan of
forty million Dollars ($40,000,000) provided for in the Investment Agreement
dated April 27, 1998 and amended and restated as of September 29, 1998 among MSF
Holding Ltd., Medical Systems Finance S.A., Estolur S.A., Healthcare Systems
Finance S.A., Sistemas Financieros S.A., and International Finance Corporation.
Yours truly,
MSF HOLDING LTD.
By ________________________
Authorized Representative**
* To correspond with number of the Disbursement request. See Schedule 1.
** As named in the Co-Borrower's Certificate of Incumbency and Authority
(see Schedule 4).
109
104
SCHEDULE 3
Page 1 of 3
FORM OF REQUEST FOR SUBSCRIPTION AND
DISBURSEMENT (EQUITY)
(See Sections 4.01(b) and 6.06)
[MSF HOLDING'S LETTERHEAD]
[Date]
International Finance Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: Director, Latin America and the Caribbean Department
Ladies and Gentlemen:
Investment No. 8354
Request for Disbursement (Equity)*
1. Please refer to the Investment Agreement (as amended from time to time, the
"Investment Agreement") dated April 27, 1998 and amended and restated as of
September 29, 1998 among MSF Holding Ltd., Medical Systems Finance S.A.,
Estolur, S.A. and Healthcare Systems Finance S.A., Sistemas Financieros S.A. and
International Finance Corporation ("IFC"). Terms defined in the Investment
Agreement have their defined meanings whenever used in this request.
* Each request to be numbered in sequence.
110
105
SCHEDULE 3
Page 2 of 3
2. The Co-Borrowers request the subscription and disbursement on ____________,
19__ [as soon as practicable after the date of this request], of the amount of
[amount and currency] in accordance with Section 4.01 of the Investment
Agreement. You are requested to pay such amount to [Name and Address of Bank],
for credit to the Co-Borrower's account no. ____________.
3. Against disbursement by you in accordance with Section 4.01 of the Investment
Agreement, we will deliver to you a share certificate evidencing ownership of
[number] Shares.
4. For the purpose of Sections 6.02 and 6.04 of the Investment Agreement, each
of the Co-Borrowers certifies as follows:
(a) no Event of Default and no Potential Event of Default has occurred
and is continuing;
(b) there has not occurred any default by any party to any of the
agreements referred to in Section 6.01(d) of the Investment Agreement in the
performance of any provision of any of such agreements;
(c) the proceeds of the disbursement are at the date of this request
needed by the Co-Borrowers for the purpose of the Project, or will be needed for
such purpose within six (6) months of such date;
(d) since April 27, 1998 nothing has occurred which might materially
and adversely affect the carrying out of the Project or such Co-Borrower's or
DVI's business prospects or financial condition, or make it improbable that such
Co-Borrower will be able to fulfill any of its obligations under the Investment
Agreement;
(e) since April 27, 1998 such Co-Borrower has not incurred any material
loss or liability (except such liabilities as may be incurred by such
Co-Borrower in accordance with Section 7.02, 7.03 and 7.04 of the Investment
Agreement);
111
106
SCHEDULE 3
Page 3 of 3
(f) the representations and warranties made in Article V of the
Investment Agreement are true on the date of this request and will be true on
the date of Disbursement with the same effect as if such representations and
warranties had been made on and as of each such date (but in the case of Section
5.01(c), without the words in parenthesis);
(g) immediately after such subscription or disbursement, IFC would not
have subscribed and paid for a higher proportion of the IFC Shares than the
proportion which each of the other shareholders of MSF Holding has by then
subscribed and paid for of the total number of Shares to be subscribed by it in
accordance with the Financial Plan;
(h) DVI International and PIE have acquired, or will contemporaneously
with this subscription acquire, in the aggregate, at least seventy-four per cent
(74%) of the issued voting share capital of MSF Holding;
(i) FMO has acquired, or will contemporaneously with this subscription
acquire, in the aggregate, at least thirteen percent (13%) of the issued voting
share capital of MSF Holding on terms and conditions satisfactory to IFC; and
(j) all subscribed shares have been paid in full in cash.
The above certifications are effective as of the date of this request
and shall continue to be effective as of the date of subscription and
disbursement. If any such certification is no longer valid as of or prior to the
date of the requested subscription and disbursement each of the Co-Borrowers
undertakes to promptly notify IFC by telex or facsimile.
Yours truly,
MSF HOLDING LTD.
By ________________________
Authorized Representative
Copy to: Manager
Accounting Division
International Finance Corporation
112
107
SCHEDULE 4
Page 1 of 2
FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY
(See Section 6.01(l))
[CO-BORROWER'S LETTERHEAD]
[Date]
International Finance Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
Attention: Director, Latin America and Caribbean Department
Ladies and Gentlemen:
Certificate of Incumbency and Authority
With reference to the Investment Agreement between us, dated April 27,
1998 and amended and restated as of September 29, 1998 (as amended from time to
time the "Investment Agreement"), I, the undersigned [Chairman/Director] of
[Name of Company] (the "Co-Borrower"), duly authorized to do so, hereby certify
that the following are the names, offices and true specimen signatures of the
persons each of whom are, and will continue to be, authorized:
(a) to sign on behalf of the Co-Borrower the requests for the
subscription and disbursement of funds provided for in Sections 3.02 and 4.01 of
the Investment Agreement;
(b) to sign the certifications provided for in Sections 6.02, 6.03,
6.04 and 6.06 of the Investment Agreement; and
(c) to take any other action required or permitted to be taken, done,
signed or executed under the Investment Agreement or any other agreement to
which IFC and the Co-Borrower may be parties.
113
108
SCHEDULE 4
Page 2 of 2
* Name Office Specimen Signature
------ ------ ------------------
--------------------- ---------------------- -------------------------
--------------------- ---------------------- -------------------------
--------------------- ---------------------- -------------------------
You may assume that any such person continues to be so authorized until
you receive authorized written notice from the Co-Borrower that they, or any of
them, is no longer so authorized.
Yours truly,
[NAME OF CO-BORROWER]
By ------------------------
[Chairman/Director]
* Designations may be changed by the Co-Borrower at any time by issuing a
new Certificate of Incumbency and Authority authorized by the Board of
Directors of the Co-Borrower.
114
109
SCHEDULE 5
Page 1 of 2
FORM OF LETTER TO CO-BORROWERS' AUDITORS
(See Sections 6.01(k) and 7.01(g) of
the Investment Agreement)
[CO-BORROWER'S LETTERHEAD]
[DATE]
[NAME OF AUDITORS]
[ADDRESS]
Ladies and Gentlemen:
We hereby authorize and request you to give to International Finance
Corporation of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇ of America ("IFC"), all such information as IFC may reasonably request
with regard to the financial statements of the undersigned Co-Borrower, both
audited and unaudited. We have agreed to supply that information and those
statements under the terms of an Investment Agreement between the undersigned
Co-Borrower and IFC dated April 27, 1998 and amended and restated as of
September 29, 1998 (as amended from time to time, the "Investment Agreement").
For your information we enclose a copy of the Investment Agreement.
We authorize and request you to send two copies of the audited accounts
of the undersigned Co-Borrower to IFC to enable us to satisfy our obligation to
IFC under Section 7.01(e)(i) of the Investment Agreement. When submitting the
same to IFC, please also send, at the same time, a copy of your full report on
such accounts in a form reasonably acceptable to IFC.
Please note that under Section 7.01(e)(ii) and (iii) of the Investment
Agreement, we are obliged to provide IFC with:
115
110
SCHEDULE 5
Page 2 of 2
(a) a copy of any management letter or other communication from you to
the Co-Borrower or its management commenting on, among other things, the
adequacy of the Co-Borrower's financial control procedures and accounting and
management information systems; and
(b) a report by you certifying that, based upon its audited financial
statements, the Co-Borrower was in compliance with the financial covenants
contained in Sections 7.02, 7.03 and 7.04 of the Investment Agreement as at the
end of the relevant Fiscal Year or, as the case may be, detailing any
non-compliance.
Please also submit each such communication and report to IFC with the
audited accounts.
For our records, please ensure that you send to us a copy of every
letter which you receive from IFC immediately upon receipt and a copy of each
reply made by you immediately upon the issue of that reply.
Yours truly,
[NAME OF CO-BORROWER]
By ________________________
Authorized Representative
Enclosure
cc: Director
Latin America and Caribbean
International Finance Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ of America
116
111
SCHEDULE 6
Page 1 of 2
INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF OPERATIONS
(See Section 7.01(e)(iv) of the Investment Agreement)
(1) Sponsors and Shareholdings. Information on significant changes
in share ownership of any Co-Borrower, the reasons for such
changes, and the identity of major new shareholders.
(2) Country Conditions and Government Policy. Report on any
material changes in local conditions, including government
policy changes, that directly affect any Co-Borrower (e.g.
changes in government economic strategy, taxation, foreign
exchange availability, price controls, and other areas of
regulations.)
(3) Management and Technology. Information on significant changes
in (i) the Co-Borrowers' senior management or organizational
structure, and (ii) technology used by any Co-Borrower,
including technical assistance arrangements.
(4) Corporate Strategy. Description of any changes to any
Co-Borrower's corporate or operational strategy, including
changes in products, degree of integration, and business
emphasis.
(5) Markets. Brief analysis of changes in any Co-Borrower's market
conditions (both domestic and export), with emphasis on
changes in market share and degree of competition.
117
112
SCHEDULE 6
Page 2 of 2
(6) Operating Performance. Discussion of major factors affecting
the year's financial results (sales by value and volume,
operating and financial costs, profit margins, capacity
utilization, capital expenditure, etc.).
(7) Financial Condition. Key financial ratios for previous year,
compared with ratios covenanted in the Investment Agreement.
(8) Asset Liability Management Reports. Reports containing
interest rate exposures, foreign currency exposures (Dollars
and other currencies), hedging, etc.
118
113
SCHEDULE 7
Page 1 of 1
MINIMUM INSURANCE REQUIREMENTS
(Section 7.01(t) of the Investment Agreement)
The Co-Borrowers shall insure their assets and activities according to their own
written insurance policy which shall be approved by IFC, and monitor the
insurance on all loans and leases made under Lease/Loan Agreements.
The insurance required will be expected to include, but not be limited to,
insurance against the following:
(a) Fire and Perils, or all Risks, on assets;
(b) General Liability;
(c) Financial Institution Bond ( Fidelity/Cash/etc.);
(d) Other Insurances required by law.
SPECIAL PROVISIONS
(a) IFC named as additional insured on all liability policies.
(b) Deliver to IFC a description of the procedures instituted by the
Co-Borrowers to monitor insurance on all loans and leases made under
Lease/Loan Agreements.
119
114
SCHEDULE 8
Page 1 of 5
FORM OF AGREEMENT OF ADDITIONAL CO-BORROWERS
(See Section 9.13)
[LETTERHEAD OF INTERNATIONAL FINANCE CORPORATION]
[Date]
MSF Holding Ltd.
Medical Systems Finance S.A.
Estolur S.A.
Healthcare Systems Finance S.A.
Sistemas Financieros S.A.
[other Co-Borrowers]
[new Co-Borrower]
Euro Canadian Centre
Marlborough Street
P.O. Box B-8327
Nassau, Bahamas
Dear Sirs:
We refer to the Amended and Restated Investment Agreement dated April
27, 1998 and amended and restated as of September 29, 1998, among MSF Holding
Ltd., Medical Systems Finance S.A., Estolur S.A., Healthcare Systems Finance
S.A., Sistemas Financieros S.A., [other Co-Borrowers] (collectively the
"Existing Co-Borrowers") and International Finance Corporation (as amended from
time to time, the "Investment Agreement"). Terms used and not defined herein
that are defined in the Investment Agreement are used herein as there defined.
120
115
SCHEDULE 8
Page 2 of 5
The parties hereto agree that [name of new Co-Borrower] (the "New
Co-Borrower") is to become a Co-Borrower under the Investment Agreement and
further agree as follows.
1. The New Co-Borrower hereby agrees to perform and discharge, jointly
and severally with the other Co-Borrowers, all of the obligations, debts and
liabilities of a Co-Borrower under the Investment Agreement, whether now
existing or hereafter arising, known or unknown, absolute or contingent.
2. The New Co-Borrower shall be entitled to all of the rights of a
Co-Borrower under the Investment Agreement.
[3. The New Co-Borrower shall be an Eligible Co-Borrower.]*
[4]. The New Co-Borrower hereby makes, and each of the Existing
Co-Borrowers hereby restates, as if set forth at length herein, each of the
representations and warranties set forth in Section 5.01 of the Investment
Agreement.
[5]. This Agreement shall become effective upon (a) the execution and
delivery of this Agreement by IFC, each of the Existing Co-Borrowers and the New
Co-Borrower and (b) the delivery by IFC to the Co-Borrowers of a notice stating
that each of the following events has occurred and that this Agreement has
become effective:
(i) IFC has received opinions of counsel acceptable to IFC and
in form and substance satisfactory to IFC (A) to the effect that this Agreement
has been duly executed and delivered by the Existing Co-Borrowers and the New
Co-Borrower, that this Agreement and the Investment Agreement as amended hereby
each constitutes the legal, valid, and binding obligations of the Existing
Co-Borrowers and the New Co-Borrower and that each of the agreements referred to
in Section[5](b)(ii), as amended in accordance with Section [5](b)(ii),
constitutes the legal, valid and binding obligations of the parties thereto and
(B) with respect to such other matters as IFC may reasonably request.
* Include this paragraph only if the New Co-Borrower is to be an Eligible
Co-Borrower.
121
116
SCHEDULE 8
Page 3 of 5
(ii) to the extent necessary in the reasonable opinion of IFC,
each of the following agreements has been amended by the execution and delivery
of amendatory agreements in form and substance satisfactory to IFC:
(A) the Guarantee Agreement;
(B) the Servicing Agreement;
(C) the Share Retention, Non-Competition and Put Option
Agreement;
(D) the Stand-by Loan Facility Agreement;
(E) the Technical Assistance Agreement; and
(F) the Security Agreements.
(iii) the fees and disbursements of IFC's counsel in
connection with the preparation, execution and delivery of this Agreement, the
delivery of the legal opinions referred to in Section [5](b)(i), and the
preparation, execution and delivery of amendatory agreements referred to in
Section [5](b)(ii) have been paid in full by the Co-Borrowers.
6. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
122
117
SCHEDULE 8
Page 4 of 5
If the foregoing correctly states our agreement, please so indicate by
signing and returning to us the enclosed copy of this Agreement.
INTERNATIONAL FINANCE CORPORATION
By:_____________________________________
Authorized Representative
AGREED:
MSF HOLDING LTD.
By:______________________
Authorized Representative
MEDICAL SYSTEMS FINANCE S.A.
By:_______________________
Authorized Representative
ESTOLUR S.A.
By:_______________________
Authorized Representative
HEALTHCARE SYSTEMS FINANCE S.A.
By:________________________
Authorized Representative
123
118
SCHEDULE 8
Page 5 of 5
SISTEMAS FINANCIEROS S.A.
By:________________________
Authorized Representative
[ANY ADDITIONAL CO-BORROWER]
By:______________________________
Authorized Representative
[NEW CO-BORROWER]
By:______________________________
Authorized Representative