CONFORMED COPY LOAN NUMBER 1308 ME GUARANTEE AGREEMENT (Second Steel Project) between UNITED MEXICAN STATES and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated July 14, 1976 GUARANTEE AGREEMENT AGREEMENT, dated July 14, 1976, between UNITED MEXICAN STATES (hereinafter called the Guarantor) and INTERNATIONAL BANK FOR RE- CONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by the Loan Agreement of even date herewith between the Bank, party of the first part, and Sider'rgica Lizaro Cardenas- Las Truchas, S.A. and Nacional Financiera, S.A., parties of the second part, (hereinafter called the Borrowers) the Bank has agreed to make to the Borrowers a loan in various currencies equivalent to ninety-five million dollars ($95,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Guarantor agree to guarantee the obligations of the Bor- rowers in respect of such loan as hereinafter provided; and WHEREAS the Guarantor, in consideration of the Bank's enter- ing into the Loan Agreement with the Borrowers, has agreed to enter into this Guarantee Agreement; NOW THEREFORE the parties hereto hereby agree as follows: - 2- 4 ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- antee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Section 1.01 of the Loan Agreement. Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble and in Section 1.02 of the Loan Agreement have the respective meanings therein set forth. -3- ARTICLE II Guarantee; Provision of Funds Section 2.01. Without limitation or restriction upon any of its other obligations under the Guarantee Agreement, the Guarantor hereby unconditionally guarantees, as primary obligor and not as surety merely, the due and punctual payment of the principal of, and interest and other charges on, the Loan, and the premium, if any, on the prepayment of the Loan and the punctual performance of all the other obligations of the Borrowers, all as set forth in the Loan Agreenent. Section 2.02. The Guarantor shall: (i) subscribe to, or cause to be subscribed to, all share capital increases referred to in Section 5.01 (a) of the Loan Agreement not subscribed to by any other shareholder of SICARTSA; and (ii) shall pay, or cause to be paid, timeously all amounts due or called in respect of such shares. Section 2.03. Except as the Bank shall otherwise agree, and without limitation or restriction upon the provisions of Section 2.01 of this Agreement, the Guarantor specifically undertakes to provide SICARTSA, or cause SICARTSA to be provided, with such addi- tional funds as shall be required by SICARTSA to: (i) operate its facilities efficiently and to meet its obligations, until the Proj- ect completion date; (ii) meet the estimated expenditures required for the timely and efficient carrying out of the Project, including the amount referred to in Recital (D) of the Preamble to the Loan Agreement; and (iii) ensure that at the end of its fiscal year in which the Project Completion Date shall fall, the aggregate value of SICARTSA's current assets are equal to or exceed one and one- half times its current liabilities; such funds to be provided either as loans on terms and conditions satisfactory to the Bank or as payment for new shares of SICARTSA, provided, however, that SICARTSA's debt/equity ratio shall at no time exceed 60:40 as required by Section 5.01 (a) of the Loan Agreement. For purposes of this Section, the several terms defined in Section 5.03 of the Loan Agreement have the respective meanings therein set forth. 4 - ARTICLE III Other Covenants Section 3.01. The Guarantor shall take all action which shall be necessary or advisable to cause such import permits as shall be needed for the importation of goods purchased outside Mexico for the Project to be issued as promptly as possible, in compliance with the legislation and administrative procedures of the Guarantor, and as required for the carrying out of the Project. Section 3.02. The Guarantor shall: (a) carry out jointly with SICARTSA, and complete by Decem- ber 31, 1978, the study referred to in Section 3.02 of the Loan Agreement, and if such study should so recommend, timeously take all measures required for the efficient transportation of SICARTSA's raw material and finished products, in line with the Project's requirements; and (b) cause the railway connecting the cities of Lazaro Car- denas and Nueva Italia to be completed by December 31, 1977. Section 3.03. The Guarantor may require STCARTSA, directly or indirectly, to utilize coking coal from domestic sources only to an extent that would not make such utilization either economically or technically disadvantageous. - 6- 4 Section 3.04. The Guarantor shall continue to give its in- creasing support to its Comisi6n Coordinadora de la Industria Side i , and to strengthen the role and the staff of said Comisi6n. Section 3.05. The Guarantor shall continue to give its full support to the development of Lazaro C9rdenas, Michoacgn, where the labor force for the facilities included in the Project reside, and shall continue to provide the funds, facilities and other resources required for that purpose, as and when needed. Section 3.06. The Guarantor shall, in accordance with its laws, appoint independent and qualified auditors for the purposes of Section 5.08 of the Loan Agreement. Section 3.07. (a) It is the policy of the Bank, in making loans to, or with the guarantee of, its members not to seek, in normal circumstances, specific security from the member concerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distribution of foreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any govern- mental assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and 0 -7- other charges on, the Loan, and the Guarantor, in creating or permitting the creation of such lien, shall make express provi- sion to that effect; provided, however, that, if for any constitu- tional or other legal reason such provision cannot be made with respect to any lien created on assets of any of its political or administrative subdivisions, the Guarantor shall promptly and at no cost to the Bank secure the principal of, and interest and other charges on, the Loan by an equivalent lien on other governmental assets satisfactory to the Bank. (b) The foregcing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking trans- actions and securing a debt maturing not more than one year after its date. As used in this Section, the term "governmental assets" means assets of the Guarantor, of any of its political subdivisions, or of any agency; and the term "agency" means any agency or instru- mentality of the Guarantor or of any political subdivision of the Guarantor and shall include any institution or organization which is owned or controlled directly or indirectly by the Guarantor or by any political subdivision of the Guarantor or the operations of which are conducted primarily in the interest of or for account of the Guarantor or any political subdivision of the Guarantor, A 9 IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. UNITED MEXICAN STATES By: NACIONAL FINANCIERA, S.A. By /s/ Victor Navarrete Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean