CONFORMED COPY LOAN NUMBER 1326 PAK GUARANTEE AGREEMENT (Tenth PICIC Project) between ISLAMIC REPUBLIC OF PAKISTAN and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated September 29, 1976 GUARANTEE AGREEMENT AGREEMENT, dated September 29, 1976, between the ISLAMIC REPUBLIC OF PAKISTAN (hereinafter called the Guarantor) and INTLA- NATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS by the Loan Agreement of even date herewith between the Bank and the Pakistan Industrial Credit and Investment Corpo- ration Limited (hereinafter called the Borrower) the Bank has agreed to make to the Borrower a loan in various currencies equiv- alent to twenty-five million dollars ($25.,000,,000), on the terms and conditions set forth in the Loan Agreement, but only on con- dition that the Guarantor agree to guarantee the obligations of the Borrower 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 Borrower, has agreed so to guarantee such obligations of the Borrower; NOW THEREFORE the parties hereto hereby agree as follows: 01 -2- ARTICLE I General Conditions; Definitions Section 1.01. The parties to this Agreement accept all the provisions of the General Conditions Applicable to Loan and Guar- antee Agreements of the Bank dated March 15, 1974, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Schedule 2 to the Loan Agreement (said General Conditions Applicable to Loan and Guarantee Agreements, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions and in Section 1.02 of the Loan Agreement have the respective meanings therein set forth. ARTICLE II Guarantee 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, all as set forth in the Loan Agreement. 01 ARTICLE III Other Covenants Section 3.01. (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 -oreign exchange held under the control or for the benefit of such member. To that end, if any lien shall be created on any public assets (as hereinafter defined), as security for any external debt, which will or might result in a priority for the benefit of the creditor of such external debt in the allocation, realization or distribution of foreign exchange, such lien shall, unless the Bank shall otherwise agree, ipso facto and at no cost to the Bank, equally and ratably secure the principal of, and interest and other charges on, the Loan, and the 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 public assets satisfactory to the Bank. -5- (b) The foregoing undertaking shall not apply to: (i) any lien created on property, at the time of purchase thereof, solely as security for payment of the purchase price of such property; and (ii) any lien arising in the ordinary course of banking trans- actions and securing a debt maturing not more than one year after its date. (c) As used in this Section, the term "public assets" means assets of the Guarantor, of any political or administrative sub- division thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Guarantor or any such subdivision, including gold and other foreign exchange assets held by any institution performing the functions of a central bank or exchange stabilization fund, or similar functions, for the Guarantor. Section 3.02. The Guarantor covenants that it will not take, or cause or permit any of its political subdivisions or any of its agencies or any agency of any such political subdivisions to take, any action which would prevent or interfere with the perfor- mance by the Borrower of its obligations contained in the Loan Agreement and will take or cause to be taken all reasonable ac- tion necessary or appropriate to enable the Borrower to perform such obligations. Section 3.03. Except as the Guarantor and the Bank shall otherwise agree, the Guarantor shall not take or concur in any action which would have the effect of amending, abrogating, as- signing or waiving any provision of any of the Government Agree- ments. -6- Section 3.04. (a) The Guarantor shall cause the textile study specified in Section 3.01 (a) (ii) of the Loan Agreement to be carried out, under terms of reference and other arrangements satisfactory to the Bank, and completed by September 30, 1977, or such other date as may be agreed by the Bank, with the assistance of consultants whose qualifications, experience and terms and con- ditions of employment shall be satisfactory to the Bank. (b) For the purpose of financing the foreign currency cost of such study the Guarantor shall enter into an arrangement with the Borrower which shall specify inter alia that: (i) the principal amount of the Loan made available to the Guarantor (as set forth in Section 2.02 (b) of the Loan Agreement) shall be repaid by the Guaran- tor to the Borrower not later than December 15, 1994; (ii) the Guarantor shall promptly provide the Borrower with the funds which may be required for the payment to the Bank of interest and other charges (including the premiums specified in Schedule 1 to the Loan Agreement) pertaining to such outstanding amount of the Loan; and (iii) the Guarantor shall bear the foreign exchange risk with respect thereto. (c) The Guarantor shall provide, or cause to be provided, as and when needed, any additional funds required for the carrying out of such study, together with the facilities, services and other resources which may also be required therefor. -7 ARTICLE IV Representative of the Guarantor; Addresses Section 4.01. The Secretary to the Government of Pakistan, Economic Affairs Division, is designated as representative of the Guarantor for the purposes of Section 11.03 of the General Condi- tions. Section 4.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Guarantor: The Secretary to the Government of Pakistan Economic Affairs Division Islamabad Pakistan Cable address: ECONOMIC Islamabad For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: INTBAFRAD Washington, D.C. -8- 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. ISLAMIC REPUBLIC OF PAKISTAN By /s/ A.M. Mufti Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ R. Picciotto Director Regional Projects Department South Asia Regional Office