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June 03, 1994

LOAN NUMBER 3745 PH

WHEREAS (A) : The Republic of the Philippines (the "Guarantor") and the Borrower, having been satisfied as to the feasibility and priority of the Project described in Schedule 2 to this Agreement, have requested the Bank to assist in the financing of the Project;

WHEREAS (B): By an agreement (the "Guarantee Agreement") of even date herewith between the Guarantor and the Bank, the Guarantor has agreed to guarantee the obligations of the Borrower in respect of the Loan and to undertake such other obligations as set forth in the Guarantee Agreement; and

WHEREAS (C) : The Bank has agreed, on the basis, inter alia, of the foregoing, to extend the Loan to the Borrower upon the terms and conditions set forth in this Agreement.
NOW THEREFORE the parties hereto hereby agree as follows :

ARTICLE I
GENERAL CONDITIONS; DEFINITIONS

Section l.01 The "General Conditions Applicable to Loan and Guarantee Agreements" of the Bank, dated January l, 1985, with the modifications set forth below (the "General Conditions") constitute
an integral part of this Agreement:

(a) The last sentence of Section 3.02 is deleted.

(b) In Section 6.02, sub-paragraph (k) is re-lettered as sub-paragraph (1) and a new sub-paragraph (k) is added to read:

"(k) An extraordinary situation shall have arisen under which any further withdrawals under the Loan would be inconsistent with the provisions of Article III, Section 3 of the Bank's Articles of Agreement."

Section 1.02. Unless the context otherwise requires, the several terms defined in the General Conditions and in the Preamble to this Agreement have the respective meanings therein set forth and the following additional terms have the following meanings:

(a) "By-laws" means the Borrower's corporate by-laws as adopted by the Borrower's Board of Directors pursuant to its Resolution No. 93-060, dated July 27, 1993;

(b) "Ecology Center" means the Center established by the Borrower, pursuant to Section 10 (j) of the Borrower's Rules and Regulations (as referred to in Paragraph (i) hereinafter) for the adoption and implementation of measures and standards for environmental pollution control of all areas under the Borrower's jurisdiction;

(c) "Environmental Management Plan" means the Plan, to be adopted by the Borrower in form and substance satisfactory to the Bank, setting forth the minimum standards for managing the environmental protection of all land and sea areas under the Borrower's jurisdiction, which Plan is referred to in Sections 4.08 and 7.01 (a) of this Agreement;

(d) "Environment Procedures Manual" means the Manual, adopted by the Borrower pursuant to its Resolution No. 94-013, dated April 6, 1994, setting forth the modalities and procedures for implementing the environmental standards, policies and regulations of the Borrower, which Manual is referred to in Section 4.08 of this Agreement;

(e) "Fiscal Year" means the twelve (12)-month period corresponding to any of the Borrower's fiscal years, which period commences on January 1 and ends on December 31 in each calendar year ;

(f) "Freeport Status" means the Borrower's legal status and related incentives regime establishing the Borrower as a separate customs territory for the free flow and movement of goods and capital within, into and exported out of the Subic Special Economic Zone, which status is legislated under the Guarantor's laws and regulations pursuant to the provisions of Section 12 of the Guarantor's Republic Act No. 7227 which is referred to in Paragraph (a) hereinabove;

(g) "Investment Plan" means the Borrower's investment program and related financing plan for the 1994-1998 period, to be prepared and adopted by the Borrower pursuant to the provisions of Section 4.06 of this Agreement;

(h) "Land Use Plan" means the Plan adopted by the Borrower, pursuant to its Resolution No. 94-013, dated April 6, 1994, specifying the general civilian uses and related economic activities to be promoted within the SBF Area (as such term is defined hereinafter) , which Plan is referred to in Section 4.07 of this Agreement;

(i) "Law" means, collectively, the following act, executive orders and implementing rules and regulations: the Guarantor's Republic Act No. 7227 on Accelerating The Conversion Of Military Reservations Into Other Productive Uses, Creating The Bases Conversion And Development Authority For This Purpose, Providing Funds Therefor And For Other Purposes, dated July 22, 1991 (also known as the "Bases Conversion and Development Act of 1992"); the Guarantor's Presidential Proclamation No. 50 Proclaiming The Adoption And Implementation Of The Subic Conversion Program As A Priority National Program For Economic Development And Directing All Heads Of Departments, Bureaus, Offices, Agencies And Instrumentalities of Government To Support The Program, dated September 18, 1992; the Guarantor's Executive Order No. 62 Prescribing Policies And Guidelines To Implement Republic Act No. 7227, dated February 27, 1993; the Guarantor's Executive Order No. 97 Clarifying The Tax And Duty Free Incentive Within the Subic Special Economic Zone Pursuant To Republic Act No. 7227, dated June 10, 1993; the Guarantor's Executive Order No. 97-A Further Clarifying The Tax and Duty Free Privilege Within The Subic Special Economic and Freeport Zone, dated June 19, 1993; and the Borrower's Rules and Regulations Implementing The Provisions Relative To The Subic Special Economic And Freeport Zone And The Subic Bay Metropolitan Authority Under Republic Act No. 722 7, as approved by the Borrower's Board of Directors on November 3, 1992, and as published in the Guarantor's Official Gazette, dated March 8, 1993;

(j) "SBF Area" means the Subic Bay Freeport as such area is defined and its territory is delineated in Section 12 of the Guarantor's Republic Act No. 7227 referred to in Paragraph (j) above, which Area is subject to the administration and management of the Borrower under the Guarantor's applicable laws and regulations; and

(k) "Special Account" means the account referred to in Section 2.02 (b) of this Agreement.

ARTICLE II
THE LOAN

Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions set forth or referred to in this Agreement, various currencies that shall have an aggregate value equivalent to the amount of forty million dollars ($40,000,000), being the sum of withdrawals of the proceeds of the Loan, with each withdrawal valued by the Bank as of the date of such withdrawal.

Section 2.02 . (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Schedule 1 to this Agreement for expenditures made (or, if the Bank shall so agree, to be made) in respect of the reasonable cost of goods and services required for the Project described in Schedule 2 to this Agreement and to be financed out of the proceeds of the Loan.

(b) The Borrower shall, for the purposes of the Project, open and maintain in dollars a special deposit account in the Bangko Sentral ng Pilipinas on terms and conditions satisfactory to the Bank, including appropriate protection against set-off, seizure or attachment. Deposits into, and payments out of, the Special Account shall be made in accordance with the provisions of Schedule 5 to this Agreement.
Section 2.03. The Closing Date shall be June 30, 1999 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date.
Section 2.04. The Borrower shall pay to the Bank a commitment charge at the rate of three-fourths of one percent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time .

Section 2.05. (a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Interest Period equal to the Cost of Qualified Borrowings determined in respect of the preceding Semester, plus one-half of one percent (1/2 of 1%). On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rate applicable during such Interest Period.

(b) As soon as practicable after the end of each Semester, the Bank shall notify the Borrower and the Guarantor of the Cost of Qualified Borrowings determined in respect of such Semester.

(c) For the purposes of this Section:

(i) "Interest Period" means a six (6)-month period ending on the date immediately preceding each date specified in Section 2.06 of this Agreement, beginning with the Interest period in which this Agreement is signed.

(ii) "Cost of Qualified Borrowings" means the cost, as reasonably determined by the Bank and expressed as a percentage per annum, of the outstanding borrowings of the Bank drawn down after June 30, 1982, excluding such borrowings or portions thereof as the Bank has allocated to fund: (A) the Bank's investments; and (B) loans which may be made by the Bank after July 1, 1989, bearing interest rates determined otherwise than as provided in paragraph (a) of this Section.

(iii) "Semester" means the first six (6) months or the second six (6) months of a calendar year.

(d) On such date as the Bank may specify by no less than six (6) months' notice to the Borrower, paragraphs (a) , (b) and (c) {iii) of this Section shall be amended to read as follows:

"(a) The Borrower shall pay interest on the principal amount of the Loan withdrawn and outstanding from time to time, at a rate for each Quarter equal to the Cost of Qualified Borrowings determined in respect of the preceding Quarter, plus one-half of one percent (l/2 of 1%) . On each of the dates specified in Section 2.06 of this Agreement, the Borrower shall pay interest accrued on the principal amount outstanding during the preceding Interest Period, calculated at the rates applicable during such Interest Period."

"(b) As soon as practicable after the end of each Quarter, the Bank shall notify the Borrower and the Guarantor of the Cost of Qualified Borrowings determined in respect of such Quarter."

"(c) (iii) 'Quarter' means a three (3)-month period commencing on January 1, April 1, July 1 or October 1 in a calendar year."

Section 2.06. Interest and other charges shall be payable semiannually on February 15 and August 15 in each year.

Section 2.07. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement.

ARTICLE III
EXECUTION OF THE PROJECT

Section 3.01. The Borrower declares its commitment to the objectives of the Project as set forth in Schedule 2 to this Agreement, and, to this end, shall: (a) carry out the Project with due diligence and efficiency: (i) in a manner at all times consistent with the Environmental Management Plan and the Land Use Plan, (ii) in conformity with sound administrative, commercial, economic, financial and engineering practices, and (iii) in accordance with, appropriate safety, health and environmental standards acceptable to the Bank; and (b) provide, promptly as needed, the funds, facilities, services and other resources required for the Project.

Section 3.02. In order to ensure the proper carrying of the works under Part A of the Project, the Borrower shall employ, not later than June 30, 1995, and in accordance with the provisions of Section 3.06 of, and Section II of Schedule 4 to, this Agreement, qualified consultants to assist in supervising the carrying out of said works and in strengthening the Borrower's capabilities in the management and proper development of its assets and facilities so as to, inter alia, attract viable economic activity to the SBF area, each with responsibilities, qualifications and terms of employment satisfactory to the Bank.

Section 3.03. The Borrower shall, not later than June 30, 1995, appoint a duly qualified Chief Operating Officer possessing the requisite responsibilities, qualifications and terms of employment.

Section 3.04. The Borrower shall, not later than December 31, 1994, furnish to the Bank for its approval: (i) a time-based action plan for the provision of water, sewerage and solid waste management services within the SBF Area; and (ii) a time-based action plan for the recruitment of consultants, in accordance with the provisions of Section 3.06 of, and Section II of Schedule 4 to, this Agreement, and the carrying out of their respective technical assistance services in respect of the institutional strengthening activities under Part B of the Project. Thereafter, the Borrower shall promptly carry out said action plans with due diligence and efficiency and shall at all times take all action necessary to achieve their respective objectives.

Section 3.05. Not later than July 31, 1995, the Borrower shall carry out, jointly with the Bank, a review of the progress achieved by the Borrower in: (i) carrying out the Project; and (ii) implementing its Freeport Status and operating and managing the SBF Area and its facilities.

Section 3.06. Except as the Bank shall otherwise agree, procurement of the goods, works and consultants' services required for the Project and to be financed out of the proceeds of the Loan shall be governed by the provisions of Schedule 4 to this Agreement.

ARTICLE IV
MANAGEMENT AND OPERATIONS OF THE BORROWER

Section 4.01. The Borrower shall carry on its operations and conduct its affairs in accordance with sound administrative, commercial, economic, financial and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers.

Section 4.02. The Borrower shall, at all times, operate and maintain its plants, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, commercial, economic, financial and engineering practices.

Section 4.03. The Borrower shall take out and maintain with responsible insurers, or make other provision satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice.

Section 4.04. Except in the ordinary course of business, the Borrower shall not, unless mutually agreed in advance between the Bank and the Borrower, sell, lease, transfer or otherwise dispose of any of its property or assets which are required for the efficient conduct of its operations or the carrying out of the Project.

Section 4.05. The Borrower shall promptly take all measures necessary to acquire, maintain, renew and otherwise exercise all rights, powers, privileges and franchises required for the proper conduct of its operations and carrying out of its obligations under this Agreement.

Section 4.06. The Borrower shall:

(a) prepare and furnish to the Guarantor and the Bank, not later than March 31 in each Fiscal Year a proposed Investment Plan, of such scope and in such detail as the Bank may reasonably request, to be carried out by the Borrower during the next five (5) following Fiscal Years;

(b) Exchange views with the Guarantor and the Bank on the Investment Plan referred to in paragraph (a) of this Section; and

(c) Thereafter take all measures required on its part (including, without limitation, adoption of the Investment Plan by its Board of Directors) to promptly carry out, during the next following Fiscal Year, such Investment Plan for said year as shall have been agreed upon among the Guarantor, the Bank and the Borrower.

Section 4.07. Without any limitation or restriction upon any of its other obligations under this Agreement, the Borrower shall:

(a) At all times carry out the Land Use Plan with due diligence and efficiency;

(b) Prepare and furnish to the Bank, not later than March 31 in each Fiscal Year, a report, in form and substance satisfactory to the Bank, on the progress achieved in the carrying out of the Land. Use Plan in respect of the preceding Fiscal Year, together with any revisions proposed Co be introduced into Che Land Use Plan,- and

(c) Exchange views with the Bank on each report prepared pursuant to paragraph (b) of this Section, and thereafter promptly introduce such revisions into the Land Use Plan as shall have been agreed between the Bank and the Borrower.

Section 4.08. Without any limitation or restriction upon any of its other obligations under this Agreement, the Borrower shall:

(a) At all times carry out, through its Ecology Center, the Environmental Management Plan and enforce the Environment Procedures Manual with due diligence and efficiency;

(b) Prepare and furnish to the Bank, not later than March 31 in each Fiscal Year, a report, in form and substance satisfactory to the Bank, on the progress achieved in the carrying out of the Environmental Management Plan and enforcement of the Environment Procedures Manual in respect of the preceding Fiscal Year, together with any revisions proposed to be introduced into the Environmental Management Plan and Environment Procedures Manual; and

(c) Exchange views with the Bank on each report prepared pursuant to paragraph (b) of this Section, and thereafter promptly introduce such revisions into the Environmental Management Plan and Environment Procedures Manual as shall have been agreed between the Bank and the Borrower.

ARTICLE V
FINANCIAL COVENANTS

Section 5.01. (a) The Borrower shall maintain separate records and accounts adequate to reflect in accordance with sound accounting practices its operations and financial condition.

(b) The Borrower shall:

(i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements), including those for the Special Account, for each Fiscal Year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Bank;

(ii) furnish to the Bank as soon as available, but in any case not later than six (6) months after the end of each such year, (A) certified copies of its financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and

(iii) furnish to the Bank such other information concerning said records, accounts and financial statements as well as the audit thereof as the Bank shall from time to time reasonably request.

(c) For all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure, the Borrower shall:

(i) maintain, in accordance with paragraph (a) of this Section, records and accounts reflecting such expenditures;

(ii) retain, until at least one (1) year after the Bank has received the audit report for the Fiscal Year in which the last withdrawal from the Loan Account or payment out of the Special Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures;

(iii) enable the Bank's representatives to examine such records; and

(iv) ensure that such records and accounts are included in the annual audit referred to in paragraph (b) of this Section and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such Fiscal Year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals.

Section 5.02. (a) Except as the Bank shall otherwise agree, the Borrower shall not incur any debt unless a reasonable forecast of the revenues and expenditures of the Borrower shows that the estimated net revenues of the Borrower for each Fiscal Year during the term of the debt to be incurred shall be at least 1.5 times the estimated debt service requirements of the Borrower in such year on all debt of the Borrower, including the debt to be incurred.

(b) For the purposes of this Section:

(i) The term "debt" means any indebtedness of the Borrower maturing by its terms more than one (1) year after the date on which it is originally incurred.

(ii) Debt shall be deemed to be incurred:

(A) under a loan contract or agreement or other instrument providing for such debt or for the modification of its terms of payment on the date of such contract, agreement or instrument,- and

(B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into.

(iii) The term "net revenues" means the difference between:

(A) the sum of revenues from all sources related to operations and net non-operating income; and

(B) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on debt.

(iv) The terra "net non-operating income" means the difference between:

(A) revenues from all sources other than those related to operations; and

(B) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues in (A) above.

(v) The term "debt service requirements" means the aggregate amount of repayments {including sinking fund payments, if any) of, and interest and other charges on, debt.

(vi) The term "reasonable forecast" means a forecast prepared by the Borrower not earlier than twelve (12) months prior to the incurrence of the debt in question, which both the Bank and the Borrower accept as reasonable and as to which the Bank has notified the Borrower of its acceptability, provided that no event has occurred since such notification which has, or may reasonably be expected in the future to have, a material adverse effect on the financial condition or future operating results of the Borrower.

(vii) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such debt, or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank.

Section 5.03. (a) Except as the Bank shall otherwise agree, the Borrower shall not incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 7 0 to 30 .

(b) For purposes of this Section:

(i) The term "debt" shall have the same meaning as in Section 5.02 (b) (i) of this Agreement.

(ii) Debt shall be deemed to be incurred in the same manner as provided in Section 5.02 (b) (ii) of this Agreement.

(iii) The term "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of the Borrower not allocated to cover specific liabilities.

(iv) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Guarantor, debt payable in another currency, such valuation shall be made on the same basis as provided in Section 5.02 (b) (vii) of this Agreement.

Section 5.04. (a) Except as the Bank shall otherwise agree, the Borrower shall maintain a ratio of current assets to current liabilities of not less than 1.2.

(b) Before June 30 in each Fiscal Year, the Borrower snail, on the basis of forecasts prepared by the Borrower and satisfactory to the Bank, review whether it would meet the requirements set forth in paragraph (a) in respect of such year and the next following Fiscal Year and shall furnish to the Bank the results of such review upon its completion.

(c) If any such review shows that the Borrower would not meet the requirements set forth in paragraph (a) for the Fiscal Years covered by such review, the Borrower shall promptly take all necessary measures {including, without limitation, adjustments of the structure or levels of its rates) in order to meet such requirements.

(d) For the purposes of this Section;

(i) The term "current assets" means cash, all assets which could in the ordinary course of business be converted into cash within twelve (12) months, including accounts receivable, marketable securities, inventories and pre-paid expenses properly chargeable to operating expenses within the next Fiscal Year.

(ii) The term "current liabilities" means all liabilities which will become due and payable or could under circumstances then existing be called for payment within twelve (12) months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends.

(iii) The term "debt service requirements" shall have the same meaning as in Section 5.02 (b) (v) of this Agreement.

(iv) Whenever for the purposes of this Section it shall be necessary to value, in terms of the currency of the Borrower, debt payable in another currency, such valuation shall be made on the same basis as provided in Section 5.02 (b) (vii) of this Agreement.

Section 5.05- For the purpose of calculating the amount of equity specified in paragraph 5.03 (iii) of this Section, the Borrower shall carry out, not later than December 31, 1995, a revaluation of its fixed assets in operation, in accordance with sound and consistently applied methods of valuation, acceptable to the Bank.

ARTICLE VI
REMEDIES OF THE BANK

Section 6.01. Pursuant to Section 6.02 (1) of the General Conditions, the following additional events are specified:

(a) The Guarantor, or any other authority having jurisdiction, shall have taken any action for: (i) the disestablishment or dissolution of the Borrower; or (ii) the suspension of any of the Borrower's operations, so as to affect materially and adversely the Borrower's ability to perform any of its obligations under this Agreement or otherwise carry out the Project, or any part thereof.

(b) The Law shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the Borrower's Freeport Status or the operations or the financial condition of the Borrower, or the ability of the Borrower to perform any of its obligations under this Agreement.

(c) The Guarantor, or any other authority having jurisdiction, shall have taken any action, including (but without limitation) the enactment or issuance of legislation, orders or regulations, which may materially and adversely affect, prevent, or otherwise interfere with the Borrower's ability to carry out the Project, or any part thereof, or the performance by the Borrower of any of its obligations under this Agreement.

(d) The By-laws shall have been amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the operations or the financial condition of the Borrower, or the ability of the Borrower to perform any of its obligations under this Agreement.

Section 6.02. Pursuant to Section 7.01 (h) of the General Conditions, the following additional events are specified:

(a) Any event specified in paragraph (a) of Section 6 . 01 of this Agreement shall occur.

(b) Any event specified in paragraphs (b) , (c) or (d) of Section 6.01 of this Agreement shall occur and shall continue for a period of sixty (60) days after notice thereof shall have been given by the Bank to the Borrower and the Guarantor.

ARTICLE VII
EFFECTIVE DATE; TERMINATION

Section 7.01. The following events are specified as additional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Conditions:

(a) The Borrower shall have duly adopted and published the Environmental Management Plan.

(b) The Borrower shall have duly published the Land Use Plan.

Section 7.02. The date ninety (90) days after the date of this Agreement is hereby specified for the purposes of Section 12.04 of the General Conditions.

ARTICLE VIII
BORROWER; ADDRESSES

Section 8.01. The Administrator of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions.

Section 8.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions:

For the Bank:

International Bank for
Reconstruction and Development
1818 H Street, N.W.
Washington, D.C. 2 0433
United States of America

Cable address: Telex:

INTBAFRAD	248423 (RCA) ,
Washington, D.C.	82987 (FTCC), 64145 (WUI) or 197688 (TRT).

For the Borrower:

Subic Bay Metropolitan Authority
SBMA Center
Building No. 229
Waterfront Road
Subic Bay Freeport Zone
Republic of the Philippines

IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized representatives, have caused this Agreement 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.

	INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
	(Sgd.)
	By Regional Vice President East Asia and Pacific
	SUBIC BAY METROPOLITAN AUTHORITY
	(Sgd.)
	By Authorized Representative