Conformed Copy - L2838 - Fertilizer Rationalization Project - Project Agreement

Page 1 CONFORMED COPY LOAN NUMBER 2838 CHA (Fertilizer Rationalization Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and YUNNAN XUANWEI CHEMICAL FERTILIZER COMPANY YUANPING CHEMICAL FERTILIZER COMPANY LUOYANG CHEMICAL FERTILIZER COMPANY XUANHUA CHEMICAL FERTILIZER COMPANY and BEIJING CHEMICAL EXPERIMENTAL COMPANY Dated December 28, 1987 LOAN NUMBER 2838 CHA PROJECT AGREEMENT AGREEMENT, dated December 28, 1987, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (the Bank) and YUNNAN XUANWEI CHEMICAL FERTILIZER COMPANY, YUANPING CHEMICAL FERTILIZER COMPANY, LUOYANG CHEMICAL FERTILIZER COMPANY, XUANHUA CHEMICAL FERTILIZER COMPANY and BEIJING CHEMICAL EXPERIMENTAL COMPANY (hereinafter called the Companies). WHEREAS (A) by the Loan Agreement of even date herewith between the People's Republic of China (the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to ninety-seven million four hundred thousand dollars ($97,400,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that the Companies agree to undertake such obligations toward the Bank as are set forth in this Agreement; (B) by a subsidiary loan agreement to be entered into between the Borrower and each of the Companies, part of the proceeds of the loan provided for under the Loan Agreement will be made available to each of the Companies on the terms and conditions therein set forth; and Page 2 WHEREAS the Companies, in consideration of the Bank's entering into the Loan Agreement with the Borrower, have agreed to undertake the obligations set forth in this Agreement; NOW THEREFORE the parties hereto hereby agree as follows: ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, the Preamble to this Agreement and the General Conditions (as so defined) have the respective meanings therein set forth. ARTICLE II Execution of the Project Section 2.01. Each of the Companies declares its commitment to the objectives of the Project as set forth in Schedule 2 to the Loan Agreement, and, to this end, shall carry out its Part of the Project with due diligence and efficiency and in conformity with appropriate administrative, financial and engineering practices, and with environmental standards satisfactory to the Bank, and shall make adequate and timely budgetary provisions for the implementation of such Part. Section 2.02. Each of the Companies shall maintain the Project Implementation Unit established for the purposes of carrying out such Company's respective part of the Project. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods and employment of engineering firms and consultants 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 the Loan Agreement. Section 2.04. Each of the Companies shall carry out the obligations set forth in Sections 9.04, 9.05, 9.06, 9.07, 9.08 and 9.09 of the General Conditions (relating to insurance, use of goods and services, plans and schedules, records and reports, maintenance and land acquisition, respectively) in respect of the Project Agreement and each of the Companies' respective Part of the Project. Section 2.05. Each of the Companies shall duly perform all its obligations under its respective Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, none of the Companies shall take or concur in any action which would have the effect of amending, abrogating, assigning or waiving its Subsidiary Loan Agreement to affect the provisions of paragraph (f) of Section 3.02 of the Loan Agreement. Section 2.06. (a) Each of the Companies shall, at the request of the Bank, exchange views with the Bank with regard to the progression of its Part of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) Each of the Companies shall promptly inform the Bank of any condition which interferes or threatens to interfere with the progress of its Part of the Project, the accomplishment of the purposes of the Loan, or the performance of its obligations under this Agreement and under its Subsidiary Loan Agreement. Section 2.07. Each of the Companies shall develop by December 31, 1987 for review with the Bank, the training program under its respective Part of the Project specified in Schedule 2 to the Loan Agreement, and shall thereafter implement, in consultation with the Bank, such training program. ARTICLE III Management and Operations of Each of the Companies Page 3 Section 3.01. Each of the Companies shall carry on its operations and conduct its affairs in accordance with sound administrative, financial and engineering practices under the supervision of qualified and experienced management assisted by competent staff in adequate numbers. Section 3.02. Each of the Companies 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 engineering, financial and administrative practices, and environmental and safety standards acceptable to the Bank. Section 3.03. Each of the Companies 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. ARTICLE IV Financial Covenants Section 4.01. (a) Each of the Companies shall maintain records and accounts adequate to reflect, in accordance with sound accounting practices, its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures for its respective Part of the Project. (b) Each of the Companies shall: (i) have its records, accounts and financial statements (balance sheets, statements of income and expenses and related statements) and 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 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 are requested from the Loan Account on the basis of statements of expenditure, each of the Companies shall: (i) maintain, in accordance with paragraph (a) of this Section, separate records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan 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 separate accounts are included in the annual audits referred to in paragraph (b) of this Section and that the report thereof contains, in respect of such separate accounts, a separate opinion by said auditors as to whether the proceeds of the Loan withdrawn in respect of such expenditures have been used for the purpose for which they were provided. Section 4.02. (a) Except as the Bank shall otherwise agree, none of the Companies shall incur any debt, unless the net revenues of such Company for the fiscal Page 4 year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be at least 1.2 times the estimated maximum debt service requirements of such Company for any succeeding fiscal year on all debt of the Company, including the debt to be incurred. (b) For the purposes of this Section: (i) The term "debt" means any indebtedness of such Company maturing by its terms more than one 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 adjusted to take account of the Company's prices in effect at the time of the incurrence of debt even though they were not in effect during the twelve-month period to which such revenues relate 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 term "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) 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 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 4.03. (a) Except as the Bank shall otherwise agree, none of the Companies shall incur any debt, if after the incurrence of such debt the ratio of debt to equity shall be greater than 75 to 25. (b) For purposes of this Section: (i) The term "debt" means any indebtedness of such Company maturing by its terms more than one 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 Page 5 guarantee agreement, on the date the agreement providing for such guarantee has been entered into. (iii) The term "equity" means the sum of the total unimpaired paid-up capital, retained earnings and reserves of such Company 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 Borrower, 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 4.04. (a) Except as the Bank shall otherwise agree, each Company shall maintain a ratio of current assets to current liabilities of not less than 1.2. (b) Before October 31 in each of its fiscal years, each Company shall, on the basis of forecasts 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 such Company would not meet the requirements set forth in paragraph (a) for the fiscal years covered by such review, such Company shall promptly take all necessary measures 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 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 months, including accounts payable, customer advances, debt service requirements, taxes and payments in lieu of taxes, and dividends. (iii) 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. (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 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 4.05. Each of the Companies shall prepare and review with the Bank, by October 31 of each year, starting October 31, 1987 and ending October 31, 1992, its five-year rolling financial plans, including production, marketing and investment plans, in the form of projected financial statements. ARTICLE V Effective Date; Termination; Cancellation and Suspension Section 5.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Page 6 Section 5.O2. This Agreement and all obligations of the Bank and of the Companies thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly notify each of the Companies thereof. Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have designated by notice to the party giving such notice or making such request. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For YXCFC: Yunnan Xuanwei Chemical Fertilizer Company Xuanwei County, Yunnan Province People's Republic of China Cable address: 8644 Xuanwei, Yunnan China For YCFC: Yuanping Chemical Fertilizer Company Yuanping County, Shanxi Province People's Republic of China Cable address: 0053 Yuanping, Shanxi China For LCFC: Luoyang Chemical Fertilizer Company Yiyang, Henan Province People's Republic of China Page 7 Cable address: 0553 Yiyang, Henan China For XCFC: Xuanhua Chemical Fertilizer Company Xuanhua District, Zhangjiakou, Hebei Province People's Republic of China Cable address: 8003 Xuanhua, Hebei China For BCEC: Beijing Chemical Experimental Company Beijing People's Republic of China Cable address: 7653 Beijing China Section 6.02. Any action required or permitted to be taken, and any document required or permitted to be executed, under this Agreement on behalf of any of the Companies may be taken or executed by the General Manager of such Company or such other person or persons as such General Manager shall designate in writing, and such General Manager shall furnish to the Bank sufficient evidence of the authority and the authenticated specimen signature of each such person. Section 6.03. This Agreement may be executed in several counterparts, each of which shall be an original, and all collectively but one instrument. 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 By /s/ Bilsel Alisbah Acting Regional Vice President Asia YUNNAN XUANWEI CHEMICAL FERTILIZER COMPANY YUANPING CHEMICAL FERTILIZER COMPANY LUOYANG CHEMICAL FERTILIZER COMPANY XUANHUA CHEMICAL FERTILIZER COMPANY BEIJING CHEMICAL EXPERIMENTAL COMPANY Page 8 By /s/ Han Xu Authorized Representative