Turkey - Sumerbank Cotton Textile Rationalization Project : Loan 1847 - Loan Agreement - Conformed

OFFICIAL LOAN NUMBER 1847 TU DOC,UMENTS Loan Agreement (Sumerbank Cotton Textile Rationalization Project) between REPUBLIC OF TURKEY and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Dated , 1980 LOAN NUMBER 1847 TU LOAN AGREEMENT AGREEMENT, dated M 2 , 1980, between the REPUBLIC OF TURKEY (hereinafter called the Borrower) and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank). WHEREAS (A) the Borrower has requested the Bank to assist in the financing of the Project described in Schedule 2 to this Agreement by making the Loan as hereinafter provided; (B) the Project will be carried out by Sumerbank with the Borrower's assistance and, as part of such assistance, the Bor- rower will make available to Sumerbank the proceeds of the Loan as hereinafter provided; (C) by letters dated November 10, 1978 and December 17, 1979 addressed by the Bank to the Minister of Finance of the borrower, the Bank granted an advance to the Borrower totalling $1,000,000 equivalent for the purpose of assisting in the preparation of the Project; (D) pursuant to the terms of said advance, the aggregate amount thereof is to be refunded to the Bank out of the proceeds of the Loan; and (E) Sumerbank intends to contract suppliers credit in an aggregate principal amount of $5,000,000 equivalent to assist in financing the Project; and WHEREAS the Bank has agreed, on the basis inter alia of the foregoing, to make the Loan available to the Borrower upon the terms and conditions set forth hereinafter and in a project agreement of even date herewith between the Bank and Sumerbank; NOW THEREFORE the parties hereto hereby agree as follows: 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 Guarantee Agreements of the Bank, dated March 15, 1974, with - 2 - the same force and effect as if they were fully set forth herein (said General Conditions Applicable to Loan and Guarantee Agree- ments of the Bank being hereinafter called the General Condi- tions). 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 to this Agreement have the respective meanings theein set forth and the following additional terms have the following meanings: (a) "Project Agreement" means the agreement between the Bank and Sumerbank of even date herewith, as the same may be amended from time to time, and such term includes all sch-dules to the Project Agreement and all agreements supplemental to the Project Agreement; (b) "Subsidiary Loan Agreement" means the agreement to be entered into between the Borrower and Sumerbank pursuant to Section 3.01 (c) of this Agreement, as the same may be amended from time to time, and such term includes all schedules to the Subsidiary Loan Agreement; (c) "Lira" or "TL" means the currency of the Borrower; (d) "Sumerbank's Statutes" means the Law No. 2262 of the Borrower as amended from time to time; (e) "Cotton Textile Division" or "CTD" means the division, established by Sumerbank pursuant to the decision of its Board dated March 14, 1980, No. 16/526, including all cotton textile plants and cotton ginneries owned or controlled by Sumerbank; (f) "Subsidiary" means a legal entity owned or controlled by Sumerbank; (g) "Completion Date" means the date on which the Project shall be deemed completed on the basis of the installation and rehabilitation, as the case may be, of the equipment specified in Part A of Schedule 2 to this Agreement and, at the same time, an aggregate monthly production of the facilities included in CTD of at least 4,400 metric tons of yarn and 17,000,000 square meters finished fabrics over a period of not less than 60 consecutive days; and - 3 - (h) "Project Preparation Advance" means the project prepara- tion advance granted by the Bank to the Borrower pursuant to the letters of the Bank to the Borrower dated November 10, 1978 and December 17, 1979. ARTICLE II The Loan Section 2.01. The Bank agrees to lend to the Borrower, on the terms and conditions in the Loan Agreement set forth or referred to, an amount in various currencies equivalent to eighty-three million dollars ($83,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account in accordance with the provisions of Sched- ule 1 to this Agreement, as such Schedule may be amended from time to time by agreement between the Borrower and the Bank, for expenditures nade (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) As of the Effective Date, the Bank shall, on behalf of the Borrower, withdraw from the Loan Account and pay to itself the amount required to repay the principal amount of the Project Preparation Advance withdrawn and outstanding as of such date and to pay all unpaid charges thereon. The unwithdrawn balance of the authorized amount of the Project Preparation Advance shall automa- tically be cancelled as of the same date. Section 2.03. Except as the Bank shall otherwise agree: (a) procurement of the goods to be financed out of the proceeds of the Loan shall be governed by the provisions of the Schedule to the Project Agreement; and (b) the Borrower shall provide as and when needed, the foreign exchange required to meet the expenditures for imported inputs of contracts for the Project awarded to local suppliers. Section 2.04. The Closing Date shall be June 30, 1984 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower of such later date. Section 2.05. The Borrower shall pay to the Bank a commit- ment charge at the rate of three-fourths of one per cent (3/4 of 1%) per annum on the principal amount of the Loan not withdrawn from time to time. Section 2.06. The Borrower shall pay interest at the rate of eight and twenty-five hundredths per cent (8.25%) per annum on the principal amount of the Loan withdrawn and outstanding from time to time. Section 2.07. Interest and other charges shall be payable semiannually on May 15 and November 15 in each year. Section 2.08. The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 3 to this Agreement. Section 2.09. The Director General of Sumerbank is designated as representative of the Borrower for the purposes of taking any action required or permitted to be taken under the provisions of Section 2.02 of this Agreement and Article V of the General Conditions. ARTICLE III Execution of the Project Section 3.01. (a) Without any limitation or restriction upon any of its other obligations under the Loan Agreement, the Borrower shall cause Sumerbank to perform in accordance with the provisions of the Project Agreement all the obligations therein set forth, shall take or cause to be taken all rction, including the provision of funds, facilities, services ana other resources, necessary or appropriate to enable Sumerbank to perform such obligations, and shall not take or permit to be taken any action which would prevent or interfere with such performance. (b) Without limitation or restriction upon the provisions of paragraph (a) of this Section, the Borrower shall approve the contractual positions referred to in Section 3.02 (b) of the Project Agreement until completion of the Project and take all - 5 - reasonable action to assist Sumerbank in meeting its obligations under the Project Agreement. (c) The Borrower shall relend the proceeds of the Loan to Sumerbank under a subsidiary loan agreement to t entered into between the Borrower and Sumerbank, under terms and conditions satisfactory to the Bank. (d) The Borrower shall exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan, and except as the Bank shall otherwise agree, the Borrower shall not assign, nor amend, abrogate or waive the Subsidiary Loan Agreement or any provision thereof. Section 3.02. Without limitation or restriction upon the provisions of Section 3.01 of this Agreement, the Borrower shall, for purposes set forth in Section 4.03 of the Project Agreement, contribute to Sumerbank's paid-in capital cash equity funds (i) of not less than TL 400,000,000; and (ii) as and wher needed for carrying out the Project, an additional amount of not -ess than TL 1,300,000,000, of wh.ch, in any event, TL 800,000,000 shall be provided by December >1, 1981, and the remaining TL 500,000,000 by December 31, 1982. ARTICLE IV Other Covenants Section 4.01. (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, special security from the member con- cerned but to ensure that no other external debt shall have priority over its loans in the allocation, realization or distri- bution 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 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 Borrower, in creating or permitting the creation of such lien, shall make express provision to that effect; provided, - 6 - however, that, if for any constitutional 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 Borrower 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. (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 transactions 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 Borrower, of any political or administrative subdivision thereof and of any entity owned or controlled by, or operating for the account or benefit of, the Borrower 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 Borrower. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions, the following additional event is specified pursuant to paragraph (k) thereof: (a) Sumerbank shall have failed to perform any covenant, agreement or obligation of Sumerbank under the Project Agreement; (b) an extraordinary situation shall have arisen which shall make it improbable that Sumerbank will be able to perform its obligations under the Project Agreement; (c) Law No. 440, of the Borrower dated March 21, 1964, shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of Sumerbank to carry out the covenants, agreements and obliga- tions set 'orth in the Project Agreement; - 7 - (d) Sumerbank's Statutes shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely af.fect the ability of Sumerbank to carry out the cove- nants, agreements and obligations set forth in the Project Agreement; (e) Sumerbank's board decision dated March 14, 1980, No. 16/526, establishing its Cotton Textile Division shall have been amended, suspended, abrogated, repealed or waived in such a way as to materially and adversely affect the ability of Sumerbanks to carry out the convenants, agreements and obligations set forth in the Project Agreement; and (f) the Borrower or any other authority having jurisdiction shall have taken any action for the dissolution or disestablish- ment of Sumerbank or for the suspension of its operations. Section 5.02. For the purposes of Section 7.01 of the General Conditions, the following additional events are specified pursuant to paragraph (h) thereof: the events specified in paragraphs (a), (b), 'kc), (i), (e) and (f) of Section 5.01 of this Agreement shall occur and st,all cont'nue for a period of 60 days after notice thereof shall have b en given by the Bank to the Borrower and Sumerbank. ARTICLE VI Effective Date; Termination Section 6.01. The following events are specified as addi- tional conditions to the effectiveness of the Loan Agreement within the meaning of Section 12.01 (c) of the General Condi- tions: (a) the Subsidiary Loan Agreement has been executed on behalf of the Borrower and Sumerbank; (b) the Borrower has contributed cash equity funds to Sumerbank in accordance with Section 3.02 (i) of this Agree- ment; and (c) Sumerbank has employed consultants with respect to Part B (i) of the Project in accordance with Section 2.02 of the Project Agreement. - 8 -- Section 6.02. The following are specified as additional matters, within the meaning of Section 12,02 (c) of the General Conditions, to be included in the opinion or opinions to be furnished co the Bank: (a) that the Project Agreement has been duly authorized or ratified by Sumerbank, and is legally binding upon Sumerbank in accordance with its terms; and (b) that the Subsidiary Loan Agreement has been duly authorized or ratified by the Borrower and Sumerbank and is legally binding upon the Borrower and Sumerbank in accordance with its terms. Section 6.03. The date * 2 l1 is hereby specified for the purposes of Section 12.04 of the General Conditions. ARTICLE VII Representatives of the Borrower; Addresses Section 7.01. The Minister of Finance of the Borrower is designated as representative of the Borrower for the purposes of Section 11.03 of the General Conditions. Section 7.02. The following addresses are specified for the purposes of Section 11.01 of the General Conditions: For the Borrower: Maliye Bakanligi Hazine Genel Mudurlugu ve Milletlerarasi Iktisadi Isbirligi Teskilati Genel Sekreterligi Ankara Turkey Cable address: Telex: Maliye 821-42285 (MLYE-TR) or Hazine 821-42689 (ANK-TR) Ankara -9- 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) IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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. REPUBLIC OF TURKEY Authorized Representative INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By cr C! 4 Regional Vice President Europe, Middle East and North Africa - 10 - SCHEDULE 1 Withdrawal of the Proceeds of the Loan 1. The table below sets forth the Categories of items to be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each Category and the percentage of expenditures for items so to be financed in each Category: Amount of the Loan Allocated % of (Expressed in Expenditures Category Dollar Equivalent) to be Financed (1) Equipment and 68,000,000 100% of foreign spare parts expenditures and 100% of local expen- ditures ex- factory (2) Consultants' ser- 7,800,000 100% of foreign vices and training expenditures (3) Refunding of Project 1,000,000 Amounts due Preparation Advance under Section 2.02 (b) (4) Unallocated 6,200,000 TOTAL 83,000,000 2. For the purposes of this Schedule: (a) the term "foreign expenditures" means expenditures in the currency of any country other than the Borrower and for goods or services supplied from the territory of any country other than the Borrower; and (b) the term "local expenditures" means expenditures in the currency of the Borrower and for goods or services supplied from the territory of the Borrower. - 11 - 3. The disbursement percentages have been calculated in com- pliance with the policy of the Bank that no proceeds of the Loan shall be disbursed on account of payments for taxes levied by, or in the territory of, the Borrower on goods or services, or on the importation, manufacture, procurement or supply thereof; to that end, if the amount of any such taxes levied on or in respect of any item to be financed out of the proceeds of the Loan decreases or increases, the Bank may, by notice to the Borrower, increase or decrease the disbursement percentage then applicable to such item as required to be consistent with the aforementioned policy of the Bank. 4. Notwithstanding the provisions of paragraph 1 above, no withdrawals shall be made in respect of payments made for expen- ditures prior to the date of this Agreement. 5. Notwithstanding the allocation of an amount of the Loan or the disbursement percentages set forth in the table in para- graph 1 above, if the Bank has reasonably estimated that the amount of the Loan then allocated to any Category will be insuffi- cient to finance the agreed percentage of all expenditures in that Category, the Bank may, by notice to the Borrower: (i) reallocate to such Category, to the extent required to meet the estimated shortfall, proceeds of the Loan which are then allocated to another Category and which in the opinion of the Bank are not needed to meet other expenditures; and (ii) if such reallo- cation cannot fully meet the estimated shortfall, reduce the disbursement percentage then applicable to such expenditures in order that further withdrawals under such Category may continue until all expenditures thereunder shall have been made. 6. If the Bank shall have reasonably determined that the procurement of any item in any Category is inconsistent with the procedures set forth or referred to in this Agreement, no expenditures for such item shall be financed out of the proceeds of the Loan and the Bank may, without in any way restricting or limiting any other right, power or remedy of the Bank under the Loan Agreement, by notice to the Borrower, cancel such amount of the Loan as, in the Bank's reasonable opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. - 12 - SCHEDULE 2 Description of the Project The Project consists of the following Parts: Part A: Rationalization and modernization of the existing 19 plants of Sumerbank's Cotton Textile Division through: (i) provision and installation of equipment and spare parts with respect to spinning, weaving, finishing and printing, and garment manufacturing includirg rehabili- tation of about 50,000 spindles and about 800 looms and provision of about 800 new looms and auxiliary equip- ment, and increasing production for yarn to about 52,000 metric tons per year, for woven fabric to about 250 million square meters, for finished fabric to about 207 million square meters and for garments by about 1.7 million pieces; and (ii) provision of improved lighting and environmental facilities. Part B: Provision of technical assistance of: (i) about 360 man-months to assist in carrying out of the Project, and reorganizing Sumerbank's cotton textile operations into a separate and autonomous Cotton Textile Division within Sumerbank and improving cotton textile manufac- turing and marketing; and (ii) about 100 man-months for financial control and planning. Part C: Carrying out of a training program for technical instructors, supervisory and management staff including about 45 man-years of training abroad. The Project is expected to be completed by December 31, 1983. - 13 - SCHEDULE 3 Amortization Schedule Payment of Principal Date Payment Due (expressed in dollars)* On each May 15 and November 15 Beginning November 15, 1984 through November 15, 1996 3,190,000 On May 15, 1997 3,250,000 * To the extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Section 4.02), the figures in this column represent dollar equivalents determined as for purposes of withdrawal. - 14 - Premiums on Prepayment The following percentages are specified as the premiums payable on repayment in advance of maturity of any portion of the principal amount of the Loan pursuant to Section 3.05 (b) of the General Conditions: Time of Prepayment Premium Not more than three years before maturity 1.45% More than three years but not more than six years before maturity 2.90% More than six years but not more than eleven years before maturity 5.35% More than eleven years but not more than fifteen years before maturity 7.30% More than fifteen years before maturity 8.25% INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this2 4 dayof A " I 1980-. FOR SECRETARY 0FFICIAL LOAN NUMBER 1847 TU Project Agreement (Sumerbank Cotton Textile Rationalization Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and SUMERBANK Dated 2 2 1980 LOAN NUMBER 1847 TU PROJECT AGREEMENT AGREEMENT, dated yo, 1980, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and SUMERBANK. WHEREAS (A) by the Loan Agreement of even date herewith between Republic of Turkey (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to eighty-three million dollars ($83,000,000), on the terms and conditions set forth in the Loan Agreement, but only on condition that Sumerbank agree to undertake such obligations toward the Bank as are hereinafter set forth; (B) by a subsidiary loan agreemant to be entered into between the Borrower and Sumerbank, the proceeds of the loan provided for under the Loan Agreement will be made available to Sumerbank on the terms and conditions therein set: forth; and WHEREAS Sumerbank, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; 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. Sumerbank shall carry out the Project described in Schedule 2 to the Loan Agreement with due diligence and effi- ciency and in conformity with appropriate administrative, finan- cial, engineering and ecological practices, and shall provide, or cause to be provided, promptly as needed, the funds, facilities, services and other resources required for the purpose. -2- Section 2.02. For purposes set forth in Part B of Schedule 2 of the Loan Agreement, Sumerbank shall, until completion of the Project but at least until December 31, 1983, employ and cause its CTD to employ textile and financial consultants whose quali- fications, experience and terms and conditions of employment shall be satisfactory to the Bank, said financial consultants to be employed by March 31, 1981. Section 2.03. Except as the Bank shall otherwise agree, procurement of the goods to be financed out of the proceeds of the Loan, shall be governed by the provisions of the Schedule to this Agreement. Section 2.04. (a) Sumerbank undertakes to insure, or make adequate provision for the insurance of, the imported goods to be financed out of the proceeds of the Loan relent to it by the Borrower against hazards incident to the acquisition, transpor- tation and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a cur- rency freely usable by Sumerbank to replace or repair such goods. (b) Except as the Bank may otherwise agree, Sumerbank shall cause all goods and services financed out of the proceeds of the Loan relent to it by the Borrower to be used exclusively for the Project. Section 2.05. (a) Sumerbank shall furnish to the Bank, promptly upon their preparation, the plans, specifications, reports, contract documents and work and procurement schedules for the Project, and any material modifications thereof or additions thereto, in such detail as the Bank shall reasonably request. (b) Sumerbank: (i) shall maintain records and procedures adequate to record and monitor the progress of the Project (including its cost and the benefits to be derived from it), to identify the goods and services financed out of the proceeds of the Loan, and to disclose their use in the Project; (ii) shall enable the Bank's accredited representatives to visit the facilities and construction sites included in the Project and to examine the goods financed out of the proceeds of the Loan and any relevant records and documents; and (iii) shall furnish to the Bank at regular intervals all such information as the Bank shall reasonably request concerning the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditure of the proceeds of the Loan and the goods and services financed out of such proceeds. - 3 - (c) Promptly after completion of the Project, but in any event not later than six months after the Closing Date or such later date as may be agreed for this purpose between Sumerbank and the Bank, Sumerbank shall prepare and furnish to the Bank a report, of such scope and in such detail as the Bank shall reasonably request, on the execution and initial operation of the Project, its cost and the benefits derived and to be derived from it, the performance by Sumerbank and the Bank of their respective obligations under the Project Agreement and the accom- plishment of the purposes of the Loan. (d) Sumerbank shall enable the Bank's representatives to examine all plants, installations, sites, works, buildings, property and equipment of Sumerbank and any relevant records and documents. Section 2.06. Sumerbank shall duly perform all its obliga- tions under the Subsidiary Loan Agreement. Except as the Bank shall otherwise agree, Sumerbank shall not take or concur in any action which would have the effect of amending, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provi- sion thereof. Section 2.07. (a) Sumerbank shall, at the request of the Bank, exchange views with the Bank with regard to the progress of the Project, the performance of its obligations under this Agree- ment and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Loan. (b) Sumerbank shall promptly inform the Bank of any condi- tion which interferes or threatens to interfere with the progress of the Project, the accomplishment of the purposes of the Loan, or the performance by Sumerbank of its obligations under this Agree- ment and under the Subsidiary Loan Agreement. ARTICLE III Management and Operations of Sumerbank Section 3.01. (a) Sumerbank shall at all times conduct its operations and maintain its financial position and cause its CTD to conduct its operations and maintain its financial position in accordance with sound financial and industrial standards and practices, with qualified management and assisted by qualified and competent staff in adequate numbers. (b) Sumerbank shall maintain such personnel employment policies as shall increase and promote its labor productivity. (c) Sumerbank shall take out and maintain with responsible insurers, or make other provisions satisfactory to the Bank for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. (d) Sumerbank shall operate and maintain and cause its CTD to operate and maintain all plants, equipment and properties included in the Project and from time to time make all necessary renewal and replacements thereof in accordance with sound indust- rial and financial pract4ces. (e) Sumerbank shall maintain and operate and cause its CTD to maintain and operate the facilities included in the Project in accordance with occupational health, environmental and ecological standards acceptable to the Bank. Section 3.02. Sumerbank shall: (a) establish and maintain within CTD until completion of the Project, a Project Implewenta- tion Unit with qualified and experienced staff in sufficient numbers whose terms and conditions of employment shall be satis- factory to the Bank; (b) until completion of the Project, employ on a contract basis pursuant to the BuIget Law of the Borrower not less than 55 staff whose qualifications and experience and terms and condi- tions of employment shall be satisfactory to the Bank, such number of staff to be increased as may be required for carrying out the Project; (c) prepare and furnish to the Bank not later than Decem- ber 31, 1980, detailed proposals satisfactory to the Bank for functions, authorities and responsibilities of and within CTD, for each plant for implementing the Project and for suitable marketing arrangements for CTD, and promptly thereafter imple- ment such proposals; (d) cause CTD to prepar2 and furnish to the Bank not later than April 30, 1981 a training and staffing plan satisfactory to the Bank including staff required for .arrying out the Project and staff employed on a contract basis pursuant to the Budget Law of the Borrower and promptly thereafter implement such plan; and -5- (e) prepare and furnish to the Bank by April 30, 1981 recommendations for improving the existing incentive scheme for workers, exchange views on such recommendations with the Bank, and thereafter take appropriate steps within its power, to implement such recommendations. Section 3.03. Suwarbank shall ensure that the management of the plants included in CTD will prepare and furnish to the manage- menc of CTD by November 30 of each year: (a) plans for the follow- ing year with respect to production, profits, costs, investments, exports, maintenance, technical assistance, staffing and training, such plans to be reviewed, coordinated and revised and adjusted by management of CTD on a quarterly basis in consultation with the management of the plants included in CTD; and (b) five-year rolling financial projections to be reviewed and revised annually by management of CTD in consultation with the management of the plants included in CTD. Section 3.04. Sumerbank shall contract the suppliers credit referred to in paragraph (E) of the Preamble to the Loan Agreement not later than December 31, 1981 unless Sumerbank establishes to the satisfaction of the Bank that adequate funds for the Project are available to Sumerbank from other sources on terms and condi- tions consistent with the obligations of the Sumerbank under this Agreement. ARTICLE IV Financial Covenants Section 4.01. (a) Sumerbank shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition, including separate consolidated records for CTD showing, inter alia, actual retirement severance payments and those projected for the following 5 years. (b) Sumerbank shall cause the management of CTD to prepare and maintain for CTD the records referred to in paragraph (a) of this Section and establish and maintain for CTD appropriate systems for financial planning, budgeting and control. - 6 - Section 4.02. Sumerbank shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) including those for CTD, for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors accept- able to the Bank; (ii) furni3h to the Bank as soon as available, 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 the accounts and financial statements of Sumerbank and CTD and the audit thereof as the Bank shall from time to time reasonably request. Section 4.03. Sumerbank shall: (a) by December 31, 1981, raise the aggregate nominal capital of the Subsidiaries included in CTD to not less than TL 5,000,000,000 in the aggregate in proportions acceptable to the Bank; and (b) not later than 1 month after receipt of the funds referred to in Section 3.02 of the Loan Agreement contribute to the paid-in capital of the Subsidiaries included in CTD cash equity funds in corresponding amounts. Section 4.04. As used in this Agreement with respect to the financial obligations of Sumerbank and its CTD: (a) "Current assets" means the sum of unrestricted cash available for use in current operations, marketable securities (excluding securities, whether marketable or not, acquired for purposes of control, affiliation, or other continuing business advantage), receivables collectible in the normal course of business within one year, and inventories valued at the lower of cost or market. (b) "Current liabilities" means all obligations due on demand or within one year or whose liquidation is reasonably - 7 - expected to require the use of existing resources classified as current assets. Obligations shall include but not be limited to customers' advances, accrued taxes on, or measured by income, other accrued taxes and current maturities of long-term debt. (c) "Capital additions" means the aggregate of all the expenditures or costs incurred for the acquisition and ownership of land, buildings, machinery, equipment, furniture, fixtures and all other tangible fixed assets and investments in, or loans to, other entities. (d) "Net revenues" means gross revenues from all sources less operating and administrative expenses, including taxes, surcharges and other levies, if any, but before provision for depreciation and interest and other charges on debt. (a) "Debt service requirements" means the aggregate amount of amortization (principal payments and any mandatory sinking fund payments) on long-term debt, interest and other charges on other debt payable during the period con' erned. (f) "Long-term debt" means any debt maturing more than one year after the date on which it is originally incurred; and (i) debt shall be deemed to be incurred: (A) under a loan contract or agreement (including the Loan Agreement) on the date of such loan contract or agreement; (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only, except in the case of a guarantee of debt of a subsidiary, to the extent that the guaranteed debt is outstanding; and (ii) whenever in connection with this Article it shall be necessary to value in terms of the currency of the Borrower debt payable in any other currency, such valuation shall be made at the prevailing lawful rate of exchange at which such other cur- rency is, at the time of such valuation, obtainable by Sumerbank and its CTD for the purposes of servicing such debt or in the absence uf such rate of exchange, another rate acceptable to the Bank. -8- (h) "Equity" means the aggregate of the unimpaired paid-up capital, surplus if it is represented by a positive number and free reserves of CTD. Section 4.05. Sumerbank represents that at the date of this Agreement no lien exists on any of its assets as security for any debt except as otherwise currently reported to the Bank or stated in writing. Section 4.06. (a) Except as the Bank shall otherwise agree, Sumerbank shall cause its CTD: (i) to conduct its operations and affairs in such manner as shall be necessary to maintain, at all times, its debt/equity ratio at such level that its aggregate debt shall not be greater than 1.5 times its aggregate equity; and (ii) if such ratio shall, for reasons beyond Sumerbank's control, be exceeded, take all such reasonable action as shall be necessary or advisable promptly to bring such ratio within such limit. (b) Sumerbank and CTD shall not make any repayment in advance of maturity in respect of any of their outstanding debt which would materially and adversely affect their ability to meet their financial obligations. Section 4.07. Except a. the Bank shall otherwise agree: (a) Sumerbank and CTD shall not prepay any long-term debt or make any financial commitments to or in respect of any subsidiary if, after giving effect to such action, the aggregate current assets of CTD would be less than 1.2 times the aggregate current liabilities of CTD; (b) Sumerbank and CTD shall take such action as shall be necessary to maintain the aggregate current assets of CTD at a level of at least 1.1 times its aggregate current liabilities until December 31, 1980 and 1.2 times its aggregate current liabilities thereafter; (c) Until completion of the Project, Sumerbank and CTD shall not make any transfer of profits from CTD unless the requirements of the Project have been met and after such transfer the aggregate current assets of CTD will be at least 1.5 times the aggregate current liabilities of CTD; and (d) CTD shall not incur any long-term debt in any year unless a reasonable forecast of its revenues and expenditures shows that its aggregate projected net revenues for each full -9- fiscal year during the term of the long-term debt to be incurred or for the following ten years whichever is shorter shall be at least 1.5 times the aggregate projected debt service requirement in such year on all long-term debt of CTD. For purposes of this paragraph, "a reasonable forecast" means a forecast prepared by Sumerbank in the fiscal year in which the debt in question is proposed to be incurred and reviewed by the Bank which both Summerbank and the Bank accept as reasonable and as to which the Bank has notified Sumerbank of its acceptability, provided no event has occurred since the Bank's acceptance of such forecast which would have a material adverse effect on the financial condition or future operating results of Sumerbank. Section 4.08. Except as the Bank may otherwise agree, Sumerbank and its CTD shall not, in any year prior to the comple- tion of the Project, make expenditures or commitments for expendi- tures for capital additions of CTD exceeding $3,000,000 equivalent excepting expenditures required to carry out the Project. Section 4.09. Sumerbank and CTD shall, from time to time, review its prices for cotton textile products and adjust such prices if necessary :o reasonably meet competitive price levels for cotton textile products and to earn sufficient revenues to cover the cost of the operations of CTD and provide a reasonable return on their capital. 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 effec- tive. Section 5.02. This Agreement and all obligations of the Bank and of Sumerbank thereunder shall terminate on the date on which the Loan Agreement shall terminate in accordance with its terms, and the Bank shall promptly so notify Sumerbank 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. - 10 - 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 herein- after 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 Sumerbank: Sumerbank Genel MUdUrlUgU Ulus Ankara, Turkey Cable address: Telex: SUMERBANK 821-43231 ABCD TR Ankara 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 Sumerbank, may be taken or executed by the Director Generai of Sumerbank or such other person or persons as the President shall designate in writing, and Sumerbank shall - 11 - 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 collec- tively but one instrument. IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, 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//? eC Regional Vice President Europe, Middle East and North Africa SUMERBANK Authorized Representative - 12 - SCHEDULE Procurement A. International Competitive Bidding 1. Except as provided in Part D hereof, goods shall be procured under contracts awarded in accordance with procedures consistent with those set forth in the "Guidelines for Procurement under World Bank Loans and IDA Credits" published by the Bank in March 1977 (hereinafter called the Guidelines), on the basis of inter- national competitive bidding as described in Part A of the Guidelines. 2. For goods to be procured on the basis of international competitive bidding, in addition to the requirements of paragraph 1.2 of the Guidelines, Sumerbank shall prepare and forward to the Bank as soon as possible, and in any event not later than 60 days prior to the date of availability to the public of the first tender or prequalification documents relating thereto, as the case may be, a general procurement notice, in such form and detail and containing such information as the Bank shall reasonably request; the Bank will arrange for the publication of such notice in order to provide timely notification to prospective bidders of the opportunity to bid for the goods and works in question. Sumerbank shall provide the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of international competitive bidding. 3. To the extent possible, contracts for goods shall be grouped into single bids of not less than $100,000 equivalent. 4. For the purpose of evaluation and comparison of bids for the supply of goods to be procured on the basis of international competitive bidding: (i) bidders shall be required to state in their bid the c.i.f. (port of entry) price for the imported goods, or the ex-factory price or off-the-shelf price of other goods, offered in such bid; and (ii) customs duties and other import taxes levied in connection with the importation, or the sales and similar taxes levied in connection with the sale or delivery, pursuant to the bid, of the goods shall not be taken into account in the evaluation of the bids. - 13 - B. Preference for Domestic Manufacturers In the procurement of goods in accordance with the procedures described in Part A of this Schedule, goods manufactured in the Republic of Turkey may be granted a margin of preference in accordance with, and subject to, the following provisions: 1. All bidding documents for the procurement of goods shall clearly indicate any preference which will be granted, the information required to establish the eligibility of a bid for such preference and the following methods and stages that will be followed in the evaluation and comparison of bids. 2. After evaluation, responsive bids will be classified in one of the following three groups: (1) Group A: bids offering goods manufactured in the tkepublic of Turkey if the bidder shall have established to the satisfaction of the Republic of Turkey and the Bank that the manufacturing cost of such goods includes a value added in the Republic of Turkey equal to at least 20% of the ex-factory bid p ice of such goods. (2) Group B: all other domestic bid3. (3) Group C: bids offering any other goods. 3. In order to determine the lowest evaluated bid of each group, all evaluated bids in each group shall first be compared among themselves, without taking into account customs duties and other import taxes levied in connection with the importation, and sales and similar taxes levied in connection with the sale or delivery, pursuant to the bids, of the goods. Such lowest eval- uated bids shall then be compared with each other, and if, as a result of this comparison, a bid from group A or group B is the lowest, it shall be selected for the award. 4. If, as a result of the comparison under paragraph 3 above, the lowest bid is a bid from group C, all group C bids shall be further compared with the lowest evaluated bid from group A after adding to the evaluated bid price of the imported goods offered in each group C bid, for the purpose of this further comparison only, an amount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would - 14 - have to pay for the importation of the goods offered in such group C bid; or (ii) 15% of the c.i.f. bid price of such goods if said customs duties and taxes exceed 15% of such price. If the group A bid in such further comparison is the lowest, it shall be selected for the award; if not, the bid from group C which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Contracts for goods estimated to cost less than $100,000 equivalent shall be procured through limited international tendering on the basis of a list of goods satisfactory to the Bank, provided, however, that (i) contracts shall not be awarded unless the Bank has approved said list of goods, and (ii) con- tracts of goods so procured shall not in the aggregate exceed $4,000,000 of equivalent. 2. Contracts for proprietary goods (equipment and spare parts) for existing equipment may be procured on the basis of a list of goods satisfactory to the Bank pursuant to such competitive procedures as are appropriate under the circumstances provided, however, that (i) contracts shall not be awarded unless the Bank has approved said list of goods, (ii) contracts for goods so procured shall not in the aggregate exceed $17,000,000 equivalent. D. Review of Procurement Decisions by the Bank 1. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts for goods estimated to cost the equivalent of $350,000 or more: (a) afore bids are invited, Sumerbank shall furnish to the Bank, for its comments, the text of the invitations to bid and the specifications and other bidding documents, together with a description of the advertising procedures to be followed for the biddin-, and shall make such modifications in the said documents or procedures as the Bank shall reasonably request. Any further modification to the bidding documents shall require the Bank's concurrence before it is issued to the prospective bidders. (b) After bids have been received and evaluated, Sumerbank shall, before a final decision on the award is made, inform - 15 - the Bank of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, in sufficient time for its review, a detailed report on the evaluation and comparison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform Sumerbank and state the reasons for such determination. (c) The terms and conditions of the contract shall not, without the Bank's concurrence, materially differ from those on which bids were asked or prequalification invited. (d) Two conformed copies of the contract shall be furnished to the Bank promptly after its execution and prior to the submis- sion to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 2. With respect to each contract not governed by the preceding paragraph, Sumerbank shall furnish to the Bank, promptly after its execution and prior to the submission to the Bank of the first application fo.- withdrawal of funds from the Loan Account in respect of surh contract, two conformed copies of such con- tract, together with the analysis of the respective bids, recom- mendations for award and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the award of the contract was not consistent with the Guidelines or this Schedule, promptly inform Sumerbank and state the reasons for such determination. 3. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an exten- sion of the stipulated time for performance of such contract, or issuing any change order under such contract (except in cases of extreme urgency) which would increase the cost of the contract by more than 5% of the original price, Sumerbank shall inform the Bank of the proposed modification, waiver, extension or change order and the reasons therefor. The Bank, if it determines that the proposal would be inconsistent with the provisions of this Agreement, shall promptly inform Sumerbank and state the reasons for its determination. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT CERTIFICATE I hereby certify that the foregoing is a true copy of the original in the archives of the Interna- tional Bank for Reconstruction and Develop- ment. In witness whereof I have signed this Certifi- cate and affixed the Seal of the Bank thereunto this Jg Lday of 4 , 198 0 FOR SECRETARY