Turkey - State Industrial Enterprise Finance Project : Loan 1998 - Loan Agreement - Conformed

OFP~T C IA LOAN NUMBER 1998 TU Loan Agreement (State Industrial Enterprise Finance Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and DEVLET YATIRIM BANKASI Dated -oce 3 , 1981 LOAN NUMBER 1998 TU LOAN AGREEMENT AGREEMENT, dated u 3 , 1981, between INTER- NATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and DEVLET YATIRIM BANKASI (hereinafter called the Borrower), a State Economic Enterprise established and operating under the laws of the REPUBLIC OF TURKEY. 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 October 27, 1980, with the same force and effect as if they were fully set forth herein, subject, however, to the modifications thereof set forth in Schedule 2 to this Agreement (said General Conditions Applicable to Loan and Guarantee Agreements of the Bank, as so modified, being hereinafter called the General Conditions). Section 1.02. Wherever used in this Agreement, unless the context otherwise requires, the several terms defined in the General Conditions have the respective meanings therein set forth, and the following additional terms have the following meanings: (a) "Sub-loan" means a loan made or proposed to be made by the Borrower out of the proceeds of the Loan to a Sub-borrower for an Investment Project and "Sub-loan agreement" means the agreement or agreements between the Borrower and a Sub-borrower setting forth the terms and conditions of a Sub-loan. (b) "Sub-borrower" means any of the following or other State Economic Enterprises to be agreed between the Guarantor, the Bank and the Borrower: Turkiye Seker Fabrikalari A.S. (hereinafter called TSF); Karabuk Demir ve Celik Fabrikalari (hereinafter called KDC); and Karadeniz Bakir Isletmeleri A.S. (hereinafter called KBI). (c) "Investment Project" means a specific development project to be carried out by a Sub-borrower utilizing the proceeds of a Sub-loan. -2- (d) "Liras" and "TL" mean the currency of the Guarantor. (e) "Foreign currency" means any currency other than the currency of the Guarantor. (f) "Statutes" means the statutes of the Borrower as defined in Law No. 441, of 1964, of the Guarantor, including the regula- tions issued pursuant to the said law by Decree No. 7/8568 of the Guarantor's Council of Ministers, dated July 9, 1974 and promul- gated in the Guarantor's Official Gazette No. 14960 on July 29, 1974, as such Statutes and Regulations may be amended from time to time. (g) "Subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by the Borrower or by any one or more subsidiaries of the Borrower or by the Borrower and one or more of its subsidiaries. (h) "T.C. Merkez Bankasi" means TUrkiye Cumhuriyet Merkez Bankasi, the Central Bank of the Republic of Turkey established and operating pursuant to Law No. 1211 promulgated in the official Gazette of the Republic of Turkey No. 13409 of January 26, 1970 as amended. 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 seventy million dollars ($70,000,000). Section 2.02. (a) The amount of the Loan may be withdrawn from the Loan Account for amounts paid (or, if the Bank shall so agree, for amounts to be paid) by the Borrower on account of withdrawals made by a Sub-borrower under a Sub-loan to meet the reasonable foreign-currency cost and, if procured through proce- dures set forth and referred to in Part A of Schedule 4 to this Agreement, the local-currency ex-factory cost of goods and ser- vices, as well as 75% of the total cost of the services of consul- tants referred to in paragraph 2 (i) through (viii) and paragraph 3 of the Schedule 3 of this Agreement in the case of local consul- tants; all as required for the Investment Project in respect of -3- which the withdrawal from the Loan Account is requested; provided, however, that no withdrawal shall be made in respect of a Sub-loan unless the Sub-loan shall have been approved by the Bank. (b) Except as the Bank and the Borrower shall otherwise agree, no withdrawals shall be made on account of (i) expenditures before the date of this Agreement or (ii) expenditures by a Sub-borrower if such expenditures shall have been made more than ninety days prior to the date on which the Bank shall have re- ceived in respect of such Sub-loan the application, documentation and information required by Section 2.03 (a) of this Agreement. Section 2.03. (a) When presenting a Sub-loan to the Bank for approval, the Borrower shall furnish to the Bank an application, in form satisfactory to the Bank, together with: (i) a description of the Investment Enterprise and an appraisal of the Investment Project, including a description of the expenditures proposed to be financed out of the proceeds of the Loan; (ii) a final draft copy of the respective Sub-loan agreement including terms and conditions consistent with the provisions of Schedule 3 to this Agreement and otherwise satisfactory to the Bank; and (iii) such other information as the Bank shall reasonably request. (b) Except as the Bank and the Borrower shall otherwise agree, applications and requests made pursuant to the provisions of paragraph (a) of this Section shall be presented to the Bank on or before September 30, 1981. Section 2.04. The Closing Date shall be December 31, 1986 or such later date as the Bank shall establish. The Bank shall promptly notify the Borrower and the Guarantor of such later date. Section 2.05. The Borrower shall pay to the Bank a com- mitment 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 nine and three-fifths per cent (9-3/5%) 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 semi-annually on April 1 and October 1 in each year. -4- Section 2.08. (a) The Borrower shall repay the principal amount of the Loan in accordance with the amortization schedule set forth in Schedule 1 to this Agreement as such Schedule shall be amended from time to time by the Bank to the extent required to: (i) conform in releunt part substantially to the aggregate of the amortization schedules applicable to Sub-loans which have been approved under Section 2.02 of this Agreement; and (ii) take into account any cancellation pursuant to Article VI of the General Conditions and any repayments made by the Borrower under Section 2.09 of this Agreement; provided that repayments due hereunder shall be made on April 1 and October 1 in each year. Such amendments of said Sciicdilie i shall include amendments to the table of premiums on prepayment, if necessary. (b) Unless the Guarantor, the Bank and the Borrower shall otherwise agree, the amortization schedule applicable to each Sub-loan shall provide for an appropriate period of grace not to exceed five years and, (i) shall not extend beyond 15 years from the date of approval by the Bank of such Sub-loan, and (ii) shall provide for approximately equal semi-annual, or more frequent, aggregate payments of principal and interest or approximately equal semi-annual, or more frequent, payments of principal. (c) The Borrower shall transmit to the Bank, for its prior approval, any substantial changes proposed to be made by the Borrower in respect of the repayment provisions of any Sub-loan. Section 2.09. Unless the Bank and the Borrower shall other- wise agree: (a) If a Sub-loan or any part thereof shall be repaid to the Borrower in advance of maturity or if a Sub-loan or any part thereof shall be sold, transferred, assigned or otherwise disposed of for value by the Borrower, the Borrower shall promptly notify the Bank and shall repay to the Bank on the next following interest payment date, together with the premiums specified in Schedule 1 to this Agreement or in any amendment thereof under Section 2.08 (a) of this Agreement, the amount withdrawn from the Loan Account in respect of such Sub-loan or part thereof and not theretofore repaid to the Bank. (b) Any amount so repaid by the Borrower shall be applied by the Bank to the maturity or maturities of the Loan in amounts corresponding to the outstanding amounts of the maturity or maturities of the Sub-loan so repaid or disposed of. -5- (c) Paragraph (b) of Section 3.05 of the General Conditions shall not apply to any repayment made under paragraph (a) of this Section. Section 2.10. If the Bank shall have reasonably determined that the procurement of any item to be financed out of the pro- ceeds of the Loan 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 reason- able opinion, represents the amount of such expenditures which would otherwise have been eligible for financing out of the proceeds of the Loan. ARTICLE III The Project; Management and Operations of the Borrower Section 3.01. (a) The purpose of the Project is to assist the Borrower in financing such productive facilities and resources with high priority of Sub-borrowers in Turkey as will contribute to the economic and social development of the country. Except as the Guarantor, the Bank and the Borrower shall otherwise agree, the Project consists in the financing of the following Investment Projects: 1. Expansion of TSF's sugar factory at Ankara to a capacity of about 3,000 tons of beets per day; 2. Expansion of TSF's sugar factory at Susurluk to a capacity of about 6,000 tons of beets per day; 3. Establishment by TSF of a new sugar factory at Ilgin with a capacity of about 6,000 tons of beets per day; 4. Modernization of KDC's iron and steel plant at Karabuk by installation of raw material preparation facilities including a primary storage yard, an iron ore crushing and screening and a coal and limestone grinding plant; 5. Modernization of KDC's iron and steel plant at Karabuk by replacement of refractories in the hot stoves serving -6- the blast furnaces and ring pipes and burners, and acquisition of additional instrumentation to measure stack temperatures; 6. Modernization and expansion of KBI's copper mining and concentration complex at Murgul to increase capacity to about 168,000 tons of copper concentrate per year and to about 133,000 tons of pyrites per year; all in furtherance of the corporate purposes of the Borrower. (b) Except as the Bank and the Borrower shall otherwise agree, each of the Investment Projects specified in paragraph (a) hereof, shall include the carrying out of the actions referred to in paragraph 2 (i) through (viii) and paragraph 3 of Schedule 3 to this Agreement. (c) The Borrower shall carry out the Project and conduct its operations and affairs in accordance with appropriate finan- cial standards and practices, with qualified management and personnel in adequate numbers and in accordance with the Statutes. Section 3.02. (a) The Borrower undertakes that, unless the Bank shall otherwise agree, any Sub-loan will be made on terms whereby the Borrower shall obtain, by written contract with the Sub-borrower or by other appropriate legal means, in form and substance satisfactory to the Borrower and the Bank, rights adequate to protect the interests of the Bank and the Borrower, including provisions consistent with those set forth or referred to in Schedule 3 to this Agreement. (b) The Borrower shall exercise its rights in relation to each Investment Project in such manner as to: (i) protect the interests of the Bank and the Borrower; (ii) comply with its obligations under this Agreement; and (iii) achieve the purposes of the Project. In order to assist it in handling the specialized technical aspects of the foregoing, the Borrower shall employ consultants, on a short-term basis, as needed in accordance with a supervision program agreed with the Bank. Section 3.03. (a) The Borrower shall furnish to the Bank: (i) the study, program and description of the system, as the case may be, referred to paragraph 2 (iii) through (viii) of Schedule 3 to this Agreement, promptly after their receipt and afford the Bank a reasonable opportunity to comment thereon before the -7- Borrower shall give its final comments to the Sub-borrowers; and (ii) at regular intervals, all such information as the Bank shall reasonably request concerning the expenditure of the proceeds of the Loan, the Project, the Sub-borrowers, the Investment Projects, the Sub-loans and, where appropriate, the benefits to be derived from the foregoing. (b) The Borrower shall each calendar quarter review the progress of each Investment Project and produce a comprehensive report of each such review and its findings. (c) Within six months following the last withdrawal from the Loan Account, the Borrower 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 Investment Projects, their costs and the benefits derived and to be derived from them, the performance by the Borrower and the Bank of their respective obligations under this Agreement and the accomplishment of the purposes of the Loan. Section 3.04. The Borrower shall duly perform all its obligations in agreements under which funds have been lent or otherwise put at the disposal of the Borrower by the Guarantor or its agencies or others for relending, investment or management The Borrower shall promptly inform the Bank of any action which would have the effect of assigning, or of amending, abrogating or waiving any material provision of, any such agreement. Section 3.05. The Borrower shall assist the Guarantor in carrying out the study referred to in Section 3.06 of the Guarantee Agreement. Section 3.06. The Borrower shall lend to any Sub-borrower such TL funds as shall be required, considering the cash genera- tion capacity of such Sub-borrower for carrying out the Investment Project in respect of which a Sub-loan has been approved by the Bank, with the same amortization period as such Sub-loan and at an interest rate and at fees as referred to in Section 4.09 of this Agreement. Section 3.07. The Borrower shall continue to apply in its lending operations criteria for project appraisal as have been agreed with the Bank. -8- Section 3.08. Not later than June 30, 1982, the Borrower shall employ additional duly qualified and experienced staff, including staff on a contract basis, in numbers sufficient to carry out its increased responsibilities during calendar year 1982. ARTICLE IV Financial Covenents Section 4.01. The Borrower shall maintain procedures and records adequate to monitor and record the progress of the Project and of each Investment Project (including its cost and the bene- fits to be derived from it) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of the Borrower. Section 4.02. The Borrower shall: (i) have its accounts and financial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited in accordance with sound 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 the accounts and financial statements of the Borrower and the audit thereof as the Bank shall from time to time reasonably request. Section 4.03. (a) The Borrower 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 or disclosed in writing by the Borrower to the Bank. (b) The Borrower undertakes that, except as the Bank shall otherwise agree: (i) if any lien shall be created on any assets of the Borrower as security for any debt, such lien will equally and ratably secure the payment of the principal of, and interest and other charges on the Loan and that in the creation of any such lien express provision will be made to that effect at no cost to the Bank; and (ii) if any statutory lien shall be created on any assets of the Borrower as security for any debt, the Borrower -9- shall grant, at no cost to the Bank, an equivalent lien satisfac- tory to the Bank to secure the payment of the principal of, and interest and other charges on the Loan; provided, however, that the foregoing provisions of this paragraph shall not apply to: (A) any lien created on property, at the time of purchase thereof, solely as security for the payment of the purchase price of such property; or (B) any lien arising in the ordinary course of banking transactions and securing a debt maturing not more than one year after the date on which it is originally incurred. Section 4.04. Except as the Bank shall otherwise agree, the Borrower shall: (a) conduct its operations and affairs in such a manner as shall be necessary to maintain a ratio of at least 1.3 to 1 between (i) payments of loan principal, interest and other charges from its debtors (hereinafter called Loan Receipts) and (ii) payments of loan principal (excluding frozen deposits of T.C. Merkez Bankasi, if any), interest and other charges tu its credi- tors (hereinafter called Debt Payments); (b) promptly after the end of each fiscal year, calculate the ratio in paragraph (a) above on the basis of actual Loan Receipts and Debt Payments for each such fiscal year and project it for each of the two following fiscal years on the basis of scheduled Loan Receipts and Debt Payments for loans and debts outstanding as of the beginning of such following period of two fiscal years; and (c) whenever the ratio in paragraph (a) above shall fall below the limit referred to therein or whenever there is reason to believe that such ratio cannot be expected to be met over the following twelve months, promptly (i) consult with the Guarantor and the Bank or such action as shall be necessary or advisable to bring such ratio within the required limit by the end of the Borrower's current fiscal year, and (ii) implement such action. Section 4.05. The Borrower shall not make any repayment in advance of maturity in respect of any outstanding debt of the Borrower which, in the judgment of the Bank, would materially affect the Borrower's ability to meet its financial obligations. Section 4.06. The Borrower shall take such steps satisfac- tory to the Bank as shall be necessary to protect itself against - 10 - risk of loss resulting from ch,nges in the rates of exchange between the currencies (including liras) used in its operations. Section 4.07. The Bank and the Borrower shall from time to time, at the request of either party, continue to exchange views through their representatives with regard to the adminis- tration, operations and financial condition of the Borrower, and the Borrower shall continue to furnish to the Bank all such information as the Bank shall reasonably request concerning the administration, operations and financial condition of the Borrower. Section 4.08. The Borrower shall enable the Bank's repre- sentatives to review the records referred to in Section 4.01 of this Agreement and any relevant documents. Section 4.09. The Borrower shall charge a commitment fee and interest on its foreign-currency Sub-loans at the rates specified in Section 2.05 and 2.06, respectively, of this Agreement plus a spread of 3.5% and taxes and charges at the applicable rates; and, in respect of loans in liras made pursuant to Section 3.06 of this Agreement, shall charge interest and other fees at levels com- parable to those charged by financial institutions in Turkey on similar loans net of any interest rebates applicable to loans from such financial institutions which are not applicable in the case of the Borrower. All foreign exchange risks in respect of foreign currency sub-loans shall be passed on to the Sub-borrowers. ARTICLE V Remedies of the Bank Section 5.01. For the purposes of Section 6.02 of the General Conditions the following additional events are specified: (a) any part of the principal amount of any loan to the Borrower having an original maturity of one year or more shall, in accordance with its terms, have become due and payable in advance o- maturity as provided in the relative contractual instrument, or any security for any such loan shall have become enforceabler (b) a hange shall have been made in the Statutes which would mate .ally and adversely affect the operations or the financial coadition of the Borrower; - 11 - (c) a resolution shall have been passed for the dissolution or liquidation of the Borrower; and (d) a subsidiary or any other entity shall have been created or acquired or taken over by the Borrower, if such creation, acquisition or taking over would adversely affect the conduct of the Borrower's business or the Borrower's financial condition or the efficiency of the Borrower's management and personnel or the carrying out of the Project. Section 5.02. For the purposes of Section 7.01 of the General Conditions the following additional events are specified: (a) the event specified in paragraph (a) or paragraph (b) or paragraph (c) of Section 5.01 shall occur; and (b) the event specified in paragraph (d) of Section 5.01 shall occur and shall continue for a period of sixty days after notice thereof shall have been given by the Bank to the Borrower. ARTICLE VI Miscellaneous Section 6.01. The date of en ,1T27 , is hereby specified for the purposes of Section 12.04 of the General Conditions. Section 6.02. 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. 20433 United States of America Cable address: Telex: INTBAFRAD 440098 (ITT), Washington, D.C. 248423 (RCA) or 64145 (WUI) - 12 - For the Borrower: Dev1et Yatirim Bankasi Milli Mudafaa Caddesi No. 20 Ankara Turkey Cable address: YATIRIMBANK Ankara 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 > Regional Vice President Europe, Middle East and North Africa DEVLET YATIRIM BANKASI By Authorized Representative - 13 - SCHEDULE 1 Amortization Schedule* Payment of Principal Date Payment Due (expressed in dollars)** On each April 1 and October 1 beginning October 1, 1984 through October 1, 1995 2,915,000 On April 1, 1996 2,955,000 * The Amortization Schedule is subject to amendment pursuant to the provisions of Section 2.08 of the Loan Agreement. ** To The extent that any portion of the Loan is repayable in a currency other than dollars (see General Conditions, Sectio,i 4.04), the figures in this column represent dollar equivalints 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 3.04 (b) of the General Conditions or to Section 2.09 (a) of the Loan Agreement: Time of Prepayment Premium Not more than three years before maturity 1.90% More than three years but not more than six years before maturity 3.85% More than six years but not more than eleven years before maturity 7.05% More than eleven years but not more than thirteen years before maturity 8.30% More than thirteen years before maturity 9.60% - 15 - SCHEDULE 2 Modifications of the General Conditions For the purposes of the Loan Agreement, the provisions of the General Conditions are modified as follows: (1) The following subparagraph (d) is added to Section 3.04: "(d) The Bank and the Borrower may from time to time agree upon arrangements for prepayment of the Loan and the application of such prepayment in addition to, or in substitution for, those set forth in paragraph (b) of Section 3.04." (2) The words "Investment Projects" are substituted for the words "the Project" at the end of Section 5.03. (3) Section 6.03 is deleted and replaced by the following new Section: "Section 6.03. Cancellation by the Bank. If (a) the right of the Borrower to make withdrawals from the Loan Account shall have been suspended with respect to any amount of the Loan for a continuous period of thirty days, or (b) by the date specified in paragraph (c) of Section 2.03 of the Loan Agreement no applications or requests permitted under paragraph (a) or paragraph (b) of such Section shall have been received by the Bank in respect of any portion of the Loan, or having been so received, shall have been denied, or (c) after the Closing Date an amount of the Loan shall remain unwithdrawn from the Loan Account, or (d) the Bank shall have received notice from the Guarantor pursuant to Section 6.07 with respect to an amount of the Loan, the Bank may by notice to the Borrower terminate the right of the Borrower to submit such applications or requests or to make withdrawals from the Loan Account, as the case may be, with respect to such amount or portion of the Loan. Upon the giving of such notice such amount or portion of the Loan shall be cancelled." - 16 - SCHEDULE 3 Terms and Conditions of Sub-loans 1. Except as the Bank and the Borrower shall otherwise agree, each Sub-loan agreement shall inter alia: (i) require the Sub-borrower to carry out and operate the Investment Project with due diligence and efficiency and in accordance with, inter alia, appropriate technical, financial, marketing and managerial standards and to maintain adequate records; (ii) require the Sub-borrower to conduct its affairs in such a manner as to generate an amount from internal sources as to be agreed between the Borrower and the Sub-borrower under a financing plan for the Investment Project; (iii) require that (1) the goods and civil works to be financ- ed out of the proceeds of the Loan shall be procured in accordance with the provisions of Schedule 4 to this Agreement, and (2) the goods and services financed out of the proceeds of the Loan shall be used exclusively in the carrying out of the Investment Project; (iv) authorize the Borrower to examine, by itself or jointly with representatives of the Bank if the Bank shall so request, such goods and the sites, works, plants and construction included in the Investment Project, the operation thereof, and any relevant records and documents; (v) require that (1) the Sub-borrower shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with appropriate business practice, and (2) without any limitation upon the fore- going, such insurance shall cover hazards incident to the acqui- sition, transportation and delivery of the goods financed out of the proceeds of the Loan to the place of their use or installa- tion, any indemnity thereunder to be made freely usable by the Sub-borrower to replace or repair such goods; (vi) require the Sub-borrower to furnish all such information to the Bank or the Borrower as the Bank or the Borrower shall reasonably request relating to the foregoing and to the adminis- tration, operations and financial condition of the Sub-borrower; - 17 - (vii) authorize the Borrower to suspend or terminate the right of the Sub-borrower to the use of the proceeds of the Loan upon failure by such Sub-borrower to perform its obligations under its Sub-loan agreement; (viii) require the Sub-borrower to furnish the Borrower as soon as available but in any case no later than April 30 in each year, copies of its provisional financial statements to be prepared in accordance with appropriate accounting principles consistently applied, and to be in such detail as the Borrower shall have reasonably requested; (ix) require the Sub-borrower to furnish the Borrower as soon as available copies of its certified financial statements; (x) require that the Sub-borrower shall not, except with the permission of the Borrower, make expenditures or commitments for expenditures for capital additions in any year prior to completion of the Investment Project exceeding $5,000,000 equivalent per annum except for expenditures or commitments for expenditures required to carry out the Investment Project and those required for normal maintenance; for purposes of this paragraph "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 other tangible fixed assets and investments in, or loans to, other entities; (xi) require that the Sub-borrower shall not make distribu- tions in respect of its capital except out of its accumulated adjusted net earnings and subject to the requirements under the financing plan referred to in paragraph (ii) hereof and those set forth in paragraph 2 (x) of this Schedule; and (xii) conduct its operations and affairs in accordance with sound engineering, industrial, financial and administrative practices with qualified management and inter alia delegate sufficient authority and responsibilities from its Board of Directors to *its General Director and, as appropriate, to its plant managers to enable such person or persons to efficiently conduct the day-to-day operations of the Sub-borrower and its operating units. 2. In addition, each Sub-loan agreement shall require that the Sub-borrower shall: - 18 - (i) curtail the hiring of new staff for existing operations except for highly qualified engineers, technologists and financial experts and by December 31, 1982, develop in accordance with sound management principles a plan for the rationalization of its staff, both at its factories and its head offices; (ii) by September 30, 1982, review its compensation, selec- tion and promotion policies for technical and management staff and suitably adjust its salary structure and its selection and promo- tion policies, in accordance with applicable laws, as required to attract and to retain qualified and experienced technical and management staff; (iii) by December 31, 1982 complete a study, with the assist- ance of qualified and experienced consultants acceptable to the Borrower, to design an incentive system for promoting efficiency in its plants, and to introduce such system upon completion of the study after affording the Borrower a reasonable opportunity to comment thereon; (iv) develop and thereafter carry out with the assistance of qualified and experienced management consultants acceptable to the Borrower, a comprehensive program for training its technical and managerial staff at all levels at its plants and head offices; the details of such program shall be communicated to the Borrower by September 30, 1982, foT its review; (v) furnish by September 30, 1981 to the Borrower for its review a staffing plan for the departments responsible for the construction and commissioning of the Investment Project, adequate to meet the projected workload; and the Sub-borrower shall intro- duce appropriate control systems for cost and time management of the Investment Project; (vi) furnish by September 30, 1981 to the Borrower for its review a detailed implementation plan for the Investment Project; and the Sub-borrower shall thereafter submit to the Borrower quarterly reports on the progress made in the construction of plant and the installation of equipment, and on the financial expenditures incurred, under the Investment Project; (vii) by September 30, 1982 prepare, with the assistance of qualified and experienced consultants acceptable to the Borrower, an appropriate system of cost accounting and budgetary control, including a system for setting standard costs, targets for output, - 19 - quality, raw material and auxiliary material usage and labor utilization for each plant and introduce such system after con- sultation with the Borrower and maintain it thereafter; (viii) by September 30, 1982 prepare, with the assistance of qualified and experienced consultants acceptable to the Borrower, and furnish to the Borrower, an action program to improve its production management, plant safety and preventive maintenance practices, such program to be carried out after consultation with the Borrower; (ix) operate its plants in accordance with the Guarantor's environmental laws and regulations; (x) reduce by December 31, 1982 its long-term debt-equity ratio to below 60:40 and attain a current ratio above 1:1 and shall thereafter so maintain such ratios at all times; for this purpose "long-term debt" means any debt maturing more than one year after the date on which it is originally incurred; and (xi) employ, as deemed necessary by the Borrower, engineering consultants whose qualifications, experience and terms and condi- tions of employment shall be satisfactory to the Borrower, to assist the Sub-borrowers in constructing and commissioning of new facilities and equipment included in the Project and training staff of the Sub-borrowers in the operation thereof. 3. In addition, the Sub-loan agreement with TSF shall require TSF to employ consultants whose qualifications, experience and terms and conditions are satisfactory to the Borrower, to assist TSF in strengthening its technical extension staff and services to upgrade agronomic practices of farmers supplying beet to its factories. - 20 - SCHEDULE 4 Procurement A. International Competitive Bidding 1. Except as provided 'n Part C hereof, goods and civil works 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 international competitive bidding as described in Part A of the Guidelines. 2. For goods and works to be procured on the basis of inter- national competitive bidding, and in addition to the requirements of paragraph 1.2 of the Guidelines, the Sub-borrowers shall prepare and forward to the Bank, with a copy to the Borrower, 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 oppor- tunity to bid for the goods and works in question. The Sub- Borrowers shall provide the Bank, with copies to the Borrower, the necessary information to update such notice annually so long as any goods or works remain to be procured on the basis of interna- tional competitive bidding. 3. 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. 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 - 21 - 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 establi3h 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 Turkey if the bidder shall have established to the satisfaction of the Sub-Borrower and the Bank that the manufacturing cost of such goods includes a value added in Turkey equal to at least 20% of the ex-factory bid price of such goods. (2) Group B: all other domestic bids. (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 a:mount equal to: (i) the amount of customs duties and other import taxes which a non-exempt importer would 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 - 22 - which as a result of the comparison under paragraph 3 is the lowest evaluated bid shall be selected. C. Other Procurement Procedures 1. Contracts estimated to cost not more than $1,000,000 may be awarded through limited international tendering on the basis of not less than three quotations from member countries of the Bank, Switzerland and Taiwan. 2. Equipment and spare parts may be purchased without bidding or shopping if the Bank has concurred that such purchase is justified by the need for compatibility of such equipment or spare parts with equipment in operation. D. Review of Procurement Decisions by the Bank 1. Review of prequalification. The Sub-borrowers shall, before qualification is invited, inform the Bank, with a copy to the Borrower, in detail of the procedure to be followed, and shall introduce such modifications in said procedure as the Bank shall reasonably request. The list of prequalified bidders, together with a statement of their qualifications and of the reasons for the exclusion of any applicant for prequalification shall be furnished by the Sub-borrowers to the Bank for its comments, with a copy to the Borrower, before the applicants are notified of the Sub-borrowers' decision, and the Sub-borrowers shall make such additions to, deletions from, or modifications in, the said list as the Bank'shall reasonably request. 2. Review of invitations to bid and of proposed awards and final contracts: With respect to all contracts estimated to cost more than the equivalent of $1,000,000: (a) Before bids are invited, the Sub-borrowers shall furnish to the Bank, for its comments, with a copy to the Borrower, 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 bidding, 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. - 23 - (b) After bids have been received and evaluated, the Sub- borrowers shall, before a final decision on the award is made, inform the Bank, with a copy to the Borrower, of the name of the bidder to which it intends to award the contract and shall furnish to the Bank, with a copy to the Borrower, in sufficient time for the Bank's review, a detailed report on the evaluation and com- parison of the bids received, and such other information as the Bank shall reasonably request. The Bank shall, if it determines that the intended award would be inconsistent with the Guidelines or this Schedule, promptly inform the Sub-borrower and the Bor- rower 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 sub- mission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract. 3. With respect to each contract not governed by the preceding paragraph, the Sub-borrowers shall furnish to the Bank, with a copy to the Borrower, promptly after its execution and prior to the submission to the Bank of the first application for withdrawal of funds from the Loan Account in respect of such contract, two conformed copies of such contract, together with the analysis of the respective bids, recommendations 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 the Sub- borrower and the Borrower and state the reasons for such determi- nation. 4. Before agreeing to any material modification or waiver of the terms and conditions of a contract, or granting an extension 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, the Sub-borrowers shall inform the Bank, with a copy to the Borrower, 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 the Sub-borrower and the Borrower 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 AAL day of L, 198 . FOR SECRETARY