Zambia - Coffee Production Project : Credit 0863 - Project Agreement - Conformed

CONFORMED COPY CREDIT NUMBER 863 ZA Project Agreement (Coffee Production Project) between INTERNATIONAL DEVELOPMENT ASSOCIATION and RUCOM INDUSTRIES LTD. Dated January 26, 1979 CREDIT NUMBER 863 ZA PROJECT AGREEMENT AGREEMENT, dated January 26, 1979, between INTERNATIONAL DEVELOPMENT ASSOCIATION (hereinafter called the Association) and RUCOM INDUSTRIES LTD. (hereinafter called RUCOM). WHEREAS by the Development Credit Agreement of even date herewith between Republic of Zambia (hereinafter called the Borrower) and the Association, the Association has agreed to make available to the Borrower an amount in various currencies equiva- lent to six million dollars ($6,000,000), on the terms and condi- tions set forth in the Development Credit Agreement, but only on condition that RUCOM agree to undertake such obligations toward the Association as are hereinafter set forth; WHEREAS by a subsidiary loan agreement to be entered into between the Borrower and RUCOM, part of the proceeds of the credit provided for under the Development Credit Agreement will be made available to RUCOM on the terms and conditions therein set forth; and WHEREAS RUCOM, in consideration of the Association's entering into the Development Credit 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 Development Credit Agreement and in the General Conditions (as so defined) have the respective meanings therein set forth and the term "subsidiary" means any company of which a majority of the outstanding voting stock or other proprietary interest is owned or effectively controlled by RUCOM or by any one or more subsidiaries of RUCOM or by RUCOM and one or more of its sub- sidiaries. -2- ARTICLE II Execution of the Project Section 2.01. RUCOM shall carry out Part A of the Project described in Schedule 2 to the Development Credit Agreement with due diligence and efficiency and in conformity with appro- priate administrative, financial, economic, agricultural and engineering practices. Section 2.02. RUCOM shall: (a) employ, or make other arrangements satisfactory to the Association to secure the services of, a Plantation Manager and an Engineering Manager whose qualifications, experience and terms and conditions of employment shall be satisfactory to the Association to assist in carrying out Part A of the Project; (b) employ agricultural consultants whose qualifications, experience and terms and conditions of employment shall be satis- factory to the Association to assist in monitoring and evaluating the execution of Part A of the Project; and (c) by June 30, 1979, employ qualified counterparts to the Plantation Manager and the Engineering Manager referred to in paragraph (a) of this Section. Section 2.03. Except as the Association shall otherwise agree, procurement of the goods and civil works to be financed out of the proceeds of the Credit shall be governed by the provisions of Schedule 3 to the Development Credit Agreement. Section 2.04. (a) RUCOM undertakes to insure, or make ade- quate provision for the insurance of, the imported goods to be financed out of the proceeds of the Credit relent to it by the Borrower against hazards incident to the acquisition, transporta- tion and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable by RUCOM to replace or repair such goods. (b) Except as the Association may otherwise agree, RUCOM shall cause all goods and services financed out of the proceeds of the Credit relent to it by the Borrower to be used exclusively for Part A of the Project. -3- Section 2.05. (a) RUCOM shall furnish to the Association, promptly upon their preparation, the plans, specifications, reports, contract documents and construction, work and procurement schedules for Part A of the Project, and any material modi- fications thereof or additions thereto, in such detail as the Association shall reasonably request. (b) RUCOM: (i) shall maintain records and procedures adequate to record and monitor the progress of Part A 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 Credit relent to it by the Borrower, and to disclose their use in said Part of the Project; (ii) shall, without limitation upon its obligations pursuant to paragraph (d) of this Section, enable the Association's accredited representa- tives to visit the facilities and construction sites included in said Part of the Project and to examine the goods financed out of such proceeds and any relevant records and documents; and (iii) shall furnish to the Association at regular intervals all such information as the Association shall reasonably request concerning said Part of the Project, its cost and, where appropriate, the benefits to be derived from it, the expenditures of such proceeds and the goods and services financed out of such proceeds, includ- ing, without limitation to the foregoing, quarterly progress reports on the execution of said Part of the Project. (c) Promptly after completion of Part A 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 RUCOM and the Association, RUCOM shall prepare and furnish to the Association a report, of such scope and in such detail as the Association shall reasonably request, on the execution and initial operation of said Part of the Project, its cost and the benefits derived and to be derived from it, the performance by RUCOM and the Association of their respective obligations under the Project Agreement and the accomplishment of the purposes of the Credit in respect of said Part of the Project. (d) RUCOM shall enable the Association's representatives to examine all plants, installations, sites, works, buildings, property and equipment of RUCOM and any relevant records and documents. Section 2.06. RUCOM shall duly perform all its obligations under the Subsidiary Loan Agreement. Except as the Association shall otherwise agree, RUCOM shall not take or concur in any action which would have the effect of amend..,g, abrogating, assigning or waiving the Subsidiary Loan Agreement or any provi- sion thereof. Section 2.07. (a) RUCOM shall, at the request of the Associ- ation, exchange views with the Association with regard to the progress of Part A of the Project, the performance of its obligations under this Agreement and under the Subsidiary Loan Agreement, and other matters relating to the purposes of the Credit. (b) RUCOM shall promptly inform the Association of any condition which interferes or threatens to interfere with the progress of Part A of the Project, the accomplishment of the purposes of the Credit, or the performance by RUCOM of its obligations under this Agreement and under the Subsidiary Loan Agreement. Section 2.08. RUCOM shall install and maintain a water recirculation system for the coffee pulpery at Kateshi in order to minimize the volume of effluents and shall take all action neces- sary to ensure that no effluents from said pulpery are returned to the Lukupa river. ARTICLE III Management and Operations of RUCOM Section 3.01. (a) RUCOM shall at all times carry on its operations, manage its affairs, plan the future development of its business and maintain its financial position in accordance with appropriate agricultural, commercial, economic, financial and administrative practices, and under an experienced and qualified management assisted by competent staff in adequate numbers. (b) Without limitation to the generality of paragraph (a) of this Section, RUCOM shall operate and maintain the coffee plantings, equipment and facilities at the Kateshi and Ngoli Estates, as well as its coffee processing facilities, and make all necessary renewals and repairs thereof in accordance with appro- priate agricultural and management practices. - 5 - Section 3.02. RUCOM shall take out and maintain with respon- sible insurers, or make other provisions satisfactory to the Association for, insurance against such risks and in such amounts as shall be consistent with appropriate practice. Section 3.03. RUCOM shall at all times take all steps neces- sary to maintain its corporate existence and the right to carry on its operations, including Part A of the Project, and shall take all steps necessary to acquire and to retain such land, interests in land and properties, and to acquire, maintain and renew such licenses, consents, franchises or other rights as may be neces- sary or useful for the execution and operation of the facilities constructed or established under said Part of the Project and the conduct of its business. Se:-ion 3.04. (a) Before RUCOM shall take any action to establish or acquire any subsidiary, RUCOM shall satisfy the Association that such action would not affect materially and adversely the operations and financial position of RUCOM. (b) RUCOM shall cause any subsidiary to observe and perform the obligations of RUCOM under this Agreement to the extent to which such obligations shall or can be applicable thereto, as though such obligations were binding upon such subsidiary. Section 3.05. Except as the Association may otherwise agree, RUCOM shall not sell, lease, transfer or otherwise dispose of any of its property and assets relating to its coffee production and processing operations except in the ordinary course of business. ARTICLE IV Financial Covenants Section 4.01. (a) RUCOM shall maintain records adequate to reflect in accordance with consistently maintained appropriate accounting practices its operations and financial condition, including, without limitation to the foregoing, separate accounts reflecting all expenditures for Part A of the Project and the operations of RUCOM relating to the production, processing and marketing of coffee. Such separate accounts shall be of such scope and detail as the Association shall have reasonably requested and shall include separate yearly balance sheets and statements of income and expenditures regarding RUCOM's coffee operations. - 6 - (b) RUCOM shall retain, until one year after the Closing Date, all records (orders, invoices, bills, re-aipts and other documents) evidencing the expenditures for Part A of the Project on account of which withdrawals are requested from the Credit Account on the basis of certificates of expenditure, and shall enable the Association's accredited representatives to examine such records. Section 4.02. RUCOM shall: (i) have its accounts and finan- cial statements (balance sheets, statements of income and expenses and related statements) for each fiscal year audited, in accor- dance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than six months after the end of each such fiscal 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 Association shall have reasonably requested, including, without limitation to the fore- going, a separate opinion by said auditors in respect of the expenditures and records referred to in Section 4.01 (b) of this Agreement as to whether the proceeds of the Credit made available to RUCOM and withdrawn from the Credit Account on the basis of certificates of expenditure have been used for the purpose for which they were provided; and (iii) furnish to the Association such other information concerning the accounts and financial statements of RUCOM and the audit thereof as the Association shall from time to time reasonably request. Section 4.03. In order to strengthen its financial condition and performtnce, RUCOM shall: (a) by May 31, 1979, prepare a plan satisfatory to the Association for the restructuring of its current operations and the improvement of the financial results thereof, including an indicative timetable for the carrying out of such plan; and (b) thereafter carry out such plan in accordance with such timetable. Section 4.04. (a) Except as the Association shall otherwise agree, RUCOM shall not incur or permit any subsidiary to incur any debt if, after the incurring of such debt, the consolidated debt of RUCOM and all its subsidiaries then incurred and outstanding would be greater than three times the consolidated capital and surplus of RUCOM and all its subsidiaries. - 7 - (b) For the purposes of this Section: (i) The term "debt" means any debt maturing more than one year after the date on which it is originally incurred, including debt assumed or guaranteed by RUCOM or any subsidiary. (ii) Whenever reference is made in this Section to the incurring of debt, such reference shall include any modification of the terms of payment of such debt. Debt shall be deemed to be incurred: (A) under a loan contract or agreement on the date and to the extent the loan is drawn down pursuant to such loan contract or agreement; and (B) under a guarantee agreement, on the date the agreement providing for such guarantee has been entered into but only to the extent the guaranteed debt is outstanding. (iii) Whenever in connection with this Section it shall be necessary to value in terms of Kwacha debt payable in foreign currency, such valuation shall be made at the prevailing lawful rate of exchange at which such foreign currency is, at the time of such valuation, obtainable by RUCOM for the purposes of servicing such debt, or if such rate is not available at a rate acceptable to the Association. (iv) The term "consolidated debt of RUCOM and all its subsidiaries" means the total amount of debt of RUCOM and its subsidiaries, excluding any debt owed by RUCOM to any subsidiary or by any subsidiary to RUCOM or to any other subsidiary. (v) The term "consolidated capital and surplus of RUCOM and all its subsidiaries" means the aggregate of the unimpaired paid-in capital, surplus and free reserves of RUCOM and its subsidiaries, after excluding therefrom such amounts as shall represent equity interests of RUCOM in any subsidiary, or of any such subsidiary in RUCOM or in any other subsidiary. Section 4.05. (a) Until completion of the Project and except as the Association may otherwise agree, RUCOM shall take all -8- action necessary to maintain the level of its current assets at all times at or above the level of its current liabilities. (b) For the purposes of this Section: (i) The term "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 cost or current market prices, whichever is lower. (ii) The term "current liabilities" means all obliga- tions of RUCOM due on demand or within one year or whose liquidation is reasonably expected to require the use of existing resources classified as current assets. Obligations shall include but not be limited to accrued taxes on, or measured by, income and current maturities of long-term debt. 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 Development Credit Agreement becomes effective. Section 5.02. (a) This Agreement and all obligations of the Association and of RUCOM thereunder shall terminate on the earlier of the following two dates: (i) the date on which the Development Credit Agreement shall terminate in accordance with its terms; or (ii) a date twenty years after the date of this Agree- ment. (b) If the Development Credit Agreement terminates in accordance with its terms before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly notify RUCOM of this event. -9- Section 5.03. All the provisions of this Agreement shall continue in full force and effect notwithstanding any cancellation or suspension under the General Conditions. ARTICLE VI Miscellaneous Provisions Section 6.01. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address 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 Association: International Development Association 1818 H Street, N.W. Washington, D.C. 20433 United States of America Cable address: Telex: INDEVAS 440098 (ITT) Washington, D.C. 248423 (RCA) or 64145 (WUI) For RUCOM: Longolongo Road P.O. Box 800 Lusaka, Zambia Cable address: Telex: RUCOMIN ZA 41821 Lusaka, Zambia FOR RUCOM - 10 - 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 RUCOM may be taken or executed by the General Manager of RUCOM or such other person or persons as RUCOM's Board of Directors shall authorize, and the General Manager shall furnish to the Association 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 DEVELOPMENT ASSOCIATION By /s/ Hans A. Adler Acting Regional Vice President Eastern Africa RUCOM INDUSTRIES LTD. By Is! Putteho M. Ngonda Authorized Representative