SUBSCRIPTION AGREEMENT
THIS AGREEMENT made at Mumbai on this the ??..day of ??.. two thousand one between, ABC Power Corporation Ltd. a company registered under the Companies Act, 1956 and having its registered office at Mumbai in the State of Maharashtra (hereinafter referred to as "the Company", which expression shall, unless it be repugnant to the subject or context thereof, include its successors and assigns);
AND
THE XYZ FINANCE COMPANY LTD., a company incorporated under the Companies Act, 1956 and having its registered office at ??..Mumbai 400001 (hereinafter referred to as "Subscriber", which expression shall include its successors and assigns as the subject or context may require).
Capitalised terms used herein shall have the meanings assigned in Schedule II hereto.
ARTICLE 1: ISSUE OF NCDs
The Company shall issue 54,00,000 Secured Redeemable Non-Convertible Debentures (hereinafter called NCDs) of the face value of Rs. 100 each aggregating to Rs. 54.00 Crores (Rupees fifty-four crores only) to the Subscriber.
The proceeds of the issue of the said NCDs shall be utilised for implementing the Project as defined in Schedule II. In case the Company fails, for any reason, to utilise the proceeds of the issue for the said purpose or utilises the same for any purpose other than the approved Scheme, the Subscriber would be entitled to rescind/avoid the contract on that ground and to call back the money, if any, paid towards subscription of the said NCDs.
ARTICLE II : AGREEMENT AND TERMS OF SUBSCRIPTION
2.1 Amount and terms of subscription
The Subscriber agrees to subscribe to and the Company agrees to allot to the Subscriber on the terms and conditions contained herein, 54,00,000 NCDs of Rs. 100 each aggregating Rs. 54.00 crores on private placement basis as set out against their name in Schedule I hereto.
2.2 Issue of Debenture Certificates
The Company shall issue the debenture certificates in such manner and form as will be required by the Subscriber. The Company shall amend its Articles of Association for such purpose where necessary.
2.3 Front-end fee
The Company shall pay front-end fee at the rate of 1%, plus interest tax, upfront, on the agreed amount of Subscription, i.e. on Rs. 54.00 crores.
2.4 Rate of interest/Coupon rate
The NCDs shall carry interest on the principal amount of NCDs outstanding from time to time at the prime lending rate ("PLR") of the Subscriber plus 3.5% per annum plus interest tax as prevailing on the date of each subscription, payable quarterly or at such oftler higher rate as may be applicable in terms of section 2.5 below. The first instalment of interest shall accrue for the broken period from the date of subscription upto the date immediately following 15th June and 15th December as the case may be and subsequently be payable on the said dates 15th March, 15th June, 15th September and 15th December. The interest for the broken period shall be payable together with the last instalment of the redemption of the said NCDs.
The applicable rate of interest would be fixed at the end of the total Subscription (for NCDs of Rs. 54.00 Crores) period on the basis of the weighted average of the interest rates at which the subscriptions were made.
In the event of any default in the payment of interest on the NCDs on the dates as stated above, compound interest at half-yearly rests at the said rates will become due and payable for the moneys due for the period of default.
2.5 Review of rate of interest
Subscriber would have the right to reset the rate of interest at the end of seven years from the date of first disbursement provided that the company will have the right to redeem the NCDs if the reset is adverse to the Company.
2.6 Further interest
All interest which shall become due during the currency of the NCDs or any part thereof and for the time being remaining unpaid and all other moneys which have become payable by Company to Subscriber, in case the same be not paid on the dates on which they accrue due, carry further interest at the maximum lending rate of the Subscriber (top of the Interest Rate Band), as applicable on the date of default or at the applicable rate under the Subscription agreement, whichever is higher, computed from the respective date(s) of such interest of moneys accruing due and all such interest and further interest which have become payable but not paid, shall become payable upon the footing of compound interest with rests taken or made quarterly as herein before provided.
2.7 Liquidated damages
An additional charge of 2% per annum plus interest tax by way of Liquidated Damages will be levied for defaults in the payment of interest, redemption of NCDs and other moneys payable to the Subscriber. The arrears of Liquidated damages shall carry interest at the maximum lending rate of the Subscriber (i.e., top of the interest rate band) or at the applicable under the Subscription Agreement, which ever is higher.
2.8 Repayment Schedule
The NCDs shall be redeemed in 34 quarterly equal instalments, commencing from 15th December, 2001. Such instalments shall be payable quarterly, each year, on 15th day of December, March, June and September.
2.9 Validity period
The validity period of the commitment to subscribe NCDs by the Subscriber will be upto February 15, 2003, unless extended by a letter in writing addressed by the Subscriber to the Company.
2.10 Additional Interest
Disbursements made pending creation of final security as stipulated in Article VII hereof, in case of non-creation of final security within 3 months from the date of first disbursement, shall carry further interest at the rate of 1% plus interest tax from the date of first disbursement till creation of such security.
ARTICLE III: COMPANY'S WARRANTIES
3.1 Except to the extent already disclosed in writing to the Lead Institution, the Company shall be deemed to have assured, confirmed and undertaken as follows:
(a) Information.-That the information furnished by the Company in its application to the Subscriber for sanction of Subscription as also that furnished from time to time is true and correct and is not misleading in any respect.
(b) Due payment of public and other demands.-The Company is not in arrears on any public demands such as income-tax, corporation tax and all other taxes and revenues or any other statutory dues payable to the Central or State Government(s) or any local or other authority except which have been disputed and/or contested by the Borrower or taken up by way of appeal/review/revision, etc. with the appropriate authority unless the Company has made provision for adequate reserves in respect of such demands.
(c) Selling and purchasing arrangements. -The Company has entered into requisite selling and purchasing arrangements to the satisfaction of the Lead Institution.
(d) Management agreement.-The terms and conditions of appointment of Managing Director or any other person holding substantial powers of management by whatever name called shall be subject to the approval of the Lead Institution.
(e) Conflict with Memorandum and Articles of Association.-Nothing in the Subscription Agreement conflicts with the Memorandum and Articles Association of the Company.
(f) Import licence.-The Company or its contractors have obtained import licence(s) (if required) with list of equipment/necessary information about eligibility, scope and validity of imports under Open General Licence for equipment to be imported for the project. The Company further undertakes to obtain information regarding changes in import policy, eligibility and scope of import and shall advise the Subscriber in this regard from time to time.
3.2 The Company has full power, capacity and authority to execute, deliver and perform this Agreement and has taken necessary action (corporate, statutory or otherwise) to allot the NCDs on private placement basis to the Subscriber on the terms and conditions contained in this Agreement and to authorise execution, delivery and performance of this Agreement
3.3 The Company shall revise the terms and conditions relating to the monetary benefits available to the Subscriber in the event of the Central Government announcing, in future, any modification/amendment/restriction in the guidelines for the purpose of Issue of Debentures by Public Limited Companies.
ARTICLE IV: PRE-SUBSCRIPTION CONDITIONS
4. Conditions precedent to subscription
4.1 The obligations of the Subscriber to subscribe to the NCDs shall be subject to the Company performing all its obligations and undertaking to observe the subscription procedure stipulated by the Subscriber such as submission of necessary information, documents, etc., to the satisfaction of the Subscriber as also compliance with the following conditions:
(a) Recovering calls in arrears.-The Company shall make arrangement for recovering calls in arrears of its shareholding in a time bound manner and to the said effect it shall furnish an undertaking to the Subscriber in such form and manner as may be prescribed by the Lead Institution.
(b) Legal and Other charges.-All legal/other charges, costs and/or other expenses incurred by the Subscriber relating to the NCDs shall be borne/paid by the Company.
(c) Pre-commitment Conditions.- Before the Subscription to NCD becomes effective, the Company shall to the satisfaction of the Lead Institution comply with the following conditions:
(i) obtain in-principle sanction from MSEB's banker(s) for opening of irrevocable and revolving letter of credit for prompt payment of dues by MSEB.
(ii) enter into an escrow account arrangement with MSEB to cover payment of electricity dues from MSEB.
(iii) amend the Operations & Maintenance (O&M) agreement so as to provide for guarantee on heat rate, liquidated damages for increase in heat rate or decrease in availability of plant.
(iv) furnish an undertaking from Promoters i.e., Santex Constructions Limited (SCL), Santex Industries Limited (SIL), Santex Investment Limited (SIL) UVW Power Generation Limited to the effect that cost overrun, if any, shall be made good by Promoters without recourse to Fl?s/Banks and in a manner satisfactory to the Subscriber.
(v) arrange for ECA loans to the extent of US$ 80 million from ADB on terms satisfactory to the Subscriber. In the event of any savings compared to provisions in the project cost on account of lower insurance cover charges, management fee on deferred payment guarantee, etc. the Rupee Loan shall be reduced to that extent.
(vi) furnish an undertaking from Promoters to bridge the gap, if any, in raising equity capital by way of private placement with CDC (Rs. 100 crores).
(vii) tie-up entire means of financing on the terms satisfactory to the Subscriber.
(viii) obtain all necessary approvals from the Government of India (FIPB)/Reserve Bank of India, etc. for the proposed foreign equity investment in the equity share capital of the Company.
(ix) appoint, in consultation with the Subscriber, a reputed firm of Engineering Consultants during the implementation period as well as during operation period with direct reporting to the Subscriber, all costs and expenses in this regard will be borne by the Company.
(x) undertake to comply with all the statutory requirements for preferential allotment of SCL's shares to NRI's/OCB's.
(xi) get amended all approvals obtained earlier in the name of Santex Power to the name of the Company.
(xii) get amended the Government of Maharashtra Guarantee to the effect that it continues to be valid irrespective of Maharashtra Government's shareholding in MSEB.
(xiii) amend the Shareholders Agreement (SA) to provide for?
- disinvestment/dilution of shareholding Santex Group and UVW Power Generation Limited/WEB Energy Limited shall be in consultation with and prior approval of the Subscriber.
- SA shall not be terminated without the prior approval of the Subscriber.
(xiv) finalise the insurance package including Advance Loss of Profit to the satisfaction of the Subscriber.
(xv) appoint insurance Advisor and Legal Advisor to Lenders. The necessary fees and other expenses for the same shall be borne by the Company.
(xvi) The Project agreements/contracts shall be to the satisfaction of the Lender.
(xvii) Modify the Memorandum & Articles of Association of the Borrower to enhance the borrowing powers as per the envisaged means of financing.
(xviii) Ensure that the promoters shall meet the liquidated damages payable to the APSEB from their own resources without recourse to the Lender.
(xix) Ensure that the envisaged promoters contribution is subscribed to in full and paid up in cash to the extent of 100% in respect of Santex Group aggregating Rs.212.00 crores.
(xx) Obtain MSEB approval for extension of the date of financial closure as per PPA.
(xxi) Obtain all statutory/non-statutory clearances and approvals required for the project including Pollution Control/Environ mental Clearance and ensure that the equipment proposed to be installed is adequate and appropriate to the Pollution Control requirement.
4.2 Before seeking Subscription of the NCDs by the Subscriber, the Company shall to the satisfaction of the Subscriber comply with the following conditions:
(i) modify the Memorandum and Articles of Association to enhance the authorised capital and borrowing powers as per the envisaged means of financing.
(ii) bring in 50% of the proposed equity contribution of UVW Power Generation Limited/MNC Energy Limited, and CDC aggregating Rs ........Crores i.e ........Crores.
(iii) shall agree to open a Trust and Retention Account in a bank and shall deposit all the cash inflows in the said account and the proceeds shall be utilised in a manner and priority to the satisfaction of the Subscriber.
(iv) acquire and obtain possession of the entire land with provision for mortgage of land in favour of institutions and obtain all necessary approvals for usage of the land for the purpose of the power plant.
(v) constitute a Project Management Committee of its Directors for the purpose of supervising and monitoring the progress in the implementation of the project. The Committee shall be responsible for the management of the project during construction period including civil tendering, placement of orders for supply of plant and machinery and other assets and monitoring the implementation of the Project.
(vi) agree and undertake to furnish to the Subscriber such information and data as might be required by the Subscriber to ensure that the physical progress as well as expenditure incurred on the Project are as per the schedule.
(vii) agree that the Subscriber shall have the right to review the cost of the Project any time during the implementation of the Project as also before the final disbursement of the loan amount. Pending completion of the review, the Company shall obtain prior approval of the Subscriber for utilising the amount of the loans equivalent to the contingency provision in the cost of Project.
(viii) agree that the Subscriber shall be entitled to appoint one or more nominee(s) on the Board of Directors of the Company during the currency of financial assistance.
4.3 Other conditions
The Company shall
(i) constitute an audit sub-committee of its Directors (other than the Directors representing the Promoters) for monitoring/guidance.
(ii) arrange for carrying out safety/audit in connection with storage, handling and transportation of petroleum products and shall comply with the recommendations set out in the audit report.
(iii) make satisfactory arrangement with its bankers for meeting its working capital requirements and shall furnish a letter from its bankers in this regard.
(iv) agree that the Subscriber may at its discretion withhold disbursement of the amount of the NCDs equivalent to the provision against margin money for working capital in the cost of the Project till such time as the Project is completed or the build up of working capital commences.
(v) shall not undertake any new project or expansion of the existing projects or make any investment or take assets on lease without prior approval of the Subscriber during the currency of the NCDs from the Subscriber.
(vi) The Subscriber shall have the right to review and reset the rate of interest (including the spread on LIBOR) after seven years from the date of first disbursement, provided that the Borrower shall have the right to prepay the NCDs without any penalty or premium if the rate of interest is adversely reset after seven years from the date of first disbursement.
(vii) broadbase its Board of Directors by induction of experienced outside professionals to the satisfaction of the Subscriber.
(viii) obtain all other statutory and non-statutory clearances for the Project.
(ix) shall ensure the release of funds from K-EXIM in line with the disbursement of foreign currency loans from the Financial Institutions/Banks.
(x) all other terms and conditions stipulated by other financial institution and banks over and above the conditions stipulated herein shall apply mutatis mutandis for the assistance sanctioned by the Lender (XYZ Finance Company Ltd.).
ARTICLE V: CONDITIONS APPLICABLE DURING CURRENCY OF THIS AGREEMENT
5.1 Project
The Company shall
(i) Project Implementation.-Carry out and operate the Project with due diligence and efficiency and in accordance with sound engineering, technical, administrative, financial and managerial and industrial standards and business practices with qualified and experienced management and personnel in accordance with the Financing Plan and cause the financing specified in the Financing Plan to be applied exclusively to the Project.
(ii) Project Changes.-Promptly notify the Subscriber of any proposed changes in the nature or scope of the Project and of any event or condition which might materially and adversely affect or delay completion of the Project or result in subscribing to overrun in the original estimate of costs. Any proposed change in the nature or scope of the project shall not be implemented or funds committed thereof without the prior approval of the Lead Institution.
(iii) Contract changes.-Obtain prior concurrence of the Subscriber to any material modification or cancellation of the Company's agreements with its contractors, machinery suppliers, collaborators and technical consultants and suppliers of raw materials.
(iv) Delay in Completing the Project.-Promptly inform the Subscriber of the circumstances and conditions which are likely to disable the Company from implementing the Project or which are likely to delay its completion or compel the Company to abandon the same.
5.2 Utillisation of subscription amount
The Company shall
(i) use the Subscription amount solely for the purpose of which it has subscribed to be used i.e., exclusively in the carrying out of the Project.
(ii) furnish to the Subscriber at the end of each quarter a statement showing the manner in which the said monies have been utilised.
(iii) Trust and Retention Agreement?
(a) keep the Subscription amount in special account in the name of the Company in accordance with the Trust and Retention Agreement; and
(b) not transfer the subscription amount or any portion thereof from the said special account for being kept in call or in deposit except for investment in Authorised Investments without obtaining the prior approval of the Subscriber,
5.3 General covenants
(A) Without the prior approval of the Subscriber the Company shall not:
(i) New Project.-Undertake any new project, diversification, modernization or substantial expansion of the Project described herein, The word "substantial" shall have the same meaning as under The Industries (Development and Regulation) Act, 1951.
(ii) Loans and Debentures.-Except as provided for in the Financing Plan annexed to this Agreement, issue any debentures, raise any loans, accept deposits from public, issue equity or preference capital, change its capital structure or create any charge on its assets or give any guarantees. This provision shall not apply to normal trade guarantees or temporary loans and advances granted to staff or contractors or suppliers in the ordinary course of business or to raising of unsecured loans, overdrafts, cash credit or other facilities from Banks in the ordinary course of business.
(iii) Premature Repayment.-Prepay any loan availed of by it from any other party, unless a proportionate repayment is offered to the Subscriber, with prepayment premium as may be determined by the Subscriber.
(iv) Commission.-Except as provided for in the Financing Plan annexed to this Agreement, pay any commission to its Promoters, directors, managers or other persons for furnishing guarantees, counter guarantees or indemnities or for undertaking any other liability in connection with any other obligation undertaken for or by the Company for the purpose of the Project.
(v) Dividend.-Declare or pay any dividend to its shareholders during any financial year unless it has paid all the dues to the Subscriber up to the date on which the dividend is proposed to be declared or paid or has made satisfactory provisions therefore, provided that approval of the Subscriber shall not be necessary if:
(a) the ADSCR is equal to or greater than 1:4;
(b) the Required Balances in the Debt Service Reserve Account and the Current Debt Service Reserve (as defined in the Trust and Retention Agreement) are maintained; and
(c) no Event of Default or potential Event of Default is then in existence (or would be in existence after such dividend payment).
For the purposes of this clause,
"ADSCR" or "Average Debt Service Coverage Ratio" shall mean the ratio of (i) below to (ii) for the twenty-four month period comprising the twelve months ending on the Calculation Date and the twelve months immediately following the Calculation Date:
(i) the aggregate of profit after tax; plus aggregate fees and interest charges; plus non-cash items, if any debited from the Borrower's Profit & Loss Account; minus non-cash items, if any credited from the Borrower's Profit & Loss Account; plus the balances standing to the credit of Borrower's bank accounts and the Overhaul and Reserve Accounts; plus the principal amount of the Authorised Investments made by the Borrower;
(ii) the aggregate of the financing costs, which among others, include the installments of principal paid during the twelve month period ending on the Calculation Date; plus projected over the twelve month period immediately after the Calculation Date.
"Calculation Date" means the four quarterly debt repayment dates.
"Overhaul Costs" means those costs projected to be incurred during scheduled major overhaul outages and excluding costs to be incurred for routine annual overhaul and more frequent maintenance outages as envisaged in the Trust and Retention Agreement.
"Overhaul Reserve Account" means the account so named and established and maintained by the Borrower to accumulate the amount projected to be required to fund Overhaul Costs for the ensuing twelve months as envisaged in the Trust and Retention Agreement.
(vi) Subsidiaries.-Create any subsidiary or permit any company to become its subsidiary.
(vii) Merger, Consolidation, etc..-Undertake or permit any merger, consolidation, reorganisation, scheme or arrangement or compromise with its creditors or shareholders or effect any scheme of amalgamation or reconstruction.
(viii) Investments by Company.-Without the prior approval of the Subscriber, the Company shall not make any investments except hereinafter appearing ("Authorised Investments").
"Authorised Investments" shall mean:
(a) In relation to investment of Rupee funds:
(1) Indian Government Securities, Treasury Bills; or
(2) Bonds, Certifications of Deposit of Financial Institutions, or
(3) Fixed Deposits with Scheduled Commercial Banks;
The instruments floated by the FIs/Banks should at least be rated as AAA/P1 by ICRA or equivalent ratings by other recognised rating agencies like CARE/CRISIL and should have maturity of not more than 365 days.
(b) In relation to investments of Dollar funds:
(1)Securities issued to directly and fully guaranteed or insured by the United States or any agency of instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof) having maturities of not more than six months from the date of acquisition; or
(2)Time deposits and certificate of deposit, with maturities of not more than six months from the date of acquisition; of any international commercial bank of recognised standing having capital and surplus in excess of US$ 500,000,000 and having the highest rating on its commercial paper by MMM International Corporation or the equivalent thereof by MMM Investors Service, Inc.