893.51/2607

Sullivan & Cromwell to the Secretary of State

Sir: We have the honor to enclose herewith a copy as furnished us by the Chinese Legation, Washington, of the loan contract made in the City of Peking, China, on November 26, 1919, by and between the Republic of China and the Pacific Development Corporation, a corporation of the State of New York. Attached to the contract proper are two supplementary statements of even date, one being a declaration by the Pacific Development Corporation with respect to the appointment of an American Associate-Inspector General of the Wine and Tobacco Administration, the other being a declaration by the Republic of China with respect to increasing the revenues of the Wine and Tobacco Administration.

It will be recalled that this loan contract was the subject of a communication to you from the Pacific Development Corporation, New York, dated December 6, 1919.59

Respectfully yours,

Sullivan & Cromwell
[Enclosure 1]

Loan Contract between the Chinese Government and the Pacific Development Corporation, November 26, 1919

This Agreement, Made in the City of Peking, China, on the twenty-sixth day of November, 1919, by and between the Republic [Page 607]of China, hereinafter called the Chinese Government, represented by General Chin Yun Peng, Prime Minister of the Republic of China, and the Honorable Li Shi Hao, Minister of Finance of the Republic of China, party of the first part, and the Pacific Development Corporation, a corporation organized and existing under the laws of the state of New York, United States of America, hereinafter called the Corporation, party of the second part.

The parties hereto, in consideration of the mutual agreements hereinafter undertaken, agree as follows:—

Article First: The Chinese Government desires to borrow the sum of Five Million, Five Hundred Thousand Dollars ($5,500,000.), gold coin of the United States of America, of the present standard of weight and fineness, and the Corporation agrees to loan to the Chinese Government the said sum of Five Million, Five Hundred Thousand Dollars ($5,500,000.), as hereinafter provided. The Chinese Government hereby declares that the said loan is made by the Chinese Government to provide for arrears in pay (looking to the eventual disbandment of troops) and maturing obligations, the Chinese Government agreeing that such portion of the proceeds of the loan as shall be applied toward the arrears in pay of the troops, looking to their disbandment, shall be allocated on a fair and equitable basis.

Article Second: The said loan of Five Million, Five Hundred Thousand Dollars ($5,500,000.) and the Treasury Notes representing the said loan are hereby constituted a direct liability and obligation of the Chinese Government, which hereby pledges its good faith and credit for the full and punctual payment of the total principal and interest of said loan, and for the full and punctual payment of the said Treasury Notes representing said loan, in accordance with their terms, and for the performance of all of the undertakings on the part of the Chinese Government herein agreed to.

(a) Said loan of Five Million, Five Hundred Thousand Dollars ($5,500,000.) shall be evidenced by the Treasury Notes of the Chinese Government, which Treasury Notes shall be designated and known as Republic of China Six Per Cent Two-Year Gold Notes of 1919, and shall be signed in the name of the Government by the Minister of the Republic of China to the United States of America or by the Charge d’Affaires of the Republic of China to the United States of America, and shall bear the official seal of the Chinese Legation at Washington, in the District of Columbia, and shall be authenticated by the Chase National Bank of the City of New York, U.S.A., hereinafter in this agreement referred to as the Bank. The said Treasury Notes shall be dated December 1, 1919, and shall be payable December 1, 1921; they shall be paid by the Chinese Government, [Page 608]both principal and interest, in gold coin of the United States of America, of the present standard of weight and fineness; they shall be in coupon form and shall be payable in the denomination of $1,000. each and shall bear interest at the rate of Six (6%) per cent per annum from and after their date, payable semi-annually on the first days of June and December in each year and the interest shall be evidenced by coupon attached to the said Treasury Notes. Said Treasury Notes and coupons attached thereto shall be payable at the office of the Bank in the City of New York, U.S.A., shall make suitable reference to the fact that they are issued under and in pursuance to the terms of this agreement and shall be substantially in the form of the Republic of China Six Per Cent Three-Year Secured Gold Loan Treasury Notes of 1916, with proper alterations and changes to conform to the provisions of this agreement.

The whole or any part of said Treasury Notes outstanding at any time shall, before their maturity, be subject, at the option of the Chinese Government, to redemption on any interest date at their face value, plus accrued interest and plus one-half (½) of one (1%) per cent premium if redeemed on or before December 1, 1920, and one-quarter (¼) of one (1%) per cent premium if redeemed at any time thereafter. At least thirty (30) days prior to the exercise of such option to redeem notice shall be given to the Bank, through the Chinese Legation at Washington, in the District of Columbia, and notice of the exercise of such option to redeem shall be published by the Bank at least once a week for four consecutive weeks in two newspapers selected by the Bank and published in the English Language in the City of New York, in the United States of America. If the Chinese Government elects to redeem less than the whole of said Treasury Notes outstanding at the time, the notes to be so redeemed shall be determined by the Bank by lot and in that event said published notice shall state the numbers of said Treasury Notes so drawn for redemption. In case of the election of the Chinese Government to redeem the whole or any part of said Notes, the Chinese Government will, before the date of the first publication of said notice of redemption, deposit with the Bank the Necessary funds to effect such redemption.

The Bank shall promptly, after such redemption, send a written report to the Chinese Minister at Washington, stating the number of Treasury Notes drawn and the numbers of the Treasury Notes redeemed. Treasury Notes so drawn for redemption shall, if the money to redeem the same has been duly deposited with the Bank, cease to bear interest on and after the date appointed for their redemption to be stated in the aforesaid published notice of redemption, notwithstanding anything stated to the contrary in said Treasury Notes or coupons pertaining thereto.

[Page 609]

All Treasury Notes which shall be so redeemed shall be cancelled by the Bank as soon as they are redeemed and shall be promptly delivered to the Chinese Minister at Washington.

(b) The Chinese Government covenants and agrees that it will, at least ten (10) days before any installment of interest on said Treasury Notes shall become due, deposit with the Bank a sum sufficient to pay said interest in full and that, at least ten (10) days before the maturity of said Treasury Notes, the Chinese Government will deposit with the Bank a sum sufficient to pay at maturity the principal and interest of all said Treasury Notes then outstanding.

(c) Until definitive engraved notes are ready the Chinese Government will issue one or more temporary notes, either typewritten or printed, in the denomination of $1,000., or any multiple thereof. Such temporary note or notes shall have the same force and effect as the definitive engraved notes until exchanged for the latter. Such temporary note or notes shall be substantially in the form of the definitive engraved notes, with appropriate changes and alterations indicating that the note or notes is or are temporary notes to be exchanged for definitive engraved notes.

The Chinese Government covenants and agrees that it will cause definitive engraved notes to be forthwith prepared, in form satisfactory to the Corporation, and will deliver such definitive engraved notes to the Corporation to be by it exchanged for temporary note or notes.

(d) Provision may be made by the Corporation, after consultation with the Chinese Minister at Washington, for listing said Treasury Notes on one or more stock exchanges in the United States of America.

Article Third: The said loan of Five Million, Five Hundred Thousand Dollars ($5,500,000.) is hereby secured, in respect to both principal and interest, by a direct charge upon the entire revenues of the Wine and Tobacco Administrations of the Chinese Government, subject to previous loans already charged on the security thereof and not yet redeemed.

The said Loan of Five Million, Five Hundred Thousand Dollars ($5,500,000.) shall have priority, both as regards principal and interest, over any future loan, pledge, lien, charge or mortgage whatsoever which may be hereafter charged upon the revenues of the Wine and Tobacco Administration. So long as said Five Million, Five Hundred Thousand Dollars ($5,500,000.) loan, or any part thereof, principal and interest, shall remain unpaid, no loan, pledge, lien, charge or mortgage shall hereafter be made or created which shall take precedence of or be on an equality with said Five Million, Five Hundred Thousand Dollars ($5,500,000.) loan, and any future loan, pledge, lien, charge or mortgage whatsoever here-after [Page 610]charged on said revenues, or any part thereof, shall be expressly subject to said Five Million, Five Hundred Thousand-Dollar ($5,500,000.) loan, both as to principal and interest. And the Chinese Government further covenants and agrees that, so long as the option granted by this agreement to the Corporation shall remain in force and effect, no additional pledge, lien, charge or mortgage of any kind on the revenues of the Wine and Tobacco Administration shall be created.

The Chinese Government expressly declares that the revenues of the Wine and Tobacco Administration received by the Government amount annually to a sum in excess of Twenty Million Dollars ($20,000,000.) Silver Currency.

The Chinese Government covenants and agrees that it will apply toward the payment of said Treasury Notes, both principal and interest, so much of said pledged revenues as will be adequate and sufficient fully to protect and pay all of said Treasury Notes and all accrued and accruing interest thereon. And the Chinese Government further covenants and agrees that if, during each or any of the years that said Five Million, Five Hundred Thousand-Dollar ($5,500,000.) loan is unpaid, either as to principal or interest, the receipts from the Wine and Tobacco Administration available for the service of this loan shall, for any reason or circumstances whatsoever, net the Chinese Government a sum less than Five Million, Five Hundred Thousand Dollars ($5,500,000.), the Chinese Government will forthwith make good such deficit from other sources of its revenue.

Article Fourth: The said Treasury Notes may be offered by the Corporation, individually or with one or more associates, for public subscription and the Corporation may issue interim receipts to the purchasers of said Treasury Notes.

All expenses in connection with the printing, engraving and execution of said Treasury Notes and any interim receipts issued by the Corporation or its agents shall be borne by the Chinese Government. The Chinese Legation in Washington shall cooperate with the Corporation in the preparation of any prospectus to be issued by the Corporation or its associates in connection with the sale of said Treasury Notes.

Article Fifth: All of the said Treasury Notes and coupons, and all payments made or to be made thereon, or any of them, and all payments made or to be made, disbursed, distributed or received on account of or in connection with all or any part of said Five Million, Five Hundred Thousand-Dollar ($5,500,000.) loan, or on account of or in connection with all or any part of the interest thereon shall, in time of war as well as in time of peace, be always exempt from any or all taxes, impositions, liens or charges of any or every kind, now [Page 611]or that may hereafter be established or levied by the Chinese Government, or by any Province, division or branch thereof, or that may be attempted to be established or levied by the Chinese Government or by any Province, division or branch thereof.

Article Sixth: The total of the said Five Million, Five Hundred Thousand-Dollar ($5,500,000.) loan shall net the Chinese Government Ninety-one Dollars ($91.00) United States Currency for every One Hundred Dollars ($100.00) thereof, plus accrued interest from December 1, 1919, to the date at which the funds payable under this loan are placed to the credit of the Chinese Government. In the event that at any time the Corporation shall, on its own behalf or through its associates, dispose of any of said Treasury Notes above or in excess of the said Ninety-one Dollars ($91.00) for every One Hundred Dollars ($100.00), par value, of the said Five Million, Five Hundred Thousand Dollar ($5,500,000.) loan, such excess shall belong absolutely to the Corporation, free and clear of any claim on behalf of the Chinese Government.

Article Seventh: Upon the execution and delivery of this contract and upon the execution and delivery of the representatives of the Chinese Government to the Corporation of the said temporary Note or Notes referred to for Five Million, Five Hundred Thousand Dollars ($5,500,000.), the Corporation is hereby directed to and will place to the credit of the Chinese Government in the Bank the proceeds of said Five Million, Five Hundred Thousand Dollars ($5,500,000.) of Treasury Notes, amounting to the sum of Five Million, and Five Thousand Dollars ($5,005,000.) United States Currency, and the Chinese Government hereby declares that the sum so deposited to its credit with the Bank shall be dedicated and devoted, principal and interest, to the purposes set forth in Article First hereof.

Neither the Corporation nor the Bank assumes any responsibility or liability as to the disposition of any of the funds to be received by the Chinese Government under this loan, and the Bank is hereby authorized to disburse any and all of the proceeds of said loan deposited with it upon and according to checks, drafts, or other instruments of credit executed by either V. K. Wellington Koo, Minister of the Republic of China at Washington, or Yung Kwai, Chargé d’Affaires of the Chinese Legation at Washington, and the Bank and the Corporation are hereby relieved and discharged from any liability or responsibility to the Chinese Government or otherwise in making such disbursements.

Article Eighth: In the event that any of the said Treasury Notes or any of the coupons pertaining thereto shall be mutilated, destroyed, lost or stolen, the Bank is hereby authorized to notify the [Page 612]Chinese Legation at Washington thereof, who will authorize the Bank to insert an advertisement in one or more newspapers published at the time in the City of New York, stating that the payment of such note or notes or coupon or coupons has been stopped, and to take such other steps as may appear advisable to the Bank, according to the usages or customs in the United States of America.

Should any such Treasury Note or Notes or coupon or coupons be so mutilated as to become non-negotiable, or be destroyed, lost or stolen, and not be recovered after a lapse of time to be fixed by the Bank, the Chinese Legation at Washington will cause to be executed by the Chinese Minister or the Chargé d’Affaires, a duplicate Note or Notes or coupon or coupons for a like amount and deliver the same to the Bank to be by it delivered to the owner or owners of such mutilated, destroyed, lost or stolen Note or Notes, coupon or coupons, but as a condition of such execution and delivery the Bank may require from such owner or owners proof and indemnity satisfactory to the Chinese Government or to the Bank.

Article Ninth: In reimbursement for its compensation and expenses connected with the disbursement by the Bank of the money to be received by the Bank from the Chinese Government with which to pay the interest on the said Treasury Notes, and the principal thereof, the Bank shall be paid by the Chinese Government a commission of one-half (½) [of one (1)?] per cent of the money received by the Bank to pay such interest, and a commission of one-quarter (¼) of one (1) per cent of the money received by the Bank to pay said principal.

Article Tenth: The Chinese Government hereby declares it to be its earnest desire that the entire Wine and Tobacco Taxes and Administration throughout the Republic of China shall be reorganized, with the effective assistance of an American, and to that end it agrees that it will appoint, on December 1, 1919, for a period of at least three years, an American to the position of Associate Inspector-General of the Wine and Tobacco Administration, who shall be satisfactory to the Corporation and who shall possess no less degree of authority than that heretofore given by the Chinese Government to the Associate Chief Inspector of the Salt Administration of China.

Article Eleventh: The Chinese Government hereby declares that it is its desire and purpose to issue, at any time within a period of seven (7) months from the date of the Treasury Notes to be issued hereunder, additional Treasury Notes up to Twenty Million Dollars ($20,000,000.), face value, on the same terms and conditions as the Treasury Notes covered by this agreement and secured by all the revenues of the entire Wine and Tobacco Administration, subject [Page 613]only to the liens against said revenues in existence at the time of the execution of this agreement and that created hereby, and the Chinese Government hereby grants to the Corporation an option, for a period of seven months from said date, to purchase all or any part of said additional Twenty Million Dollars ($20,000,000.) of Treasury Notes of the Chinese Government, on the same terms and conditions as the purchase by the Corporation of the Five Million, Five Hundred Thousand Dollars ($5,500,000.), face value, of Treasury Notes covered by this agreement. In the event of the exercise by the Corporation of the option hereby granted, the Republic of China hereby covenants and agrees to accept such loan from the Corporation and execute such agreement or agreements as shall be deemed necessary or expedient to carry out effectually said loan, it being mutually agreed that said Loan Agreement shall be in substantially the form and the loan made on substantially the same terms and conditions as the loan covered by this agreement, subject only to such modifications as shall be necessary to make this agreement confirm [sic] to the larger loan. And the Corporation, at its option, shall have the right, at the time of the exercise of such option, to increase the sum of such option by the sum of Five Million, Five Hundred Thousand Dollars ($5,500,000.), the proceeds of such increase to be used for the retiring of the Five Million, Five Hundred Thousand Dollars ($5,500,000.) of Treasury Notes covered by this agreement. A notification in writing, addressed by the Corporation to the Chinese Legation at Washington or by cablegram addressed to the Minister of Finance of the Chinese Government at Peking, at any time prior to seven months from the date of the Treasury Notes covered by this agreement, to the effect that it elects to exercise all or a part of the option hereby granted, shall be an effective exercise by the Corporation of the option hereby granted.

The Corporation shall have the right to designate any bank or banks to handle the loan service covered by this agreement and on such designation the bank or banks so nominated shall receive and disburse, on the instruction of the Premier and Minister of Finance of the Republic of China, all sums to be received or paid by the Chinese Government under this agreement.

Article Twelfth: On behalf of the Chinese Government the representatives of the Chinese Government who have signed this agreement agree that the making of said loan of Five Million, Five Hundred Thousand Dollars ($5,500,000.) and the issue of said Treasury Notes and coupons and the execution and delivery of this contract are each and all entered into and duly authorized by the Chinese Government and are each and all in accordance with the constitution and laws of the Republic of China and that there is no [Page 614]treaty, convention, obligation, or agreement of any kind to the contrary.

Article Thirteenth: Three (3) original copies of this agreement shall be executed, in English, two copies to be retained by the Chinese Government and one copy by the Corporation. One of the original copies retained by the Chinese Government shall be forwarded by the Chinese Government, through the State Department, to the American Legation in Peking for filing in said Legation.

In Witness Whereof, General Chin Yun Peng, Prime Minister of the Republic of China, and the Honorable Li Shi Hao, Minister of Finance of the Republic of China, acting in name and on behalf of the Government of China, have hereunto signed their respective names and caused the seals of the Cabinet and the Ministry of Finance to be affixed hereto and the Pacific Development Corporation, of New York, has caused this instrument to be duly signed, in its name and on its behalf, by Galen L. Stone, the Chairman of its Board of Directors, and Edward B. Bruce, its President, at Peking, China, the day and year first above written.

Republic of China
[seals]
Li Shi Hao
Chin Yun Peng

Witness:
Hsu Un Yuen

Pacific Development Corporation,
By
Galen L. Stone

Chairman of Board
By
Edward B. Bruce

President
Witness:
Hsu Un Yuen
[Enclosure 2]

Declaration by the Pacific Development Corporation in Regard to the Appointment of an American Associate Inspector General of the Wine and Tobacco Administration

Referring to Paragraph Tenth of the Loan Agreement made this twenty-sixth day of November, 1919, between the Republic of China and the Pacific Development Corporation, providing for the appointment of an American Associate Inspector-General of the Wine and Tobacco Administration, it is hereby agreed, that in the event that the Pacific Development Corporation shall fail to exercise the option contained in said agreement and any other individual or group shall thereafter make any loan or loans on the security of the revenue of the Wine and Tobacco Administration, the Pacific Development Corporation will waive, after one year from the date hereof, the [Page 615]right to approve of the person to be appointed as Associate Inspector-General of the said Administration.

Dated, Peking, November twenty-sixth, 1919.

Pacific Development Corporation,
By
E. B. Bruce

President
[Enclosure 3]

Declaration by the Republic of China in Regard to Increasing the Revenues of the Wine and Tobacco Administration

Supplementing and in consideration of the agreement made this twenty-sixth day of November, 1919, between the Republic of China and the Pacific Development Corporation, the Republic of China anticipates such an increase in the revenues of the Wine and Tobacco Administration as shall justify the making of loans on the security of the revenue of that Administration in excess of the loan made and the option granted in said agreement of November 26th and the Republic of China hereby grants to the Pacific Development Corporation the option of making an additional loan or loans on the security of the revenue of said Wine and Tobacco Administration.


Republic of China,
(Signed and Sealed by:)
The Prime Minister,
Chin Yun Peng

The Minister of Finance,
Li Shih Hao

Pacific Development Corporation
By
G. L. Stone

Chairman of Board
E. B. Bruce

President
  1. Not found in Department files.