PRELIMINARY AGREEMENT PROVIDING FOR THE FINANCING AND CONSTRUCTION OF THE RAILWAY FROM CANTON TO CHUNGKING WITH EXTENSION TO LANCHOW This Agreement is made at Shanghai on the fourth day of the seventh month of the second year of the Republic of China being the fourth day of July, 1913, and the contracting parties are: The Chinese National Railway Corporation (hereinafter termed "the Corporation") duly authorized in virtue of the Presidential Mandate of the ninth day of the ninth month of the Republic of China being the ninth day of September, 1912, and in virtue of the Charter of the Corporation duly promulgated by a Presidential Mandate of the thirty-first day of the third month of the second year of the Republic of China being the thirty-first day of March, 1913, on the one part and Messrs. Pauling and Company, Limited, of 26 Victoria Street, London, S. W. (hereinafter termed "the Contractors") on the other part. NOW IT IS HEREBY AGREED by and between the parties hereto as follows: ARTICLE I The Contractors, or their Assigns, agree to issue on behalf of the Government of the Republic of China a sterling Loan, bearing interest at the rate of five per cent per annum, (hereinafter referred to as "the Loan") for such an amount as may be mutually estimated to be necessary for the completion of the Railway from Canton to Chungking. The Loan shall be of the date on which the first series of Bonds are issued and shall be called "The Chinese National Railways Government five per cent Gold Loan of 1912 for the Canton Chungking Railway." ARTICLE II The proceeds of the Loan are designed for the construction and equipment of the Railway from Canton to Chungking (hereinafter called "the Railway") and for all necessary expenditure appertaining thereto as may be arranged in the Detailed Agreement, referred to in Article 17. ARTICLE III The payment of the interest and the redemption of the Capital of the Loan are guaranteed by the Government of the Republic of China and by a special lien upon the Canton Chungking Railway. This special lien constitutes a first mortgage in favour of the Contractors, acting on behalf of the Bondholders, upon the Railway itself, as and when constructed, and on the revenue of all descriptions derivable therefrom, and upon all materials, rolling stock and buildings of every description purchased or to be purchased for the Railway. Should there be default in payments on the dates fixed of all or part of the half yearly interest or amortization payments, the Contractors shall have the right to exercise on behalf of the Bondholders all the rights of action which accrue to them from the special mortgage. ARTICLE IV