Exhibit 1.1
REORGANIZATION AGREEMENT
This constitutes a binding agreement (the "Agreement") dated April 7, 2005
between Guangxi Yuchai Machinery Company Limited ("Yuchai"), China Yuchai
International Limited ("CYI") and Xxxxxxx Investments Limited ("Xxxxxxx") in
furtherance of the terms of the July 2003 agreement (the "July Agreement").
WHEREAS the parties are committed to implementing the terms of the July
Agreement (including without limitation, the adoption by Yuchai of a corporate
governance structure that conforms to the requirements of China's Company Law
and international practice ("Governance Requirements") and a restructuring of
CYI's ownership of Yuchai on mutually acceptable terms ("Restructuring
Exercise")) and this Agreement is demonstrative of the parties' mutual desire
and commitment to observe the terms of the July Agreement.
WHEREAS the parties acknowledge that CYI's continued ability to assert its
ownership and management control over Yuchai is a necessary pre-requisite to the
implementation of two key features of the Restructuring Exercise, namely, (a)
the listing and quotation of the shares in a new Yuchai holding company (without
any golden or special share) on an international capital market, and (b) the
restructuring and/or recapitalisation of CYI to enable it to implement the
Yuchai spin-off plans and at the same time maintain its listing on the New York
Stock Exchange. The parties are aware that any failure or delay in the
implementation of the Governance Requirements in Yuchai and/or impediment to
CYI's ability to assert its ownership and management control over Yuchai for any
reason, will negatively affect the implementation of the Restructuring Exercise.
WHEREAS the parties are desirous of implementing the Restructuring Exercise
as soon as reasonably practicable with an anticipated date of completion of 30
September 2005 and Yuchai agrees that it will take all necessary steps as may be
required from time to time to implement the Governance Requirements in Yuchai
and to enable CYI to continue to assert its ownership and management rights of
control over Yuchai on and subject to the terms of this Agreement until such
time as the Restructuring Exercise shall have been completed.
In consideration of the mutual agreements contained herein, and intending
to be legally bound hereby, and subject to all applicable laws and regulations,
the parties hereto agree as follows:
1. GOVERNANCE REQUIREMENTS IN YUCHAI
1.1 Yuchai affirms the shareholder rights of Hong Xxxxx Technology Systems
(BVI) Ltd, Xxxxxxx Assets Limited, Cathay Diesel Holdings Ltd, Xxxxx & Xxx
Nominees (BVI) Ltd, Xxxxxxx Sachs Guangxi Holdings (BVI) Ltd and Youngstar
Holdings Ltd (companies owned and controlled by CYI) (collectively referred
to as "CYI Group"). Without limitation to the foregoing, Yuchai further
acknowledges and affirms CYI Group's continued rights as majority
shareholder to direct the management and policies of Yuchai through
Yuchai's Board of Directors.
1.2 Yuchai further acknowledges and confirms that its Board of Directors is
comprised of the nine (9) directors nominated by the holders of the Foreign
Shares of Yuchai (namely, Xx. Xxx Xxx Xxx, Mr. Xxxxxx Xxxxx Gasteen, Xx.
Xxxx Hong Ren, Xx. Xxx Xiaocong, Xx. Xxxx Xucheng, Xx. Xxxxxxx Xxx-Xxxxx
Xx, Xx. Xxx Xxxx Xxxx, Xx. Xxxxxx Xxxx Sii Xxxx and Xx. Xxx Xxxx Xxxxx),
and four (4) directors nominated by the holders of the State Shares of
Yuchai (namely, Xx. Xxxx Jianming, Xx. Xx Tiansheng, Xx. Xxxx Shiqiang and
Xx. Xxxx Xxxxx).
1.3 Yuchai undertakes to immediately set up the financial sub-committee and
other relevant committees contemplated by the Articles of Association of
Yuchai. The financial sub-committee and the Board of Directors of Yuchai
shall unless there is a conflict with the Articles of Association of Yuchai
be guided by the financial advisor to the Restructuring Exercise jointly
engaged by CYI and Yuchai as described in clause 2.8 below as to the
reasonableness of the amount of the working capital proposed by Yuchai to
meet its on-going requirements for its businesses at the date of this
Agreement.
1.4 Yuchai agrees that it will seek the requisite approval of its shareholders
at a properly convened shareholders meeting prior to entering into any
material transactions (including without limitation entering into
agreements or arrangements with parties related to Yuchai or any of its
shareholders) and Yuchai shall comply with all provisions of Yuchai's
Governance Requirements, the revised and/or restated Articles of
Association of Yuchai as approved by its directors and shareholders in 1996
and other constitutive documents, as shall be given formal effect to in
accordance with clause 1.7 below.
1.5 Within thirty (30) calendar days from the date of this Agreement, Yuchai
will:-
a. provided that there shall be no adverse consequence to the
Restructuring Exercise as confirmed by the financial adviser appointed
pursuant to the provisions of clause 2.8 for the Restructuring Exercise,
convene a meeting of its Board of Directors and a meeting of its
shareholders to approve all necessary steps to be taken by Yuchai and
Yuchai Marketing Company Limited ("YMC") for the capitalisation of the RMB
205 million loan as equity capital of YMC which shall represent a 67.2 per
cent. interest in the enlarged issued share capital of YMC. In the event
that the financial adviser to the Restructuring Exercise shall be of the
view that the proposed capitalisation of the RMB205 million loan has
adverse consequences to the Restructuring Exercise, the RMB205 million loan
shall not be capitalised as equity capital of YMC and the parties to this
Agreement shall promptly meet and resolve on the repayment of the RMB 205
million loan in a manner satisfactory to them, taking into account any
existing shareholders' interests in YMC;
b. convene a meeting of its Board of Directors to terminate the
proposed sale of the spare parts business of one of Yuchai's subsidiaries;
and
c. convene a meeting of its Board of Directors and shareholders to
approve the declaration and payment of an appropriate dividend for profits
earned in the financial year ended 31 December 2003 and 2004 of RMB 300
million.
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Within seven (7) calendar days of the passing of the resolutions of the
Board of Directors or shareholders (as the case may be) in the meeting(s)
convened for the aforesaid purposes, Yuchai will effect and/or implement
all these resolutions. Without limiting the generality of the foregoing,
promptly after approval of the shareholders to the declaration and payment
of the dividend is obtained in paragraph (c) above, the Board of Directors
of Yuchai shall cause CYI Group's share of the dividend amount to be paid
and transferred to such bank account as CYI shall notify Yuchai in writing.
The board of directors of CYI presently contemplates that, subject to
obtaining shareholders' approval (if required), approximately 50 per cent.
of CYI Group's share of the Yuchai dividend paid out shall be declared for
payment to CYI's shareholders.
1.6 Promptly upon the execution of this Agreement, Yuchai will implement the
corporate governance guidelines approved by the directors and shareholders
of Yuchai on 1 November 2002 and take all other steps to put in place an
appropriate corporate governance structure conforming to international
custom and practice, and promptly take such steps and provide all customary
certifications and confirmations as may be required by CYI or its external
auditors for the continued consolidation of the financial statements of
Yuchai with those of CYI under United States generally accepted accounting
principles ("US GAAP") and for CYI's audited consolidated financial
statements to be approved and signed off by CYI's external auditors on that
basis with an unqualified opinion.
1.7 Within thirty (30) days from the date of this Agreement, Yuchai shall take
all necessary steps and cause all relevant documents to be approved,
formalized, endorsed, registered and filed with all the relevant
governmental authorities (including without limitation, the Bureau of
Administration for Industry and Commerce in the Guangxi Zhuang Autonomous
Region and the Ministry of Commerce of the People's Republic of China in
Beijing, as necessary or appropriate) to give formal effect to:-
(a) the revised and/or restated Articles of Association of Yuchai as
approved by its shareholders/directors in 1996 incorporating the corporate
governance guidelines approved by the directors and shareholders of Yuchai
on 1 November 2002;
(b) the constitution of the board of directors of Yuchai comprising Xx. Xxx
Xxx Xxx, Mr. Xxxxxx Xxxxx Gasteen, Xx. Xxxx Hong Ren, Xx. Xxx Xiaocong, Xx.
Xxxx Xucheng, Xx. Xxxxxxx Xxx-Xxxxx Xx, Xx. Xxx Xxxx Xxxx, Xx. Xxxxxx Xxxx
Sii Tien, Xx. Xxx Xxxx Xxxxx, Xx. Xxxx Xxxxxxxx, Xx. Xx Tiansheng, Xx. Xxxx
Shiqiang and Xx. Xxxx Xxxxx; and
(c) the compliance programme for the internal controls over financial
reporting to be implemented by PricewaterhouseCoopers at Yuchai with
respect to section 404 of the Xxxxxxxx-Xxxxx Act.
Yuchai shall promptly, but in any event no later than forty (40) days from
the date of this Agreement, provide to CYI all documents, certificates,
confirmations, notices and receipts evidencing the formalisation,
registrations and filings required by this clause 1.7.
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1.8 In consideration of CYI's agreement to ensure that Xxxxxxx will under the
terms of the share exchange described in clause 2.4 receive no less than
6,354,911 Newco shares, Yuchai shall, within 5 business days from the date
that an unqualified audit report is issued on CYI's financial statements in
the form substantially similar to that of the unaudited financial
statements filed by CYI in its Form 6K dated 28 February 2005, pay CYI an
amount of US$20,000,000 in cash into such bank account as CYI shall notify
Yuchai in writing.
2. RESTRUCTURING EXERCISE
2.1 Subject to any required shareholders' approval and subject also to all the
required approvals under all applicable laws and regulations in Bermuda,
China and the US (including, but not limited to, the requirements of the
New York Stock Exchange, Inc. ("NYSE")):-
(a) CYI will cause a new company, Newco, to be formed as a Bermuda
corporation with a board of directors comprising nominees of CYI and
Yuchai in the same respective proportions to the nominees of the
foreign and Chinese shareholders on the Yuchai board of directors, and
charter documents and officers mutually agreeable to CYI and Yuchai
and on the completion date of the Restructuring Exercise, CYI shall
have no appointees to the board of Newco; and
(b) CYI will contribute its 76.4% indirect interest in Yuchai, ie
361,420,150 shares of Yuchai, to Newco in exchange for a number of
Newco shares equal to the number of outstanding CYI common shares as
of the date hereof.
2.2 Newco will apply to list its shares on the NYSE. Newco will seek all
required approvals in order to give effect to such listing in accordance
with Bermuda, Chinese, U.S. and other applicable laws and the requirements
of the NYSE. CYI and Yuchai will use reasonable efforts to assist Newco to
make the relevant applications to the NYSE and to obtain all such
approvals.
2.3 CYI shall use reasonable efforts to acquire assets and/or businesses of
such size and which shall have achieved historical operating results of a
magnitude sufficient to permit the continued listing of CYI on the NYSE
under the listing standards of that exchange after the Spin-off described
in clause 2.6 below. If appropriate, such acquisitions may involve
affiliates of CYI. If necessary, CYI shall temporarily retain shares of
Newco in order to meet such listing standards. Yuchai shall procure that
such acquisitions by CYI shall have the support of Xxxxxxx Investments
Limited ("Xxxxxxx") and such other shareholders of CYI that are related
parties of Yuchai and Xxxxxxx hereby agrees and undertakes that it will
vote in favour of any and all such acquisitions by CYI.
2.4 Subject to appropriate regulatory approvals, if any, Xxxxxxx will transfer
to CYI 6,701,550 unencumbered CYI shares in exchange for a number of
unencumbered Newco shares held by CYI in the same proportion that the
6,701,550 CYI shares bears to the total number of issued CYI shares
outstanding at the time of completion of the share exchange described in
this clause (taking into account any new CYI shares that may arise from the
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conversion of any of the convertible bonds outstanding at the date of this
Agreement but disregarding any new CYI shares that may be issued after the
date of this Agreement). Accordingly, the parties agree that Xxxxxxx will
under the terms of this clause 2.4 receive no less than 6,354,911 Newco
shares.
For illustrative purposes, upon completion of the share exchange described
in this clause 2.4 and before completion of the transaction described in
clause 2.5 below, Xxxxxxx will have a 18.96% interest, ie 6,701,550 shares,
in Newco which owns 76.4% of Yuchai (if the convertible bonds of CYI
outstanding at the date of this Agreement are not converted prior to the
completion of the share exchange described in this clause 2.4) or a 17.98%
interest, ie 6,354,911 shares, in Newco which owns 76.4% of Yuchai (if the
convertible bonds of CYI outstanding at the date of this Agreement are
converted prior to the completion of the share exchange described in this
clause 2.4).
2.5 Subject to appropriate regulatory approvals, and following the completion
of the share exchange described in clause 2.4 above, Guangxi Yuchai
Machinery Group Company ("GYM Group") will contribute directly (or
indirectly through Xxxxxxx or Xxxxxxx Industrial Ltd) to Newco all of the
shares of Yuchai owned by GYM Group, ie 104,483,646 shares in Yuchai, in
exchange for 10,216,508 new shares of Newco to be issued by Newco. For
illustrative purposes, upon completion of the transactions described in
clauses 2.4 and 2.5, GYM Group, together with Xxxxxxx, will together have
an approximately 37.14% interest in Newco which owns approximately 98.5% of
Yuchai (if the convertible bonds of CYI outstanding at the date of this
Agreement are not converted prior to the completion of the share exchange
described in clause 2.4) or an approximately 36.38% interest in Newco which
owns approximately 98.5% of Yuchai (if the convertible bonds of CYI
outstanding at the date of this Agreement are converted prior to the
completion of the share exchange described in clause 2.4).
2.6 Subject to the acquisition by CYI of new assets and/or businesses as
contemplated in clause 2.3 above as well as mutual agreement with respect
to applicable tax treatment of the transactions contemplated in this clause
2.6 and the execution of mutually acceptable documents to implement the
transactions contemplated by this clause 2.6 (including without limitation
(a) a distribution agreement and (b) a tax sharing agreement), CYI will
then distribute all of its Newco shares to its shareholders, pro rata in
accordance with their ownership of CYI shares (the "Spin-off"), provided,
however, that CYI may, if necessary, temporarily retain up to 10,000,000
shares of Newco. If any such shares are retained, and subject to CYI
obtaining any necessary approval of its shareholders, CYI will grant to
Xxxxxxx an irrevocable proxy to vote such shares for the election of
directors to the board of Newco for such time as these shares are owned by
CYI, and Newco will enter into an appropriate registration rights agreement
to permit CYI to sell those shares to the public at such time as CYI
determines that the sale of those shares will not affect its listing status
on the NYSE. CYI will not knowingly sell more than 2,000,000 of such shares
to any entity or related group of entities unless CYI has the prior written
approval of Xxxxxxx. Contemporaneous with completion of the Spin-off and
without demand, Yuchai shall pay CYI US$30,000,000 in cash as compensation
for CYI's loss of its controlling interest in Yuchai. Such payment shall be
made by Yuchai by SWIFT transfer to such bank account as CYI shall notify
Yuchai in writing. No portion of the Newco
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shares to be distributed to CYI shareholders will be distributed in respect
of the special share held by Hong Xxxxx Asia Ltd. ("HLA"). The Spin-off
will be submitted for approval to the shareholders of CYI at a meeting (the
"EGM") to be called and held for such purpose in accordance with Bermuda
law, if necessary. CYI and Yuchai will respectively use reasonable efforts
to have HLA and Xxxxxxx vote in favour of the Spin-off at the EGM.
2.7 The parties hereby agree that the transactions contemplated under clauses
2.4, 2.5 and 2.6 shall be completed in sequence but practically
contemporaneously with each other.
2.8 Within 30 calendars days from the date of this Agreement, CYI and Yuchai
will jointly engage an internationally reputable financial adviser to (a)
assist Newco to apply for the listing of its shares on the NYSE and (b)
assist CYI with the implementation of the Spin-off described in clause 2.6
above. Any direct and incidental costs and expenses (other than taxes)
incurred in connection with such listing and the Spin-off (including any
fees payable to the financial adviser, audit, legal and tax advisers) shall
be borne or reimbursed by Yuchai monthly. Without limitation to the
foregoing, Yuchai will, within 10 calendar days from the date of this
Agreement, pay an advisory fee of US$1,500,000 to each of Strategic Capital
Group and CYI for their advisory assistance rendered in connection with the
listing of Newco and the Spin-off and be further responsible to reimburse
each of them for all out-of-pocket expenses incurred in connection with
such listing and Spin-off. Any necessary authorization and approval from
shareholders and other parties for the payment of the advisory fees and
reimbursement of out-of-pocket expenses described in this clause 2.8 shall
be Yuchai's responsibility to obtain.
2.9 CYI and Yuchai shall jointly instruct the financial advisers referred to in
clause 2.8 above to promptly prepare and present to the parties a timetable
setting out in reasonable detail the expected dates by which the events
described in each of clauses 2.1, 2.2, 2.4, 2.5 and 2.6 may reasonably be
anticipated to be completed. The parties acknowledge that the timetable
presented by the financial adviser will not be in any way binding upon the
parties and serves as a reasonable estimate only. Notwithstanding, and
subject to the terms of this Agreement, the parties agree to use reasonable
endeavours to undertake and complete the events described in each of
clauses 2.1, 2.2, 2.4, 2.5 and 2.6 by the dates indicated in the timetable
where feasible.
2.10 The parties acknowledge and accept that the CYI Group, as majority
shareholders of Yuchai and with majority control of the Board of Directors
of Yuchai, may cause the employment of Yuchai's current Chief Executive
Officer to be terminated in accordance with the terms of his employment
agreement. CYI acknowledges and accepts, however, that the successful
implementation of the Restructuring Exercise will require the continued
uninterrupted involvement and participation of Yuchai's current Chief
Executive Officer on and subject to the terms (including remuneration) of
his employment agreement. Accordingly, CYI agrees that it will not, and
will procure that its appointees to the Board of Directors of Yuchai do
not, take any action prior to the completion of the Restructuring Exercise
that will interfere with, or cause the termination of, the employment of
Yuchai's current Chief Executive Officer except if he were to be prosecuted
or convicted for any activities of a criminal nature.
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2.11 Notwithstanding anything to the contrary in this Agreement, the July
Agreement or any other agreement, document, letter or supplement relating
to this Agreement or the July Agreement, CYI shall only be bound to comply
with the requirements in clauses 2.1 to 2.2 and 2.4 to 2.9 for so long as
(a) the requirements in clause 1 are complied with in full, (b) the
financial statements of Yuchai continue to be consolidated by CYI in
accordance with the requirements under US GAAP and (c) CYI's shares are
listed and freely traded on the NYSE. In the event that any of these
requirements listed in (a), (b) or (c) are not met, CYI shall not have to
comply with the requirements in clauses 2.1 to 2.2 and 2.4 to 2.9 and
Yuchai shall have no claim whatsoever against CYI for any costs, damages,
losses or other liabilities that Yuchai shall incur in consequence of CYI
not complying with the relevant provisions in this clause 2.
3. FURTHER UNDERTAKINGS
3.1 Each party shall, at any time and from time to time after the date hereof,
execute, acknowledge, deliver and file, or cause to be done, executed,
acknowledged, delivered and filed, all such further acts, transfers,
conveyances, assignments or assurances as may be necessary, proper or
advisable in order to consummate the transactions contemplated hereby as
promptly as practicable, and shall not prior to the completion of the
Restructuring Exercise take any action (including a sale of shares in
Yuchai or the shares in Newco) that would prevent the consummation of such
transactions.
3.2 Each party agrees to consult the other parties before issuing any press
release, making any public statements or otherwise making any public
disclosure with respect to this Agreement or the transactions contemplated
hereby, and shall not issue any such press release, make any such public
statement or otherwise make any public disclosure without the written
consent of each of the other parties, except as may be required by any
applicable law, rule or regulation (including without limitation any
requirements of any applicable stock exchange or market).
4. TERMINATION
In the event that the parties are unable to complete the events described
in each of clauses 2.1, 2.2, 2.4, 2.5 and 2.6 above (not due to the default
of either party) by 5.00 p.m. on 31 December 2005 (or if such day is not a
business day in Hong Kong, the immediately succeeding business day) (or
such other date to be mutually agreed between the parties), the provisions
of this Agreement shall terminate and in such event no party shall have any
claim against any other party for any claims, damages, losses or other
costs and expenses arising from such termination.
5. INDEMNITY
5.1 Yuchai hereby irrevocably and unconditionally agrees to indemnify and save
CYI harmless from and against and in respect of all loss and damage
suffered or incurred by CYI directly and/or indirectly as a result of or in
connections with any breach of any undertaking or agreement given by Yuchai
in this Agreement or any breach or non-
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performance by each of Yuchai or GYM Group or Xxxxxxx of their respective
obligations (whether expressed or implied) under this Agreement.
5.2 CYI hereby irrevocably and unconditionally agrees to indemnify and save
Yuchai harmless from and against and in respect of all loss and damage
suffered or incurred by Yuchai directly and/or indirectly as a result of or
in connections with any breach of any undertaking or agreement given by CYI
in this Agreement.
6. COSTS AND EXPENSES
Except as otherwise agreed elsewhere in this Agreement, each party shall
bear its own expenses in connection with the consummation of the
transactions contemplated hereby.
7. GOVERNING LAW AND JURISDICTION
7.1 This Agreement shall be governed by and construed in accordance with the
laws of Hong Kong. Any dispute, controversy or claim arising out of, or
relating to this Agreement, or the breach, termination or invalidity
thereof, shall be settled by arbitration in Hong Kong by a single
arbitrator at the Hong Kong International Arbitration Centre in accordance
with the UNCITRAL Arbitration Rules.
7.2 Each of the parties to this Agreement and each of the parties that
acknowledge and accept this Agreement irrevocably waives any immunity to
which it or any of its property may at any time be or become entitled,
whether characterized as sovereign immunity or otherwise, from any set-off
or legal action in the People's Republic of China (including the Hong Kong
Special Administrative Region) or elsewhere, including immunity from
service of any legal process or any reference for arbitration, immunity
from jurisdiction of any court or tribunal, and immunity of any of its
property from attachment prior to an arbitration award or judgment or from
execution of an arbitration award or judgment.
8. ENTIRE AGREEMENT
8.1 Each of the parties to this Agreement confirms that this Agreement,
together with the July Agreement, constitutes the entire agreement among
the parties hereto relating to the subject matter hereof and thereof. The
terms of this Agreement shall govern to the extent they are inconsistent
with the terms of the July Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Reorganization
Agreement to be executed on its behalf as of the day and year first above
written.
GUANGXI YUCHAI MACHINERY COMPANY LIMITED CHINA YUCHAI INTERNATIONAL LIMITED
Signed: /s/ Xxxx Xxxxxxxx Signed: /s/ Xxxx Hong Ren
--------------------------------- ---------------------------
Name: Xxxx Xxxxxxxx Name: Xxxx Hong Ren
Title: Director Title: Director
XXXXXXX INVESTMENTS LIMITED
Signed: /s/ Xxxx Xxxxxxxx
---------------------------------
Name: Xxxx Xxxxxxxx
Title: Authorised Signatory
The party named below acknowledges and accepts as of the day and year first
above written the contents of this Agreement and irrevocably undertakes to use
reasonable efforts to cause Yuchai to fulfill its obligations under this
Agreement.
GUANGXI YUCHAI MACHINERY GROUP COMPANY
Signed: /s/ Xxxx Xxxxxxxx
---------------------------------
Name: Xxxx Xxxxxxxx
Title: Authorised Signatory
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