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JOINT VENTURE AGREEMENT WITH MTU SERVICES (MALAYSIA) SDN BHD

1. INTRODUCTION

Further to the announcement on 3 December 2009, Boustead Heavy Industries Corporation Berhad (“BHIC” or “the Company”) is pleased to announce that its wholly owned sub-subsidiary, BHIC Defence Technologies Sdn Bhd (“BHICDT”) (a subsidiary held via Boustead Penang Shipyard Sdn Bhd) has on 15 June 2010 signed a Joint Venture Agreement with MTU Services (Malaysia) Sdn Bhd. (“MSM”) (“JV Agreement”) for the purpose of forming a Joint Venture Company (”JVCo”) in Malaysia (“JV”).

2. DETAILS OF THE JV

2.1 Information on MSM

MSM is an associate company of MTU. MSM is the only sole authorised agent of MTU in Malaysia with the exceptional know-how and the capability to offer comprehensive range of products and services support to MTU customers in Malaysia and Brunei.

MTU is a German-based company which is a leading manufacturer of diesel engines for trains, ships, military vehicles, farming, mining and construction equipments and oil & gas applications as well as diesel-generators

2.2 Objectives of the JV

The purpose of the JV is for BHICDT and MSM (“the Parties”) to establish a long term relationship through the creation of a JVCo for their mutual benefit and gain and to undertake the business linked with maintenance of the products and services of MTU Friedrichshafen GmbH (“MTU”) in Malaysia and Brunei.

The JVCo shall upon incorporation have an initial authorised share capital of RM1,000,000 divided into 1,000,000 ordinary shares of RM1.00 each. The initial paid-up capital of the JVCo shall be in the amount of RM10,000.00. The equity structure of the JVCo shall be in the following proportion:-

Party Shareholding Proportion

BHICDT 60%
MSM 40%

(hereinafter collectively referred to as the “Parties” or “Shareholders”).

2.3 Salient Terms of the JV Agreement

2.3.1 The incorporation of the JVCo is subject to the satisfaction of the following conditions (hereinafter referred to as “Conditions Precedent”)

(a) In respect of BHICDT, compliance with the requirements of all applicable laws, rules, regulations and orders of governmental and regulatory authorities affecting its activities in Malaysia and pertaining to :-

(i) the Establishment of the JVCo; and
(ii) to any authorisations, if any; and

(b) In respect of MSM, compliance with the requirements of all applicable laws, rules, regulations and orders of governmental and regulatory authorities affecting its activities in Malaysia and Germany, if any, and pertaining to :-

i) the Establishment of the JVCo; and
ii) to any authorisations, if any.

2.3.2 The Parties agree that each Party shall co-operate with the other to fulfil the Conditions Precedent referred to in item 2.3.1 within ninety (90) days of the date of signature of the JV Agreement or other period as the Parties may mutually agree upon, in writing.

The Parties agree that in the event that the Conditions Precedent referred to in Clause 2.3.1 are not fulfilled on or before the expiry of ninety (90) days from the date of this signature of the JV Agreement (or such other later date as may be agreed upon in writing between the Parties), then the JV Agreement shall be deemed to have been terminated.

2.3.3 Each Party shall bear the costs and expenses incurred in the preparation and submission of the applications for the authorisations and approvals under item 2.3.1 (a) and (b) respectively.

2.3.3 The Parties shall cooperate to prepare the necessary applications, documents and forms for registration of the JVCo with the Companies Commission of Malaysia.

2.3.4 Subject to the fulfillment of the Conditions Precedent referred to in Clause 2.3.1, hereinafter referred together to as “Effective Date”, and provided that they both agree on the content of the JVCo’s applications, documents and forms referred to in Clause 2.3.3, BHICDT and MSM shall promptly lodge the same with the Companies Commission of Malaysia, notify the appropriate Authorities of Malaysia (if required) and do all things necessary to procure that the JVCo is established in accordance with the terms of the JV Agreement, such registration and establishment being together hereinafter referred to as “Establishment” and the expression “Establish” shall have a similar meaning.

2.3.5 The incorporation of the JVCo shall be completed within forty five (45) days of the Effective Date.

2.4 Termination of the JV Agreement

2.4.1 The JV Agreement may be terminated immediately with respect to a shareholder of the JVCo (“Defaulter”) by the non-defaulting shareholder of JVCo (“Non-Defaulter”), by notice in writing to the Defaulter, if:

(a) the Defaulter is in breach of any of its material obligations under this Agreement and has failed to remedy the breach within a period of thirty (30) days upon receipt of a notice in writing from the Non-Defaulter giving particulars of the breach and requiring the Defaulter to remedy the breach; or

(b) a petition is presented or a proceeding is commenced or an order is made or an effective resolution is passed for the winding-up, insolvency, judicial management, administration, dissolution or bankruptcy of the Defaulter or for the appointment of a liquidator, receiver, judicial manager, administrator, trustee or similar officer of the Defaulter over all or any part of its business or assets which is not set aside within 14 days of its presentation or commencement of proceedings (as the case may be);

(c) the Defaulter admits its inability to pay its debts as they fall due or seeks to enter into any composition or other arrangement with its creditors or is declared or becomes bankrupt or insolvent; or if a creditor takes possession of all or any part of the business or assets of the Defaulter or any execution or other legal process is enforced against the business or any substantial asset of the Defaulter and is not discharged within fourteen (14) days;

3. FINANCIAL EFFECTS OF THE JV

The financial impact on the JV Agreement on BHIC are summarised as follow:

(a) Earnings

The JVCo is not expected to have any effect on the earnings of the BHIC Group.

(b) Substantial Shareholders’ Shareholdings

The JVCo does not have any effect on the substantial shareholders’ shareholdings at BHIC.

(c) Net Assets (“NA”)

The JV is not expected to have any material impact on the NA of BHIC Group for the financial year ending 31 December 2010.

(d) Gearing

The JV is not expected to have any effect on the gearing of BHIC Group.

4. RISK FACTORS

The JV is subject to normal joint venture and business risks.

5. APPROVALS OF SHAREHOLDERS AND THE RELEVANT GOVERNMENT AUTHORITIES

Save as indicated above, the JV is not subject to the approval of the shareholders of BHIC. However, the JV is conditional upon the Parties obtaining the relevant approval for the Establishment of the JVCo.

6. DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS

None of the Directors and major shareholders of BHIC or any persons connected to them has any interest, direct or indirect, in the JV.

7. STATEMENT BY DIRECTORS

The Board of Directors of BHIC is of the opinion that the JV is in the best interest of BHIC .

8. DOCUMENT AVAILABLE FOR INSPECTION

The JV Agreement is available for inspection at the registered office of the Company at 17th Floor, Menara Boustead, 69 Jalan Raja Chulan, 50200 Kuala Lumpur during normal business hours from Monday to Saturday (except public holidays), for a period of one (1) month from the date of this announcement.



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