Good Friend : DISCLOSEABLE TRANSACTION FORMATION OF JOINT VENTURE

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GOOD FRIEND INTERNATIONAL HOLDINGS INC.

友佳國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 2398)

DISCLOSEABLE TRANSACTION FORMATION OF JOINT VENTURE

The Board is pleased to announce that on 6 April 2016, Hangzhou GF and Qiqihar CNC entered into the Joint Venture Agreement in relation to the formation of the Joint Venture. The Joint Venture will be held as to 60% by Hangzhou GF and 40% by Qiqihar CNC, and its registered capital will be contributed as to RMB60,000,000 by Hangzhou GF and RMB40,000,000 by Qiqihar CNC in cash. The Joint Venture will be engaged in the research and development, manufacturing and sales of CNC machine tools, auto manufacturing system and related products.

As one or more of the applicable percentage ratios for the formation of the Joint Venture is more than 5% but less than 25%, the formation of the Joint Venture constitutes a discloseable transaction of the Company and is subject to the announcement requirement under Chapter 14 of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on 6 April 2016, Hangzhou GF and Qiqihar CNC entered into the Joint Venture Agreement in relation to the formation of the Joint Venture. The principal terms of the Joint Venture Agreement are summarized below.

THE JOINT VENTURE AGREEMENT

1. Date

   6 April 2016

2. Parties

3. Hangzhou GF, a wholly-owned subsidiary of the Company; and

4. Qiqihar CNC.




To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Qiqihar CNC and its ultimate beneficial owner(s) are third parties independent of the Group and its connected persons.




5. Capital contribution

   
   

   The Joint Venture will be incorporated in accordance with the applicable laws and procedures of the PRC. The total registered capital of the Joint Venture will be RMB100,000,000. The Joint Venture will be held as to 60% by Hangzhou GF and 40% by Qiqihar CNC, and its registered capital will be contributed as to RMB60,000,000 by Hangzhou GF and RMB40,000,000 by Qiqihar CNC in cash as follows:-

   
   

   
   

   Hangzhou GF	Qiqihar CNC
   Within 90 days from the Effective Date	RMB12,000,000	RMB8,000,000
   Within 3 months following the incorporation of the Joint Venture	RMB12,000,000	RMB8,000,000
   Within 6 months following the incorporation of the Joint Venture	RMB12,000,000	RMB8,000,000
   Within 9 months following the incorporation of the Joint Venture	RMB12,000,000	RMB8,000,000
   Within 12 months following the incorporation of the Joint Venture	RMB12,000,000	RMB8,000,000

   
   

   The Joint Venture will be accounted for as non wholly-owned subsidiary of the Company.

   The amount of capital contribution to be made by the Parties was arrived at after arm's length negotiations between the Parties having taken into account the expected capital requirements of the Joint Venture. It is expected that the capital contribution payable by Hangzhou GF will be funded by internal resources of the Group.

   
   

6. Business scope and operation

   
   

   The Joint Venture will situate at the Qiqihar city of the Heilongjiang province of the PRC, and will be engaged in the research and development, manufacturing and sales of CNC machine tools, auto manufacturing system and related products. Hangzhou GF will manage the export sales business of the Joint Venture (while both Parties will assist with the sales activities of the Joint Venture) and Qiqihar CNC will provide its facilities for the operation of the Joint Venture.

   
   

   The Joint Venture will observe the terms of use of related technology licensed from the Parties and may purchase from Qiqihar CNC at market price the components for use in the manufacturing process.

   
   

7. Management and board composition

   
   

   The Joint Venture will be managed by both Parties through the board of directors of the Joint Venture, which will consist of 5 directors, 3 of whom will be appointed by Hangzhou GF and the remaining 2 directors will be appointed by Qiqihar CNC.

   
   

   The chairman and the managing director of the Joint Venture will be appointed by Hangzhou GF and Qiqihar CNC respectively.

   
   

8. Restrictions on transfers and encumbrances

   
   

   A Party may not sell, assign, transfer, mortgage or pledge any of its equity interest in the Joint Venture to a third party without the prior written consent of the other Party.

   
   

   In the event that a Party proposes to transfer its equity interest in the Joint Venture, the other Party will have a right of first refusal to acquire such equity interest.

9. Term and expiry




The Joint Venture Agreement will expire 10 years following the Effective Date and will be automatically renewed for an additional 5 years commencing from the date of expiry of the original term (subject to permission from the relevant governmental authorities of the PRC), unless terminated by either Party serving to the other at least 60 days written notice before the date of expiry of the original term.




REASONS FOR AND BENEFITS OF THE FORMATION OF THE JOINT VENTURE




The formation of the Joint Venture will enable Hangzhou GF and Qiqihar CNC to pool together their respective knowledge, resources, technologies and sales channels in the development, manufacturing and sale of machine tools. The resources and long-term experience of Qiqihar CNC in the production of machine tools, as complemented by Hangzhou GF's advanced technologies in producing high-quality machine tools and its commitment to excellence, will allow the Group to advance in the areas of high-quality machine tools production and intelligent manufacturing, and to provide a wider product spectrum to its customers.




Qiqihar CNC's predecessor, Qiqihar First Machine Tool Works, was a backbone enterprise and a leader in the machine tools industry in the PRC, with a leading market share in vertical and horizontal heavy machine tools. It is believed that Qiqihar CNC's strong reputation will benefit the business of the Joint Venture and the sales of its products, and ultimately increase the competitiveness and profitability of the Group.




The Directors are of the view that the terms of the Joint Venture Agreement are fair and reasonable and in the interests of the shareholders of the Company as a whole.