Zongshen PEM Power Systems Inc. Announces Amendment to Master Support Agreement with Zongshen Industrial Group

    -   Company reaffirms 260,000 units in sales and updates product mix
        guidance for 2008
    -   ZPP expands product portfolio by entering low emission gas products

    TSX Venture Exchange: ZPP

    VANCOUVER, Aug. 12 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or "the
Company") (TSXV:ZPP), announced today that it has reached an amending
agreement (the "Amendment") with its major shareholder, Zongshen Industrial
Group ("ZIG") to amend the Master Support Agreement ("MSA") which was signed
and announced in January 2008.
    The Amendment grants ZPP the exclusive global rights to the production
and sale of low emission gas motorbikes with an engine capacity of up to
    Under the terms of the original MSA, ZPP was granted the exclusive right
to all alternative power products business, including electric vehicles, and
ZIG agreed to not compete with ZPP in the alternative power source business
for an initial period of 10 years. In addition, the MSA provided that ZIG
would provide ZPP access to its corporate resources at cost including, without
limitation, distribution, research and development, design, marketing and
production expertise. ZPP was also granted the right to use the Zongshen brand
with no license fees. In return for this support, ZIG has the right to
maintain a minimum 25% ownership of ZPP through participation in any equity or
equity-related financing. Under the Amendment, the MSA now also applies to the
production and sale of low emission gas motorbikes with an engine capacity of
up to 50cc.
    Prior to the Amendment, the small gas motorbikes were manufactured by ZPP
out of its Wuxi plant and by ZIG from its base in Chongqing. Under the
Amendment, the small gas bike business will be consolidated under ZPP. The
small gas bikes are produced using the same production lines that are used to
produce ebikes. Accordingly, the existing Wuxi plant, when combined with the
Chongqing plant that is currently under construction, will provide the Company
with flexibility and capacity to expand both product lines.
    The Company and ZIG have been experiencing a surge in demand for small
gas bikes in both the China and export markets, driven mainly by the
increasing cost of fuel. As a result, much larger than expected orders for
have been received by ZPP and ZIG for small gas bikes (below 50cc) which will
now be owned, supplied and serviced by ZPP with full support from ZIG.
    The Company reaffirms its previously stated guidance to sell
260,000 units in 2008, however, small gas bikes are expected to represent the
majority of sales, while e-bikes are expected to represent less than 30
percent of total unit sales. The Company has been focusing on building a
market for premium ebikes in China and export markets in Asia, offering better
styling and performance for a higher price point. There has been strong
interest in the Company's line of premium ebikes from dealers in China and
Asia, but it has taken longer than expected to educate the consumer base in
China and Asia about the benefits of ZPP's premium ebikes.
    "The small gas bike business has grown beyond our initial expectations
and it was time to consolidate the business under ZPP or ZIG. Since they are
low emission vehicles and use some of the same production technology as
ebikes, we decided to add the low emission gas bikes to the ZPP product
offering. The market for small gas motorbikes has great growth potential in
China and export markets, and is fully supported by the Zongshen brand,
distribution network and manufacturing technology." noted Zongshen Zuo,
Chairman and CEO of Zongshen PEM Power Systems Inc. "While low emission gas
bike sales have far exceeded our expectations for 2008, we will not meet our
2008 target for e-bike sales. Premium ebikes are a new product for the
Zongshen brand and we are increasing our efforts to activate and educate the
existing distribution channels in China and add new pure ebike dealers to our
channel. We also plan to expand international markets for e-bikes, where we
can generate our best margins due to less price sensitivity and less
competition. In addition, we need to launch additional models of our premium
e-bikes to provide more choice to the consumer. Our experience in 2008 will
prepare us for a great year in 2009 for e-bikes. We believe that we are about
one year behind in our e-bike plan and are confident that we will have the
e-bike product and marketing platform ready for 2009. In the meantime the
current combined strength level of the small gas and electric bikes will allow
us to meet our targets."

    About Zongshen PEM Power Systems Inc.

    Zongshen PEM Power Systems Inc. is a public company trading under the
symbol ZPP on the TSX Venture Exchange. The Company is engaged in the
commercialization of alternative power systems including batteries, fuel cells
and solar power, for a variety of consumer and industrial applications. The
Company manufactures low-cost, high quality, environmentally friendly small
gas motorbikes, electric motorcycles, electric bicycles and other e-vehicles
in China for the Chinese domestic and international markets. Zongshen PEM
Power System's largest shareholder is Zongshen Industrial Group, one of
China's largest manufacturers and distributors of motorcycles, engines, and
power equipment.

    About Zongshen Industrial Group

    Zongshen Industrial Group was founded in 1992, and now consists of 30
totally or majority owned subsidiaries including Chongqing Zongshen Power
Machinery Co., which is listed on the Shenzhen Stock Exchange. The Company
employs in excess of 13,000 employees with assets in excess of RMB 8.4 billion
yuan. Zongshen Industrial Group implements the development strategy of related
diversification within thermodynamic machinery industry. Its engine products
mainly include motorcycle engines, mini-car engines, speedboat engines, and
general-purpose machinery. Its end products mainly include motorcycles,
speedboats and other power equipment. Zongshen Industrial Group now has an
annual production capacity of 2,000,000 motorcycles, 50,000 mini vans,
3,000,000 motorcycle engines, 5,000,000 general-purpose engines, and 100,000
car engines. Zongshen Industrial Group has established a leading brand for
motorcycles in China attracting some of the world's largest motorcycle
manufacturers as joint venture partners.

    Forward Looking Information

    Certain statements that are not historical facts made in this press
release may be forward looking statements subject to risks and uncertainties.
Statements containing words such as "could", "expect", "may", "anticipate",
"believe", "intend", "estimate", "plan" and other similar expressions are
forward-looking statements that represent management's beliefs and are based
on certain factors and assumptions set forth in this press release including
foreign exchange rates, expected growth, manufacturing output and capacity,
sales expectations, market potential and expected business opportunities.
While the Company considers these factors and assumptions to be reasonable
based on information currently available, they may prove to be incorrect.
Forward looking statements may relate to matters such as expected financial
performance, business prospects, technological developments, and development
activities and like matters. These statements involve risks and uncertainties,
including but not limited to the risk factors described in reporting documents
filed by the Company. Actual results could differ materially from those
projected as a result of these risks and should not be relied upon as a
prediction of future events. Except as required by applicable securities laws,
the Company undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made, or to reflect the occurrence of unanticipated events.

For further information:

For further information: Ali Mahdavi, Zongshen PEM Power Systems Inc.,
Vice President, Corporate Finance & Investor Relations, (416) 962-3300, (877)
775-8734, amahdavi@zongshenpem.com

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