Zongshen PEM Power Systems Inc. Announces Purchase Price Reduction for the
Acquisition of the Motorcycle Business


VANCOUVER, June 2 /CNW/ - Zongshen PEM Power Systems Inc. ("ZPP" or the "Company") (TSX:ZPP), is pleased to advise that the Company and Hong Kong VAS International Development Limited ("HKVAS") have entered into an amending agreement to the Equity Purchase Agreement relating to the purchase of the two wheeled motorcycle business from HKVAS (the "Motorcycle Business", and the amending agreement, the "Amending Agreement").

Pursuant to the Amending Agreement, the Company and HKVAS have agreed to exclude from 2009 net income for the Motorcycle Business ("2009 Net Income") certain non-operating one time gains relating to disposals of PPE, land use rights and intangible assets in the amount of RMB 15,689,000 (the "Subject One Time Gain"). Pursuant to the terms of the Equity Purchase Agreement, the Subject One Time Gain was initially included as part of the 2009 Net Income that was used to determine the purchase price and vendor earn-out.

The Subject One Time Gain related primarily to certain land use rights that were held by certain of the entities comprising the Motorcycle Business. In preliminary discussions between the Company, HKVAS and ZIG, it had been intended that these land use rights would be excluded from the assets acquired as part of the Motorcycle Business as they were not being used for any operations. As a result, as part of the pre-closing reorganization conducted by the HKVAS and ZIG, these land use rights were sold from the subsidiaries comprising the Motorcycle Business to ZIG, resulting in the Subject One Time Gain for the Motorcycle Business.

Since the Subject One Time Gain derived from non-operating activities from the sale of property that was not intended to be included as part of the assets to be acquired from the outset, the Company and HKVAS have agreed pursuant to the Amending Agreement to return the Subject One Time Gain to HKVAS as soon as practicable following closing.

In return, as a result of the exclusion of the Subject One Time Gain, 2009 Net Income has been reduced to RMB 110,266,000 ($16,892,790) and pursuant to the application of the purchase price and vendor earn-out formulas set out in the Equity Purchase Agreement, the purchase price (being 6 times 2009 Net Income) has been reduced by RMB 62,756,000 ($9,614,424) in cash and by 4,948,118 common shares, and is now comprised of:

    (a) a cash payment of RMB 441,064,000 ($67,571,162), of which RMB
        165,399,000 ($25,339,186) shall be paid to HKVAS on closing, with the
        remaining RMB 275,665,000 ($42,231,976) to be paid 18 months
        following closing, which shall be evidenced by a promissory note to
        be issued by the Company to HKVAS on closing; and

    (b) the issuance of 34,776,548 common shares to HKVAS on closing based on
        the agreed RMB:$ exchange rate of 6.3414:1 and a deemed issue price
        for the common shares of $1.00 per common share.

Similarly, the vendor earn-out (being 2 times 2009 Net Income), which is payable in common shares, has also been reduced by 4,948,118 common shares. As a result, 34,776,548 common shares will be issued and delivered to an escrow agent on closing (the "Escrow Shares"), which Escrow Shares will be released in whole or in part pursuant to the terms of the Vendor Earn-Out.

The proposed acquisition of the Motorcycle Business will therefore result in the issuance of up to 69,553,096 common shares (representing 108.77% of the Company's current issued and outstanding common shares) if the Vendor Earn-Out is fully satisfied and all the Escrow Shares are released to HKVAS.

Based on the purchase price and vendor earn-out derived from a 2009 Net Income of RMB 110,266,000 ($16,892,790), ZIG will beneficially own, control or direct, directly or through HKVAS, 62,637,976 common shares (or 63.45% of the Company) upon closing, and up to 97,414,524 common shares (or 72.97% of the Company assuming no other common share issuances) if all of the Escrow Shares are eventually released to HKVAS.

Pursuant to the Amending Agreement, HKVAS and ZIG have also agreed to forfeit RMB 8,499,000 of the dividends that had been declared and are payable by the Motorcycle Business. HKVAS and ZIG have also agreed that the Company may set-off such RMB 8,499,000 amount when it returns the Subject One Time Gain to HKVAS.

In summary, pursuant to the Amending Agreement, the purchase price and vendor earn-out have been reduced in cash by RMB 62,756,000 ($9,614,424) and in common shares by 9,896,236 collectively, while the Company will have to pay HKVAS net cash of RMB 7,190,000 ($1,101,511) after closing.

The Special Committee and the Board of Directors believe that the Amending Agreement results in additional value for Shareholders since both the purchase price and vendor earn-out have been reduced and the Motorcycle Business is expected to have sufficient working capital after paying HKVAS the Subject One Time Gain to continue operations in the normal course.

The annual and special meeting of shareholders of the Company will be held on June 25, 2010, at which meeting shareholders will be asked to approve the proposed acquisition of the Motorcycle Business. Closing of the proposed acquisition of the Motorcycle Business is expected to occur on or about June 30, 2010.

About Zongshen PEM Power Systems Inc.

Zongshen PEM Power Systems Inc. is a public company trading under the symbol ZPP on the Toronto Stock 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.

Forward Looking Information

Certain statements in this press release, including statements which may contain words such as "pro forma", "may", "could", "expects", "believes", "projects", "forecasts", "will", "anticipates", "plans", "estimates" or negative versions thereof and similar expressions, and statements related to matters that are not historical facts, are forward-looking statements. Such forward-looking statements are based on certain factors and assumptions and involve known and unknown risks and uncertainties which may cause the actual results, performances, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.

These forward looking statements relate to, among other things, product plans, timing, content and pricing of products, market and industry expectations, the future of the alternative power and low emissions vehicle industries, general economic, business and political conditions, loss or addition of key employees, stock market volatility, changes in laws and regulations, the Company's ability to compete successfully, adapt to technological advances, changing industry standards, foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, effective income tax rates and other factors.

All forward looking statements in this release are based on management's reasonable beliefs, intentions, and expectations with respect to future events and are subject to certain risks, uncertainties, and assumptions as of the date of this release. Some of these risks, uncertainties and factors include those disclosed herein and those disclosed under the heading "Risk Factors" in the Company's Annual Information Form dated March 25, 2010 and Management Information Circular dated May 10, 2010, both of which have been filed on SEDAR at www.sedar.com, including the impact or unanticipated impact of: the outcome of the Oregon litigation, affecting the Motorcycle Business, including the motion to set aside the default judgments; the scope and content of the proposed amendment to the Company's Master Support Agreement with ZIG; current, pending and proposed legislative or regulatory developments in the jurisdictions where the Company operates, particularly in China; changes in tax laws; political conditions and developments; intensifying competition from established competitors and new entrants in the alternative power source and low emissions vehicle industries; technological change; changes in raw material and labour costs; changes in oil and other commodity prices; currency value fluctuations and changes in foreign exchange restrictions; changes in Chinese government support or restrictions on foreign investment; general economic conditions worldwide as well as in China; the Company's success in developing and introducing new products and services, expanding existing distribution channels, developing new distribution channels, realizing increased revenue from those channels; the closing of the proposed acquisition of the Motorcycle Business and the successful integration of the Motorcycle Business. This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements. In light of the many risks and uncertainties that may cause future results to differ materially from those expected, the Company cannot give assurance that the forward looking statements contained in this release and the documents incorporated by reference herein will be realized. Forward looking statements are not guarantees of future performance. Except as required by applicable law, the Company assumes no obligation to update its forward-looking statements to reflect subsequent information or events.

Assumptions underlying our expectations regarding forward-looking statements or information contained in this release include, among others, that the default judgments from the Oregon litigation will be set aside and the Oregon litigation will eventually be resolved without liability to the Company; that the Company can continue to rely on the support of ZIG for its existing business and the Motorcycle Business proposed to be acquired; that the strength of the Zongshen brand will continue to be strong; that the Company will continue to be able to retain key personnel and attract and retain additional talent as required; that the Company's suppliers will continue to be able to provide raw materials and other key components on a timely basis and on reasonable terms; that the Company will be able to continue to protect its intellectual property; that the Company will continue to be able to access additional capital on reasonable terms and on a timely basis; that the Company will be able to establish and/or maintain relationships with key suppliers, customers and strategic partners; that the proposed acquisition of the Motorcycle Business will close; that the Motorcycle Business will be successfully integrated with the Company's existing business; and that the existing customers and suppliers of the Company and the Motorcycle Business will continue, and expand, their relationships with the Company after the Motorcycle Business is acquired by the Company.

In the event that any of these assumptions prove to be incorrect, or in the event that we are impacted by any of the risks identified above, we may not be able to continue our business as planned, or at all.


For further information: For further information: Ali Mahdavi, Zongshen PEM Power Systems Inc., Investor Relations, (416) 962-3300, 1-877-775-8734, amahdavi@zongshenpem.com

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