Zongshen PEM Power Systems Inc.: Motorcycle Business Acquisition Asset Restructuring Completed

VANCOUVER, BC – December 20, 2010 – (Motor Sports Newswire) – Zongshen PEM Power Systems Inc. (“ZPP” or the “Company”) (TSX:ZPP) today announced it had completed a series of asset transfers as part of the acquisition integration of the motorcycle business (“Motorcycle Business”) from Zongshen Industrial Group (“ZIG”).

Completion of asset restructuring

On December 9, 2010, the Company finalized the restructuring of some assets and land use rights with ZIG related to the acquisition of the Motorcycle Business completed on July 2, 2010. Prior to these transactions, some of ZPP’s and ZIG’s operating facilities were located on each other’s land use rights. The primary purpose of these transactions is to ensure that each company’s operating facilities have the proper corresponding land use rights. Under Chongqing municipal law, the operating facility and the underlying land use right must be held by the same organization in order to receive a municipal property certificate.

ZPP will pay $15.7 million (RMB 103.7 million) (the “Purchase Price”) to acquire a collection of land use rights totaling 158,000 m2 from ZIG and its affiliates (collectively, the “Land Use Rights Acquisition”). These land use rights have remaining useful lives ranging between 38 and 47 years. Land use rights for industrial use typically have a maximum life of 50 years. In addition, ZPP also sold a seat manufacturing plant (the “Seat Plant Sale”) to a ZIG affiliate for $2.6 million (RMB 16.7 million) (the “Seat Plant Sale Proceeds”), which Seat Plant Sale Proceeds will be set-off against the Purchase Price. The Purchase Price will also be further set-off against the $15.8 million (RMB 104.1 million) to be paid by ZIG to ZPP in connection with the December 2009 sale of certain idle land, plant, fixtures and equipment by the Motorcycle Business to ZIG. Details of this previous sale are set out in December 31, 2009 Financial Statements of the Motorcycle Business filed within the Business Acquisition Report dated September 15, 2010 . As a result of these transactions, ZPP’s cash position will increase by $2.7 million. In addition, the transaction will result in reduction of related party transactions going forward.

The Land Use Rights Acquisition and the Seat Plant Sale are exempt from the formal valuation and disinterested shareholder approval requirements under Multilateral Instrument 61-101 as the fair market value of both transactions are less than 25% of the Company’s market capitalization. Nevertheless, the Company and ZIG engaged independent valuators to determine the fair value of the assets transferred, and the Purchase Price and the Seat Plant Sale Proceeds were determined based on such valuations.

“The completion of these asset restructurings is the final step in the Motorcycle Business acquisition and provides a net benefit to ZPP,” said Mr. Zuo Zongshen, CEO and Chairman of ZPP. “These asset transfers reduce related party lease payments and generate $2.7 million in cash for ZPP. In addition, they also ensure that ZPP gains the full benefits of these land use rights including increased financial flexibility and potential future lease value appreciation.”

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 manufactures gas motorcycles, 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 engines and power equipment.

For more information, please contact

Zongshen PEM Power Systems Inc.
Michael Cheung
VP of Business Development & Investor Relations
(604) 687-7908
mcheung@zongshenpem.com
or
Zongshen PEM Power Systems Inc.
Frank Chen
Chief Financial Officer
(604) 687-7908
(604) 667-7008 (FAX)
frankchen@zongshenpem.com

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