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ZENN to acquire 51% of EEStor; most recent 3rd-party testing of EESU problematic
24 December 2013
Canada-based ZENN Motor Company Inc. will acquire a 51% controlling stake in its energy storage technology partner EEStor for staged cash payments totaling $1 million, and then reorganize the board and management of EEStor. ZENN has advanced EEStor $50,000 of the purchase price on the signing of the Investment Agreement which will be converted to EEStor shares if closing occurs.
In 2009, Canada-based ZENN, formerly a seller of lead-acid-battery-powered low-speed electric vehicles, switched its business strategy from selling EVs to distributing an electric drivetrain powered by EEStor units, once the EEstor EESU units became available. ZENN’s goal now is to be a provider of leading edge power storage solutions and related technologies to the transportation industry. (Earlier post.)
The EESU is intended to be a high-power-density multi-layered barium titanate ceramic ultracapacitor that the companies said is expected to provide energy densities of more than 450 Wh/kg and more than 700 Wh/L; charge in minutes; and have extremely long life.
A commercial-ready unit has yet to be produced. Initial feedback on the latest testing of EESU technology by Evans Capacitor Company was problematic for the company. As ZENN reported in a press release on 10 December:
Mr. David Evans, CEO of Evans, was given full access to EEStor’s facilities and was able to observe and record the results of testing of a number of different EESU layers on EEStor’s testing equipment and using EEStor’s developed methodology. He was then given these same layers to take back to his facility in Rhode Island for testing. The intention was to see if he could replicate the test results using methods usual to Evans’ procedures and equipment. In addition, Mr. Evans also tested the layers ZENN had previously purchased from EEStor which had not been tested on EEStor’s equipment in the presence of ZENN or Evans.
… Evans has reported that it has developed testing procedures that measure energy-in and energy-out. It has tested the procedures on known capacitors to verify reliability and accuracy of the tests. Based on these tests, Evans has advised that the EESU layers tested did not show any meaningful levels of energy discharge (energy-out). Evans did find in its testing that certain layers exhibited high resistance.
EEStor has also been provided with the preliminary findings but has not yet had an opportunity to review or comment on the testing protocols used by Evans. EEStor has responded that the layers provided by EEStor to Evans were not commercial ready layers and were not expected to demonstrate high energy density and that the layers were provided to Evans solely to assist Evans in developing testing protocols. EEStor has also advised that it is continuing to work to produce layers that could have commercial potential by demonstrating both high energy storage capabilities and low energy leakage in the same layer. There can be no assurance that such layers will be developed.
There is significant complexity in the technology and the testing protocols and it is possible there are problems in the Evans procedures, a concern expressed by EEStor. If the Evans preliminary findings are accurate, it would raise questions about the commercial viability of the current EESUs layers that have been produced by EEStor. If commercially viable layers cannot be supplied and results demonstrated that clearly show progress in terms of energy storage, it would raise doubts as to the viability of EEStor’s plan to be a leader in energy storage and similarly impact the business plan of ZENN.
The new Investment Agreement provides for the reconstitution of the EEStor board to six members, two of whom will be nominated by the EEStor Principals provided that they and their immediate family members continue to hold at least 15% of the EEStor voting shares, and four of whom will be nominated by ZENN, provided that two must be independent of ZENN and EEStor.
The current CEO and CFO of EEStor have also agreed to step down from these positions and the new board will initiate a search for the appointment of qualified persons to serve in these capacities.
Richard Weir, a co-founder of EEStor, will continue to serve as Honorary Chairman, Founder and Chief Science Officer of EEStor. In consideration for their facilitating the proposed transactions and changes in the board and management of EEStor, the EEStor Principals will be issued an aggregate of 600,000 common shares of ZENN.
Additionally, under the Investment Agreement the EEStor Principals and their immediate family members have the right to require ZENN, for a 60 day period following closing, to exchange up to 360,000 EEStor common shares for common shares of ZENN on the basis of 15 ZENN common shares for each EEStor share so exchanged. ZENN has been notified by the EEStor Principals that following closing they intend to immediately exchange the full 360,000 shares of EEStor into 5,400,000 shares of ZENN. Assuming completion of the US$1.0 million investment by ZENN and the exchange of the full 360,000 EEStor common shares for common shares of ZENN, ZENN would own approximately 67% of the equity and voting shares of EEStor on an as-converted basis.
Under the Investment Agreement ZENN has the right to acquire all EEStor shares held by the EEStor Principals and their immediate family members at an agreed upon value or fair value as determined by an independent valuator if agreement cannot be reached. Further, the parties have agreed to explore options for merging the companies.
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