The ongoing saga of troubled Power Solutions International, Inc. (PSI), a manufacturer of emissions-certified, alternative-fuel power systems, has taken another turn with the announcement that Weichai America Corp. will invest $60 million in the Wood Dale, Ill., company.
Weichai America is a fully owned subsidiary company of Weichai Power Co., Ltd. a Chinese manufacturer of diesel engines. The deal, which closed April 3, gives Weichai a 40.71% stake in PSI, with an option increase its stake to 51% within 18 months.
Weichai America purchases newly issued shares of common stock and shares of Series B Convertible Perpetual Preferred Stock to achieve the aggregate of 40.71% stake.
Additionally, Weichai America was issued a stock purchase warrant upon the closing which will have a limited exercise window of 90 days beginning on the 18 month anniversary of the date of issuance. The companies said the warrant is exercisable for such number of additional shares that upon exercise Weichai America would hold an aggregate number of shares of common stock equal to 51% of the total common stock outstanding.
Under the terms of the newly announced strategic collaboration agreement, PSI and Weichai have identified specific areas of initial cooperation including the development of engines for stationary natural gas applications based on Weichai’s base engines, the identification of suitable Weichai products to be developed for sale in North America and commitment to a long term supply agreement under which Weichai will provide castings to PSI.
The companies have also agreed to a program for sharing of best practices across both organizations. PSI will also gain access to Weichai’s international manufacturing facilities and supply chain network.
On the date of closing, the size of the PSI board of directors will be increased to seven and the PSI will appoint as two directors, designated by Weichai America, one of whom will be chairman of the board. At the next annual meeting of PSI stockholders, the company will nominate three individuals designated by Weichai America, one of whom will be chairman of the board.
In addition, PSI and Weichai will establish a steering committee to oversee the implementation of the strategic collaboration, comprising three executives from each company. The committee will provide strategic direction and make decisions on the direction, management and implementation of the collaboration projects, according to the announcement.
Shaojun Sun, executive president of Weichai said, “Our strategic investment into PSI will further enhance Weichai’s globalization strategy and brand recognition by strengthening our presence in the key North American markets. Our collaboration with PSI will create synergies particularly in the areas of product manufacturing, sales and marketing and cost reduction by leveraging the experience, expertise and resources of Weichai and PSI, and will lay a solid foundation for PSI’s future growth in the Chinese and other new markets.”
PSI, which was founded in 1996 and went public on April 4, 2011, is under investigation by the Securities and Exchange Commission, according to a January 4 corporate filing. PSI said the investigation is believed to center on revenue recognition practices and resulting accounting errors. About $18 million in revenue was erroneously recognized in Power Solutions’ 2015 financial statements, the company said in the same SEC filing.
PSI also announced that on March 23, 2017, it had received an additional notice from the Staff of the Listing Qualifications Department of The NASDAQ Stock Market LLC, based upon the company’s continued non-compliance with the filing requirement set forth in Nasdaq Listing Rule 5250(c)(1). Specifically, the letter stated that since the PSI has not yet filed its Form 10-K for the year ended December 31, 2016, this serves as an additional basis for delisting the company’s securities from The NASDAQ Stock Market.
As previously disclosed, PSI requested a hearing before the Nasdaq Hearings Panel, which was held on March 9, 2017. At this hearing, the company requested an automatic stay of suspension in trading in the company’s common stock, which was granted pending the issuance of a final panel decision.
The company also shared its plan to evidence full compliance with Nasdaq’s filing requirement and requested an extension of time to do so. The panel has the discretion to grant the company an extension through August 7; however, there can be no assurance that the panel will ultimately grant the company’s request for continued listing on Nasdaq, according to the PSI announcement.