Wonder Auto Tech (PINK:WATG)

Try discussing this over a dinner. My head is spinning... and then ask yourself why P/E in the ChinaHybrid space are so low.

Maj..

On July 10, 2010, Wonder Auto Technology, Inc.’s (the “Company”) wholly-owned subsidiaries Wonder Auto Limited (“Wonder BVI”) and Yearcity Limited (“Yearcity”) entered into a conditional sale and purchase agreement (“Applaud Agreement”) with Jin Ying Limited, a British Virgin Islands corporation (“Jin Ying”) under which Wonder BVI and Yearcity will sell an aggregate of 4,015 ordinary shares (the “Applaud Shares”) of Applaud Group Limited (“Applaud”), representing 38.36% of the total equity interest in Applaud, for a total consideration of HK$162,000,000 (approximately US$20.86 million). Applaud is a British Virgin Islands corporation that has no assets other than its ownership of 48.58% of equity interest in Jinheng Automotive Safety Technology Holdings Limited, a Cayman Islands corporation (“Jinheng Holdings”).  Wonder BVI and Yearcity acquired the Applaud Shares for a total consideration of HK$115,449,757.80 (approximately US$14.87 million) in January 2010. The closing of the Applaud Agreement is conditioned upon the Closing of the Vital Glee Agreement.

Conditional Disposal Agreement

On the same date, the Company’s wholly-owned subsidiary Vital Glee Development Limited (“Vital Glee”) entered into a conditional disposal agreement (the “Vital Glee Agreement”) with Jinheng Holdings, under which Vital Glee will acquire a 100% equity interest in Jinheng (BVI) Ltd., a British Virgin Islands corporation (“Jinheng BVI”). Jinheng BVI is a holding company without any active operations or assets except (i) its 100% equity ownership of Jinheng (Hong Kong) Ltd., a holding company with no active business operations (“Jinheng HK”); (ii) its indirect (through Jinheng HK) 100% equity ownership of Jinzhou Jinheng Automobile Safety System Co., Ltd. (“Jinzhou Jinheng”), a Chinese corporation primarily engaged in the design, manufacturing and sale of automobile airbags and safety belts; (iii) its 55.56% indirect (through Jinheng PRC and Jinheng HK) equity ownership of Shenyang Jinbei Jinheng Automobile Safety System Co., Ltd., a Chinese corporation primarily engaged in the design, manufacture and sale of automobile airbags and related parts; (iv) its 100% equity ownership of Beijing Jinheng Sega Automotive Spare Parts Limited, a Chinese corporation engaged in the manufacture and sale of automobile steering wheels; and (v) its 90% equity ownership of Harbin Hafei Jinheng Automotive Safety System Co., Ltd., a Chinese corporation engaged in the manufacture and sale of airbags and other automobile parts. Jinheng BVI also owns Shanxi Winner Auto-Parts Limited (“Shanxi Winner”), a Chinese corporation engaged in design, manufacturing and sale of clock spring, wire harness and inflator; and Shenyang Jinheng Jinsida Automobile Electronic Co., Ltd. (“Jinsida”), a Chinese corporation engaged in design, manufacturing and sale of electronic control units. However, the parties agreed that Vital Glee will not acquire ownership of Shanxi Winner or Jinsida as part of the transactions contemplated by the Vital Glee Agreement, and Jinheng BVI and its subsidiaries will transfer ownership of Shanxi Winner and Jinsida to Jinheng Holdings or its subsidiaries.

Under the Vital Glee Agreement, Vital Glee will pay total cash consideration of HK $1,130 million (approximately US$145.54 million) in exchange for the 100% equity interest in Jinheng BVI. The total purchase price is scheduled to be paid by Vital Glee in four installments as follows. The first installment payment of HK $339 million (approximately US$43.66 million) will be made within seven business days after the satisfaction of all the closing conditions (except for the payment of such first installment payment) as set forth in Section 4.1 of the Vital Glee Agreement. Vital Glee also will issue three non-interest bearing promissory notes in the respective amount of HK $169.5 million (approximately US$21.83 million), HK $169.5 million (approximately US$21.83 million) and HK $452 million (approximately US$58.22 million) to Jinheng Holdings at the closing of the transactions contemplated by the Vital Glee Agreement (the “Closing”), which will become payable at the 30th, 90th and 180th days after the Closing, respectively. Vital Glee will pledge shares of Jinheng BVI to secure the payment of the promissory notes pursuant to a share pledge agreement to be entered into at the Closing.