CXDC China XD Plastics Company Ltd

Share Ownership of the Company Directors and Officers and Voting Commitments (Page 98)

As of the Record Date, we expect that the Buyer Group will beneficially own 33,065,054 Common Shares and 1,000,000 Preferred Shares, representing approximately 69.6% of the voting power and approximately 50.1% of the share capital of the Company. Please see “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 98 for additional information.

Pursuant to the Support Agreement, the Rollover Stockholders have agreed, subject to the terms and conditions of the Support Agreement, to vote the Rollover Shares in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger.

Opinion of the Special Committee’s Financial Advisor (Page 43)

Pursuant to an engagement letter dated May 12, 2020, the Special Committee retained Duff & Phelps, LLC (“Duff & Phelps”) to act as its financial advisor to provide financial advice and related assistance to the Special Committee in connection with the merger. Duff & Phelps is an internationally recognized financial services firm that, among other things, is regularly engaged in the investment banking business, including the valuation of businesses and securities in connection with mergers and acquisitions, underwritings and private placements of securities, and other investment banking services.

On June 15, 2020, at a meeting of the Special Committee to evaluate the merger, Duff & Phelps rendered its oral opinion to the Special Committee, subsequently confirmed in writing, to the effect that, as of that date and based on and subject to the assumptions, procedures, factors, limitations and qualifications set forth in Duff & Phelps’ written opinion, the Merger Consideration to be paid to the holders of Common Shares (other than holders of Excluded Shares) in the merger was fair, from a financial point of view, to those holders (without giving effect to any impact of the merger on any particular holder of Common Shares other than in its capacity as a holder of Common Shares).

The full text of Duff & Phelps’ written opinion, dated as of June 15, 2020, is attached to this proxy statement as Annex B and is incorporated into this proxy statement by reference. The description of Duff & Phelps’ opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Stockholders are urged to read the Duff & Phelps opinion in its entirety for a description of the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Duff & Phelps in connection with the opinion.

Duff & Phelps’ engagement and opinion were for the benefit of the Special Committee, in its capacity as such, and its opinion was rendered to the Special Committee in connection with its consideration of the merger. Duff & Phelps’ opinion was not intended to and does not constitute a recommendation to any stockholder as to how the stockholder should vote or act with respect to the merger or any matter relating thereto.

See “Special Factors—Opinion of the Special Committee’s Financial Advisor” beginning on page 43 for additional information.

Interests of the Company’s Executive Officers and Directors in the Merger (Page 61)

In considering the recommendations of the Board with respect to the merger, the Company’s stockholders should be aware that certain of the Company’s directors and executive officers have interests in the transaction that are different from, and/or in addition to, the interests of the Company’s stockholders generally. These interests include, among others:

As of the date of this proxy statement, the Chairman, being a member of the Buyer Group, beneficially owns 33,065,054 Common Shares and 1,000,000 Preferred Shares, representing approximately 69.6% of the voting power and approximately 50.1% of the share capital of the Company. All such Shares held by the Chairman will be cancelled in the merger and not be converted into the right to receive the Merger Consideration at the Effective Time. Instead, the Chairman will directly and/or indirectly receive newly issued ordinary shares of Parent.

As of the date of this proxy statement, the directors and executive officers of the Company (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 98), as a group and other than the members of the Buyer Group, beneficially own an aggregate of 10,879 Common Shares. After the completion of the merger, the maximum amount of cash payments our directors and executive officers (other than the Chairman being a member of the Buyer Group) may receive in respect of their Common Shares is approximately $13,054.8.

The Special Committee and the Board were aware of these potential conflicts of interest and considered them, among other matters, in reaching their decisions and recommendations with respect to the merger agreement and related matters. Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 61 for additional information.

Conditions to the Merger (Page 90)

The respective obligations of each of the Company, Parent and Merger Sub to consummate the Transactions are subject to the satisfaction or waiver of certain conditions, including without limitation, the adoption of the merger agreement and the transactions contemplated thereby, by the Requisite Company Vote. For a more detailed description of these conditions, see “The Merger Agreement—Conditions to the Merger” beginning on page 90.

No Solicitation; Competing Proposals; Change in Company Recommendation (Page 82)

With certain exceptions, while the merger is pending, the Company shall not, and shall not authorize or permit any of its representatives, any of the Company’s subsidiaries or any of their respective representatives to, directly or indirectly:

At any time prior to the receipt of the required stockholder approval, following the receipt of an unsolicited, written and bona fide proposal or offer regarding a “Competing Transaction” (as defined below) that was not obtained in violation of the merger agreement:

The Company will keep Parent promptly and reasonably informed with respect to (i) any inquiry or indication of interest that could lead to a Competing Proposal, (ii) the status of any such Competing Proposal and (iii) the status, any material developments and the terms of any material modification thereto. The Company will not enter into any agreement with any person after the date of the merger agreement that prohibits the Company from providing any information or materials to Parent in accordance with the foregoing.

The Company has agreed to cease and cause to be terminated any discussions existing as of the date of the merger agreement with any person or group of persons that relate to any Competing Proposal.

While the merger is pending, neither the Company nor the Board nor any committee thereof shall (i) withhold, withdraw, amend, qualify or modify, in a manner adverse to Parent or Merger Sub, the Company Recommendation, (ii) adopt, approve or recommend any Competing Transaction, or (iii) fail to include the Company Recommendation in the proxy statement or fail to recommend against any Competing Transaction subject to Regulation 14D under the Exchange Act in any solicitation or recommendation statement on Schedule 14D-9 as promptly as practicable after the commencement of such Competing Transaction (but in any event within ten business days following such commencement), or (iv) resolve or agree to take any of the foregoing actions (any of the actions or events described in clauses “(i)” through “(iv)”, being referred to as a “Change in Company Recommendation”).

At any time prior to the receipt of the Requisite Company Vote, if in response to the receipt by the Company of a Competing Proposal, the Board determines in good faith, upon the direction of the Special Committee following consultation with its financial advisor and outside legal counsel, that such offer or proposal constitutes a Superior Proposal and that the failure to take such action could reasonably be expected to be inconsistent with its fiduciary duties under applicable laws, the Board (acting upon the recommendation of the Special Committee) or the Special Committee, as the case may be, may (1) make a Change in Company Recommendation in respect of such Superior Proposal, and/or (2) cause the Company to terminate the merger agreement as a result thereof; however, they may only do so if:

Each successive material modification to the financial terms of any such Competing Proposal shall be deemed to constitute a new Competing Proposal for purposes of the requirements above, except that, in such cases, the five-business-day period described above shall instead become a minimum period of at least three business days.

Notwithstanding the foregoing, prior to the time the Company’s stockholders approve the merger agreement and the transactions contemplated thereby, the Board (upon recommendation of the Special Committee) may effect a Change in Company Recommendation and terminate the merger agreement in response to an intervening event, if the Board (or the Special Committee) determines in good faith, after consultation with its outside legal counsel, that failure to do so would reasonably be expected to be inconsistent with its fiduciary duties under applicable laws, if and only if:

Nothing in the merger agreement prohibits the Company or the Board or any committee thereof from (i) making any disclosure to the Company’s stockholders if the Board or any committee thereof has determined in good faith that the failure to do so could reasonably be expected to be inconsistent with applicable laws (including fiduciary duties), or (ii) complying with Rule 14d-9, Rule 14e-2(a) or Item 1012(a) of Regulation M-A promulgated under the Exchange Act with respect to a Competing Proposal (or any similar communication to its stockholders in connection with the making or amendment of a tender offer or exchange offer).

For purposes of the merger agreement, a “Competing Proposal” means any unsolicited bona fide written offer, proposal, inquiry, or indication of interest (other than an offer, proposal, inquiry, or indication of interest by Parent) contemplating or otherwise relating to any Competing Transaction.

For purposes of the merger agreement, a “Competing Transaction” means, other than the transactions, any transaction or series of transactions for or relating to (i) any merger, reorganization, consolidation, share exchange, business combination, scheme of arrangement, amalgamation, recapitalization, extra-ordinary dividend, share repurchase, liquidation, dissolution or other similar transaction involving the Company or any of its subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company or to which 20% or more of the total revenue, operating income or EBITDA of the Company are attributable; (ii) any sale, lease, exchange, transfer or other disposition of assets or businesses of the Company and its subsidiaries that constitute or represent 20% or more of the total revenue, operating income, EBITDA or assets of the Company and its subsidiaries, taken as a whole; (iii) any sale, exchange, transfer or other disposition of 20% or more of any class of equity securities of the Company; or (iv) any general offer, tender offer or exchange offer that, if consummated, would result in any person beneficially owning 20% or more of any class of equity securities of the Company; or any combination of the foregoing.

For purposes of the merger agreement, a “Superior Proposal” means an unsolicited, bona fide written offer or proposal with respect to a Competing Transaction (provided, that for purposes of the definition of “Superior Proposal”, each reference to “20%” in the definition of “Competing Transaction” shall be replaced with “50%”) which does not arise from a material breach of the Company’s no-shop obligation and is made by a third party that the Board determines, in good faith judgment upon the recommendation of the Special Committee after (i) consultation with its financial advisor and outside legal counsel, (ii) taking into account all terms and conditions of such proposal, including the likelihood and timing of consummation thereof, and (iii) taking into account any changes to the merger agreement proposed by Parent in connection with the exercise of its rights in response to such Superior Proposal, to be more favourable to the unaffiliated security holders than the merger, except that any such offer shall not be deemed to be a “Superior Proposal” if (i) any financing required to consummate the transaction contemplated by such offer is not then fully committed to such third party, (ii) the consummation of the transaction contemplated by such offer or proposal is conditional upon the obtaining and/or funding of such financing, (iii) the transaction contemplated by such offer or proposal is not reasonably capable of being completed on the terms proposed without unreasonable delay, or (iv) the offer or proposal includes termination rights of the party making the offer or the proposal on terms less favourable to the Company than the terms set forth in the merger agreement.

Termination of the Merger Agreement (Page 91)

The Company and Parent may terminate the merger agreement by mutual written agreement at any time prior to the Effective Time, whether prior to or after the merger agreement has been adopted by the stockholders of the Company or Merger Sub.

Either the Company or Parent (as applicable) may terminate the merger agreement at any time prior to the Effective Time if:

The Company may terminate the merger agreement at any time prior to the Effective Time if:

Parent may terminate the merger agreement at any time prior to the Effective Time if:

Termination Fees and Reimbursement of Expenses (Page 92)

The Company is required to pay (or cause to be paid) to Parent a termination fee of $1,000,000 if the merger agreement is terminated:

Parent is required to pay (or cause to be paid) to the Company a termination fee in an amount of $2,000,000 if the merger agreement is terminated:

In no event is the Company or Parent, respectively, required to pay a termination fee on more than one occasion.

In the event that the Company or Parent fails to pay its applicable termination fee in accordance with the merger agreement when due, the Company or Parent (as the case may be) shall reimburse the other party for all reasonable and documented costs and expenses actually incurred or accrued by the other party (including, reasonable fees and expenses of counsel) in connection with the collection under and enforcement of the merger agreement in order to obtain such payment, together with interest on such unpaid termination fee, commencing on the date that such overdue amount was originally required to be paid and ending on the date that such overdue amount is actually paid in full, at a rate per annum equal to the prime lending rate published in the Wall Street Journal in effect on the date such payment was required to be made.

Material U.S. Federal Income Tax Consequences (Page 66)

 The exchange of Common Shares for cash pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder (as defined below under the heading “Special Factors—Material U.S. Federal Income Tax Consequences” beginning on page 66 of this proxy statement) who receives cash in exchange for Common Shares pursuant to the merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before the deduction of any withholding tax) and the U.S. Holder’s adjusted tax basis in the Common Shares exchanged for cash pursuant to the merger.

Payments made to a Non-U.S. Holder (as defined below under the heading “Special Factors—Material U.S. Federal Income Tax Consequences” beginning on page 66 of this proxy statement) with respect to the Common Shares that are exchanged for cash pursuant to the merger generally will not be subject to U.S. federal income or withholding tax, subject to certain exceptions. You should read “Special Factors—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 66 of this Proxy Statement for definitions of “U.S. Holder” and “Non-U.S. Holder,” and for a more detailed discussion of the U.S. federal income tax consequences of the merger. You should consult your own tax advisor regarding the particular tax consequences (including the state, local or non-U.S. tax consequences) of the merger to you in light of your own particular circumstances.

Material PRC Income Tax Consequences (Page 68)

The Company does not believe that it should be considered a resident enterprise under the PRC Enterprise Income Tax Law (the “EIT Law”) or that the gain recognized on the receipt of cash for the Company’s Common Shares should otherwise be subject to PRC tax to holders of such Common Shares that are not PRC tax residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise or that PRC tax would otherwise apply. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise then the gain recognized on the receipt of cash for the Company’s Common Shares by the holders of such Common Shares that are not PRC tax residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 10% in the case of enterprises or 20% in the case of individuals (subject to applicable tax treaty relief, if any). Furthermore, even in the event that the Company is not considered a resident enterprise, gain recognized on the receipt of cash for Common Shares is subject to PRC tax if the holders of such Common Shares are PRC resident individuals. However, neither Parent nor Merger Sub intends to withhold any PRC taxes on the consideration provided to non-PRC resident stockholders of the Company in connection with the Merger. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including any PRC tax consequences. Please see “Special Factors – Material PRC Income Tax Consequences” beginning on page 68 for additional information.

Regulatory Matters (Page 66)

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the merger other than (i) the approvals, filings or notices required under the federal securities laws and the rules and regulations of the NASDAQ Global Market, and (ii) the signing and filing of the articles of merger (and supporting documentation as specified in the NRS) with the Secretary of State of the State of Nevada.

Accounting Treatment of the Merger (Page 66)

The merger is expected to be accounted for, as a merger of entities under common control in accordance with Accounting Standards Codification 805-50, “Business Combinations—Related Issues.”

Market Price of the Common Shares (Page 70)

The closing price of the Common Shares on the NASDAQ on May 7, 2020, the last trading date immediately prior to the Company’s announcement on May 8, 2020 that it had received a going-private proposal, was $0.96 per Common Share. The Merger Consideration of approximately $1.2 per Common Share, to be paid in the merger, represents a premium of approximately 25% to that closing price.

Remedies (Page 93)

Other than certain equitable remedies that Parent may be entitled to, the sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) of the Buyer Group and certain related parties as described in the merger agreement against the Company, its subsidiaries and certain related parties as described in the merger agreement for any loss or damage suffered as a result of any breach of any representation, warranty, covenant or agreement or failure to perform under the merger agreement or other failure of the transactions contemplated by the merger agreement to be consummated shall be Parent’s right to (i) terminate the merger agreement and receive from the Company a termination fee of $1,000,000, and (ii) receive reimbursement and interest if such termination fee is not paid when due and in accordance with the merger agreement.

Other than certain equitable remedies that the Company may be entitled to, the sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) of the Company, its subsidiaries and certain related parties as described in the merger agreement against the Buyer Group and certain related parties as described in the merger agreement for any loss or damage suffered as a result of any breach of any representation, warranty, covenant or agreement or failure to perform under the merger agreement or other failure of the transactions contemplated by the merger agreement to be consummated shall be the Company’s right to (i) terminate the merger agreement and receive from Parent a termination fee in an amount equal to the sum of (x) of $2,000,000 and the guarantee of such obligation pursuant to the Limited Guarantee and (y) certain reasonable and documented out-of-pocket expenses incurred by the Company and the Special Committee in connection with the merger, as set forth in the merger agreement, and (ii) receive reimbursement and interest if such termination fee is not paid when due and in accordance with the merger agreement.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers briefly address some questions you may have regarding the special meeting and the merger. These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

Please see “Special Factors – Material U.S. Federal Income Tax Consequences” and “Special Factors – Material PRC Income Tax Consequences” beginning on page 66 and page 68 respectively for a more detailed description of the tax consequences of the merger. You should consult with your own tax advisor for a full understanding of how the merger will affect your U.S. federal, state, local, non-U.S. and other taxes.

If your Common Shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee on how to surrender your Common Shares and receive the Merger Consideration for those Common Shares.

Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay Parent a termination fee, or Parent may be required to pay the Company a termination fee, in each case, as described under the caption “The Merger Agreement – Termination Fees and Reimbursement of Expenses” beginning on page 92.

At the close of business in the State of Nevada on [Record Date], 2020, the Record Date for the Special Meeting, we expect that there will be 66,948,841 Common Shares and 1,000,000 Preferred Shares issued and outstanding and entitled to vote at the special meeting. Each holder of Common Shares has one vote for each Common Share held, and the holders of Preferred Shares are entitled to a voting power equivalent to 40% of the combined voting power of the entire Company’s Shares. Pursuant to the Support Agreement, the Rollover Stockholders have agreed, subject to the terms and conditions of the Support Agreement, to vote the Rollover Shares in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger. As of the date of this proxy statement, the Rollover Stockholders beneficially own 33,065,054 Common Shares and 1,000,000 Preferred Shares, representing approximately 69.6% of the voting power and approximately 50.1% of the share capital of the Company.

Approval Required for Proposal 2:   If a quorum is present, the proposal to adjourn or postpone the Special Meeting, from time to time if necessary or advisable (as determined by the Company in accordance with the terms of the merger agreement), including to solicit additional proxies if there are insufficient votes to adopt the merger agreement at the then-scheduled date and time of the Special Meeting, whether in person or by proxy, would be approved if the number of votes cast in favor of the adjournment exceeds the number of votes cast in opposition of the adjournment.

If you fail to submit a proxy or vote in person at the Special Meeting, or abstain, or you do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, this will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement and the proposal to adjourn or postpone the Special Meeting.

Abstentions are included in determining the number of votes present or representing at the Special Meeting for purposes of determining whether a quorum exists, but broker non-votes will not be counted as present in person or by proxy at the Special Meeting.

Alternatively, you can attend the Special Meeting and vote in person. If you decide to sign and send in your proxy card, and do not indicate how you want to vote, the Common Shares represented by your proxy will be voted “FOR” the proposal to authorize and approve the merger agreement and transactions contemplated by the merger agreement, including the merger and “FOR” the proposal to adjourn and postpone the Special Meeting from time to time if necessary or advisable (as determined by the Company in accordance with the terms of the merger agreement), including to solicit additional proxies if there are insufficient votes to adopt the merger agreement at the then-scheduled date and time of the Special Meeting, unless you appoint a person other than the chairman of the meeting as proxy, in which case the Common Shares represented by your proxy card will be voted (or not submitted for voting) as your proxy determines. If your Common Shares are held by your broker, bank or other nominee, please see below for additional information.

If you do not instruct your bank, brokerage firm or other nominee to vote your Common Shares, your Common Shares will not be voted on any of the proposals described in this Proxy Statement, which will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement and the proposal to adjourn and postpone the Special Meeting.

Pursuant to Nevada law, abstentions are counted as present for purposes of determining the presence of a quorum; however, abstentions will not be counted as votes cast “FOR” or “AGAINST” any proposal. Because each of the proposal to approve the merger agreement and the approval to adjourn or postpone the Special Meeting requires the affirmative vote of a majority of our outstanding Common Shares entitled to vote thereon at the Special Meeting, an abstention will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement and the approval to adjourn or postpone the Special Meeting.

Abstentions will have no effect on the voting results for any other proposal described in this Proxy Statement.

Broker “non-votes”

Under applicable exchange rules, if a broker, bank or other institution that holds shares in “street name” for a customer does not receive voting instructions from that customer, the broker may vote on only certain “routine” matters. For “non-routine” matters, which include all proposals contained in this Proxy Statement, a broker may not vote on such matters unless it receives voting instructions from the customer for whom it holds Common Shares. A broker “non-vote” occurs when a broker does not receive such voting instructions from its customer on “non-routine” matters. Broker non-votes are not counted for purposes of determining the presence of a quorum; they will not be counted as votes cast “FOR” or “AGAINST” any proposal and will have no effect on the voting results for any proposal, other than the proposal to approve the merger agreement and the proposal to adjourn or postpone the Special Meeting, for which a broker non-vote will have the effect of a vote “AGAINST” approval of the merger agreement and the proposal to adjourn or postpone the Special Meeting.

Because all proposals in this Proxy Statement are considered “non-routine” matters under applicable exchange rules, we urge you to give voting instructions to your broker.

If any “routine” matters are properly brought before the Special Meeting, then brokers holding shares in street name may vote those shares in their discretion for any such routine matters.

If your Common Shares are held in “street name”, they may not be voted if you do not provide the bank, brokerage firm or other nominee with voting instructions. Currently, banks, brokerage firms or other nominees have the authority under The NASDAQ Global Market rules to vote Common Shares for which their customers do not provide voting instructions on certain “routine” matters.

However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, which include all proposals described in this Proxy Statement, and, as a result, absent specific instructions from the beneficial owner of Common Shares held in street name, banks, brokerage firms or other nominees are not empowered to vote those shares.

If you hold Common Shares through a broker, bank or other nominee and have instructed the broker, bank or other nominee to vote your Common Shares, you must follow directions received from the broker, bank or other nominee to change your instructions.

Please see “Special Factors – Interests of Certain Persons in the Merger” beginning on page 61 for a more detailed discussion of how some of our Company’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of our stockholders generally.

In connection with entry into the Merger Agreement, Parent and the Rollover Stockholders entered into an equity contribution and voting agreement, dated as of June 15, 2020, which is referred to herein as the Support Agreement, with respect to the Merger. The Support Agreement generally requires that the Rollover Stockholders, in their capacities each as a stockholder of the Company, vote all of his or its Common Shares and Preferred Shares in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the Merger and against alternative transactions and generally prohibits the Rollover Stockholders from transferring their Shares prior to the consummation of the Merger. As of [Record Date], the Record Date, the Rollover Stockholders beneficially held 33,065,054 Common Shares and 1,000,000 Preferred Shares, representing approximately 69.6% of the voting power of the Company on a fully diluted basis and approximately 50.1% of the total issued and outstanding share capital of the Company.

Pursuant to the Support Agreement, immediately prior to the closing of the merger, the Rollover Stockholders will contribute to Parent an aggregate amount of 33,065,054 Common Shares and 1,000,000 Preferred Shares beneficially owned by them (which represents approximately 69.6% of the voting power of the Company on a fully diluted basis and approximately 50.1% of the total issued and outstanding share capital of the Company) in exchange for newly issued ordinary shares of Parent and each Rollover Stockholder will vote all of his or its Common Shares and Preferred Shares in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger. See “Special Factors—Support Agreement” beginning on page 60 for additional information.

This information is also available free of charge at www.sec.gov, an Internet site maintained by the SEC that contains reports, proxy and information statements, and other information regarding issuers that is filed electronically with the SEC. Stockholders may also read and copy any reports, statements and other information filed by us with the SEC at the SEC public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website for further information on its public reference room. In addition, Stockholders may obtain free copies of the documents filed with the SEC by contacting us at +1 (212) 747-1118 or by sending a written request to 13620 38th Avenue, Suite 3A-1, Room 105, Flushing, New York 11354, United States.

Our SEC filings are available in print to any Stockholder who requests a copy at the phone number or address listed above.

All holders of uncertificated Common Shares a (i.e., holders whose Common Shares are held in book entry) will automatically receive their cash consideration shortly after the merger is completed without any further action required on the part of such holders. If your Common Shares are held in “street name” by your broker, bank or other nominee you will receive instructions from your broker, bank or other nominee as to how to effect the surrender of your share certificates in exchange for the Merger Consideration.

SPECIAL FACTORS

Background of the Merger

Events leading to the execution of the merger agreement described in this Background of the Merger occurred in China and Hong Kong. As a result, China Standard Time is used for all dates and times given.

The Board and senior management of the Company have been reviewing periodically the Company’s long-term strategic plan with the goal of maximizing stockholder value. As part of this ongoing process, the Board and senior management of the Company have also periodically reviewed strategic alternatives that may be available to the Company.

On February 16, 2017, the Chairman, the Chairman SPV and MSPEA Modified Plastics Holding Limited, an affiliate of Morgan Stanley Private Equity Asia III, Inc., formed a consortium and submitted a preliminary, non-binding letter to the Board, proposing to acquire all of the Common Shares of the Company not already owned by the consortium at US$5.21 per share in cash in a take-private transaction. On October 14, 2019, MSPEA Modified Plastics Holding Limited withdrew from the consortium and informed the Board that it no longer intended to participate in the proposed transaction.

After MSPEA Modified Plastics Holding Limited’s withdrawal from the proposed transaction, the Chairman periodically reviewed the Company’s business operations, the general conditions of the Chinese economy, the Company’s industrial sector and generally assessed strategic alternatives, including, but not limited to, a plan that would maintain the Company’s NASDAQ listing and, alternatively, a going private transaction.

In April and May 2020, the Chairman had seriously considered strategic alternatives. The primary factors that influenced the Chairman’s consideration of strategic alternatives included the material adverse impact caused by the outbreak of the COVID-19 pandemic on the Company’s business and operation and the auto industry, the slowdown of China’s automobile production in the long term, which the business of the Company heavily relies on, the uncertainties faced by PRC-based automobile manufacturers and distributors in the past and in the long term after COVID-19, the sustained low trading price of the Company’s Common Shares, and the increasing expenses and burden to comply with the U.S. federal laws, including the U.S. securities laws.

On May 7, 2020, the Buyer Group (as defined below) engaged O’Melveny & Myers LLP (“O’Melveny”) as its U.S. legal advisor in connection with a potential going private transaction involving the Company.

During the period from February 16, 2017 until May 8, 2020, no other party expressed any interest in a potential transaction involving the Company.

On May 8, 2020, the Chairman delivered to the Board a preliminary non-binding proposal (the “Proposal”), announcing his intent to acquire all outstanding Common Shares that are not owned by him and his affiliates (the “Buyer Group”) for cash consideration equal to US$1.1 per share (the “Proposed Transaction”).

On the same day, the Company issued a press release regarding its receipt of the Proposal, and the appointment of Wilson Sonsini Goodrich & Rosati, Professional Corporation (“WSGR”) as the Company’s U.S. legal counsel in connection with the potential “going-private” transaction contemplated by the Proposal. The press release also stated that the Board intended to form a special committee of independent directors to consider this Proposal. On the same day, the Company furnished to the SEC its press release as an exhibit to a current report on Form 8-K.

On May 10, 2020, the Board held a telephonic meeting to discuss, among other things, the Proposal. The Board determined that it was in the best interests of the Company to establish a special committee (the “Special Committee”) consisting of three independent and disinterested directors, Mr. Linyuan Zhai, Mr. Huiyi Chen and Mr. Guanbao Huang, to consider and evaluate the Proposal. The Special Committee was granted, by way of unanimous written resolutions by the Board on May 10, 2020, the power and authority to (i) establish, approve, modify, monitor and direct the process and procedures related to the review and evaluation of the Proposed Transaction and any alternative transaction, including the authority to determine not to proceed with any such process, procedures, review or evaluation, (ii) respond to any communications, inquiries or proposals regarding the Proposed Transaction or any alternative transaction, (iii) review, evaluate, investigate, pursue and negotiate the terms and conditions of the Proposed Transaction or any alternative transaction, (iv) solicit expressions of interest or other proposals for alternative transactions to the extent the Special Committee deems appropriate, (v) recommend to the Board and the Company whether the Proposed Transaction or any alternative transaction is advisable and is fair to, and in the best interests of, the Company and its stockholders (or any subset of the stockholders of the Company that the Special Committee determines to be appropriate), (vi) recommend rejection or approval of the Proposed Transaction or any alternative transaction to the Board, (vii) effect or recommend to the Board the consummation of the Proposed Transaction or any alternative transaction, (viii) review, analyze, evaluate and monitor all proceedings and activities of the Company related to the Proposed Transaction or any alternative transaction, (ix) take such actions as the Special Committee may deem to be necessary or appropriate in connection with anti-takeover provisions, including, without limitation, actions with respect to the adoption, amendment or redemption of a stockholder rights plan, (x) investigate the Company and any prospective acquirers, the Proposed Transaction or alternative transaction and matters related thereto as it deems appropriate, (xi) review and comment upon any and all documents and other instruments used in connection with the Proposed Transaction or any alternative transaction, including any and all materials to be filed with the SEC and other governmental and non-governmental persons and entities, (xii) authorize the issuance of press releases and other public statements, including filings with the SEC and other governmental and non-governmental persons and entities as the Special Committee considers appropriate regarding the Proposed Transaction or any alternative transaction or consideration thereof, and (xiii) take such other actions as the Special Committee may deem to be necessary or appropriate for the Special Committee to discharge its duties.

On the same day, the Special Committee held its first telephonic meeting. The members of the Special Committee unanimously decided that Mr. Huiyi Chen shall be elected as the chairman of the Special Committee. The Special Committee also determined to retain Hogan Lovells as its U.S. legal advisor to assist the Special Committee in evaluating and negotiating the Proposed Transaction or any alternative transaction. The Special Committee’s decision was based on, among other factors, Hogan Lovells’ qualifications and extensive experience with mergers and acquisitions transactions, including its prior representation of special committees in going private transactions, and its significant history of working with China-based companies. During the meeting, Hogan Lovells gave a detailed explanation of the Special Committee’s fiduciary duties as directors of the Company in the Proposed Transaction, noting, among other things, that each member of the Special Committee owes fiduciary duties to the Company, including to act bona fide in the best interests of the Company as a whole and not to allow his personal interests to conflict with his duties to the Company. Hogan Lovells further noted that the Special Committee should be mindful in establishing a rigorous and fair process throughout the going-private process that is designed to maximize stockholder value.

During the meeting, the Special Committee also discussed draft communications and confidentiality guidelines prepared by Hogan Lovells for directors, officers and employees of the Company to follow in light of and in connection with the Proposed Transaction and any alternative transaction, including guidelines on what information can and should be provided to the Buyer Group and to third parties involved in or potentially interested in pursuing an alternative transaction, and the circumstances and conditions under which such information should be provided. The guidelines were adopted by the Special Committee and subsequently delivered to the management of the Company on May 14, 2020.

The Special Committee then considered the selection of the investment banks as financial advisor to the Special Committee from aspects including experience with similar transactions, reputation, knowledge of the relevant industry, fee proposals, and relevant qualifications of team members and potential conflicts of interests thereof. After discussion, the Special Committee decided to engage Duff & Phelps, LLC (“Duff & Phelps”) as its financial advisor. Among the reasons for Duff & Phelps’ selection were its extensive experience in mergers and acquisitions transactions, its strong reputation, its significant experience dealing with China-based companies, and its lack of existing material relationships with the Company or the Buyer Group. The Special Committee instructed Hogan Lovells to reach out to Duff & Phelps to finalize the engagement letter for the engagement. Hogan Lovells then, on behalf of the Company, subsequently entered into an engagement letter with Duff & Phelps on May 12, 2020.

On May 11, 2020, the Company issued a press release regarding the establishment of the Special Committee, and furnished the press release as an exhibit to its current report on Form 8-K.

On May 15, 2020, the Company issued a press release regarding the Special Committee’s appointment of Hogan Lovells as its U.S. legal advisor and the appointment of Duff & Phelps as its financial advisor, and furnished the press release as an exhibit to its current report on Form 8-K.

On May 18, 2020, the Special Committee convened a meeting by telephone with Hogan Lovells and Duff & Phelps. Duff & Phelps briefly discussed the process and the financial advisor’s responsibilities in the Proposed Transaction, including key work streams, the potential process and the indicative timetable of a typical going-private transaction, and the financial due diligence work it needs to conduct in order to deliver its opinion regarding the valuation for the Company. The Special Committee then authorized Duff & Phelps to commence its due diligence on the Company as necessary for Duff & Phelps to conduct its valuation for the Company. The Special Committee also requested that Hogan Lovells (i) seek to obtain clarification from the Buyer Group as to the deal structure of the Proposed Transaction, and (ii) engage in discussions with the Buyer Group to better understand their financing plan and corresponding timing in connection with their Proposal.

Later on the same day, representatives of Duff & Phelps reached out to the Company to commence its financial due diligence with respect to the Company.

On May 19, 2020, the Company made available to the Special Committee emails sent from a number of individual stockholders who are minority stockholders of the Company, claiming that the offer price of $1.1 is too low.

On May 20, 2020, Duff & Phelps sent the Company a preliminary financial due diligence request list, which included, among other things, a request for the financial projections of the Company.

On May 21, 2020, Duff & Phelps and Hogan Lovells held a telephonic meeting with the Chairman and O’Melveny. During the meeting, the Chairman confirmed that he would neither sell his shares in the Company nor participate in any alternative transaction. The Chairman also indicated that the Company had approximately RMB1 billion cash available within the PRC to finance the Proposed Transaction and repay the outstanding loan amount under a facility agreement between Xinda Holding (HK) Company Limited, a wholly owned subsidiary of the Company, and a consortium of banks and financial institutions led by ICBC (Macau) Limited, dated October 2, 2019.

On May 22, 2020, O’Melveny sent an initial draft of the merger agreement to Hogan Lovells.

On May 25, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Duff & Phelps. During the meeting, Duff & Phelps provided the Special Committee with an update on the Proposed Transaction and that it expected to receive the Company’s financial projections prepared by the management of the Company within that week, which would facilitate its valuation analysis. Hogan Lovells then provided the Special Committee with an overview of the discussion during the call among Hogan Lovells, Duff & Phelps, the Chairman and his legal counsel, O’Melveny, on May 21, 2020. The Special Committee further discussed how to best assess whether the Proposed Transaction was likely the best alternative available, including whether it was necessary to perform a market check. After taking into consideration all available facts, including that (i) the Buyer Group owned shares in the Company representing approximately 70% of the outstanding voting power and the Buyer Group’s ability to veto any other transaction at a stockholders’ meeting, (ii) the Buyer Group’s clear indication that it was committed to the current proposal and not any potential proposal from a third party, (iii) no other party had expressed an interest in a transaction with the Company since the announcement of the Proposed Transaction, and (iv) that the Special Committee may change its recommendation of the current proposal to pursue alternative transactions in accordance with the terms of the merger agreement, the Special Committee came to the view that, although it would not pursue an active market check at this stage of the privatization process, it would remain open to any competing bids received or alternative transactions available. The Special Committee also instructed Hogan Lovells to follow up with the Buyer Group regarding its detailed financing plan. At the same meeting, Hogan Lovells provided the Special Committee with an overview of principal issues contained in the first draft of the merger agreement that Hogan Lovells received from O’Melveny on May 22, 2020, which include, among other things: (i) the Buyer Group’s proposed financing arrangements and use of company cash, and (ii) the absence of a “majority of the minority vote” requirement. After robust discussion, the Special Committee decided to reject the Company’s representations and covenants regarding the amount of available offshore cash of the Company and the obligations of the Company to transfer the Company cash from onshore to offshore as proposed by the Buyer Group in the draft merger agreement, and to ask for a “majority of the minority vote” closing condition in the merger agreement.

On May 28, 2020, O’Melveny sent the first draft of the equity commitment letter to be issued by the Chairman to Parent, and the first draft of the equity contribution and voting agreement (the “Support Agreement”) to Hogan Lovells. In response to Hogan Lovells’ inquiry of Buyer Group’s financing plan, O’Melveny also informed Hogan Lovells of the Buyer Group’s plan to fund the Proposed Transaction with cash on hand and available offshore cash of the Company and its subsidiaries.

On May 29, 2020, Hogan Lovells sent the revised draft merger agreement to O’Melveny.

On June 1, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Duff & Phelps. During the meeting, the Special Committee discussed with its advisors regarding the status of the financial due diligence. Hogan Lovells also reported that the Buyer Group’s financing plan consists of its cash on hand and available cash of the Company and its subsidiaries, through dividend distribution from the Company’s PRC onshore subsidiaries to offshore subsidiaries and that in case there is any shortfall, the Buyer Group will obtain debt financing. The Special Committee further instructed its advisors to communicate with the Buyer Group regarding a price increase.

On June 2, 2020, O’Melveny sent the first draft of the limited guarantee to be issued by the Chairman, the revised draft of merger agreement and certain documents in relation to the financing plan to Hogan Lovells.

On June 4, 2020, Hogan Lovells presented a list of key issues contained in the revised draft of the merger agreement, which include, among other things, (i) “intervening event” not being a trigger for a change in the Board’s recommendation, (ii) the company cash covenants stipulating that the Company should procure the distribution of profits of its certain onshore subsidiary to its offshore subsidiary after the signing of the merger agreement, and (iii) the closing conditions, including the absence of a “majority of the minority vote” requirement, and a condition for the benefit of the Buyer Group that the Company have no less than a certain amount of available offshore cash. After considering the views of its advisors, the Special Committee agreed on a proposed response to the key issues in the merger agreement, including, among other things, (i) requesting for the ability for the Company to change its recommendation and to terminate the agreement if an intervening event occurs, (ii) rejecting the covenants of the Company regarding cross-border distribution of profits by the Company’s subsidiaries, (iii) rejecting the closing condition relating to the amount of available offshore cash of the Company, and (iv) requesting the Buyer Group to provide the procedures and timetable for making the cross-border profit distribution. Upon recommendation of Duff & Phelps, the Special Committee then decided to request the Buyer Group to increase the offer price. On the ensuing day, Hogan Lovells sent the revised draft merger agreement and an email requesting the Buyer Group to increase the offer price to O’Melveny.

On June 5, 2020, O’Melveny held a telephonic meeting with Hogan Lovells and discussed the outstanding key terms in the transaction documents.

On June 7, 2020, O’Melveny sent Hogan Lovells the action plan and estimated timeline to complete the cash dividend distribution from the Company’s onshore subsidiary to the Company’s offshore subsidiary.

On June 8, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Duff & Phelps. During the meeting, the Special Committee discussed with its advisors the status of the financial due diligence. Hogan Lovells also reported that the Buyer Group had provided the detailed cash distribution action plan and an estimated timeline regarding the cash distribution from a certain PRC onshore subsidiary of the Company to a certain offshore subsidiary, that was: (i) the Buyer Group had confirmed that no approval from the State Administration of Foreign Exchange or its local counterpart was required to complete the cross-border profit distribution; (ii) the Company intended to conduct the cross-border profit distribution via four different commercial banks, and (iii) it would take approximately two months to complete the cross-border profit distribution.

On June 8, 2020, O’Melveny sent Hogan Lovells revised drafts of the merger agreement, support agreement and equity commitment letter.

On June 9, 2020, Hogan Lovells had a telephonic meeting with O’Melveny to clarify certain issues in the draft transaction documents, among others, (i) the reason for the deletion of the “Intervening Event”, (ii) certain representations and warranties given by the Company, and (iii) whether the Buyer Group should explicitly waive the dissenter’s right in the Support Agreement.

On June 10, 2020, Hogan Lovells sent O’Melveny revised drafts of the merger agreement, support agreement, limited guarantee and equity commitment letter.

On June 11, 2020, O’Melveny, representatives of Buyer Group, Duff & Phelps and Hogan Lovells had a telephonic meeting to discuss the potential increase in offer price. Representatives of the Buyer Group explained that the Buyer Group was unable to raise the offer price because of a multitude of factors, including (i) the slowdown of China’s automobile production in the long term, which the business of the Company heavily relies on, (ii) the material adverse impact on the Company’s performance and operations caused by the outbreak of COVID-19 was expected to continue throughout 2020, and (iii) the current offer price already represented a premium of approximately 20% to the average closing price of the Company’s Common Shares during the last 30 trading days when the Proposal was announced.

On June 12, 2020, O’Melveny sent Hogan Lovells revised drafts of the merger agreement, support agreement, limited guarantee and equity commitment letter.

During the course of the next few days, Hogan Lovells and O’Melveny, through an exchange of multiple drafts and telephonic meetings, continued to negotiate the terms of the merger agreement, equity commitment letter, limited guarantee, support agreement and related documentation.

After the telephonic meeting with Duff & Phelps and Hogan Lovells, the Buyer Group reconsidered the request by Duff & Phelps to increase the offer price. In order to expedite the process and deliver greater value to the unaffiliated security holders, the Buyer Group decided to increase the offer price from US$1.1 to US$1.2 per share. On June 14, 2020, O’Melveny sent to Hogan Lovells a revised draft of the merger agreement reflecting the Buyer Group’s revised positions on the outstanding issues of the merger agreement including, among other things, a revised and increased offer price of $1.2 per share from its original offer price of $1.1 in the Proposal.

On June 14, 2020, Hogan Lovells presented the revised drafts of the transaction documents to the Special Committee, noting that (i) the offer price was increased from US$1.1 to US$1.2 per share, (ii) the Proposed Transaction will be funded through a combination of the Chairman’s equity commitment of US$5,000,000 and available offshore cash of the Company and its subsidiaries and the Chairman may seek alternative debt financing, and (iii) the Proposed Transaction required the affirmative vote (in person or by proxy) of (a) the holders of a majority of the voting power of the outstanding Common Shares and Preferred Shares entitled to vote thereon, voting together as a single class, with the holders of Preferred Shares being entitled to a voting power equivalent to 40% of the combined voting power of the share capital of the Company, and (b) the holders of a majority of the outstanding Preferred Shares entitled to vote thereon, voting as a single class.

On June 15, 2020, the Special Committee held a telephonic meeting with Hogan Lovells and Duff & Phelps. Hogan Lovells reviewed the fiduciary duties applicable to the Special Committee in connection with the Proposed Transaction and the key terms in the merger agreement and the related transaction documents. Duff & Phelps then presented its financial analysis to the Special Committee and provided its oral opinion, which was subsequently confirmed in writing and is attached hereto as Annex B, to the effect that, as of June 15, 2020, and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in the opinion, the $1.2 per share cash merger consideration (without interest thereon and less any required withholding taxes) (“Merger Consideration”) to be received by the holders of Common Shares (other than holders of Excluded Shares), pursuant to the merger agreement was fair, from a financial point of view, to such holders (without giving effect to any impact of the merger on any particular holder of Common Shares other than in its capacity as a holder of Common Shares). Please see “Special Factors – Opinion of the Special Committee’s Financial Advisor” beginning on page 43 for additional information regarding the financial analysis performed by Duff & Phelps and the opinion rendered by Duff & Phelps to the Special Committee. The full text of the written opinion of Duff & Phelps to the Special Committee, dated June 15, 2020, is attached as Annex B to this proxy statement. After considering the presentations of Hogan Lovells and Duff & Phelps, including Duff & Phelps’ fairness opinion, and taking into account the other factors described below under the heading titled “Special Factors–Reasons for the Merger and Recommendation of the Special Committee and the Board”, the Special Committee then unanimously (i) determined that it is fair (both substantively and procedurally) to and in the best interests of the Company and its unaffiliated security holders and declared it advisable to enter into the merger agreement and the transaction agreements contemplated by the merger agreement to which it is a party, (ii) recommended that the Board authorize and approve the execution, delivery and performance of the merger agreement and the transaction agreements contemplated by the merger agreement and the consummation of the transactions contemplated thereby, including the merger, (iii) recommended that the Board (a) determine that the terms of the merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, the Company and the unaffiliated security holders, (b) adopt resolutions authorizing and approving the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby, including the merger, upon the terms and subject to the conditions set forth therein, and (c) resolve to recommend that the stockholders of the Company adopt the merger agreement at the stockholders’ meeting, and (iv) recommended that the Board direct that the authorization and approval of the merger agreement and the consummation of the transactions contemplated thereby, including the merger, be submitted to a vote at a special meeting of the stockholders of the Company with the recommendation of the Board that the stockholders of the Company authorize and approve the merger agreement and the consummation of the transactions contemplated thereby, including the merger.

Following the meeting of the Special Committee, the Board convened a meeting with Hogan Lovells and Duff & Phelps. After fully disclosing his interests in the proposed transaction (which interests are described under the heading titled “Special Factors –Interests of Certain Persons in the Merger”), the Chairman left the meeting and did not participate in or vote upon any matters discussed during the meeting. The Special Committee then provided to the Board an overview of the proposed transaction and presented its recommendation to the Board. After considering the proposed terms of the merger agreement, the other transaction agreements and the unanimous determination and recommendation of the Special Committee, the Board, on behalf of the Company, (i) determined that the terms of the merger and the other transactions contemplated by the merger agreement are fair to, and in the best interests of, the Company and the unaffiliated security holders, (ii) authorized and approved the execution, delivery and performance by the Company of the merger agreement and the consummation of the transactions contemplated thereby, including the merger, upon the terms and subject to the conditions, and (iii) resolved to direct that the authorization and approval of the merger agreement and the merger be submitted to a vote at a special meeting of the stockholders of the Company with the recommendation of the Board that the stockholders of the Company authorize and approve the merger agreement and the consummation of the transactions contemplated thereby, including the merger. See “Special Factors – Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 31 for a full description of the resolutions of the Board at this meeting.

Later in the evening on June 15, 2020, the Company, Parent and Merger Sub executed the merger agreement. Other transaction documents, including the limited guarantee, the support agreement and the equity commitment letter were also executed on June 15, 2020. The Company then issued a press release announcing the execution of the merger agreement and the ancillary documents, and furnished the press release as an exhibit to its current report on Form 8-K.

On June 15, 2020, the Chairman, and the Chairman SPV, Parent and Holdco filed with the SEC the Amendment No. 6 to the Schedule 13D filed with SEC on January 20, 2009 as amended and supplemented by Amendment No. 5 to the Schedule 13D filed with the SEC on May 11, 2020.

Reasons for the Merger and Recommendation of the Special Committee and the Board

The Special Committee and the Board believe that, as a privately-held entity, the management of the Company may have greater flexibility to focus on improving the Company’s long term financial performance without the pressures caused by the public equity market’s valuation of the Company and emphasis on short-term period-to-period performance.

Additionally, as an SEC-reporting company, the management of the Company and accounting staff, which comprises a handful of individuals, must devote significant time to SEC reporting and compliance. The Company is also required to disclose a considerable amount of business information to the public, some of which would otherwise be considered proprietary and competitively sensitive and would not be disclosed by a non-reporting company. As a result, the Company’s actual or potential competitors, customers, suppliers, lenders and vendors all have access to this information which potentially may help them compete against us or make it more difficult for us to negotiate favourable terms with them, as the case may be.

Our Board, acting upon the unanimous recommendation of the Special Committee, which the Special Committee reached based on the advice and assistance of our management (other than the Chairman, a member of the Buyer Group, owing to his interests in the proposed transaction) and its financial and legal advisors, and on behalf of the Company, evaluated the merger, including the terms and conditions of the merger agreement.

At a meeting on June 15, 2020, the Special Committee unanimously determined that it is fair (both substantively and procedurally) to and in the best interests of the Company and the unaffiliated security holders and declared it advisable to enter into the merger agreement and the transaction agreements contemplated by the merger agreement to which it is a party and recommended that the Company’s Board:

On June 15, 2020, the Board (other than the Chairman, a member of the Buyer Group, who did not participate in or vote upon any matters discussed during the Board meeting, owing to his interests in the proposed transaction) approved and adopted the resolutions recommended by the Special Committee.

In the course of reaching their respective determinations, the Special Committee and the Board considered the following substantive factors and potential benefits of the merger, each of which the Special Committee and the Board believed supported their respective decisions, but which are not listed in any relative order of importance:

In addition, the Special Committee and the Board believed that sufficient procedural safeguards were and are present to ensure that the merger is procedurally fair to the unaffiliated security holders and to permit the Special Committee and the Board to represent effectively the interests of such unaffiliated security holders. These procedural safeguards, which are not listed in any relative order of importance, are discussed below:

The Special Committee and the Board also considered a variety of potentially negative factors discussed below concerning the merger agreement and the merger, which are not listed in any relative order of importance:

The foregoing information and factors considered by the Special Committee and the Board are not intended to be exhaustive, but include the material factors considered by the Special Committee and the Board. In view of the wide variety of factors considered by the Special Committee and the Board, neither the Special Committee nor the Board found it practicable to quantify or otherwise assign relative weights to the foregoing factors in reaching its conclusions. In addition, individual members of the Special Committee and the Board may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Special Committee recommended that the Board authorize and approve, and the Board authorized and approved, the merger agreement and the transactions contemplated by the merger agreement, including the merger, based upon the totality of the information presented to and considered by it.

In the course of reaching its conclusion regarding the fairness of the merger to the unaffiliated security holders and its decision to recommend the authorization and approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger, the Special Committee considered financial analyses presented by Duff & Phelps as an indication of the going-concern value of the Company. These analyses included, among others, discounted cash flow analysis, selected public companies analysis, selected M&A transactions analysis and option value analysis. All of the material analyses as presented to the Special Committee on June 15, 2020 are summarized below under the caption “Special Factors – Opinion of the Special Committee’s Financial Advisor” beginning on page 43. The Special Committee expressly adopted these analyses and the opinion of Duff & Phelps, among other factors considered, in reaching its determination as to the fairness of the transactions contemplated by the merger agreement, including the merger.

Neither the Special Committee nor the Board considered the liquidation value of Company’s assets because each considers the Company to be a viable going-concern business where value is derived from cash flows generated from its continuing operations. In addition, the Special Committee and the Board believe that the value of the Company’s assets that might be realized in a liquidation would be significantly less than its going-concern value based on the liquidation analysis provided by the management of the Company.

Each of the Special Committee and the Board believes the analyses and additional factors it reviewed provided an indication of the Company’s going-concern value. The Board and management of the Company have been dedicated to maximizing stockholder value. Taking into account the historical trading prices of Common Shares and the current condition of the U.S. stock market, each of the Special Committee and the Board believes that the per share Merger Consideration offered by the Buyer Group appropriately reflects the intrinsic present value of the Common Shares, while allowing sufficient potential for future growth to attract the Buyer Group to enter into the merger agreement and complete the merger. Each of the Special Committee and the Board also considered the purchase prices paid in previous purchases as described under the caption “Transactions in the Shares” beginning on page 97. Neither the Special Committee nor the Board considered the Company’s net book value, which is defined as total assets minus total liabilities, attributable to the stockholders of the Company, as a factor. The Special Committee and the Board believe that net book value is not a material indicator of the value of the Company as a going concern. The Company’s net book value per share as of December 31, 2019 was $12.49, based on the 66,948,841 issued and outstanding Common Shares as of December 31, 2019. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry related to specialty chemical and automotive applications or the business risks inherent in competing with other companies in that industry. The Company is not aware of any firm offers made by any unaffiliated person, other than the filing persons, during the past two years for (i) the merger or consolidation of the Company with or into another company, or vice-versa; (ii) the sale or other transfer of all or any substantial part of the assets of the Company; or (iii) a purchase of the Company’s securities that would enable the holder to exercise control of the Company.

In reaching its determination that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of the Company and the unaffiliated security holders and its decision to authorize and approve the merger agreement and the transactions contemplated thereby, including the merger, and recommend the authorization and approval of the merger agreement and the transactions contemplated thereby, including the merger, by the Company’s stockholders, the Board, on behalf of the Company, considered the analysis and recommendation of the Special Committee and the factors examined by the Special Committee as described above under this section and under “Special Factors – Background of the Merger,” and adopted such recommendations and analysis. During its consideration of the merger agreement and the consummation of the transactions, including the merger, the Board was also aware that some of the Company’s directors and stockholders, including the Chairman, the chairman of the Board and chief executive officer of the Company, and other employees of the Company, have interests with respect to the merger that are, or may be, different from, or in addition to those of the unaffiliated security holders generally, as described under the section entitled “Special Factors —Interests of Certain Persons in the Merger” beginning on page 61. Except as discussed in “Special Factors – Background of the Merger,” “Special Factors – Reasons for the Merger and Recommendation of the Special Committee and the Board,” and “Special Factors – Opinion of the Special Committee’s Financial Advisor,” no director who is not an employee of the Company has retained an unaffiliated representative to act solely on behalf of unaffiliated security holders for purposes of negotiating the terms of the transaction and/or preparing a report concerning the fairness of the transaction.

For the foregoing reasons, each of the Company and the Board believes that the merger agreement and the transactions contemplated thereby, including the merger, are substantively and procedurally fair to and in the best interests of the Company and the unaffiliated security holders.

Position of the Buyer Group as to the Fairness of the Merger

Under SEC rules governing “going private” transactions, each member of the Buyer Group is deemed to be an affiliate of the Company and is required to express its beliefs as to the fairness of the merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of the Buyer Group as to the fairness of the merger are not intended to be and should not be construed as a recommendation to any stockholder of the Company as to how to vote on the proposal to authorize and approve the merger agreement and the transactions, including the merger. The Buyer Group has interests in the merger that are different from, and/or in addition to, those of the unaffiliated security holders of the Company by virtue of its continuing interests in the surviving corporation after the consummation of the merger. These interests are described under the caption “— Interests of Certain Persons in the Merger —Interests of the Buyer Group” beginning on page 61.

The Buyer Group believes that the interests of the Company’s unaffiliated security holders were represented by the Special Committee, which negotiated the terms and conditions of the merger agreement with the assistance of its legal and financial advisors. The Buyer Group did not participate in the deliberations of the Special Committee regarding, and did not receive any advice from the Special Committee’s advisors as to, the fairness of the merger to the Company’s unaffiliated security holders. The Buyer Group attempted to negotiate a transaction that would be most favourable to it, and not to the Company’s unaffiliated security holders and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were substantively and procedurally fair to such holders. The members of the Buyer Group did not perform, or engage a financial advisor to perform, any special valuation or other analysis to assist them in assessing the substantive and procedural fairness of the Merger Consideration to the Company’s unaffiliated security holders.

Based on their knowledge and analysis of available information regarding the Company, as well as discussions with the management of the Company regarding the Company and its business, and the factors considered by, and the conclusions of, the Special Committee and the Board discussed in “Special Factors — Reasons for the Merger and Recommendation of the Special Committee and the Board” beginning on page 31, and based on the following factors, which are not listed in any relative order of importance, the Buyer Group believes the merger is both substantively and procedurally fair to the Company’s unaffiliated security holders:

The Buyer Group did not consider the Company’s net book value, which is defined as total assets minus total liabilities and which is an accounting concept, as a factor because it believed that net book value is not a material indicator of the Company’s value as a going concern. The Buyer Group notes, however, that US$1.2 per share merger consideration receivable by the unaffiliated security holders in connection with the merger is lower than the net book value of the Common Shares as of December 31, 2019.

In its consideration of the fairness of the proposed merger, the Buyer Group did not undertake an appraisal of the assets of the Company to determine the Company’s liquidation value for the Company’s unaffiliated security holders due to the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, since it considered the Company to be a viable going concern where value is derived from cash flows generated from its continuing operations, and because the Company will continue to operate its business following the merger.

The Buyer Group’s consideration of the factors described above reflects its assessment of the fairness of the per share merger consideration payable in the merger to the unaffiliated security holders in relation to the going-concern value of the Company on a stand-alone basis. The Buyer Group implicitly considered the value of the Company in a sale as a going concern by taking into account the Company’s current and anticipated business, financial condition, results and operations, prospects and other forward-looking matters. The Buyer Group did not, however, explicitly calculate a stand-alone pre-merger going-concern value of the Company as a public company because the Company will have a significantly different capital structure following the merger. Therefore, the Buyer Group does not believe that the going-concern value of the Company is an appropriate indicator to determine the fairness of per share merger consideration payable in the merger to the unaffiliated security holders.

Except as set forth under “Special Factors Relating to the Merger—Background of the Merger” beginning on page 25, the Buyer Group is not aware of, and thus did not consider, any offers or proposals made by any unaffiliated person during the past two years for (a) the merger or consolidation of the Company with or into another company, or vice versa, (b) an acquisition of the Company, (c) a tender offer or other acquisition of any class of the Company’s securities, (d) the sale or other transfer of a material amount of the assets of the Company, or (e) a purchase of the Company’s securities that would enable the purchaser to exercise control over the Company.

Because the Buyer Group has indicated their unwillingness to dispose of their shares to a competing bidder or cast their votes to support an alternative transaction, the Board may not have maximum flexibility to “shop” the Company or conduct a sale auction for purposes of soliciting a superior proposal to maximize the short term value for all shareholders of the Company. The Buyer Group also noted that Nevada law does not require, and the merger agreement is not subject to, approval by a majority of the unaffiliated security holders of the Company and both quorum and an affirmative vote in favor of the merger are practically assured with the Buyer Group’s vote. The Buyer Group believes these factors are nonetheless counterbalanced by the other procedural safeguards described above; as a whole, the merger is fair to the unaffiliated security holders.

The foregoing is a summary of the information and factors considered and given weight by the Buyer Group in connection with its evaluation of the fairness of the merger to the unaffiliated security holders, which is not intended to be exhaustive, but is believed by the Buyer Group to include all material factors considered by it. The Buyer Group did not find it practicable to assign, and did not assign, relative weights to the individual factors considered in reaching its conclusion as to the fairness of the merger to the unaffiliated security holders. Rather, its fairness determination was made after consideration of all of the foregoing factors as a whole.

The Buyer Group believes these factors provide a reasonable basis for its belief that the merger is both substantively and procedurally fair to the unaffiliated security holders. This belief, however, is not intended to be and should not be construed as a recommendation by the Buyer Group to any stockholder of the Company as to how such stockholder should vote with respect to the approval and adoption of the merger agreement.

Certain Financial Projections

The management of the Company does not, as a matter of course, make available to the public future financial projections due to, among other reasons, the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections. However, the management of the Company prepared and made available certain financial projections (the “Company Financial Projections”) to Duff & Phelps, in its capacity as the Special Committee’s financial advisor, for purposes of preforming the financial analyses and opinion summarized under “Special Factors—Opinion of the Special Committee’s Financial Advisor.” The Company has included the material portions of the Company Financial Projections below in order to give its stockholders access to this information as well.

The Company Financial Projections reflect numerous assumptions and estimates as to future events made by the management of the Company that the management of the Company believed were reasonable at the time the Company Financial Projections were prepared. However, this information is not factual and should not be relied upon as being indicative of actual future results. In addition, factors, such as industry performance, the market for our existing and new products, the competitive environment or any other transaction, general business, economic, regulatory, market and financial conditions, and other factors described under “Cautionary Note Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are beyond the control of the management of the Company, may cause the Company Financial Projections or the underlying assumptions not to be reflective of actual future results. In addition, the Company Financial Projections do not take into account any circumstances or events occurring after the date that they were prepared and, accordingly, do not give effect to any changes to operations or strategy that may be implemented or that were not anticipated after the time the Company Financial Projections were prepared, or to the completion of the merger or the impact of any failure to complete the merger. Except as may be required in order to comply with applicable securities laws, the Company does not intend to update, or otherwise revise, the Company Financial Projections, or the specific portions disclosed in this proxy statement, to reflect circumstances existing after the date when they were made or to reflect the occurrence of future events, even in the event that any or all of the assumptions are shown to be in error. Since the Company Financial Projections cover multiple years, such information by its nature becomes less reliable with each successive year. As a result, the Company Financial Projections may not be realized, and actual results may be materially different than those contained in the Company Financial Projections.

The Company Financial Projections were not prepared with a view toward public disclosure, soliciting proxies or complying with U.S. generally accepted accounting principles, the published guidelines of the SEC regarding financial projections and forecasts or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections and forecasts. Neither the Company’s independent registered public accounting firm nor any other independent accountants has examined, compiled or performed any procedures with respect to the Company Financial Projections or any amounts derived therefrom or built thereupon, and, accordingly, they have not expressed any opinion or given any form of assurance with respect to the Company Financial Projections or their achievability.

For the foregoing reasons, as well as the bases and assumptions on which the Company Financial Projections were compiled, the inclusion of specific portions of Company Financial Projections in this proxy statement should not be regarded as an indication that the Company, the Special Committee and its advisors or the Board considers such Company Financial Projections to be an accurate prediction of future events, and the Company Financial Projections should not be relied on as such an indication. No one has made any representation to any stockholder of the Company or anyone else regarding the information included in the Company Financial Projections discussed above.

The financial projections and forecasts included in this proxy statement should not be considered in isolation or in lieu of the Company’s operating and other financial information prepared in accordance with U.S. GAAP.

NONE OF THE COMPANY OR ITS AFFILIATES, ADVISORS, OFFICERS, DIRECTORS OR REPRESENTATIVES HAS MADE OR MAKES ANY REPRESENTATION TO ANY STOCKHOLDER OR OTHER PERSON REGARDING THE ULTIMATE PERFORMANCE OF THE COMPANY COMPARED TO THE INFORMATION CONTAINED IN THE PROJECTIONS OR THAT PROJECTED RESULTS WILL BE ACHIEVED.

BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS INTERNAL FINANCIAL PROJECTIONS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THESE FINANCIAL PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE PROJECTIONS, EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE FEDERAL SECURITIES LAW.

The financial projections are forward-looking statements. For information on factors which may cause the Company’s future financial results to materially vary, please see “Cautionary Note Regarding Forward-Looking Statements” beginning on page 99, and “Item 1A — Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, incorporated by reference into this proxy statement.

Opinion of the Special Committee’s Financial Advisor

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation in general, and with respect to similar transactions in particular. Duff & Phelps’ procedures, investigations and financial analyses with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

In performing its analyses and rendering its opinion with respect to the merger, Duff & Phelps, with the Company’s and the Special Committee’s consent:

·                     assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without undue delay, limitation, restriction or condition that would have a material adverse effect on the Company or the contemplated benefits expected to be derived in the merger.

To the extent that any of the foregoing assumptions or any of the facts on which the opinion is based is proven to be untrue in any material respect, Duff & Phelps’ opinion cannot and should not be relied upon for any purpose. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger.

Duff & Phelps prepared its opinion effective as of the date thereof. Its opinion was necessarily based upon market, economic, financial and other conditions as they existed and can be evaluated as of the date thereof, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date thereof. Duff & Phelps assumes no obligation to update, revise or reaffirm its opinion. The credit, financial and stock markets have been experiencing unusual volatility and Duff & Phelps expresses no opinion or view as to any potential effects of such volatility on the Company or the merger.

Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, initiate any discussions with, or solicit any indications of interest from, third parties with respect to the merger, the assets, investments, businesses or operations of the Company, or any alternatives to the merger; however, Duff & Phelps Securities, LLC (“DPS”) conducted a market check exercise at the request of the then-established special committee of the Company, consisting of two independent directors, Mr. Feng Li, and Mr. Linyuan Zhai (the “2017 Special Committee”), pursuant to the engagement letter among Duff & Phelps, DPS, the Company, and the 2017 Special Committee dated June 2, 2017 (the “2017 Engagement Letter”). Further, Duff & Phelps has not been requested to, and did not, (i) negotiate the terms of the merger, and therefore, Duff & Phelps has assumed that such terms are the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the merger agreement and the merger, or (ii) advise the Special Committee or any other party with respect to alternatives to the merger. Duff & Phelps did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company is or may be a party or is or may be subject.

Duff & Phelps is not expressing any opinion as to the market price or value of the Shares (or anything else) after the announcement or the consummation of the merger. Duff & Phelps’ opinion should not be construed as a valuation opinion, a credit rating, a solvency opinion, an analysis of the Company’s credit worthiness, as tax advice, or as accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.

In rendering its opinion, Duff & Phelps was not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the Merger Consideration, or with respect to the fairness of any such compensation.

Duff & Phelps’ opinion was furnished solely for the use and benefit of the Special Committee in connection with its consideration of the merger and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent. Duff & Phelps has consented to the inclusion of the opinion in its entirety in any filing with the SEC made by the Company in connection with the merger. Duff & Phelps’ opinion (i) does not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction; (ii) does not address any transaction related to the merger; (iii) is not a recommendation as to how the Special Committee, the Board of Directors or any other person (including security holders of the Company) should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction; and (iv) does not indicate that the Merger Consideration is the best possibility attainable under any circumstances; instead, it merely states whether the Merger Consideration is within or above a range suggested by certain financial analyses. The decision as to whether to proceed with the merger or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which the opinion is based. Duff & Phelps’ opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.

Duff & Phelps’ opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with the opinion shall be limited in accordance with the terms set forth in the engagement letter among Duff & Phelps, the Company, and the Special Committee dated May 12, 2020 (the “Engagement Letter”), which superseded the 2017 Engagement Letter in its entirety. Duff & Phelps’ opinion is confidential, and its use and disclosure is strictly limited in accordance with the terms set forth in the Engagement Letter.

Set forth below is a summary of the material analyses performed by Duff & Phelps in connection with the delivery of its opinion to the Special Committee. This summary is qualified in its entirety by reference to the full text of the opinion, attached hereto as Annex B. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the Special Committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it in rendering the fairness opinion without considering all analyses and factors could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’ own experience and judgment.

The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.

Discounted Cash Flow Analysis

Duff & Phelps performed a discounted cash flow analysis of the estimated future unlevered free cash flows attributable to the Company for the fiscal years ending December 31, 2020 through December 31, 2025, with unlevered “free cash flow” defined as cash that is available either to reinvest or to distribute to security holders. The discounted cash flow analysis was used to determine the net present value of estimated future free cash flows utilizing a weighted average cost of capital as the applicable discount rate. For the purposes of its discounted cash flow analysis, Duff & Phelps utilized and relied upon the Management Projections, which are described in this proxy statement in the section entitled “Special Factors—Certain Financial Projections” beginning on page 41. The costs associated with the Company being a publicly listed company, as provided by the management of the Company, were excluded from the financial projections because such costs would likely be eliminated as a result of the merger.

Duff & Phelps estimated the net present value of all cash flows attributable to the Company after fiscal year 2025 (the “Terminal Value”) using a perpetuity growth formula assuming a 4.00% terminal growth rate, which took into consideration an estimate of the expected long-term growth rate of the Chinese economy and the Company’s business. Duff & Phelps used discount rates ranging from 13.50% to 14.50%, reflecting Duff & Phelps’ estimate of the Company’s weighted average cost of capital, to discount the projected free cash flows and the Terminal Value. Duff & Phelps estimated the Company’s weighted average cost of capital by estimating the weighted average of the Company’s cost of equity (derived using the capital asset pricing model) and the Company’s after-tax cost of debt. Duff & Phelps believes that this range of discount rates is consistent with the rate of return that security holders could expect to realize on alternative investment opportunities with similar risk profiles.

Based on these assumptions, Duff & Phelps’ discounted cash flow analysis resulted in an estimated enterprise value for the Company of RMB6,830.00 million to RMB8,270.00 million and a range of implied values of the Company’s Common Shares of US$0.00 to US$1.11 per share.

Selected Public Companies and Merger and Acquisition Transactions Analyses

Duff & Phelps analyzed selected public companies and selected merger and acquisition transactions for purposes of estimating valuation multiples with which to calculate a range of implied enterprise values of the Company. This collective analysis was based on publicly available information and is described in more detail in the sections that follow.

The companies utilized for comparative purposes in the following analysis were not directly comparable to the Company, and the transactions utilized for comparative purposes in the following analysis were not directly comparable to the merger. Duff & Phelps does not have access to non-public information of any of the companies used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the merger cannot rely solely upon a quantitative review of the selected public companies and selected transactions, but involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies and targets, as well as other factors that could affect their value relative to that of the Company. Therefore, the selected public companies and selected merger and acquisition transactions analysis is subject to certain limitations.

Selected Public Companies Analysis. Duff & Phelps compared certain financial information of the Company to corresponding data and ratios from publicly traded companies in the specialty and commodity chemicals industry and plastic automotive parts industry that Duff & Phelps deemed relevant to its analysis. For purposes of its analysis, Duff & Phelps used certain publicly available historical financial data and consensus equity analyst estimates for the selected publicly traded companies. The twelve companies included in the selected public company analysis in the specialty and commodity chemicals industry and plastic automotive parts industry were:

Duff & Phelps selected these companies for its analysis based on their relative similarity, primarily in terms of business model, to that of the Company.

The tables below summarize certain observed trading multiples and historical and projected financial performance, on an aggregate basis, of the selected public companies. The estimates for 20, 2021 and 2022 in the tables below with respect to the selected public companies were derived based on information for the 12-month periods ending closest to the Company’s fiscal year ends for which information was available. Data related to the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses). Government grants are included in EBITDA metrics.

Selected M&A Transactions Analysis. Duff & Phelps compared the Company to the target companies involved in the selected merger and acquisition transactions listed in the tables below. The selection of these transactions was based on, among other things, the target company’s industry, the relative size of the transaction compared to the merger and the availability of public information related to the transaction. The selected transactions indicated enterprise value to LTM revenue multiples ranging from 0.44x to 1.61x with a median of 1.11x, enterprise value to LTM EBITDA multiples ranging from 4.8x to 24.2x with a median of 6.5x.

The Company is not directly comparable to the target companies in the selected M&A transactions analysis given certain characteristics of the transactions and the target companies, including business and industry comparability and lack of recent relevant transactions. Therefore, although reviewed, Duff & Phelps did not select valuation multiples for the Company based on the selected M&A transactions analysis.

Summary of Selected Public Companies / M&A Transactions Analyses

In order to estimate a range of enterprise values for the Company, Duff & Phelps applied valuation multiples to the Company’s projected EBITDA ending December 31, 2021 and December 31, 2022. The projected EBITDA were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses) and include government grants. Duff & Phelps’ selected valuation multiples were as follows: projected fiscal 2021 EBITDA multiple ranged from 4.75x to 5.75x, and projected fiscal 2022 EBITDA multiple ranged from 4.50x to 5.50x. Valuation multiples were selected taking into consideration historical and projected financial performance metrics of the Company relative to such metrics of the selected public companies. Rather than applying the average or median multiple from the public company set, Duff & Phelps selected multiples that, in its judgement, reflected the Company’s size, growth outlook, capital requirements, profit margins, revenue mix, and other characteristics relative to the comparable group. Duff & Phelps noted that while it reviewed the selected M&A transactions, it did not select valuation multiples for the Company based on the Selected M&A Transactions Analysis for the reasons described in the section titled “Selected M&A Transactions Analysis” above.

Based on these analyses, Duff & Phelps’ selected public companies analysis resulted in an estimated enterprise value for the Company of RMB6,680.00 million to RMB8,130.00 million and a range of implied values of the Company’s Common Shares of US$0.00 to US$0.81 per share.

Summary of Discounted Cash Flow Analysis and Selected Public Companies / M&A Transactions Analyses

The range of estimated enterprise values for the Company that Duff & Phelps derived from its discounted cash flow analysis was RMB6,830.00 million to RMB8,270.00 million while from its public companies analysis was RMB6,680.00 million to RMB8,130.00 million. Duff & Phelps concluded that the Company’s enterprise value was within a range of RMB6,760.00 million to RMB8,200.00 million based on the analyses described above.

Based on the concluded enterprise value, Duff & Phelps estimated the range of common equity value of the Company to be RMB0.00 million to RMB456.29 million by:

Based on the foregoing analysis, Duff & Phelps estimated the value of each Share to range from US$0.00 to US$0.96.

Option Value Analysis

Duff & Phelps performed an option value analysis due to the fact that the asset value range of the Company determined in valuation analysis is similar to the face value of the Company’s debt.

Duff & Phelps concluded that the Company’s enterprise value was within a range of RMB6,760.00 million to RMB8,200.00 million based on the analyses described above. Based on the concluded enterprise value, Duff & Phelps estimated the range of asset value of the Company to be RMB6,186.86 million to RMB7,626.86 million by:

Duff & Phelps estimated the debt and preferred liquidation preference to be RMB7,170.57 million by:

·                     adding liquidation preference of series B preferred of RMB7.08 million.

Duff & Phelps utilized a Black-Scholes option pricing model to calculate the common equity value and estimated the value of the Company’s Common Shares to range from US$0.27 to US$1.88 per share.

Summary of Financial Analysis

Duff & Phelps noted that the per share Merger Consideration to be received by the holders of the Common Shares (other than the Excluded Shares) in the merger was within the range of the per share value of the Common Shares indicated by its analyses (without giving effect to any impact of the merger on any particular holder of Common Shares other than in its capacity as a holder of Common Shares).

Duff & Phelps’ opinion was only one of the many factors considered by the Special Committee in its evaluation of the merger and should not be viewed as determinative of the views of the Special Committee.

Fees and Expenses

As compensation for Duff & Phelps’ services in connection with the rendering of its opinion to the Special Committee, the Company agreed to pay Duff & Phelps a fee of US$550,000, consisting of a non-refundable retainer of US$100,000 payable upon engagement, and US$450,000 payable upon Duff & Phelps informing the Special Committee in writing that it is prepared to render the opinion.

No portion of Duff & Phelps’ fee is refundable or contingent upon the consummation of a transaction, including the merger, or the conclusion reached in the opinion.

The terms of the fee arrangements with Duff & Phelps, which the Company believes are customary in transactions of this nature, were negotiated at arm’s length, and the Special Committee and the Company’s Board are aware of these fee arrangements. Other than the Duff & Phelps engagement to render its opinion to the Special Committee under the Engagement Letter (including Duff & Phelps’ engagement under the 2017 Engagement Letter, which has been superseded by the engagement contemplated under the Engagement Letter in its entirety), during the two years preceding the date of its opinion, Duff & Phelps has not had any material relationship with any party to the merger for which compensation has been received or is intended to be received, nor is any such material relationship or related compensation mutually understood to be contemplated.

Buyer Group’s Purpose of and Reasons for the Merger

Under SEC rules governing “going private” transactions, each member of the Buyer Group is deemed to be engaged in a “going private” transaction and is required to express its reasons for the merger to the Company’s unaffiliated security holders, as defined in Rule 13e-3 of the Exchange Act. Each member of the Buyer Group is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

For the Buyer Group, the purpose of the merger is to enable Parent to acquire 100% control of the Company, in a transaction in which unaffiliated security holders will be cashed out in exchange for $1.2 per share, without interest and net of any applicable withholding taxes, so Parent will bear the rewards and risks of the sole ownership of the Company after all of the Shares are cancelled, including any increases in value of the Company as a result of improvements to the Company’s operations or acquisitions of other businesses.

The Buyer Group believes the operating environment has become more challenging due to recent operating conditions, industry trends and macroeconomic factors, including among the others:

These changes have increased the uncertainty and volatility inherent in the business models of companies similar to the Company. As a result, the Buyer Group is of the view that there is potential for considerably greater short- and medium-term volatility in the Company’s earnings. Responding to current market challenges will require tolerance for volatility in the performance of the Company’s business and a willingness to make business decisions focused on improving the Company’s long-term profitability. The Buyer Group believes that these strategies would be most effectively implemented in the context of a private company structure. As a privately held entity, the management of the Company will have greater flexibility to focus on improving long-term profitability without the pressures exerted by the public market’s valuation of the Company and its emphasis on short-term period-to-period performance and to pursue certain strategic alternatives that it would not be practicable to pursue as a public company, including the ability to restructure the Company, potentially spinning off unprofitable business lines and expanding profitable ones into new segments.

Further, as a privately held company, the Company will be relieved of many of the expenses, burdens and constraints imposed on companies that are subject to the public reporting requirements under the U.S. federal securities laws, including the Exchange Act and the Sarbanes-Oxley Act of 2002. The need for the management of the Company to be responsive to shareholders’ concerns and to engage in an ongoing dialogue with shareholders can at times distract management’s time and attention from the effective operation and improvement of the business.

The Buyer Group decided to undertake the “going private” transaction at this time because it wants to take advantage of the benefits of the Company being a privately held company as described above. In the course of considering the “going private” transaction, the Buyer Group did not consider alternative transaction structures because the Buyer Group believed the merger was the most direct and effective way to enable the Buyer Group to acquire ownership and control of the Company.

Effect of the Merger on the Company

Private Ownership

Common Shares of the Company are currently listed on the NASDAQ under the symbol “CXDC.” It is expected that, immediately following the completion of the merger, the Company will cease to be a publicly traded company and will instead become a privately-held company beneficially owned by the Buyer Group. Following the completion of the merger, the Common Shares will cease to be listed on the NASDAQ, and price quotations with respect to sales of the Common Shares in the public market will no longer be available. In addition, registration of the Common Shares under the Exchange Act may be terminated upon the Company’s application to the SEC if the Common Shares are not listed on a national securities exchange and there are fewer than 300 registered holders of the Common Shares. Ninety days after the filing of Form 15 in connection with the completion of the merger or such longer period as may be determined by the SEC, registration of the Common Shares under the Exchange Act will be terminated. At such time, the Company will no longer be required to file periodic reports with the SEC or otherwise be subject to the United States federal securities laws, including Sarbanes-Oxley Act, applicable to public companies. After the completion of the merger, the Company’s stockholders will no longer enjoy the rights or protections that the United States federal securities laws provide, including reporting obligations for directors, officers and principal securities holders of the Company.

Under the terms of the merger agreement, if the merger is completed, at the Effective Time, each of the Common Shares, issued and outstanding immediately prior to the Effective Time, other than the Excluded Shares, will be cancelled in exchange for the right to receive $1.2 in cash per share without interest and net of any applicable withholding taxes. The Excluded Shares will be cancelled for no consideration.

Articles of Incorporation and Bylaws of the Surviving Corporation; Directors and Management of the Surviving Corporation

If the merger is completed, the current articles of incorporation and bylaws of the Company will be replaced in its entirety by the articles of incorporation and bylaws in the form attached as appendix to the articles of merger (which is substantially the form of the articles of incorporation and bylaws of Merger Sub, as in effect prior to the completion of the merger, except that, at the effective time of the merger, the articles of incorporation and bylaws shall refer to the name of the surviving corporation as “China XD Plastics Company Limited” and the articles of incorporation and bylaws will include provisions addressing the matters set forth in Section 7.5(b) of the merger agreement, including elimination of liability of directors, indemnification of officers, directors and employees and advancement of expenses provisions that, in each case, are no less advantageous to the intended beneficiaries than the corresponding provisions in existence on the date of the merger agreement. In addition, the director of Merger Sub immediately prior to the effective time (identified below in “Annex D – Directors and Executive Officers of each Filing Person”) will become the director of the surviving corporation and the officers of the Company immediately prior to the effective time will become the officers of the surviving corporation.

Primary Benefits and Detriments of the Merger

The primary benefits of the merger to the unaffiliated security holders include, without limitation, the following:

The primary detriments of the merger to the unaffiliated security holders include, without limitation, the following:

The primary benefits of the merger to the Company’s directors and executive officers (other than the Chairman) include, without limitation, the following:

The primary detriments of the merger to the Company’s directors and executive officers (other than the Chairman) include, without limitation, the following:

The primary benefits of the merger to the Buyer Group include the following:

The primary detriments of the merger to the Buyer Group include the following:

Effect of the Merger on the Company’s Net Book Value and Net Earnings

Following consummation of the merger, Parent will own 100% of the outstanding share capital of the Company and will have a corresponding interest in our net book value and net earnings.

Our net income attributable to our stockholders for the fiscal year ended December 31, 2019 was approximately $3.1 million and our net tangible book value as of December 31, 2019 was approximately $836.4 million.

The Table below sets out the direct or indirect interest in the Company’s net earnings and net tangible book value for members of the Buyer Group before and immediately after the merger, based on the historical net tangible book value and net earnings of the Company as of and for the year ended December 31, 2019.

Plans for the Company after the Merger

After the Effective Time, Parent will own 100% of the equity interests in the Company. The Buyer Group anticipates that the Company’s operations will be conducted substantially as they are currently being conducted, except that the Company will cease to be a publicly traded company and will instead be beneficially owned by the Buyer Group.

Subsequent to the consummation of the merger, the Company will no longer be subject to the Exchange Act and NASDAQ compliance and reporting requirements and the related direct and indirect costs and expenses, and may experience positive effects on profitability as a result of the elimination of such costs and expenses.

Other than as described in this proxy statement and transactions already under consideration by the Company, there are no present plans or proposals that relate to or would result in any of the following:

However, subsequent to the consummation of the merger, the Buyer Group will continue to evaluate the Company’s entire business and operations from time to time, and may propose or develop plans and proposals which they consider to be in the best interests of the Company and its equity holders, including (i) any of the foregoing actions and any actions to address the challenges referred to in “Special Factors Relating to the Merger — Purposes and Reasons of the Buyer Group for the Merger” above, and (ii) the disposition or acquisition of material assets, alliances, joint ventures, and other forms of cooperation with third parties or other extraordinary transactions, including the possibility of relisting the Company or a substantial part of its business on another stock exchange, in each case, which they consider to be in the best interests of the surviving company and its stockholders. The Buyer Group expressly reserves the right to make any changes they deem appropriate to the operation of the Company in light of such evaluation and review as well as any future developments.

After the Effective Time, the directors of Merger Sub immediately prior to the Effective Time will become the directors of the Company, and the officers of the Company immediately prior to the Effective Time will remain the officers of the Company, in each case until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be.

Alternatives to the Merger

The Board did not independently determine to initiate a process for the sale of the Company. The Special Committee was formed on May 10, 2020, in response to the receipt of the going-private proposal letter from the Buyer Group on May 7, 2020. In light of (i) the Buyer Group’s intention to work together exclusively in pursuit of any acquisition of the Company and its combined beneficial ownership of approximately 69.6% of the total voting power of the Company (as of the dates of this proxy statement), (ii) no attempt was made to contact third parties who might otherwise consider an acquisition of the Company, and (iii) since the Company’s announcement of the receipt of the proposal letter from the Buyer Group on May 8, 2020, the Company has not received any actionable offer from any third party for (a) a merger or consolidation of the Company with another company, (b) the sale or transfer of all or substantially all of the Company’s assets or (c) the purchase of all or a substantial portion of the Shares that would enable such person to exercise control of or significant influence over the Company, the Special Committee determined that there was no viable alternative to the proposed sale of the Company to the Buyer Group.

The Special Committee also took into account that, prior to the receipt of stockholder approval, the Company, subject to compliance with the terms and conditions of the merger agreement, can terminate the merger agreement in order to enter into an acquisition agreement with respect to a superior proposal, subject to the payment of a termination fee to the extent provided in the merger agreement. In this regard, the Special Committee recognized that it has flexibility under the merger agreement to respond to an alternative transaction proposed by a third party that is or is reasonably likely to result in a superior proposal, including the ability to provide information to and engage in discussions and negotiations with such party (and, if such proposal is a superior proposal, recommend such proposal to the Company’s stockholders).

In addition, the Special Committee also considered the alternative for the Company to remain as a public company. However, the Special Committee did not believe such options to be equally or more favourable in enhancing stockholder value, after considering factors such as the forecasts of future financial performance prepared by management, the increased costs of regulatory compliance for public companies, the challenges to the Company’s efforts to increase stockholder value as an independent publicly-traded company, and the requirement, as an SEC-reporting company, to disclose a considerable amount of business information to the public which will limit the Company’s ability to compete in the market. The Special Committee has concluded that it is more beneficial to the unaffiliated security holders to enter into the merger agreement and pursue the consummation of the transactions, including the merger, and become a private company rather than to remain a public company.

Effect on the Company if the Merger is not Completed

If the merger agreement is not authorized and approved by the Company’s stockholders or if the merger is not completed for any other reason, the Company’s stockholders will not receive any payment for their Common Shares in connection with the merger. Instead, the Company will remain a publicly traded company, the Common Shares will continue to be listed and traded on the NASDAQ, provided that the Company continues to meet the NASDAQ’s listing requirements, and the Company will remain subject to SEC reporting obligations. Therefore, the Company’s stockholders will continue to be subject to similar risks and opportunities as they currently are with respect to their ownership of our Common Shares. Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your Common Shares, including the risk that the market price of the Common Shares may decline to the extent that the current market price reflects a market assumption that the merger will be completed.

Under specified circumstances in which the merger agreement is terminated, the Company may be required to pay Parent a termination fee of $1,000,000, or Parent may be required to pay the Company a termination fee of either $2,000,000, in each case, as described under the caption “The Merger Agreement—Termination Fees and Reimbursement of Expenses” beginning on page 92.

If the merger is not completed, from time to time, the Board will evaluate and review, among other things, the business, operations, dividend policy and capitalization of the Company and make such changes as are deemed appropriate and continue to seek to identify strategic alternatives to enhance stockholder value. If the merger agreement is not authorized and approved by the Company’s stockholders or if the merger is not completed for any other reason, there can be no assurance that any other transaction acceptable to the Company will be offered, or that the business, prospects or results of operations of the Company will not be adversely impacted.

Financing of the Merger

The Company and the Buyer Group estimate that the total amount of funds necessary to complete the merger and the related transactions is approximately $40.7 million. In calculating this amount, the Company and the Buyer Group did not consider the value of the Rollover Shares, which will be contributed to Parent in exchange for shares of its ordinary shares and will be cancelled for no consideration pursuant to the merger agreement. This amount includes (i) the cash to be paid to the Company’s unaffiliated security holders, and (ii) the related costs and expenses, in connection with the merger and related transactions.

The merger and the related transactions are expected to be funded through a combination of (i) cash contributions contemplated by the Equity Commitment Letter, by and between Parent and the Chairman, dated as of June 15, 2020; and (ii) the available offshore cash in the Company and its subsidiaries. Prior to the Effective Time, the Buyer Group may also seek to obtain debt financing to fund part of the funds necessary to complete the Merger. However, the obligations of Parent and Merger Sub under the Merger Agreement, including the obligation to pay the Merger Consideration, are not subject to any financing condition.

As of the date of this proxy statement, there are no alternative financing arrangements or plans in place to obtain the funds necessary for the consummation of the merger and the other transactions contemplated by the merger agreement.

Equity Commitment Letter

Pursuant to the Equity Commitment Letter, attached hereto as Annex F, the Chairman has committed, on the terms and subject to the conditions set forth therein and in the merger agreement, to purchase, or cause one or more of his respective affiliates to purchase, prior to or at the closing of the merger, equity interests of Parent for an amount of $5,000,000 in immediately available funds, which will be used to fund a portion of the aggregate Merger Consideration and all other amounts payable by Parent and Merger Sub at the closing of the merger to consummate the merger pursuant to and in accordance with the merger agreement, in addition to other transaction costs and payment obligations of Parent and Merger Sub in connection with the merger and other transactions contemplated by the merger agreement. The Chairman’s commitment and obligation to make the above contribution under the Equity Commitment Letter is conditioned upon the satisfaction or waiver by Parent of the conditions to Parent’s and Merger Sub’s obligations to complete the merger under the merger agreement.

The obligation of the Chairman to fund his equity commitment under his Equity Commitment Letter will terminate automatically upon the earlier to occur of  (i) consummation of the merger and the payment by Parent and Merger Sub of all amounts required to be made by them under the merger agreement, or (ii) the valid termination of the merger agreement in accordance with its terms, except that if any claim or proceeding has been commenced by the Company to seek specific performance of the obligations of Parent and Merger Sub to effect the consummation of the merger pursuant to the merger agreement, then the Chairman’s obligation to fund shall survive until the earlier of (i) a final, non-appealable judgment from a court of competent jurisdiction in respect of such claim or proceeding, and (ii) the consummation of the merger and the payment by Parent and Merger Sub of all amounts required to be made by them under the merger agreement.

The Company is an express third-party beneficiary of the Equity Commitment Letter, pursuant to the terms and subject to the conditions in the merger agreement, to cause the Chairman to perform its funding obligations under the Equity Commitment Letter.

Limited Guarantee

Concurrently with the execution of the merger agreement, the Chairman entered into the Limited Guarantee, attached hereto as Annex G, under which the Chairman has guaranteed in favor of the Company 100% of the Parent’s obligation to pay (i) the termination fee, if and when required under the merger agreement, (ii) the reimbursement obligations pursuant to the terms of the merger agreement, and (iii) all costs and expenses reasonably incurred by the Company in connection with the enforcement of its rights of specific performance pursuant to the merger agreement that results in a judgement against Parent, Merger Sub, or the Rollover Stockholders (including the Chairman), provided that in no event shall the Chairman’s aggregate liability exceed the sum of $2,100,000. The Limited Guarantee will terminate on the earliest of (i) all of the guaranteed obligations payable under the Limited Guarantee having been paid in full by the Chairman, (ii) the Effective Time, (iii) the termination of the merger agreement in accordance with its terms under circumstances in which none of the guaranteed obligations are payable, and (iv) one year after any termination of the merger agreement in accordance with its terms under circumstances in which Parent and Merger Sub would be obligated to pay the termination fee if the Company has not presented a bona fide written claim for payment of any guaranteed obligation to the Chairman by such day, provided that if the Company has presented such claim to the Chairman by such date, the Limited Guarantee shall terminate upon the date such claim is finally satisfied or otherwise resolved by agreement of the parties or pursuant to the Limited Guarantee.

Support Agreement

Pursuant to the Support Agreement, attached hereto as Annex H, the Rollover Stockholders have agreed, subject to the terms and conditions of the Support Agreement, to (i) vote the Rollover Shares in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger, and (ii) contribute the Rollover Shares to Parent in exchange for newly issued shares of Parent and receive no consideration for the cancellation of the Rollover Shares in accordance with the merger agreement.

In addition, pursuant to the Support Agreement, the Rollover Stockholders also agreed that, until the effective time of the merger or the termination of the merger agreement, (i) when a meeting of the stockholders of the Company is held, to appear at such meeting or otherwise cause their Rollover Shares to be counted as present for purposes of calculating a quorum and ensure any vote at such meeting will be a poll vote and (ii) to vote or otherwise cause to be voted at such meeting all of their Rollover Shares (a) in favor of the adoption of the merger agreement and any related action reasonably required in furtherance thereof, (b) against the approval of any other proposal or offer regarding a Competing Transaction (as defined in the merger agreement) or any other transactions, proposal, agreement or action contemplated by a Competing Proposal (as defined in the merger agreement) or other action in opposition to the approval of the merger agreement or in competition with or inconsistent with the transactions contemplated by the merger agreement, including the merger, (c) against any other action, agreement or transaction that is intended, that could reasonably be expected, or the effect of which could reasonably be expected, to impede, interfere with, delay, postpone, discourage or adversely affect the merger or any of the other transactions contemplated by the merger agreement or the Support Agreement or the performance by such Rollover Stockholder of its obligations under the Support Agreement, (d) against any action, proposal, transaction or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company contained in the merger agreement, or of such Rollover Stockholder or Parent contained in the Support Agreement, (e) in favor of any adjournment or postponement of any stockholders’ meeting or any annual or special meeting of the stockholders of the Company, however called, at which any of the matters described in (a)-(e) is to be considered (and any adjournment and postponement thereof) as may be requested by Parent or the Company to consummate the transactions contemplated by the merger agreement, including the merger, and (f) in favor of any other matter necessary or reasonably requested by Parent or the Company to effect the transactions contemplated by the merger agreement. Under the Support Agreement, each Rollover Stockholder has appointed Parent and any other designee of Parent such Rollover Stockholder’s irrevocable (for the period until termination of the Support Agreement in accordance with its terms) proxy and attorney-in-fact (with full power of substitution) to vote its respective Rollover Shares as indicated above.

The Company is an express third-party beneficiary of the Support Agreement, and is entitled to specific performance of the terms thereof (in addition to any other available remedy at law or in equity). The consummation of the contribution and transfer by the Rollover Stockholders of the Rollover Shares is subject to the satisfaction in full (or waiver) of each of the conditions to the Company’s, Parent’s and Merger Sub’s obligations to consummate the merger (other than those to be satisfied at the closing). Subject to the foregoing, the closing of the contribution will take place immediately prior to the closing of the Merger. The Support Agreement will terminate immediately upon the valid termination of the merger agreement in accordance with its terms.

 Remedies

Other than certain equitable remedies that Parent may be entitled to, the sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) of the Buyer Group and certain related parties as described in the merger agreement against the Company, its subsidiaries and certain related parties as described in the merger agreement for any loss or damage suffered as a result of any breach of any representation, warranty, covenant or agreement or failure to perform under the merger agreement or other failure of the transactions contemplated by the merger agreement to be consummated shall be Parent’s right to (i) terminate the merger agreement and receive from the Company a termination fee of $1,000,000, and (ii) receive reimbursement and interest if such termination fee is not paid when due and in accordance with the merger agreement.

Other than certain equitable remedies that the Company may be entitled to, the sole and exclusive remedy (whether at law, in equity, in contract, in tort or otherwise) of the Company, its subsidiaries and certain related parties as described in the merger agreement against the Buyer Group and certain related parties as described in the merger agreement for any loss or damage suffered as a result of any breach of any representation, warranty, covenant or agreement or failure to perform under the merger agreement or other failure of the transactions contemplated by the merger agreement to be consummated shall be the Company’s right to (i) terminate the merger agreement and receive from Parent a termination fee in an amount equal to the sum of (x) of $2,000,000 and the guarantee of such obligation pursuant to the Limited Guarantee and (y) certain reasonable and documented out-of-pocket expenses incurred by the Company and the Special Committee in connection with the merger, as set forth in the merger agreement, and (ii) receive reimbursement and interest if such termination fee is not paid when due and in accordance with the merger agreement.

Interests of Certain Persons in the Merger

In considering the recommendation of the Special Committee and our Board with respect to the merger, you should be aware that each of the Buyer Group has interests in the transaction that are different from, and/or in addition to, the interests of our stockholders generally. The Board and Special Committee were aware of such interests and considered them, among other matters, in reaching their decisions to authorize and approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, and recommend that our stockholders vote in favor of authorizing and approving the merger agreement and the transactions contemplated by the merger agreement, including the merger.

Interests of the Buyer Group

As a result of the merger, Parent will own 100% of the equity interest in the surviving corporation and the Buyer Group will own, directly or indirectly, 100% of the equity interest in Parent immediately following the completion of the merger. The Rollover Stockholders will beneficially hold all of the equity interest in Parent immediately following the completion of the merger on a fully diluted basis. Because of Parent’s equity interest in the surviving corporation, each member of the Buyer Group will directly or indirectly enjoy the benefits from any future earnings and growth of the Company after the merger which, if the Company is successfully managed, could exceed the value of their original investments in the Company. The Buyer Group will also directly bear the corresponding risks of any possible decreases in the future earnings, growth or value of the Company. The Buyer Group’s investment in the surviving corporation will be illiquid, with no public trading market for the surviving corporation’s shares and no certainty that an opportunity to sell its shares in the surviving corporation at an attractive price, or that dividends paid by the surviving corporation will be sufficient to recover its investment.

The merger may also provide additional means to enhance stockholder value for the Buyer Group, including improved profitability due to the elimination of the expenses associated with public company reporting and compliance, increased flexibility and responsiveness in management of the business to achieve growth and respond to competition without the restrictions of short-term earnings comparisons, and additional means for making liquidity available to the Buyer Group, such as through dividends or other distributions.

Interests of the Rollover Stockholders

Concurrently with the execution and delivery of the merger agreement, the Rollover Stockholders entered into the Support Agreement with Parent. Pursuant to the Support Agreement, at the closing of the merger, the Rollover Shares will be cancelled pursuant to the merger agreement. Immediately prior to the closing of the merger, each Rollover Stockholder shall subscribe, or shall cause its affiliate to subscribe, and Parent shall issue to such Rollover Stockholder or its affiliate, as the case may be, for consideration of par value for the number of ordinary shares of Parent set forth in the Support Agreement.

Given the Company will become a privately-held company following the completion of the merger, the Rollover Stockholders’ interests in the surviving corporation will be illiquid, with no public trading market for the surviving corporation’s shares and no certainty of an opportunity to sell their beneficial interests in the surviving corporation at an attractive price, or that any dividends paid by the surviving corporation will be sufficient to recover their investment. Each of the Rollover Stockholders may also enjoy benefits from future earnings and growth of the surviving corporation.

Shares and Restricted Common Shares Held by Officers and Directors

As of the date of this proxy statement, the Company’s directors and executive officers (as set forth in “Security Ownership of Certain Beneficial Owners and Management of the Company” beginning on page 98), as a group and excluding the Rollover Stockholders, beneficially own an aggregate of 10,879 Common Shares.

The table below sets forth for each of our directors and officers:

After the completion of the merger, the maximum amount of cash payments our directors and executive officers (other than the Chairman being a member of the Buyer Group) may receive in respect of their Shares is approximately $13,054.8.

Indemnification; Directors’ and Officers’ Insurance

Under the merger agreement, the Company’s directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies from the surviving corporation. For more information regarding such indemnification and insurance coverage, see “The Merger Agreement — Indemnification; Directors’ and Officers’ Insurance” beginning on page 86.

The Special Committee

On May 10, 2020, the Board established a Special Committee to consider the proposal from the Buyer Group and to take any actions it deems appropriate to assess the fairness and viability of such proposal. The Special Committee is composed of independent directors Mr. Huiyi Chen, Mr. Guanbao Huang and Mr. Linyuan Zhai. All such directors are free from any affiliation with the Buyer Group, and none of such directors is or was ever an employee of the Company or any of its subsidiaries or has any financial interest in the merger that is different from that of the unaffiliated security holders other than (i) the directors’ receipt of board compensation in the ordinary course, including the 10,879 Common Shares held by Mr. Linyuan Zhai as a result of board compensation which will be cashed out in exchange for $1.2 per share at the Effective Time (see “Shares and Restricted Common Shares Held by Officers and Directors” beginning on page 62 for additional information), (ii) Special Committee members’ compensation in connection with its evaluation of the merger (which is not contingent upon the completion of the merger or the Special Committee’s or Board’s recommendation of the merger), and (iii) the director’s indemnification and liability insurance rights under the merger agreement. The Board did not place any limitations on the authority of the Special Committee regarding its investigation and evaluation of the merger.

The Company has compensated the members of the Special Committee in exchange for their service in such capacity a monthly amount of RMB5,000 per member, the payment of which is not contingent upon the completion of the merger or the Special Committee’s or the Board’s recommendation of the merger.

Position with the Surviving Corporation

After completion of the merger, the Chairman expects to continue to serve as chairman of the board of directors of the surviving corporation and chief executive officer of the surviving corporation. It is anticipated that the other executive officers of the Company will hold positions with the surviving corporation that are substantially similar to their current positions.

Related Party Transactions

Related Party Transactions with the Buyer Group.

(i) During the year ended December 31, 2019, the Company received RMB20.0 million (equivalent to US$2.9 million) from the Chairman, the Chairman and CEO of the Company, as interest-free advances and repaid RMB0.8 million (equivalent to US$0.1 million). As of December 31, 2019, the amount due to the Chairman was RMB87.2 million (equivalent to US$12.5 million).

During the year ended December 31, 2019, the Company received RMB60.0 million (equivalent to US$8.8 million) from the Chairman’s son as interest-free advances. As of December 31, 2019, the amount due to the Chairman’s son was RMB65.0 million (equivalent to US$9.3 million).

Other Related Party Transactions

(i) In April 2019, the Company repaid RMB30.0 million (equivalent to US$4.4 million) to the senior management employees in Sichuan Xinda Enterprise Group Company Limited (“Sichuan Xinda”). During the year ended December 31, 2019, the Company received RMB1.9 million (equivalent to US$0.3 million) from a senior management employee from Heilongjiang Xinda Enterprise Group Company Limited (“HLJ Xinda Group”) and repaid RMB2.0 million (equivalent to US$0.3 million). As of December 31, 2019, the amount due to the senior management employee from HLJ Xinda Group was RMB1.1 million (equivalent to US$0.2 million).

(ii) During the year ended December 31, 2019, the Company received RMB65.0 million (equivalent to US$9.4 million) from Qingwei Ma, the Chief Operating Officer of the Company, as interest-free advances to the Company, and repaid RMB57.0 million (equivalent to US$8.3 million). As of December 31, 2019, the amountsdue to Mr. Qingwei Ma was RMB8.0 million (equivalent to US$1.1 million).

(iii) On December 26, 2018, Shanghai Sales set up Heilongjiang Xinda Macromolecule Composite Materials Company Limited (“Macromolecule Composite Materials”). On April 22, 2019, Shanghai Sales transferred 97.5% equity interest in Macromolecule Composite Materials to Harbin Shengtong Engineering Plastics Co. Ltd. (“Harbin Shengtong”). Mr. Xigang Chen, who was the general manager of Sichuan Xinda, is the general manager and also the principal shareholder of Harbin Shengtong.

Since Mr. Xigang Chen resigned from Sichuan Xinda on August 5, 2019, Macromolecule Composite Materials was no longer a related party of the Company.

During the period from April 22, 2019 through August 5, 2019, revenue from products sold to Macromolecule Composite Materials was US$1.0 million.

During the period from April 22, 2019 through August 5, 2019, the Company received RMB434.4 million (equivalent to US$63.5 million) of interest-free advances from Macromolecule Composite Materials and repaid RMB431.6 million (equivalent to US$63.0 million).

All of the aforementioned related party balances are summarized as follows:

There have been no other significant related-party transactions since December 31, 2019, except in connection with the merger as discussed elsewhere in this proxy statement.

These expenses will not reduce the Merger Consideration to be received by the Company stockholders. If the merger is completed, the party incurring any costs and expenses in connection with the merger and the merger agreement will pay those costs and expenses.

Voting by the Rollover Stockholders at the Special Meeting

Pursuant to the Support Agreement, the Rollover Stockholders have agreed, subject to the terms and conditions of the Support Agreement, to vote the Rollover Shares in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby, including the merger. As of the Record Date, we expect that the Rollover Stockholders collectively will beneficially own, 33,065,054 Common Shares and 1,000,000 Preferred Shares, representing approximately 69.6% of the voting power and approximately 50.1% of the share capital of the Company.

Litigation Related to the Merger

The Company is not aware of any lawsuit that challenges the merger, the merger agreement or any of the transactions contemplated thereby.

Accounting Treatment of the Merger

The merger is expected to be accounted for, as a merger of entities under common control in accordance with Accounting Standards Codification 805-50, “Business Combinations—Related Issues.”

Regulatory Matters

The Company does not believe that any material federal or state regulatory approvals, filings or notices are required in connection with the merger other than (i) the approvals, filings or notices required under the federal securities laws and the rules and regulations of the NASDAQ Global Market, and (ii) the signing and filing of the articles of merger (and supporting documentation as specified in the NRS) with the Secretary of State of the State of Nevada.

Dissenter Rights

Please see “Dissenter Rights” beginning on page 94.

Material U.S. Federal Income Tax Consequences

The following discussion is a summary of material U.S. federal income tax consequences of the Merger to U.S. Holders and certain non-U.S. Holders (each as defined below) whose Common Shares are converted into the right to receive cash in the Merger. This summary is for general information purposes only. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury Regulations, rulings, administrative pronouncements and judicial decisions as of the date hereof, all of which are subject to change or differing interpretations at any time with possible retroactive effect. Any such changes could affect the accuracy of the statements and conclusions set forth herein. This summary is not binding on the Internal Revenue Service (the “IRS”) or a court, and there can be no assurance that the tax consequences described in this summary will not be challenged by the IRS or that they would be sustained by a court if so challenged. No ruling has been or will be sought from the IRS, and no opinion of counsel has been or will be rendered as to the U.S. federal income tax consequences of the Merger.

This discussion is limited to the U.S. federal income tax consequences to holders of Common Shares who hold the Common Shares as capital assets within the meaning of Section 1221 of the Code (i.e., generally, held for investment). It does not consider all aspects of U.S. federal income taxation that may be relevant to particular holders in light of their individual circumstances or to certain types of holders subject to special tax rules including, for example, small business investment companies, brokers, dealers in securities or currencies, banks and other financial institutions, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, hybrid entities, certain former citizens or residents of the United States, individual retirement and other tax-deferred accounts, tax-exempt entities, insurance companies, partnerships or other pass-through entities or investors in those entities, persons holding Common Shares as a part of a hedging, integrated, conversion or constructive sale transaction or a straddle, U.S. Holders (as defined below) that have a functional currency other than the U.S. dollar, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, persons subject to the alternative minimum tax or who received Common Shares pursuant to Company restricted Common Shares or Company RSU grants or pursuant to the exercise of employee stock options or otherwise as compensation. This summary does not purport to address the U.S. federal income tax consequences of the transactions to Stockholders who will actually or constructively (under the rules of Section 318 of the Code) own any stock of the Company, Holdco, Parent or Parent’s subsidiaries following the Merger, including any Rollover Shares, and it does not address the impact of the Medicare contribution tax on net investment income, state, local or non-U.S. tax considerations or any U.S. federal tax considerations other than U.S. federal income tax (for example, U.S. estate or gift tax considerations). Further, this summary does not address any tax consequences of the Merger to holders of warrants, options, shares of restricted stock, performance stock units or restricted stock units. Such holders should consult their tax advisors regarding the tax consequences of the Merger to them.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Common Shares that is, for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws, (ii) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) that is created or organized in or under the law of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or a trust that has made a valid election to be treated as a United States person to the extent provided in applicable Treasury Regulations. A “Non-U.S. Holder” is any beneficial owner of Common Shares who for U.S. federal income tax purposes is a nonresident alien individual or a corporation, trust or estate that is not a U.S. Holder.

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds Common Shares, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in a partnership holding Common Shares, you should consult your tax advisor regarding the U.S. federal income tax consequences of the Merger to such partner.

U.S. Holders

        The exchange of Common Shares for cash pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. Holder who receives cash in exchange for Common Shares pursuant to the Merger will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received (determined before the deduction of any withholding tax) and the U.S Holder’s adjusted tax basis in the Common Shares exchanged for cash pursuant to the Merger. A U.S. Holder’s adjusted tax basis in the Common Shares will generally equal the price the U.S. Holder paid for such Common Share. Gain or loss will be determined separately for each block of Common Shares (that is, Common Shares acquired at the same cost in a single transaction) exchanged for cash pursuant to the Merger. Such gain or loss generally will be long-term capital gain or loss provided that a U.S. Holder’s holding period for such Common Shares is more than one year at the time of consummation of the Merger. Long-term capital gain recognized by an individual and certain other non-corporate U.S. Holders generally taxed at preferential U.S. federal income tax rates. A U.S. Holder’s ability to deduct capital losses may be limited.

Non-U.S. Holders

        Payments made to a Non-U.S. Holder with respect to the Common Shares that are exchanged for cash pursuant to the Merger generally will not be subject to U.S. federal income or withholding tax, unless:

Backup Withholding and Information Reporting

        A U.S. Holder whose Common Share is exchanged for cash pursuant to the Merger may be subject to information reporting and backup withholding tax at the applicable rate, unless the U.S. Holder (i) timely furnishes an accurate taxpayer identification number and otherwise complies with applicable U.S. information reporting or certification requirements (typically by completing and signing an IRS Form W-9, a copy of which will be included as part of the letter of transmittal to be timely returned to the paying agent) or (ii) is a corporation or other exempt recipient and, when required, establishes such fact. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.

 In general, Non-U.S. Holders whose Common Share is exchanged for cash pursuant to the Merger will not be subject to U.S. backup withholding and information reporting if they provide the paying agent with an applicable IRS Form W-8 and neither we nor the paying agent has actual knowledge (or reason to know) that the relevant Non-U.S. Holder is a U.S. Holder. If the Common Share is held through a non-U.S. partnership or other flow-through entity, certain documentation requirements also may apply to the partnership or other flow-through entity. Backup withholding is not an additional tax, and any amounts withheld under the backup withholding rules may be refunded or credited against a Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS in a timely manner.

THE U.S. FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL OF THE TAX CONSEQUENCES RELATING TO THE MERGER. EACH STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES (INCLUDING THE STATE, LOCAL OR NON-U.S. TAX CONSEQUENCES) OF THE MERGER TO IT IN LIGHT OF ITS OWN PARTICULAR CIRCUMSTANCES.

Material PRC Income Tax Consequences

Under the EIT Law, which took effect on January 1, 2008, enterprises established outside of China whose “de facto management bodies” are located in the PRC are considered “resident enterprises,” and thus will generally be subject to the enterprise income tax at the rate of 25% on their global income. On December 6, 2007, the State Council adopted the Regulation on the Implementation of EIT Tax Law, effective as of January 1, 2008, which defines the “de facto management body” as an establishment that has substantial management and control over the business, personnel, accounts and properties of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies (“Circular 82”) on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. Under the EIT Law and its implementation regulations, the PRC income tax at the rate of 10% is applicable to any gain recognized on receipt of consideration by a “non-resident enterprise” from transfer of its equity in a PRC resident enterprise if such gain is regarded as incomes derived from sources within the PRC. The term “non-resident enterprise” means an enterprise established under the laws of a jurisdiction other than the PRC and whose actual administrative organization is not in the PRC, which has established offices or premises in the PRC, or which has not established any offices or premises in the PRC but has obtained income derived from sources within the PRC. On August 30, 2018, the PRC National Congress passed an amendment of the Individual Income Tax Law which took effect from January 1, 2019. Under this major amendment, individual taxpayers are categorized as resident taxpayers and non-resident taxpayers. Non-resident taxpayers are only required to pay tax for their China sourced income. Under the Regulation on Implementation of the Individual Income Tax Law, effective as of January 1, 2019, disposal of real estate asset in China or transfer of other assets in China shall be considered as China sourced income. Therefore, no matter the individual is resident taxpayer or non-resident taxpayer, as long as he/she disposes shares in a PRC resident company, PRC tax liability will arise. The applicable individual income tax rate for such transaction is 20%. Relief from these taxes may be sought under an applicable income tax treaty with China.

As there has not been a definitive determination of the Company’s status by the PRC tax authorities, the Company cannot confirm whether it would be considered a PRC resident enterprise under the EIT Law or whether the gain recognized on the receipt of consideration for Common Shares would otherwise be subject to PRC tax to holders of such Common Shares that are not PRC tax residents.

In addition, under the EIT Law, the Bulletin on Certain Issues Relating to Indirect Transfer of Assets by Non-resident Enterprises (“Bulletin 7”) issued by the State Administration of Taxation, which became effective on February 3, 2015, and the Bulletin of the State Administration of Taxation on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises (“Bulletin 37”) issued by the State Administration of Taxation which became effective on December 1, 2017, if any non-resident enterprise transfers equity of a resident enterprise, the non-resident enterprise may be subject to a 10% PRC income tax on the gain from such equity transfer. In addition, if a non-PRC resident enterprise indirectly transfers so-called PRC Taxable Properties, referring to properties of an establishment or a place of business in China, real estate properties in China and equity investments in a PRC tax resident enterprise, by disposition of the equity interests in an overseas non-resident enterprise without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, the transfer will be re-characterized as a direct transfer of the PRC Taxable Properties and gains derived from the transfer may be subject to a PRC withholding tax of up to 10%. The transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes. Bulletin 7 has listed several factors to be taken into consideration by the tax authorities in determining if an indirect transfer has a reasonable commercial purpose. However, despite these factors, an indirect transfer satisfying all the following criteria will be deemed to lack reasonable commercial purpose and be taxable under the PRC laws: (i) 75% or more of the equity value of the overseas non-resident holding enterprise being transferred is derived directly or indirectly from PRC Taxable Properties; (ii) at any time during the one year period before the indirect transfer, 90% or more of the asset value of the overseas non-resident holding (excluding cash) is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the overseas non-resident holding enterprise and any of its subsidiaries that directly or indirectly hold the PRC Taxable Properties are limited and are insufficient to prove their economic substance; and (iv) the tax payable incurred in other jurisdictions other than in the PRC on the gain derived from the indirect transfer of the PRC Taxable Properties is lower than the potential Chinese tax on the direct transfer of those assets. Nevertheless, the indirect transfers falling into the scope of the safe harbor under Bulletin 7 may not be subject to PRC tax. The safe harbor includes qualified group restructurings, exemptions under tax treaties, and public market trades, which refers to a trading of equity interest in which the equity interest to be transferred and the transfer price thereof are determined pursuant to standard trading rules of a public securities market and not by the purchaser and the seller by mutual agreement prior to such transactions. Bulletin 7 may be determined by the tax authorities to be applicable to the merger where non-PRC resident corporate stockholders were involved, if the merger is determined by the PRC tax authorities to lack reasonable commercial purpose. As a result, if PRC tax authorities were to invoke Bulletin 7 and impose tax on the receipt of consideration for Common Shares, then any gain recognized on the receipt of consideration for such Common Shares pursuant to the merger by the Company’s stockholders who are non-PRC resident enterprises could be treated as PRC-source income and thus be subject to PRC income tax at a rate of 10% (subject to applicable treaty relief). Parent is entitled under the merger agreement to withhold any tax arising in relation to filings required by Bulletin 7. However, neither Parent nor Merger Sub intends to withhold any PRC taxes on the consideration provided to non-PRC resident stockholders of the Company in connection with the merger.

You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you, including any PRC tax consequences.