SORL SORL Auto Parts Inc

PROXY STATEMENT

This proxy statement contains information related to a special meeting of stockholders of SORL Auto Parts, Inc., a Delaware corporation (the “Company,” “we,” “us” or “our”), which will be held at [                  ], local time (Beijing time), on [         ], at the [         ] of the Company, located at No. 2666 Kaifaqu Avenue, Rui’an Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China, and any adjournments or postponements thereof. We are furnishing this proxy statement to stockholders of SORL Auto Parts, Inc. as part of the solicitation of proxies by the Company’s board of directors (the “Board”) for use at the special meeting. This proxy statement is dated [         ] and is first being mailed to stockholders on or about [            ].

SUMMARY TERM SHEET RELATED TO THE MERGER

This summary term sheet highlights selected information in this proxy statement regarding the merger and may not contain all of the information about the merger that is important to you. We have included page references in parentheses to direct you to more complete descriptions of the topics presented in this summary term sheet. You should carefully read this proxy statement in its entirety, including the annexes and the other documents to which we have referred you, for a more complete understanding of the matters being considered at the special meeting. You may obtain without charge copies of documents incorporated by reference into this proxy statement by following the instructions under “Where You Can Find More Information” beginning on page 94. In this proxy statement, the terms “we,” “us,” “our,” “SORL” and the “Company” refer to SORL Auto Parts, Inc. and its subsidiaries. We refer to Ruili International Inc., a Delaware corporation, as “Parent” and Ruili International Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Parent, as “Merger Sub.” We refer to Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang, collectively as the “Rollover Stockholders.” We refer to Ruili Group Co., Ltd., a limited liability company formed under the laws of the PRC, as “Ruili Group.” We refer to Parent, Merger Sub, Ruili Group and the Rollover Stockholders, collectively as the “Buyer Consortium.” When we refer to the “merger agreement,” we mean the Agreement and Plan of Merger, dated as of November 29, 2019, by and among the Company, Parent and Merger Sub. We refer to the stockholders of the Company other than the Buyer Consortium and the directors and executive officers of the Company and each of their respective affiliates, collectively as the “Unaffiliated Stockholders.”

The Parties Involved in the Merger (page 14)

The Company

The Company is a Delaware corporation incorporated on March 24, 1982. Through its 90% ownership of Ruili Group Ruian Auto Parts Co., Ltd., a Sino-foreign joint venture, the Company develops, manufactures, and distributes automotive brake systems and other key safety related auto parts to automotive original equipment manufacturers, or OEMs, and the related aftermarket both in China and abroad.

Additional information about the Company is contained in our public filings, which are incorporated by reference herein. See “Where You Can Find More Information” on page 94.

Parent

Parent, a Delaware corporation, was formed by Mr. Xiaoping Zhang solely for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement, including the merger (the “Transactions”). Parent has not engaged in any business except for activities incident to its formation and in connection with the Transactions.

Merger Sub

Merger Sub, a Delaware corporation and a wholly owned subsidiary of Parent, was formed by Parent solely for the purpose of entering into the merger agreement and consummating the Transactions. Merger Sub has not engaged in any business except for activities incident to its formation and in connection with the Transactions.

Mr. Xiaoping Zhang

Mr. Xiaoping Zhang is a principal stockholder, the Chairman of the Board and the Chief Executive Officer of the Company.

Ms. Shuping Chi

Ms. Shuping Chi is a stockholder and a member of the Board. She is the wife of Mr. Xiaoping Zhang.

Mr. Xiaofeng Zhang

Mr. Xiaofeng Zhang is a stockholder and a member of the Board. He is the brother of Mr. Xiaoping Zhang.

Ruili Group Co., Ltd.

Ruili Group Co., Ltd. is a limited liability company incorporated under the laws of the PRC in 1987. Ruili Group primarily engages in the development, production and sale of various kinds of automotive parts. Ruili Group also operates a hotel property and invests in the development of real property in China. Ruili Group is a 10% shareholder of Ruili Group Ruian Auto Parts Co., Ltd., a principal operating subsidiary of the Company. The Rollover Stockholders collectively control Ruili Group and each of Mr. Xiaoping Zhang, Ms. Shuping Chi, and Mr. Xiaofeng Zhang owns 63.13%, 15.86%, and 0.92%, respectively, of the equity interest of Ruili Group. Mr. Xiaoping Zhang serves as the chairman of the board of directors and the general manager of Ruili Group. Ms. Shuping Chi serves as the executive supervisor of Ruili Group. Mr. Xiaofeng Zhang serves as a director of Ruili Group.

Overview of the Transaction (page 16)

The Company, Parent, and Merger Sub entered into the merger agreement on November 29, 2019. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent (the “merger”). The Company, as the surviving corporation, will continue to do business under the name “SORL Auto Parts, Inc.” following the merger. The following will occur in connection with the merger:

Following and as a result of the merger:

The Special Meeting (page 60)

The special meeting will be held at [         ], local time (Beijing time), on [         ], at the [         ] of the Company, located at No. 2666 Kaifaqu Avenue, Rui’an Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China. At the special meeting, you will be asked to, among other things, adopt the merger agreement. See “Questions and Answers about the Special Meeting and the Merger” for additional information on the special meeting, including how to vote your shares of Company common stock.

Record Date; Stockholders Entitled to Vote; Quorum (page 61)

You may vote at the special meeting if you owned any shares of Company common stock at the close of business, New York time, on [         ], the record date for the special meeting. On that date, 19,304,921 shares of Company common stock are expected to be outstanding and entitled to vote at the special meeting. You may cast one vote for each share of Company common stock that you owned on that date. Adoption of the merger agreement requires the affirmative vote of (i) stockholders holding at least a majority of the outstanding shares of the Company’s common stock at the close of business, New York time, on the record date and (ii) Unaffiliated Stockholders holding at least a majority of the outstanding shares of the Company’s common stock owned by all Unaffiliated Stockholders at the close of business, New York time, on the record date. Assuming that 7,945,518 shares of Company common stock owned by the Unaffiliated Stockholders are outstanding on the record date, at least 3,972,760 shares of Company common stock owned by such Unaffiliated Stockholders must be voted in favor of the proposal to adopt the merger agreement in order for the proposal to be approved pursuant to the approval requirement set forth in (ii). See “The Special Meeting” beginning on page 60 for additional information.

Per Share Merger Consideration (page 65)

Each share of Company common stock, other than as provided below, will be converted into the right to receive $4.72 in cash, without interest. We refer to this amount as the “per share merger consideration.” Common stock owned by Parent or Merger Sub and shares of Company common stock contributed to Parent by the Rollover Stockholders will be canceled without payment of per share merger consideration. Shares of Company common stock owned by stockholders (the “Dissenting Shares”) who have exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under the Delaware General Corporation Law (“DGCL”) will be canceled without payment of per share merger consideration and such stockholders will instead be entitled to the appraisal rights under the DGCL.

A paying agent will send written instructions for surrendering your certificates representing shares of Company common stock and obtaining the per share merger consideration after we have completed the merger. Do not return your stock certificates with your proxy card and do not forward your stock certificates to the paying agent prior to receipt of the written instructions. See “The Merger Agreement—Per Share Merger Consideration” and “The Merger Agreement—Exchange Procedures” beginning on pages 65 and 66 for additional information.

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger (page 26)

Our board of directors (other than Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang, who recused themselves from the board meeting on November 29, 2019 and abstained from voting), after careful consideration and acting on the unanimous recommendation of the special committee composed entirely of independent directors, recommends that you vote “FOR” the proposal to adopt the merger agreement and “FOR” the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to adopt the merger agreement. Our board of directors and the special committee believe that the merger is fair to our Unaffiliated Stockholders. For a discussion of the material factors considered by our board of directors and the special committee in determining to recommend the adoption of the merger agreement and in determining that the merger is fair to our Unaffiliated Stockholders, see “Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger” beginning on page 25 and “Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” beginning on page 26 for additional information.

Position of the Buyer Consortium Regarding the Fairness of the Merger (page 45)

Each member of the Buyer Consortium believes that the merger is both substantively and procedurally fair to the Unaffiliated Stockholders. Their belief is based upon the factors discussed under the captions, “Special Factors Relating to the Merger—Position of the Buyer Consortium Regarding the Fairness of the Merger” beginning on page 45, “Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger” beginning on page 25 and “Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” beginning on page 26.

Opinion of Duff & Phelps, Financial Advisor to the Special Committee (page 32)

In connection with the merger, the special committee received a written opinion from Duff & Phelps, LLC (“Duff & Phelps”), the independent financial advisor to the special committee, as to the fairness, from a financial point of view and as of the date of its opinion, of the per share merger consideration to be received by the holders of shares of common stock (other than the Excluded Shares and Dissenting Shares). The full text of Duff & Phelps written opinion, dated November 29, 2019, is attached to this proxy statement as Annex B. Holders of Company common stock are encouraged to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. Duff & Phelps’s opinion was provided to the special committee in connection with, and for the purposes of, its evaluation of the per share merger consideration from a financial point of view, does not address the merits of the underlying decision by the Company to engage in the merger or the relative merits of any alternatives discussed by the special committee and the Board, does not constitute an opinion with respect to the Company’s underlying business decision to effect the merger, any legal, tax or accounting issues concerning the merger, or any terms of the merger (other than the per share merger consideration), and does not constitute a recommendation as to any vote or action the Company or any stockholders of the Company should take in connection with the merger or any aspect thereof.

For a more complete description of Duff & Phelps’ opinion, see “Special Factors Relating to the Merger—Opinion of Duff & Phelps, Financial Advisor to the Special Committee” beginning on page 32 for additional information. See also Annex B to this proxy statement.

Financing of the Merger (page 53)

The Company and Parent estimate that the total amount of funds necessary to complete the merger and related transactions, including the payment of merger consideration to the Unaffiliated Stockholders and fees and expenses in connection with the merger, is anticipated to be approximately $38 million, assuming no exercise of appraisal rights by stockholders of the Company. Parent expects to provide this amount through equity contributions in cash as contemplated by the equity commitment letter, dated as of November 29, 2019, between Parent and Ruili Group (the “Equity Commitment Letter”). See “Special Factors Relating to the Merger—Financing of the Merger” beginning on page 53 for additional information.

Equity Commitment Letter (page 53)

Ruili Group has committed, on the terms and subject to the conditions set forth in the Equity Commitment Letter, to contribute, or cause to be contributed, an equity contribution to Parent, in an aggregate amount up to $37,502,844.96, to fully fund an amount equal to the sum of the aggregate amount of merger consideration payable at the closing of the merger to consummate the merger pursuant to and in accordance with the merger agreement and other transaction costs. See “Special Factors Relating to the Merger—Equity Commitment Letter” beginning on page 53 for additional information.

Equity Contribution and Voting Agreement (page 53)

Pursuant to an equity contribution and voting agreement, dated as of November 29, 2019, by and among Parent and the Rollover Stockholders (the “Equity Contribution and Voting Agreement” or the “Support Agreement”), immediately prior to the closing of the merger, the Rollover Stockholders will contribute to Parent an aggregate amount of 11,359,403 shares of Company common stock beneficially owned by them (which represents approximately 58.83% of the total issued and outstanding shares of the Company’s common stock) in exchange for newly issued shares of common stock of Parent and each Rollover Stockholder will vote all of his or her shares of the Company’s common stock in favor of the approval and adoption of the merger agreement and the Transactions, including the merger. See “Special Factors Relating to the Merger—Equity Contribution and Voting Agreement” beginning on page 53 for additional information.

Deposit and Undertaking (page 54)

Pursuant to the merger agreement, prior to or contemporaneously with the execution of the merger agreement, Ruili Group is required to deposit an amount in RMB that is at least equal to the RMB-equivalent of parent termination fee payable by Parent under the merger agreement (the “Deposit Amount”) into a RMB-denominated bank account owned by Ruili Group Ruian Auto Parts Co., Ltd. (“Ruian”), the principal operating subsidiary of the Company. Any amounts (including any applicable parent termination fee) payable by Parent to the Company in connection with the termination of the merger agreement will be paid out of the Deposit Amount.

Maintenance of the Deposit Amount is governed by the terms of an undertaking, dated as of November 29, 2019, made by Ruili Group, Parent, Merger Sub, and each of the Rollover Stockholders in favor of the Company, Fairford Holdings Limited, and Ruian (the “Undertaking”). See “Special Factors Relating to the Merger—Deposit and Undertaking” beginning on page 54 for additional information.

As of the date of the merger agreement, Ruili Group has deposited RMB7,914,300.38, the RMB-equivalent amount of the parent termination fee into the account owned by Ruian.

Interests of the Company’s Directors and Officers in the Merger (page 55)

In considering the recommendations of the Board, the Company’s stockholders should be aware that, aside from their interests as stockholders of the Company, certain of the Company’s directors and officers have interests in the transaction that are different from, and/or in addition to, the interests of the Company’s stockholders generally, including, among others, the ownership of equity interests in Parent by the Rollover Stockholders, compensation to members of the special committee and the maintenance of indemnification rights and insurance coverage.

The Board and the special committee were aware of these additional interests, and considered them, among other things, in reaching their decisions and recommendations with respect to the merger agreement and related matters. See “Special Factors Relating to the Merger—Interests of the Company’s Directors and Officers in the Merger” beginning on page 55 for additional information.

Conditions to the Merger (page 78)

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, by the affirmative vote of (i) the holders of a majority of the Company’s outstanding shares of common stock entitled to vote (the “Stockholder Approval”) and (ii) the Unaffiliated Stockholders holding a majority of the Company outstanding shares of common stock owned by all Unaffiliated Stockholders (the “Unaffiliated Stockholder Approval,” together with the Stockholder Approval, the “Company Stockholder Approval”); and the Parent Required Approvals (as defined under the caption “The Merger Agreement—Parent Required Approvals”). For a more detailed description of these conditions, see “The Merger Agreement—Conditions to the Merger” beginning on page 78.

As described under the caption “The Merger Agreement—Parent Required Approvals,” the Parent Required Approvals include (i) the overseas investment registration with the competent local counterparts of the National Development and Reform Commission of the PRC, (ii) the outbound investment registration with Zhejiang Provincial Department of Commerce, and (iii) the registration with the competent local branch of the State Administration of Foreign Exchange of the PRC in respect of the Transactions.

Regulatory Matters (page 56)

The Company does not believe that any material federal, national, provincial, local or state, whether domestic or foreign, regulatory approvals, filings or notices are required in connection with the merger other than (i) the Parent Required Approvals, (ii) the approvals, filings, or notices required under the U.S. federal securities laws, and (iii) the filing of a certificate of merger with the Secretary of State of the State of Delaware with respect to the merger.

As of the date of this proxy statement, the Parent Required Approvals have not been received. It is expected that the Parent Required Approvals will be obtained in the first quarter of 2020.

Termination of the Merger Agreement (page 79)

The merger agreement may be terminated at any time prior to the effective time, whether before or after stockholder approval has been obtained:

Termination Fees and Reimbursement of Expenses (page 80)

The Company is required to pay (or cause to be paid) to Parent a termination fee of $562,542.67 if the merger agreement is terminated:

Parent is required to pay (or cause to be paid) to the Company a termination fee:

Remedies (page 81)

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 Consortium 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 $562,542.67, 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 Consortium 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 (x) of $1,125,085.35 or (y) equal to the reasonable and documented out-of-pocket expenses incurred by the Company and the special committee in connection with the Transactions, as the case may be, and (ii) receive reimbursement and interest if such termination fee is not paid when due and in accordance with the merger agreement.

Appraisal Rights (page 84 and Annex C)

Under Delaware law, stockholders who do not vote in favor of the proposal to adopt the merger agreement, who properly and validly perfect the appraisal rights of their shares of common stock and who otherwise comply with the requirements of Section 262 of the DGCL will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined “fair value” (as defined pursuant to Section 262 of the DGCL) of, their shares of common stock in lieu of receiving the per share merger consideration if the merger is completed, but only if they comply with all applicable requirements of Delaware law, including Section 262 of the DGCL. This appraised value could be more than, the same as, or less than the per share merger consideration of $4.72 per share. Any stockholder intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to the Company prior to the vote on the proposal to adopt the merger agreement and must not vote in favor of the proposal to adopt the merger agreement and must otherwise comply with all of the procedures required by Delaware law. The relevant provisions of the DGCL are included as Annex C to this proxy statement. You are encouraged to read these provisions carefully and in their entirety.

Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to comply strictly with these provisions may result in loss of the right of appraisal.

Material United States Federal Income Tax Consequences (page 57)

The receipt of cash in exchange for Company common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes and may also be taxable under applicable state, local, foreign or other tax laws. In general a U.S. Holder (as defined under “Material United States Federal Income Tax Consequences”) of Company common stock will recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received in the merger and the U.S. Holder’s adjusted tax basis in the shares of Company common stock. In general, a Non-U.S. Holder (as defined under “Material United States Federal Income Tax Consequences”) of shares of Company common stock will not be subject to U.S. federal income tax in respect of cash received in the merger, unless such Non-U.S. Holder has certain connections to the United States. Stockholders of the Company are encouraged to consult their own tax advisors concerning the U.S. federal income tax consequences relating to the merger in light of their particular circumstances and any consequences arising under U.S. federal non-income tax laws or the laws of any state, local or non-U.S. taxing jurisdiction.

Material PRC Tax Consequences (page 59)

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 shares of common stock should be subject to PRC tax to stockholders that are not PRC residents. However, there is uncertainty regarding whether the PRC tax authorities would deem the Company to be a resident enterprise. If the PRC tax authorities were to determine that the Company should be considered a resident enterprise or that the receipt of cash for the shares of common stock should otherwise be subject to PRC tax, then gain recognized on the receipt of cash for the shares of common stock pursuant to the merger or through the exercise of dissenters’ rights by our stockholders who are not PRC residents could be treated as PRC-source income that would be subject to PRC income tax at a rate of 20% in the case of individuals or 10% in the case of enterprises (subject to applicable tax treaty relief, if any). Even in the event that the Company is not considered a resident enterprise, gain recognized on the receipt of cash for the shares of the common stock is subject to PRC tax if the stockholders are PRC residents. The Company does not believe that it will be required to withhold any amounts from the per share merger consideration in respect of PRC taxes. You should consult your own tax advisor for a full understanding of the tax consequences of the merger or the exercise of dissenters’ rights to you, including any PRC tax consequences. See “Special Factors Relating to the Merger — Material PRC Tax Consequences” beginning on page 59 for additional information.

Where You Can Find More Information (page 94)

You can find more information about the Company in the periodic reports and other information we file with the SEC. The information is available at the SEC’s public reference facilities and at the website maintained by the SEC at www.sec.gov. For a more detailed description of the additional information available, please see the section entitled “Where You Can Find More Information” beginning on page 94.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

SPECIAL FACTORS RELATING TO THE MERGER

The following is a description of the material aspects of the merger. While we believe that the following description covers the material terms of the merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Annex A, for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

The Parties Involved in the Merger

The Company

The Company is a Delaware corporation incorporated on March 24, 1982. Through its 90% ownership of Ruili Group Ruian Auto Parts Co., Ltd., a Sino-foreign joint venture, the Company develops, manufactures and distributes automotive brake systems and other key safety related auto parts to automotive original equipment manufacturers, or OEMs, and the related aftermarket both in China and abroad. The Company’s address of principal executive offices is No. 2666 Kaifaqu Avenue, Rui’an Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China.

Additional information about the Company is contained in our public filings, which are incorporated by reference herein. See “Where You Can Find More Information” on page 94.

Parent

Parent, a Delaware corporation, was formed by Mr. Xiaoping Zhang solely for the purpose of entering into the merger agreement and consummating the Transactions. Parent has not engaged in any business except for activities incident to its formation and in connection with the Transactions. Parent’s registered office is c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 in the County of New Castle.

Merger Sub

Merger Sub, a Delaware corporation and wholly owned subsidiary of Parent, was formed by Parent solely for the purpose of entering into the merger agreement and consummating the Transactions. Merger Sub has not engaged in any business except for activities incident to its formation and in connection with the Transactions. Merger Sub’s registered office is c/o The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 in the County of New Castle.

Mr. Xiaoping Zhang

Mr. Xiaoping Zhang is a principal shareholder, the Chairman of the Board and the Chief Executive Officer of the Company. The business address and telephone number for Mr. Xiaoping Zhang is c/o No. 2666 Kaifaqu Avenue, Ruian Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China, 0086-577-65817720.

Mr. Xiaoping Zhang has been the Chief Executive Officer and Chairman of the Board since the Company’s 2004 reverse merger with Fairford Holdings Limited, a Hong Kong limited liability company. He founded Ruili Group in 1987, and has been serving as chairman of Ruili Group since then.

Ms. Shuping Chi

Ms. Shuping Chi is a stockholder and a member of the Board. She is the wife of Mr. Xiaoping Zhang. The business address and telephone number for Ms. Shuping Chi is c/o No. 2666 Kaifaqu Avenue, Ruian Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China, 0086-577-65817720.

Ms. Shuping Chi has been a member of the Board since 2014.

Mr. Xiaofeng Zhang

Mr. Xiaofeng Zhang is a stockholder and a member of the Board. He is the brother of Mr. Xiaoping Zhang. The business address and telephone number for Mr. Xiaofeng Zhang is c/o No. 2666 Kaifaqu Avenue, Ruian Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China, 0086-577-65817720.

Mr. Xiaofeng Zhang has been a member of the Board since the Company’s reverse merger with Fairford Holdings Limited. He served as Chief Operating Officer from 2004 to January 14, 2010. Mr. Zhang co-founded Ruili Group with his brother, Mr. Xiaoping Zhang, in 1987, and served as the general manager of Ruili Group until March 2004.

Ruili Group Co., Ltd.

Ruili Group is a limited liability company incorporated under the laws of the PRC in 1987. Ruili Group primarily engages in the development, production, and sale of various kinds of automotive parts. Ruili Group also operates a hotel property and invests in the development of real property in China. Ruili Group is a 10% shareholder of Ruili Group Ruian Auto Parts Co., Ltd., a principal operating subsidiary of the Company. The Rollover Stockholders collectively control Ruili Group and each of Mr. Xiaoping Zhang, Ms. Shuping Chi, and Mr. Xiaofeng Zhang owns 63.13%, 15.86%, and 0.92%, respectively, of the equity interest of Ruili Group. Mr. Xiaoping Zhang serves as the chairman of the board of directors and the general manager of Ruili Group. Ms. Shuping Chi serves as the executive supervisor of Ruili Group. Mr. Xiaofeng Zhang serves as a director of Ruili Group. The business address and telephone number for Ruili Group is No. 2666 Kaifaqu Avenue, Ruian Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China, 0086-577-65817720.

The following table sets forth information regarding the directors and executive officers of Ruili Group, as of the date of this proxy statement. The business address and telephone number for each of the directors and executive officers of Ruili Group is c/o No. 2666 Kaifaqu Avenue, Ruian Economic Development District, Rui’an City, Zhejiang Province, People’s Republic of China, 0086-577-65817720.

For the business and background of Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang, please refer to the information set forth above in this section.

Ai Cao has served as the director of Ruili Group during the last five years. Ai Cao is also a shareholder of Ruili Group.

Wanyi Huang has served as the director of Ruili Group during the last five years.

Changgui Qu has served as the director of Ruili Group during the last five years.

Kangjin Chen has served as the supervisor of Ruili Group during the last five years.

Jinrui Yu has served as the Chief Operating Officer of the Company and the supervisor of Ruili Group during the last five years.

During the last five years, none of the persons referred to above or any of their directors or officers (where applicable) have been (a) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

Overview of the Transaction

The Company, Parent, and Merger Sub entered into the merger agreement on November 29, 2019. Under the terms of the merger agreement, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are currently beneficially owned by Mr. Xiaoping Zhang who is currently the sole director and sole shareholder of Parent.

The following will occur in connection with the merger:

Following and as a result of the merger:

Management and Board of Directors of the Surviving Corporation

The board of directors of the surviving corporation will, from and after the effective time, consist of the directors of Merger Sub until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal. The officers of the surviving corporation will, from and after the effective time, be the officers of the Company until their successors have been duly appointed and qualified or until their earlier death, resignation or removal.

Background of the Merger

Most of the events leading to the execution of the merger agreement described in this “Background of the Merger” occurred in the PRC. As a result, all dates and times referenced in this Background of the Merger refer to Beijing Time.

The Board and senior management of the Company periodically review the Company’s long-term strategic plans with the goal of maximizing stockholder value. As part of this ongoing process, the Board and senior management have, from time to time, considered strategic alternatives that may be available to the Company.

On October 30, 2015, Mr. Xiaoping Zhang, the Company’s Chairman and Chief Executive Officer, Ms. Shuping Chi and Mr. Xiaofeng Zhang, directors of the Company (together, the “2015 Buyer Consortium”) jointly submitted a preliminary non-binding proposal letter (the “2015 Proposal”) to the Board to acquire all outstanding shares of Company common stock not already owned by them in a going private transaction for $2.84 per share of common stock, in cash, subject to certain conditions.

On December 22, 2015, the Company announced, among other things, that (i) its Board had established a special committee (the “2015 Special Committee”) of independent directors, consisting of Dr. Yuhong Li, Mr. Huilin Wang, Mr. Jinbao Liu and Mr. Jianghua Feng, to review, evaluate and negotiate the 2015 Proposal and any alternatives thereto, and (ii) the 2015 Special Committee had engaged Roth Capital Partners, LLC as its independent financial advisor, and both Sullivan & Worcester LLP and Jun He Law Offices LLC as its legal counsel, to assist 2015 Special Committee in its review, evaluation and negotiation of the 2015 Proposal and any alternatives thereto, and the 2015 Special Committee was also advised by Richards, Layton & Finger, LLP.

On January 8, 2016, the 2015 Buyer Consortium sent a letter to the 2015 Special Committee withdrawing the 2015 Proposal citing concerns over recent market conditions.

After the withdrawal of the 2015 Proposal, the 2015 Buyer Consortium reviewed from time to time the Company’s business operations, and the general conditions of the Chinese economy and the industrial sector the Company is in.

On March 11, 2019, Ruili Group and Mr. Xiaoping Zhang engaged Huatai United Securities Co., Ltd. (“Huatai Securities”) as their exclusive financial advisor to assist Ruili Group, Mr. Zhang and their affiliates in their evaluation and participation in a potential going private transaction involving the Company. Over the course of March and April of 2019, representatives of Ruili Group, Mr. Xiaoping Zhang, and Huatai Securities discussed and analyzed available potential transaction structures and conducted certain other preparation and evaluation work in relation to the potential going private transaction.

On March 26, 2019, Ruili Group and Mr. Xiaoping Zhang engaged O’Melveny & Myers LLP (“O’Melveny”) to act as their U.S. legal counsel in connection with the potential going private transaction involving the Company, and after the engagement, representatives of O’Melveny participated in various discussions with representatives of the Buyer Consortium (as defined below) and Huatai Securities to evaluate the potential transaction and analyze the available transaction structures.

During the period from March 11, 2019 up until on or about the time the Buyer Consortium made its preliminary, non-binding proposal on April 25, 2019, representatives of Huatai Securities and O’Melveny provided Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang and Ruili Group with general advice with respect to the potential going private transaction, including expectations relating to transaction costs, timing and structures associated with typical going private transactions, as well as stockholder and regulatory approvals that may be implicated in such a transaction involving the Company, to facilitate their evaluation of the merits of proceeding with such a transaction.

On or about April 25, 2019, members of the Buyer Consortium, after considering the information provided by representatives of Huatai Securities and O’Melveny and other factors disclosed in the Proxy Statement under “Special Factors Relating to the Merger—Purposes and Reasons of the Buyer Consortium for the Merger,” resolved to make a preliminary and non-binding proposal (the “Proposal”) to acquire all outstanding shares of Company common stock not already owned by the Buyer Consortium in a going private transaction for $4.26 per share of common stock, in cash, subject to certain conditions (the “Proposed Transaction”). On April 25, 2019, the Buyer Consortium submitted the Proposal to the board of directors of the Company. The Proposal also noted, among other things, that (i) the Buyer Consortium intended to fund the Proposed Transaction with the cash on hand, (ii) the Buyer Consortium agreed not to move forward with the transaction unless it is approved by a special committee of independent and disinterested directors and the stockholders of the Company holding a majority of the shares not owned by the Buyer consortium, and (iii) the members of the Buyer Consortium had no interest in selling any shares of Company common stock owned by them and they would not expect, in their capacity as stockholders, to consider or vote in favor of any alternative sale, merger or similar transaction involving the Company.

On April 26, 2019, the Company announced its receipt of the Proposal and stated that it intended to form a special committee consisting of independent directors to consider the Proposal.

In response to the Proposal, on May 20, 2019, the Board increased the size of the board of directors from seven (7) to nine (9) and appointed Mr. Xiao Lin and Mr. Binghua Feng as independent directors to fill the newly created seats.

At a meeting on May 21, 2019, our Board (other than Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang who, as members of the Buyer Consortium, recused themselves from the board meeting and abstained from voting) established a special committee of the independent directors (the “special committee”), consisting of Mr. Xiao Lin and Mr. Binghua Feng, with Mr. Xiao Lin as the Chairman of the special committee. The Board (other than Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang who, as members of the Buyer Consortium, recused themselves from the board meeting and abstained from voting) granted the special committee, by way of a unanimous vote cast by all members of the Board present at the meeting, the exclusive power and authority to, among other things, ‎(i) to establish and direct the process and procedures related ‎to the review and ‎evaluation of the proposed going private transaction and any other proposed transaction to acquire all or a substantial portion of the stock or assets ‎of the Company, or to engage in a merger, combination or other similar transaction ‎involving the Company (collectively, the ‎‎“Strategic Transactions”); (ii) to review, evaluate, investigate, pursue and negotiate the terms and conditions of ‎any Strategic Transaction; (iii) to solicit expressions of interest or other proposals for Strategic Transactions to the ‎extent the special committee deems appropriate;‎ (iv) to determine whether any Strategic 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);‎ (v) to reject any Strategic Transaction or approve, or recommend to the Board the approval of, ‎any Strategic Transaction; (vi) to the extent applicable, to determine, or recommend to the Board, whether to ‎recommend any Strategic Transaction to the stockholders of the Company (or any subset ‎of the stockholders of the Company that the special committee determines to be ‎appropriate);‎ (vii) to review, analyze, evaluate, monitor and control all proceedings (including, without ‎limitation, litigation) and activities of the Company related to any Strategic ‎Transaction;‎ (viii) to participate in the preparation of, review and comment upon any and all documents ‎and other instruments used in connection with a Strategic Transaction; and (ix) to take such other actions as the special committee may deem, in its sole judgment ‎and discretion, to be necessary, advisable or appropriate for the special committee to discharge its duties. In addition, the Board further resolved that the Board shall not recommend any Strategic Transaction for approval by the Company’s ‎stockholders, or otherwise approve any Strategic Transaction, without a prior favorable ‎recommendation of such Strategic Transaction by the special committee. Moreover, the Board also authorized the special committee to retain and compensate, on ‎terms and conditions acceptable to the special committee, at the Company’s expense, ‎such advisors, including, without limitation, financial and legal advisors, as the special committee deems appropriate to assist it in discharging its responsibilities. Finally, the Board directed the officers, employees and agents of the Company and the advisors to the Company (including, without limitation, legal counsel and financial advisors) to cooperate fully with the special committee and its advisors, agents, counsel and designees in all respects related to any Strategic Transaction, to take direction from the special committee and to provide such information and materials about the Company or which may otherwise be in the possession of the Company, including, without limitation, the books, records, projections and financial statements of the Company and any documents, reports or studies pertaining to the Company or any Strategic Transaction, as may be helpful in the discharge of the special committee’s duties.

Over the course of June of 2019, the special committee interviewed multiple potential legal and financial advisers, including Gibson, Dunn & Crutcher LLP (“Gibson Dunn”), Duff & Phelps Securities, LLC (“DPS”) and Duff & Phelps, LLC (together with DPS, collectively, “Duff & Phelps”), and retained Gibson Dunn as its legal advisor on June 18, 2019 and Duff & Phelps as its financial advisor on July 1, 2019 based on their respective qualifications, experience and credentials.

On June 21, 2019, Gibson Dunn sent to O’Melveny an initial draft of the confidentiality agreement between the Company and the Buyer Consortium. On June 28, 2019, representatives of O’Melveny, on behalf of the Buyer Consortium, sent to Gibson Dunn the Buyer Consortium’s comments on the confidentiality agreement. On July 1, 2019, following negotiations between Gibson Dunn and O’Melveny, the Company, at the direction of the special committee, entered into a confidentiality agreement with the Buyer Consortium.

On July 3, 2019, O’Melveny sent an initial draft of the merger agreement to Gibson Dunn.

On July 10, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Gibson Dunn explained to the members of the special committee their fiduciary duties to the Company and the Company’s stockholders under Delaware law. Members of the special committee acknowledged their fiduciary duties and committed to acting in the best interest of unaffiliated stockholders of the Company. Duff & Phelps presented to the members of the special committee a brief overview of the financial due diligence Duff & Phelps planned to perform on the Company and requested the special committee’s approval for it to initiate the financial due diligence process. Mr. Xiao Lin, on behalf of the special committee, approved. Members of the special committee, Gibson Dunn and Duff & Phelps then discussed the process of a going private transaction, key milestones, major documents, and the general timetable. Members of the special committee asked various questions including, among others, the potential benefits, advantages, limitations and disadvantages of a pre-signing market check and post-signing “go-shop” to which Gibson Dunn and Duff & Phelps answered.

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

On July 15, 2019, Gibson Dunn provided to the special committee an issues list covering the key issues in the initial draft of the merger agreement.

On July 19, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Duff & Phelps updated the special committee on the progress of Duff & Phelps’ financial due diligence process, including, among other things, a management interview scheduled on Wednesday, July 24, 2019, in Wenzhou, China. Members of the special committee and representatives of Gibson Dunn then discussed issues identified in the initial draft of the merger agreement. Members of the special committee asked various questions regarding these issues, to which representatives of Gibson Dunn answered. Members of the special committee also discussed some of these issues extensively among themselves. Based on these discussions, the special committee instructed Gibson Dunn to prepare a markup of the merger agreement based upon the issues discussed.

On July 19, 2019, the Company made available to the special committee an email sent from an individual stockholder (“Stockholder A”), a minority stockholder of the Company. In Stockholder A’s email sent to the Company dated as of April 29, 2019 (the “Stockholder A’s Initial Email”), Stockholder A mentioned, among other things, that he would not vote for a sale of the Company at an offer price of $4.26 per share of common stock because he purchased the common stock at $7.25 per share when the Company went public in the U.S. in 2006, and that he believed the Company’s stock price had been impacted by negative sentiment among U.S. investors towards U.S.-listed Chinese companies and the existence of related-party transactions between the Company and Ruili Group.

On July 25, 2019, Gibson Dunn provided the special committee with a markup of the merger agreement.

On July 26, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Duff & Phelps updated the special committee on the progress of its financial due diligence including, among other things, its in-person meeting with the Company’s management in Wenzhou, China, on July 24, 2019. Members of the special committee and Gibson Dunn asked various questions, to which representatives of Duff & Phelps responded. Members of the special committee and representatives of Gibson Dunn and Duff & Phelps then discussed the Stockholder A’s Initial Email and, among other things, the next steps to take in order to verify and evaluate the information stated in the Stockholder A’s Initial Email. Members of the special committee also discussed the Stockholder A’s Initial Email extensively among themselves. Based on these discussions, the special committee requested and authorized Duff & Phelps, with the assistance of Gibson Dunn, to reach out to Stockholder A to seek clarification on Stockholder A’s standing as a stockholder as well as certain matters stated in the Stockholder A’s Initial Email. Members of the special committee and representatives of Gibson Dunn then discussed Gibson Dunn’s markup of the merger agreement. Gibson Dunn also informed the members of the special committee that Gibson Dunn had circulated Gibson Dunn’s markup of the merger agreement to Locke Lord LLP (“Locke Lord”), U.S. counsel to the Company, and requested Locke Lord to work with the Company to review and comment on certain representations, warranties, and covenants of the Company. Members of the special committee asked various questions regarding the markup of the merger agreement to which representatives of Gibson Dunn answered. Members of the special committee also discussed the markup extensively among themselves. Given that no third party indicated any interest in pursuing a transaction with the Company since April 25, 2019, the date when the Board received the Proposal, members of the special committee instructed Gibson Dunn to circulate the markup of the merger agreement to O’Melveny after reviewing and incorporating comments from the special committee and Locke Lord, and initiate the negotiation with O’Melveny to resolve legal issues.

On July 31, 2019, Duff & Phelps sent an email in response to the Stockholder A’s Initial Email to request further information concerning the Stockholder’s view regarding the related-party transactions and why the Stockholder believed they impacted the Company’s stock price.

Later on the same date, Gibson Dunn sent a revised draft of the merger agreement to O’Melveny. Gibson Dunn also requested O’Melveny to provide details of (i) the Buyer Consortium’s financing plan and (ii) the required regulatory approvals that the Buyer Consortium would need to obtain with respect to the Proposed Transaction (the “Parent Required Approvals”).

On August 2, 2019, Stockholder A responded in an email (the “Stockholder A’s Second Email”) with additional information on the matters stated in Stockholder A’s Initial Email. Stockholder A stated, among other things, his belief that none of the related-party transactions were unlawful and they had all been fully disclosed, but that the mere existence of these transactions presented challenges regarding valuing the Company and possible stockholder litigation. Stockholder A stated his belief that the Company should determine whether it is possible to unwind these transactions, which in Stockholder A’s view, would make it easier for stockholders to value the Company.

Later on the same date, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Gibson Dunn updated the special committee that Gibson Dunn circulated to O’Melveny a revised draft of the merger agreement, which reflected certain comments from the Company and Locke Lord. Duff & Phelps then provided the special committee with an update on the progress of its financial due diligence. Members of the special committee and Gibson Dunn asked various questions, to which Duff & Phelps responded. At the request of the special committee, Duff & Phelps updated the special committee of Stockholder A’s Second Email. Members of the special committee and representatives of Gibson Dunn and Duff & Phelps discussed the Stockholder A’s Second Email extensively. Based on these discussions, the special committee requested and authorized Duff & Phelps, with the assistance of Gibson Dunn, to communicate further with Stockholder A and to encourage Stockholder A to provide any additional information that in Stockholder A’s view may be helpful to the special committee and its advisors in the assessment of the Proposed Transaction.

Later on the same date, at the direction of the special committee, Duff & Phelps sent a subsequent email in response to the Stockholder A’s Second Email. Duff & Phelps stated that they would (i) discuss these related party transactions with the Company and the management team, and take them into account when performing their fairness analysis, and (ii) look for any further information that Stockholder A would provide on these issues and provide it to the special committee for consideration.

On August 6, 2019, O’Melveny sent to Gibson Dunn an updated draft of the merger agreement, and initial drafts of an equity commitment letter (the “Equity Commitment Letter”) and an equity contribution and voting agreement (the “Support Agreement”). O’Melveny also informed Gibson Dunn of (i) the Buyer Consortium’s plan to fund the Proposed Transaction with cash on hand, and (ii) a list of Parent Required Approvals.

On August 8, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps updated the special committee that it had not received any response from Stockholder A since responding to the Stockholder A’s Second Email. Members of the special committee instructed Duff & Phelps to keep them updated if and when Stockholder A responds. At the request of the special committee, Duff & Phelps also discussed the progress of its analysis of the Proposal, informed the Special Committee of its projected timeline to complete its preliminary analysis with respect to the Proposal, and answered questions from the special committee and Gibson Dunn. Members of the special committee and representatives of Gibson Dunn then discussed issues identified by Gibson Dunn in the updated draft of the merger agreement circulated by O’Melveny on August 6, 2019. Members of the special committee asked various questions regarding these issues to which representatives of Gibson Dunn answered. Members of the special committee also discussed some of these issues extensively among themselves. Based on these discussions, the special committee authorized Gibson Dunn to reach out to O’Melveny to discuss certain issues in the merger agreement, and instructed Gibson Dunn to prepare a markup of the updated merger agreement.

On August 13, 2019, representatives of Gibson Dunn and representatives of O’Melveny participated in a teleconference to discuss certain key issues raised in the updated draft of the merger agreement provided to Gibson Dunn on August 6, 2019.

At the direction of the special committee, on August 14, 2019, Gibson Dunn provided a markup of the updated draft merger agreement to O’Melveny, and also asked O’Melveny how Ruili Group, a member of the Buyer Consortium, intended to guarantee payment of the reverse termination fee (the “Parent Termination Fee”).

On August 15, 2019, O’Melveny, at the direction of the Buyer Consortium, responded to Gibson Dunn that Ruili Group proposed to deposit the same amount of Parent Termination Fee in RMB directly into the bank account of Ruili Group Ruian Auto Parts Co., Ltd., the principal operating subsidiary of the Company (“Ruian”), prior to or contemporaneously with the execution of the merger agreement (the “Buyer Consortium’s Deposit Proposal”). Later on the same date, representatives of Gibson Dunn and O’Melveny had various telephonic conversations to discuss the Buyer Consortium’s Deposit Proposal and certain key issues raised in the merger agreement.

On August 16, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps updated the special committee that it had not received any response from Stockholder A. During the meeting, Gibson Dunn provided an update to the special committee regarding the markup of the updated merger agreement circulated to O’Melveny on August 14, 2019 and the Buyer Consortium’s Deposit Proposal, among other things. Gibson Dunn explained to the special committee that Ruian is a joint venture in which the Company and Ruili Group hold a 90% and 10% ownership interest, respectively. Members of the special committee asked various questions, which representatives of Gibson Dunn and Duff & Phelps answered. Members of the special committee also discussed some of these issues extensively among themselves. Based on these discussions, the members of the special committee expressed their preference for Ruili Group to deposit funds in RMB to a RMB bank account of the Company or a wholly owned subsidiary of the Company (the “Special Committee’s Revised Proposal,” together with the Buyer Consortium’s Deposit Proposal, the “Deposit Matter”). Members of the special committee then instructed Gibson Dunn to contact Locke Lord to check whether the Company has a RMB bank account or any wholly owned subsidiary, and to discuss Special Committee’s Revised Proposal with O’Melveny. At the request of the special committee, Duff & Phelps also provided an update on the progress of its financial due diligence. It also reported that it had not yet received financial projections from the management of the Company. The special committee instructed Duff & Phelps to continue to follow up with the management of the Company for the financial projections.

Following the special committee meeting, on the same date, representatives of Gibson Dunn contacted Locke Lord to check certain information regarding the Deposit Matter.

On August 17, 2019, representatives of Gibson Dunn, on behalf of the special committee, enquired with the representatives of O’Melveny whether the Company or Fairford Holdings Limited (“Fairford”), a Hong Kong company and wholly owned subsidiary of the Company, could open an onshore RMB bank account.

On August 16 and August 19, 2019, O’Melveny sent to Gibson Dunn written responses stating that the Special Committee’s Revised Proposal would not be feasible because (i) the Company has no wholly owned subsidiaries in China, and (ii) it is practically difficult for an offshore entity, such as the Company and Fairford, to open an onshore RMB bank account in the PRC.

Between August 16 and August 19, 2019, representatives of Gibson Dunn and representatives of O’Melveny engaged in various discussions via telephone regarding the Deposit Matter and the key issues in the merger agreement.

On August 20, 2019, Locke Lord answered Gibson Dunn’s questions regarding the Deposit Matter.

On August 21, 2019, O’Melveny sent to Gibson Dunn a further revised draft of the merger agreement and a key issues list of the merger agreement.

On August 22, 2019, representatives of Gibson Dunn and representatives of O’Melveny engaged in various discussions via telephone discussing certain key issues in the revised draft of the merger agreement provided on August 21, 2019.

On August 23, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps updated the special committee that it had not received any response from Stockholder A. During the meeting, Gibson Dunn provided an update to the special committee regarding the Deposit Matter and the issues in the further revised draft of the merger agreement, among other things. Members of the special committee and representatives of Gibson Dunn discussed various approaches with respect to the Deposit Matter including asking the Buyer Consortium and its relevant affiliates to confirm, among other things, (i) Ruian’s sole and exclusive control over the deposit of the Parent Termination Fee, (ii) Buyer Consortium and its relevant affiliates having no right to any distributions during the relevant period, and (iii) in the event that the Company is entitled to the Parent Termination Fee, the Buyer Consortium and its relevant affiliates having no right to any distributions of any portions of the Parent Termination Fee (together, the “Undertaking Approach”). Members of the special committee and representatives of Gibson Dunn also discussed certain other issues identified in the further revised draft of the merger agreement provided by O’Melveny on August 21, 2019. Members of the special committee asked various questions regarding the Deposit Matter and the merger agreement, which Gibson Dunn answered. Members of the special committee also discussed some of these issues extensively among themselves. Based on these discussions, members of the special committee agreed on the Undertaking Approach, and instructed Gibson Dunn to propose the Undertaking Approach to O’Melveny. At the request of the special committee, Duff & Phelps provided an update on the progress of its financial due diligence. Duff & Phelps also answered questions from the special committee and Gibson Dunn.

Later on the same date, Gibson Dunn sent to O’Melveny an initial draft of an undertaking agreement (the “Undertaking”) with respect to the Undertaking Approach and communicated to O’Melveny that the special committee would agree with the Buyer Consortium’s Deposit Proposal subject to the Buyer Consortium and its relevant affiliates accepting the Undertaking Approach proposed by the special committee.

On August 27, 2019, representatives of O’Melveny, on behalf of the Buyer Consortium, sent the Buyer Consortium’s comments to the initial draft of the Undertaking to representatives of Gibson Dunn.

On August 29, 2019, representatives of Gibson Dunn, on behalf of the special committee, sent the second draft of the Undertaking to representatives of O’Melveny.

On August 30, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Gibson Dunn updated the special committee on its various negotiations with O’Melveny regarding the merger agreement, as well as the Undertaking, the Equity Commitment Letter, and the Support Agreement (collectively, the “Ancillary Agreements”). Members of the special committee instructed Gibson Dunn to convey the special committee’s positions on each of the key outstanding issues to O’Melveny and continue negotiating the Ancillary Agreements with O’Melveny.

Later on the same date, Gibson Dunn sent to O’Melveny (i) a key issues list, which sets forth the special committee’s positions on the outstanding issues in the merger agreement, and (ii) a revised draft of the Equity Commitment Letter.

Between August 27 and September 2, 2019, Gibson Dunn and O’Melveny negotiated and revised the Undertaking. On September 2, 2019, O’Melveny confirmed to Gibson Dunn that the Buyer Consortium had no further comments on the Undertaking.

On September 6, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Gibson Dunn updated the special committee on the status of the merger agreement and the Ancillary Agreements (collectively, “Transaction Documents”). At the request of the special committee, Duff & Phelps reported to the special committee that the Company’s management was in the process of preparing the financial projections. Members of the special committee then instructed (i) Duff & Phelps to keep the special committee updated when it receives the financial projections from the Company’s management, and (ii) Gibson Dunn to continue negotiating with O’Melveny the Transaction Documents.

On September 10, 2019, Gibson Dunn sent to O’Melveny a revised draft of the Support Agreement.

Between September 10 and October 16, 2019, Gibson Dunn and O’Melveny negotiated and revised the Ancillary Agreements while Duff & Phelps conducted financial analysis of the Company.

On September 12, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Duff & Phelps reported to the special committee the progress of its financial analysis on the Company. At the request of the special committee, Gibson Dunn summarized the status of each of the Transaction Documents.

On September 20, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Duff & Phelps reported to the special committee that it had not yet received financial projections from the management of the Company. The special committee instructed Duff & Phelps to continue to follow up with the management of the Company for the financial projections. At the request of the special committee, Gibson Dunn updated the special committee of the status of each of the Transaction Documents.

Later on the same date, O’Melveny sent to Gibson Dunn a further revised draft of the Equity Commitment Letter and an updated draft of the Support Agreement, and confirmed to Gibson Dunn that the Buyer Consortium had no further comments on the Support Agreement.

On October 7, 2019, Duff & Phelps provided the special committee with the financial projections of the Company that Duff & Phelps received from the Company’s management members.

On October 8, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, Duff & Phelps walked the special committee through the financial projections of the Company. Members of the special committee and Gibson Dunn asked various questions regarding the financial projections to which representatives of Duff & Phelps answered. Members of the special committee also discussed the financial projections extensively among themselves. Based on these discussions, the special committee instructed Duff & Phelps to perform the valuation analysis of the Company based on the financial projections provided and other information that Duff & Phelps deems appropriate and relevant.

On October 16, 2019, Gibson Dunn and O’Melveny negotiated and revised the Equity Commitment Letter. Later on the same date, Gibson Dunn sent to O’Melveny a further revised Equity Commitment Letter.

On October 25, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps orally updated the special committee on the progress of its financial analysis on the Company. Members of the special committee and Gibson Dunn asked various questions, which Duff & Phelps answered. Based on these discussions, the special committee authorized Duff & Phelps to reach out to the Buyer Consortium to request a price increase from the Buyer Consortium. Prior to the meeting, Duff & Phelps provided the special committee with statistics of the use of a pre-signing market check and/or a “go-shop” in similar going private transactions. At the meeting, members of the special committee asked various questions regarding potential benefits, advantages, limitations, disadvantages of the use of a pre-signing market check and/or “go-shop” in a going private transaction, which Duff & Phelps and Gibson Dunn answered. Members of the special committee also discussed these topics extensively among themselves. Based on these discussions, the special committee instructed Gibson Dunn to communicate with O’Melveny the preference of the special committee to conduct a pre-signing market check in the Proposed Transaction.

Later on the same date, Gibson Dunn communicated with O’Melveny the preference of the special committee to conduct a pre-signing market check in the Proposed Transaction.

On October 28, 2019, upon the authorization of the special committee, Duff & Phelps sent to O’Melveny the special committee’s request for an increase of the purchase price. The request was not made for a specific price or range of prices.

On October 30, 2019, Duff & Phelps provided the special committee with a proposed list of potential buyers for the pre-signing market check, which includes six potential strategic buyers and fifteen potential financial buyers (the “Proposed Buyer List”).

On October 31, 2019, representatives of Duff & Phelps and representatives of Gibson Dunn held a telephonic meeting with representatives of Huatai Securities and representatives of O’Melveny, to discuss, among other things, the special committee’s request for a price increase from the Buyer Consortium.

Later on the same date, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps provided the special committee with its price negotiation earlier on the same date with the Buyer Consortium’s advisors. At the request of the special committee, Duff & Phelps then provided more details of the Proposed Buyer List. Members of the special committee and Gibson Dunn asked various questions, which Duff & Phelps answered. Based on these discussions, the special committee authorized Duff & Phelps to commence the pre-signing market check process.

Between October 31, 2019 and November 14, 2019, Duff & Phelps contacted, and subsequently followed up with, each of the potential buyers on the Proposed Buyer List. Duff & Phelps also provided each of the potential buyers with the Company’s latest annual and quarterly reports.

On November 15, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps updated the special committee with the result of the pre-signing market check. Duff & Phelps contacted six potential strategic buyers and fifteen potential financial buyers on the Proposed Buyer List and none of the potential buyers indicated any interest in pursuing a transaction with the Company. Duff & Phelps then updated the special committee on the progress of its financial analysis on the Company and its projected timeline to complete its financial analysis. Members of the special committee and Gibson Dunn asked various questions, which Duff & Phelps answered. Based on these discussions, the special committee instructed Duff & Phelps to continue its financial analysis and provide further report after completion of the financial analysis.

On or around November 20, 2019, representatives of Duff & Phelps had further discussions with the Buyer Consortium and its advisors with respect to the special committee’s request for an improved offer price.

On November 22, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Duff & Phelps updated the special committee on the progress of Duff & Phelps’ financial analysis on the Company, and answered questions from the special committee and Gibson Dunn. Based on these discussions, the special committee authorized Duff & Phelps and Gibson Dunn to continue the price negotiation and negotiation of the Transaction Documents with the Buyer Consortium and its advisors.

Later on the same date, Gibson Dunn sent to O’Melveny a revised draft of the merger agreement, and an updated issues list of the merger agreement, which includes, among other things, the special committee’s request for the Buyer Consortium to raise the offer price.

On November 25, 2019, O’Melveny sent to Gibson Dunn an updated issues list of the merger agreement, which sets forth the Buyer Consortium’s revised positions on the outstanding issues of the merger agreement including, among other things, an increased offer price of $4.72 per share from its original offer price of $4.26 in the Proposal. O’Melveny also confirmed to Gibson Dunn via telephone that $4.72 per share was the final offer from the Buyer Consortium.

On the same date, O’Melveny also confirmed to Gibson Dunn in writing that the Buyer Consortium has no further comments on the Equity Commitment Letter circulated by Gibson Dunn on October 16, 2019.

Between November 22 and November 28, 2019, representatives of Gibson Dunn and representatives of O’Melveny had various negotiations via telephone on the outstanding issues in the Transaction Documents.

On November 27, 2019, O’Melveny informed Gibson Dunn in writing that the Buyer Consortium has deposited the RMB amount of the Parent Termination Fee into a bank account of Ruian.

Later on the same date, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. At the request of the special committee, Gibson Dunn walked the special committee through the Buyer Consortium’s revised positions on the outstanding issues of the merger agreement and Ruian’s receipt of the deposit with respect to the Parent Termination Fee. Members of the special committee, Gibson Dunn, and Duff & Phelps discussed the outstanding issues in the Buyer Consortium’s revised positions, including the closing condition relating to dissenting stockholders and the Parent Regulatory Approvals. Members of the special committee asked various questions, which Gibson Dunn and Duff & Phelps answered. Members of the special committee also discussed some of these issues extensively among themselves. Based on these discussions, the special committee instructed Gibson Dunn to continue the negotiation of the outstanding issues in the Buyer Consortium’s revised positions with O’Melveny. Member(s) of the special committee will also directly discuss with representative(s) of the Buyer Consortium regarding the outstanding issues.

On November 28, 2019, Gibson Dunn and O’Melveny negotiated and revised the Transaction Documents. On the same date, the special committee also discussed with the Buyer Consortium on the outstanding issues.

On November 29, 2019, the special committee convened a meeting by telephone with representatives of Gibson Dunn and Duff & Phelps. During the meeting, at the request of the special committee, Gibson Dunn reviewed with the special committee the terms and conditions of the revised Transaction Documents, pursuant to which the Buyer Consortium would acquire the Company (the “Merger”). The special committee asked questions of Gibson Dunn regarding the revised Transaction Documents, which Gibson Dunn answered. Additionally, Duff & Phelps reviewed with the special committee its fairness analysis on the Company and the Buyer Consortium’s increased offer price of $4.72 per share of common stock. Members of the special committee and Gibson Dunn asked various questions, which representatives of Duff & Phelps answered. Duff & Phelps then orally delivered its opinion, with its written opinion to follow, that, as of November 29, 2019 and based upon and subject to the various qualifications, assumptions and limitations described in its opinion, the merger consideration of $4.72 per share of common stock to be received by the Company’s stockholders, other than the Buyer Consortium and its affiliates and Dissenting Stockholders, in the proposed Merger is fair, from a financial point of view, to such holders. See “Special Factors Relating to the Merger—Opinion of Duff & Phelps, Financial Advisor to the Special Committee” beginning on page 32 for additional information. Following a comprehensive and detailed discussion of the proposed terms of the revised Transaction Documents, the financial presentation provided by Duff & Phelps and its fairness opinion, and taking into account the other factors described below under the headings titled “Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger” beginning on page 25 and “Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” beginning on page 26, the special committee determined that the terms and conditions of the revised Transaction Documents, including the Buyer Consortium’s final offer price of $4.72 per share, are in the best interests of the Company and its stockholders. Upon a motion by Chairman Mr. Xiao Lin, seconded by Mr. Binghua Feng, the special committee unanimously adopted resolutions approving the revised Transaction Documents and resolutions recommending to the Board that they adopt the revised Transaction Documents and recommend the acquisition of the Company by the Buyer Consortium to the Company’s stockholders.

Following the meeting of the special committee, on the same date, the Board convened and based upon the unanimous recommendation of the special committee, and taking into accounts the other factors described below under the headings titled “Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger” beginning on page 25 and “Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger” beginning on page 26, the Board (other than Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang, members of the Buyer Consortium who abstained from voting) unanimously adopted resolutions approving the terms of the revised Transaction Documents and the transactions contemplated thereby and resolutions recommending that the Company’s stockholders vote to approve the terms of the merger agreement.

Upon the adoption and approval of the terms of the Transaction Documents by the Company’s Board, the Company, Parent and Merger Sub subsequently executed and delivered the Transaction Documents.

Later on the same date, the Company issued a press release announcing the execution of the Merger Agreement and other Transaction Documents, and subsequently furnished the press release as an exhibit to its current report on Form 8-K with the SEC on December 2, 2019.

On December 3, 2019, Mr. Xiaoping Zhang, Ms. Shuping Chi, Mr. Xiaofeng Zhang and Parent filed with the SEC the Amendment No. 2 to the Schedule 13D filed with the SEC on October 30, 2015 (as amended by the Amendment No. 1 to the Schedule 13D filed with the SEC on April 25, 2019).

Neither the Company, the special committee nor Duff & Phelps has received any communications from Stockholder A since August 2, 2019.

Purposes and Reasons of Our Board of Directors and Special Committee for the Merger

At a meeting on May 21, 2019, our Board (other than Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang who, as members of the Buyer Consortium, recused themselves from the board meeting and abstained from voting) granted the special committee, by way of a unanimous vote cast by all members of the Board present at the meeting, the exclusive power and authority to, among other things, ‎(i) to establish and direct the process and procedures related ‎to the review and ‎evaluation of the proposed going private transaction and any other proposed transaction to acquire all or a substantial portion of the stock or assets ‎of the Company, or to engage in a merger, combination or other similar transaction ‎involving the Company; (ii) to review, evaluate, investigate, pursue and negotiate the terms and conditions of ‎any Strategic Transaction; (iii) to solicit expressions of interest or other proposals for Strategic Transactions to the ‎extent the special committee deems appropriate;‎ (iv) to determine whether any Strategic 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);‎ (v) to reject any Strategic Transaction or approve, or recommend to the Board the approval of, ‎any Strategic Transaction; (vi) to the extent applicable, to determine, or recommend to the Board, whether to ‎recommend any Strategic Transaction to the stockholders of the Company (or any subset ‎of the stockholders of the Company that the special committee determines to be ‎appropriate);‎ (vii) to review, analyze, evaluate, monitor and control all proceedings (including, without ‎limitation, litigation) and activities of the Company related to any Strategic ‎Transaction;‎ (viii) to participate in the preparation of, review and comment upon any and all documents ‎and other instruments used in connection with a Strategic Transaction; and (ix) to take such other actions as the special committee may deem, in its sole judgment ‎and discretion, to be necessary, advisable or appropriate for the special committee to discharge its duties. In addition, the Board further resolved that the Board shall not recommend any Strategic Transaction for approval by the Company’s ‎stockholders, or otherwise approve any Strategic Transaction, without a prior favorable ‎recommendation of such Strategic Transaction by the special committee. Moreover, the Board also authorized the special committee to retain and compensate, on ‎terms and conditions acceptable to the special committee, at the Company’s expense, ‎such advisors, including, without limitation, financial and legal advisors, as the special committee deems appropriate to assist it in discharging its responsibilities. Finally, the Board directed the officers, employees and agents of the Company and the advisors to the Company (including, without limitation, legal counsel and financial advisors) to cooperate fully with the special committee and its advisors, agents, counsel and designees in all respects related to any Strategic Transaction, to take direction from the special committee and to provide such information and materials about the Company or which may otherwise be in the possession of the Company, including, without limitation, the books, records, projections and financial statements of the Company and any documents, reports or studies pertaining to the Company or any Strategic Transaction, as may be helpful in the discharge of the special committee’s duties.

The Company’s purpose for engaging in the merger is to enable its stockholders to receive $4.72 per share in cash, without interest, less any applicable withholding taxes, which represents approximately a 26.2% premium over the closing price of $3.74 per share of the Company’s common stock as quoted by NASDAQ on April 24, 2019, the last trading day prior to the date that the Company received a non-binding “going private” proposal from the Buyer Consortium, and a premium of approximately 39.2% over the closing price of $3.39 per share of the Company’s common stock on November 27, 2019, the last trading day prior to the announcement relating to the execution of the merger agreement.

As a publicly traded entity, the Company faces pressure from public stockholders and investment analysts to make decisions that might produce better short-term results, but over the long term lead to a reduction in the per share price of the Company’s publicly traded common stock. The special committee and our board of directors believe that, as a privately held entity, the Company’s management may have greater flexibility to focus on improving the Company’s financial performance without the constraints caused by the public equity market’s valuation of the Company and emphasis on short-term period-to-period performance.

The special committee and our board of directors also believe that it is appropriate for the Company to undertake the merger and terminate the registration of the Company common stock at this time due to the high costs of remaining a public company, including the cost of complying with the Sarbanes-Oxley Act of 2002 (“SOX”) and other U.S. federal securities laws. We estimate such costs to be, on an annualized basis, approximately $[         ] for fees and expenses of public accountants (excluding fees and expenses relating to the merger), approximately $100,000 for fees and expenses of U.S. securities counsel (excluding fees and expenses relating to the merger) and $108,000 for fees and expenses of the Company’s investor relations firm (excluding fees and expenses relating to the merger). These costs are ongoing, comprise a significant element of our corporate overhead expense, and are difficult to reduce. In addition to the direct out-of-pocket costs associated with the SEC reporting and compliance, the Company’s management and accounting staff, which comprises a handful of individuals, need to devote significant time to these matters.

Furthermore, as an SEC-reporting company, the Company is required to disclose a considerable amount of business information to the public, some of which would be considered proprietary and would not be disclosed by a non-reporting company. As a result, our actual or potential competitors, customers, lenders and vendors all have ready access to this information, which potentially may help them compete against us or make it more difficult for us to negotiate favorable terms with them, as the case may be.

Based on the foregoing considerations, each of the special committee and our board of directors has concluded that it is more beneficial to the Company to undertake the proposed merger and become a private company as a result of the proposed merger than to remain a public company.

Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger

Our board of directors, acting upon the unanimous recommendation of the special committee, which special committee acted with the advice and assistance of its independent financial and legal advisors, evaluated the merger, including the terms and conditions of the merger agreement.

At a meeting on November 29, 2019, the special committee unanimously recommended that our board of directors adopt resolutions that:

At a meeting on November 29, 2019, our board of directors (other than Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang who, as members of the Buyer Consortium, recused themselves from the board meeting and abstained from voting) unanimously adopted the resolutions recommended by the special committee. Mr. Xiaoping Zhang, Ms. Shuping Chi and Mr. Xiaofeng Zhang, members of the Buyer Consortium, recused themselves from the board meeting and abstained from voting because of the potential conflicts of interest arising from his or her role as a member of the board of directors of the Company and his or her interests in the transactions contemplated under the merger agreement. See “Special Factors Relating to the Merger—Interests of the Company’s Directors and Officers in the Merger” beginning on page 55 for additional information.

On November 29, 2019, each of the special committee and our board of directors determined that the proposed merger was substantively and procedurally fair to the Unaffiliated Stockholders based upon the following substantive factors and potential benefits of the merger, which are not listed in any relative order of importance:

In addition, the special committee and our board of directors believed that sufficient procedural safeguards were and are present to ensure that the merger is procedurally fair to our Unaffiliated Stockholders and to permit the special committee and our board of directors to represent effectively the interests of such Unaffiliated Stockholders. These procedural safeguards, which are not listed in any order of importance, are discussed below:

The special committee and board of directors also considered a variety of potentially negative factors discussed below concerning the merger agreement and the transactions contemplated therein, which are not listed in any order of importance:

The foregoing discussion of information and factors considered by the special committee and our board of directors is not intended to be exhaustive, but includes a number of the factors considered by the special committee and our board of directors. In view of the wide variety of factors considered by the special committee and our board of directors, neither the special committee nor our board of directors quantified or otherwise assigned relative weights to the foregoing factors in reaching its conclusion, nor did either find it practicable to do so. In addition, individual members of the special committee and our board of directors 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 our board of directors approve, and our board of directors approved, the merger agreement based upon the totality of the information presented to and considered by it.

Neither the special committee nor our board of directors considered the liquidation value of Company’s assets because it 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 of directors 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. Each of the special committee and the board of directors believes the analyses and additional factors it reviewed provided an indication of our going concern value. Each of the special committee and the board of directors of the Company also considered the historical market prices of the Company common stock as described on page 27. Neither the special committee nor our board of directors considered the Company’s net book value, which is defined as total assets minus total liabilities, as a factor. The special committee and board of directors believe that net book value is not a material indicator of the value of the Company as a going concern. The Company’s unaudited net book value per share of Company common stock as of September 30, 2019 was $9.79. Net book value does not take into account the future prospects of the Company, market conditions, trends in the industry related to the development, manufacturing, and distribution of automotive brake systems and other key safety related auto parts to automotive original equipment manufacturers, or OEMs, and the related aftermarket both in China and abroad, or the business risks inherent in competing with larger companies in that industry.

The special committee and our board of directors, in reaching their respective determinations to approve and recommend to the Unaffiliated Stockholders the merger agreement and the transactions contemplated thereby, including the merger, also considered the risk of losing the opportunity to enter into a transaction with the Buyer Consortium at the per share merger consideration that was considered fair, from a financial point of view, to the Unaffiliated Stockholders.

In reaching its determination that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests to the Company and our Unaffiliated Stockholders and its decision to approve the merger agreement and recommend the adoption of the merger agreement by our stockholders, our board of directors considered the analysis and recommendation of the special committee and the factors examined by the special committee as described above under the captions “Special Factors Relating to the Merger—Purposes and Reasons of Our Board of Directors and Special Committee for the Merger” and “Special Factors Relating to the Merger—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” and expressly adopted such determinations, recommendations and analysis as its own. For the foregoing reasons, our board of directors 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 our Unaffiliated Stockholders.

Our board of directors recommends that you vote “FOR” adoption of the merger agreement.

Opinion of Duff & Phelps, Financial Advisor to the Special Committee

Pursuant to an engagement letter dated July 1, 2019, the special committee engaged Duff & Phelps to serve as its independent financial advisor and to deliver a fairness opinion 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.

At the meeting of the special committee on November 29, 2019, Duff & Phelps rendered its oral opinion (which was subsequently confirmed in writing by delivery of its written opinion later on the same date) to the special committee that, as of such date and based upon and subject to the factors, assumptions, and limitations set forth in its opinion, the $4.72 per share merger consideration to be received by the holders of the Company common stock, other than the Excluded Shares and Dissenting Shares, in the merger 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 the Company common stock other than in their capacity as holders of Company common stock). No limitations were imposed by the special committee upon Duff & Phelps with respect to the investigations made or procedures followed by it in rendering its opinion.

The full text of the written opinion of Duff & Phelps, dated November 29, 2019, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated herein by reference in its entirety. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. The stockholders of the Company are urged to read the opinion in its entirety. Duff & Phelps’ opinion is addressed to the special committee (in its capacity as such), and is directed only to the fairness, from a financial point of view, the per share merger consideration and does not constitute a recommendation to any stockholders of the Company as to how such stockholder should vote or act with respect to the merger or any other matter. The per share merger consideration was determined through arms-length negotiations between the special committee and the Buyer Consortium and was approved by the special committee and the Board, and Duff & Phelps did not recommend any specific amount of consideration for the merger or that any specific amount of consideration constituted the only appropriate consideration for the merger. Duff & Phelps has consented to the inclusion of its opinion in its entirety and the description thereof in this proxy statement and any other filing the Company is required to make with the SEC in connection with the merger if such inclusion is required by applicable law.

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 financial analyses and rendering its opinion with respect to the Transaction, Duff & Phelps, with the Company’s and the special committee’s consent:

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, the opinion cannot and should not be relied upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of the 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 Transaction.

Duff & Phelps prepared its opinion effective as of November 29, 2019. Its opinion was necessarily based upon the information made available to Duff & Phelps as of the date thereof and 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.

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) of the Company. Duff & Phelps is not expressing any opinion as to the market price or value of the Company common stock (or anything else) after the announcement or the consummation of the Transaction. 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, tax advice, or accounting advice. Duff & Phelps has not made, and assumes no responsibility to make, any representation or render any opinion, as to any legal matter. The issuance of Duff & Phelps’ opinion was approved by an authorized fairness opinion committee of Duff & Phelps.

In rendering its opinion, Duff & Phelps was not expressing any opinion with respect to the amount or nature or any other aspect of any compensation payable to or to be received by any of the Company’s officers, directors or employees, or any class of such persons, relative to the per share 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 Transaction 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’ written consent, except that a copy of this opinion may be provided to the Board and included in the filings with the SEC in relation to the Transaction. The opinion (i) does not address the merits of the underlying business decision to enter into the Transaction versus any alternative strategy or transaction; (ii) does not address any transaction related to the Transaction; (iii) is not a recommendation as to how the special committee, the Board, the Company or any other person including stockholder should vote or act with respect to any matters relating to the Transaction, or whether to proceed with the Transaction or any related transaction; and (iv) does not indicate that the per share merger consideration is the best possibility attainable under any circumstances; instead, it merely states whether the Merger Consideration is within a range suggested by certain financial analyses. The decision as to whether to proceed with the Transaction 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 has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Transaction, the assets, businesses or operations of the Company, or any alternatives to the Transaction, or advise the special committee or any other party with respect to alternatives to the Transaction, other than a pre-signing market check with certain potential buyers, or (ii) negotiate the terms of the Transaction (other than its participation in the negotiation of the per share merger consideration).

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.

Summary of Financial Analyses

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, 2019 through December 31, 2024, 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 Relating to the Merger—Prospective Financial Information” beginning on page 51. The costs associated with the Company being a publicly listed company, as provided by Company management, 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 2024 (the “Terminal Value”) using a perpetuity growth formula assuming a 3.50% 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 12.00% to 13.00%, 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 RMB 1,530.00 million to RMB 1,760.00 million and a range of implied values of the Company’s common stock of US$3.19 to US$4.72 per share of common stock.

The estimated future unlevered free cash flows Duff & Phelps used are summarized as follows (RMB in thousands):

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 Transaction. Duff & Phelps does not have access to nonpublic information of any of the companies used for comparative purposes. Accordingly, a complete valuation analysis of the Company and the Transaction 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 auto 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 nineteen companies included in the selected public company analysis in the auto 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 2019, 2020 and 2021 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”) and earnings before interest, taxes (“EBIT”) were adjusted for purposes of this analysis to eliminate public company costs and non-recurring income (expenses). Government grants are included in EBITDA and EBIT metrics.