UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No.  )

Filed by the Registrant   ☒          Filed by a Party other than the Registrant   ☐

Check the appropriate box:

☐   Preliminary Proxy Statement

☐   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒   Definitive Proxy Statement

☐   Definitive Additional Materials

☐   Soliciting Material under Rule 14a-12

HIGHPOWER INTERNATIONAL, INC.

(Name of Registrant as Specified In Its Charter)
(Name(s) of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

☐

No fee required.

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☐

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

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(1)

Title of each class of securities to which transaction applies:

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Highpower International Inc. common stock, par value $0.0001 per share

(2)

Aggregate number of securities to which transaction applies:

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15,758,105 shares of common stock (including shares subject to restricted stock units and shares of restricted stock) and 689,008 shares of common stock underlying outstanding employee stock options with an exercise price of less than $4.80 per share

(3)

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11: In accordance with Exchange Act Rule 0-11(c), the filing fee of  $9,210.86 was determined by multiplying 0.0001212 by the aggregate merger consideration of  $75,997,188.16. The aggregate merger consideration was calculated as the sum of  (i) the product of  (a) 15,758,105 outstanding shares of common stock (including shares of restricted stock) as of September 16, 2019 to be acquired in the Merger, multiplied by (b) the per share merger consideration of  $4.80, plus (ii) the product of  (x) 689,008 shares of common stock underlying outstanding employee stock options with an exercise price of less than $4.80 per share, multiplied by (y) 0.52, representing the difference between the $4.80 per share merger consideration and the $4.28 weighted average exercise price of such options.

(4)

Proposed maximum aggregate value of transaction:

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$75,997,188.16

(5)

Total fee paid:

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$9,210.86

☒

Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

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(1)

Amount Previously Paid:

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(2)

Form, Schedule or Registration Statement No.:

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(3)

Filing Party:

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(4)

Date Filed:

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September 27, 2019​

To the Stockholders of Highpower International, Inc.:

You are cordially invited to attend a special meeting of the stockholders of Highpower International, Inc., a Delaware corporation (“Highpower,” the “Company,” “we,” “our” or “us”), which we will hold at the Company’s principal executive offices located at Building A1, 68 Xinxia Street, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China on October 29, 2019 at 10 a.m. China Standard Time.

At the special meeting, holders of shares of our common stock, par value $0.0001 per share (“Common Stock”), will be asked to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of June 28, 2019 (as it may be amended from time to time, the “Merger Agreement”), by and among HPJ Parent Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), HPJ Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub” and, together with Parent, the “Parent Parties”), and the Company. Pursuant to the Merger Agreement, a copy of which is attached as Annex A to the accompanying proxy statement, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent, and each share of Common Stock outstanding immediately prior to the effective time of the Merger, other than shares of Common Stock held by (1) Messrs. Dang Yu (George) Pan, Wen Liang Li or Wen Wei Ma or their respective affiliates, (2) Parent, the Company or any of their respective subsidiaries or (3) stockholders who have validly exercised their appraisal rights under the Delaware General Corporation Law, will be canceled and converted into the right to receive $4.80 in cash, without interest, less any applicable withholding taxes (the “Per Share Merger Consideration”).

The board of directors of the Company (the “Board”) formed a committee (the “Special Committee”) consisting solely of two independent and disinterested directors of the Company to evaluate the Merger and other viable alternative transactions available to the Company. The Special Committee unanimously determined that the terms and conditions of the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company’s stockholders, and unanimously recommended that the Board (1) determine that it is in the best interests of the Company and its stockholders, and declare it advisable, for the Company to enter into the Merger Agreement, (2) approve the Merger Agreement and the consummation of the transactions contemplated thereby, including the Merger, and (3) recommend that the Company’s stockholders vote for the adoption of the Merger Agreement. Based in part on that recommendation, the Board (excluding Messrs. Pan and Liang Li, who did not participate in the vote due to their respective interests in the Merger) unanimously (a) determined that the terms and conditions of the Merger and the other transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the Company and the Company’s stockholders, (b) approved the execution and delivery of the Merger Agreement and approved the consummation of the transactions contemplated therein, including the Merger, and (c) resolved to submit to, and recommend the adoption by, the Company’s stockholders (other than Messrs. Pan, Li or Ma or Essence International Financial Holdings (Hong Kong) Limited or any of their respective affiliates) (the “Public Stockholders”) of the Merger Agreement and the transactions contemplated thereby, including the Merger. Accordingly, the Board (excluding Messrs. Pan and Liang Li, who did not participate in the vote due to their respective interests in the Merger) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the Merger Agreement.

In considering the recommendation of the Board, you should be aware that some of the Company’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of the Company’s stockholders generally. As of September 16, 2019, Messrs. Pan, Liang Li and Ma (including, with respect to Mr. Pan, directly or indirectly) owned, in the aggregate, 5,050,257 shares of Common Stock (including 23,750 shares of restricted stock) (the “Rollover Shares”), or approximately 32.0% of the total number of outstanding shares of Common Stock, and have agreed, pursuant to an Equity Contribution and Voting

Agreement that they entered into with Parent on June 28, 2019, to (a) vote, or cause to be voted, all of the Rollover Shares in favor of the proposal to adopt the Merger Agreement and (b) contribute to Parent, immediately prior to the consummation of the Merger, all of the Rollover Shares in exchange for direct or indirect equity interests in Parent.

We urge you to, and you should, read the accompanying proxy statement in its entirety, including the appendices, because it describes the Merger Agreement, the Merger and related agreements and provides specific information concerning the special meeting and other important information related to the Merger. In addition, you may obtain information about us from documents filed with the Securities and Exchange Commission.

Regardless of the number of shares of Common Stock you own, your vote is very important. The Merger cannot be completed unless the Merger Agreement is adopted by the affirmative vote of the holders of  (i) at least a majority of the outstanding shares of Common Stock entitled to vote thereon and (ii) at least a majority of the outstanding shares of Common Stock entitled to vote thereon held by the Public Stockholders. If you fail to vote or abstain from voting on the Merger Agreement, the effect will be the same as a vote against adoption of the Merger Agreement.

While stockholders may exercise their right to vote their shares in person, we recognize that many stockholders may not be able to, or do not desire to, attend the special meeting. Accordingly, we have enclosed a proxy card that will enable your shares to be voted on the matters to be considered at the special meeting even if you are unable or do not desire to attend. If you desire your shares to be voted in accordance with the Board’s recommendation, you need only sign, date and return the proxy card in the enclosed postage-paid envelope. Otherwise, please mark the proxy card to indicate your voting instructions; date and sign the proxy card; and return it in the enclosed postage-paid envelope. You also may submit a proxy card by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

Submitting a proxy will not prevent you from voting your shares in person if you subsequently choose to attend the special meeting. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy to ensure that your shares will be represented at the special meeting if you are unable to attend.

We look forward to the successful completion of the Merger and thank you for your prompt attention to this important matter.

Sincerely,​

Ping (David) Li
Director and Chairman of the Special Committee​

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the Merger, passed upon the merits or fairness of the Merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

This proxy statement is dated September 27, 2019, and it is first being mailed to stockholders of Highpower on or about October 2, 2019.

HIGHPOWER INTERNATIONAL, INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Stockholders of Highpower International, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Highpower International, Inc., a Delaware corporation (“Highpower,” the “Company,” “we,” “our” or “us”), will be held at the Company’s principal executive offices located at Building A1, 68 Xinxia Street, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China on October 29, 2019 at 10 a.m. China Standard Time, for the following purposes:

1.

to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of June 28, 2019, as it may be amended from time to time, (the “Merger Agreement”), by and among HPJ Parent Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands (“Parent”), HPJ Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub” and, together with Parent, the “Parent Parties”), and the Company, pursuant to which it is contemplated that Merger Sub will merge with and into the Company (the “Merger”), with the Company as the surviving corporation of the Merger;

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2.

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 approve the proposal to adopt the Merger Agreement; and

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3.

to transact such other business as may properly come before the special meeting or any adjournment or postponement thereof.

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The holders of record of shares of our common stock, par value $0.0001 per share (“Common Stock”), at the close of business on September 16, 2019, are entitled to notice of and to vote at the special meeting or at any adjournment or postponement thereof. All stockholders of record are cordially invited to attend the special meeting in person.

As required by Section 262 of the Delaware General Corporation Law (“Section 262”), the Company is notifying all stockholders entitled to vote on the Merger that you are or may be entitled to assert appraisal rights in connection with the proposed Merger. The procedures you are required to follow in order to exercise your appraisal rights are summarized in the accompanying proxy statement in the section entitled “Rights of Appraisal” beginning on page 8, and a copy of Section 262 is included with the accompanying proxy statement as Annex C.

Your vote is important, regardless of the number of shares of Common Stock you own. The adoption of the Merger Agreement by the affirmative vote of the holders of  (i) at least a majority of the outstanding shares of Common Stock entitled to vote thereon and (ii) at least a majority of the outstanding shares of Common Stock entitled to vote thereon held by stockholders (other than shares held by Messrs. Dang Yu (George) Pan, Wen Liang Li or Wen Wei Ma or Essence International Financial Holdings (Hong Kong) Limited or any of their respective affiliates) are conditions to the consummation of the Merger. The proposal to approve the adjournment of the special meeting to solicit additional proxies, if necessary or appropriate, requires the affirmative vote of a majority of the votes cast by holders of shares of Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card to ensure that your shares will be represented at the special meeting if you are unable to attend. You also may submit your proxy card by using a toll-free telephone number or the Internet. We have provided instructions on the proxy card for using these convenient services.

If you sign, date and return your proxy card without indicating how you wish to vote, your proxy will be voted in favor of the proposal to adopt the Merger Agreement and the proposal to approve the adjournment of the special meeting to solicit additional proxies, if necessary or appropriate. If you fail to vote or submit your proxy, the effect will be that your shares will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the proposal to adopt the Merger Agreement. However, failure to vote or submit your proxy will not affect the vote regarding the proposal to approve the adjournment of the special meeting to solicit additional proxies, if necessary or appropriate, because they are not considered “votes cast” for voting purposes.

Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement. If you are a stockholder of record entitled to vote, attend the special meeting and wish to vote in person, you may revoke your proxy and vote in person.

If you hold your shares in street name, you may vote by following your broker’s instructions.

Important Notice Regarding the Availability of Proxy Materials for the Special Meeting to be held on October 29, 2019: This Proxy Statement is available at http://www.edocumentview.com/HPJ.

BY ORDER OF THE BOARD OF DIRECTORS​

Shengbin (Sunny) Pan
Chief Financial Officer and
Corporate Secretary​

Dated September 27, 2019
Shenzhen, China

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

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

Q:

Why am I receiving this proxy statement?

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A:

On June 28, 2019, we entered into the Merger Agreement providing for the Merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Merger Sub is a wholly-owned subsidiary of Parent. You are receiving this proxy statement in connection with the solicitation of proxies by the Board in favor of the proposal to adopt the Merger Agreement and the other matters to be voted on at the special meeting.

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Q:

What is the proposed transaction?

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A:

The proposed transaction is the Merger of Merger Sub with and into the Company pursuant to the Merger Agreement. Following the Effective Time, the Company will be privately held as a wholly-owned subsidiary of Parent.

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Q:

What matters will be voted on at the special meeting?

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A:

You will be asked to consider and vote on the following proposals:

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to adopt the Merger Agreement;

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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 approve the proposal to adopt the Merger Agreement; and

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to transact such other business that may properly come before the special meeting or any adjournment or postponement thereof by or at the direction of the Board.

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Q:

Where and when is the special meeting?

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A:

The special meeting will be held at the Company’s principal executive offices located at Building A1, 68 Xinxia Street, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China on October 29, 2019 at 10 a.m. China Standard Time.

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Q:

Who can attend and vote at the special meeting?

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A:

All stockholders of record as of the close of business on September 16, 2019, the record date for the special meeting, are entitled to receive notice of and to attend and vote at the special meeting, or any adjournment or postponement thereof. If you are a stockholder of record, please be prepared to provide proper identification, such as a driver’s license. If you wish to attend the special meeting and your shares of Common Stock are held in “street name” by your broker, bank or other nominee, you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other nominee, along with proper identification. “Street name” holders who wish to vote at the special meeting will need to obtain a proxy executed in such holder’s favor from the broker, bank or other nominee that holds their shares of Common Stock. Seating will be limited at the special meeting.

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A complete list of stockholders entitled to vote at the special meeting, arranged in alphabetical order, showing the address of and number of shares of Common Stock held by each such stockholder, will be made available at the offices of the Company, Building A1, 68 Xinxia Street, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China, for examination by any stockholder, for any purpose germane to the special meeting, during normal business hours, for a period of at least ten days prior to the special meeting.

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Q:

What is a quorum?

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A:

In order for any matter to be considered at the special meeting, there must be a quorum present. The presence, in person or represented by proxy, of the holders of a majority of the shares of Common Stock outstanding and entitled to vote on such matters as of the record date for the special meeting will constitute a quorum. Shares of Common Stock represented by proxies reflecting abstentions and properly executed broker non-votes (if any) will be counted as present and entitled to vote for purposes of determining a quorum. If a quorum is not present, the stockholders entitled to vote at the meeting who are present or represented by proxy may adjourn the meeting until a quorum is present. See “The Special Meeting — Record Date and Quorum” on page 61.

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Q:

What will I receive in the Merger?

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A:

If the Merger is completed, you will be entitled to receive $4.80 in cash, without interest, less any applicable withholding taxes, for each share of Common Stock that you own, unless you properly exercise, and do not withdraw or lose, appraisal rights under Section 262 of the DGCL. For example, if you own 100 shares of Common Stock, you will be entitled to receive $480 in cash in exchange for your shares of Common Stock, without interest, less any applicable withholding taxes. You will not be entitled to receive shares of the Surviving Corporation or any of the Parent Parties.

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Q:

How will Company stock options and restricted shares be treated in the Merger?

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A:

Each Company stock option, whether vested or unvested and whether with an exercise price per share that is greater or less than or equal to $4.80, that is outstanding immediately prior to the Effective Time, will be canceled and converted into the right to receive, on the next regularly scheduled employee payroll date in the jurisdiction of the holder of such Company stock option, an amount in cash equal to the excess, if any, of the Per Share Merger Consideration over the exercise price per share of the Company stock option. If the per share exercise price of any Company stock option is equal to or greater than the Per Share Merger Consideration, then such Company stock option will be cancelled at the closing of the Merger without the right to receive any consideration.

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Each outstanding share of Company restricted stock (other than restricted stock included in the Rollover Shares), whether or not vested, including those held by the Company’s directors and executive officers, that is outstanding immediately prior to the Effective Time will become fully vested and free of restrictions and be treated in the same manner as an outstanding share of Common Stock of the Company.

Q:

Is the Merger expected to be taxable to me?

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A:

If you are a U.S. holder (as defined below), the receipt of cash for your shares of Common Stock pursuant to the Merger generally will be a taxable transaction for U.S. federal income tax purposes. If you are a non-U.S. holder (as defined below), the receipt of cash for your shares of Common Stock pursuant to the Merger generally will not be a taxable transaction for U.S. federal income tax purposes, unless you have certain connections to the United States. See “Special Factors — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 51 for a further discussion of the material U.S. federal income tax consequences of Merger to holders of shares of Common Stock. You should consult your tax advisors regarding the particular tax consequences to you of the exchange of shares of Common Stock for cash pursuant to the Merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws).

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Q:

What vote of our stockholders is required to approve the proposal to adopt the Merger Agreement?

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A:

Under Delaware law and as a condition to the consummation of the Merger, stockholders holding at least a majority of the shares of Common Stock outstanding and entitled to vote at the close of business on the record date must vote “FOR” the proposal to adopt the Merger Agreement. In addition, the Merger Agreement requires, as a condition to the consummation of the Merger, that Public Stockholders holding at least a majority of the shares of Common Stock outstanding and

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entitled to vote at the close of business on the record date, other than the Excluded Shares, must have voted “FOR” the proposal to adopt the Merger Agreement. As of September 16, 2019, which is the record date, there were 15,758,105 shares of Common Stock outstanding.

As of September 16, 2019, Messrs. Pan, Liang Li and Ma owned (including, with respect to Mr. Pan, shares owned directly and indirectly owned by Advance Pride), in the aggregate, 5,050,257 shares of Common Stock (including 23,750 shares of restricted stock) (the “Rollover Shares”), or approximately 32.0% of the total number of outstanding shares of Common Stock, and have agreed, pursuant to Rollover Agreement, to vote, or cause to be voted, all of the Rollover Shares in favor of the proposal to adopt the Merger Agreement. The other directors and current executive officers of the Company have informed the Company that, as of the date of the filing of this proxy statement, they intend to vote in favor of the proposal to adopt the Merger Agreement.

Q:

What will happen if I abstain from voting or fail to vote on the proposal to adopt the Merger Agreement?

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A:

A failure to vote your shares of Common Stock or an abstention from voting or broker non-vote will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement. Abstentions and broker non-votes will be included in the calculation of the number of shares of Common Stock represented at the special meeting for purposes of determining whether a quorum has been achieved. See “The Special Meeting — Required Vote” on page 62.

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Q:

How will our directors and executive officers vote on the proposal to adopt the Merger Agreement?

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A:

In connection with the Merger Agreement, Parent entered into the Rollover Agreement with the Rollover Stockholders, pursuant to which, among other things, the Rollover Stockholders (including Messrs. Pan and Liang Li) have agreed to vote, or cause to be voted, all of the Rollover Shares in favor of the proposal to adopt the Merger Agreement. As of September 16, 2019, the Rollover Shares represent approximately 32.0% of the total number of outstanding shares of Common Stock.

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As of September 16, 2019, the record date, the directors and current executive officers (other than Messrs. Pan and Liang Li) owned, in the aggregate, 71,000 shares of Common Stock entitled to vote at the special meeting.

Q:

What vote of our stockholders is required to approve other matters to be discussed at the special meeting?

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A:

The proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies requires the affirmative vote of a majority of the votes cast by holders of shares of Common Stock present in person or represented by proxy at the special meeting and entitled to vote thereon. Abstentions and broker non-votes will have no effect on the proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies because neither is considered a vote “cast.”

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Q:

How does the Board recommend that I vote?

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A:

The Board (excluding Messrs. Pan or Liang Li, who did not participate in the vote due to their respective interests in the Merger), acting on the unanimous recommendation of the Special Committee, unanimously recommends that our stockholders vote:

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“FOR” the proposal to adopt the Merger Agreement; and

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“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 approve the proposal to adopt the Merger Agreement.

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You should read “Special Factors — Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger” beginning on page 25 for a discussion of the factors that the Special Committee and the Board (without the participation of Messrs. Pan or Liang Li) considered in deciding to recommend the approval of the Merger Agreement. See also “Special Factors — Interests of Certain Persons in the Merger” beginning on page 48.

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Q:

Am I entitled to exercise appraisal rights instead of receiving the Per Share Merger Consideration for my shares of Common Stock?

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A:

Stockholders who do not vote in favor of the proposal to adopt the Merger Agreement are entitled to statutory appraisal rights under Delaware law in connection with the Merger. This means that if you comply with the requirements of Section 262 of the DGCL, you are entitled to have the “fair value” (as defined pursuant to Section 262 of the DGCL) of your shares of Common Stock determined by the Court of Chancery of the State of Delaware and to receive payment based on that valuation instead of receiving the Per Share Merger Consideration. The ultimate amount you would receive in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the Merger Agreement. To exercise your appraisal rights, you must comply with the requirements of the DGCL. See “Rights of Appraisal” beginning on page 8and the text of the Delaware appraisal rights statute, Section 262 of the DGCL, which is reproduced in its entirety as Annex C to this proxy statement.

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Q:

What effects will the Merger have on Highpower?

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A:

The Common Stock is currently registered under the Exchange Act and is quoted on NASDAQ under the symbol “HPJ.” As a result of the Merger, the Company will cease to have publicly traded equity securities and will be wholly-owned by Parent. Following the consummation of the Merger, the registration of Common Stock and our reporting obligations under the Exchange Act with respect to such registration will be terminated upon application to the SEC. In addition, upon the consummation of the Merger, the Common Stock will no longer be listed on NASDAQ or any other stock exchange.

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Q:

Who will own the Company immediately after the Merger?

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A:

As a result of the Merger, Mr. Pan, the Company’s Chief Executive Officer and Chairman of the Board (indirectly through Advance Pride), Mr. Liang Li, a director of the Company, Mr. Ma, Essence International Capital and the Portfolio will indirectly hold approximately 1.7%, 9.6%, 2.9%, 8.0%, and 77.8%, respectively, of the fully diluted equity interests of Parent, which will, in turn, own 100% of the equity interests of the Company immediately following the completion of the Merger.

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Q:

When is the Merger expected to be completed?

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A:

The parties to the Merger Agreement are working to complete the Merger as quickly as possible. In order to complete the Merger, the Company must obtain the Company Stockholder Approval described in this proxy statement, the other closing conditions under the Merger Agreement must be satisfied or, to the extent permitted, waived. See “The Merger Agreement — Conditions to the Merger” beginning on page 78. The Company currently expects to complete the Merger during the fourth quarter of 2019. The Company, however, cannot assure completion of the Merger by any particular date, if at all. Because consummation of the Merger is subject to a number of conditions, the exact timing of the Merger cannot be determined at this time.

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Q:

What happens if the Merger is not consummated?

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A:

If the proposal to adopt the Merger Agreement is not approved by the Company’s stockholders, or if the Merger is not consummated for any other reason, the Company’s stockholders will not receive any payment for their shares in connection with the Merger. Instead, the Company will remain a public company and shares of Common Stock will continue to be listed and traded on NASDAQ. Under specified circumstances, the Company may be required to pay Parent (or one or more of its designees) a termination fee. See “The Merger Agreement — Termination Fees” beginning on page 81.

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Q:

What do I need to do now?

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A:

We urge you to read this proxy statement carefully, including its annexes and the documents referred to as incorporated by reference in this proxy statement, and to consider how the Merger affects you. If you are a stockholder of record, you can ensure that your shares are voted at the special meeting by submitting your proxy via:

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mail, using the enclosed postage-paid envelope;

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telephone, using the toll-free number listed on each proxy card; or

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the Internet, at the address provided on each proxy card.

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If you hold your shares in “street name” through a broker, bank or other nominee, you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the proposal to adopt the Merger Agreement.

Q:

Should I send in my stock certificates or other evidence of ownership now?

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A:

No. After the Merger is completed, you will be sent a letter of transmittal with detailed written instructions for exchanging your shares of Common Stock for the Per Share Merger Consideration. If your shares of Common Stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the Per Share Merger Consideration. Do not send in your certificates now.

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Q:

What happens if I sell my shares of Common Stock before completion of the Merger?

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A:

If you transfer your shares of Common Stock, you will have transferred your right to receive the Per Share Merger Consideration in the Merger. In order to receive the Per Share Merger Consideration, you must hold your shares of Common Stock through completion of the Merger.

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Q:

Can I revoke my proxy?

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A:

Yes. You can revoke your proxy at any time before the vote is taken at the special meeting. If you are a stockholder of record, you may revoke your proxy by notifying the Company’s Corporate Secretary in writing to Corporate Secretary, Highpower International, Inc., Building A1, 68 Xinxia Street, Pinghu, Longgang, Shenzhen, Guangdong, 518111, People’s Republic of China, or by submitting a new proxy by telephone, the Internet or mail, in each case, dated after the date of the proxy being revoked. In addition, you may revoke your proxy by attending the special meeting and voting in person, although simply attending the special meeting will not cause your proxy to be revoked. If you hold your shares in “street name” and you have instructed a broker, bank or other nominee to vote your shares, the options described above for revoking your proxy do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to revoke your proxy or submit new voting instructions.

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Q:

What does it mean if I get more than one proxy card or voting instruction card?

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A:

If your shares are registered differently or are held in more than one account, you will receive more than one proxy or voting instruction card. Please complete and return all of the proxy cards or voting instruction cards you receive (or submit each of your proxies by telephone or the Internet, if available to you) to ensure that all of your shares are voted.

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Q:

What is householding and how does it affect me?

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A:

The SEC permits companies to send a single set of proxy materials to any household at which two or more stockholders reside, unless contrary instructions have been received, but only if the applicable company provides advance notice and follows certain procedures. In such cases, each stockholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of Common Stock held through brokerage firms. If your family has multiple accounts holding Common Stock, you may have already received a householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.

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Q:

Who can help answer my other questions?

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A:

If you have more questions about the Merger, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card, please contact Okapi Partners, LLC, which is acting as the Company’s proxy solicitation agent and information agent in connection with the Merger.

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Okapi Partners LLC
1212 Avenue of the Americas, 24th Floor
New York, New York 10036

+ 1 (212) 297-0720 (Main)
+ 1 (877) 629-6357 (Toll-Free)
Email: info@okapipartners.com

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

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SPECIAL FACTORS

Background of the Merger

The Board, together with senior management, regularly evaluates the Company’s business strategy, strategic alternatives, prospects for growth and opportunities to maximize value for the Company’s stockholders.

On June 2, 2018, Mr. Dang Yu (George) Pan submitted a preliminary non-binding proposal letter (the “Proposal Letter”). In the Proposal Letter, Mr. Pan proposed to acquire, through an acquisition vehicle to be formed by Mr. Pan, all of the outstanding shares of Common Stock that were not already directly or indirectly beneficially owned by Mr. Pan for cash consideration equal to $4.80 per share of Common Stock to be funded by a combination of debt and equity capital arranged by Mr. Pan (the “Proposal”). In the Proposal Letter, Mr. Pan indicated he would roll over his equity interests in the Company to such acquisition vehicle. The Proposal Letter stated that Mr. Pan expected commitments for the debt financing, subject to terms and conditions set forth therein, to be in place when the definitive agreements for the proposed transaction were to be executed. Furthermore, the Proposal Letter specified that Mr. Pan’s proposal constituted only a non-binding preliminary indication of interest, and was subject to negotiation and execution of definitive agreements relating to the Proposal. Mr. Pan also stated in the Proposal Letter that he was only interested in pursuing the Proposal and did not intend to sell his stake in the Company to a third party. Mr. Pan indicated he would recuse himself from any deliberations by the Board related to, and let the independent members consider, the Proposal. On June 4, 2018, the Company issued a press release and filed a Current Report on Form 8-K that included the Proposal Letter as an exhibit thereto.

On June 6, 2018, the Board established and designated the Special Committee, consisting of Ping (David) Li (Chairman) and T. Joseph Fisher III, each of whom was determined by the Board to be independent and disinterested in the Proposal, to, among other things, evaluate and review the Proposal and any other viable alternative transactions, to negotiate the price and terms of any potential transaction and to recommend action to the full Board with respect to any potential transaction (including, if deemed appropriate by the Special Committee, a recommendation to reject any and all potential transactions), all on behalf, and in furtherance of the best interests, of the stockholders of the Company. The Board agreed not to recommend a transaction for approval by the stockholders of the Company without a prior favorable recommendation from the Special Committee.

The Board granted the Special Committee the authority to engage independent legal counsel and other advisors it deemed necessary in order for the Special Committee to discharge its duties. On or about June 12, 2018, the Special Committee engaged Katten Muchin Rosenman LLP (“Katten”), as its legal counsel, and Roth, as its financial advisor to assist the Special Committee with respect to the negotiation and evaluation of the fairness, both procedurally and financially, of the Proposal and any other potential transactions, among other responsibilities. Neither Roth nor Katten had been previously engaged by any of the Board, the Special Committee or the Buyer Group.

On June 26, 2018, at the Special Committee’s request and authorization, Katten sent a draft confidentiality agreement between the Company and Mr. Pan to Orrick, Herrington & Sutcliffe LLP (“Orrick”), Mr. Pan’s U.S. legal counsel in connection with the proposed transaction.

Between June 26, 2018 and July 10, 2018, Katten and Orrick engaged in negotiations on the terms of the confidentiality agreement, following which, the Special Committee, on behalf of the Company, entered into the confidentiality agreement with Mr. Pan on July 10, 2018 (the “Confidentiality Agreement”).

On July 17, 2018, the Special Committee held a telephonic meeting that representatives of Katten attended. Representatives of Katten reviewed the Proposal and the mandate of the Special Committee. The members of the Special Committee and representatives of Katten discussed that Mr. Pan did not have committed financing and that the Proposal would be expected to be funded with a combination of debt and equity capital to be arranged by Mr. Pan. Representatives of Katten provided an overview of the directors’ fiduciary duties in general and in the context of the Proposal Letter. The Special Committee authorized Katten to explore indemnification agreements and a forum selection bylaw amendment with Company counsel, Manatt, Phelps & Phillips, LLP (“Manatt”). The Special Committee did not authorize any other actions and planned to wait until Mr. Pan provided further information on the financing for the Proposal.

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On July 20, 2018, representatives of Katten had a call with Manatt to discuss the Company entering into indemnification agreements with the Company’s directors, and the Company adopting an exclusive forum bylaw provision. Manatt agreed to prepare drafts of a form indemnification agreement and forum selection bylaw amendment for the Special Committee to consider.

On August 6, 2018, representatives of Katten and Orrick, had a call and the representatives of Orrick indicated Mr. Pan was pursuing sources of financing to complete the proposed transaction. As a result, neither the Special Committee, nor representatives of Katten or Roth, initiated, or held, any discussions or negotiations with Mr. Pan or his advisors.

On October 19, 2018, Mr. Pan had a meeting with the representatives of Essence International Financial Holdings Limited about a possible transaction to acquire the Company, and Mr. Pan suggested that Essence Parent join him as a new Buyer Group (as defined below) member, but those discussions were brief and no meaningful progress towards a transaction was made and no agreement or understanding was reached.

On October 30, 2018, representatives of Essence Parent were granted access to the financial and legal documents of the Company and commenced a due diligence review of the Company.

In November 2018, Mr. Pan and Essence Parent engaged in discussions with Mr. Wen Liang Li, a director and stockholder of the Company, and Mr. Wen Wei Ma, a stockholder of the Company, with respect to their joining Mr. Pan and Essence Parent as Buyer Group members. No agreement or understanding was reached in this regard.

On December 13, 2018, Essence Parent and its advisors completed their due diligence review of the Company.

On February 12, 2019, Essence Parent held its board meeting to internally approve, subject to contractual restrictions and procedures applicable to the Buyer Group, to join the Buyer Group and participate in the proposed Merger with other members of the Buyer Group.

On February 19, 2019, Orrick circulated to O’Melveny & Myers (“OMM”), U.S. legal counsel to Essence Parent and its subsidiaries and affiliates, a proposed consortium agreement in connection with the Proposal Letter whereby Essence Parent or one of its affiliates, Mr. Li and Mr. Ma would participate and work together with Mr. Pan on an exclusive basis with respect to the going-private transaction.

From February 19, 2019 to March 13, 2019, Mr. Pan and the representatives of Essence Parent had several meetings to discuss the detailed equity funding structure, the Buyer Group’s interest in pursuing the Merger and possible formulation of a new proposal in connection with the Merger and to negotiate the possible terms of the proposed consortium agreement.

On March 13, 2019, the Board held a telephonic meeting during which Mr. Pan informed the Board of his desire to enter into a consortium agreement with Mr. Li, Mr. Ma and Essence Parent or one of its affiliates in furtherance of the going private transaction described in his Proposal Letter. Even though Mr. Pan already owned more than 15% of the Company’s outstanding voting stock, the Board unanimously adopted a resolution authorizing the proposed consortium’s, and its members as a group, direct and indirect ownership of the of 15% or more of the outstanding voting stock of the Company that would occur upon execution of the proposed consortium agreement. The purpose of this action was to exclude the proposed consortium agreement and contemplated transaction from the restrictions on business combinations set forth in Section 203 of the Delaware General Corporation Law, which the Company had not opted out of. The Board’s rationale was such exclusion would facilitate the negotiation and consummation of a potential acquisition by the proposed consortium, but at such point, the Board had not yet determined to enter into such a transaction. In addition, no determination was made by the Board that the statute was applicable to the execution of the consortium agreement.

Subsequently, on March 13, 2019, Essence International Financial Holdings (Hong Kong) Limited, a wholly-owned subsidiary of Essence Parent, entered into that certain consortium agreement with Messrs. Pan, Li and Ma (the “Buyer Group Agreement”) and agreed that Mr. Pan would notify the Company of this development and affirm his preliminary non-binding proposal for an acquisition of the Company at an offer price of  $4.80 per share.

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Thereafter, on March 13, 2019, Mr. Pan so notified the Company, including the Special Committee, that he had entered into the Buyer Group Agreement and formed a consortium with Mr. Li, Mr. Ma, and Essence International Financial (together with their affiliates, collectively, the “Buyer Group “) to work together on his proposed transaction to acquire the Company on the terms set forth in the Proposal Letter. Subsequently, the Company issued a press release and filed a Current Report on Form 8-K explaining that Mr. Pan had formed the Buyer Group.

On April 2, 2019, representatives from Orrick provided to Katten, as counsel to the Special Committee, a draft of the Merger Agreement.

On April 10, 2019, the Special Committee held a telephonic meeting that representatives of Katten and Roth attended. The members of the Special Committee discussed Essence International Financial’s role and its ability to make the equity contribution in U.S. dollar denominated funds. Representatives of Katten confirmed receipt of a draft Merger Agreement, and the Special Committee authorized representatives of Katten to begin reviewing the Merger Agreement.

On April 18, 2019, Mr. Pan delivered a letter to the Special Committee (i) confirming that the Proposal was conditioned on the approval of the Special Committee and (ii) indicating that the Buyer Group committed to a non-waivable condition, requiring the approval by holders of a majority of the outstanding shares of common stock of the Company not owned by the Buyer Group, as part of the Proposal. On April 26, 2019, the Company issued a press release and filed a Current Report on Form 8-K explaining the non-waivable condition and attaching the letter as an exhibit thereto.

On April 19, 2019, representatives from Orrick provided to Katten a draft Equity Commitment Letter (“Equity Commitment Letter”) prepared by OMM.

On April 23, 2019, representatives from Katten and Manatt had a call to discuss the indemnification agreements and a draft of the press release subsequently issued on April 26, 2019 relating to the letter from the Buyer Group.

On April 28, 2019, the Special Committee held a telephonic meeting that representatives of Katten and Roth attended. Representatives of Roth reviewed the financial performance of the Company and informed the Special Committee that they received projections from management of the Company. The Special Committee noted the improved operating results from the time of the Proposal, but also noted (i) the pending capital needs of the Company to grow its business, (ii) the global trade headwinds facing PRC based manufacturers and (iii) the extended period required for Mr. Pan to secure financing for the Proposal. In addition, representatives of Roth also noted the decreased market valuations in take-private transactions involving PRC-based companies. In light of the foregoing, the Special Committee recognized the challenges to obtaining an increase in the offer price. Nevertheless, the members of the Special Committee and representatives of Roth and Katten discussed and authorized (i) Roth’s conducting a market check to solicit other potential offers to acquire the Company and (ii) Mr. David Li’s seeking an increase in the offer price above $4.80. Mr. David Li subsequently sought with the Company’s Chief Financial Officer an increase in price above $4.80.

At the April 28th meeting, the members of the Special Committee and representatives of Katten also discussed certain provisions in the draft Merger Agreement and Equity Commitment Letter, including (i) the no-shop provision and the limited exceptions for a superior proposal; (ii) the requirements as to when the Board could change its recommendation to the stockholders to approve the Merger Agreement with the Buyer Group; (iii) the inclusion of a force-the-vote provision; (iv) the Company Termination Fee and the Parent Termination Fee (each as defined in the section entitled “The Merger Agreement — Termination Fees” below); and (v) the Buyer Group’s proposed financing arrangements. In addition to other changes to the Merger Agreement and Equity Commitment Letter representatives of Katten proposed to make, the Special Committee approved a response to the Buyer Group that would (a) permit the Company to terminate the Merger Agreement and enter into an alternative transaction agreement without the Buyer Group having the ability to force a vote of the Company’s stockholders; (b) delete the Parent Termination Fee and give the Company the ability to sue for uncapped damages (including the lost premium) in addition to full specific performance rights; (c) require third party beneficiary rights for the Company under the Equity Commitment Letter; (d) loosen the bring-down of the representations and warranties at closing; and (e) delete the condition that the holders of no more than 5% of the outstanding stock had exercised their appraisal rights.

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After the April 28th meeting, in preparation of conducting the market check, representatives of Roth worked with the members of the Special Committee to identity the most probable acquirers of the Company. The Special Committee and Roth agreed to include only strategic acquirers because (i) Roth was confident a financial buyer would not be able to offer as competitive a price as strategic buyers could offer (or a price higher than the Proposal) and (ii) financial buyers would not likely have interest in a business with operations centralized in the PRC. The final list of strategic buyers for Roth to contact consisted of 32 parties that ranged from large multinational companies with operations in multiple industries, but with some focus on batteries or energy storage, to smaller companies focused primarily on production of nickel-metal hydride or lithium ion batteries based in the PRC. The members of the Special Committee and representatives of Roth also prepared an executive summary (or “teaser”) to distribute to the identified strategic buyers to solicit interest and/or offers. Given the Proposal was public, the executive summary identified the Company and the terms of the proposal, as well as historical financial information of the Company.

On April 29, 2019, representatives of Katten delivered markups of the Merger Agreement and Equity Commitment Letter to Orrick, subject to the Special Committee’s continued review and comment.

On May 2, 2019, Roth began contacting the 32 potential strategic buyers by distributing an executive summary.

On May 5, 2019, Orrick provided a revised draft of the Equity Commitment Letter to Katten, which included comments from OMM, Essence International Financial’s counsel. Essence International Financial agreed to provide third party beneficiary rights to the Company under the Equity Commitment Letter, enabling the Company to enforce funding of the commitment under the Equity Commitment Letter if the conditions to closing the Merger Agreement were satisfied or waived. The revised Equity Commitment Letter also provided for funding by an entity established under the laws of the Cayman Islands, with the Equity Commitment Letter governed by Cayman law.

On May 7, 2019, representatives from Orrick and Katten discussed the revised Merger Agreement, and Orrick stated that the Buyer Group was unwilling to accept potentially uncapped damages if it failed to consummate the Merger.

On May 15, 2019, Orrick provided a draft of the Limited Guarantee to Katten, which was also governed by the laws of the Cayman Islands.

On May 19, 2019, Orrick provided a revised draft of the Merger Agreement to Katten.

On May 20, 2019, the Special Committee held a telephonic meeting that representatives of Katten and Roth attended. Representatives of Roth provided an update on the market check, including that, despite persistent outreach, no party had yet expressed interest or sought to enter into a non-disclosure agreement with the Company. Mr. David Li indicated that in speaking with the Chief Financial Officer of the Company, Mr. Li was informed that the Buyer Group believed the offer price of  $4.80 was fair and that the Buyer Group was unwilling to increase the offer price. The Chief Financial Officer further indicated that the Buyer Group might consider requesting a reduced price. Nevertheless, Mr. Li stated he would pursue Mr. Pan to increase the offer price. Representatives from Katten provided an update on legal documentation, including the Buyer Group’s desire to have an entity organized in the Cayman Islands provide the Equity Commitment Letter and Limited Guarantee and have laws of the Cayman Islands govern those ancillary agreements. The Special Committee authorized Katten to consult with Cayman Islands counsel and ask Orrick to have those agreements governed by Delaware law. The Special Committee also authorized Katten to request that Essence International Financial deposit the amount of the Parent Termination Fee into an escrow account to avoid any risk of collection.

On or about May 20, 2019, Essence International Financial internally decided that Essence International Capital, its affiliate under common control of Essence Parent, would participate in the Merger as the sponsor and would be the signing party to the definitive transaction documents in respect of the Merger.

On May 23, 2019, representatives of Katten, including its Cayman Islands counsel, Orrick and OMM had a call to discuss the financing arrangements, Equity Commitment Letter and Limited Guarantee. OMM indicated that Essence International Capital, a Hong Kong entity affiliated with Essence

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International Financial, would likely deliver the Equity Commitment Letter and Limited Guarantee and, in that case, it would be acceptable to have Delaware law govern those agreements. Representatives of Katten also asked OMM for Essence International Capital to fund the amount of the Parent Termination Fee to be deposited in an escrow account. OMM indicated this would likely not be acceptable, but would they would discuss the request with Essence International Capital. Finally, representatives of Katten indicated to Orrick and OMM that Mr. David Li, on behalf of the Special Committee, would be contacting Mr. Pan to seek an increase in the offer price and that the Special Committee would in no event not accept a lower price.

On May 28, 2019, the Chief Financial Officer of the Company called Mr. Li to indicate that Essence International Capital was unwilling to deposit the Parent Termination Fee into an escrow account.

On May 28, 2019, the Special Committee held a telephonic meeting that representatives of Katten and Roth attended. Representatives of Roth indicated that more than half of the parties contacted as part of the market check had affirmatively passed on the opportunity and the remainder had not returned calls or emails despite persistent outreach. Roth informed the Special Committee that it would continue push to make contact with the remaining parties by the end of May. Representatives of Roth informed the Special Committee it was likely the market check would not result in another proposal given the Proposal had been publicly outstanding for a lengthy period without any interest from another party. Mr. Li informed attendees that he had sought a price increase with Mr. Pan, and Mr. Pan indicated that a request for a price reduction from the Buyer Group would be more likely than a price increase given the Buyer Group’s belief that the price was fair. Nevertheless, Mr. Pan indicated that the Buyer Group remained committed to $4.80, and it was the highest price the Buyer Group was willing to pay. The Special Committee authorized the continued negotiation of the definitive agreements based on the $4.80 price and asked Roth to continue the market check.

At the May 28th meeting, representatives of Katten also updated the Special Committee on the negotiations of the definitive agreements. Representatives of Katten and Mr. Li discussed Essence International Capital’s unwillingness to deposit all or a portion of the Parent Termination Fee. The Special Committee indicated a willingness to forgo the deposit based on creditworthiness of Essence International Capital. Katten suggested requesting additional due diligence information on Essence International Capital, and the Special Committee agreed. Representatives of Katten and the Special Committee also discussed the Company Termination Fee and Parent Termination Fee, and the Special Committee authorized Katten to propose a Company Termination Fee of 3% and a Parent Termination Fee of 10%, in each case as determined based on the Company’s total equity value.

On May 29, 2019, representatives of Orrick provided a draft of the Equity Contribution and Voting Agreement (the “Rollover Agreement”) to Katten.

On May 31, 2019, representatives of Katten provided a revised draft of the Merger Agreement to Orrick.

On June 3, 2019, representatives of OMM provided a revised Equity Commitment Letter to Katten, as well as financial due diligence information for Essence International Capital.

On June 5, 2019, representatives of Katten and Orrick discussed any potential regulatory filings. On June 5, 2019, representatives of Katten also distributed revised drafts of the Equity Commitment Letter and Limited Guarantee to Orrick, which provided, among other things, for Delaware law to govern, and Essence International Capital to be the sole party providing, the Equity Commitment Letter and Limited Guarantee. In the revised draft of the Limited Guarantee, Katten provided that, in addition to the amount of the Parent Termination Fee, Essence International Capital would guarantee the reimbursement obligations of Parent and Merger Sub under the Merger Agreement for indemnification and expenses incurred by the Company in providing any financing assistance and costs and expenses incurred by the Company in connection with enforcing its rights under the Merger Agreement and Limited Guarantee.

On June 6, 2019, representatives of Orrick provided a revised draft of the Merger Agreement to Katten.

On June 7, 2019, the Special Committee held a telephonic meeting that representatives of Katten and Roth attended. Representatives of Roth stated that it had contacted, or attempted to contact on numerous occasions, all of the parties it had determined might be interested in pursuing a transaction with the

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Company and that no party expressed an interest in making an alternative proposal. Over half of the parties affirmatively passed on the opportunity and the remainder were unresponsive after numerous attempts to contact them. Roth noted that no party pursued entering into a non-disclosure agreement with the Company in order to obtain confidential information related to the Company. The Special Committee and representatives concluded that continuing the market check was unlikely to result in an alternative proposal. Also, Mr. Li described another conversation he had with Mr. Pan in which he sought an increased price and Mr. Pan informed him that the $4.80 was the Buyer Group’s best and final price.

At the June 7th meeting, representatives of Katten updated the Special Committee on recent discussions with Orrick regarding any potential regulatory filings. Katten also reviewed the open issues in the Merger Agreement, including (i) the timing for the “end date” thereunder, (ii) the treatment of unvested options and restricted shares, (iii) Orrick’s request that in the event of an Acquisition Proposal in order for the Special Committee to have discussions with the party making the Acquisition Proposal that the Special Committee determine that the failure to engage in such discussions would be inconsistent with its applicable fiduciary duties and (iv) the amount of the Parent Termination Fee. Following discussion on each of the open issues, the Special Committee authorized Katten to revise the Merger Agreement to reflect (i) an end date of December 31, 2019; (ii) full acceleration of the unvested options and unvested restricted shares upon the closing of the transaction, such that all options and restricted shares would be vested at closing; (iii) acceptance of Orrick’s request, but with a “reasonably likely to be inconsistent” with applicable fiduciary duties standard; and (iv) inclusion of a Parent Termination Fee equal to 6% of the total equity value implied in the transaction. Also, on June 7, 2019, representatives of Katten provided to Orrick a revised draft of the Rollover Agreement.

On June 11, 2019, representatives of Orrick contacted representatives of Katten to inform them that Essence International Capital insisted on a closing condition that the holders of no more than 10% of the outstanding stock had exercised their appraisal rights. Katten circulated a revised draft of the Merger Agreement including this condition, among other changes, to the Special Committee, and the Special Committee authorized distribution to Orrick.

On June 19, 2019, Manatt distributed a draft of the Company Disclosure Schedules to Katten, which reviewed and distributed them to Orrick. Also, Orrick provided revised drafts of the Equity Commitment Letter and Limited Guarantee. Orrick stated that Essence International Capital was unwilling to accept a Limited Guarantee without a fixed liability cap that included the Parent Termination Fee and all costs and expenses reimbursable to the Company under the Merger Agreement and Limited Guarantee (the “Maximum Amount”). On June 20, 2019, Orrick also provided a revised draft of the Merger Agreement to Katten, which provided for the Maximum Amount concept, but not a proposed dollar amount.

On June 21, 2019, Katten conveyed that it had no further comments on the most recent draft of the Equity Commitment Letter and provided revised drafts of the Limited Guarantee and Merger Agreement to Orrick. In addition, Katten asked Orrick for the Buyer Group’s proposal on the dollar amount for the Maximum Amount in order to consider such concept with the Special Committee.

On June 24, 2019, representatives of Katten, Orrick and OMM joined a conference call to resolve the remaining issues on the Limited Guarantee. OMM agreed to the most recent draft of the Limited Guarantee provided by Katten, and agreed to make a proposal for the Maximum Amount once the dollar amounts for the Company Termination Fee and Parent Termination Fee were finalized.

On June 25, 2019 representatives of Orrick provided a revised draft of the Rollover Agreement, including comments from OMM, to which Katten, on behalf of the Special Committee, had no further comments. Also, representatives of Manatt circulated to Orrick and Katten proposed final forms of the Indemnification Agreement and forum selection bylaw amendment. As the parties continued to finalize the definitive agreements, and disclosure schedules, the Special Committee scheduled a telephonic meeting for the evening on June 26, 2019 and the Company scheduled a full Board meeting for the morning of June 27, 2019.

On June 26, 2019, the Special Committee held a telephonic meeting that representatives of Katten and Roth attended. Representatives of Katten provided an overview of the Board’s fiduciary duties, both generally and in the context of taking action with respect to the proposed transaction. The representatives

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of Katten then reviewed the structure and terms of the proposed transaction, the Merger Agreement and the ancillary documents, including the Equity Commitment Letter and Limited Guarantee that were circulated prior to the meeting. On the remaining open item in the Merger Agreement, Katten updated the Special Committee that the Buyer Group proposed a Maximum Amount of  $5 million, and following discussions and consideration, the Special Committee agreed to such amount in light of the financial viability of Essence International Capital (confirmed by diligence). Representatives from Katten then also discussed certain items related to the proposed transaction with the Buyer Group, including indemnification agreements and the forum selection bylaw amendment, press release and a Current Report on Form 8-K.

At the June 26th meeting, representatives of Roth summarized the market check, including the 32 most likely strategic acquirers it contacted, or attempted to contact, and reviewed the content of the executive summary distributed to such potential acquirers. Representatives of Roth further stated for the Special Committee that, despite persistent outreach, no party (i) had expressed any interest in submitting an acquisition proposal or (ii) sought to enter into a non-disclosure agreement with the Company. Representatives of Roth confirmed that the fact that the Buyer Group indicated it would not support an alternative acquisition proposal did not in any way impact the market check. Representatives of Roth then presented Roth’s financial analyses of the Per Share Merger Consideration offered by the Buyer Group and discussed the methodologies in its analyses. In particular, Roth noted that the resulting multiples for the Company at the Per Share Merger Consideration were above the median of a majority of the various selected publicly traded comparable company multiples, although below the low end of the ranges of the EV to LTM EBITDA, price to LTM earnings and estimated 2019 earnings multiples, as described more fully under “— Opinion of ROTH Capital Partners” beginning on page 5. Roth then delivered its oral opinion (which was subsequently confirmed in writing) to the effect that as of the such date and subject to the qualification, limitations and assumptions to be set forth in its written opinion, the $4.80 Per Share Merger Consideration was fair to the Company’s Public Stockholders. Following consideration of various matters and discussion, including the fairness opinion delivered by Roth, the Special Committee unanimously adopted resolutions (a) finding that the terms and conditions of the Merger and the transactions contemplated by the Merger Agreement are fair to, and in the best interests of, the stockholders of the Company, (b) approving the Merger Agreement and (c) recommending the Board (i) determine that it is in the best interests of the Company and its stockholders, and declare it advisable, to enter into the Merger Agreement; (ii) approve the Merger Agreement and consummation of the transactions contemplated thereby; and (iii) resolve to recommend that the stockholders of the Company adopt the Merger Agreement, including with the vote of at least a majority of all outstanding shares of Common Stock held by the Public Stockholders. Representatives of Katten noted that the Special Committee had the flexibility to accept a superior proposal and terminate the Merger, subject to customary conditions.

On June 27, 2019, the Board held a telephonic meeting that representatives of Manatt and Katten attended, as well as members of senior management of the Company. Mr. Pan reviewed the terms and background of the Proposals. Then, Mr. David Li, on behalf of the Special Committee, reviewed the Special Committee’s process, and its recommendation to the Board. Prior to the meeting, representatives of Manatt had circulated the Merger Agreement and ancillary documents to the Board, as well as proposed resolutions. Representatives of Manatt reviewed with the Board the principal terms of the Merger Agreement and ancillary agreements, as well as proposed resolutions to approve the Merger. After discussion, the Board (excluding Mr. Pan and Mr. Liang Li who did not participate in the vote) unanimously adopted the resolutions, including approval of the form of Indemnification Agreement and forum selection bylaw amendment.

Following the adjournment of such meeting, overnight into June 28, 2019, the Company and the Parent Parties entered into the Merger Agreement, and the ancillary agreements were finalized and executed. Prior to the opening of the financial markets in the United States on June 28, 2019, the Company issued a press release announcing the execution of the Merger Agreement. Following the closing of the Financial Markets on June 28, 2019, the Company filed a Current Report on Form 8-K, including copies of the Merger Agreement and the press release as exhibits.

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Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger

Determinations of the Special Committee

On June 26, 2019, the Special Committee, after careful consideration, including detailed discussions with its legal and financial advisors, unanimously (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are fair to and in the best interests of the Company’s stockholders, (ii) recommended that the Board approve and declare advisable the Merger Agreement and the transactions contemplated therein, including the Merger and (iii) recommended that the Company’s stockholders vote for the adoption of the Merger Agreement. The Special Committee further believes that the Merger is fair to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act.

In the course of making the determinations described above, the Special Committee considered the following factors relating to the Company, its business and prospects, and the risks and challenges facing it, and to the Merger Agreement and the transactions contemplated thereby, including the Merger (all of which factors tended to support the recommendation and consummation of such agreement and transactions, but which factors are not intended to be exhaustive and are not presented in any relative order of importance):

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the Special Committee’s review, with the assistance of Roth, of the Company’s business, operations, financial condition, earnings, prospects and strategy, including:

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the extensive capital requirements of the Company to operate and grow the business, and the limited sources of cost-effective financing to satisfy such requirements;

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the uncertain outlook for global trade relations;

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the low trading volume for the shares of Common Stock on NASDAQ;

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the decreased valuations in take-private transactions involving PRC-based companies; and

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the prospects of the Company as an independent public company;

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the Special Committee’s review, with the assistance of Roth, of financial projections prepared by management of the Company, which is discussed under “— Certain Financial Projections” beginning on page 44, including:

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its concerns about the sales growth assumptions and whether they are achievable; and

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the increasing costs and reduction in gross profit margin;

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the Special Committee’s review, with the assistance of Roth, of the strategic alternatives available to the Company, including seeking to continue to execute the Company’s existing business plan; and a sale to, or merger with, another buyer, including the following factors:

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•

that the offer from the Buyer Group had been outstanding for a lengthy period of time and no alternative transaction emerged;

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•

that on more than one occasion the Buyer Group indicated that it might seek to lower the offer price below $4.80;

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•

the extended period it took for Mr. Pan to secure financing to support his offer; and

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•

that the pre-signing market check conducted by Roth yielded no alternative proposals or any inquiries from approximately 32 potential strategic buyers identified by Roth in consultation with the Special Committee;

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•

the Special Committee’s belief that, as a result of the negotiations between the parties, the Per Share Merger Consideration of  $4.80 was the highest price per share of Common Stock that the Buyer Group was willing to pay at the time of those negotiations, and that the combination of the Buyer Group’s agreement to pay that price and pre-signing market check conducted by Roth resulted in a sale of the Company at the highest price per share of Common Stock that was reasonably attainable;

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25

•

the terms of the Merger Agreement, including the fact that the Merger Agreement contains exceptions to the no-shop provisions (as are more fully described under “The Merger Agreement — Acquisition Proposals” beginning on page 9) that are intended to help ensure that the Company’s stockholders receive the highest price per share of Common stock reasonably attainable, including:

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•

the Company’s right, subject to certain conditions, to respond to and negotiate with respect to certain unsolicited acquisition proposals made after the date of the agreement and prior to the time the Company’s stockholders approve the proposal to adopt the Merger Agreement;

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•

the Company’s right to terminate the Merger Agreement and accept a “superior proposal” prior to the Company’s stockholders’ approval of the proposal to adopt the Merger Agreement, subject to the Company paying to Parent (or one or more of its designees) a termination fee of  $2,365,000, which amount the Special Committee believed was reasonable in light of, among other matters, the benefit of the Merger to the Company’s stockholders, the typical size of such termination fees in similar transactions and the likelihood that a fee of such size would not be a meaningful deterrent to alternative acquisition proposals, as more fully described under “The Merger Agreement — Termination Fees” beginning on page 11; and

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•

the Board’s ability to withdraw or change its recommendation that the Company’s stockholders approve the proposal to adopt the Merger Agreement under the circumstances described in the Merger Agreement and under “The Merger Agreement — Termination Fees” beginning on page 11;

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•

the current and historical market prices of the shares of Common Stock, including the market performance of the shares of Common Stock relative to the common stock of other participants in the industries in which the Company operates and general market indices, and the fact that the Per Share Merger Consideration of  $4.80 represents a premium of approximately 67% above the closing price of the shares of Common Stock on June 1, 2018, the last trading day before the announcement of the offer by the Buyer Group, and a premium of approximately 37% above the closing price of the shares of Common Stock for the date one month prior to the announcement of the offer by the Buyer Group;

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•

the fact that the Per Share Merger Consideration is to be paid in cash, which will allow the Company’s stockholders to realize a fair value, in cash, from their investment upon the closing and which will provide them with certainty of value and liquidity, especially when viewed against the low trading volume in the shares of Common Stock on NASDAQ;

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•

the financial analyses of Roth, financial advisor to the Special Committee, and the opinion of Roth, dated June 26, 2019, to the Special Committee with respect to the fairness, from a financial point of view, of the consideration to be paid to the Public Stockholders in the Merger, which opinion was based on and subject to the factors and assumptions set forth in the opinion, as more fully described under “— Opinion of ROTH Capital Partners” beginning on page 5;

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•

the fact that Roth will receive 5% of the amount by which the aggregate consideration received in any alternative transaction exceeds the aggregate consideration to be received in the Merger, and the Special Committee’s belief that this fee appropriately incentivized Roth to conduct the pre-signing market check in a manner to enhance the likelihood of obtaining a “superior proposal;”

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•

the likelihood of the Merger being completed, based on, among other matters:

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•

the Buyer Group having obtained committed equity financing for the transaction to cover the full amount of the aggregate merger consideration such that no debt financing is required, the limited number and nature of the conditions to the equity financing and the reputation and financial condition of the Essence Parties;

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•

the absence of a financing condition in the Merger Agreement;

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26

•

the Company’s ability, under circumstances specified in the Merger Agreement, to seek specific performance of Parent’s obligation to cause, and, pursuant to the Equity Commitment Letter described under “— Financing for the Merger and Limited Guarantee” beginning on page 45, to seek specific performance to directly cause, Essence International Capital under the Equity Commitment Letter to fund its commitment thereunder; and

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•

the requirement that, in the event of a failure of the Merger to be consummated under certain circumstances, Parent pay the Company a termination fee of  $4,730,000 (if the Buyer Group fails to complete the Merger when otherwise required pursuant to the Merger Agreement or otherwise materially breach their obligations under the Merger Agreement such that the conditions to the consummation of the Merger cannot be satisfied), and the guarantee of such payment obligation by the Essence International Capital pursuant to the Limited Guarantee as more fully described under “— Financing for the Merger and Limited Guarantee” beginning on page 45;

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•

the availability of appraisal rights under Delaware law to holders of shares of Common Stock who do not vote in favor of the adoption of the Merger Agreement and comply with all of the required procedures under Delaware law, which provides those eligible stockholders with an opportunity to have the Delaware Court of Chancery determine the fair value of their shares, which may be more than, less than, or the same as the amount such stockholders would have received under the Merger Agreement; and

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•

the Special Committee’s belief that it was fully informed about the extent to which the interests of each of Mr. Pan and Mr. Liang Li in the Merger differed from those of the Company’s other stockholders.

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In the course of reaching the determinations and decisions and making the recommendation described above, the Special Committee also considered the following factors relating to the procedural safeguards that it believed would ensure the fairness of the Merger and permit the Special Committee to represent effectively the interests of the Company’s unaffiliated stockholders:

•

the fact that the Special Committee consists solely of independent and disinterested directors of the Company who are not affiliated with any member of the Buyer Group, are not employees of the Company or any of its affiliates and have no financial interest in the Merger different from, or in addition to the interests of the Company’s unaffiliated stockholders other than their interests described under “— Interests of Certain Persons in the Merger” beginning on page 48;

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•

the fact that the Special Committee was advised by Roth, as financial advisor, and by Katten, as legal advisor, each a nationally recognized firm selected by the Special Committee and neither of whom had been previously engaged by the Company or any member of the Buyer Group;

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•

the fact that, as part of its review of the Company’s alternatives, the Special Committee considered the possibility of strategic alternatives to the Merger;

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the fact that the Special Committee conducted deliberations, in more than six formal meetings, during a period of approximately three months regarding the Merger and alternatives to the Merger;

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•

the fact that, with the assistance of its financial and legal advisors, the Special Committee conducted arm’s-length negotiations with the Buyer Group;

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•

the fact that each of the Special Committee and the Board was aware that it had no obligation to recommend any transaction and that the Special Committee had the authority to “say no” to any proposals made by the Buyer Group or other potential acquirors;

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•

the fact that the Special Committee made its evaluation of the Merger Agreement and the Merger based upon the factors discussed in this proxy statement and with the full knowledge of the interests of the Buyer Group in the Merger; and

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•

the conditions that (i) Mr. Pan’s proposal was conditioned on the approval of the Special Committee and (ii) the Merger Agreement be adopted not only by the affirmative vote of the

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holders of at least a majority of the outstanding shares of Common Stock entitled to vote thereon, but also by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock held by stockholders entitled to vote thereon other than the Buyer Group and its affiliates that beneficially own shares of Common Stock (i.e., a “majority-of-the-minority vote”). Although the Special Committee did not specifically require that the Merger Agreement be adopted by all of the Company’s unaffiliated security holders, the Merger Agreement is required to be adopted by a majority-of-the-minority vote, which alternative the Special Committee considered as a factor in support of its belief that the Merger is fair to the Company’s unaffiliated security holders.

In the course of reaching the determinations and decisions and making the recommendation described above, the Special Committee considered the following risks and potentially negative factors relating to the Merger Agreement, the Merger and the other transactions contemplated thereby:

•

that the Company’s unaffiliated stockholders will have no ongoing equity participation in the Company following the Merger, and that such stockholders will cease to participate in the Company’s future earnings or growth, if any, or to benefit from increases, if any, in the value of the shares of Common Stock, and will not participate in any potential future sale of the Company to a third party;

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•

the fact that there can be no assurance that all conditions to the parties’ obligations to complete the Merger will be satisfied, and, as a result, that the Merger may not be completed even if the Merger Agreement is adopted by the Company’s stockholders;

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•

the risks and costs to the Company if the Merger does not close, including:

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•

the pending capital needs of the Company to operate, and grow, the business;

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•

uncertainty about the effect of the proposed Merger on the Company’s employees, customers and other parties, which may impair the Company’s ability to attract, retain and motivate key personnel, and could cause customers, suppliers, financial counterparties and others to seek to change existing business relationships with the Company; and

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•

restrictions under the Merger Agreement on the Company’s ability, without the consent of the Parent, to make acquisitions and investments, access the debt and capital markets, and take other specified actions until the proposed Merger occurs or the Merger Agreement terminates, which may prevent the Company from pursuing otherwise attractive business opportunities and taking other actions with respect to its business that it may consider advantageous;

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•

the possibility that, under certain circumstances under the Merger Agreement, the Company may be required to pay Parent (or its designee) a termination fee of  $2,365,000, as more fully described under “The Merger Agreement — Termination Fees” beginning on page 11, which could discourage other third parties from making an alternative acquisition proposal with respect to the Company, but which the Special Committee believes would not be a meaningful deterrent;

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the fact that the Parent and Merger Sub are newly formed entities with essentially no assets and that the Company’s remedy in the event of breach of the Merger Agreement by the Parent or Merger Sub, if specific performance is not pursued or obtained, may be limited to receipt of a $4,730,000 termination fee payable by Parent and that, under certain circumstances, the Company may not be entitled to receive such a fee; and

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•

the terms of the Buyer Group’s participation in the Merger and the fact that the Company’s executive officers may have interests in the transaction that are different from, or in addition to, those of the Company’s unaffiliated stockholders, as more fully described under “— Interests of Certain Persons in the Merger” beginning on page 48.

​

The foregoing discussion of the information and factors considered by the Special Committee is not intended to be exhaustive but includes the material factors considered by the Special Committee. In view of the variety of factors considered in connection with its evaluation of the Merger, the Special Committee did

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not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual members of the Special Committee may have given different weights to different factors. The Special Committee recommended to the Board that the Merger Agreement and the Merger be approved based upon the totality of the information it considered.

In its analysis of the fairness of the Merger, the Special Committee did not consider the Company’s net book value as a factor or undertake an appraisal of the Company’s assets to determine the Company’s liquidation value for the unaffiliated security holders. The Special Committee believes that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs. The Special Committee also believes that it is impracticable to determine the Company’s liquidation value in light of the execution risk involved in any breakup. In addition, the Special Committee considers the Company to be a viable going concern where value is derived from cash flows generated from its continuing operations.

Recommendation of the Board of Directors

On June 27, 2019, the Board, acting upon the unanimous recommendation of the Special Committee, unanimously (excluding Messrs. Pan and Liang Li, who did not participate in the vote due to their respective interests in the Merger) (i) determined that the transactions contemplated by the Merger Agreement, including the Merger, are fair to, and in the best interests of, the Company and the Company’s stockholders, (ii) approved and declared advisable the execution, delivery and performance of the Merger Agreement and the consummation of the transactions contemplated therein, including the Merger, and (iii) resolved to recommend that the Company’s stockholders vote for the adoption of the Merger Agreement. In other words, the Merger was unanimously approved, and such other determinations were unanimously made, by the directors of the Company who are not employees of the Company (i.e., Messrs. David Li, Joseph Fisher and Jie Wang). The Board believes, based on its consideration of the factors described below, that the Merger is fair to the Company’s unaffiliated security holders.

In the course of making such determinations, the Board considered the following factors (which factors are not intended to be exhaustive and are not in any relative order of importance):

•

the Special Committee’s analyses, conclusions and unanimous determination, which the Board adopted, that the transactions contemplated by the Merger Agreement, including the Merger, are fair to, and in the best interests of, the Company and the Company’s stockholders and the Special Committee’s unanimous recommendation that the Board approve and declare advisable the Merger Agreement and the transactions contemplated therein, including the Merger, and that the Company’s stockholders vote for the adoption of the Merger Agreement;

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the fact that the Special Committee consists of two independent and disinterested directors of the Company who are not affiliated with any member of the Buyer Group or Parent or Merger Sub, are not employees of the Company or any of its affiliates and have no financial interest in the Merger different from, or in addition to the Company’s unaffiliated stockholders other than their interests described under “— Interests of Certain Persons in the Merger” beginning on page 48; and

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•

the financial analyses of Roth, financial advisor to the Special Committee, and the opinion of Roth, dated June 26, 2019, to the Special Committee with respect to the fairness, from a financial point of view, of the consideration to be paid to the Public Stockholders, in the Merger, which opinion was based on and subject to the factors and assumptions set forth in the opinion, as more fully described under “— Opinion of ROTH Capital Partners” beginning on page 30.

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The foregoing discussion of the information and factors considered by the Board is not intended to be exhaustive but includes the material factors considered by the Board. In view of the variety of factors considered in connection with its evaluation of the Merger, the Board did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The Board made its recommendation based upon the totality of the information it considered.

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During the two years prior to the Board’s approval of the Merger and the Company’s entry into the Merger Agreement, (a) the Company did not repurchase, and none of the Company’s affiliates purchased, any shares of Common Stock; (b) no member of the Buyer Group and none of the Essence Parties or the Parent Parties (collectively, the “Consortium”) purchased any shares of Common Stock; and (c) other than the offers from members of the Buyer Group disclosed under “Special Factors — Background,” the Company did not receive any offers (firm or otherwise) in respect of a merger, consolidation, sale of all or a substantial part of the Company’s assets or purchase of a controlling equity interest in the Company. Accordingly, the Board could not consider any such purchase or offer in its fairness determination (other than to the extent the Board considered the absence of any such offers (in particular, in response to the Roth-led market check) in making its determinations, as discussed above).

The Board (excluding Mr. Pan or Mr. Liang Li, who did not participate in the vote due to their respective interests in the Merger) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the Merger Agreement.

Opinion of ROTH Capital Partners

On June 26, 2019, ROTH Capital Partners, LLC (“Roth”) rendered its oral opinion to the Special Committee (which was subsequently confirmed in writing by delivery of Roth’s written opinion dated June 26, 2019), that as of such date, and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Roth in preparing its opinion, the Per Share Merger Consideration to be received by the Public Stockholders was fair, from a financial point of view, to such holders.

Roth’s opinion was directed to the Special Committee and only addressed the fairness from a financial point of view of the Per Share Merger Consideration to be received by the Public Stockholders in the Merger and does not address any other aspect or implication of the Merger. The summary of Roth’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Roth in preparing its opinion. The opinion did not address the relative merits of the Merger as compared to any alternative business strategies or transactions that might be available for the Company or any other party, nor did it address the underlying business decision of the Special Committee, the Board, the Company, its security holders or any other party or entity to proceed with or effect the Merger or any terms or aspects of any voting or other agreements to be entered into in connection with the Merger, any potential financing for the Merger or the likelihood of consummation of such financing. Roth’s opinion should not be construed as creating any fiduciary duty on Roth’s part to any party or entity. Roth’s opinion was not intended to be, and does not constitute, advice or a recommendation to the Special Committee, the Board or any Company stockholder as to how to act or vote with respect to the Merger or related matters.

In arriving at its opinion, Roth:

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reviewed certain publicly available financial statements and other business and financial information of the Company;

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•

reviewed certain financial projections concerning the Company prepared by the management of the Company and conducted discussions with management concerning such financial projections;

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discussed the past and current operations, financial condition and the prospects of the Company with senior executives of the Company;

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•

reviewed the reported prices and trading activity for the share of Common Stock;

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reviewed the financial terms, to the extent publicly available, of certain comparable Acquisition Transactions deemed comparable with the Merger and compared such financial terms with those of the Merger;

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compared the financial performance of the Company and the prices and trading activity of the shares of Common Stock with that of certain other publicly-traded companies deemed comparable with the Company and its securities;

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•

participated in certain discussions with representatives of the Special Committee and its legal advisors;

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reviewed a draft of the Merger Agreement dated June 26, 2019; and

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performed such other analyses, including detailed financial analyses and modeling, and reviewed such other information and considered such other factors as Roth deemed appropriate for purposes of evaluating the proposed Merger and arriving at its opinion.

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For its opinion, Roth assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or was furnished, or otherwise made available, to it or discussed with or reviewed by or for it. With respect to the financial projections, Roth was advised by management of the Company and assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company, and Roth expressed no view as to the assumptions on which they were based. In addition, Roth assumed that the final executed Merger Agreement would not differ in any material respect from the draft Merger Agreement reviewed by Roth, and that the Merger would be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions. Roth also assumed that, in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Merger, no delays, limitations, conditions or restrictions would be imposed that would have an adverse effect on the Company or the contemplated benefits expected to be derived in the proposed Merger.

Roth is not a legal, tax, accounting or regulatory advisor. Roth is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax, accounting and regulatory advisors with respect to legal, tax, accounting and regulatory matters. Roth expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the Per Share Merger Consideration to be received by the holders of shares of Common Stock in the Merger. Roth’s opinion did not address the fairness of any consideration to be received by anyone other than the Public Stockholders pursuant to the Merger Agreement, including the Rollover Stockholders or the holders of any other class of securities, creditors or other constituencies of the Company. Roth’s opinion did not address the underlying business decision of the Company to enter into the Merger or the relative merits of the Merger as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or were available. Roth did not make any independent valuation or appraisal of the assets or liabilities (fixed, contingent or otherwise) of the Company, nor was Roth furnished with any such valuations or appraisals, nor did Roth assume any obligation to conduct, nor did Roth conduct, any physical inspection of the properties, facilities or other assets of the Company. Roth did not evaluate the solvency of the Company under any law of any jurisdiction relating to bankruptcy, insolvency or similar matters. Roth is not a legal expert, and, for purposes of its analyses, Roth did not make any assessment of the status of any outstanding litigation involving the Company and excluded the effects of any such litigation in its analyses. Roth’s opinion was based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of its opinion. Events occurring after the date Roth’s opinion may affect the opinion and the assumptions used in preparing it, and Roth did not assume any obligation to update, revise or reaffirm its opinion.

Roth’s opinion addressed only the fairness, from a financial point of view, as of the date thereof, of the Per Share Merger Consideration to be received by the Public Stockholders in the proposed Merger. The issuance of Roth’s opinion was approved by a fairness opinion committee of Roth.

Summary of Material Financial Analyses

The following is a summary of the material financial analyses performed by Roth and reviewed by the Special Committee in connection with Roth’s opinion relating to the Merger and does not purport to be a complete description of the financial analyses performed by Roth. The rendering of an opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances. Therefore, this summary does not purport to be a complete description of the analyses performed by Roth or of its

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presentation to the Special Committee on June 26, 2019. The order of analyses described below does not represent the relative importance or weight given to those analyses by Roth. Some of the summaries of the financial analyses include information presented in tabular format. In order to fully understand Roth’s financial analyses, the tables must be read together with the text of each summary, as 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 Roth’s financial analyses.

In performing its analyses, Roth made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of the Company or any other parties to the Merger Agreement. Roth does not assume any responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth below.

Selected Publicly Traded Comparable Companies.   In order to assess how the public market values shares of publicly traded companies similar to the Company, Roth reviewed and compared certain financial information relating to the Company with selected companies, which, in the exercise of its professional judgment and based on its knowledge of the industry, Roth deemed relevant to the Company. Although none of the selected companies was identical to the Company, Roth selected these companies because they had publicly traded equity securities and were deemed to be similar to the Company in one or more respects including the nature of their business, size, financial performance, geographic concentration and listing jurisdiction. The selected comparable companies were:

For the Company and each of the selected companies, Roth calculated and compared various financial multiples and ratios of the Company and the selected comparable companies based on each respective company’s public filings for historical information and third-party research estimates for forecasted information.

In its review of the selected companies, Roth considered, among other things, (i) market capitalizations (computed using closing stock prices as of June 26, 2019), (ii) enterprise values (“EV”), (iii) EV as a multiple of EBITDA for the latest twelve-month period (“LTM”) as of June 26, 2019, and estimated EBITDA for calendar years 2019, 2020 and 2021, (iv) price to LTM and estimated calendar year 2019, 2020 and 2021 earnings, (v) projected growth rates for calendar years 2018 to 2019 and 2019 to 2020, and (vi) LTM gross margins, EBITDA margins and net income margins. This information and the results of these analyses are summarized in the following table:

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Notes to the Table:

1.

Source: Capital IQ. Projected financials based on median analysist estimates.

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2.

Enterprise value = Market Cap + Debt – Cash

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3.

All Ev/EBITDA multiples less than 0 or greater than 35 are considered “NM”

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4.

All P/E Multiples less than 0 or greater than 50 as considered “NM”

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Roth noted that, although the selected companies were used for comparison purposes, no business of any selected company was either identical or directly comparable to the Company’s business. Accordingly, Roth’s comparison of selected companies to the Company and analyses of the results of such comparisons was not purely mathematical, but instead necessarily involved complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the relative values of the selected companies and the Company.

Roth noted that the resulting multiples for the Company at the Per Share Merger Consideration were above the median of a majority of the various selected publicly traded comparable company multiples, but below the low end of the ranges of the EV to LTM EBITDA, price to LTM earnings and estimated 2019 earnings multiples, which the Special Committee discussed at length, as described more fully in “— Background of the Merger” beginning on page 18.

Selected Comparable Transaction Analysis.   Roth reviewed and compared the purchase prices and financial multiples paid in selected other transactions primarily in the battery and battery applications space from January 1, 2010 to present that had publicly available data and that Roth, in the exercise of its professional judgment, determined to be relevant. For each of the selected transactions, Roth calculated and compared the resulting enterprise value in the transaction as a multiple of LTM EBITDA and the price in the transaction to LTM earnings. Such multiples for the selected transactions were based on publicly available information at the time of the relevant transaction. The selected transactions analyzed are set out in the following table:

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Notes to the Table:

1.

Transactions from 01/01/10 – Present in battery and battery applications space

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2.

All transactions include sale of majority stake of target

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3.

Transactions with EV/LTM EBITDA multiples greater than 20x are listed as “NM”

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4.

Transactions with P/LTM greater than 50x are listed as “NM”

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5.

Transactions less than $10M in EV and without publicly available data were excluded from analysis

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Roth noted that, although the selected transactions were used for comparison purposes, no business of any selected company was either identical or directly comparable to the Company’s business. Accordingly, Roth’s comparison of selected companies to the Company and analyses of the results of such comparisons was not purely mathematical, but instead necessarily involved complex considerations and judgments concerning differences in financial, technological and operating characteristics and other factors that could affect the relative values of the selected companies and the Company.

Roth noted that the EV to LTM EBITDA multiple for the Merger at the Per Share Merger Consideration was below the low end of the range of the EV to LTM EBITDA multiples for the comparable transactions. Roth also noted that the price to LTM earnings multiple for the Merger at the Per Share Merger Consideration was below the low end of the range of the price to LTM EBITDA multiples for the comparable transactions. Roth noted that it conducted a market check at the direction of the Special Committee, and no party contacted by Roth expressed an interest in pursuing an acquisition of the Company.

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Analyses of Implied Premiums.   Roth reviewed and compared the offer price to certain closing prices in selected other transactions primarily in the basic materials, industrials, and non-cyclical consumer goods/services space from January 1, 2010 to present that had publicly available data and that Roth, in the exercise of its professional judgment, determined to be relevant. For each of the transactions, Roth calculated and compared the premium of the offer price to (i) the closing price on the last trading day prior to the public announcement of the offer, (ii) the closing price one week prior to the public announcement of the offer, and (iii) the closing price one month prior to the public announcement of the offer. The selected transactions analyzed are set out in the following table:

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