DEF 14A 1 tm2022274-1_def14a.htm DEF 14A

 

 

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

xFiled 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))
xDefinitive Proxy Statement
¨Definitive Additional Materials
¨Soliciting Material Pursuant to §240.14a-12

 

China Automotive Systems, Inc.

(Name of Registrant as Specified In Its Charter)

 

Payment of Filing Fee (Check the appropriate box):

 

xNo fee required.
¨Fee computed on table below per Securities Exchange Act Rules 14a-6(i)(4) and 0-11.

 

1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Securities Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:

 

¨ Fee paid previously with preliminary materials.
¨ Check box if any part of the fee is offset as provided by Securities 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.

  

1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:

  

 

 

 

 

CHINA AUTOMOTIVE SYSTEMS, INC.

------------------------------------------------------------------------------------------------

Notice of Annual Meeting of Stockholders

To Be Held On August 17, 2020

 

The Annual Meeting of Stockholders of China Automotive Systems, Inc. (the “Company”) will be held on August 17, 2020 (Monday) at 10 am local time at the Second Floor Meeting Room, D8 Henglong Building, Optics Valley Software Park, No. 1 Guanshan First Avenue, Wuhan City, Hubei Province, the People’s Republic of China, as more fully described in the accompanying proxy statement, to:

 

 

1

 

elect five directors of the Company, to hold office until the 2021 annual meeting of stockholders and until their successors are elected and qualified;
 

2.

 

ratify the appointment of PricewaterhouseCoopers Zhong Tian LLP as the Company’s independent auditors for the fiscal year ending December 31, 2020; and
  3. transact such other business as may properly come before the meeting or any adjournments or postponements thereof.

 

Only stockholders of record at the close of business on June 26, 2020 (Friday) will be entitled to notice of, and to vote at, such meeting or any adjournments or postponements thereof.

 

  BY ORDER OF THE BOARD OF DIRECTORS
 

 

/s/ Chen Hanlin

 

Chen Hanlin

Chairman

   

Hubei, the People’s Republic of China

June 29, 2020

 

YOUR VOTE IS IMPORTANT!

 

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE EXECUTE THE PROXY FOLLOWING THE INSTRUCTIONS SET FORTH IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS MAILED TO YOU. THIS WILL ENSURE THE PRESENCE OF A QUORUM AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN IF YOU HAVE PREVIOUSLY EXECUTED THE PROXY.

 

 

 

 

CHINA AUTOMOTIVE SYSTEMS, INC.

 

Henglong Group, D8 Henglong Building

Optics Valley Software Park, No. 1 Guanshan First Avenue, Wuhan City

Hubei Province (430073), the People’s Republic of China

(86) 27-8757-0028

------------------------------------------------------------------------------------

  PROXY STATEMENT

------------------------------------------------------------------------------------

 

2020 ANNUAL MEETING OF STOCKHOLDERS

 

China Automotive Systems, Inc. (the “Company”) is furnishing this proxy statement in connection with the solicitation of proxies by the board of directors of the Company (the “Board of Directors”) for use at the Annual Meeting of Stockholders to be held on August 17, 2020 (Monday) at 10 am at the Second Floor Meeting Room, D8 Henglong Building, Optics Valley Software Park, No. 1 Guanshan First Avenue, Wuhan City, Hubei Province, the People’s Republic of China and at any adjournments or postponements thereof (the “Annual Meeting”). This proxy statement and the Company’s annual report will be made available on internet on or before June 25, 2020 (Thursday).

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Stockholders Meeting to be Held on August 17, 2020 (Monday) - the Company’s Annual Report for the year ended December 31, 2019 (the “Annual Report”) and this Proxy Statement are available at http://www.caasauto.com.

 

Only holders of the Company’s common stock as of the close of business on June 26, 2020 (Friday) (the “Record Date”) are entitled to vote at the Annual Meeting. Stockholders who hold shares of the Company in “street name” may vote at the Annual Meeting only if they hold a valid proxy from their broker. As of the Record Date, there were 32,338,302 shares of common stock outstanding.

 

A majority of the outstanding shares of common stock entitled to vote at the Annual Meeting must be present in person or by proxy in order for there to be a quorum at the Annual Meeting. Stockholders of record who are present at the meeting in person or by proxy and who abstain from voting, including brokers holding customers’ shares of record who cause abstentions to be recorded at the meeting, will be included in the number of stockholders present at the meeting for purposes of determining whether a quorum is present.

 

Each stockholder of record is entitled to one vote at the Annual Meeting for each share of common stock held by such stockholder on the Record Date. Stockholders do not have cumulative voting rights. Stockholders may vote their shares by executing the proxy following the instructions on the notice of internet availability of proxy materials (“Notice of Internet Availability”) mailed to the stockholders. All proxies received by the Company that are properly executed and have not been revoked will be voted in accordance with the instructions contained in the proxies. If a paper copy of the proxy materials is requested by a stockholder and a signed proxy card is received by the Company that does not specify a vote or an abstention, the shares represented by that proxy card will be voted for (i) the nominees to the Board of Directors listed on the proxy card and in this proxy statement; and (ii) the ratification of the appointment of PricewaterhouseCoopers Zhong Tian LLP (“PwC”) as the Company’s independent auditors for the fiscal year ending December 31, 2020. The Company is not aware, as of the date hereof, of any matters to be voted upon at the Annual Meeting other than those stated in this proxy statement and the accompanying Notice of Annual Meeting of Stockholders. If any other matters are properly brought before the Annual Meeting the proxy gives discretionary authority to the persons named as proxies to vote the shares represented by the proxy in their discretion.

 

Under Delaware law and the Company’s Certificate of Incorporation and Bylaws, if a quorum exists at the meeting, the affirmative vote of a plurality of the votes cast at the meeting is required for the election of directors. A properly executed proxy marked “Withhold authority” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated, although it will be counted for purposes of determining whether there is a quorum. For each other item, the affirmative vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote on the item will be required for approval. A properly executed proxy marked “Abstain” with respect to any such matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention will have the effect of a negative vote. 

 

For shares held in “street name” through a broker or other nominee, the broker or nominee may not be permitted to exercise voting discretion with respect to some of the matters to be acted upon. Thus, if stockholders do not give their broker or nominee specific instructions, their shares may not be voted on those matters and will not be counted in determining the number of shares necessary for approval. Shares represented by such “broker non-votes” will, however, be counted in determining whether there is a quorum.

 

 

 

 

A stockholder of record may revoke a proxy at any time before it is voted at the Annual Meeting by (a) following the instructions on the website hosting proxy materials and voting as specified in the Notice of Internet Availability, (b) if a proxy is executed in paper form, delivering another duly executed proxy bearing a later date, or (c) attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not revoke a proxy unless the stockholder actually votes in person at the meeting.

 

The proxy is solicited by the Board of Directors. The Company will pay all of the costs of soliciting proxies. In addition to solicitation by mail or through the internet, officers, directors and employees of the Company may solicit proxies personally, or by telephone, without receiving additional compensation. The Company, if requested, will also pay brokers, banks and other fiduciaries who hold shares of common stock for beneficial owners for their reasonable out-of-pocket expenses of forwarding these materials to stockholders.

 

BOARD OF DIRECTORS

 

The name, age and year in which the term expires of each member of the Board of Directors is set forth below:

 

Name   Age   Position  

Term Expires on the

Date of the Annual Meeting

Held in the Year

Hanlin Chen   63   Chairman   2021
Qizhou Wu   56   CEO and Director   2021
Guangxun Xu   69   Director   2021
Heng Henry Lu      54     Director   2021
Tong Kooi Teo   63   Director   2021

  

The Board of Directors has determined that the following directors for fiscal year 2020 are “independent” under the current rules of the Nasdaq Stock Market: Guangxun Xu, Heng Henry Lu and Tong Kooi Teo.

 

At the Annual Meeting, the stockholders will vote on the election of Hanlin Chen, Qizhou Wu, Guangxun Xu, Heng Henry Lu and Tong Kooi Teo as directors to serve for a one-year term until the annual meeting of stockholders in 2021 and until their successors are elected and qualified. All directors will hold office until the annual meeting of stockholders at which their terms expire and the election and qualification of their successors.

  

NOMINEES AND CONTINUING DIRECTORS

 

The following individuals have been nominated for election to the Board of Directors or will continue to serve on the Board of Directors after the Annual Meeting.

 

Hanlin Chen

 

Hanlin Chen has served as the chairman of the Board of Directors and an executive officer since March 2003. From 1993 to 1997, Mr. Chen was the general manager of Shashi Jiulong Power Steering Gears Co., Ltd. Since 1997, he has been the chairman of the Board of Henglong Automotive Parts, Ltd.

 

Mr. Hanlin Chen is the brother-in-law of the Company’s senior vice president, Mr. Andy Tse.

 

As chairman of the Board of Directors, Mr. Chen oversees the implementation of the Company’s business plan.

 

The Board of Directors believes that Mr. Chen’s leadership and extensive knowledge of the Company are essential to the development of the Company’s strategic vision.

 

Qizhou Wu

 

Qizhou Wu has served as a director since March 2003 and as the chief executive officer of the Company since September 2007. He served as chief operating officer from 2003 to 2007. He was the executive general manager of Shashi Jiulong Power Steering Gears Co., Ltd. from 1993 to 1999 and the general manager of Henglong Automotive Parts Co., Ltd. from 1999 to 2002. Mr. Wu graduated from Tsinghua University in Beijing with a Master’s degree in automobile engineering. 

 

The Board of Directors believes that Mr. Wu’s experience and extensive knowledge of the Company are essential to the implementation of the Company’s strategic vision.

 

 

 

 

Guangxun Xu

 

Guangxun Xu has served as an independent director of the Company since December 2009. He is the chairman of both the audit committee and the nominating committee, and a member of the compensation committee, of the Board of Directors. Mr. Xu has been the Chief Representative of NASDAQ in China and a managing director of the NASDAQ Stock Market International, Asia for over ten (10) years. With a professional career in the finance field spanning over thirty (30) years, Mr. Xu’s practice focuses on providing package services on U.S. and U.K. listings, advising on and arranging for private placements, PIPEs, IPOs, pre-IPO restructuring, M&A, corporate and project finance, corporate governance, post-IPO IR compliance and risk control. 

 

The Board of Directors believes that Mr. Xu’s many years of experience in working with public companies and financial markets in Asia provides value to the Board of Directors and the Company.

 

Heng Henry Lu

 

Heng Henry Lu has served as an independent director of the Company since July 2019. He is a member of the audit committee, the nominating committee and the compensation committee. He has been an adviser to NBS Group since February 2016. Dr. Lu was a partner of SVC China from 2012 to 2014 and Chief Representative of William Blair & Company, L.L.C., Shanghai Representative Office from 2006 to 2011. Prior to that, Dr. Lu was with McKinsey & Company advising global and domestic companies on their growth and financial strategies. Dr. Lu received a Doctor of Philosophy from Columbia University in 1997 and a Master of Business Administration from University of Chicago Business School in 2000.

 

The Board of Directors believes that Dr. Lu’s many years of experience in advising companies in the PRC and abroad provides perspective and global vision to the Company’s development.

 

Tong Kooi Teo

 

Tong Kooi Teo has served as an independent director of the Company since July 2019. He is the chairman of the compensation committee and a member of the audit committee and the nominating committee. He is the Chief Executive Officer of DPS Corporate Advisory Company Limited, Beijing, China, a member of Head International Group, China since March 2018. He is a Non-Executive Director of Guocoland (China) Limited since February 2018.  He was the Managing Director of Guoco Investment (China) Ltd., Hong Kong from 2014 to 2018, after serving as the Group Managing Director of Guocoland (China) Ltd. from 2012 to 2014. Prior to that, Mr. Teo was the Chief Executive Officer (China and Vietnam Operations) of WCT Holdings Bhd, Malaysia from 2011 to 2012. He was the Chief Executive Officer of Hong Leong Asia Ltd (HLA), which is listed on the Singapore Stock Exchange from 2004 to 2010. From 2003 to 2004, Mr. Teo was the Managing Director of Tasek Corporation Bhd, Malaysia, which is listed on the Kuala Lumpur Stock Exchange. From 1994 to 2002, Mr. Teo was General Manager of Corporate Banking Division and Chief Operating Officer of Hong Leong Bank Malaysia. From 1989 to 1994, Mr. Teo was with Deutsche Bank Malaysia where his last held position was Head of Corporate Banking.

 

The Board of Directors believes that Mr. Teo’s many years of experience working with companies and banks in Asia and in the PRC and abroad provides perspective and global vision to the Company’s development.

 

Other than as noted above, there are no family relationships among any of the Company’s directors or executive officers.

 

DIRECTOR NOMINATION

 

Criteria for Board Membership.

 

In recommending candidates for appointment or re-election to the Board of Directors, the nominating committee of the Board of Directors (the “Nominating Committee”) considers the appropriate balance of experience, skills and characteristics required of the Board of Directors. It seeks to ensure that a majority of the directors are independent under the rules of the Nasdaq Stock Market, that the members of the Company’s audit committee of the Board of Directors (the “Audit Committee”) meet the financial literacy and sophistication requirements under the rules of the Nasdaq Stock Market and that at least one member of the Board of Directors qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission (the “SEC”). Nominees for director are recommended on the basis of their depth and breadth of experience, integrity, ability to make independent analytical inquiries, understanding of the Company’s business environment and willingness to devote adequate time to Board of Directors duties.

 

 

 

 

Process for Identifying and Evaluating Nominees.

 

The Nominating Committee believes the Company is well served by its current directors. In the ordinary course, absent special circumstances or a material change in the criteria for membership of the Board of Directors, the Nominating Committee will re-nominate incumbent directors who continue to be qualified for service and are willing to continue as directors. If an incumbent director is not standing for re-election, or if a vacancy on the Board of Directors occurs between annual stockholder meetings, the Nominating Committee will seek potential candidates for appointment to the Board of Directors who meet the criteria for selection as a nominee and have the specific qualities or skills being sought. Director candidates will be selected based on input from members of the Board of Directors, senior management of the Company and, if the Nominating Committee deems appropriate, a third-party search firm. The Nominating Committee will evaluate each candidate’s qualifications and check relevant references; in addition, such candidates will be interviewed by at least one member of the Nominating Committee. Candidates meriting serious consideration will meet with all members of the Board of Directors. Based on this input, the Nominating Committee will evaluate whether one of the prospective candidates is qualified to serve as a director and whether the committee should recommend to the Board of Directors that such candidate be appointed to fill a then current vacancy or presented for the approval of the stockholders, as appropriate.

 

Stockholder Nominees.

 

The Nominating Committee will consider suggestions from stockholders regarding possible director candidates for election at the annual meeting to be held in 2021. Any such nominations should be submitted to the Nominating Committee, c/o Mrs. Wei Na (secretary to the Board of Directors), and should include the following information: (a) all information relating to such nominee that is required to be disclosed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) the names and addresses of the stockholders making the nomination and the number of shares of the Company’s common stock that are owned beneficially and of record by such stockholders; and (c) appropriate biographical information and a statement as to the qualifications of the nominee, and should be submitted in the time frame described in the bylaws of the Company and under the caption “Stockholder Proposals for 2021 Annual Meeting” below. Each director nominated in this Proxy Statement was recommended for election by the Nominating Committee and by the Board of Directors.

 

Board Nominees for the 2020 Annual Meeting.

 

The nominees listed in this proxy statement are the current five directors standing for re-election.

 

BOARD LEADERSHIP STRUCTURE

 

Mr. Hanlin Chen is the chairman of the Board of Directors and Mr. Qizhou Wu is the chief executive officer and a director of the Company. The Company’s leadership structure of a separate chairman of the Board of Directors and chief executive officer has historically proven effective for it in the areas of performance and corporate governance, among others. The Company does not have a lead independent director. The Company, in consideration of the size of the Board of Directors and the presence of three independent directors who constitute a majority, believes that it is not necessary to appoint a lead independent director. The Board of Directors has determined that its current structure is in the best interests of the Company and its stockholders. The Company believes that the independent nature of the audit, compensation and nominating committees of the Board of Directors also ensures that the Board of Directors maintains a level of independent oversight of management that is appropriate for the Company. The Board of Directors will review from time to time the appropriateness of its leadership structure and implement any changes it may deem necessary.

  

RISK OVERSIGHT

 

The Board of Directors has the ultimate oversight responsibility for the risk management process. A fundamental part of risk management is not only understanding the risks the Company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. In setting the Company’s business strategy, the Board of Directors assesses the various risks being faced by management and determines what constitutes an appropriate level of risk for the Company. While the ultimate risk oversight rests with the Board of Directors, the Board of Directors has delegated the responsibility for the management of certain types of risks to its committees. For example, the Audit Committee focuses on financial risk, including internal controls, and receives financial risk assessment reports from management, and risks related to the compensation programs are reviewed by the compensation committee of the Board of Directors (the “Compensation Committee”). The Board of Directors is advised by these committees of significant risks and management’s response via periodic updates.

 

 

 

 

DIRECTOR COMPENSATION

 

Based on the number of years of service to the Board of Directors, workload and performance, the Board of Directors determines directors’ compensation. The Board of Directors believes that the compensation of the members of the Board of Directors was appropriate as of December 31, 2019. The independent directors receive a director fee from the Company for their services as members of the Board of Directors and any committee of the Board of Directors in the amount of between $7,500 and $14,850 per quarter. The directors are reimbursed for certain expenses in connection with attending meetings of the Board of Directors and committees of the Board of Directors.

 

The Company has also granted, and expects to continue to grant, to non-employee directors options to purchase shares of the Company’s common stock. The stockholders of the Company approved certain director grants at the annual meeting of the stockholders in 2005, which grants were included in the 2004 stock option plan (the “2004 Stock Option Plan”). At the 2014 annual meeting of stockholders, the stockholders of the Company approved an amendment to the 2004 Stock Option Plan that extended its term for an additional ten (10) years. Pursuant to such amendment, the 2004 Stock Option Plan will expire on June 27, 2025.

 

The options granted to non-employee directors that are currently outstanding or were outstanding during the past three (3) years are as follows:

 

  * On August 16, 2017, the Company issued additional options to purchase 7,500 shares of common stock to each of its then three independent directors. Such stock options were vested immediately upon grant and are exercisable at $5.04 per share over a period of five (5) years. The exercise price represented the fair market value based on the grant date of the stock options.
     
  * On December 5, 2018, the Company issued additional options to purchase 7,500 shares of common stock to each of its then three independent directors. Such stock options were vested immediately upon grant and are exercisable at $2.37 per share over a period of five (5) years. The exercise price represented the fair market value based on one day before the grant date of the stock options. (Nasdaq was closed on December 5, 2018 in observance of the National Day of Mourning for President George H.W. Bush.)
     
  * In 2019, the Company did not issue any options to independent directors.

 

The Company determines each director’s compensation based on the number of years of service, workload and performance. The management believes that the pay for the members of the Board of Directors was appropriate as of December 31, 2019. The compensation that directors received for serving on the Board of Directors for fiscal year 2019 was as follows (figures are in thousands of USD): 

 

Name  Fees earned or paid in cash   Option awards (1)   Total 
Tong Kooi Teo (2)  $15   $-   $15 
Guangxun Xu  $59   $-   $59 
Heng Henry Lu (3)  $15   $-   $15 
Robert Tung (4)  $33   $-   $33 
Arthur Wong (5)  $33   $-   $33 

 

(1) Other than the cash payment based on the number of a director’s years of service, workload and performance, the Company grants option awards to each director every year. In accordance with ASC Topic 718, the cost of the above mentioned stock options issued to directors was measured on the grant date based on their fair value. The fair value is determined using the Black-Scholes option pricing model and certain assumptions. The Company did not grant option awards to directors in 2019.
   
(2) Tong Kooi Teo has served on the Board of Directors since July 2019.
   
(3) Heng Henry Lu has served on the Board of Directors since July 2019.
   
(4) Robert Tung served on the Board of Directors until July 2019.
   
(5) Arthur Wong served on the Board of Directors until July 2019.

 

The cost of the above mentioned compensation paid to directors was measured based on investment, operating, technology and consulting services they provided. Except as stated above, no other directors had received any compensation for their service on the Board of Directors. 

 

 

 

 

BOARD MEETINGS AND COMMITTEES

 

The Board of Directors has standing audit, compensation and nominating committees. The Board of Directors met six (6) times during 2019. The Audit Committee met four (4) times, the Compensation Committee met four (4) times and the Nominating Committee met four (4) times during 2019. Each member of the Board of Directors attended 75% or more of the aggregate of (i) the total number of Board meetings held during the period of such member’s service and (ii) the total number of meetings of committees on which such member served, during the period of such member’s service. The audit, compensation and nominating committees’ charters are available on the Company’s website at www.caasauto.com.

 

Audit Committee.

 

The Audit Committee currently consists of Guangxun Xu (chairman), Heng Henry Lu and Tong Kooi Teo. The Board of Directors has determined that all members of the Audit Committee are independent directors under the rules of the Nasdaq Stock Market and each of them is able to read and understand fundamental financial statements. The Board of Directors has determined that Guangxun Xu qualifies as an “audit committee financial expert” as defined by the rules of the SEC. The purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the Company and audits of its financial statements. The responsibilities of the Audit Committee include appointing and providing for the compensation of the independent auditors.  

 

Nominating Committee.

 

The Nominating Committee currently consists of Guangxun Xu (chairman), Heng Henry Lu and Tong Kooi Teo, each of whom the Board of Directors has determined is an independent director under the rules of the Nasdaq Stock Market. The Nominating Committee’s responsibilities include recommending nominees for possible election to the Board of Directors and providing oversight with respect to corporate governance.

 

Compensation Committee.

 

The Compensation Committee currently consists of Tong Kooi Teo (chairman), Guangxun Xu and Heng Henry Lu. The Board of Directors has determined that all members of the Compensation Committee are independent directors under the rules of the Nasdaq Stock Market. The Compensation Committee administers the Company’s benefit plans, reviews and administers all compensation arrangements for executive officers and establishes and reviews general policies relating to the compensation and benefits of our officers and employees.

 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

 

For the year ended December 31, 2019, none of our executive officers had a relationship that would constitute an interlocking relationship with executive officers or directors of another entity or insider participation in compensation decisions.

  

COMMUNICATIONS WITH DIRECTORS

 

Stockholders interested in communicating directly with our directors may email the chairman Mr. Hanlin Chen at chenhanlin@chl.com.cn. Mr. Chen will review all such correspondence and will regularly forward to the other members of the Board of Directors copies of all such correspondence that deals with the functions of the Board of Directors or committees thereof or that he otherwise determines requires their attention. Directors may at any time review all of the correspondence received that is addressed to members of the Board of Directors and request copies of such correspondence. Concerns relating to accounting, internal controls or auditing matters will immediately be brought to the attention of the Audit Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters.

 

 

 

 

The Company has a policy of encouraging all directors to attend the annual stockholders meetings. Last year, five (5) directors attended the annual meeting.

 

 

CODE OF CONDUCT AND ETHICS

 

The Company has adopted a code of conduct and ethics that applies to all directors, officers and employees, including its principal executive officer and principal financial officer. This code of conduct and ethics was filed as Exhibit 99.1 to the Company’s Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 2003 filed with the SEC.

 

SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS AND CERTAIN BENEFICIAL OWNERS 

 

The following table sets forth certain information known to the Company with respect to the beneficial ownership of the Company’s common stock as of December 31, 2019 by (i) each person who is known by the Company to own beneficially more than 5% of the Company’s common stock, (ii) each of the Company’s directors and Named Executive Officers (defined below) and (iii) all executive officers and directors as a group. Except as otherwise listed below, the address of each person is c/o China Automotive Systems, Inc., D8 Henglong Building, Optics Valley Software Park, No. 1 Guanshan First Avenue, Wuhan City, Hubei Province, the People’s Republic of China. The percentage ownership is based on 31,174,045 shares of common stock outstanding at December 31, 2019 (exclusive of 1,164,257 shares of treasury stock). 

 

Name/Title  Total Number of Shares   Percentage Ownership 
Hanlin Chen, Chairman (1)   17,849,014    57.26%
Li Ping Xie (1)   17,849,014    57.26%
Wiselink Holdings Limited, “Wiselink” (1)   17,849,014    57.26%
Qizhou Wu, CEO and Director   1,325,136    4.25%
Jie Li, CFO (2)   124,997    0.40%
All Directors and Executive Officers (9 persons)   19,716,551    63.25%

 

(1)These 17,849,014 shares of common stock include: (i) 13,322,547 shares of common stock beneficially owned by Mr. Hanlin Chen; (ii) 1,502,925 shares of common stock beneficially owned by Ms. Liping Xie, Mr. Hanlin Chen’s wife; and (iii) 3,023,542 shares of common stock beneficially owned by Wiselink, a company controlled by Mr. Hanlin Chen.

 

(2)Includes 50,000 shares held as nominee for Jingzhou Jiulong Machinery and Electronic Manufacturing Co., Ltd. On October 13, 2014, the Company issued 4,078,000 of its common shares in a private placement to nominee holders of Jingzhou Jiulong Machinery and Electronic Manufacturing Co., Ltd. for the acquisition of the 19.0% and 20.0% equity interest in Jiulong and Henglong held by Jingzhou Jiulong Machinery and Electronic Manufacturing Co., Ltd., respectively. All of the nominee holders of Jingzhou Jiulong Machinery and Electronic Manufacturing Co., Ltd. are unrelated parties except for Mr. Jie Li (CFO).

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

The following related parties are related through common ownership with the major stockholders of the Company:

 

  · Jingzhou Henglong Fulida Textile Co., Ltd., “ Fulida
  · Xiamen Joylon Co., Ltd., “ Xiamen Joylon
  · Shanghai Tianxiang Automotive Parts Co., Ltd., “ Shanghai Tianxiang
  · Shanghai Jinjie Industrial & Trading Co., Ltd., “ Shanghai Jinjie
  · Changchun Hualong Automotive Technology Co., Ltd., “ Changchun Hualong
  · Jiangling Tongchuang Machining Co., Ltd., “ Jiangling Tongchuang
  · Shanghai Hongxi Investment Inc, “ Hongxi
  · Hubei Wiselink Equipment Manufacturing Co., Ltd., “ Hubei Wiselink
  · Jingzhou Derun Agricultural S&T Development Co., Ltd., “ Jingzhou Derun
  · Jingzhou Tongying Alloys Materials Co., Ltd., “ Jingzhou Tongying
  · Wuhan Dida Information S&T Development Co., Ltd., “ Wuhan Dida
  · Hubei Wanlong Investment Co., Ltd., “ Hubei Wanlong
  · Jingzhou Yude Machining Co., Ltd., “ Jingzhou Yude
  · Wiselink Holdings Limited, “ Wiselink
  · Beijing Hainachuan HengLong Automotive Steering System Co., Ltd., “ Beijing Henglong
  · Honghu Changrun Automotive Parts Co., Ltd., “ Honghu Changrun
  · Jingzhou Henglong Real Estate Co., Ltd., “ Henglong Real Estate
  · Xiamen Joylon Automotive Parts Co., Ltd., “Xiamen Automotive Parts
  · Jingzhou Jiulong Machinery and Electronic Trading Co., Ltd., “ Jiulong Machinery
  · Wuhan Tongkai Automobile Motor Co., Ltd., “ Wuhan Tongkai
  · Jingzhou Natural Astaxanthin Inc, “Jingzhou Astaxanthin
  · Hubei Asta Biotech Inc., “Hubei Asta

 

 

 

 

  · Shanghai Yifu Automotive Electronics Technology Co., Ltd., “Shanghai Yifu
  · Suzhou Qingyan Venture Capital Fund L.P., “Suzhou Qingyan
  · Chongqing Qingyan Venture Capital Fund L.P., “Chongqing Qingyan
  · Chongqing Jinghua Automotive Intelligent Manufacturing Technology Research Co., Ltd., “Chongqing Jinghua
  · Jingzhou WiseDawn Electric Car Co., Ltd., “Jingzhou WiseDawn
  · Hubei Zhirong Automobile Technology Co., Ltd., “Hubei Zhirong
  · Hubei Tongrun Automotive Parts Industry Development Co., Ltd., “Hubei Tongrun
  · Hubei Henglongtianyu Pipe System Co., Ltd., “Henglong Tianyu”
  · Wuhan Ewinlink Intelligent System Co., Ltd., “Ewinlink”

 

Related Party Transactions.

 

The Company’s related party transactions include product sales, material purchases and purchases of equipment and technology. These transactions were consummated at fair market price and under similar terms as those with the Company's customers and suppliers. On some occasions, the Company’s related party transactions also include purchase/sale of capital stock of the joint ventures and sale of property, plant and equipment.

 

Related party transactions during the years ended December 31, 2019 and 2018, are as shown below (figures are in thousands of USD):

 

Merchandise Sold to Related Parties 

   Year Ended December 31, 
   2019   2018 
Beijing Henglong  $41,762   $31,291 
Xiamen Automotive Parts   4,337    5,739 
Hubei Hongrun   4,021    - 
Other related parties   620    576 
Total  $50,740   $37,606 

 

Rental Income Obtained from Related Parties 

   Year Ended December 31, 
   2019   2018 
Rental Income  $383   $375 

  

Materials Sold to Related Parties 

   Year Ended December 31, 
   2019   2018 
Honghu Changrun  $577   $637 
Jingzhou Tongying   566    279 
Jingzhou Yude   313    636 
Beijing Henglong   39    - 
Other related parties   153    1 
Total  $1,648   $1,553 

 

Materials Purchased from Related Parties 

   Year Ended December 31, 
   2019   2018 
Jingzhou Tongying  $7,496   $9,091 
Jiangling Tongchuang   7,039    7,066 
Wuhan Tongkai   6,782    6,849 
Honghu Changrun   1,751    1,665 
Hubei Wiselink   424    884 
Other related parties   322    3 
Total  $23,814   $25,558 

 

 

 

 

Technology and Services Provided by Related Parties (recorded in R&D Expenses) 

   Year Ended December 31, 
   2019   2018 
Changchun Hualong  $543   $496 
Jingzhou Derun   27    25 
Jingzhou Yude   -    263 
Other related parties   1    51 
Total  $571   $835 

 

Property, Plant and Equipment Purchased from Related Parties 

   Year Ended December 31, 
   2019   2018 
Hubei Wiselink  $5,238   $5,281 
Ewinlink   1,052    - 
Henglong Real Estate   -     2 
Total  $6,290   $5,283 

 

As of December 31, 2019 and 2018, accounts receivable, other receivables, accounts payable and advance payments between the Company and related parties are as shown below (figures are in thousands of USD):

 

Accounts and Notes Receivable from Related Parties 

   December 31, 
   2019   2018 
Beijing Henglong  $14,743   $13,640 
Xiamen Automotive Parts   1,957    2,527 
Hubei Hongrun   1,786    - 
Jingzhou Yude   1,450    1,398 
Xiamen Joylon   1,110    1,129 
Other related parties   118    131 
Total  $21,164   $18,825 

 

Accounts Payable to Related Parties 

   December 31, 
   2019   2018 
Jingzhou Tongying  $1,672   $1,199 
Wuhan Tongkai   1,586    1,081 
Hubei Wiselink   1,538    914 
Henglong Tianyu   782    - 
Jiangling Tongchuang   661    584 
Honghu Changrun   208    325 
Other related parties   45    374 
Total  $6,492   $4,477 

 

Advance Payments for Property, Plant and Equipment to Related Parties 

   December 31, 
   2019   2018 
Hubei Wiselink  $1,283   $7,679 
Henglong Real Estate   1,028    1,044 
Total  $2,311   $8,723 

 

Other Advance Payments and Others to Related Parties 

   December 31, 
   2019   2018 
Honghu Changrun   662    470 
Ewinlink   160    - 
Henglong Tianyu   139    - 
Changchun Hualong   71    73 
Wuhan Tongkai   69    57 
Hubei Hongrun   68    - 
Jingzhou Yude   -    120 
Jingzhou WiseDawn   -    533 
Other related parties   118    28 
Total  $1,287   $1,281 

 

 

 

 

As of May 14, 2020, the date the Company issued the financial statements, Hanlin Chen, Chairman, owns 57.3% of the common stock of the Company and has the effective power to control the vote on substantially all significant matters without the approval of other stockholders.

  

EXECUTIVE COMPENSATION

  

Elements of Compensation.

 

The Company’s executive compensation consists of the following elements.

 

Base Salary

 

Base salaries for the Company’s executives are established to be amounts of compensation that are similar to those paid by other companies to executives in similar positions and with similar responsibilities. Base salaries are adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. The Compensation Committee established a salary structure to determine base salaries and is responsible for initially setting executive officer compensation in employment arrangements with each individual. The base salary amounts are intended to reflect the Company’s philosophy that the base salary should attract experienced individuals who will contribute to the success of the Company’s business goals and represent cash compensation that is commensurate with the compensation of individuals at similarly situated companies.

 

The Company’s Board of Directors and Compensation Committee have approved the current salaries for executives: RMB 2.5 million (equivalent to approximately $0.36 million) for the Chairman, RMB 1.6 million (equivalent to approximately $0.23 million) for the CEO, and RMB 1.0 million (equivalent to approximately $0.14 million) individually for other officers in 2019.

 

Performance Bonus  

 

The Company awards performance bonuses to certain executives based on the achievement of set goals.

 

a.Grantees: Mr. Hanlin Chen, Mr. Qizhou Wu, Mr. Andy Tse, Mr. Jie Li and Mr. Yijun Xia.
b.Conditions: based on the Company’s consolidated financial statements, (i) the year over year growth rate of sales for 2019 must be or 5% or higher; and (ii) the year over year growth rate of sales for 2019 must be 10% or higher;
c.Bonus: If condition (i) is satisfied, 25% of each officer’s annual salary in 2019; and if condition (ii) is satisfied, 50% of each officer’s annual salary in 2019.

 

The Company did not award any performance bonus for any Named Executive Officer in 2019 as the Company did not reach any of the above conditions.

 

Stock Option Awards

 

The stock option plan proposed by management, which aims to incentivize and retain core employees, to meet employees’ benefits, the Company’s long term operating goals and stockholder benefits, was approved at the Annual Meeting of Stockholders held on June 28, 2005, and extended for ten years at the Annual Meeting of Stockholders held on September 16, 2014. The maximum common shares available for issuance under the plan is 2,200,000. The term of the plan was extended to June 27, 2025.

 

There were no stock options granted to management in 2019.

 

Other Compensation

 

Other than the base salary for the Company’s Named Executive Officers, the performance bonus and the stock option awards referred to above, the Company does not have any other benefits and perquisites for its Named Executive Officers. However, the Compensation Committee in its discretion may provide benefits and perquisites to these executive officers if it deems advisable to do so.

 

 

 

 

Option Exercises and Stock Vested

 

During fiscal year 2019, no shares were acquired by the Named Executive Officers of the Company under the 2004 Stock Option Plan.

 

Role of Executives in Executive Compensation Decisions.

 

The Compensation Committee seeks input from the Company’s chairman and chief executive officer when discussing the performance of, and compensation levels for, executives other than the chairman or the chief executive officer. None of our executives participates in deliberations relating to his own compensation. In particular, the Compensation Committee seeks input from the Company’s chairman and chief executive officer in assessing the performance of individual executive officers, assessing competitive conditions in the market for retaining key employees and establishing the Company’s business goals and financial objectives which are used by the Compensation Committee in setting compensation levels.

 

Employment Contracts and Termination of Employment.

 

All of the Company’s executive officers have executed standard employment agreements with the Company, which are governed by PRC law. Other than the amounts of compensation to be paid by the Company, the terms and conditions of the employment agreements with the executive officers are substantially the same as those of the Company’s standard employment agreements with non-executive employees. The Company’s standard employment agreements are for a fixed period of five (5) years and may be renewed upon notice from the employee and consent of the Company. The Company may terminate an employment agreement upon thirty days’ notice if an employee is no longer suitable for the job due to medical or other reasons. An employee may terminate his or her employment agreement without cause upon one month’s notice to the Company. The compensation stated in the agreement is the base salary and is subject to adjustment on an annual basis.

  

Compensation of Executive Officers.

 

The following describes the compensation arrangements under the employment contracts of our Named Executive Officers.

 

  * Hanlin Chen, the Company’s Chairman, has a renewed employment agreement that became effective as of September 25, 2012. The agreement is for an indefinite term pursuant to the PRC labor law. Mr. Chen received an annual salary of approximately $312,000 during the fiscal year ended December 31, 2019.
  * Qizhou Wu, the Company’s CEO, has an employment agreement that became effective as of September 25, 2012. The agreement is for an indefinite term pursuant to the PRC labor law. Mr. Wu received an annual salary of approximately $208,000 during the fiscal year ended December 31, 2019.
  * Haimian Cai, the Company’s Vice President, has an employment agreement that became effective as of July 8, 2010. The agreement is for an indefinite term pursuant to the local rules and regulations. Mr. Cai received an annual salary of approximately $327,000 during the fiscal year ended December 31, 2019.

 

Summary Compensation Table.

 

The compensation that the Company’s CEO and the two most highly compensated executive officers other than the CEO (collectively, the “Named Executive Officers”) received for their services for fiscal years 2019 and 2018 were as follows (figures are in thousands of USD):

 

Name and principal position  Year  Salary  (1)   Bonus  (2)   Option Awards  (3)   Total 
Hanlin Chen (Chairman)  2019  $312   $-   $-   $312 
   2018  $246   $-   $-   $246 
                        
Qizhou Wu (CEO)  2019  $208   $-   $-   $208 
   2018  $164   $-   $-   $164 
                        
Jie Li (CFO)  2019  $125   $-   $-   $125 
   2018  $98   $-   $-   $98 
                        
Haimian Cai (Vice President)  2019  $327   $-   $-   $327 
   2018  $150   $-   $-   $150 

 

  (1) Salary – Please refer to Base Salary disclosed under the “Elements of Compensation” section above for further details.
  (2) Bonus – Please refer to Performance Bonus disclosed under the “Elements of Compensation” section above for further details.
  (3) Option Awards – Please refer to Stock Option Awards disclosed under the “Elements of Compensation” section above for further details.

 

 

 

 

For detailed information on option exercises and stock vested, please see Note 15 to the consolidated financial statements of the Company in the Annual Report on Form 10-K for the year ended December 31, 2019.

  

REPORT OF THE AUDIT COMMITTEE

 

Under the guidance of a written charter adopted by the Board of Directors, the purpose of the Audit Committee is to oversee the accounting and financial reporting processes of the Company and audits of its financial statements. The responsibilities of the Audit Committee include appointing and providing for the compensation of the independent auditors to conduct the annual audit of our accounts, reviewing the scope and results of the independent audits, reviewing and evaluating internal accounting policies and approving all professional services to be provided to the Company by its independent auditors. Each of the members of the Audit Committee meets the independence requirements of the Nasdaq Stock Market.

 

Management has primary responsibility for the system of internal controls and the financial reporting process. The independent auditors have the responsibility to express an opinion on the financial statements based on an audit conducted in accordance with generally accepted auditing standards.

 

In this context and in connection with the audited financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, the Audit Committee:

 

* reviewed and discussed the audited financial statements as of and for the year ended December 31, 2019 with the Company’s management and PwC, the Company’s independent auditors;
* discussed with the Company’s independent auditors the matters required to be discussed by Statement of Auditing Standards No. 61, Communication with Audit Committees, as amended by Statement of Auditing Standards No. 90, Audit Committee Communications;
* reviewed the written disclosures and the letter from PwC required by the Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, discussed with the auditors their independence and concluded that the non-audit services performed by PwC are compatible with maintaining their independence;
* based on the foregoing reviews and discussions, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC; and
* instructed the independent auditors that the Audit Committee expects to be advised if there are any subjects that require special attention.

 

 

AUDIT COMMITTEE

Guangxun Xu (chairman), Heng Henry Lu and Tong Kooi Teo

 

Audit Committee’s Pre-approval Policy.

 

During the fiscal years ended December 31, 2019 and 2018, the Audit Committee of the Board of Directors adopted policies and procedures for the pre-approval of all audit and non-audit services to be provided by the Company’s independent auditor and for the prohibition of certain services from being provided by the independent auditor. The Company may not engage the Company’s independent auditor to render any audit or non-audit service unless the service is approved in advance by the Audit Committee or the engagement to render the service is entered into pursuant to the Audit Committee’s pre-approval policies and procedures. On an annual basis, the Audit Committee may pre-approve services that are expected to be provided to the Company by the independent auditor during the fiscal year. At the time such pre-approval is granted, the Audit Committee specifies the pre-approved services and establishes a monetary limit with respect to each particular pre-approved service, which limit may not be exceeded without obtaining further pre-approval under the policy. For any pre-approval, the Audit Committee considers whether such services are consistent with the rules of the Securities and Exchange Commission on auditor independence.

 

 

 

 

Principal Accountant Fees and Services.

 

The following table sets forth the aggregate fees for professional audit services rendered by PricewaterhouseCoopers Zhong Tian LLP for the audit of the Company’s annual financial statements and other services provided in the fiscal years 2019 and 2018. The Audit Committee has approved all of the following fees (figures are in thousands of USD):

 

   Fiscal Year Ended 
   2019   2018 
Audit Fees  $670   $674 
Other Fees   -    104 
Total Fees  $670   $778 

 

 

 

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

At the Annual Meeting, the stockholders will vote on the election of five directors to serve for a one-year term until the 2021 annual meeting of stockholders and until their successors are elected and qualified. The Board of Directors has unanimously approved the nomination of Hanlin Chen, Qizhou Wu, Guangxun Xu, Heng Henry Lu and Tong Kooi Teo for election to the Board of Directors. The nominees have indicated that they are willing and able to serve as directors. If any of these individuals becomes unable or unwilling to serve, the accompanying proxy may be voted for the election of such other person as shall be designated by the Board of Directors. The directors will be elected by a plurality of the votes cast, in person or by proxy, at the Annual Meeting, assuming a quorum is present. Stockholders do not have cumulative voting rights in the election of directors.

 

The Board of Directors recommends a vote “For” the election of Hanlin Chen, Qizhou Wu, Guangxun Xu, Heng Henry Lu and Tong Kooi Teo as directors.

 

Unless otherwise instructed, it is the intention of the persons named in the proxy to vote shares represented by properly executed proxy for the election of Hanlin Chen, Qizhou Wu, Guangxun Xu, Heng Henry Lu and Tong Kooi Teo.

 

PROPOSAL 2 — RATIFICATION OF INDEPENDENT AUDITORS

 

At the Annual Meeting, the stockholders will be asked to ratify the appointment of PwC as the Company’s independent auditors for the fiscal year ending December 31, 2020. Representatives of PwC are expected to be present at the Annual Meeting and will have the opportunity to make statements if they desire to do so. Such representatives are also expected to be available to respond to appropriate questions.

 

The Board of Directors recommends a vote “For” the ratification of the appointment of PwC as the Company’s independent auditors for the fiscal year ending December 31, 2020.

   

INCORPORATION BY REFERENCE

 

The SEC allows the Company to “incorporate by reference” information into this proxy statement, which means that the Company can disclose important information to you by referring you to other documents that we have filed separately with the SEC and made available to you with the copy of this proxy statement. The information incorporated by reference is deemed to be part of this proxy statement. This proxy statement incorporates by reference the financial statements of the Company as contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed by the Company on May 14, 2020, which is made available together with this proxy statement on the website specified above to all stockholders in connection with the Annual Meeting.

 

OTHER MATTERS

 

As of the time of preparation of this proxy statement, neither the Board of Directors nor management intends to bring before the meeting any business other than the matters referred to in the Notice of Annual Meeting and this proxy statement. If any other business should properly come before the meeting, or any adjournment thereof, the persons named in the proxy will vote on such matters according to their best judgment.

 

STOCKHOLDER PROPOSALS FOR 2021 ANNUAL MEETING

 

Under the rules of the SEC, stockholders who wish to submit proposals for inclusion in the proxy statement of the Board of Directors for the 2021 Annual Meeting of Stockholders must submit such proposals so as to be received by the Company at China Automotive Systems, Inc., D8 Optics Valley Software Park, No. 1 Guanshan First Avenue, Wuhan City, Hubei Province, The People’s Republic of China on or before April 19, 2021.

 

  By Order of the Board of Directors
 

 

/s/ Chen Hanlin

 

Chen Hanlin

Chairman

 

Hubei, People’s Republic of China

June 29, 2020

 

 

 

 

YOUR VOTE IS IMPORTANT!

 

 

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE EXECUTE THE PROXY FOLLOWING THE INSTRUCTIONS SET FORTH IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS MAILED TO YOU. THIS WILL ENSURE THE PRESENCE OF A QUORUM AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH TO DO SO EVEN IF YOU HAVE PREVIOUSLY EXECUTED THE PROXY.