LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

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LDK SOLAR CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued) FOR THE PERIOD FROM JULY 5, 2005 TO DECEMBER 31, 2005 AND THE YEAR ENDED DECEMBER 31, 2006 (Amounts in US$ thousands, except share and per share data) shares of the Company's capital stock in a private placement prior to the Qualified IPO (as defined in note 16) of up to 20,420,000 preferred shares with a per share price of no less than US$5.00 and an initial conversion rate of 1:1. The holders are entitled to purchase such amount of additional Series A-1 and A-2 preferred shares at the initial purchase price of US$2.67 and US$4.43 per share respectively, so that after acquiring such number of Series A preferred shares, the ownership of the Series A-1 share and Series A-2 share holders in the Company will be no less than 3% and 1.58% respectively on a fully diluted basis. The warrants permit the holders to acquire Series A Shares that may require redemption at a future date at the holder's option, and therefore embody conditional obligations to repurchase the Company's shares. Therefore the warrants are classified separately as liabilities (with a corresponding reduction to the carrying amount of Series A shares) on the date of issuance at its fair value in accordance with SFAS No. 150 ""Accounting for Certain Financial Instruments with Characteristics of both Liability and Equity''. Change in fair value of warrants was credited to other income. The fair value of the warrants was approximately US$11 and US$2 at the grant date and December 31, 2006 respectively, estimated on the basis of Black-Scholes model with the following assumptions and the probability of the exercisability of the warrants: July 28, 2006 December 31, 2006 Expected volatilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64% 52% Expected dividends ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0% 0% Expected term ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1Y3 years 1Y3 years Risk-free interest rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.93Y5.11% 4.62Y4.91% Management assessed that the probability of the exercisability for the Series A-1 and A-2 preferred shares warrants was 50% and 10% on July 28, 2006 and December 31, 2006 respectively. (16) REDEEMABLE CONVERTIBLE PREFERRED SHARES (a) Series A redeemable convertible preferred shares Pursuant to the Series A redeemable convertible preferred shares purchase agreement dated July 28, 2006 (""Series A Agreement''), the Company issued 3,000,000 Series A-1 redeemable convertible preferred shares (""Series A-1 Shares'') on July 31, 2006 as a result of conversion of the US$8,000 exchangeable notes by the holders (see note 14). The Company also issued 1,580,000 Series A-2 redeemable convertible preferred shares (""Series A-2 Shares'') to a group of unrelated investors at US$4.43 per share for total cash consideration of US$7,000. Pursuant to the Series A Agreement, as amended by the third amended and restated memorandum of association dated December 19, 2006, the holders of both Series A-1 Shares and Series A-2 Shares (collectively ""Series A Shares'') have the right to redeem the Series A Shares after 36 months of the date of issuance of Series C redeemable convertible preferred shares at the option of the holders of Series A Shares then outstanding if a Qualified IPO has not occurred. A Qualified IPO refers to an initial public offering on a Qualified Exchange that values the Company at no less than US$1,210,000 immediately prior to the initial public offering with a per share offering price of no less than US$11.00 and that results in aggregate proceeds to the Company of at least US$300,000. In the event of a redemption under this right, the Company shall redeem all of the outstanding Series A Shares at a redemption price equal to 150% of the original issue cost of Series A Shares, plus any declared, accrued but unpaid dividends and interests thereon, (the ""Series A Preference Amount'') proportionally adjusted for share subdivisions, share dividends, reorganizations, reclassifications, consolidations or mergers. The accretion to the redemption value is reflected as a reduction to net income to arrive at net income available to ordinary shareholders in the accompanying consolidated statement of operations and amounted to US$814 for the year ended Decem- F-24
LDK SOLAR CO., LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued) FOR THE PERIOD FROM JULY 5, 2005 TO DECEMBER 31, 2005 AND THE YEAR ENDED DECEMBER 31, 2006 (Amounts in US$ thousands, except share and per share data) ber 31, 2006. Total direct external incremental costs of issuing the security of US$103 was charged against the proceeds of the Series A Shares. The significant terms of the Series A Shares are as follows: Conversion The holders of Series A Shares have the right to convert all or any portion of their holdings into ordinary shares of the Company at the then applicable conversion ratio (the ""Conversion ratio'') at any time after the date of issuance to the closing of a Qualified IPO. In addition, each Series A Share is automatically convertible into one or more ordinary shares, subject to the Conversion ratio adjustment as described below upon the consummation of the Qualified IPO. Each Series A Share is convertible into one ordinary share where the conversion price is equal to the Series A share issue price, except in the following events that the initial Conversion ratio is adjusted: (1) upon delivery of the 2006 audited report, if the 2006 audited net earnings, as defined, is lower than US$28,500, the 2006 adjusted Conversion ratio will be adjusted to the ratio of US$30,000 divided by the audited 2006 net earnings, as defined (""the 2006 adjusted Conversion ratio); (2) upon delivery of the 2007 audited report, if the 2007 audited net earnings, as defined, is lower than US$95,000, the 2007 Conversion ratio will be adjusted by applying the ratio of US$100,000 divided by the audited 2007 net earnings, as defined, to the 2006 adjusted Conversion ratio. No adjustment to the 2007 Conversion ration will be made if a Qualified IPO consummates in 2007. The conversion price shall initially be equal to the applicable Series A issue price for each of the outstanding preferred shares, subject to adjustments for dilutions (""Series A Dilution Adjustment'') as follows if any of the events listed below occur prior to the conversion of the preferred shares: a) The Company shall pay a dividend or make a distribution on its ordinary shares in ordinary shares, subdivide or reclassify its outstanding ordinary shares into a greater number of shares or combine or reclassify its outstanding ordinary shares into a smaller number of shares; b) The Company shall issue additional ordinary shares, rights, options or warrants to subscribe for or purchase ordinary shares without consideration or for a consideration per share less than the then effective conversion price on the date the Company issues or sells such new securities; and c) The Company shall distribute to all holders of its ordinary shares any share capital of the Company (other than ordinary shares) or evidences of indebtedness or cash or other assets (excluding regular cash dividends or distributions paid from retained earnings of Company and dividends or distributions referred to in previous paragraph a)). The proceeds received from the issuance of Series A Shares were first allocated to the warrants (see note 15) and share options issued to the holders of the Series A-1 Shares (see note 19) based on their fair values with the residual amount allocated to the preferred shares. Management evaluated the conversion feature embedded in this preferred share arrangement to determine if there was a beneficial conversion feature. A calculation was performed to determine the intrinsic value of the difference between the most favorable conversion price and the fair market value of the underlying securities (ordinary shares) of the Company issuable upon the conversion of the Series A Shares at the commitment date. Based on the calculation, the initial conversion price was lower than the fair value of the Company's ordinary shares at the commitment date determined by management based on a valuation performed by Sallmanns. The computed intrinsic value of the conversion feature of US$1,568 was recorded as a deemed dividend at the date of F-25
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PROSPECTUS 17,384,000 American Depo
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We were incorporated in the Cayman
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percentage of light energy from the
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Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏ
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(1) Gross profit for the year ended
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RISK FACTORS Investment in our ADSs
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Reduction or elimination of governm
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capacity or to increase our manufac
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delivery or failure to meet deliver
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specifications or product defects.
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Compliance with environmental regul
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operations or the price of our ADSs
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tax rates and other measures. Forei
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company in connection with any incr
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of approximately $22.05 in the net
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outside the United States. As a res
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The forward-looking statements cont
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CAPITALIZATION The following table
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DILUTION If you invest in our ADSs,
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DIVIDEND POLICY We have never decla
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SELECTED CONSOLIDATED FINANCIAL AND
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MANAGEMENT'S DISCUSSION AND ANALYSI
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polysilicon prices will decline in
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listed public company in the United
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increase. See ""Risk Factors Ì Ris
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subjective. The assumptions used in
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2006 and February 6, 2007. During t
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value of the our business. Under th
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Year Ended December 31, 2006 (in th
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""Exchange Rate Information'' in th
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ended September 30, 2006, net incom
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For additional information relating
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The non-cancelable purchase obligat
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previously deemed material, but are
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module production will increase fro
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The following diagram illustrates t
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Because we are a pure-play solar wa
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Wafering. After passing inspection,
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our revenue and customer base to ta
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‚ Our agreement with E'mei Semi-c
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photovoltaic cell or modules, and w
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A breakdown of our employees by are
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tax treatments to foreign-invested
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On September 21, 2006, the CSRC pub
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Gang Wang is a non-executive direct
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directors on our audit committee wi
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monies of or belonging to us may be
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(10) Vests on July 31, 2007. Brilli
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Securities (USA) LLC, which is a re
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interest-bearing loans directly to
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person, by its duly authorized repr
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History of Securities Issuances The
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persuasive authority in the Cayman
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Page 122 and 123: individual, up to $3,000 of capital
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Page 126 and 127: The estimated offering expenses pay
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Page 138 and 139: REPORT OF INDEPENDENT REGISTERED PU
Page 140 and 141: LDK SOLAR CO., LTD. AND SUBSIDIARIE
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