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) 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)). Management has determined that there was no embedded beneficial conversion feature attributable to the Series B Shares, since the initial conversion price of the Series B Shares is equal to the Series B issue price, which was higher than the fair value of the Company's ordinary shares at the commitment date determined by management based on the valuation performed by Sallmanns. In addition, under the provisions of EITF Issue No. 00-27 ""Application of Issue No. 98-5 to Certain Convertible Instrument'', management determined that the contingent beneficial conversion feature relating to the Conversion ratio adjustment will be recognized only when the related audit report is delivered and the contingency is resolved and with respect of the Series B Dilution Adjustment, upon the issuance of additional ordinary shares. To the extent that the 2006/2007 audited net earnings, as defined, is below US$57,000 or the Company issued additional ordinary shares at a price less than the then prevailing Series B Shares' conversion price, the intrinsic value that results from such contingent beneficial conversion feature would be recognized as an addition to paid-in capital with a corresponding charge to net income available to ordinary shareholders at the earliest conversion date, which is the later of the issuance date or the date the contingency is resolved. As the contingency relating to the 2006/2007 audited net earnings was not resolved as of December 31, 2006, management has not considered the 2006/2007 conversion ratio adjustment when preparing the consolidated financial statements for the year ended December 31, 2006. Voting rights Each Series B Share has voting rights equivalent to the number of ordinary shares into which such Series B Share is then convertible. Registration rights Holders of Series B Shares have registration rights similar to the holders of Series A Shares and the ordinary shareholders. These registration rights include demand, F-3 or equivalent, and piggyback rights. The specific terms of registration rights would include at least the following: (i) starting three years after the Closing Date, the holders of majority of the outstanding Series A Shares and Series B Shares may request a Form F-1 registration statement to be filed; (ii) starting one year after the Qualified IPO, two (2) demand registrations upon request of the holders of 50% of the outstanding Series A Shares and Series B Shares on Form F-3 or equivalent if listed on a non-US stock exchange; (iii) unlimited piggyback registrations in connections with registrations of shares for the account of the Company (other than the Qualified IPO) or selling shareholders exercising demand rights; and (iv) cut-back provisions providing that registrations (other than the Qualified IPO) must include at least 25% of the shares requested to be included by the holders of registrable securities, and the ordinary shareholders, management, employees, directors and consultants of the Company must be cut back before the holders of registrable securities would be cut back. The registration rights agreement does not provide for liquidated damages in the event that the Company fails to have the registration statement declared effective or if the effectiveness is not maintained. F-28
Dividends 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) The Series B Shares holders shall be entitled to receive dividends out of any funds legally available for this purpose, when and if declared by the Board of Directors of the Company. No dividends shall be declared or paid on any of the ordinary shares unless they shall also be declared or paid on all the outstanding preferred share pro rata treating the preferred shares as the greatest whole number of shares of ordinary shares then issuable upon conversion of such preferred shares. Liquidation preference In the event of any liquidation, dissolution or winding up of the Company, the holders of Series B Shares shall be entitled to receive, prior to any distribution of any of the assets or surplus funds of the Company to the holders of ordinary shares, an amount equal to 130% of Series B issue price plus all declared but unpaid dividends and interests as of the liquidation date. (c) Series C redeemable convertible preferred shares Pursuant to the Series C redeemable convertible preferred shares purchase agreement dated December 15, 2006 (""Series C Agreement''), the Company issued 3,000,000 Series C redeemable convertible preferred shares (""Series C Shares'') on December 19, 2006 to a group of unrelated investors at US$7.5 per share (the ""Series C issue price'') for total cash consideration of US$22,500. The holders of Series C Shares have the right to redeem the Series C Shares after 36 months of the date of issuance at the option of the holders of Series C Shares then outstanding if a Qualified IPO shall not have occurred. In the event of a redemption under this right, the Company shall redeem all of the outstanding Series C Shares at a redemption price equal to 150% of the Series C issue price, plus any declared, accrued but unpaid dividends and interest thereon, (the ""Series C 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 statements of operations and amounted to US$116 for the year ended December 31, 2006. Total direct external incremental costs of issuing the security of US$40 was accrued and charged against the proceeds of the Series C Shares. The significant terms of the Series C Shares are as follows: Conversion The holders of Series C 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 C Share is automatically convertible into one or more ordinary shares, subject to the Conversion ratio adjustment as described below upon the consummation of a Qualified IPO. Each Series C Share is convertible into one ordinary share where the conversion price is equal to the Series C share issue price, except in the following events that the initial conversion ratio is adjusted upon the delivery of the 2007 audit report and if the audited net earnings, as defined, (""2007 net earnings'') is lower than US$104,500. The Conversion ratio will be adjusted to the ratio of US$110,000 divided by the 2007 net earnings, as defined. If the Qualified IPO takes place before December 31, 2007, the net earnings, as defined, will be adjusted on a pro-rata basis. F-29
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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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making any sale by public or privat
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Reports and Other Communications Wi
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Page 126 and 127: The estimated offering expenses pay
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Page 136 and 137: WHERE YOU CAN FIND ADDITIONAL INFOR
Page 138 and 139: REPORT OF INDEPENDENT REGISTERED PU
Page 140 and 141: LDK SOLAR CO., LTD. AND SUBSIDIARIE
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