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

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)
Share options to investors
In conjunction with the Series A-1 redeemable convertible preferred shares agreement (note 16), the
Company issued 200,000 shares options to the holders of the Series A-1 redeemable convertible preferred
shares on August 1, 2006 at an exercise price of US$4.45 with a contractual term of five years and vesting
period of one year after the grant date.
The fair value of the option award is estimated on the date of grant using a lattice-based option valuation
model that uses the assumptions noted in the following table. Because the Company does not maintain an
internal market for its shares, the expected volatility was based on the historical volatilities of comparable
publicly traded companies engaged in similar industry. The Company uses historical data to estimate
employee termination within the valuation model. The expected term of options granted is derived from the
output of the option valuation model and represents the period of time that options granted are expected to be
outstanding. The employees that were granted the share options are expected to exhibit the same behavior.
Since the share options once exercised will primarily trade in the U.S. capital market and there was no
comparable PRC zero coupon rate, the risk-free rate for periods within the contractual life of the option is
based on the U.S. Treasury Note as of the grant date.
Expected volatility ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 64%
Expected dividendsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 0%
Expected termÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3.5Y4.5 years
Risk-free interest rateÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 4.9%
Estimated fair value of underlying ordinary sharesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ US$4.37
The estimated fair value of the underlying ordinary shares on the dates of the above grants was
determined based on a valuation analysis performed by Sallmanns based on various generally accepted
valuation methodologies. Management determined that the income approach was appropriate to determine
the fair value of the Company's business. The weighted-average grant-date fair value of options granted during
the year ended December 31, 2006 was US$1.98 per share. The Company recorded non-cash share-based
compensation expense of US$1,612 for the year ended December 31, 2006 in respect of share options granted
to employees, of which US$174 was allocated to costs of revenues, US$1,281 was allocated to general and
administrative expenses and US$157 was allocated to research and development costs. The Company
recorded non-cash share-based compensation expense of US$416 in general and administrative expenses for
the year ended December 31, 2006 in respect of share options granted to non employees.
A summary of option for the year ended December 31, 2006 is presented below:
Number of
total shares Exercise Remaining
Non involved in the Price per Contractual
Employees Employees Investors option share Term
Granted ÏÏÏÏÏÏÏÏÏÏÏÏ 6,230,000 210,000 200,000 6,640,000 US$ 4.45
ExercisedÏÏÏÏÏÏÏÏÏÏÏ Ì Ì Ì Ì Ì
Forfeited or cancelled (380,000) Ì Ì (380,000) Ì
Outstanding as of
December 31, 2006 5,850,000 210,000 200,000 6,260,000 US$ 4.45 4.6 years
Exercisable as of
December 31, 2006 Ì Ì Ì Ì Ì Ì
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