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

Compliance with environmental regulations can be expensive, and noncompliance may result in adverse
publicity and potentially significant monetary damages and fines or suspension of our business
operations.
We are required to comply with all national and local regulations regarding protection of the environment.
Compliance with environmental regulations is expensive. In addition, if more stringent regulations are adopted
by the PRC government in the future, the costs of compliance with PRC environmental protection regulations
could increase. If we fail to comply with present or future environmental regulations, we may be subject to
substantial fines or damages or suspension of our business operations, and our reputation may be harmed.
We have limited insurance coverage and may incur losses resulting from product liability claims or
business interruptions.
We are exposed to risks associated with product liability claims in the event that the use of our solar
wafers and ingots results in injury. Since our solar wafers and ingots are made into electricity producing
devices, it is possible that users could be injured or killed by devices that use our solar wafers and ingots,
whether by product malfunctions, defects, improper installations or other causes. Due to our limited historical
experience, we are unable to predict whether product liability claims will be brought against us in the future or
to predict the effect of any resulting adverse publicity on our business. The successful assertion of product
liability claims against us could result in potentially significant monetary damages and require us to make
significant payments. Moreover, we do not carry any product liability insurance and may not have adequate
resources to satisfy a judgment in the event of a successful claim against us. In addition, we do not carry any
business interruption insurance. As the insurance industry in China is still in its early stage of development,
even if we decide to take out business interruption coverage, such insurance available in China offers limited
coverage compared to that offered in many other countries. Any business disruption or natural disaster could
result in substantial losses and diversion of our resources.
Increases in electricity costs or shortage of electricity supply may adversely affect our operations.
We consume a significant amount of electricity in our operations. In August 2006, as support to our
operations in Xinyu city, the Xinyu Industry Development District government agreed to subsidize us for our
utility charges over and above $0.05 per kilowatt-hour. At the current market rate of $0.07 per kilowatt-hour,
we are effectively subsidized by $0.02 per kilowatt-hour we use. In 2006, we received an aggregate of
$0.8 million in such government subsidies. This utility arrangement is valid for three years from August 2006.
The government may also terminate its subsidy prior to the expiration of the three-year term. Upon expiration
or termination of the arrangement, our electricity costs may increase. Moreover, with the rapid development of
the PRC economy, demand for electricity has continued to increase. There have been shortages in electricity
supply in various regions across China, especially during peak seasons, such as summer. For instance, our
production was significantly disrupted in August 2006 due to power blackouts in Xinyu city. To prevent similar
occurrences, we have since installed backup power transformer substations at our Xinyu site with an installed
capacity of 40 million volt-amperes. Although the capacity of the backup transformer substation is sufficient
to support our current operations and our expansion program through the end of 2007, we cannot assure you
that there will be no interruption or shortages in our electricity supply or that there will be sufficient electricity
available to us to meet our future requirements. Increases in electricity costs or shortages in electricity supply
may disrupt our normal operations and adversely affect our profitability.
Failure to protect our intellectual property rights, know-how and technology may undermine our
competitive position.
We have developed various production process related know-how and technologies in the production of
solar wafers and ingots. Such know-how and technologies play a critical role in our quality assurance and cost
reduction. In addition, we have implemented a number of research and development programs with a view to
developing techniques and processes that will improve production efficiency and product quality. Our
intellectual property and proprietary rights arising out of these research and development programs will be
crucial in maintaining our competitive edge in the solar wafer industry. We currently do not have any patent or
patent application pending in China or elsewhere. We currently use contractual arrangements with employees
20