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

subjective. The assumptions used in deriving the fair values were consistent with our business plan. These
assumptions included:
‚ no material changes in the existing political, legal, fiscal and economic conditions in China;
‚ no major changes in the tax rates applicable to our subsidiary in China;
‚ our ability to retain competent management, key personnel and technical staff to support our ongoing
operations; and
‚ no material deviation in industry trends and market conditions from economic forecasts.
These assumptions were inherently uncertain. The risks associated with achieving our forecasts were assessed
in selecting the appropriate discount rates under the income approach. If different discount rates had been
used, the valuations would have been different and the amount of share-based compensation would also have
been different because the fair value of the underlying ordinary shares for the options granted would have been
different.
We adopted an option-pricing model to allocate enterprise value to preferred and ordinary shares. The
option-pricing model involved making estimates of the anticipated timing of a potential liquidity event such as
a sale of our company or an initial public offering and estimates of the volatility of our equity securities. The
anticipated timing was based on the plans of our board of directors and management. Estimating the volatility
of our share price as a privately held company was complex because there was no readily available market for
the shares. We estimated the volatility of our shares to range from 51% to 64% with reference to the average
implied volatility of U.S.-listed companies in similar industries. Had we used different estimates of volatility,
the allocations between preferred and ordinary shares would have been different.
Our share-based compensation expenses will affect our reported net income, earnings per share and each
line item of our operating expenses, which include cost of goods sold, selling expenses, general and
administrative expenses and research and development expenses.
From our inception to May 31, 2007, we granted the following options to our employees and nonemployees.
Fair Value of
Ordinary Shares
Grant Date Number of Options Exercise Price at Grant Date
August 1, 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 5,893,900 $ 4.45 $ 4.37
February 6, 2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2,065,900 $ 9.00 $ 7.98
April 17, 2007 (1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100,000 $ 9.00 $ 25.00
May 14, 2007 (2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 350,900 $ 25.00 $ 25.00
May 31, 2007 (3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 100,000 $ 9.00 $ 27.00
(1) Represents the 100,000 options granted on April 17, 2007 to Gang Wang, one of our directors. We estimated the fair value of our
ordinary shares as of the grant date to be $25.00 per share, based on our preliminary discussions with the underwriters for this offering
regarding the possible price range for this offering.
(2) Represents the 350,900 options authorized on April 17, 2007 to be granted to our employees. The exercise price for such options is
$25.00, the low end of the price range for this offering as shown on the cover page of the preliminary prospectus. The grant date of
such options was May 14, 2007, the date such exercise price was determined. We estimated the fair value of the ordinary shares on
the grant date of such options to be $25.00 per share, the low end of the price range set forth on the cover page of the preliminary
prospectus.
(3) Represents the 100,000 options authorized on April 17, 2007 to be granted to Mr. Louis T. Hsieh, who becomes our director on the
date of this prospectus. The exercise price for such options is $9.00 per share and the grant date of such options is the date of this
prospectus. We determined the fair value of our ordinary shares on such grant date to be the initial public offering price per share,
which is $27.00.
In determining the fair value of the underlying ordinary shares at the date of grant, we have considered
the guidance prescribed by the AICPA Audit and Accounting Practice Aid ""Valuation of Privately-Held-
Company Equity Securities Issued as Compensation,'' or the Practice Aid. We engaged an independent
valuation firm, Sallmanns (Far East) Limited, or Sallmanns, to perform appraisals of the fair value for the
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