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

options and the ordinary shares underlying the options granted in August 2006 and February 2007 and the fair
value for the options granted after April 1, 2007.
August 1, 2006 Grant
In its assessment of the fair value of our ordinary shares underlying the options granted on August 1,
2006, Sallmanns considered the income approach and the market approach, and used the income approach to
derive the fair value of our ordinary shares.
Under the income approach, value depends on the present worth of future economic benefits to be
derived from the projected income. Indications of value were developed by discounting projected future net
cash flows available for shareholders to their present worth at discount rates which, in the opinion of
Sallmanns, were appropriate for the risks associated with our business. For the income approach, Sallmanns
utilized our projected cash flows through 2011. In considering the appropriate discount rates to be applied,
Sallmanns took into account a number of factors including the then current cost of capital and the risks
inherent in our business, such as our limited operating history, risks associated with the implementation of our
business plan and strategies and the risks and uncertainties inherent in the development of our business as of
the grant dates. Sallmanns used a weighted average cost of capital, or WACC, of 17% given our short
operating history and limited historical financial records.
For the August 1, 2006 grant, Sallmanns considered the income approach and the market approach, and
used the income approach to derive the fair value of our ordinary shares underlying the options granted. In
August 1, 2006, we were unable to identify companies that were directly comparable to us, given our operating
history of less than a year, the nature of our business as a pure wafer manufacturer and our rapid development.
Although there were public companies in solar-energy related industries, the valuation ratios of those
companies vary significantly. Some valuation ratios, such as price-to-earnings ratios, were not available for
some of those companies. As a result, Sallmanns concluded that the historical and projected financial
conditions of these companies were significantly different from one another and that there were no consensus
valuation ratios applicable for purposes of the valuation. As such, Sallmanns did not believe that the market
approach was applicable to us in August 2006.
The fair value of our company was allocated between our Series A preferred shares and our ordinary
shares using the option-pricing model. Under the option-pricing model, the allocation of the equity fair value
was based on the liquidation of Series A preferred shares, anticipated timing of a potential liquidity event, such
as this offering, and estimates of the volatility of the equity securities. The anticipated timing of this offering
was based on the plans of our board of directors and management. The estimate of volatility of the equity
securities was based on the implied volatility of the options of comparable companies that Sallmanns used in
the market approach.
December 19, 2006 Valuation
Sallmanns conducted a valuation of our ordinary shares as of December 19, 2006, the closing date for the
issuance of our Series C preferred shares and determined that the fair value of our ordinary shares was $5.04
per share. See ""Ì Embedded beneficial conversion feature of the convertible instruments.''
February 6, 2007 Grant
For the February 6, 2007 grant, Sallmanns considered the income approach and the market approach.
For the same reasons as described above under ""Ì August 1, 2006 Grant'', Sallmanns did not believe that the
market approach was applicable to us in February 2007 and derived the fair value of our ordinary shares using
the income approach.
Our estimated fair value per ordinary share increased by approximately 58.3% from $5.04 on December
19, 2006 to $7.98 on February 6, 2007. The following is a list of the significant factors and events that
contributed to the increase:
‚ We were able to secure more polysilicon feedstock. Given the constraints in polysilicon supply in the
market, we focused our efforts on securing more polysilicon during the period between December 19,
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