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

‚ We were able to secure more polysilicon. During this period, we were able to secure contracts for over
3,000 tons of polysilicon for the next few years. Of this amount, approximately 160 tons will be
delivered in 2007 and 300 tons in 2008.
‚ We were able to secure more firm commitment contracts from our customers. During this period, we
entered into sales contracts with our customers for over 270 MW of wafer sales, of which approximately
45 MW were for 2007 and approximately 110 MW were for 2008. We also entered into a
contract with Q-Cells, the second largest photovoltaic cell manufacturer according to Solarbuzz. This
long term contract is for three years, during which Q-Cells will supply silicon feedstock to us and
purchase wafers from us. Under this contract, we will sell approximately 180 MW of wafers to Q-Cells
between 2007 and 2009.
‚ We believe that our business prospects improved as well because of a substantial increase in our net
revenues for the three months ended March 31, 2007 as compared with the three months ended
December 31, 2006. We achieved revenues of $73.4 million for the three months ended March 31,
2007, representing an increase of approximately 19% from our revenues for the three months ended
December 31, 2006.
‚ When the valuation was conducted in February 2007, we were still in the early stage of the offering
process and there were significant uncertainties regarding the success of this offering. In April 2007, we
were much further along in the offering process and the probability of a successful offering increased
significantly.
Embedded beneficial conversion feature of the convertible instruments
In connection with our private placements with strategic and venture capital investors, we issued
exchangeable notes in July 2006 and Series A, Series B and Series C preferred shares in July, September and
December 2006, respectively. The exchangeable notes were exchangeable into our Series A preferred shares
and all our preferred shares are convertible into our ordinary shares at a 1:1 ratio, subject to adjustments on
the basis of our audited consolidated net earnings for the various periods as described in note (16) to our
audited consolidated financial statements included elsewhere in this prospectus. For additional information on
these conversion ratio adjustment provisions, see ""Description of Share Capital Ì History of Securities
Issuances Ì Series A preferred shares,'' ""Ì Series B preferred shares'' and ""Ì Series C preferred shares'' in
this prospectus. These preferred shares are also subject to anti-dilution adjustments as disclosed in note (16)
to our audited consolidated financial statements.
We recognize and measure the embedded beneficial conversion feature of each of our convertible
instruments by allocating a portion of the proceeds from our convertible instruments equal to the intrinsic
value of that feature to additional paid-in capital. The intrinsic value of the embedded beneficial conversion
feature is calculated at the commitment date as the difference between the conversion price and the fair value
of the securities into which the convertible instruments are convertible. For our exchangeable notes, the
intrinsic value is the difference between (i) the fair value of the underlying Series A preferred shares on the
commitment date of our exchangeable notes and (ii) the gross proceeds we received and allocated to our
exchangeable notes; and for our preferred shares, the intrinsic value is the difference between (i) the fair value
of the underlying ordinary shares on the respective commitment dates of our preferred shares and (ii) the
gross proceeds we received and allocated for such preferred shares. We recognize the intrinsic value of the
embedded beneficial conversion feature of our exchangeable notes so computed as interest expenses over the
period from the date of issuance to the date when our exchangeable notes were exchanged into our Series A
preferred shares. For our preferred shares, we recognize the intrinsic value of their embedded beneficial
conversion feature as deemed dividends to our preferred shareholders at the date of issuance as our preferred
shares were convertible at their respective issuance dates. Changes to the conversion terms that would be
triggered by future events not controlled by us is accounted for as contingent conversion options, and the
intrinsic value of such contingent conversion options will not be recognized until and unless the triggering
event occurs.
We obtained a valuation analysis from Sallmanns with respect to the fair value of the securities into
which our convertible instruments are convertible. Sallmanns used the income approach to assess the fair
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