SOLARFUN POWER HOLDINGS CO., LTD.
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Solarfun Power
Holdings Co., Ltd.
(Exact name of
registrant as specified in its charter)
Not
Applicable
(Translation of
Registrants name into English)
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Cayman Islands
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Not Applicable
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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666 Linyang
Road,
Qidong, Jiangsu
Province 226200, Peoples Republic of China
(86
513) 8330-7688
(Address,
including zip code, and telephone number, including area code,
of registrants principal executive offices)
CT Corporation
System
111 Eighth
Avenue
New York, New
York 10011
(212) 664-1666
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies
to:
Alan
Seem, Esq.
Shearman &
Sterling LLP
12th Floor East
Tower, Twin Towers
B-12
Jianguomenwai Dajie
Beijing 100022,
Peoples Republic of China
(86-10)
5922-8000
Approximate date of commencement
of proposed sale to the
public: From
time to time after the effective date of this registration
statement, as determined by market conditions and other factors.
If the only securities being
registered on this Form are being offered pursuant to dividend
or interest reinvestment plans, please check the following
box. o
If any of the securities being
registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following
box. þ
If this Form is filed to register
additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the
same
offering. o
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a registration
statement pursuant to General Instruction I.C. or a
post-effective amendment thereto that shall become effective
upon filing with the SEC pursuant to Rule 462(e) under the
Securities Act, check the following
box. o
If this Form is a post-effective
amendment to a registration statement filed pursuant to General
Instruction I.C. filed to register additional securities or
additional classes of securities pursuant to Rule 413(b)
under the Securities Act, check the following
box. o
CALCULATION OF
REGISTRATION FEE
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Amount to be
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
Securities to be Registered
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Registered
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Offering Price per
Share
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Aggregate Offering
Price(2)
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Registration Fee
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3.50% Convertible Senior Notes due 2018
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US$172,500,000
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100%
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US$172,500,000
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US$6,779.25
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Ordinary shares, par value US$0.0001 per
share(1)
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(3)
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(3)
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(3)
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(4)
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Total
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US$172,500,000
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100%
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US$172,500,000
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US$6,799.25
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(1)
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American depositary
shares issuable upon deposit of the ordinary shares registered
hereby have been registered under a separate registration
statement on
Form F-6
(Registration
No. 333-139263).
Each American depositary share represents five ordinary shares.
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(2)
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Estimated solely
for the purpose of calculating the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933, as amended.
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(3)
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There are being
registered hereunder an indeterminate number of shares of
ordinary shares, US$0.0001 par value per share, issuable
upon conversion of the notes and in connection with resale by
the selling securityholders. The notes are convertible into cash
and, if applicable, ordinary shares as described herein.
Initially, approximately 9,019,611 ADSs would be issuable upon
conversion of the notes if the aggregate principal amount of the
notes were settled in ordinary shares at a conversion rate equal
to 52.2876 ADSs per US$1,000 principal amount of notes, which is
subject to adjustment under certain circumstances. Pursuant to
Rule 416 under the Securities Act of 1933, the ordinary
shares registered hereby also includes an indeterminate number
of additional shares resulting from stock splits, dividends or
similar transaction that may be issued to prevent dilution.
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(4)
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Pursuant to
Rule 457(i) under the Securities Act, there is no
additional filing fee with respect to the ordinary shares
underlying the ADSs issuable upon conversion of the notes
because no additional consideration will be received in
connection with the exercise of the conversion privilege.
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The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary
to delay its effective date until the Registrant shall file a
further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.
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PROSPECTUS
(Subject to completion) |
June 27, 2008 |
Solarfun Power Holdings Co.,
Ltd.
US$172,500,000 Aggregate
Principal Amount of
3.50% Convertible Senior
Notes due 2018
and
Ordinary Shares Represented by
the
American Depositary
Shares
Issuable Upon Conversion of the
Notes
We issued US$172,500,000 aggregate principal amount of
3.50% convertible senior notes due 2018 in a private placement
in January 2008. This prospectus will be used by selling
securityholders to resell their notes and the American
Depositary Shares, or ADSs, issuable upon conversion of the
notes, including our ordinary shares, par value $0.0001 per
share, represented by the ADSs. Each ADS represents five of our
ordinary shares. We will not receive any proceeds from the
selling securityholders sale of the notes or the ADSs
issuable upon conversion of the notes, including the ordinary
shares represented by the ADSs.
The notes mature on January 15, 2018. The notes bear
interest at the rate of 3.50% per annum, payable semi-annually
in arrears on January 15 and July 15 of each year, starting on
July 15, 2008, to holders of record at the close of
business on the preceding January 1 and July 1,
respectively. The notes will be convertible into our ADSs, based
on an initial conversion rate of 52.2876 ADSs per US$1,000
principal amount of notes (representing a conversion price of
approximately US$19.125 per ADS) subject to adjustment, at any
time before the close of business on the business day
immediately preceding the maturity date for the notes. If a
holder elects to convert its notes in connection with a
make-whole change of control, we will, in certain circumstances,
pay a make-whole premium by increasing the conversion rate for
notes converted in connection with such make-whole change of
control.
On or after January 20, 2015, we may redeem for cash
all or part of the notes, at a price equal to 100% of the
principal amount of the notes, plus accrued interest, if the
last reported sale price of our ADSs has been at least 130% of
the conversion price then in effect for at least 20 trading days
during any 30 consecutive trading day period ending within five
trading days prior to the date on which we provide notice of
redemption. If we experience a fundamental change, holders may
require us to repurchase for cash all or a portion of the notes,
at a price equal to 100% of the principal amount of the notes,
plus accrued interest.
On January 15, 2015, holders may require us to
purchase all or a portion of their notes at a price equal to
100% of the principal amount of the notes plus accrued
interest.
The notes are our senior unsecured debt and rank on a
parity with our existing and future senior unsecured debt and
prior to all subordinated debt. The notes are subordinated to
all liabilities of our subsidiaries.
Our ADSs are listed on the Nasdaq Global Market under the
symbol SOLF. On June 26, 2008, the closing sale
price of our ADSs on the Nasdaq Global Market was $19.22 per
ADS.
Investing in the notes involves risks. See Risk
Factors beginning on page 6.
The Securities and Exchange Commission and state securities
regulators have not approved or disapproved of these securities,
or determined of this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus is
June , 2008.
ABOUT
THIS PROSPECTUS
You should read this prospectus and any prospectus supplement
together with the additional information described under the
heading Where You Can Find More Information About Us
and Incorporation of Documents by Reference.
In this prospectus, unless otherwise indicated or unless the
context otherwise requires,
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ADRs are to the American depositary receipts that
evidence our ADSs;
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ADSs are to our American depositary shares, each of
which represents five ordinary shares;
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China or the PRC are to the
Peoples Republic of China, excluding, for the purpose of
this prospectus only, Taiwan and the special administrative
regions of Hong Kong and Macau;
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conversion efficiency are to the ability of
photovoltaic, or PV, products to convert sunlight into
electricity, and conversion efficiency rates are
commonly used in the PV industry to measure the percentage of
light energy from the sun that is actually converted into
electricity;
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cost per watt and price per watt are to
the method by which the cost and price of PV products,
respectively, are commonly measured in the PV industry. A PV
product is priced based on the number of watts of electricity it
can generate;
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GW are to gigawatt, representing 1,000,000,000
watts, a unit of power-generating capacity or consumption;
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MW are to megawatt, representing 1,000,000 watts, a
unit of power-generating capacity or consumption. In this
prospectus, it is assumed that, based on a yield rate of 95%,
420,000 125mm x 125mm or 280,000 156mm x 156mm silicon wafers
are required to produce PV products capable of generating
1 MW, that each 125mm x 125mm and 156mm x 156mm PV cell
generates 2.4 W and 3.7 W of power, respectively, and that each
PV module contains 72 PV cells;
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PV are to photovoltaic. The photovoltaic effect is a
process by which sunlight is converted into electricity;
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RMB and Renminbi are to the legal
currency of China;
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series A convertible preference shares are to
our series A convertible preference shares, par value
US$0.0001 per share;
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shares or ordinary shares are to our
ordinary shares, par value US$0.0001 per share; and
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US$ and U.S. dollars are to the
legal currency of the United States.
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References in this prospectus to our annual manufacturing
capacity assume 24 hours of operation per day for
350 days per year.
Unless the context indicates otherwise, we,
us, our company and our
refer to Solarfun, its predecessor entities and its consolidated
subsidiaries.
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or the SEC,
utilizing a shelf registration process. Under this
shelf registration process, the selling securityholders may
sell, from time to time, the 3.50% Convertible Senior Notes
due 2018 that we issued in January 2008, which we refer to as
the notes, as well as the ADSs issuable upon conversion of the
notes. This prospectus provides you with a general description
of the securities we may offer. Each time we sell securities
pursuant to the registration statement, we will provide a
prospectus supplement that will contain specific information
about the terms of that offering. The prospectus supplement may
also add, update or change information contained or incorporated
by reference in this prospectus.
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CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference
contain statements of a forward-looking nature. These statements
are made under the safe harbor provisions of the
U.S. Private Securities Litigation Reform Act of 1995.
In some cases, these forward-looking statements can be
identified by words or phrases such as aim,
anticipate, believe,
continue, estimate, expect,
intend, is/are likely to,
may, plan, potential,
will or other similar expressions. We have based
these forward-looking statements largely on our current
expectations and projections about future events and financial
trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs.
These forward-looking statements include, among other things,
statements relating to:
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our expectations regarding the worldwide demand for electricity
and the market for solar energy;
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our beliefs regarding the effects of environmental regulation,
lack of infrastructure reliability and long-term fossil fuel
supply constraints;
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our beliefs regarding the inability of traditional fossil
fuel-based generation technologies to meet the demand for
electricity;
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our beliefs regarding the importance of environmentally friendly
power generation;
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our expectations regarding governmental support for the
deployment of solar energy;
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our beliefs regarding the acceleration of adoption of solar
technologies;
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our expectations with respect to advancements in our
technologies;
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our beliefs regarding the competitiveness of our solar products;
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our expectations regarding the scaling of our manufacturing
capacity;
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our expectations with respect to increased revenue growth and
our ability to achieve profitability resulting from increases in
our production volumes;
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our expectations with respect to our ability to secure raw
materials, especially silicon wafers, in the future;
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our future business development, results of operations and
financial condition; and
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competition from other manufacturers of PV products and
conventional energy suppliers.
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We would like to caution you not to place undue reliance on
these statements and you should read these statements in
conjunction with the risk factors disclosed in the documents
incorporated by reference any accompanying prospectus supplement
for a more complete discussion of the risks of an investment in
our securities and other risks outlined in our other filings
with the SEC. The forward-looking statements included in this
prospectus or incorporated by reference into this prospectus are
made only as of the date of this prospectus or the date of the
incorporated document, and we do not undertake any obligation to
update the forward-looking statements except as required under
applicable law.
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OUR
COMPANY
We are an established manufacturer of ingots, PV cells and PV
modules in China. We manufacture and sell a variety of ingots,
PV cells and PV modules using advanced manufacturing process
technologies that have helped us to rapidly increase our
operational efficiency. All of our PV modules are currently
produced using PV cells manufactured at our own facilities. We
sell our products both directly to system integrators and
through third party distributors. In 2007, we sold our products
to over 30 customers, mostly in Germany and Spain, as well as
several other European countries. We also provided PV cell
processing services in 2006 and PV module processing services in
2007. We conduct our business in China through our operating
subsidiary, Linyang China. In addition, we have entered into the
silicon ingot production business through our acquisition of a
52% equity interest in Yangguang Solar Technology Co., Ltd., or
Yangguang Solar, an ingot plant that commenced operations in
October 2007. In June 2008, we agreed to acquire the remaining
48% equity interest in Yangguang Solar.
We currently operate four monocrystalline PV cell production
lines and four multicrystalline PV cell production lines, each
with up to 30 MW of annual manufacturing capacity. As part
of our vertical integration and supply sourcing strategy, we
recently acquired Yangguang Solar, which we believe could
produce 50 to 60 MW of ingots in 2008. In order to meet the
fast-growing market demands for solar products, we plan to
significantly expand our PV cell manufacturing capacity over the
next several years. We expect that the aggregate annual
manufacturing capacity of our PV cell production lines that are
completed or under construction will reach 360 MW by July
2008. In addition, we have achieved improvements in process
technology and product quality since we commenced our commercial
production in November 2005. Our monocrystalline PV cells
achieved conversion efficiency rates in the range of 16.1% to
16.6% in 2007 and we are now able to process wafers as thin as
200 microns. We have 40 monocrystalline ingot production
furnaces, with up to 37.5 MW of annual manufacturing
capacity.
Our net revenue increased from RMB166.2 million in 2005 to
RMB630.9 million in 2006 and to RMB2,395.1 million
(US$328.3 million) in 2007. Our net income increased from
RMB14.4 million in 2005 to RMB105.9 million in 2006
and to RMB148.0 million (US$20.3 million) in 2007.
We commenced operations through Linyang China in August 2004.
Linyang China was a 68%-owned subsidiary of Linyang Electronics,
at the time of its establishment on August 27, 2004.
Linyang Electronics is one of the leading electricity-measuring
instrument manufacturers in China. In anticipation of our
initial public offering, we incorporated Solarfun Power Holdings
Co., Ltd., or Solarfun, in the Cayman Islands on May 12,
2006 as our listing vehicle. To enable us to raise equity
capital from investors outside of China, we established a
holding company structure by incorporating Linyang Solar Power
Investment Holding Ltd., or Linyang BVI, in the British Virgin
Islands on May 17, 2006. Linyang BVI is wholly owned by
Solarfun. Linyang BVI purchased all of the equity interests in
Linyang China on June 2, 2006. In March 2006, April 2006
and April 2007, we established three majority-owned or wholly
owned subsidiaries in China, Shanghai Linyang Solar Technology
Co., Ltd., or Shanghai Linyang, Sichuan Leshan Jiayang New
Energy Co., Ltd., or Sichuan Jiayang, and Jiangsu Linyang
Solarfun Engineering Research and Development Center Co., Ltd.,
formerly Nantong Linyang Solarfun Engineering Research and
Development Center Co., Ltd., or Linyang Research Center,
respectively, to expand our business into new markets and
sectors. In August 2007, we acquired a 52% interest in Yangguang
Solar. In September 2007, we established a wholly owned
subsidiary, Solarfun Power U.S.A. Inc., or Solarfun U.S.A., as
part of our plan to enter the United States market. On
November 30, 2007, Linyang BVI transferred all of the
equity interests in Linyang China to Solarfun Power Hong Kong
Limited, for a consideration of US$199.0 million. In
February 2008, we established a wholly owned subsidiary,
Solarfun Power Deutschland GmbH., or Solarfun Deutschland, to
sell solar products in the European markets. We are currently in
the process of liquidating Sichuan Jiayang, one of our
subsidiaries which historically has had limited operations. In
June 2008, we agreed to acquire the remaining 48% equity
interest in Yangguang Solar.
We made capital expenditures of RMB37.5 million,
RMB190.0 million and RMB538.5 million
US$78.5 million in 2005, 2006 and 2007, respectively. In
the past, our capital expenditures were used primarily in the
purchase of a manufacturing facility and additional
manufacturing equipment for the production of PV cells and
modules. We plan to fund the balance of our 2008 capital
expenditures substantially with proceeds from our convertible
note offering in January 2008, additional borrowings from
third parties and cash from operations.
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Our principal executive offices are located at 666 Linyang Road,
Qidong, Jiangsu Province, 226200, Peoples Republic of
China. Our telephone number at this address is
(86-513)
8330-7688
and our fax number is
(86-513) 8311-0367.
Our registered office in the Cayman Islands is at the offices of
Maples Corporate Services Limited, PO Box 309, Ugland
House, Grand Cayman, KY1-1104, Cayman Islands.
Investor inquiries should be directed to us at the address and
telephone number of our principal executive offices set forth
above. Our website is www.solarfun.com.cn. The
information contained on our website does not constitute a part
of this prospectus. Our agent for service of process in the
United States is CT Corporation System, located at 111 Eighth
Avenue, New York, New York 10011.
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THE
OFFERING OF THE NOTES
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Issuer |
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Solarfun Power Holdings Co., Ltd. |
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Notes |
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US$172.5 million aggregate principal amount of 3.50%
convertible senior notes due 2018 (the notes). |
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Maturity |
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The notes will mature on January 15, 2018, unless earlier
redeemed, repurchased or purchased by us or converted. |
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Interest payment date |
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The notes bear interest at a rate of 3.50% per year. Interest
accrues from and including the issuance date or the last date in
respect of which interest has been paid or provided for, as the
case may be, to, but excluding, the next interest payment date
or the relevant maturity or redemption date, as the case may be.
Interest is payable semi-annually in arrears on January 15 and
on July 15 of each year, beginning on July 15, 2008, to the
holders of record at the close of business on the preceding
January 1 and July 1, respectively. |
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Ranking |
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The notes are our unsecured unsubordinated obligations and rank
equally with all of our existing and future senior unsecured
indebtedness. The notes are effectively subordinated to all of
our existing and future secured indebtedness and all existing
and future liabilities of our subsidiaries. As of
December 31, 2007, our subsidiaries had approximately
US$134.3 million, of short-term bank borrowings and
long-term bank borrowings, to which the notes would be
structurally subordinated. All of our operations are conducted
through our subsidiaries. |
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Additional amounts |
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All payments made by us or any successor to us under or with
respect to the notes including payments of cash or delivery of
ADSs upon conversion, are made without withholding or
deductions, unless such withholding or deduction is required by
law or by regulation or governmental policy having the force of
law. In the event that any such withholding or deduction is so
required, we will pay such additional amounts as may be
necessary to ensure that the net amount received by the holder
after such withholding or deduction (and after deducting any
taxes on the additional amounts) shall equal the amounts which
would been received by such holder had no such withholding or
deduction had been required, subject to certain exceptions set
forth under Description of the Notes
Additional Amounts. |
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Optional redemption |
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We may not redeem the notes prior to January 20, 2015. At
any time on or after January 20, 2015, we may redeem for
cash all or part of the notes in integral multiples of US$1,000
at a price equal to 100% of the principal amount of the notes
being redeemed plus accrued and unpaid interest to, but
excluding, the redemption date, if the last reported sale price
of our ADSs for at least 20 trading days in a period of
30 consecutive trading days, the last of which occurs no
more than five trading days prior to the date upon which notice
of such redemption is published, is at least 130% of the
applicable conversion price per ADS in effect on such trading
date. See Description of the Notes Optional
Redemption by Us. |
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Conversion rights |
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Holders may convert their notes at any time prior to the close
of business on the business day immediately preceding the stated
maturity date. |
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The initial conversion rate is 52.2876 ADSs per US$1,000
principal amount of notes (equivalent to an initial conversion
price of approximately US$19.125 per ADS), subject to adjustment. |
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We will satisfy our conversion obligation in ADSs (except for
any cash in lieu of fractional ADSs). Such settlement will occur
as soon as practicable, but in any event within three business
days of the relevant conversion notice. Upon conversion, we will
deliver to the holder a number of ADSs equal to (i) (A) the
aggregate principal amount of notes to be converted, divided
by (B) 1,000, multiplied by (ii) the
applicable conversion rate (provided that we will deliver
cash in lieu of fractional ADSs). |
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In addition, if a make-whole change of control
occurs, we will, under certain circumstances, increase the
conversion rate for a holder who elects to convert notes in
connection with such a make-whole change of control as described
under Description of the Notes Conversion
Rights Adjustment to Conversion Rate upon Occurrence
of a Make-Whole Change of Control. |
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You will not receive any additional ADSs representing accrued
and unpaid interest, upon conversion of a note, except under the
limited circumstances described herein. Instead, interest will
be deemed paid by the ADSs issued to you upon conversion. |
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If we undergo a fundamental change, you will have the right, at
your option, to require us to purchase for cash all or a portion
of your notes. The fundamental change purchase price will be
100% of the principal amount of the notes to be purchased plus
any accrued and unpaid interest to, but excluding, the
fundamental change purchase date. |
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Sinking fund |
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None. |
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Purchase of notes at your option on specified dates |
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On January 15, 2015, you may require us to purchase all or
a portion of your notes at a purchase price in cash equal to
100% of the principal amount of the notes being purchased plus
accrued and unpaid interest to, but excluding, the purchase
date, subject to certain additional conditions. |
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Events of default |
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If an event of default occurs and is continuing, the trustee by
notice to us, or the holders of at least 25% in principal amount
of the outstanding notes by notice to us and the trustee, may,
and the trustee at the request of such holders shall, declare
100% of the principal of and accrued and unpaid interest,
including additional amounts, if any, on all the notes to be due
and payable, subject to certain provisions of the indenture.
Upon such a declaration, such principal and accrued and unpaid
interest, including any additional amounts, will be due and
payable immediately. However, upon an event of default arising
out of the bankruptcy provisions relating to us, the aggregate
principal amount and accrued and unpaid interest, including
additional amounts, will be due and payable immediately. See
Description of the Notes Events of
Default. |
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Our ADSs |
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Each ADS represents five ordinary shares, par value US$0.0001
per ordinary share. All non-Direct Registration System ADSs will
be evidenced by American depositary receipts, or ADRs. The
depositary |
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will be the holder of the ordinary shares under the ADSs and you
will have the rights of an ADR holder as provided in the deposit
agreement among us, the depositary and owners and beneficial
owners of ADSs from time to time. The holders of ADRs have fewer
rights than our ordinary shareholders and must act through the
depositary to exercise those rights. See Risk
Factors Risks Related to the Notes, Our Ordinary
Shares and our ADSs for a description of certain risks
relating to our ADSs. |
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If you receive any ADSs upon conversion of the notes, you may
surrender your ADSs to the depositary to withdraw the ordinary
shares represented by your ADSs. The depositary will charge you
a fee for such an exchange. See Description of American
Depositary Shares. |
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Use of proceeds |
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We will not receive any proceeds from the selling
securityholders sale of the notes or the ADSs issuable
upon conversion of the notes, including our ordinary shares
represented by such ADSs. |
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DTC eligibility |
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The notes were issued in book-entry-only form and will be
represented by one or more global certificates, without interest
coupons, deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. Beneficial interests in the notes
will be shown on, and transfers will be effected only through,
records maintained by DTC and its direct and indirect
participants. Except in limited circumstances, holders may not
exchange interests in their notes for certificated securities.
See Description of the Notes Global Note,
Book-Entry Form. |
For a more complete description of the terms of the notes, see
Description of the Notes. For a more complete
description of our ordinary shares and ADSs, see
Description of Share Capital and Description
of American Depositary Shares, respectively.
5
RISK
FACTORS
You should consider carefully the following factors, as well as
the other information set forth in this prospectus, before
making an investment decision. You should also consider
carefully the risks set forth under the heading Risk
Factors in any prospectus supplement before investing in
the securities offered thereby. Some of the following risks
relate principally to the industry in which we operate and our
business in general. Other risks relate principally to the
securities market and ownership of our stock. Any of the risk
factors could significantly and negatively affect our business,
financial condition or operating results and the trading price
of our stock. You could lose all or part of your investment.
Risks
Related to Our Company and Our Industry
Evaluating
our business and prospects may be difficult because of our
limited operating history, and our past results may not be
indicative of our future performance.
There is limited historical information available about our
company upon which you can base your evaluation of our business
and prospects. We began operations in August 2004 and shipped
our first PV modules and our first PV cells in February 2005 and
November 2005, respectively. Our business has grown and evolved
at a rapid rate since we started our operations. As a result,
our historical operating results may not provide a meaningful
basis for evaluating our business, financial performance and
prospects and we may not be able to achieve a similar growth
rate in future periods. In particular, our future success will
require us to continue to increase the manufacturing capacity of
our facilities significantly beyond their current capacities.
Moreover, our business model, technology and ability to achieve
satisfactory manufacturing yields at higher volumes are
unproven. Therefore, you should consider our business and
prospects in light of the risks, expenses and challenges that we
will face as a company with a relatively short operating history
in a competitive industry seeking to develop and manufacture new
products in a rapidly growing market, and you should not rely on
our past results or our historic rate of growth as an indication
of our future performance.
Our
future success substantially depends on our ability to further
expand both our manufacturing capacity and output, which is
subject to significant risks and uncertainties. If we fail to
achieve this further expansion, we may be unable to grow our
business and revenue, reduce our costs per watt, maintain our
competitive position or improve our profitability.
Our future success depends on our ability to significantly
increase both our manufacturing capacity and output. We plan to
expand our business to address growth in demand for our
products, as well as to capture new market opportunities. Our
ability to establish additional manufacturing capacity and
increase output is subject to significant risks and
uncertainties, including:
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the need for additional funding to purchase and prepay for raw
materials or to build manufacturing facilities, which we may be
unable to obtain on reasonable terms or at all;
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delays and cost overruns as a result of a number of factors,
many of which may be beyond our control, such as increases in
raw materials prices and problems with equipment vendors;
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the inability to obtain or delays in obtaining required
approvals by relevant government authorities;
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diversion of significant management attention and other
resources; and
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failure to execute our expansion plan effectively.
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In order to manage the potential growth of our operations, we
will be required to continue to improve our operational and
financial systems, procedures and controls, increase
manufacturing capacity and output, and expand, train and manage
our growing employee base. Furthermore, our management will be
required to maintain and expand our relationships with our
customers, suppliers and other third parties. We cannot assure
you that our current and planned operations, personnel, systems
and internal procedures and controls will be adequate to support
our future growth.
6
If we encounter any of the risks described above, or are
otherwise unable to establish or successfully operate additional
manufacturing capacity or to increase manufacturing output, we
may be unable to grow our business and revenue, reduce our costs
per watt, maintain our competitiveness or improve our
profitability, and our business, financial condition, results of
operations and prospects will be adversely affected.
We
recently acquired an early stage ingot plant. We may not be
successful in operating this new plant and expenditures required
to ramp up its capacity may strain our capital resources.
Furthermore, any shortfall in supply of polysilicon to that
plant may have a material adverse effect on our results of
operations and our future business prospects.
We have entered into the silicon ingot production business
through our acquisition of a 52% equity interest in Yangguang
Solar Technology Co., Ltd., or Yangguang Solar, an ingot plant
that commenced operations in October 2007. On June 23,
2008, we entered into an agreement to acquire the remaining 48%
equity interest in Yangguang Solar from Nantong Linyang Electric
Investment Co., Ltd., or Nantong Linyang (as to 18%), Jiangsu
Qitian Group Co., Ltd. or, Qitian Group (as to 20%), and Jiangsu
Guangyi Technology Co., Ltd., or Jiangsu Guangyi (as to 10%) for
an aggregate consideration of approximately RMB355 million
(US$48.7 million). Upon the completion of this latest
acquisition, Yangguang Solar will become our 100% owned
subsidiary. Our expansion into the ingot business aims to secure
our access to steady supplies of ingots at reasonable prices,
and we intend to integrate such upstream business into our
increasingly vertical business model. However, we have no prior
experience in operating an ingot plant. The technology for the
manufacture of ingots is complex, requires costly equipment and
continuous modifications in order to improve yields and product
performance. Increases in lead times for delivering ingot-making
equipment could also delay or otherwise hamper the development
of our ingot business. We will also need to make substantial
capital expenditure in installing Yangguang Solars
production lines and ramping up its capacity in 2008, which may
put a strain on our capital resources.
Moreover, Yangguang Solar relies on Jiangsu Zhongneng PV
Technology Development Co., Ltd., or Zhongneng, which is also an
early stage company that has in the past experienced delays in
ramping up its operations, to supply a significant portion of
its polysilicon requirements. Zhongneng agreed in a share
purchase agreement dated June 6, 2007 relating to a
previous sale of the equity interests of Yangguang Solar between
Zhongneng, as seller, and Nantong Linyang Electric Investment
Co., Ltd., formly Nanjing Linyang Electric Investment Co., Ltd.,
or Nantong Linyang, Jiangsu Qitian Group Co., Ltd., or Qitian
Group and Jiangsu Guangyi Technology Co., Ltd., or Jiangsu
Guangyi, as purchasers, to deliver polysilicon to Yangguang
Solar in the amount of 50 tons in 2007, 700 tons in 2008 and
1,200 tons in 2009. However, the actual delivered quantity was
27 tons in 2007, and based upon this decreased delivery volume
in 2007, it is expected that the amounts to be delivered in 2008
and 2009 may be significantly less. Yangguang Solar is
currently receiving polysilicon from Zhongneng based on purchase
orders negotiated on a month-to-month basis. In light of this
unfavorable situation, Nanjing Linyang, which is controlled by
our chairman, Mr. Yonghua Lu, and continues to own an 18%
interest in Yangguang Solar, intends to negotiate for the
originally committed polysilicon supply amount pursuant to the
agreement.
Yangguang Solar will attempt to offset any shortfalls from
Zhongneng through purchases from other third-party suppliers,
including higher-cost spot market purchases. However, we believe
there currently is significant excess demand in the global
market for polysilicon and polysilicon suppliers may be unable
to meet anticipated requirements based on their current
production capacity. The ability of Zhongneng to meet the
polysilicon requirements of Yangguang Solar could be materially
and adversely impacted by many factors, including operational
and financial difficulties at Zhongneng. In particular, any
merger, acquisition or consolidation transaction involving
Zhongneng and any of our competitors could have an adverse
impact on our relationship with Zhongneng and our ability to
secure adequate supplies of polysilicon for our operations.
Moreover, if Zhongneng does not for whatever reason supply
polysilicon to Yangguang Solar in sufficient quantities at
commercially reasonable prices, Yangguang Solar may be unable to
source polysilicon from other third parties and therefore may
fail to meet its production targets for 2008 and 2009, which
would consequently have a material and adverse effect on our
results of operations for those periods and our future business
prospects.
7
We
depend on a limited number of customers for a high percentage of
our revenue and the loss of, or a significant reduction in
orders from, any of these customers, if not immediately
replaced, would significantly reduce our revenue and decrease
our profitability.
We currently sell a substantial portion of our PV products to a
limited number of customers. Our five largest customers
accounted for an aggregate of 78.8%, 85.4% and 43.0% of our net
revenue in 2005, 2006 and 2007, respectively. Most of our large
customers are located in Europe, particularly Germany, Italy and
Spain. The loss of
7.1
sales to any one of these customers would have a significant
negative impact on our business. Sales to our customers are
mostly made through non-exclusive arrangements. Due to our
dependence on a limited number of customers, any one of the
following events may cause material fluctuations or declines in
our revenue and have a material adverse effect on our financial
condition and results of operations:
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reduction, delay or cancellation of orders from one or more of
our significant customers;
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selection by one or more of our significant distributor
customers of our competitors products;
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loss of one or more of our significant customers and our failure
to identify additional or replacement customers;
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any adverse change in the bilateral or multilateral trade
relationships between China and European countries, particularly
Germany; and
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failure of any of our significant customers to make timely
payment for our products.
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We expect our operating results to continue to depend on sales
to a relatively small number of customers for a high percentage
of our revenue for the foreseeable future, as well as the
ability of these customers to sell PV products that incorporate
our PV products.
With certain significant customers, we enter into framework
agreements that set forth our customers purchase goals and
the general conditions under which our sales are to be made.
However, such framework agreements are only binding to the
extent a purchase order for a specific amount of our products is
issued. In addition, certain sales terms of the framework
agreements may be adjusted from time to time. For example, we
entered into a framework agreement with Social Capital S.L.
under which it agreed to purchase 84 MW of PV modules in
total from 2007 to 2008. However, since we could not reach an
agreement with Social Capital S.L. on actual sales terms, Social
Capital S.L. has not made any purchase order of our PV modules
and it is unlikely that it will purchase our PV modules in the
foreseeable future. In addition, we have in the past had
disagreements with our customers relating to the volumes,
delivery schedules and pricing terms contained in such framework
contracts that have required us to renegotiate these contracts.
However, renegotiation of our framework contracts may not always
be in our best interests and disagreements on terms could
escalate into formal disputes that could cause us to experience
order cancellations or harm our reputation.
Furthermore, our customer relationships have been developed over
a short period of time and are generally in preliminary stages.
We cannot be certain that these customers will generate
significant revenue for us in the future or if these customer
relationships will continue to develop. If our relationships
with customers do not continue to develop, we may not be able to
expand our customer base or maintain or increase our customers
and revenue. Moreover, our business, financial condition,
results of operations and prospects are affected by competition
in the market for the end products manufactured by our
customers, and any decline in their business could materially
harm our revenue and profitability.
We are
currently experiencing an industry-wide shortage of silicon
wafers. The prices that we pay for silicon wafers have increased
in the past and we expect prices may continue to increase in the
future, which may materially and adversely affect our revenue
growth and decrease our gross profit margins and
profitability.
Silicon wafers are an essential raw material in our production
of PV products. Silicon is created by refining quartz or sand,
and is melted and grown into crystalline ingots or other forms
which are then sliced into wafers. We depend on our suppliers
for timely delivery of silicon wafers in sufficient quantities
and satisfactory quality, and any disruption in supply or
inability to obtain silicon wafers at an acceptable cost, or at
all, will materially and adversely affect our business and
operations.
There is currently an industry-wide shortage of silicon and
silicon wafers, which has resulted in significant price
increases. Based on our experience, the average prices of
silicon and silicon wafers may continue to increase. Moreover,
we expect the shortages of silicon and silicon wafers to
continue as the PV industry continues to grow and as additional
manufacturing capacity is added. Silicon wafers are also used in
the semiconductor industry generally and any increase in demand
from that sector will exacerbate the current shortage. The
production of silicon and silicon wafers is capital intensive
and adding manufacturing capacity requires significant lead
time. While we are
8
aware that several new facilities for the manufacture of silicon
and silicon wafers are under construction around the world, we
do not believe that the supply shortage will be remedied in the
near term. We expect that the demand for silicon and silicon
wafers will continue to outstrip supply for the foreseeable
future.
We have attempted to ease our supply shortages by prepaying for
silicon and silicon wafers and establishing strategic
relationships with selected suppliers. However, we cannot assure
you that we will be able to obtain supplies from them or any
other suppliers in sufficient quantities or at acceptable
prices. In particular, since some of our suppliers do not
themselves manufacture silicon but instead purchase their
requirements from other vendors, it is possible that these
suppliers will not be able to obtain sufficient silicon to
satisfy their contractual obligations to us. In addition, we,
like other companies in the PV industry, compete with companies
in the semiconductor industry for silicon wafers, and companies
in that sector typically have greater purchasing power and
market influence than companies in the PV industry. We acquire
silicon wafers from our suppliers primarily through short-term
supply arrangements for periods ranging from several months to
two years. This subjects us to the risk that our suppliers may
cease supplying silicon wafers to us for any reason, including
due to uncertainties in their financial viability and having
committed more volume to customers than they can deliver. These
suppliers could also choose not to honor such contracts and we
generally have limited resources to seek any form of
compensation. Historically, we have re-negotiated our contracts
with some of our major suppliers due to price increases in
silicon and silicon wafers. We cannot assure you that this would
not happen again in the future. If either of these circumstances
occurs, our supply of critical raw materials at reasonable costs
and our basic ability to conduct our business could be severely
restricted. Moreover, since some of our supply contracts may
require prepayment of a substantial portion of the contract
price, we may not be able to recover such prepayments and we
would suffer losses should such suppliers fail to fulfill their
delivery obligations under the contracts. Furthermore, we have
not fixed the price for a significant portion of the silicon
wafers supply for 2008 with some of our suppliers. As a result,
the price we will need to pay may need to be adjusted or
renegotiated to reflect the prevailing market price around the
time of delivery, which may be higher than we expect. Increases
in the prices of silicon and silicon wafers have in the past
increased our production costs and may materially and adversely
impact our cost of revenue, gross margins and profitability.
There are a limited number of silicon and silicon wafer
suppliers, and many of our competitors also purchase silicon and
silicon wafers from these suppliers. In addition, there has been
an ongoing trend in the industry towards vertical integration
whereby PV cell and PV module manufacturers expand into silicon
and silicon wafer manufacturing and silicon and silicon wafer
manufacturers expand into PV cell and PV module manufacturing.
To the extent that such vertical integration involves mergers or
acquisitions of existing silicon or silicon wafer manufacturers,
this trend may result in a reduction of the silicon and silicon
wafer supply that is freely available in the market to companies
such as our company, which may cause additional shortages or
increase pricing. Additionally, PV cell and PV module
manufacturers that have integrated silicon or silicon wafer
manufacturing may have a competitive advantage over us by virtue
of having access to their internal silicon or silicon wafer
supply at lower cost at a time of market shortages for those
materials. Since we have only been purchasing silicon and
silicon wafers in bulk for approximately three years, our
competitors may have longer and stronger relationships with
these suppliers than we do. As we intend to significantly
increase our manufacturing output, an inadequate allocation of
silicon wafers would have a material adverse effect on our
expansion plans. Moreover, the inability to obtain silicon and
silicon wafers at commercially reasonable prices or at all would
harm our ability to meet existing and future customer demand for
our products, and could cause us to make fewer shipments, lose
customers and market share and generate lower than anticipated
revenue, thereby materially and adversely affecting our
business, financial condition, results of operations and
prospects.
Our
dependence on a limited number of suppliers for a substantial
majority of silicon and silicon wafers could prevent us from
delivering our products in a timely manner to our customers in
the required quantities, which could result in order
cancellations, decreased revenue and loss of market
share.
In 2005, 2006 and 2007, our five largest suppliers supplied in
the aggregate 71.3%, 50.9% and 59.0%, respectively, of our total
silicon and silicon wafer purchases. If we fail to develop or
maintain our relationships with these or our other suppliers, we
may be unable to manufacture our products, our products may only
be available at a higher cost or after a long delay, or we could
be prevented from delivering our products to our customers in
the required quantities, at competitive prices and on acceptable
terms of delivery. Problems of this kind could cause us
9
to experience order cancellations, decreased revenue and loss of
market share. In general, the failure of a supplier to supply
materials and components that meet our quality, quantity and
cost requirements in a timely manner due to lack of supplies or
other reasons could impair our ability to manufacture our
products or could increase our costs, particularly if we are
unable to obtain these materials and components from alternative
sources in a timely manner or on commercially reasonable terms.
Allegations have been made and may be made in the future
regarding the quality of our suppliers inventories. In
addition, some of our suppliers have a limited operating history
and limited financial resources, and the contracts we entered
into with these suppliers do not clearly provide for adequate
remedies to us in the event any of these suppliers is not able
to, or otherwise does not, deliver, in a timely manner or at
all, any materials it is contractually obligated to deliver. In
particular, due to a shortage of raw materials for the
production of silicon wafers, increased market demand for
silicon wafers, a failure by some silicon suppliers to achieve
expected production volumes and other factors, some of our major
silicon wafer suppliers failed to fully perform in the past on
their silicon wafer supply commitments to us, and we
consequently did not receive all of the contractually agreed
quantities of silicon wafers from these suppliers. We cannot
assure you that we will not experience similar or additional
shortfalls of silicon or silicon wafers from our suppliers in
the future or that, in the event of such shortfalls, we will be
able to find other silicon suppliers to satisfy our production
needs. Any disruption in the supply of silicon wafers to us may
adversely affect our business, financial condition and results
of operations.
Our
ability to adjust our materials costs may be limited as a result
of entering into prepaid, fixed-price arrangements with our
suppliers, and it therefore may be difficult for us to respond
appropriately in a timely manner to market conditions, which
could materially and adversely affect our revenue
and profitability.
We have in the past secured, and plan to continue to secure, our
supply of silicon and silicon wafers through prepaid supply
arrangements with overseas and domestic suppliers. In the past,
we entered into supply contracts with some of our suppliers,
under which these suppliers agreed to provide us with specified
quantities of silicon wafers and we have made prepayments to
these suppliers in accordance with the supply contracts. As of
December 31, 2005, 2006 and 2007, we had advanced
RMB61.3 million, RMB238.2 million and
RMB640.1 million (US$87.8 million) to our suppliers,
respectively. The prices of the supply contracts we entered into
with some of our suppliers are fixed. If the prices of silicon
or silicon wafers were to decrease in the future and we are
locked into prepaid, fixed-price arrangements, we may not be
able to adjust our materials costs, and our cost of revenue
would be materially and adversely affected. In addition, if
demand for our PV products decreases, we may incur costs
associated with carrying excess materials, which may have a
material adverse effect on our operating expenses. To the extent
we are not able to pass these increased costs and expenses to
our customers, our revenue and profitability may be materially
reduced.
We
require a significant amount of cash to fund our operations as
well as meet future capital requirements. If we cannot obtain
additional capital when we need it, our growth prospects and
future profitability may be materially and adversely
affected.
We typically require a significant amount of cash to fund our
operations, especially prepayments to suppliers to secure our
silicon wafer requirements. We also require cash generally to
meet future capital requirements, which are difficult to plan in
the rapidly changing PV industry. In particular, we will need
capital to fund the expansion of our facilities as well as
research and development activities in order to remain
competitive. Furthermore, we acquired a 52% equity interest in
Yangguang Solar, a newly established silicon ingot plant, in
August 2007 and subsequently entered into a share transfer
agreement to acquire the remaining 48% stake in June 2008. We
will need to make substantial capital expenditures in equipment
purchases of Yangguang Solar to ramp up its production capacity
in 2008. Any future acquisitions, expansions, or market changes
or other developments will cause us to require additional funds.
Our ability to obtain external financing in the future is
subject to a variety of uncertainties, including:
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our future financial condition, results of operations and cash
flows;
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general market conditions for financing activities by
manufacturers of PV and related products; and
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economic, political and other conditions in the PRC and
elsewhere.
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We cannot assure you that financing will be available on
satisfactory terms, or at all. In particular, as of
December 31, 2007, RMB940.0 million
(US$128.9 million) of our outstanding borrowings were
guaranteed by Jiangsu Linyang Electronics Co., Ltd., or Linyang
Electronics, a company controlled by Mr. Yonghua Lu, our
chairman. We do not have control over Linyang Electronics and
Mr. Lu has recently reduced his holding of our shares by a
significant amount. See Two of our existing
shareholders have substantial influence over our company and
their interests may not be aligned with the interests of our
other shareholders. Mr. Lu also resigned as our chief
executive officer as of February 25, 2008. If for any
reason Linyang Electronics ceases to guarantee our existing
borrowings, it may be difficult for us to obtain necessary
financing in a timely manner or on commercially acceptable terms
and our growth prospects and future profitability may decrease
materially.
We
face risks associated with the marketing, distribution and sale
of our PV products internationally, and if we are unable to
effectively manage these risks, they could impair our ability to
expand our business abroad.
In 2005, 2006 and 2007, a substantial majority of our revenue
was generated by sales to customers outside of China. The
marketing, distribution and sale of our PV products overseas
expose us to a number of risks, including:
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fluctuations in currency exchange rates of the U.S. dollar,
Euro and other foreign currencies against the Renminbi;
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difficulty in engaging and retaining distributors and agents who
are knowledgeable about, and can function effectively in,
overseas markets;
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increased costs associated with maintaining marketing and sales
activities in various countries;
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difficulty and costs relating to compliance with different
commercial and legal requirements in the jurisdictions in which
we offer our products;
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inability to obtain, maintain or enforce intellectual property
rights; and
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trade barriers, such as export requirements, tariffs, taxes and
other restrictions and expenses, which could increase the prices
of our products and make us less competitive in some countries.
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If we are unable to effectively manage these risks, our ability
to conduct or expand our business abroad would be impaired,
which may in turn have a material adverse effect on our
business, financial condition, results of operations and
prospects.
If we
are unable to compete in the highly competitive PV market, our
revenue and profits may decrease.
The PV market is very competitive. We face competition from a
number of sources, including domestic, foreign and multinational
corporations. We believe that the principal competitive factors
in the markets for our products are:
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manufacturing capacity;
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power efficiency;
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range and quality of products;
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price;
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strength of supply chain and distribution network;
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after-sales inquiry; and
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brand image.
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Many of our current and potential competitors have longer
operating histories, greater name recognition, access to larger
customer bases and resources and significantly greater economies
of scale, and financial, sales and marketing, manufacturing,
distribution, technical and other resources than we do. In
particular, many of our competitors are developing and
manufacturing solar energy products based on new technologies
that may
11
ultimately have costs similar to, or lower than, our projected
costs. In addition, our competitors may have stronger
relationships or have or may enter into exclusive relationships
with key suppliers, distributors or system integrators to whom
we sell our products. As a result, they may be able to respond
more quickly to changing customer demands or devote greater
resources to the development, promotion and sales of their
products than we can. Furthermore, competitors with more
diversified product offerings may be better positioned to
withstand a decline in the demand for PV products. Some of our
competitors have also become vertically integrated, with
businesses ranging from upstream silicon wafer manufacturing to
solar power system integration, and we may also face competition
from semiconductor manufacturers, several of which have already
announced their intention to commence production of PV cells and
PV modules. It is possible that new competitors or alliances
among existing competitors could emerge and rapidly acquire
significant market share, which would harm our business. If we
fail to compete successfully, our business would suffer and we
may lose or be unable to gain market share and our financial
condition and results of operations would be materially and
adversely affected.
In the immediate future, we believe that the competitive arena
will increasingly center around securing silicon supply and
forming strategic relationships to secure supply of key
components and technologies. Many of our competitors have
greater access to silicon supply or have upstream silicon wafer
manufacturing capabilities. We believe that as the supply of
silicon stabilizes over time, competition will become
increasingly based upon marketing and sales activities. Since we
have conducted limited advertising in the past, the greater
sales and marketing resources, experience and name recognition
of some of our competitors may make it difficult for us to
compete if and when this transition occurs.
In addition, the PV market in general competes with other
sources of renewable energy as well as conventional power
generation. If prices for conventional and other renewable
energy resources decline, or if these resources enjoy greater
policy support than solar power, the PV market and our business
and prospects could suffer.
Our
profitability depends on our ability to respond to rapid market
changes in the PV industry, including by developing new
technologies and offering additional products and
services.
The PV industry is characterized by rapid increases in the
diversity and complexity of technologies, products and services.
In particular, the ongoing evolution of technological standards
requires products with improved features, such as more efficient
and higher power output and improved aesthetics. As a result, we
expect that we will need to constantly offer more sophisticated
products and services in order to respond to competitive
industry conditions and customer demands. If we fail to develop,
or obtain access to, advances in technologies, or if we are not
able to offer more sophisticated products and services, we may
become less competitive and less profitable. In addition,
advances in technologies typically lead to declining average
selling prices for products using older technologies. As a
result, if we are not able to reduce the costs associated with
our products, the profitability of any given product, and our
overall profitability, may decrease over time. Furthermore,
technologies developed by our competitors may provide more
advantages than ours for the commercialization of PV products,
and to the extent we are not able to refine our technologies and
develop new PV products, our existing products may become
uncompetitive and obsolete.
In addition, we will need to invest significant financial
resources in research and development to maintain our
competitiveness and keep pace with technological advances in the
PV industry. However, commercial acceptance by customers of new
products we offer may not occur at the rate or level expected,
and we may not be able to successfully adapt existing products
to effectively and economically meet customer demands, thus
impairing the return from our investments. We may also be
required under the applicable accounting standards to recognize
a charge for the impairment of assets to the extent our existing
products become uncompetitive or obsolete, or if any new
products fail to achieve commercial acceptance. Any such charge
may have a material adverse effect on our financial condition
and results of operations.
Moreover, in response to the rapidly evolving conditions in the
PV industry, we plan to expand our business downstream to
provide system integration products and services. This expansion
requires significant investment and management attention from
us, and we are likely to face intense competition from companies
that have extensive experience and well-established businesses
and customer bases in the system integration sector. We cannot
assure you that we will succeed in expanding our business
downstream. If we are not able to bring quality
12
products and services to market in a timely and cost-effective
manner and successfully market and sell these products and
services, our ability to continue penetrating the PV market, as
well as our results of operations and profitability, will be
materially and adversely affected.
Our
future success depends in part on our ability to make strategic
acquisitions and investments and to establish and maintain
strategic alliances, and failure to do so could have a material
adverse effect on our market penetration, revenue growth and
profitability. In addition, such strategic acquisitions,
alliances and investments themselves entail significant risks
that could materially and adversely affect our
business.
We entered into the silicon ingot production business through
our acquisition of a 52% equity interest in Yangguang Solar, an
ingot plant that commenced operations in October 2007 and
subsequently entered into a share transfer agreement to acquire
the remaining 48% stake in June 2008. In addition, we have
purchased and are in the process of installing six wire saws
which can be used to slice ingots into wafers. We plan to
purchase and install an additional 54 wire saws, the completion
of which will increase the annual aggregate manufacturing
capacity of wires saws to 300 MW. We expect this new
facility to be completed by March 2009. We are also pursuing
expansion into downstream system integration services through
our subsidiary, Shanghai Linyang, and we are considering
pursuing upstream silicon feedstock sourcing through strategic
partnerships and investments. We intend to continue to establish
and maintain strategic alliances with third parties in the PV
industry, particularly with silicon suppliers. These types of
transactions could require that our management develop expertise
in new areas, manage new business relationships and attract new
types of customers and may require significant attention from
our management, and the diversion of our managements
attention could have a material adverse effect on our ability to
manage our business. We may also experience difficulties
integrating acquisitions and investments into our existing
business and operations. Furthermore, we may not be able to
successfully make such strategic acquisitions and investments or
to establish strategic alliances with third parties that will
prove to be effective or beneficial for our business. Any
difficulty we face in this regard could have a material adverse
effect on our market penetration, our results of operations and
our profitability.
Strategic acquisitions, investments and alliances with third
parties could subject us to a number of risks, including risks
associated with sharing proprietary information and loss of
control of operations that are material to our business.
Moreover, strategic acquisitions, investments and alliances may
be expensive to implement and subject us to the risk of
non-performance by a counterparty, which may in turn lead to
monetary losses that materially and adversely affect our
business. In addition, changes in government policies, both
domestically and internationally, that are not favorable to the
development of the PV industry, may also have a material adverse
effect on the success of our strategic acquisitions, investments
and alliances.
Problems
with product quality or product performance could result in a
decrease in customers and revenue, unexpected expenses and loss
of market share. In addition, product liability claims against
us could result in adverse publicity and potentially significant
monetary damages.
Our PV modules are typically sold with a two to five years
limited warranty for technical defects, a
10-year
limited warranty against declines greater than 10%, and a 20 to
25-year
limited warranty against declines of greater than 20%, in their
initial power generation capacity. As a result, we bear the risk
of extensive warranty claims for an extended period after we
have sold our products and recognized revenue. Since our
products have been in use for only a relatively short period,
our assumptions regarding the durability and reliability of our
products may not be accurate. We consider various factors when
determining the likelihood of product defects, including an
evaluation of our quality controls, technical analysis, industry
information on comparable companies and our own experience. As
of December 31, 2005, 2006 and 2007, our accrued warranty
costs totaled RMB1.5 million, RMB7.6 million and
RMB21.0 million (US$2.9 million), respectively.
In addition, as we purchase the silicon and silicon wafers and
other components that we use in our products from third parties,
we have limited control over the quality of these raw materials
and components. Unlike PV modules, which are subject to certain
uniform international standards, silicon and silicon wafers
generally do not have uniform international standards, and it is
often difficult to determine whether product defects are a
result of the silicon or silicon wafers or other components or
reasons. Furthermore, the silicon and silicon wafers and other
13
components that we purchase from third-party suppliers are
typically sold to us with no or only limited warranties. The
possibility of future product failures could cause us to incur
substantial expense to provide refunds or resolve
13.1
disputes with regard to warranty claims through litigation,
arbitration or other means. Product failures and related adverse
publicity may also damage our market reputation and cause our
sales to decline.
As with other PV product manufacturers, we are exposed to risks
associated with product liability claims if the use of the PV
products we sell results in injury, death or damage to property.
We cannot predict at this time whether product liability claims
will be brought against us in the future or the effect of any
resulting negative publicity on our business. In addition, we
have not made provisions for potential product liability claims
and we may not have adequate resources to satisfy a judgment if
a successful claim is brought against us. Moreover, the
successful assertion of product liability claims against us
could result in potentially significant monetary damages and
require us to make significant payments and incur substantial
legal expenses. Even if a product liability claim is not
successfully pursued to judgment by a claimant, we may still
incur substantial legal expenses defending against such a claim.
If PV
technology is not suitable for widespread adoption, or
sufficient demand for PV products does not develop or takes
longer to develop than we anticipated, our sales may not
continue to increase or may even decline, and our revenue and
profitability would be reduced.
The PV market is at a relatively early stage of development and
the extent to which PV products will be widely adopted is
uncertain. Furthermore, market data in the PV industry are not
as readily available as those in other more established
industries, where trends can be assessed more reliably from data
gathered over a longer period of time. If PV technology, in
particular the type of PV technology that we have adopted,
proves unsuitable for widespread adoption or if demand for PV
products fails to develop sufficiently, we may not be able to
grow our business or generate sufficient revenue to sustain our
profitability. In addition, demand for PV products in our
targeted markets, including China, may not develop or may
develop to a lesser extent than we anticipated. Many factors may
affect the viability of widespread adoption of PV technology and
demand for PV products, including:
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cost-effectiveness of PV products compared to conventional and
other non-solar energy sources and products;
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performance and reliability of PV products compared to
conventional and other non-solar energy sources and products;
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availability of government subsidies and incentives to support
the development of the PV industry or other energy resource
industries;
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success of other alternative energy generation technologies,
such as fuel cells, wind power and biomass;
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fluctuations in economic and market conditions that affect the
viability of conventional and non-solar alternative energy
sources, such as increases or decreases in the prices of oil and
other fossil fuels;
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capital expenditures by end users of PV products, which tend to
decrease when the overall economy slows down; and
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deregulation of the electric power industry and the broader
energy industry.
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Existing
regulations and policies governing the electricity utility
industry, as well as changes to these regulations and policies,
may adversely affect demand for our products and materially
reduce our revenue and profits.
The electric utility industry is subject to extensive
regulation, and the market for PV products, is heavily
influenced by these regulations as well as the policies
promulgated by electric utilities. These regulations and
policies often affect electricity pricing and technical
interconnection of end-user power generation. As the market for
solar and other alternative energy sources continue to evolve,
these regulations and policies are being modified and may
continue to be modified. Customer purchases of, or further
investment in research and development of, solar and other
alternative energy sources may be significantly affected by
these regulations and policies, which could significantly reduce
demand for our products and materially reduce our revenue and
profits.
14
Moreover, we expect that our PV products and their installation
will be subject to oversight and regulation in accordance with
national and local ordinances relating to building codes,
safety, environmental protection, utility interconnection and
metering and related matters in various countries. We also have
to comply with the requirements of individual localities and
design equipment to comply with varying standards applicable in
the jurisdictions where we conduct business. Any new government
regulations or utility policies pertaining to our PV products
may result in significant additional expenses to us, our
distributors and end users and, as a result, could cause a
significant reduction in demand for our PV products, as well as
materially and adversely affect our financial condition and
results of operations.
The
reduction or elimination of government subsidies and economic
incentives for on-grid solar energy applications could have a
materially adverse effect on our business and
prospects.
We believe that the near-term growth of the market for
on-grid applications, where solar energy is used to
supplement a customers electricity purchased from the
electric utility, depends in large part on the availability and
size of government subsidies and economic incentives. As a
portion of our sales is in the on-grid market, the reduction or
elimination of government subsidies and economic incentives may
hinder the growth of this market or result in increased price
competition, which could decrease demand for our products and
reduce our revenue.
The cost of solar energy currently substantially exceeds the
cost of power furnished by the electric utility grid in many
locations. As a result, federal, state and local governmental
bodies in many countries, most notably Germany, Italy, Spain and
the United States, have provided subsidies and economic
incentives in the form of rebates, tax credits and other
incentives to end users, distributors, system integrators and
manufacturers of PV products to promote the use of solar energy
in on-grid applications and to reduce dependency on other forms
of energy. Certain of these government economic incentives are
set to be reduced and may be reduced further, or eliminated. In
particular, political changes in a particular country could
result in significant reductions or eliminations of subsidies or
economic incentives. Electric utility companies that have
significant political lobbying powers may also seek changes in
the relevant legislation in their markets that may adversely
affect the development and commercial acceptance of solar
energy. The reduction or elimination of government subsidies and
economic incentives for on-grid solar energy applications,
especially those in our target markets, could cause demand for
our products and our revenue to decline, and have a material
adverse effect on our business, financial condition, results of
operations and prospects.
The
lack or inaccessibility of financing for off-grid solar energy
applications could cause our sales to decline.
Our products are used for off-grid solar energy
applications in developed and developing countries, where solar
energy is provided to end users independent of an electricity
transmission grid. In some countries, government agencies and
the private sector have, from time to time, provided subsidies
or financing on preferred terms for rural electrification
programs. We believe that the availability of financing could
have a significant effect on the level of sales of off-grid
solar energy applications, particularly in developing countries
where users may not have sufficient resources or credit to
otherwise acquire PV systems. If existing financing programs for
off-grid solar energy applications are eliminated or if
financing becomes inaccessible, the growth of the market for
off-grid solar energy applications may be materially and
adversely affected, which could cause our sales to decline. In
addition, rising interest rates could render existing financings
more expensive, as well as serve as an obstacle for potential
financings that would otherwise spur the growth of the PV
industry.
Our
failure to protect our intellectual property rights may
undermine our competitive position, and litigation to protect
our intellectual property rights may be costly.
We rely primarily on patents, trademarks, trade secrets,
copyrights and other contractual restrictions to protect our
intellectual property. Nevertheless, these afford only limited
protection and the actions we take to protect our intellectual
property rights may not be adequate. In particular, third
parties may infringe or misappropriate our proprietary
technologies or other intellectual property rights, which could
have a material adverse effect on our business, financial
condition and results of operations. Policing unauthorized use
of our proprietary technologies can be difficult and expensive.
In addition, litigation may be necessary to enforce our
intellectual property rights, protect
15
our trade secrets or determine the validity and scope of the
proprietary rights of others. We also cannot assure you that the
outcome of any such litigation would be in our favor.
Furthermore, any such litigation may be costly and may divert
management attention as well as expend our other resources away
from our business. An adverse determination in any such
litigation will impair our intellectual property rights and may
harm our business, prospects and reputation. In addition, we
have no insurance coverage against litigation costs and would
have to bear all costs arising from such litigation to the
extent we are unable to recover them from other parties. The
occurrence of any of the foregoing could have a material adverse
effect on our business, financial condition and results of
operations.
Implementation of PRC intellectual property-related laws has
historically been lacking, primarily because of ambiguities in
the PRC laws and difficulties in enforcement. Accordingly,
intellectual property rights and confidentiality protections in
China may not be as effective as in the United States or other
countries.
We may
be exposed to infringement or misappropriation claims by third
parties, particularly in jurisdictions outside China which, if
determined adversely against us, could disrupt our business and
subject us to significant liability to third parties, as well as
have a material adverse effect on our financial condition and
results of operations.
Our success depends, in large part, on our ability to use and
develop our technologies and know-how without infringing the
intellectual property rights of third parties. As we continue to
market and sell our products internationally, and as litigation
becomes more common in the PRC, we face a higher risk of being
the subject of claims for intellectual property infringement, as
well as having indemnification relating to other parties
proprietary rights held to be invalid. Our current or potential
competitors, many of which have substantial resources and have
made substantial investments in competing technologies, may have
or may obtain patents that will prevent, limit or interfere with
our ability to make, use or sell our products in the European
Union, the PRC or other countries. The validity and scope of
claims relating to PV technology patents involve complex,
scientific, legal and factual questions and analysis and,
therefore, may be highly uncertain. In addition, the defense of
intellectual property claims, including patent infringement
suits, and related legal and administrative proceedings can be
both costly and time consuming, and may significantly divert the
efforts and resources of our technical and management personnel.
Furthermore, an adverse determination in any such litigation or
proceeding to which we may become a party could cause us to:
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pay damage awards;
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seek licenses from third parties;
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pay ongoing royalties;
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redesign our products; or
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be restricted by injunctions,
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each of which could effectively prevent us from pursuing some or
all of our business and result in our customers or potential
customers deferring or limiting their purchase or use of our
products, which could have a material adverse effect on our
financial condition and results of operations.
We may
not be able to obtain sufficient patent protection on the
technologies embodied in the PV products we currently
manufacture and sell, which could reduce our competitiveness and
increase our expenses.
Although we rely primarily on trade secret laws and contractual
restrictions to protect the technologies in the PV cells we
currently manufacture and sell, our success and ability to
compete in the future may also depend to a significant degree on
obtaining patent protection for our proprietary technologies. As
of June 2, 2008, we had three issued patents and six
pending patent applications in the PRC. We do not have, and have
not applied for, any patents for our proprietary technologies
outside the PRC. As the protections afforded by our patents are
effective only in the PRC, our competitors and other companies
may independently develop substantially equivalent technologies
or otherwise gain access to our proprietary technologies, and
obtain patents for such technologies in other jurisdictions,
including the countries in which we sell our products. Moreover,
our patent applications in the PRC may not result in issued
patents, and even if they do result in issued patents, the
patents may not have claims of the scope we seek. In addition,
any issued patents may be challenged, invalidated or declared
unenforceable. As a result, our
16
present and future patents may provide only limited protection
for our technologies, and may not be sufficient to provide
competitive advantages to us.
We
depend on our key personnel, and our business and growth may be
severely disrupted if we lose their services.
Our future success depends substantially on the continued
services of some of our directors and key executives. In
particular, we are highly dependent upon our directors and
officers, including Mr. Yonghua Lu, chairman of our board
of directors, Mr. Henricus Johannes Petrus Hoskens, our
chief executive officer, Mr. Hanfei Wang, our director and
chief operating officer, and Mr. Yuting Wang, our chief
engineer. In 2007, Mr. Fei Yun resigned as director of
technology and Mr. Kevin C. Wei, our former chief
financial officer, also left us as his employment contract
expired in October 2007. If we lose the services of one or more
of our current directors and executive officers, we may not be
able to replace them readily, if at all, with suitable or
qualified candidates, and may incur additional expenses to
recruit and retain new directors and officers, particularly
those with a significant mix of both international and
China-based PV industry experience similar to our current
directors and officers, which could severely disrupt our
business and growth. In addition, if any of our directors or
executives joins a competitor or forms a competing company, we
may lose some of our customers. Each of these directors and
executive officers has entered into an employment agreement with
us, which contains confidentiality and non-competition
provisions. However, if any disputes arise between these
directors or executive officers and us, it is not clear, in
light of uncertainties associated with the PRC legal system, the
extent to which any of these agreements could be enforced in
China, where all of these directors and executive officers
reside and hold some of their assets. See
Risks Related to Doing Business in
China Uncertainties with respect to the PRC legal
system could have a material adverse effect on us.
Furthermore, as we expect to continue to expand our operations
and develop new products, we will need to continue attracting
and retaining experienced management and key research and
development personnel.
Competition for personnel in the PV industry in China is
intense, and the availability of suitable and qualified
candidates is limited. In particular, we compete to attract and
retain qualified research and development personnel with other
PV technology companies, universities and research institutions.
Competition for these individuals could cause us to offer higher
compensation and other benefits in order to attract and retain
them, which could have a material adverse effect on our
financial condition and results of operations. We may also be
unable to attract or retain the personnel necessary to achieve
our business objectives, and any failure in this regard could
severely disrupt our business and growth.
Our
recent changes in chief executive officer and chief financial
officer and resignation of our principal accounting officer may
have an adverse effect on the overall operations of our company
and the functioning of our financial controls and
reporting.
We recently appointed Mr. Henricus Johannes Petrus Hoskens
as our new chief executive officer. His tenure commenced on
February 25, 2008 and Mr. Yonghua Lu resigned as our
chief executive officer as of the same date. Although
Mr. Lu continues to serve as our chairman and remains
actively involved in our business focusing on various areas of
strategic importance in our company, the transition period for
our chief executive officer may not be smooth and there may be
an adverse effect on our overall operations.
In addition, we appointed Ms. Amy Jing Liu to be our chief
financial officer in October 2007, replacing Mr. Kevin C.
Wei, whose employment contract expired on October 31, 2007.
Ms. Ru Cai, our former principal accounting officer, also
resigned in 2007. Although there was an overlap of almost two
weeks between the end of Mr. Weis tenure at our
company and Ms. Lius appointment and we have hired
additional financial officers during the past few months, there
may be an adverse effect on the functioning of our financial
controls and reporting as a result of this change in management.
17
Any
failure to achieve and maintain effective internal controls
could have a material adverse effect on our business, results of
operations and the market price of our ADSs.
The SEC, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring
every public company to include a management report on such
companys internal controls over financial reporting in its
annual report, which contains managements assessment of
the effectiveness of the companys internal controls over
financial reporting. In addition, an independent registered
public accounting firm must attest to and report on the
effectiveness of the companys internal controls over
financial reporting.
Our management and independent registered public accounting firm
have concluded that our internal controls as of
December 31, 2007 were effective. However, we cannot assure
you that in the future our management or our independent
registered public accounting firm will not identify material
weakness during the Section 404 of the Sarbanes-Oxley Act
audit process or for other reasons. In addition, because of the
inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely
basis. As a result, if we fail to maintain effective internal
controls over financial reporting or should we be unable to
prevent or detect material misstatements due to error or fraud
on a timely basis, investors could lose confidence in the
reliability of our financial statements, which in turn could
harm our business, results of operations and negatively impact
the market price of our ADSs, and harm our reputation.
Furthermore, we have incurred and expected to continue to incur
considerable costs and to use significant management time and
other resources in an effort to comply with Section 404 and
other requirements of the Sarbanes-Oxley Act.
We
have limited insurance coverage and we are subject to the risk
of damage due to fires or explosions because some materials we
use in our manufacturing processes are highly
flammable.
We are subject to risk of explosion and fires, as highly
flammable gases, such as silane and nitrogen gas, are generated
in our manufacturing processes. While we have not experienced to
date any explosion or fire, the risks associated with these
gases cannot be completely eliminated. In addition, as the
insurance industry in China is still in an early stage of
development, business interruption insurance available in China
offers limited coverage compared to that offered in many other
countries. Although we have obtained business interruption
insurance, any business disruption or natural disaster could
result in substantial costs and diversion of resources.
We are also exposed to risks associated with product liability
claims in the event that the use of the PV products we sell
results in injury. Due to limited historical experience, we are
unable to predict whether product liability claims will be
brought against us in the future or the effect of any resulting
adverse publicity on our business. Moreover, we only have
limited product liability insurance and may not have adequate
resources to satisfy a judgment in the event of a successful
claim against us. The successful assertion of product liability
claims against us could result in potentially significant
monetary damages and require us to make significant payments,
which could materially and adversely affect our business,
financial condition and results of operations.
Any
environmental claims or failure to comply with any present or
future environmental regulations may require us to spend
additional funds and may materially and adversely affect our
financial condition and results of operations.
We are subject to a variety of laws and regulations relating to
the use, storage, discharge and disposal of chemical by-products
of, and water used in, our manufacturing operations and research
and development activities, including toxic, volatile and
otherwise hazardous chemicals and wastes. We are in compliance
with current environmental regulations to conduct our business
as it is presently conducted. Although we have not suffered
material environmental claims in the past, the failure to comply
with any present or future regulations could result in the
assessment of damages or imposition of fines against us,
suspension of production or a cessation of our operations. New
regulations could also require us to acquire costly equipment or
to incur other significant expenses. Any failure by us to
control the use of, or to adequately restrict the discharge of,
hazardous substances could subject us to potentially significant
monetary damages and fines or suspension of our business, as
well as our financial condition and results of operations.
18
The use of certain hazardous substances, such as lead, in
various products is also coming under increasingly stringent
governmental regulation. Increased environmental regulation in
this area could adversely impact the manufacture and sale of
solar modules that contain lead and could require us to make
unanticipated environmental expenditures. For example, the
European Union Directive 2002/96/EC on Waste Electrical and
Electronic Equipment, or the WEEE Directive, requires
manufacturers of certain electrical and electronic equipment to
be financially responsible for the collection, recycling,
treatment and disposal of specified products placed on the
market in the European Union. In addition, European Union
Directive 2002/95/EC on the Restriction of the use of Hazardous
Substances in electrical and electronic equipment, or the RoHS
Directive, restricts the use of certain hazardous substances,
including lead, in specified products. Other jurisdictions are
considering adopting similar legislation. Currently, we are not
required under the WEEE or RoHS Directives to collect, recycle
or dispose any of our products. However, the Directives allow
for future amendments subjecting additional products to the
Directives requirements. If, in the future, our solar
modules become subject to such requirements, we may be required
to apply for an exemption. If we were unable to obtain an
exemption, we would be required to redesign our solar modules in
order to continue to offer them for sale within the European
Union, which would be impractical. Failure to comply with the
Directives could result in the imposition of fines and
penalties, the inability to sell our solar modules in the
European Union, competitive disadvantages and loss of net sales,
all of which could have a material adverse effect on our
business, financial condition and results of operations.
Our
business benefits from certain PRC government incentives.
Expiration of, or changes to, these incentives could have a
material adverse effect on our results of
operations.
In accordance with the former PRC Income Tax Law for Enterprises
with Foreign Investment and Foreign Enterprises, or the FIE Tax
Law and the related implementing rules, Jiangsu Linyang Solarfun
Co., Ltd., or Linyang China, our wholly-owned operating
subsidiary in China, was exempted from enterprise income tax in
2005 and 2006, was taxed at a reduced rate of 12% in 2007, and
would be taxed at the reduced rate of 12% in 2008 and 2009. From
2005 until the end of 2009, Linyang China would also be exempted
from the 3% local income tax. Furthermore, Linyang China would
be entitled to a two-year income tax exemption for 2006 and 2007
and a reduced tax rate of 12% for the following three years on
income generated from additional investment in the production
capacity of Linyang China resulting from our contribution to
Linyang China of the funds we received through the issuances of
our series A convertible preference shares in June and
August 2006.
On March 16, 2007, the PRC government promulgated Law of
the Peoples Republic of China on Enterprise Income Tax, or
EIT, which became effective January 1, 2008. Under EIT,
domestically owned enterprises and foreign-invested enterprises,
or FIE, are subject to a uniform tax rate of 25%. While the EIT
equalizes the tax rates for FIE and domestically owned
enterprises, preferential tax treatment (e.g. tax rate of 15%)
would continue to be given to companies in certain encouraged
sectors and to entities classified as high-technology companies,
whether domestically owned enterprises or FIE. The EIT also
provides a five-year transition period starting from its
effective date for those enterprises which were established
before the promulgation date of the EIT and which were entitled
to a preferential lower tax rate or tax holiday under the then
effective tax laws or regulations. The tax rate of such
enterprises will transition to the uniform tax rate within a
five-year transition period and the tax holiday, which has been
enjoyed by such enterprises before the effective date of the
EIT, may continue to be enjoyed until the end of the holiday.
Linyang China has filed its application to be qualified as a
high-technology company which is pending governmental approval.
19
Under
the EIT Law, we may be classified as a Resident
Enterprise of the PRC. Such classification would likely
result in negative tax consequences to us and could result in
negative tax consequences to our non-PRC enterprise shareholders
and ADS holders.
Under the EIT Law, which took effect as of January 1, 2008,
enterprises established under the laws of non-PRC jurisdictions
but whose de facto management body is located in the
PRC are considered resident enterprises for PRC tax
purposes and are subject to the EIT Law. According to the
Implementation Regulations for the EIT Law of the PRC issued by
the State Council on December 6, 2007, de facto management
body is defined as an establishment that exerts substantial and
comprehensive management and control over the business
operations, staff, accounting, assets and other aspects of the
enterprise.
We are a Cayman Islands holding company and substantially all of
our income are derived from dividends we receive from our
operating subsidiaries located in the PRC. If we are treated as
a resident enterprise for PRC tax purposes, we will
be subject to PRC income tax on our worldwide income at a
uniform tax rate of 25%, excluding the dividend income we
receive from our PRC subsidiaries which has been subject to the
PRC income tax already.
In addition, although the EIT Law provides that dividend income
between qualified resident enterprises is exempted
from the 10% withholding tax on dividends paid to non-PRC
enterprise shareholders, it is still not free of doubt whether
we will be considered to be a qualified resident
enterprise under the EIT Law. If we are considered a
non-resident enterprise, dividends paid to us by our
subsidiaries in the PRC (through our holding company structure)
may be subject to the 10% withholding tax.
If we are deemed by the PRC tax authorities as a resident
enterprise and declare dividends, under the existing
implementation rules of the EIT Law, dividends paid by us to our
non-PRC enterprise and individual shareholders, excluding the
non-PRC ADS holders, may be subject to the 10% withholding tax.
However, if we are deemed as non-resident
enterprise, dividends paid by us to our non-PRC enterprise
and individual shareholders and ADS holders should not be deemed
to be derived from sources within the PRC under the EIT Law and
therefore should not be subject to the 10% withholding tax.
However, what will constitute income derived from sources within
the PRC is currently unclear. In addition, capital gains on the
disposition of shares or ADSs are currently not subject to PRC
tax. However, these conclusions are not entirely free from
doubt. In addition, it is possible that these rules may change
in the future, possibly with retroactive effect.
Fluctuations
in exchange rates could adversely affect our business as well as
result in foreign currency exchange losses.
Our financial statements are expressed in, and our functional
currency is Renminbi. The change in value of the Renminbi
against the U.S. dollar, Euro and other currencies is
affected by, among other things, changes in Chinas
political and economic conditions. On July 21, 2005, the
PRC government changed its decade-old policy of pegging the
value of the Renminbi to the U.S. dollar. Under the new
policy, the Renminbi is permitted to fluctuate within a narrow
and managed band against a basket of certain foreign currencies.
This change in policy has resulted in a more than 17.1%
appreciation of the Renminbi against the U.S. dollar. The
PRC government may decide to adopt an even more flexible
currency policy in the future, which could result in a further
and more significant appreciation of the Renminbi against the
U.S. dollar. An appreciation of the Renminbi relative to
other foreign currencies could decrease the per unit revenue
generated from our international sales. If we increased our
pricing to compensate for the reduced purchasing power of
foreign currencies, we may decrease the market competitiveness,
on a price basis, of our products. This could result in a
decrease in our international sales and materially and adversely
affect our business.
A substantial portion of our sales is denominated in
U.S. dollars and Euros, while a substantial portion of our
costs and expenses is denominated in Renminbi. As a result, the
revaluation of the Renminbi in July 2005 has increased, and
further revaluations could further increase, our costs. In
addition, as we rely entirely on dividends paid to us by Linyang
China, our operating subsidiary in the PRC, any significant
revaluation of the Renminbi may have a material adverse effect
on our financial condition and results of operations. The value
of, and any dividends payable on, our ADSs in foreign currency
terms will also be affected. Conversely, if we decide to convert
our Renminbi into U.S. dollars for the purpose of making
payments for dividends on our ordinary shares or ADSs or for
20
other business purposes, an appreciation of the U.S. dollar
against the Renminbi would have a negative effect on the
U.S. dollar amount available to us.
Fluctuations in exchange rates, particularly among the
U.S. dollar, Renminbi and Euro, also affect our gross and
net profit margins and could result in fluctuations in foreign
exchange and operating gains and losses. We incurred net foreign
currency losses of RMB1.8 million, RMB4.3 million and
RMB25.6 million (US$3.5 million) in 2005, 2006 and
2007, respectively. We cannot predict the impact of future
exchange rate fluctuations on our financial condition and
results of operations, and we may incur net foreign currency
losses in the future.
Very limited hedging transactions are available in the PRC to
reduce our exposure to exchange rate fluctuations. To date, we
have not entered into any hedging transactions in an effort to
reduce our exposure to foreign currency exchange risk. While we
may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be
limited and we may not be able to successfully hedge our
exposure at all. In addition, our foreign currency exchange
losses may be magnified by PRC exchange control regulations that
restrict our ability to convert Renminbi into foreign currencies.
Two of
our existing shareholders have substantial influence over our
company and their interests may not be aligned with the
interests of our other shareholders.
As of June 2, 2008, Mr. Yonghua Lu, chairman of our
board of directors, and Good Energies II LP owned 15.95%
and 36.39%, respectively, of our outstanding share capital. In
December 2007, Mr. Yonghua Lu transferred 38,634,750
ordinary shares beneficially owned by him to Good
Energies II LP acting by its general partner Good Energies
General Partner Jersey Limited. Mr. Lu and Good
Energies II LP have substantial influence over our
business, including decisions regarding mergers, consolidations
and the sale of all or substantially all of our assets, election
of directors and other significant corporate actions. This
concentration of ownership may discourage, delay or prevent a
change in control of our company, which could deprive our
shareholders of an opportunity to receive a premium for their
shares as part of a sale of our company and might reduce the
price of our ADSs. These actions may be taken even if they are
opposed by our other shareholders.
If we
grant employee share options and other share-based compensation
in the future, our net income could be adversely
affected.
We adopted a share option plan for our employees in November
2006, pursuant to which we may issue options to purchase up to
10,799,685 ordinary shares. As of December 31, 2007,
options to purchase 8,105,500 ordinary shares had been granted
under this plan. In August 2007, we adopted our 2007 equity
incentive plan. The 2007 equity incentive plan permits the grant
of incentive stock options, non-statutory stock options,
restricted stock, stock appreciation rights, restricted stock
units, performance units, performance shares, and other equity
based awards to employees, directors and consultants of our
company. Under the 2007 equity incentive plan, we may issue up
to 10,799,685 ordinary shares plus an annual increase of 2% of
the outstanding ordinary shares on the first day of the fiscal
year, or such lesser amount of shares as determined by the board
of directors. As a result of these option grants and potential
future grants under these plans, we expect to incur significant
share compensation expenses in future periods. The amount of
these expenses will be based on the fair value of the
share-based awards. Fair value is determined based on an
independent third party valuation. We have adopted Statement of
Financial Accounting Standard No. 123(R) (revised
2004) for the accounting treatment of our share incentive
plan. As a result, we will have to account for compensation
costs for all share options, including share options granted to
our directors and employees, using a fair-value based method and
recognize expenses in our consolidated statement of income in
accordance with the relevant rules under U.S. GAAP, which
may have a material adverse effect on our net profit. Moreover,
the additional expenses associated with share-based compensation
may reduce the attractiveness of such incentive plan to us.
However, our share incentive plan and other similar types of
incentive plans are important in order to attract and retain key
personnel. We cannot assure you that employee share options or
other share-based compensation we may grant in the future, would
not have a material adverse effect on our profitability.
21
Risks
Related to Doing Business in China
Adverse
changes in political and economic policies of the PRC government
could have a material adverse effect on the overall economic
growth of China, which could reduce the demand for our products
and materially and adversely affect our competitive
position.
Substantially all of our operations are conducted in China and
some of our sales are made in China. Accordingly, our business,
financial condition, results of operations and prospects are
affected significantly by economic, political and legal
developments in China. The PRC economy differs from the
economies of most developed countries in many respects,
including:
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the amount of government involvement;
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the level of development;
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the growth rate;
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the control of foreign exchange; and
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the allocation of resources.
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While the PRC economy has grown significantly over the past
25 years, the growth has been uneven, both geographically
and among various sectors of the economy. The PRC government has
implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures
benefit the overall PRC economy, but may also have a negative
effect on us. For example, our financial condition and results
of operations may be adversely affected by government control
over capital investments or changes in tax regulations that are
applicable to us.
The PRC economy has been transitioning from a planned economy to
a more market-oriented economy. Although the PRC government has
in recent years implemented measures emphasizing the utilization
of market forces for economic reform, the reduction of state
ownership of productive assets and the establishment of sound
corporate governance in business enterprises, a substantial
portion of the productive assets in China is still owned by the
PRC government. The continued control of these assets and other
aspects of the national economy by the PRC government could
materially and adversely affect our business. The PRC government
also exercises significant control over economic growth in China
through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary
policy and providing preferential treatment to particular
industries or companies. Efforts by the PRC government to slow
the pace of growth of the PRC economy could result in decreased
capital expenditure by solar energy users, which in turn could
reduce demand for our products.
Any adverse change in the economic conditions or government
policies in China could have a material adverse effect on the
overall economic growth and the level of renewable energy
investments and expenditures in China, which in turn could lead
to a reduction in demand for our products and consequently have
a material adverse effect on our business and prospects. In
particular, the PRC government has, in recent years, promulgated
certain laws and regulations and initiated certain
government-sponsored programs to encourage the utilization of
new forms of energy, including solar energy. We cannot assure
you that the implementation of these laws, regulations and
government programs will be beneficial to us. In particular, any
adverse change in the PRC governments policies towards the
PV industry may have a material adverse effect on our operations
as well as on our plans to expand our business into downstream
system integration services.
Uncertainties
with respect to the PRC legal system could have a material
adverse effect on us.
We conduct substantially all of our business through our
operating subsidiary in the PRC, Linyang China, a Chinese wholly
foreign-owned enterprise. Linyang China is generally subject to
laws and regulations applicable to foreign investment in China
and, in particular, laws applicable to wholly foreign-owned
enterprises. The PRC legal system is based on written statutes,
and prior court decisions may be cited for reference but have
limited precedential value. Since 1979, PRC legislation and
regulations have significantly enhanced the protections afforded
to various forms of foreign investments in China. However, since
these laws and regulations are relatively new and the PRC legal
system continues to rapidly evolve, the interpretations of many
laws, regulations and rules
22
are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties, which may limit
legal protections available to us. In addition, any litigation
in China may be protracted and result in substantial costs and
diversion of resources and management attention.
We
rely principally on dividends and other distributions on equity
paid by our operating subsidiary to fund cash and financing
requirements, and limitations on the ability of our operating
subsidiary to pay dividends or other distributions to us could
have a material adverse effect on our ability to conduct our
business and our ability to make payments due under the
notes.
We are a holding company and conduct substantially all of our
business through our operating subsidiary, Linyang China, which
is a limited liability company established in China. We rely on
dividends paid by Linyang China for our cash needs, including
the funds necessary to pay dividends and other cash
distributions to our shareholders, to service any debt we may
incur and to pay our operating expenses. The payment of
dividends by entities organized in China is subject to
limitations. In particular, regulations in the PRC currently
permit payment of dividends only out of accumulated profits as
determined in accordance with PRC accounting standards and
regulations. Linyang China is also required to set aside at
least 10% of its after-tax profit based on PRC accounting
standards each year to its general reserves until the
accumulative amount of such reserves reaches 50% of its
registered capital. These reserves are not distributable as cash
dividends. In addition, Linyang China is required to allocate a
portion of its after-tax profit to its staff welfare and bonus
fund at the discretion of its board of directors. Moreover, if
Linyang China incurs debt on its own behalf in the future, the
instruments governing the debt may restrict its ability to pay
dividends or make other distributions to us.
Restrictions
on currency exchange may limit our ability to receive and use
our revenue effectively.
A portion of our revenue and a substantial portion of our
expenses are denominated in Renminbi. The Renminbi is currently
convertible under the current account, which
includes dividends, trade and service-related foreign exchange
transactions, but not under the capital account,
which includes foreign direct investment and loans. Currently,
Linyang China may purchase foreign currencies for settlement of
current account transactions, including payments of dividends to
us, without the approval of the State Administration of Foreign
Exchange, or SAFE. However, the relevant PRC government
authorities may limit or eliminate our ability to purchase
foreign currencies in the future. Since a significant amount of
our future revenue will be denominated in Renminbi, any existing
and future restrictions on currency exchange may limit our
ability to utilize revenue generated in Renminbi to fund our
business activities outside China that are denominated in
foreign currencies.
Foreign exchange transactions by Linyang China under the capital
account continue to be subject to significant foreign exchange
controls and require the approval of or need to register with
PRC governmental authorities, including SAFE. In particular, if
Linyang China borrows foreign currency loans from us or other
foreign lenders, these loans must be registered with SAFE, and
if we finance Linyang China by means of additional capital
contributions, these capital contributions must be approved by
certain government authorities, including the National
Development and Reform Commission, or the NDRC, the Ministry of
Commerce or their respective local counterparts. These
limitations could affect the ability of Linyang China to obtain
foreign exchange through debt or equity financing.
Recent
PRC regulations relating to the establishment of offshore
special purpose companies by PRC residents may subject our PRC
resident shareholders to personal liability and limit our
ability to acquire PRC companies or to inject capital into our
PRC subsidiary, limit our PRC subsidiarys ability to
distribute profits to us, or otherwise materially and adversely
affect us.
SAFE issued a public notice in October 2005, or the SAFE notice,
requiring PRC residents, including both legal persons and
natural persons, to register with the competent local SAFE
branch before establishing or controlling any company outside of
China, referred to as an offshore special purpose
company, for the purpose of acquiring any assets of or
equity interest in PRC companies and raising fund from overseas.
In addition, any PRC resident that is the shareholder of an
offshore special purpose company is required to amend its SAFE
registration with the local SAFE branch, with respect to that
offshore special purpose company in connection with any increase
or decrease of capital, transfer of shares, merger, division,
equity investment or creation of any security interest over
23
any assets located in China. If any PRC shareholder of any
offshore special purpose company fails to make the required SAFE
registration and amendment, the PRC subsidiaries of that
offshore special purpose company may be prohibited from
distributing their profits and the proceeds from any reduction
in capital, share transfer or liquidation to the offshore
special purpose company. Moreover, failure to comply with the
SAFE registration and amendment requirements described above
could result in liability under PRC laws for evasion of
applicable foreign exchange restrictions. Our current beneficial
owners who are PRC residents have registered with the local SAFE
branch as required under the SAFE notice. The failure of these
beneficial owners to amend their SAFE registrations in a timely
manner pursuant to the SAFE notice or the failure of future
beneficial owners of our company who are PRC residents to comply
with the registration procedures set forth in the SAFE notice
may subject such beneficial owners to fines and legal sanctions
and may also result in a restriction on our PRC
subsidiarys ability to distribute profits to us or
otherwise materially and adversely affect our business. In
addition, the NDRC promulgated a rule in October 2004, or the
NDRC Rule, which requires NDRC approvals for overseas investment
projects made by PRC entities. The NDRC Rule also provides that
approval procedures for overseas investment projects of PRC
individuals shall be implemented with reference to this rule.
However, there exist extensive uncertainties in terms of
interpretation of the NDRC Rule with respect to its application
to a PRC individuals overseas investment, and in practice,
we are not aware of any precedents that a PRC individuals
overseas investment has been approved by the NDRC or challenged
by the NDRC based on the absence of NDRC approval. Our current
beneficial owners who are PRC individuals did not apply for NDRC
approval for investment in us. We cannot predict how and to what
extent this will affect our business operations or future
strategy. For example, the failure of our shareholders who are
PRC individuals to comply with the NDRC Rule may subject these
persons or our PRC subsidiary to certain liabilities under PRC
laws, which could adversely affect our business.
We
face risks related to health epidemics and other
outbreaks.
Adverse public health epidemics or pandemics could disrupt
business and the economics of the PRC and other countries where
we do business. From December 2002 to June 2003, China and other
countries experienced an outbreak of a highly contagious form of
atypical pneumonia now known as severe acute respiratory
syndrome, or SARS. On July 5, 2003, the World Health
Organization declared that the SARS outbreak had been contained.
However, a number of isolated new cases of SARS were
subsequently reported, most recently in central China in April
2004. During May and June of 2003, many businesses in China were
closed by the PRC government to prevent transmission of SARS.
Moreover, some Asian countries, including China, have recently
encountered incidents of the H5N1 strain of bird flu, or avian
flu. We are unable to predict the effect, if any, that avian flu
may have on our business. In particular, any future outbreak of
SARS, avian flu or other similar adverse public developments
may, among other things, significantly disrupt our business,
including limiting our ability to travel or ship our products
within or outside China and forcing us to temporary close our
manufacturing facilities. Furthermore, an outbreak may severely
restrict the level of economic activity in affected areas, which
may in turn materially and adversely affect our financial
condition and results of operations. We have not adopted any
written preventive measures or contingency plans to combat any
future outbreak of avian flu, SARS or any other epidemic.
Risks
Related to the Notes, Our Ordinary Shares and Our ADSs
The
notes are unsecured, are effectively subordinated to all of our
existing and future secured indebtedness and are structurally
subordinated to all liabilities of our subsidiaries, including
trade payables.
The notes are unsecured, are effectively subordinated to all of
our existing and future secured indebtedness, to the extent of
the assets securing such indebtedness, and are structurally
subordinated to all liabilities of our subsidiaries, including
trade payables. As of December 31, 2007, our subsidiaries
had approximately RMB979.7 million (US$134.3 million)
of short-term bank borrowings and long-term bank borrowings to
which the notes would be structurally subordinated. All of our
operations are conducted through our subsidiaries. None of our
subsidiaries has guaranteed or otherwise become obligated with
respect to the notes. Our right to receive assets from any of
our subsidiaries upon its liquidation or reorganization, and the
right of holders of the notes to participate in those assets, is
structurally subordinated to claims of that subsidiarys
creditors, including trade creditors. Even if we were a creditor
of any of our subsidiaries, our rights as a creditor would be
subordinate to any security interest in the assets of that
subsidiary and any indebtedness of that subsidiary senior to
that held by us. Furthermore, none of
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our subsidiaries is under any obligation to make payments to us,
and any payments to us would depend on the earnings or financial
condition of our subsidiaries and various business
considerations. Statutory, contractual or other restrictions may
also limit our subsidiaries ability to pay dividends or
make distributions, loans or advances to us. For these reasons,
we may not have access to any assets or cash flows of our
subsidiaries to make payments on the notes.
We
have made only limited covenants in the indenture for the notes,
and these limited covenants may not protect your
investment.
The indenture for the notes does not:
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require us to maintain any financial ratios or specific levels
of net worth, revenues, income, cash flows or liquidity and,
accordingly, does not protect holders of the notes in the event
that we experience significant adverse changes in our financial
condition or results of operations;
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limit our subsidiaries ability to incur indebtedness which
would effectively rank senior to the notes;
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limit our ability to incur secured indebtedness or indebtedness
that is equal in right of payment to the notes;
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restrict our subsidiaries ability to issue securities that
would be senior to the ordinary shares of our subsidiaries held
by us;
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restrict our ability to repurchase our securities;
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restrict our ability to pledge our assets or those of our
subsidiaries; or
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restrict our ability to make investments or to pay dividends or
make other payments in respect of our ordinary shares, including
ADSs or other securities ranking junior to the notes.
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Furthermore, the indenture for the notes contains only limited
protections in the event of a change in control. We could engage
in many types of transactions, such as acquisitions,
refinancings or recapitalizations, which could substantially
affect our capital structure and the value of the notes, our
ordinary shares and our ADSs but may not constitute a
fundamental change that permits holders to require
us to repurchase their notes. For these reasons, you should not
consider the covenants in the indenture or the repurchase
features of the notes as a significant factor in evaluating
whether to invest in the notes.
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The
increase in the conversion rate applicable to notes that holders
convert in connection with a make-whole change of control may
not adequately compensate you for the lost option time value of
your notes that result from that make-whole change of
control.
If a make-whole change of control occurs, we will under certain
circumstances increase the conversion rate applicable to holders
who convert their notes within a specified time frame. The
amount of the increase in the conversion rate depends on the
date when the make-whole change of control becomes effective and
the applicable price described in this offering memorandum. See
Description of Notes Conversion
Rights Adjustment to the Conversion Rate Upon the
Occurrence of a Make-Whole Change of Control. Although the
increase in the conversion rate is designed to compensate you
for the lost option time value of your notes as a result of the
make-whole change of control, the increase in the conversion
rate is only an approximation of the lost value and may not
adequately compensate you for the loss. In addition, you will
not be entitled to an increased conversion rate if the
applicable price is greater than US$150 per ADS or less than
US$15 per ADS (in each case, subject to adjustment).
Our obligation to increase the conversion rate as described
above also could be considered a penalty, in which case its
enforceability would be subject to general principles of
reasonableness of economic remedies.
We may
be unable to raise the funds to pay interest on the notes, to
purchase the notes on the purchase dates, upon a fundamental
change or at maturity.
The notes initially bear interest semi-annually at a rate of
3.50%, and we in certain circumstances are obligated to pay
additional interest. On January 15, 2015, holders may
require us to purchase, for cash, all or a portion of their
notes, at 100% of their principal amount, plus any accrued and
unpaid interest to, but excluding, that date. If a fundamental
change occurs, holders of the notes may require us to
repurchase, for cash, all or a portion of their notes. We are
obligated to pay the principal amount of the notes outstanding
at the maturity date. We may not have sufficient funds for any
required repurchase of the notes or required payment of
principal return or interest, and we may have to refinance our
credit facilities in order to make payments under the notes. In
addition, the terms of any borrowing agreements which we may
enter into from time to time may require early repayment of
borrowings under circumstances similar to those constituting a
fundamental change. These agreements may also make our
repurchase of notes an event of default under such agreements.
If we fail to pay interest on the notes or repurchase the notes
when required, we will be in default under the indenture
governing the notes.
The
conversion rate of the notes may not be adjusted for all
dilutive events.
The conversion rate of the notes is subject to adjustment upon
the occurrence of certain events, including, but not limited to,
the issuance of share dividends on our ordinary shares, the
issuance of certain rights or warrants, subdivisions,
combinations, distributions of share capital, indebtedness or
assets, cash dividends and certain issuer tender or exchange
offers as described under Description of Notes
Conversion Rights Conversion Rate Adjustments.
Such conversion rate will not be adjusted, however, for other
events, such as a third party tender or exchange offer or an
issuance of ordinary shares for cash, any of which may adversely
affect the trading price of the notes or our ADSs. In addition,
an event that adversely affects the value of the notes may
occur, and that event may not result in an adjustment to the
conversion rate.
Certain
significant restructuring transactions may not constitute a
fundamental change, in which case we would not be obligated to
offer to purchase the notes.
The fundamental change provisions will only afford protection to
holders of the notes upon the occurrence of certain
transactions. Other transactions such as leveraged
recapitalizations, refinancings, restructurings, or acquisitions
initiated by us may not constitute a fundamental change. In the
event of any such transaction, the holders would not have the
right to require us to purchase the notes, even though each of
these transactions could increase the amount of our
indebtedness, or otherwise adversely affect our capital
structure or any credit ratings, thereby adversely affecting the
value of notes.
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We may
incur substantial additional indebtedness in the future, which
could adversely affect our financial condition and our ability
to generate sufficient cash to satisfy our outstanding and
future debt obligations.
As of December 31, 2007, our outstanding short-term and
long-term bank borrowing amounted to approximately
RMB979.7 million (US$134.3 million). We may from time
to time incur substantial additional indebtedness. If we or our
subsidiaries incur additional debt, the risks that we face as a
result of such indebtedness and leverage could intensify. The
increase in the amount of our indebtedness could adversely
affect our financial condition and our ability to generate
sufficient cash.
For example, it could:
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limit our ability to satisfy our obligations under the notes and
other debt;
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increase our vulnerability to adverse general economic and
industry conditions;
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require us to dedicate a substantial portion of our cash flow
from operations to servicing and repaying indebtedness, thereby
reducing the availability of cash flow to fund working capital,
capital expenditures, dividend payments and other general
corporate purposes;
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limit our flexibility in planning for or reacting to changes in
the businesses and the industries in which we operate;
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place us at a competitive disadvantage compared to our
competitors which have less debt;
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limit, along with the financial and other restrictive covenants
of such indebtedness, our ability to borrow additional
funds; and
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increase the cost of additional financing.
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Our ability to generate sufficient cash to satisfy our
outstanding and future debt obligations will depend upon our
future operating performance, which will be affected by
prevailing economic conditions and financial, business and other
factors, many of which are beyond our control. We may not
generate sufficient cash flow to meet our anticipated operating
expenses or to service our debt obligations as they become due.
For the year ended December 31, 2006 and the nine months
ended September 30, 2007, our net cash inflow from
operating activities was RMB523.1 million
(US$69.8 million) and RMB834.9 million
(US$111.4 million), respectively. If we are unable to
service our indebtedness, we will be forced to adopt an
alternative strategy that may include actions such as reducing
or delaying capital expenditures, selling assets, restructuring
or refinancing existing indebtedness or seeking equity capital.
These strategies, if implemented, may not be instituted on
satisfactory terms. Any of these constraints upon us could
materially and adversely affect our ability to satisfy our
obligations under the notes.
The
trading prices for the notes could be directly affected by the
market prices of our ADSs, which are impossible to
predict.
The market price of our ADSs experienced, and may continue to
experience, significant volatility. For the period from
December 20, 2006 to June 26, 2008, the trading price
of our ADSs on the Nasdaq Global Market has ranged from a low of
US$8.22 per ADS to a high of US$37.85 per ADS. Because the notes
are convertible into ADSs, volatility in the price of our ADSs
may depress the trading price of the notes. The risk of
volatility and depressed prices of our ADSs also applies to
holders who receive ADSs upon conversion of their notes.
Numerous factors, including many over which we have no control,
may have a significant impact on the market price of our ADSs,
including, among other things:
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announcements of technological or competitive developments;
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regulatory developments in our target markets affecting us, our
customers or our competitors;
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announcements regarding patent litigation or the issuance of
patents to us or our competitors;
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announcements of studies and reports relating to the conversion
efficiencies of our products or those of our competitors;
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actual or anticipated fluctuations in our quarterly operating
results;
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changes in financial estimates or other material comments by
securities analysts relating to us, our competitors or our
industry in general;
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announcements by other companies in our industry relating to
their operations, strategic initiatives, financial condition or
financial performance or to our industry in general;
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announcements of acquisitions or consolidations involving
industry competitors or industry suppliers;
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changes in the economic performance or market valuations of
other PV technology companies;
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addition or departure of our executive officers and key research
personnel; and
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sales or perceived sales of additional ordinary shares or ADSs.
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In addition, the stock market in recent years has experienced
extreme price and trading volume fluctuations that often have
been unrelated or disproportionate to the operating performance
of individual companies. These broad market fluctuations may
adversely affect the price of our ADSs, regardless of our
operating performance. These factors, among others, could
significantly depress the trading price of the notes and the
price of our ADSs issued upon conversion of the notes.
Future
issuances of ordinary shares, ADSs or equity-related securities
may depress the trading price of our ADSs.
Any issuance of equity securities after this offering could
dilute the interests of our existing shareholders and could
substantially decrease the trading price of our ADSs. We may
issue equity securities in the future for a number of reasons,
including to finance our operations and business strategy
(including in connection with acquisitions, strategic
collaborations or other transactions), to adjust our ratio of
debt to equity and to satisfy our obligations upon the exercise
of outstanding warrants or options or for other reasons.
Sales of a substantial number of ADSs or other equity-related
securities in the public market could depress the market price
of our ADSs, and impair our ability to raise capital through the
sale of additional equity securities. We cannot predict the
effect that future sales of our ADSs or other equity-related
securities would have on the market price of our ADSs. In
addition, the price of our ADSs could be affected by possible
sales of our ADSs by investors who view the convertible notes as
a more attractive means of obtaining equity participation in our
company and by hedging or arbitrage trading activity that we
expect to develop involving our convertible notes.
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Because
your right to require repurchase of the notes is limited, the
market price of the notes may decline if we enter into a
transaction that is not a fundamental change under the indenture
relating to the notes.
The term fundamental change is limited and may not
include every event that might cause the market price of the
notes to decline or result in a decrease in creditworthiness of
the notes. The term fundamental change does not
apply to certain transactions in which at least 90% of the
consideration paid for our ordinary shares in a merger or
similar transaction is securities traded on a United States
national securities exchange. Our obligation to repurchase the
notes upon a fundamental change may not preserve the value of
the notes in the event of a highly leveraged transaction,
reorganization, merger or similar transaction. See
Description of Notes Fundamental Change
Permits Holders to Require Us to Purchase Notes.
If you
hold notes, you are not entitled to any rights with respect to
our ADSs, but you are subject to all changes made with respect
to our ADSs.
If you hold notes, you are not entitled to any rights with
respect to our ADSs (including, without limitation, voting
rights and rights to receive any dividends or other
distributions on our ADSs), but you are subject to all changes
affecting the ADSs. You will only be entitled to rights on the
ADSs if and when we deliver ADSs to you in exchange for your
notes. For example, in the event that an amendment is proposed
to our certificate of incorporation or articles of association
requiring shareholder approval and the record date for
determining the shareholders of record entitled to vote on the
amendment occurs prior to delivery of the ADSs, you will not be
entitled to vote on the amendment, although you will
nevertheless be subject to any resulting changes in the powers,
preferences or special rights that affect our ADSs.
If an
active and liquid trading market for the notes does not develop,
the market price of the notes may decline and you may be unable
to sell your notes.
The notes are a new issue of securities for which there is
currently no public market, and no active trading market might
ever develop. If the notes are traded after their initial
issuance, they may trade at a discount from their initial
offering price, depending on prevailing interest rates, the
market for similar securities, the price, and volatility in the
price, of our ADSs, our performance and other factors. In
addition, we do not know whether an active trading market will
develop for the notes. To the extent that an active trading
market does not develop, the liquidity and trading prices for
the notes may be harmed.
We have no plans to list the notes on a securities exchange;
however, the notes will be eligible for The Portal Market at the
time of issuance thereof. We have been advised by the initial
purchasers that they presently intend to make a market in the
notes. However, the initial purchasers are not obligated to do
so. Any market-making activity, if initiated, may be
discontinued at any time, for any reason or for no reason,
without notice. If the initial purchasers cease to act as the
market makers for the notes, we cannot assure you another firm
or person will make a market in the notes.
The liquidity of any market for the notes will depend upon the
number of holders of the notes, our results of operations and
financial condition, the market for similar securities, the
interest of securities dealers in making a market in the notes
and other factors. An active or liquid trading market for the
notes may not develop, and you may be unable to resell your
notes or may only be able to sell them at a substantial discount.
Provisions
of the notes could discourage an acquisition of us by a third
party.
Certain provisions of the notes could make it more difficult or
more expensive for a third party to acquire us. Upon the
occurrence of certain transactions constituting a fundamental
change, holders of the notes will have the right, at their
option, to require us to repurchase all of their notes or any
portion of the principal amount of such notes in integral
multiples of US$1,000. We may also be required to issue
additional ADSs upon conversion in the event of certain
fundamental changes.
29
If we
issue a cash dividend on our ordinary shares, U.S. investors may
be deemed to have received a taxable dividend without the
receipt of any cash.
If we issue any cash dividend on our ADSs or ordinary shares in
the future, the conversion rate will be adjusted and
U.S. investors may be deemed to have received a taxable
dividend subject to U.S. federal income tax without the
receipt of any cash. See Taxation Certain
U.S. Federal Income Tax Consequences
Notes Constructive Distributions.
The
market price for our ADSs may be volatile.
The market price of our ADSs experienced, and may continue to
experience, significant volatility. For the period from
December 20, 2006 to June 25, 2008, the trading price
of our ADSs on the Nasdaq Global Market has ranged from a low of
US$8.22 per ADS to a high of US$37.85 per ADS.
Numerous factors, including many over which we have no control,
may have a significant impact on the market price of our ADSs.
See The trading prices for the notes could be
directly affected by the market prices of our ADSs, which are
impossible to predict.
Our
articles of association contain anti-takeover provisions that
could have a material adverse effect on the rights of holders of
our ordinary shares and ADSs.
Our articles of association limit the ability of others to
acquire control of our company or cause us to engage in
change-of-control transactions. These provisions could have the
effect of depriving our shareholders of an opportunity to sell
their shares at a premium over prevailing market prices by
discouraging third parties from seeking to obtain control of our
company in a tender offer or similar transaction. For example,
our board of directors has the authority, without further action
by our shareholders, to issue preferred shares in one or more
series and to fix their designations, powers, preferences,
privileges, and relative participating, optional or special
rights and the qualifications, limitations or restrictions,
including dividend rights, conversion rights, voting rights,
terms of redemption and liquidation preferences, any or all of
which may be greater than the rights associated with our
ordinary shares, in the form of ADS or otherwise. Preferred
shares could be issued quickly with terms calculated to delay or
prevent a change in control of our company or make removal of
management more difficult. If our board of directors decides to
issue preferred shares, the price of our ADSs may fall and the
voting and other rights of the holders of our ordinary shares
and ADSs may be materially and adversely affected.
Holders
of ADSs have fewer rights than shareholders and must act through
the depositary to exercise those rights.
Holders of ADSs do not have the same rights of our shareholders
and may only exercise the voting rights with respect to the
underlying ordinary shares in accordance with the provisions of
the deposit agreement. Under our amended and restated articles
of association, the minimum notice period required to convene a
general meeting is 14 days. When a general meeting is
convened, ADS holders may not receive sufficient notice of a
shareholders meeting to permit such holders to withdraw
their ordinary shares to allow them to cast their vote with
respect to any specific matter. If requested in writing by us,
the depositary will mail a notice of such a meeting to ADS
holders. In addition, the depositary and its agents may not be
able to send voting instructions to ADS holders or carry out ADS
holders voting instructions in a timely manner. We will
make all reasonable efforts to cause the depositary to extend
voting rights to ADS holders in a timely manner, but you may not
receive the voting materials in time to ensure that you can
convert your notes and instruct the depositary to vote the ADSs
issued upon the conversion of your notes. Furthermore, the
depositary and its agents will not be responsible for any
failure to carry out any instructions to vote, for the manner in
which any vote is cast or for the effect of any such vote. As a
result, you may not be able to exercise your right to vote and
you may lack recourse if the ADSs you receive upon the
conversion of your notes are not voted as you requested. In
addition, in your capacity as an ADS holder, you will not be
able to call a shareholder meeting.
30
You
may be subject to limitations on transfers of your
ADSs.
The ADSs you receive upon the conversion of the notes are
transferable on the books of the depositary. However, the
depositary may close its transfer books at any time or from time
to time when it deems expedient in connection with the
performance of its duties. In addition, the depositary may
refuse to deliver, transfer or register transfers of ADSs
generally when our books or the books of the depositary are
closed, or at any time if we or the depositary deem it advisable
to do so because of any requirement of law or of any government
or governmental body, or under any provision of the deposit
agreement, or for any other reason.
The
right of ADS holders to participate in any future rights
offerings may be limited, which may cause dilution to their
holdings and they may not receive cash dividends if it is
impractical to make them available to such
holders.
We may from time to time distribute rights to our shareholders,
including rights to acquire our securities. However, we cannot
make rights available to ADS holders in the United States unless
we register the rights and the securities to which the rights
relate under the Securities Act or an exemption from the
registration requirements is available. Also, under the deposit
agreement, the depositary will not make rights available to ADS
holders unless the distribution to ADS holders of both the
rights and any related securities are either registered under
the Securities Act, or exempted from registration under the
Securities Act. We are under no obligation to file a
registration statement with respect to any such rights or
securities or to endeavor to cause such a registration statement
to be declared effective. Moreover, we may not be able to
establish an exemption from registration under the Securities
Act. Accordingly, in the event we conduct any rights offering in
the future, the depositary may not make such rights available to
holders of ADSs or may dispose of such rights and make the net
proceeds available to such holders. As a result, ADS holders may
be unable to participate in our rights offerings and may
experience dilution in their holdings.
In addition, the depositary of our ADSs has agreed to pay to ADS
holders the cash dividends or other distributions it or the
custodian receives on our ordinary shares or other deposited
securities after deducting its fees and expenses. ADS holders
will receive these distributions in proportion to the number of
ordinary shares their ADSs represent. However, the depositary
may, at its discretion, decide that it is inequitable or
impractical to make a distribution available to any holders of
ADSs. As a result, the depositary may decide not to make the
distribution and ADS holders will not receive such distribution.
31
We are
a Cayman Islands company and, because judicial precedent
regarding the rights of shareholders is more limited under
Cayman Islands law than that under U.S. law, ADS holders may
have less protection for their shareholder rights than such
holders would under U.S. law.
Our corporate affairs are governed by our amended and restated
memorandum and articles of association, the Cayman Islands
Companies Law and the common law of the Cayman Islands. The
rights of shareholders to take action against the directors,
actions by minority shareholders and the fiduciary
responsibilities of our directors to us under Cayman Islands law
are to a large extent governed by the common law of the Cayman
Islands. The common law of the Cayman Islands is derived in part
from comparatively limited judicial precedent in the Cayman
Islands as well as that from English common law, which has
persuasive, but not binding, authority on a court in the Cayman
Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under Cayman Islands law are
not as clearly established as they would be under statutes or
judicial precedent in some jurisdictions in the United States.
In particular, the Cayman Islands has a less developed body of
securities laws than the United States. In addition, some
U.S. states, such as Delaware, have more fully developed
and judicially interpreted bodies of corporate law than the
Cayman Islands. In addition, Cayman Islands companies may not
have standing to initiate a shareholder derivative action in a
federal court of the United States.
In addition, most of our directors and officers are nationals
and residents of countries other than the United States.
Substantially all of our assets and a substantial portion of the
assets of these persons are located outside the United States.
The Cayman Islands courts are also unlikely:
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to recognize or enforce against us judgments of courts of the
United States based on certain civil liability provisions of
U.S. securities laws; and
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to impose liabilities against us, in original actions brought in
the Cayman Islands, based on certain civil liability provisions
of U.S. securities laws that are penal in nature.
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There is no statutory recognition in the Cayman Islands of
judgments obtained in the United States, although the courts of
the Cayman Islands will generally recognize and enforce a
non-penal judgment of a foreign court of competent jurisdiction
without retrial on the merits.
As a result of all of the above, public shareholders may have
more difficulty in protecting their interests in the face of
actions taken by management, members of the board of directors
or controlling shareholders than they would as shareholders of a
U.S. public company.
You
may have difficulty enforcing judgments obtained against
us.
We are a Cayman Islands company and substantially all of our
assets are located outside of the United States. Substantially
all of our current operations are conducted in the PRC. In
addition, most of our directors and officers are nationals and
residents of countries other than the United States. A
substantial portion of the assets of these persons are located
outside the United States. As a result, it may be difficult for
you to effect service of process within the United States upon
these persons. It may also be difficult for you to enforce in
U.S. courts judgments obtained in U.S. courts based on
the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors, most
of whom are not residents in the United States and the
substantial majority of whose assets are located outside of the
United States. In addition, there is uncertainty as to whether
the courts of the Cayman Islands or the PRC would recognize or
enforce judgments of U.S. courts against us or such persons
predicated upon the civil liability provisions of the securities
laws of the United States or any state. In addition, it is
uncertain whether such Cayman Islands or PRC courts would be
competent to hear original actions brought in the Cayman Islands
or the PRC against us or such persons predicated upon the
securities laws of the United States or any state. See
Enforceability of Civil Liabilities.
32
USE OF
PROCEEDS
All sales of the notes or ADSs issuable upon conversion of the
notes, including our ordinary shares represented by the ADSs,
will be by or for the account of the selling securityholders
listed in Selling Securityholders. We will not
receive any proceeds from the sale by any selling securityholder
of the notes or the ADSs issuable upon conversion of the notes,
including the ordinary shares represented by the ADSs. The
selling securityholders will not cover any of the expenses that
are incurred by us in connection with the registration of the
notes or ordinary shares underlying the ADSs issuable upon
conversion of the notes, but the selling securityholders will
pay any brokers commission, agency fee or
underwriters discount or commission in connection with the
sake of any of the notes or the ADSs issuable upon conversion of
the notes, including the ordinary shares represented by the ADSs.
33
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges on a historical basis for the period indicated. The
ratio of earnings to fixed charges is computed by dividing
earnings by fixed charges. For this purpose, earnings consist of
pre-tax income from continuing operations before adjustment for
minority interests, plus fixed charges. Fixed charges consist of
interest expenses, whether expenses or capitalized.
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Year Ended
December 31,
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2004
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2005
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2006
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2007
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Ratios of earnings to fixed charges
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117.37
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12.77
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5.63
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34
PRICE
RANGE OF OUR AMERICAN DEPOSITARY SHARES
For the period from December 20, 2006 to June 26,
2008, the trading price of our ADSs on the Nasdaq Global Market
ranged from US$8.22 to US$37.85 per ADS.
Set forth below, for the applicable periods indicated, are the
high and low sales prices per ADS as reported by the Nasdaq
Global Market.
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High
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Low
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US$
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US$
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2006 (from December 20)
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12.50
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9.90
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2007
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Quarterly Highs and Lows
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First Quarter 2007
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17.10
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10.21
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Second Quarter 2007
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17.69
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8.22
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Third Quarter 2007
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15.74
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8.68
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Fourth Quarter 2007
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37.85
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9.90
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Monthly Highs and Lows
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January 2007
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15.60
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10.21
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February 2007
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17.10
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13.23
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March 2007
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14.00
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11.88
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April 2007
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17.69
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12.15
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May 2007
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15.29
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9.02
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June 2007
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11.16
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8.22
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July 2007
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13.99
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10.40
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August 2007
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11.62
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8.68
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September 2007
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15.74
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10.20
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October 2007
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15.28
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12.56
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November 2007
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17.32
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9.90
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December 2007
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37.85
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16.05
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2008
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Monthly Highs and Lows
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January 2008
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37.64
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16.81
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February 2008
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18.29
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11.64
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March 2008
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13.36
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8.97
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April 2008
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15.70
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12.31
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May 2008
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26.50
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13.07
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June (through June 26)
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22.80
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18.14
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On June 26, 2008, the last reported closing sale price of
our ADSs on the Nasdaq Global Market was US$19.22 per ADS.
35
DIVIDEND
POLICY
We made a one-time cash dividend payment in the aggregate amount
of RMB7.2 million (US$0.9 million) to these holders of
the Series A convertible preference shares on
December 31, 2006. Except for the forgoing, we have never
declared or paid any cash dividends, nor do we have any present
plan to pay any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain most, if not
all, of our available funds and any future earnings to operate
and expand our business.
Our board of directors has complete discretion on whether to pay
dividends, subject to the approval of our shareholders. Even if
our board of directors decides to pay dividends, the form,
frequency and amount will depend upon our future operations and
earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the
board of directors may deem relevant. If we pay any dividends,
we will pay our ADS holders to the same extent as holders of our
ordinary shares, subject to the terms of the deposit agreement,
including the fees and expenses payable thereunder. See
Description of American Depositary Shares. Cash
dividends on our ordinary shares, if any, will be paid in
U.S. dollars.
We rely on dividends paid by Linyang China for our cash needs,
including the funds necessary to pay dividends to our
shareholders. The payment of dividends by Linyang China is
subject to limitations. See Risk Factors Risks
Related to Doing Business in China We rely
principally on dividends and other distributions on equity paid
by our operating subsidiary to fund cash and financing
requirements, and limitations on the ability of our operating
subsidiary to pay dividends or other distributions to us could
have a material adverse effect on our ability to conduct our
business and our ability to make payments due under the
notes.
36
CAPITALIZATION
You should read this table in conjunction with our consolidated
financial statements and the related notes included in our
Annual Report on
Form 20-F
for the year ended December 31, 2007, which are
incorporated by reference herein.
The following table sets forth our capitalization as of
December 31, 2007:
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As of
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December 31, 2007
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(RMB)
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(US$)
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(in thousands)
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Shareholders equity
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Ordinary shares, US$0.0001 par value,
500,000,000 shares authorized; and 241,954,744 shares
issued and
outstanding(1)
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195
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27
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Additional paid-in capital
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1,601,852
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219,594
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Statutory reserve
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37,548
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5,147
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Retained earnings
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222,987
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30,569
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Total shareholders equity
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Total capitalization
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1,862,582
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255,337
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(1)
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Excludes 10,799,685 ordinary shares
reserved for future issuance under our 2006 equity incentive
plan.
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37
EXCHANGE
RATE INFORMATION
The following table sets forth information regarding the noon
buying rates in Renminbi and U.S. dollars for the periods
indicated.
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Renminbi per U.S. Dollar Noon
Buying Rate
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Period End
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Average(1)
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Low
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High
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2003
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8.2767
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8.2771
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8.2765
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8.2800
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2004
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8.2765
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8.2768
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8.2764
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8.2774
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2005
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8.0702
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8.1826
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8.0702
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8.2765
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2006
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7.8041
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7.9723
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7.8041
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8.0702
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2007
|
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7.2946
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7.6072
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7.2946
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7.8127
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2008
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January
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7.1818
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7.2405
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7.1818
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7.2946
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February
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7.1115
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7.1644
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7.1100
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7.1973
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March
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7.0120
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7.0722
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7.0105
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7.1110
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April
|
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6.9870
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6.9997
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6.9840
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7.0185
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May
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6.9400
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6.9725
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6.9377
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7.0000
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June (through June 26, 2008)
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6.8630
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6.9034
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6.8630
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6.9633
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This prospectus contains translations of certain RMB amounts
into U.S. dollar amounts at specified rates. All
translations from RMB to U.S. dollars were made at the noon
buying rate in The City of New York for cable transfers of
RMB as certified for customs purposes by the Federal Reserve
Bank of New York. Unless otherwise stated, the translations of
RMB into U.S. dollars have been made at the noon buying
rate in effect on December 31, 2007, which was RMB7.2946 to
US$1.00. We make no representation that the RMB or
U.S. dollar amounts referred to in this annual report on
Form 20-F
could have been or could be converted into U.S. dollars or
RMB, as the case may be, at any particular rate or at all. See
Risk Factors Risks Related to Our Company and
Our Industry Fluctuations in exchange rates could
adversely affect our business as well as result in foreign
currency exchange losses and Risk
Factors Risks Related to Doing Business in
China Restrictions on currency exchange may limit
our ability to receive and use our revenue effectively for
discussions of the effects of fluctuating exchange rates and
currency control on the value of our ADSs. On June 26,
2008, the noon buying rate was RMB6.8630 to US$1.00.
38
DESCRIPTION
OF THE NOTES
We have issued the notes under an indenture dated as of
January 29, 2008 between us and The Bank of New York, as
trustee. The terms of the notes include those expressly set
forth in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended,
or the Trust Indenture Act.
The following description is a summary of the material
provisions of the notes, the indenture and the registration
rights agreement. It does not purport to be complete. This
summary is subject to and is qualified by reference to all the
provisions of the notes, the indenture and the registration
rights agreement, including the definitions of certain terms
used therein. We urge you to read these documents because they,
and not this description, define your rights as a holder of the
notes. You may request copies of these documents from us upon
written request at our address, which is listed in this
prospectus under Where You Can Find Additional
Information.
For purposes of this description, references to we,
our and us refer only to Solarfun Power
Holdings Co., Ltd. and not to its subsidiaries and references to
holders refer to the holders of notes.
General
The notes:
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are our general unsecured unsubordinated obligations, and rank
equally with our other unsecured unsubordinated indebtedness,
but are effectively subordinated to the indebtedness and other
liabilities of our subsidiaries and to certain statutory
preferences under Cayman law;
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are limited to an aggregate principal amount of US$172,500,000,
except as set forth below;
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will mature on January 15, 2018, unless earlier converted,
repurchased or redeemed;
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bear interest at a rate of 3.50% per annum on the principal
amount, payable semi-annually, in arrears, on each January 15
and July 15, beginning on July 15, 2008 to holders of
record at the close of business on the preceding January 1 and
July 1, respectively;
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bear additional interest if we fail to comply with certain
obligations set forth under Registration
Rights;
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are subject to repurchase by us, in whole or in part, for cash
at the option of holders upon occurrence of a fundamental
change (as defined under Fundamental
Change Permits Holders to Require Us to Purchase Notes) at
a price equal to 100% of the principal amount of the notes being
repurchased, plus accrued and unpaid interest (including
additional interest), if any, to, but excluding, the repurchase
date as described under Fundamental Change
Permits Holders to Require Us to Purchase Notes;
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are redeemable, in whole or in part, by us at any time on or
after January 20, 2015, for cash at a price equal to 100%
of the principal amount of the notes being redeemed plus accrued
and unpaid interest to, but excluding, the redemption date, if
the last reported sale price (as defined below under
Conversion Rights Settlement Upon
Conversion) of our ADSs for at least 20 trading days (as
defined under Conversion Rights
Conversion Rate Adjustments) in a period of 30 consecutive
trading days, the last of which occurs no more than five trading
days prior to the date upon which notice of such redemption is
published, is at least 130% of the applicable conversion price
per ADS in effect on such trading date;
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are subject to purchase by us at the option of the holder on
January 15, 2015, subject to certain conditions, at a
purchase price in cash equal to 100% of the principal amount of
the notes being redeemed plus accrued and unpaid interest to,
but excluding, the date of repurchase as described under
Purchase of Notes at Your Option on Specified
Dates;
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are issued in denominations of US$1,000 and integral multiples
of US$1,000; and
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are represented by one or more registered notes in global form,
but in certain limited circumstances may be represented by notes
in definitive form. See Global Note,
Book-Entry Form.
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Subject to fulfillment of certain conditions and during the
periods described below, the notes may be converted into ADSs
(other than cash in lieu of fractional ADSs) as described below
under Conversion Rights Settlement
Upon Conversion at an initial conversion rate of 52.2876
ADSs per US$1,000 principal amount of notes (equivalent to a
conversion price of approximately US$19.125 per ADS). The
conversion rate is subject to adjustment if certain events
occur. See Conversion Rights
Conversion Rate Adjustments. You will not receive any
separate cash payment for interest, if any, accrued and unpaid
to the conversion date except under the limited circumstances
described below.
We use the term note in this prospectus to refer to
each US$1,000 principal amount of notes. The registered holder
of a note will be treated as the owner of it for all purposes.
We may, without the consent of the holders, reopen the notes and
issue additional notes under the indenture with the same terms
and with the same CUSIP numbers as the notes offered hereby in
an unlimited aggregate principal amount, provided that no such
additional notes may be issued unless fungible with the notes
offered hereby for U.S. federal income tax purposes. We may
also from time to time repurchase the notes in open market
purchases or negotiated transactions without prior notice to the
holders.
The indenture does not limit the amount of debt which may be
issued by us or our subsidiaries under the indenture or
otherwise.
Other than restrictions described under
Fundamental Change Permits Holders to Require
Us to Purchase Notes and Consolidation,
Merger and Sale of Assets below, and except for the
provisions set forth under Conversion
Rights Adjustment to Conversion Rate upon Occurrence
of a Make-Whole Change in Control, the indenture does not
contain any covenants or other provisions designed to afford
holders of the notes protection in the event of a highly
leveraged transaction involving us or in the event of a decline
in our credit rating as the result of a takeover,
recapitalization, highly leveraged transaction or similar
restructuring involving us that could adversely affect the
holders.
Payments
on the Notes; Paying Agent and Registrar
We make all payments on the notes exclusively in such coin or
currency of the United States as at the time of payment will be
legal tender for the payment of public and private debts. The
trustee initially acts as the registrar and the paying agent for
notes. We may, however, change the paying agent or registrar
without prior notice to the holders of the notes, and we may act
as paying agent or registrar.
We will pay principal of, and interest on, notes in global form
registered in the name of or held by The Depository
Trust Company, or DTC, or its nominee in immediately
available funds to DTC or its nominee, as the case may be, as
the registered holder of such global notes.
We will pay the principal of and interest on certificated notes
(i) to registered holders having an aggregate principal
amount of US$5,000,000 or less, by check mailed to the
registered holders of these notes and (ii) to registered
holders having an aggregate principal amount of more than
US$5,000,000, either by check mailed to each holder or, upon
application by a holder to the registrar not later than the
relevant record date, by wire transfer in immediately available
funds to that holders account within the United States,
which application shall remain in effect until the holder
notifies, in writing, the registrar to the contrary.
If any payment date with respect to the notes falls on a day
that is not a business day, we will make the payment on the next
business day. Business day means any day, except a
Saturday or Sunday or any other day on which the Federal Reserve
Bank of New York is closed. The payment made on the next
business day will be treated as though it had been made on the
original payment date, and no interest will accrue on the
payment for the additional period of time.
Transfer
and Exchange
A holder of notes may transfer or exchange notes at the office
of the registrar in accordance with the indenture. The registrar
and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents. No
service charge will be imposed by us, the trustee or the
registrar for any registration of
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transfer or exchange of notes, but we may require a holder to
pay a sum sufficient to cover any transfer tax or other similar
governmental charge required by law or permitted by the
indenture. We are not required to transfer or exchange any note
selected for redemption or surrendered for conversion or
repurchase, except, in each case, for that portion of the notes
not being redeemed, converted or repurchased.
Interest
The notes bear interest at a rate of 3.50% per year from
January 29, 2008, or from the most recent date to which
interest has been paid or duly provided for. Interest is payable
semiannually in arrears on January 15 and July 15 of each
year, beginning July 15, 2008.
Interest are paid to the person in whose name a note is
registered at the close of business on January 1 or July 1,
as the case may be, immediately preceding the relevant interest
payment date. Interest on the notes are computed on the basis of
a 360-day
year composed of twelve
30-day
months.
Additional
Amounts
All payments made by us or any successor to us under or with
respect to the notes including payments of cash or delivery of
ADSs upon conversion, are made without withholding or deduction
for, or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature imposed
or levied by or within any jurisdiction in which we or any
successor are organized or resident for tax purposes or through
which payment is made (or any political subdivision or taxing
authority thereof or therein) (each, as applicable, a
Relevant Taxing Jurisdiction), unless such
withholding or deduction is required by law or by regulation or
governmental policy having the force of law. In the event that
any such withholding or deduction is so required, we will pay to
the holder of each note such additional amounts
(Additional Amounts) as may be necessary to ensure
that the net amount received by the holder after such
withholding or deduction (and after deducting any taxes on the
Additional Amounts) shall equal the amounts which would have
been received by such holder had no such withholding or
deduction been required, except that no Additional Amount shall
be payable:
(1) for or on account of:
(a) any tax, duty, assessment or other governmental charge
that would not have been imposed but for:
(i) the existence of any present or former connection
between the holder or beneficial owner of such note and the
Relevant Taxing Jurisdiction other than merely holding such note
or the receipt of payments thereunder, including, without
limitation, such holder or beneficial owner being or having been
a national, domiciliary or resident of such Relevant Taxing
Jurisdiction or treated as a resident thereof or being or having
been physically present or engaged in a trade or business
therein or having or having had a permanent establishment
therein;
(ii) the presentation of such note (in cases in which
presentation is required) more than 30 days after the later
of the date on which the payment of the principal of, premium,
if any, and interest on, such note became due and payable
pursuant to the terms thereof or was made or duly provided
for; or
(iii) the failure of the holder or beneficial owner to
comply with a timely request from us or any successor, addressed
to the holder or beneficial owner, as the case may be, to
provide certification, information, documents or other evidence
concerning such holders or beneficial owners
nationality, residence, identity or connection with the Relevant
Taxing Jurisdiction, or to make any declaration or satisfy any
other reporting requirement relating to such matters, if and to
the extent that due and timely compliance with such request is
required by statute, regulation or administrative practice of
the Relevant Taxing Jurisdiction to reduce or eliminate any
withholding or deduction as to which Additional Amounts would
have otherwise been payable to such holder;
(b) any estate, inheritance, gift, sale, transfer, capital
gains, excise, personal property or similar tax, assessment or
other governmental charge;
(c) any tax, duty, assessment or other governmental charge
that is payable otherwise than by withholding from payments
under or with respect to the notes; or
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(d) any combination of taxes, duties, assessments or other
governmental charges referred to in the preceding clauses (a),
(b) or (c),
(2) with respect to any payment of the principal of, or
premium, if any, or interest on, such note to a holder, if the
holder is a fiduciary, partnership or person other than the sole
beneficial owner of that payment to the extent that such payment
would be required to be included in the income under the laws of
the Relevant Taxing Jurisdiction, for tax purposes, of a
beneficiary or settlor with respect to the fiduciary, a member
of that partnership or a beneficial owner who would not have
been entitled to such Additional Amounts had that beneficiary,
settlor, partner or beneficial owner been the holder thereof.
Whenever there is mentioned in any context the payment of
principal of, and any premium or interest on, any note or any
amount payable with respect to such note, such mention shall be
deemed to include payment of Additional Amounts provided for in
the indenture to the extent that, in such context, Additional
Amounts are, were or would be payable in respect thereof.
Conversion
Rights
General
At any time prior to the close of business on the business day
immediately preceding the stated maturity date and subject to
prior repurchase or redemption, holders may convert each of
their notes into the consideration described below under
Conversion Rights Settlement Upon
Conversion at an initial conversion rate of 52.2876 ADSs
per US$1,000 principal amount of notes (equivalent to an initial
conversion price of approximately US$19.125 per ADS).
The conversion rate and the equivalent conversion price in
effect at any given time are referred to as the applicable
conversion rate and the applicable conversion
price, respectively, and will be subject to adjustment as
described below. The applicable conversion price at any given
time will be computed by dividing US$1,000 by the applicable
conversion rate at such time. A holder may convert fewer than
all of such holders notes so long as the notes converted
are an integral multiple of US$1,000 principal amount.
Upon conversion, you will not receive any separate cash payment
for accrued and unpaid interest, unless such conversion occurs
between a record date and the related interest payment date. Our
settlement of conversions as described below under
Settlement upon Conversion will be
deemed to satisfy our obligation to pay:
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the principal amount of the note; and
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accrued and unpaid interest to, but not including, the
conversion date.
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As a result, accrued and unpaid interest to, but not including,
the conversion date will be deemed to be paid in full rather
than cancelled, extinguished or forfeited.
Notwithstanding the preceding paragraph, if notes are converted
after the close of business on a record date but prior to the
opening of business on the related interest payment date,
holders of such notes at the close of business on the record
date will receive the interest payable on such notes on the
corresponding interest payment date notwithstanding the
conversion. Notes surrendered for conversion during the period
from the close of business on any record date to the opening of
business on the related interest payment date must be
accompanied by funds in cash equal to the amount of interest
payable on such interest payment date on the notes so
surrendered; provided that no such payment need be made:
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if we have specified a redemption date that is after such record
date but on or prior to the related interest payment date;
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if we have specified a fundamental change purchase date that is
after such record date but on or prior to the related interest
payment date; or
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in respect of any overdue interest accrued on the notes, if any
overdue interest exists at the time of conversion with respect
to such notes.
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We will pay any documentary, stamp or similar issue or transfer
tax due on the issuance and delivery of any ADSs upon
conversion, unless the tax is due because a holder requests any
ADSs to be issued in a name other than the holders name,
in which case the holder will pay that tax. In addition, we will
pay any other costs or expenses incurred in connection with the
issuance and delivery of any ADSs upon conversion.
Notes in respect of which a holder has delivered a purchase
notice or a notice of exercise of its option to require us to
repurchase its notes upon the occurrence of a fundamental change
(defined below) may not be surrendered for conversion until the
holder has withdrawn the notice in accordance with the indenture.
If our ADS facility maintained with The Bank of New York, as
Depositary, is terminated for any reason, the notes will become
convertible into ordinary shares. In such case, all references
to our ADSs will be deemed to refer to our ordinary shares, all
references to the last reported sale price of our
ADSs will be deemed to refer to the last reported sale
price of our ordinary shares, and other appropriate
adjustments, including adjustments to the applicable conversion
rate, will be made to reflect such change. In making such
adjustments, where currency translations between
U.S. dollars and any other currency are required, the
exchange rate in effect on the date of determination will apply.
Holders who convert notes in connection with any make-whole
change in control occurring on or prior to January 15, 2018
will also be entitled to an increase in the conversion rate to
the extent described below under Adjustment to
Conversion Rate upon Occurrence of a Make-Whole Change in
Control. Upon the occurrence of a fundamental change,
holders will also have the right to require us to repurchase
their notes as set forth below under
Fundamental Change Permits Holders to Require
Us to Purchase Notes.
Conversion
Procedures
If you hold a beneficial interest in a global note, to convert
you must comply with DTCs procedures for converting a
beneficial interest in a global note and, if required, pay funds
equal to interest payable on the next interest payment date.
If you hold a certificated note, to convert you must:
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complete and manually sign the conversion notice on the back of
the note, or a facsimile of the conversion notice;
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deliver the conversion notice, which is irrevocable, and the
note to the conversion agent;
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if required, furnish appropriate endorsements and transfer
documents;
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if required, furnish written acknowledgements, certifications
and agreements in connection with the issuance of ADSs by the
Depositary upon deposit of our ordinary shares; and
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if required, pay funds equal to interest payable on the next
interest payment date.
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The date you comply with these requirements is the
conversion date under the indenture. Converting
noteholders will be deemed to be record holders of the
underlying ADSs on the conversion date.
If a holder has already delivered a purchase notice as described
under Fundamental Change Permits Holders to
Require Us to Purchase Notes or Purchase
of Notes at Your Option on Specified Dates with respect to
a note, the holder may not surrender that note for conversion
until the holder has withdrawn the notice in accordance with the
indenture.
Settlement
Upon Conversion
We will satisfy our conversion obligation in ADSs (except for
any cash in lieu of fractional ADSs). Such settlement will occur
as soon as practicable, but in any event within three business
days of the relevant conversion date.
Upon conversion, we will deliver to the holder a number of ADSs
equal to (i) (A) the aggregate principal amount of notes to
be converted, divided by (B) 1,000, multiplied by
(ii) the applicable conversion rate (provided
that we will deliver cash in lieu of fractional ADSs as
described below).
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Upon conversion, ordinary shares to be represented by the ADSs
issuable to converting holders will be immediately and
automatically deposited into the ADS facility maintained by us
with The Bank of New York, as Depositary. As a result, a
converting holder will receive ADSs. Each ADS currently
represents the right to receive five ordinary shares. The
ordinary shares to be represented by the ADSs issuable upon
conversion will be registered in the name of the Depositary or
its nominee and deposited in accordance with the terms of the
Deposit Agreement. Upon delivery to and deposit with the
custodian for the Depositary of the number of ordinary shares to
be represented by the ADSs issuable upon conversion, and receipt
by the Depositary of the applicable issuance fees and applicable
written acknowledgments, certifications and agreements required
by the Deposit Agreement, the Depositary will, pursuant to the
terms of the Deposit Agreement, deliver the ADSs to or to the
order of the converting noteholder. See Description of
American Depositary Shares. Any issuance fees associated
with delivery and receipt of ADSs will be borne by us and will
be payable concurrently with the issuance and delivery of ADSs
by the Depositary. In addition, we have agreed to pay any taxes
or duties due from the holder or us in the Cayman Islands or the
PRC upon the issuance and delivery of any ADSs to the holder
upon conversion.
It is expected that any newly issued ADSs will be accepted into
the book-entry system maintained by DTC, and no person receiving
ADSs shall receive or be entitled to receive physical delivery
of ADSs, except in the limited circumstances set forth in the
Deposit Agreement.
We have agreed to take all such actions and obtain all such
approvals and registrations, including, without limitation, the
specific registrations with the relevant authority in the Cayman
Islands or the PRC, with respect to the conversion of the notes
into our ADSs, including the issuance and deposit of our
ordinary shares represented by ADSs into the ADS facility.
We will deliver cash in lieu of any fractional ADSs issuable
upon conversion (based on the last reported sale price of the
ADSs on the relevant conversion date).
The last reported sale price of our ADSs on any date
means the closing sale price per ADS (or if no closing sale
price is reported, the average of the bid and ask prices or, if
more than one, the average of the average bid and the average
ask prices) on that date as reported on the Nasdaq or other
principal U.S. securities exchange on which our ADSs are
traded. If our ADSs are not listed for trading on a United
States national or regional securities exchange on the relevant
date, the last reported sale price of our ADSs will
be the last quoted bid price for our ADSs in the
over-the-counter market on the relevant date as reported by the
National Quotation Bureau or similar organization. If our ADSs
are not so quoted, the last reported sale price of
the ADSs will be the average of the mid-point of the last bid
and ask prices for our ADSs on the relevant date from each of at
least three U.S. nationally recognized independent
investment banking firms selected by us for this purpose. The
last reported sale price of our ADSs will be
determined without reference to extended or after hours trading.
Conversion
Rate Adjustments
The conversion rate will be adjusted as described below, except
that we will not make any adjustments to the conversion rate if:
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holders of the notes participate, as a result of holding the
notes, in the relevant transaction described below without
having to convert their notes as if they held the full number of
ADSs underlying their notes;
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holders of ADSs are not eligible to participate in the relevant
transaction described below; or
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appropriate adjustments to the number of ordinary shares
represented by each ADS have been made for the relevant
transactions described below.
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Adjustment
Events.
(1) If we issue our ordinary shares as a dividend or
distribution on ordinary shares (including an ordinary share
bonus or as a result of the capitalization of profits or
reserves), or if we effect an ordinary share split or ordinary
share combination, the conversion rate will be adjusted based on
the following formula:
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where,
CR0 =
the conversion rate in effect immediately prior to the record
date for such dividend or distribution, or the effective date of
such ordinary share split or ordinary share combination, as the
case may be;
CR = the conversion rate in effect immediately after
the close of business on the record date for such dividend or
distribution, or the effective date of such ordinary share split
or ordinary share combination, as the case may be;
OS0 =
the number of ordinary shares outstanding immediately prior to
the record date for such dividend or distribution, or the
effective date of such ordinary share split or ordinary share
combination, as the case may be; and
OS = the number of ordinary shares outstanding
immediately after the close of business on the record date for
such dividend or distribution, or the effective date of such
ordinary share split or ordinary share combination, as the case
may be.
(2) If we distribute to all or substantially all holders of
our ordinary shares any rights (including subscription bonuses)
or warrants entitling them for a period of not more than 45
calendar days from the record date for such distribution to
subscribe for or purchase ordinary shares, at a price per
ordinary share less than the last reported sale price of our
ADSs divided by the then applicable number of ordinary shares
represented by one ADS on the trading day immediately preceding
the date of announcement of such distribution, the conversion
rate will be adjusted based on the following formula (provided
that the conversion rate will be readjusted to the extent that
such rights or warrants are not exercised prior to their
expiration):
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CR
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=
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CR0
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×
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OS0
+ X
OS0
+ Y
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where,
CR0 =
the conversion rate in effect immediately prior to the record
date for such distribution;
CR = the conversion rate in effect immediately after
the close of business on the record date for such distribution;
OS0 =
the number of ordinary shares outstanding immediately prior to
the record date for such distribution;
X = the total number of ordinary shares issuable pursuant to
such rights or warrants; and
Y = the number of ordinary shares equal to the aggregate price
payable to exercise such rights or warrants divided by the
quotient of (a) the average of the last reported sale
prices of our ADSs over the ten consecutive
trading-day
period ending on the trading day immediately preceding the
record date for such distribution, divided by (b) the then
applicable number of ordinary shares represented by one ADS.
Trading day means a day during which
(i) trading in our ADSs generally occurs, (ii) there
is no market disruption event (as defined below) and
(iii) a last reported sale price for our ADSs (other than a
last reported sale price referred to in the third sentence of
such definition) is available for such day; provided that if our
ADSs are not admitted for trading or quotation on or by any
exchange, bureau or other organization referred to in the
definition of last reported sale price (excluding the third
sentence of that definition), trading day will mean
any business day.
Market disruption event means the occurrence or
existence for more than one-half hour period in the aggregate on
any trading day for our ADSs of any suspension or limitation
imposed on trading (by reason of movements in price exceeding
limits permitted by the stock exchange or otherwise) in our ADSs
or in any options, contracts or future contracts relating solely
to our ADSs, and such suspension or limitation occurs or exists
at any time before 1:00 p.m. (New York City time) on such
day.
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(3) If we distribute shares of our capital stock, evidences
of our indebtedness or other assets or property, or rights to
acquire our capital stock or other securities, to all or
substantially all holders of our ordinary shares, excluding:
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dividends or distributions and rights or warrants described in
clause (1) or (2) above;
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dividends or distributions paid exclusively in cash; and
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spin-offs to which the provisions set forth below in this
paragraph (3) shall apply;
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then the conversion rate will be adjusted based on the following
formula:
where,
CR0 =
the conversion rate in effect immediately prior to the record
date for such distribution;
CR = the conversion rate in effect immediately after
the close of business on the record date for such distribution;
SP0 =
the average of the last reported sale prices of our ADSs over
the ten consecutive
trading-day
period ending on the trading day immediately preceding the
record date for such distribution, divided by the then
applicable number of ordinary shares represented by one
ADS; and
FMV = the fair market value (as determined by our board of
directors) of the shares of capital stock, evidences of
indebtedness, assets, property or rights distributed with
respect to each outstanding ordinary share on the record date
for such distribution.
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our ordinary shares in shares of capital stock
of any class or series, or similar equity interest, of or
relating to a subsidiary or other business unit (a
spin-off), the conversion rate will be adjusted
based on the following formula:
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CR
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=
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CR0
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×
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FMV0
+
MP0
MP0
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where,
CR0
= the conversion rate in effect immediately prior to the end of
the valuation period (as defined below);
CR = the conversion rate in effect immediately after
the end of the valuation period;
FMV0
= the average of the last reported sale prices of the capital
stock or similar equity interest distributed to holders of our
ordinary shares applicable to one ordinary share over the first
ten consecutive
trading-day
period beginning on and including the fifth trading day after
the effective date of the spin-off (the valuation
period); and
MP0
= the average of the last reported sale prices of our ADSs over
the valuation period, divided by the then applicable number of
ordinary shares represented by one ADS.
The adjustment to the conversion rate under the preceding
paragraph will occur on the fifteenth trading day from, and
including, the effective date of the spin-off. As a result, any
conversion within the fifteen trading days following the
effective date of any spin-off will be deemed not to have
occurred until the end of such fifteen
trading-day
period.
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(4) If we pay any cash dividend or distribution to all or
substantially all holders of our ordinary shares (including as a
result of capital reductions and ordinary share redemptions or
amortizations), the conversion rate will be adjusted based on
the following formula:
where,
CR0
= the conversion rate in effect immediately prior to the record
date for such dividend or distribution;
CR = the conversion rate in effect immediately after
the close of business on the record date for such dividend or
distribution;
SP0
= the average of the last reported sale prices of our ADSs over
the ten consecutive
trading-day
period ending on the trading day immediately preceding the
record date for such distribution, divided by the then
applicable number of ordinary shares represented by one
ADS; and
C = the full amount of such dividend or distribution per
ordinary share we distribute to holders of our ordinary shares.
(5) If we or any of our subsidiaries makes a payment in
respect of a tender offer or exchange offer for our ordinary
shares, if (a) the cash and value of any other
consideration included in the payment per ordinary share exceeds
(b) the last reported sale price of our ADSs on the trading
day immediately following the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer,
divided by the then applicable number of ordinary shares
represented by one ADS, the conversion rate will be adjusted
based on the following formula:
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CR
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=
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CR0
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×
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AC + (SP × OS)
OS0
× SP
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where,
CR0
= the conversion rate in effect on the day immediately prior to
the effective date of the adjustment;
CR = the conversion rate in effect immediately
following the effective date of the adjustment;
AC = the aggregate value of all cash and any other consideration
(as determined by our board of directors) paid or payable for
ordinary shares purchased in such tender or exchange offer;
OS0
= the number of ordinary shares outstanding immediately prior to
the date such tender or exchange offer expires;
OS = the number of ordinary shares outstanding
immediately after the date such tender or exchange offer
expires; and
SP = the average of the last reported sale prices of
our ADSs over the ten consecutive
trading-day
period commencing on the trading day immediately following the
date such tender or exchange offer expires, divided by the then
applicable number of ordinary shares represented by one ADS.
The adjustment to the conversion rate under the preceding
paragraph will occur at the close of business on the tenth
trading day from and including the trading day immediately
following the date such tender or exchange offer expires. As a
result, any conversion within such ten
trading-day
period will be deemed not to have occurred until the end of such
ten
trading-day
period.
If, however, the application of the foregoing formulae (other
than in connection with a ordinary share combination) would
result in a decrease in the conversion rate, no adjustment to
the conversion rate will be made.
As used in this Description of the Notes, the term
outstanding with reference to the ordinary shares
means ordinary shares that are outstanding for purposes of
Cayman Islands law. In making any conversion rate adjustments as
described in this section, the number of ordinary shares
outstanding will be determined without regard to the accounting
treatment of the ordinary shares issued pursuant to the share
issuance and repurchase agreement dated January 23, 2008.
47
Except as stated herein and under Adjustment
to Conversion Rate upon Occurrence of a Make-Whole Change in
Control, we will not adjust the conversion rate for the
issuance of our ordinary shares or any securities convertible
into or exchangeable for our ordinary shares or the right to
purchase our ordinary shares or such convertible or exchangeable
securities.
Events that Will Not Result in
Adjustments. The applicable conversion rate will
not be adjusted:
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upon the issuance of any ordinary shares pursuant to any present
or future plan providing for the reinvestment of dividends or
interest payable on our securities and the investment of
additional optional amounts in ordinary shares under any such
plan;
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upon the issuance of any ordinary shares options or rights to
purchase those ordinary shares pursuant to any present or future
employee, director or consultant benefit plan or program of or
assumed by us or any of our subsidiaries;
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upon the issuance of any ordinary shares pursuant to any option,
warrant, right or exercisable, exchangeable or convertible
security not described in the proceeding bullet and outstanding
as of the date the notes were first issued;
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for a change in the par value of our ordinary shares; or
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for accrued and unpaid interest, if any.
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Adjustments to the applicable conversion rate will be calculated
to the nearest 1/10,000th of an ADS. We will not be
required to make an adjustment in the conversion rate unless the
adjustment would require a change of at least 1% in the
conversion rate. However, we will carry forward any adjustments
that are less than 1% of the conversion rate and make such
carried forward adjustments, regardless of whether the aggregate
adjustment is less than 1%, within one year of the first such
adjustment carried forward, upon a fundamental change, upon any
call of the notes for redemption or upon maturity.
Treatment of Reference Property. In the event
of:
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any reclassification of our ordinary shares;
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a consolidation, merger or combination involving us; or
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a sale or conveyance to another person of all or substantially
all of our property and assets,
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in which holders of our outstanding ordinary shares (including
ordinary shares represented by ADSs) would be entitled to
receive cash, securities or other property for their ordinary
shares (including ordinary shares represented by ADSs), you will
be entitled thereafter to convert your notes into, in lieu of
ADSs otherwise deliverable, the same type (in the same
proportions) of consideration received by holders of our
ordinary shares (including ordinary shares represented by ADSs)
in the relevant event (the reference property).
The amount of any reference property you receive will be based
on the number of ADSs that you would have received upon
conversion had no such event occurred.
For purposes of the foregoing, the type and amount of
consideration that a holder of our ordinary shares (including
ordinary shares represented by ADSs) would have been entitled to
in the case of reclassifications, consolidations, mergers,
combination, sales or conveyances of assets or other
transactions that cause our ordinary shares (including ordinary
shares represented by ADSs) to be converted into the right to
receive more than a single type of consideration (determined
based in part upon any form of shareholder election) will be
deemed to be the weighted average of the types and amounts of
consideration received by the holders of our ordinary shares
(including ordinary shares represented by ADSs) that
affirmatively make such an election.
Adjustment for Changes in Ordinary Share-to-ADS
Ratio. To the extent that the number of ordinary
shares represented by each ADS is changed, appropriate
adjustments to the conversion rate adjustments described above
(which may include ignoring such provision, if appropriate) will
be made to reflect such change.
Treatment of Rights. To the extent that we
have a rights plan in effect upon conversion of the notes into
ADSs, you will receive, in addition to the ADSs, the rights
under the rights plan, unless prior to any conversion, the
rights
48
have separated from the ordinary shares represented by the ADSs,
in which case the conversion rate will be adjusted at the time
of separation as if we distributed to all holders of our
ordinary shares, shares of our capital stock, evidences of
indebtedness, assets, property, rights or warrants as described
in clause (3) under Adjustment
Events above, subject to readjustment in the event of the
expiration, termination or redemption of such rights.
Voluntary Increases of Conversion Rate. We are
permitted, to the extent permitted by law and subject to the
applicable rules of the Nasdaq Global Market, to increase the
conversion rate of the notes by any amount for a period of at
least 20 days if our board of directors determines that
such increase would be in our best interest. We may also (but
are not required to) increase the conversion rate to avoid or
diminish income tax to holders of our ordinary shares or ADSs or
rights to purchase our ordinary shares or ADSs in connection
with a dividend or distribution of ordinary shares or ADSs (or
rights to acquire ordinary shares or ADSs) or similar event.
Tax Effect. A holder may, in some
circumstances, including the distribution of cash dividends to
holders of our ordinary shares, be deemed to have received a
distribution or dividend subject to U.S. federal income tax
as a result of an adjustment or the nonoccurrence of an
adjustment to the conversion rate. For a discussion of the
U.S. federal income tax treatment of an adjustment to the
conversion rate, see Taxation
U.S. Federal Income Taxation Notes
Constructive Distributions.
Adjustment
to Conversion Rate upon Occurrence of a Make-Whole Change in
Control
If a make-whole change in control (as defined below)
occurs and a holder elects to convert its notes in connection
with such make-whole change in control, we will, under certain
circumstances, increase the conversion rate for the notes so
surrendered for conversion as described below. A conversion of
notes will be deemed for these purposes to be in
connection with such make-whole change in control if the
notice of conversion of the notes is received by the conversion
agent from, and including, the effective date of the make-whole
change in control up to, and including, the business day
immediately prior to the related fundamental change purchase
date (or, in the case of an event that would have been a change
in control but for the proviso in the second bullet of
the definition thereof, the 35th trading day immediately
following the effective date of such make-whole change in
control).
On or before the 15th day after the occurrence of a
make-whole change in control that does not also constitute a
change in control, we will mail to the trustee and to all
holders of notes at their addresses shown in the register of the
registrar, and to beneficial owners, as required by applicable
law, a notice indicating that a make-whole change in control has
occurred.
A make-whole change in control means either of the
following events:
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any person (as defined below) or group (as defined below), other
than us, our subsidiaries or any employee benefit plan of ours
or our subsidiaries, files a Schedule 13D or
Schedule TO (or any successor schedule, form or report)
pursuant to the Exchange Act disclosing that such person or
group has become the beneficial owner (as defined below) of our
capital stock with a majority of the total voting power of all
of our outstanding capital stock that is entitled to vote
generally in the election of our board of directors, which we
refer as voting securities, unless such beneficial ownership
(i) arises solely as a result of a revocable proxy
delivered in response to a proxy or consent solicitation made
pursuant to the applicable rules and regulations under the
Exchange Act, and (ii) is not also then reportable on
Schedule 13D (or any successor schedule) under the Exchange
Act; or
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we consolidate with or merge with or into another person (other
than one of our subsidiaries), or sell, convey, transfer or
lease all or substantially all of our properties and assets to
any person (other than one of our subsidiaries), or any person
(other than one of our subsidiaries) consolidates with or merges
with or into us, and our outstanding voting securities are
reclassified into, converted for or converted into the right to
receive any property or security.
|
Notwithstanding the foregoing, it will not constitute a
make-whole change in control if at least 90% of the
consideration for our ordinary shares (excluding cash payments
for fractional shares and cash payments made in respect of
dissenters appraisal rights and cash payment of the
required cash payment, if any) in the transaction or
transactions constituting the make-whole change in control
consists of securities traded on a United States national
securities exchange, or which will be so traded when issued or
exchanged in connection with the make-whole
49
change in control, and as a result of such transaction or
transactions the notes become convertible solely into such
securities.
In connection with a make-whole change in control, we will
increase the conversion rate by the number of additional ADSs
(the additional ADSs) as determined by reference to
the table below, based on the date on which the make-whole
change in control occurs or becomes effective (the
effective date), and the price paid per ordinary
share, translated, if necessary, into U.S. dollars at the
exchange rate in effect on such date and multiplied by the
number of ordinary shares represented by each ADS then
applicable, in the make-whole change in control (the ADS
price). If holders of our ordinary shares receive only
cash in the make-whole change in control, the ADS price shall be
the cash amount paid per ordinary share, translated, if
necessary, into U.S. dollars at the exchange rate in effect
on the effective date of the make-whole change in control and
multiplied by the number of ordinary shares represented by each
ADS then applicable. Otherwise, the ADS price shall be the
average of the last reported sale prices of our ADSs over the
five
trading-day
period ending on the trading day preceding the effective date of
the make-whole change in control.
The ADS prices set forth in the first row of the table below
(i.e., column headers) will be adjusted as of any date on which
the conversion rate of the notes is otherwise adjusted. The
adjusted ADS prices will equal the ADS prices applicable
immediately prior to such adjustment, multiplied by a fraction,
the numerator of which is the conversion rate immediately prior
to the adjustment giving rise to the ADS price adjustment and
the denominator of which is the conversion rate as so adjusted.
The number of additional ADSs will be adjusted in the same
manner as the conversion rate as set forth under
Conversion Rate Adjustments.
The following table sets forth the hypothetical ADS price and
the number of additional ADSs to be received per US$1,000
principal amount of notes:
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Effective Date
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ADS Price (US$)
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15.00
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20.00
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25.00
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30.00
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35.00
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40.00
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45.00
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50.00
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55.00
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65.00
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75.00
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100.00
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125.00
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150.00
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1/29/2008
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14.3791
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10.9870
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7.6336
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5.6470
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4.3618
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3.4753
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2.8355
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2.3544
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1.9836
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1.4550
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1.1031
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0.6114
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0.3832
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0.2739
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1/15/2009
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14.3791
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10.5135
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7.1823
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5.2496
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4.0210
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3.1864
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2.5905
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2.1463
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1.8062
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1.3245
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1.0057
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0.5624
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0.3581
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0.2614
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1/15/2010
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14.3791
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9.9154
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6.6188
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4.7593
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3.6067
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2.8385
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2.2982
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1.8994
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1.5972
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1.1725
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0.8932
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0.5068
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0.3301
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0.2481
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1/15/2011
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14.3791
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9.2662
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5.9852
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4.2068
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3.1399
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2.4504
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1.9752
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1.6300
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1.3715
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1.0118
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0.7766
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0.4515
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0.3033
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0.2358
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1/15/2012
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14.3791
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8.5262
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5.2392
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3.5552
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2.5981
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2.0044
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1.6107
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1.3304
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1.1241
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0.8401
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0.6548
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0.3966
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0.2782
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0.2252
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1/15/2013
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14.3791
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7.5763
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4.2751
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2.7327
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1.9317
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1.4735
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1.1861
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0.9884
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0.8464
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0.6521
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0.5239
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0.3401
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0.2538
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0.2159
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1/15/2014
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14.3791
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6.2044
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2.9219
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1.6469
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1.1045
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0.8448
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0.7029
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0.6075
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0.5408
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0.4465
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0.3806
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0.2797
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0.2299
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0.2086
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1/15/2015
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14.3791
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4.3171
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0.2074
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0.2074
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0.2071
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0.2062
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0.2077
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0.2075
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|
|
0.2077
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|
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|
0.2056
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|
0.2056
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|
|
0.2056
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0.2056
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0.2056
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1/15/2016
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14.3791
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4.4243
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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1/15/2017
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14.3791
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4.1502
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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0.0000
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1/15/2018
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14.3791
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|
0.0000
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0.0000
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0.0000
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|
0.0000
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|
|
0.0000
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|
0.0000
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|
|
0.0000
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|
|
0.0000
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|
|
|
0.0000
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|
|
|
0.0000
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|
|
0.0000
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|
|
0.0000
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|
0.0000
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|
The exact ADS prices and effective dates may not be set forth in
the table above, in which case:
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If the ADS price is between two ADS price amounts in the table
or the effective date is between two effective dates in the
table, the number of additional ADSs will be determined by a
straight-line interpolation between the number of additional
ADSs set forth for the higher and lower ADS price amounts and
the two dates, as applicable, based on a
365-day year.
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If the ADS price is greater than US$150.00 (subject to
adjustment), the conversion rate will not be adjusted.
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If the ADS price is less than US$15.00 (subject to adjustment),
the conversion rate will not be adjusted.
|
Notwithstanding the foregoing, in no event will the total number
of ADSs issuable upon conversion exceed 66.6667 per US$1,000
principal amount of notes, subject to adjustment in the same
manner as the conversion rate as set forth under
Conversion Rate Adjustments.
Our obligation to increase the conversion rate as described
above could be considered a penalty, in which case the
enforceability thereof would be subject to general principles of
economic remedies.
50
Optional
Redemption by Us
We may not redeem the notes prior to January 20, 2015. At
any time on or after January 20, 2015, we may redeem for
cash all of the notes, in whole or in part in integral multiples
of US$1,000, at a price equal to 100% of the principal amount of
the notes being redeemed plus accrued and unpaid interest to,
but excluding, the redemption date, if the last reported sale
price (as defined above under Conversion
Rights General) of our ADSs for at least 20
trading days in a period of 30 consecutive trading days, the
last of which occurs no more than five trading days prior to the
date upon which notice of such redemption is published, is at
least 130% of the applicable conversion price per ADS in effect
on such trading date. However, if the redemption date occurs
after a record date and on or prior to the corresponding
interest payment date, we will pay the full amount of accrued
and unpaid interest due on such payment date to the record
holder on the record date corresponding to such interest payment
date, and the redemption price payable to the holder who
presents the note for redemption will be 100% of the principal
amount of such note and will not include any accrued and unpaid
interest. We will give at least 30 days and no more than
60 days notice of such redemption.
You may convert notes or portions of notes called for redemption
even if the notes are not otherwise convertible at that time,
until the close of business on the business day prior to the
redemption date.
If we decide to redeem fewer than all of the notes, the trustee
will select the notes to be redeemed by lot, or in its
discretion, on a pro rata basis. If any note is to be redeemed
in part only, a new note in principal amount equal to the
unredeemed principal portion will be issued. If a portion of
your notes is selected for partial redemption and you convert a
portion of your notes, the converted portion will be deemed to
be part of the portion selected for redemption.
No sinking fund is provided for the notes.
Purchase
of Notes at Your Option on Specified Dates
On January 15, 2015, you may require us to purchase all or
a portion of your notes in integral multiples of US$1,000 at a
purchase price in cash equal to 100% of the principal amount of
the notes being purchased plus accrued and unpaid interest to,
but excluding, the purchase date, subject to certain additional
conditions. However, we will, on the purchase date, pay the
accrued and unpaid interest to, but excluding, such date to the
holder of record at the close of business on the immediately
preceding record date. Accordingly, the holder submitting a note
for purchase will not receive this accrued and unpaid interest
unless that holder was also the holder of record at the close of
business on the immediately preceding record date.
On the purchase date, we will purchase each outstanding note for
which you have properly delivered and not withdrawn a written
purchase notice. You may submit your written purchase notice and
notes for purchase to the paying agent at any time from the
opening of business on the date that is 25 business days prior
to the purchase date until the close of business on the fifth
business day prior to the purchase date.
For a discussion of the tax treatment in the United States, the
Peoples Republic of China and the Cayman Islands of a
holder receiving cash, see Taxation.
Required
Notices and Procedure
On a date not less than 25 business days prior to each purchase
date, we will be required to give notice to all holders at their
addresses shown in the register of the registrar, and to
beneficial owners as required by applicable law, stating, among
other things, the procedures that holders must follow to require
us to purchase their notes.
The purchase notice given by you electing to require us to
purchase notes must be given so as to be received by the paying
agent no later than the close of business on the fifth business
day prior to the purchase date and must state:
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if certificated, the certificate numbers of your notes to be
delivered for purchase;
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the principal amount of notes to be purchased, which must be
US$1,000 or an integral multiple thereof; and
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that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture.
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You may withdraw any purchase notice (in whole or in part) by a
written notice of withdrawal delivered to the paying agent prior
to the close of business on the business day prior to the
purchase date. The notice of withdrawal shall state:
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if certificated notes have been issued, the certificate number
of the withdrawn notes, or if not certificated, your notice must
comply with appropriate DTC procedures;
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the principal amount of the withdrawn notes; and
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the principal amount, if any, of the notes which remains subject
to the purchase notice.
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In connection with any purchase offer, we will:
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comply with the provisions of
Rule 13e-4,
Rule 14e-1
and any other tender offer rules under the Exchange Act;
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file a Schedule TO or any successor or similar schedule, if
required, under the Exchange Act; and
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otherwise comply with all federal and state securities laws in
connection with any offer by us to purchase the notes.
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Our obligation to pay the purchase price for a note as to which
a purchase notice has been delivered and not validly withdrawn
is conditioned upon the holder delivering the note, together
with necessary endorsements, to the paying agent at any time
after delivery of the purchase notice. We will cause the
purchase price for the note to be paid promptly following the
later of the purchase date or the time of delivery of the note.
If the paying agent holds money or securities sufficient to pay
the purchase price of the notes on the business day following
the purchase date, then:
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the notes will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the notes are delivered to the paying
agent); and
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all other rights of the holder will terminate (other than the
right to receive the purchase price upon delivery or transfer of
the notes).
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We may not have enough funds to pay the purchase price at the
specified purchase dates. See Risk Factors
Risks Related to the Notes, Our Ordinary Shares and Our
ADSs We may be unable to raise the funds to pay
interest on the notes, to purchase the notes on the purchase
dates, upon a fundamental change or at maturity. Any
future debt agreements or instruments relating to our or our
subsidiaries indebtedness could contain provisions
prohibiting our repurchase of the notes under certain
circumstances. If we fail to purchase the notes when required on
a purchase date, we will be in default under the indenture.
No notes may be purchased at the option of holders if there has
occurred and is continuing an event of default other than an
event of default that is cured by the payment of the purchase
price of the notes.
Fundamental
Change Permits Holders to Require Us to Purchase Notes
If a fundamental change (as defined below) occurs at any time,
you will have the right, at your option, to require us to
purchase for cash all or a portion of your notes in integral
multiples of US$1,000, on a date (the fundamental change
purchase date) of our choosing that is not less than 20
nor more than 35 business days after the date of the fundamental
change notice described below. The price we are required to pay
is equal to 100% of the principal amount of the notes to be
purchased plus accrued and unpaid interest to, but excluding,
the fundamental change purchase date. However, if the
fundamental change purchase date occurs after a record date and
on or prior to the corresponding interest payment date, we will
pay the full amount of accrued and unpaid interest due on such
payment date to the record holder on the record date
corresponding to such interest payment date, and the fundamental
change purchase price payable to the holder who presents the
note for purchase will be 100% of the principal amount of such
note and will not include any accrued and unpaid interest.
A fundamental change will be deemed to have occurred
upon a change in control or a termination of trading.
52
A change in control means either of the following
events:
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any person or group, other than us, our subsidiaries or any
employee benefit plan of ours or our subsidiaries, files a
Schedule 13D or Schedule TO (or any successor schedule,
form or report) pursuant to the Exchange Act disclosing that
such person or group has become the beneficial owner of our
capital stock with a majority of the total voting power of all
of our outstanding capital stock that is entitled to vote
generally in the election of our board of directors, which we
refer as voting securities, unless such beneficial ownership
(i) arises solely as a result of a revocable proxy
delivered in response to a proxy or consent solicitation made
pursuant to the applicable rules and regulations under the
Exchange Act, and (ii) is not also then reportable on
Schedule 13D (or any successor schedule) under the Exchange
Act; or
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we consolidate with or merge with or into another person (other
than one of our subsidiaries), or sell, convey, transfer or
lease all or substantially all of our properties and assets to
any person (other than one of our subsidiaries), or any person
(other than one of our subsidiaries) consolidates with or merges
with or into us, and our outstanding voting securities are
reclassified into, converted for or converted into the right to
receive any property or security, provided that none of
these circumstances will be a change in control if persons that
beneficially own our voting securities immediately prior to the
transaction own, directly or indirectly, a majority of the
voting securities of the surviving or transferee person
immediately after the transaction in substantially the same
proportion as their ownership of our voting securities
immediately prior to the transaction.
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For purposes of defining a change in control or a make-whole
change in control:
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the term person and the term group have
the meanings given by Section 13(d) and 14(d) of the
Exchange Act or any successor provisions;
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the term group includes any group acting for the
purpose of acquiring, holding or disposing of securities within
the meaning of
Rule 13d-5(b)(1)
under the Exchange Act or any successor provision; and
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the term beneficial owner is determined in
accordance with
Rules 13d-3
and 13d-5
under the Exchange Act or any successor provisions, except that
a person will be deemed to have beneficial ownership of all
shares of capital stock that person has the right to acquire
irrespective of whether that right is exercisable immediately or
only after the passage of time.
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Notwithstanding the foregoing, it will not constitute a change
in control if at least 90% of the consideration for our ordinary
shares (excluding cash payments for fractional shares and cash
payments made in respect of dissenters appraisal rights
and cash payment of the required cash payment, if any) in the
transaction or transactions constituting the change in control
consists of securities traded on a United States national
securities exchange, or which will be so traded when issued or
exchanged in connection with the change in control, and as a
result of such transaction or transactions the notes become
convertible solely into such securities.
A termination of trading will be deemed to have
occurred if our ADSs, or other securities into which the notes
are then convertible, are not listed for trading on a
U.S. national securities exchange, except as a result of a
merger involving us or a tender offer or exchange offer for our
ordinary shares, ADSs or others securities into which the notes
are then convertible.
Within 20 business days after the occurrence of a fundamental
change, we will provide to all holders of the notes and the
trustee and paying agent a written notice of the occurrence of
the fundamental change and of the resulting purchase right (the
fundamental change notice). Such notice shall state,
among other things:
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the events causing a fundamental change;
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the date of the fundamental change;
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the last date on which a holder may exercise the purchase right;
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the fundamental change purchase price;
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the fundamental change purchase date;
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the name and address of the paying agent and the conversion
agent, if applicable;
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the applicable conversion rate and any adjustments to the
applicable conversion rate;
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that the notes with respect to which a fundamental change
purchase notice has been delivered by a holder may be converted
only if the holder withdraws the fundamental change purchase
notice in accordance with the terms of the indenture; and
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the procedures that holders must follow to require us to
purchase their notes.
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Simultaneously with providing such notice, we will publish a
notice containing this information in a newspaper of general
circulation in The City of New York or publish the information
on our website or through such other public medium as we may use
at that time.
To exercise the purchase right, you must deliver, on or before
the fifth business day prior to the fundamental change purchase
date, a written purchase notice in the form entitled Form
of Fundamental Change Purchase Notice on the reverse side
of the notes duly completed, to the paying agent. Your purchase
notice must state:
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if certificated, the certificate numbers of your notes to be
delivered for purchase;
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the principal amount of notes to be purchased, which must be
US$1,000 or an integral multiple thereof; and
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that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture.
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You may withdraw any purchase notice (in whole or in part) by a
written notice of withdrawal delivered to the paying agent prior
to the close of business on the business day prior to the
fundamental change purchase date. The notice of withdrawal shall
state:
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes, or if not certificated, your notice must
comply with appropriate DTC procedures;
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the principal amount of the withdrawn notes; and
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the principal amount, if any, of the notes which remains subject
to the purchase notice.
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In connection with any fundamental change purchase offer, we
will:
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comply with the provisions of
Rule 13e-4,
Rule 14e-1
and any other tender offer rules under the Exchange Act;
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file a Schedule TO or any successor or similar schedule, if
required, under the Exchange Act; and
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otherwise comply with all federal and state securities laws in
connection with any offer by us to purchase the notes.
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Our obligation to pay the fundamental change purchase price for
a note as to which a fundamental change purchase notice has been
delivered and not validly withdrawn is conditioned upon the
holder delivering the note, together with necessary
endorsements, to the paying agent at any time after delivery of
the fundamental change purchase notice. We will cause the
fundamental change purchase price for the note to be paid
promptly following the later of the fundamental change purchase
date or the time of delivery of the note.
If the paying agent holds money or securities sufficient to pay
the fundamental change purchase price of the notes on the
business day following the fundamental change purchase date,
then:
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the notes will cease to be outstanding and interest will cease
to accrue (whether or not book-entry transfer of the notes is
made or whether or not the notes are delivered to the paying
agent); and
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all other rights of the holder will terminate (other than the
right to receive the fundamental change purchase price upon
delivery or transfer of the notes).
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The purchase rights of the holders could discourage a potential
acquirer, even if the acquisition may be beneficial to you. The
fundamental change purchase feature, however, is not the result
of managements knowledge of any specific effort to obtain
control by any means or part of a plan by management to adopt a
series of anti-takeover provisions.
54
The term fundamental change is limited to specified transactions
and may not include other events that might adversely affect our
financial condition. In addition, the requirement that we offer
to purchase the notes upon a fundamental change may not protect
holders in the event of a highly leveraged transaction,
reorganization or similar transaction involving us.
If a fundamental change were to occur, we may not have enough
funds to pay the fundamental change purchase price. See
Risk Factors Risks Related to the Notes, Our
Ordinary Shares and Our ADSs We may be unable to
raise the funds to pay interest on the notes, to purchase the
notes on the purchase dates, upon a fundamental change or at
maturity. Any future debt agreements or instruments
relating to our or our subsidiaries indebtedness could
contain provisions prohibiting our repurchase of the notes under
certain circumstances. If we fail to purchase the notes when
required following a fundamental change, we will be in default
under the indenture. In addition, we may in the future incur
other indebtedness with change in control provisions permitting
the holders thereof to accelerate or to require us to purchase
such indebtedness upon the occurrence of specified change in
control events or on some specific dates.
No notes may be purchased at the option of holders upon a
fundamental change if there has occurred and is continuing an
event of default other than an event of default that is cured by
the payment of the fundamental change purchase price of the
notes.
Consolidation,
Merger and Sale of Assets
The indenture provides that we shall not consolidate with or
merge with or into, or convey, transfer or lease all or
substantially all of our properties and assets to, another
person, unless (i) the resulting, surviving or transferee
person (other than us) is a person organized and existing under
the laws of the Cayman Islands, the United States of America,
any State thereof or the District of Columbia, and such person
(other than us) expressly assumes by supplemental indenture all
of our obligations under the notes and the indenture; and
(ii) immediately after giving effect to such transaction,
no default or event of default has occurred and is continuing
under the indenture. Upon any such consolidation, merger,
conveyance or transfer, the resulting, surviving or transferee
person shall succeed to, and may exercise every right and power
of, ours under the indenture.
Although these types of transactions are permitted under the
indenture, certain of the foregoing transactions could
constitute a fundamental change (as defined above) permitting
each holder to require us to purchase the notes of such holder
as described above.
Events of
Default
Each of the following is an event of default:
(1) default in any payment of interest, including any
related additional amounts, on any note when due and payable and
the default continues for a period of 30 days;
(2) default in the payment of principal of any note,
including any related additional amounts, when due and payable
at stated maturity, upon redemption or required repurchase, upon
declaration or otherwise;
(3) our failure to comply with our obligations to convert
the notes into ADSs upon exercise of a holders conversion
right;
(4) our failure to issue a fundamental change notice in
accordance with the terms of the indenture;
(5) our failure for 60 days after written notice from
the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding has been received
to comply with any of our other agreements contained in the
notes or indenture;
(6) failure by us or any of our significant subsidiaries
(as defined below) to make any payment of the principal or
interest on any mortgage, agreement or other instrument under
which there may be outstanding, or by which there may be secured
or evidenced, any debt for money borrowed in excess of
US$10 million in the aggregate of ours
and/or any
such subsidiary, whether such debt now exists or shall hereafter
be created, resulting in such debt becoming due and payable
before the date on which it would otherwise have become due
55
and payable, if such failure is not cured or waived, or such
acceleration is not rescinded, within 60 days after notice
to us by the trustee or to us and the trustee by holders of at
least 25% in aggregate principal amount of the notes then
outstanding, in accordance with the indenture; or
(7) certain events of bankruptcy, insolvency, or
reorganization with respect to us or any of our significant
subsidiaries (collectively, the bankruptcy
provisions).
As used herein, the term significant subsidiary
means any subsidiary of ours (or any successor) which, at the
time of determination, either (a) had assets which, as of
the date of our (or such successors) most recent quarterly
consolidated balance sheet, constituted at least 10% of our (or
such successors) total assets on a consolidated basis as
of such date or (b) had revenues for the
12-month
period ending on the date of our (or such successors) most
recent quarterly consolidated statement of income which
constituted at least 10% of our (or such successors) total
revenues on a consolidated basis for such period; provided
that Yangguang Solar and any of its successors shall at all
times be a significant subsidiary.
If an event of default occurs and is continuing, the trustee by
notice to us, or the holders of at least 25% in principal amount
of the outstanding notes by notice to us and the trustee, may,
and the trustee at the request of such holders shall, declare
100% of the principal of and accrued and unpaid interest,
including additional amounts, if any, on all the notes to be due
and payable. Upon such a declaration, such principal and accrued
and unpaid interest, including any additional amounts, will be
due and payable immediately. However, upon an event of default
arising out of the bankruptcy provisions relating to us, the
aggregate principal amount and accrued and unpaid interest,
including additional amounts, will be due and payable
immediately.
The holders of a majority in aggregate principal amount of the
outstanding notes may waive all past defaults (except with
respect to nonpayment of principal or interest, including any
additional amounts) and rescind any such acceleration with
respect to the notes and its consequences if (1) rescission
would not conflict with any judgment or decree of a court of
competent jurisdiction and (2) all existing events of
default, other than the nonpayment of the principal of and
interest, including additional amounts, on the notes that have
become due solely by such declaration of acceleration, have been
cured or waived.
Subject to the provisions of the indenture relating to the
duties of the trustee, if an event of default occurs and is
continuing, the trustee will be under no obligation to exercise
any of the rights or powers under the indenture at the request
or direction of any of the holders unless such holders have
offered to the trustee indemnity or security satisfactory to it
against any loss, liability or expense. Except to enforce the
right to receive payment of principal or interest, including any
additional amounts, when due, no holder may pursue any remedy
with respect to the indenture or the notes unless:
(1) such holder has previously given the trustee written
notice that an event of default is continuing;
(2) holders of at least 25% in aggregate principal amount
of the outstanding notes have made a written request to the
trustee to pursue the remedy;
(3) such holders have offered the trustee security or
indemnify satisfactory to it against any loss, liability or
expense;
(4) the trustee has not complied with such request within
60 days after the receipt of the request and the offer of
security or indemnity; and
(5) the holders of a majority in aggregate principal amount
of the outstanding notes have not given the trustee a direction
that, in the opinion of the trustee, is inconsistent with such
request within such
60-day
period.
Subject to certain restrictions, the holders of a majority in
aggregate principal amount of the outstanding notes are given
the right to direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or of
exercising any trust or power conferred on the trustee. The
indenture provides that if an event of default has occurred and
is continuing, the trustee will exercise its powers and rights
vested in it by the indenture to use the degree of care that a
prudent person would use in the conduct of its own affairs. The
trustee, however, may refuse to follow any direction that
conflicts with law or the indenture or that the trustee
determines is unduly prejudicial to the
56
rights of any other holder or that would involve the trustee in
personal liability. Prior to taking any action under the
indenture, the trustee will be entitled to indemnification
satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The indenture provides that if a default occurs and is
continuing and is known to the trustee, the trustee must mail to
each holder notice of the default within 90 days after it
occurs. Except in the case of a default in the payment of
principal of or interest on any note, the trustee may withhold
notice if and so long as a committee of trust officers of the
trustee in good faith determines that withholding notice is in
the interests of the holders. In addition, we are required to
deliver to the trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers
thereof know of any default that occurred during the previous
year. We also are required to deliver to the trustee, within
30 days after the occurrence thereof, written notice of any
events which would constitute certain events of default, their
status and what action we are taking or propose to take in
respect thereof.
If any portion of the amount payable on the notes upon
acceleration is considered by a court to be unearned interest
(through the allocation of a portion of the value of the
instrument to the embedded warrant or otherwise), the court
could disallow recovery of any such portion.
Modification
and Amendment
Subject to certain exceptions, the indenture or the notes may be
amended with the consent of the holders of at least a majority
in aggregate principal amount of the notes then outstanding
(including without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, the
notes) and, subject to certain exceptions, any past default or
compliance with any provisions may be waived with the consent of
the holders of a majority in aggregate principal amount of the
notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or
exchange offer for, the notes). However, without the consent of
each holder of an outstanding note affected, no amendment may,
among other things:
(1) reduce the percentage in aggregate principal amount of
notes the holders of which must consent to an amendment;
(2) reduce the rate, or extend the stated time for payment,
of interest on any note;
(3) reduce the principal amount, or extend the stated
maturity, of any note;
(4) change the place or currency of payment of principal or
interest in respect of any note;
(5) make any change that adversely affects the conversion
rights of any notes;
(6) reduce the fundamental change purchase price,
redemption price or optional purchase price of any note or amend
or modify in any manner adverse to the holders of notes our
obligation to make such payments, whether through an amendment
or waiver of provisions in the covenants, definitions or
otherwise;
(7) impair the right of any holder to receive payment of
principal of and interest on such holders notes on or
after the due dates therefor or to institute suit for the
enforcement of any payment on or with respect to such
holders notes;
(8) make any change in the amendment provisions which
require each holders consent or in the waiver
provisions; or
(9) change our obligation to pay additional amounts.
Notwithstanding the foregoing, without the consent of any
holder, we and the trustee may amend the indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor corporation,
partnership, trust or limited liability company of our
obligations as permitted under the indenture;
(3) provide for uncertificated notes in addition to or in
place of certificated notes (provided that the uncertificated
notes are issued in registered form for purposes of
Section 163(f) of the U.S. Internal Revenue
57
Code, or in a manner such that the uncertificated notes are
described in Section l63(f)(2)(B) of the U.S. Internal
Revenue Code);
(4) add guarantees with respect to the notes;
(5) secure the notes;
(6) add to our covenants for the benefit of the holders or
surrender any right or power conferred upon us;
(7) make any changes or modifications to the indenture
necessary in connection with the registration of the public
offer and sale of the notes under the Securities Act pursuant to
the registration rights agreement or the qualification of the
indenture under the Trust Indenture Act of 1939;
(8) evidence and provide for the acceptance of the
appointment of a successor trustee under the indenture;
(9) make any necessary changes to permit the conversion of
the notes into our ordinary shares, if any, as a result of the
termination of our ADS facility; or
(10) make any change that does not materially adversely
affect the rights of any holder, provided that any amendment
made solely to conform the provisions of the indenture or the
notes to the description of the notes in this prospectus will
not be deemed to materially adversely affect the rights of any
holder.
The consent of the holders is not necessary under the indenture
to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the
proposed amendment. After an amendment under the indenture
becomes effective, we are required to mail to the holders a
notice briefly describing such amendment. However, the failure
to give such notice to all the holders, or any defect in the
notice, will not impair or affect the validity of the amendment.
Discharge
We may satisfy and discharge our obligations under the indenture
by delivering to the registrar for cancellation all outstanding
notes or by depositing with the trustee or delivering to the
holders, as applicable, after the notes have become due and
payable, whether at stated maturity, or any purchase date, or
upon redemption, conversion or otherwise, cash or securities
sufficient to pay all of the outstanding notes and paying all
other sums payable under the indenture by us. Such discharge is
subject to terms contained in the indenture.
Calculations
in Respect of Notes
Except as otherwise provided above, we will be responsible for
making all calculations called for under the indenture and the
notes. These calculations include, but are not limited to,
determinations of the last reported sale prices of our ADSs or
ordinary shares, accrued interest payable on the notes and the
conversion rate of the notes. We will make all these
calculations in good faith and, absent manifest error, our
calculations will be final and binding on holders of notes. We
will provide a schedule of our calculations to each of the
trustee and the conversion agent, and each of the trustee and
conversion agent is entitled to rely conclusively upon the
accuracy of our calculations without independent verification.
The trustee will forward our calculations to any holder of notes
upon the written request of that holder.
Notices to the holders of the notes shall be validly given if in
writing in English and mailed by first class mail to them at our
expense at their respective addresses in the register of the
notes. Any such notice shall be deemed to have been given on the
seventh day after being so mailed.
Trustee
The Bank of New York is the trustee, registrar and conversion
agent and the paying agent.
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Global
Note, Book-Entry Form
Notes are evidenced by one global note. We have deposited the
global note with DTC and register the global note in the name of
Cede & Co. as DTCs nominee. Except as set forth
below, a global note may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its
nominee.
Beneficial interests in a global note may be held directly
through DTC if such holder is a participant in DTC, or
indirectly through organizations that are participants in DTC,
whom we refer to as participants. Transfers between participants
will be effected in the ordinary way in accordance with DTC
rules and will be settled in clearing house funds. The laws of
some states require that some persons take physical delivery of
securities in definitive form. As a result, the ability to
transfer beneficial interests in the global note to such persons
may be limited.
Holders who are not participants may beneficially own interests
in a global note held by DTC only through participants, or some
banks, brokers, dealers, trust companies and other parties that
clear through or maintain a custodial relationship with a
participant, either directly or indirectly, who we refer to as
indirect participants. So long as Cede & Co., as the
nominee of DTC, is the registered owner of a global note,
Cede & Co. for all purposes will be considered the
sole holder of such global note. Except as provided below,
owners of beneficial interests in a global note will:
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not be entitled to have certificates registered in their names;
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not receive physical delivery of certificates in definitive
registered form; and
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not be considered holders of the global note.
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We will pay interest on the purchase price of a global note to
Cede & Co., as the registered owner of the global
note, by wire transfer of immediately available funds on each
interest payment date or the relevant redemption or purchase
date, as the case may be. Neither we, the trustee nor any paying
agent will be responsible or liable:
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for the records relating to, or payments made on account of,
beneficial ownership interests in a global note; or
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for maintaining, supervising or reviewing any records relating
to the beneficial ownership interests.
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We have been informed that DTCs practice is to credit
participants accounts upon receipt of funds on that
payment date with payments in amounts proportionate to their
respective beneficial interests in the principal amount
represented by a global note as shown in the records of DTC.
Payments by participants to owners of beneficial interests in
the principal amount represented by a global note held through
participants will be the responsibility of the participants, as
is now the case with securities held for the accounts of
customers registered in street name.
Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants, the ability of a person
having a beneficial interest in the principal amount represented
by the global note to pledge such interest to persons or
entities that do not participate in the DTC system, or otherwise
take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing its interest.
Neither we, the trustee, registrar, paying agent nor conversion
agent will have any responsibility for the performance by DTC or
its participants or indirect participants of their respective
obligations under the rules and procedures governing their
operations. DTC has advised us that it will take any action
permitted to be taken by a holder of notes, including the
presentation of notes for exchange, only at the direction of one
or more participants to whose account with DTC interests in the
global note are credited, and only in respect of the principal
amount of the notes represented by the global note as to which
the participant or participants has or have given such direction.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
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a clearing corporation within the meaning of the
Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities for its participants and to
facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry
changes to the accounts of its participants. Participants
include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the
participants or their representatives, together with other
entities, own DTC. Indirect access to the DTC system is
available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate
transfers of interests in a global note among participants.
However, DTC is under no obligation to perform or continue to
perform these procedures, and may discontinue these procedures
at any time. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not
appointed by us within 90 days, we will issue notes in
certificated form in exchange for global notes. In addition, the
owner of a beneficial interest in a global note will be entitled
to receive a note in certificated form in exchange for such
interest if an event of default has occurred and is continuing.
Governing
Law and Submission to Jurisdiction
The indenture provides that it and the notes are governed by,
and construed in accordance with, the laws of the State of New
York.
Each of the parties to the indenture has submitted to the
jurisdiction of the U.S. federal and New York State courts
located in the Borough of Manhattan, City and State of New York
for purposes of all legal actions and proceedings instituted in
connection with the notes and the indenture. We have appointed
CT Corporation System, currently having an office at 111 Eighth
Avenue, New York, New York 10011, as our authorized agent upon
which process may be served in any such action.
Listing
And Trading
The notes are not listed on any securities exchange or included
in any automated quotation system. The notes issued in the
private placement are eligible for trading on The PORTAL Market.
The notes sold using this prospectus, however, will no longer be
eligible for trading on The PORTAL Market. We do not intend to
list the notes on any other national securities exchange or
automated quotation system. No assurance can be given as to the
liquidity of trading market for the notes. Our ADSs are listed
on the Nasdaq Global Market under the ticker symbol
SOLF.
Currency
Indemnity
U.S. dollars are the sole currency of account and payment
for all sums payable by us under or in connection with the
notes, including damages. Any amount received or recovered in a
currency other than U.S. dollars (whether as a result of,
or through the enforcement of, a judgment or order of a court of
any jurisdiction, in our
winding-up
or dissolution or otherwise) by any holder of a note in respect
of any sum expressed to be due to it from us will only
constitute a discharge to us to the extent of the
U.S. dollar amount that the recipient is able to purchase
with the amount so received or recovered in that other currency
on the date of that receipt or recovery (or, if it is not
practicable to make that purchase on that date, on the first
date on which it is practicable to do so). If that
U.S. dollar amount is less than the U.S. dollar amount
expressed to be due to the recipient under any note, we will
indemnify such holder against any loss sustained by it as a
result; and if the amount of U.S. dollars so purchased is
greater than the sum originally due to such holder, such holder
will, by accepting a note, be deemed to have agreed to repay
such excess. In any event, we will indemnify the recipient
against the cost of making any such purchase.
For the purposes of the preceding paragraph, it will be
sufficient for the holder of a note to certify in a satisfactory
manner (indicating the sources of information used) that it
would have suffered a loss had an actual purchase of
U.S. dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a
purchase of U.S. dollars on such date had not been
practicable, on the first date on which it would have been
practicable, it being required that the need for a change of
date be certified in the manner mentioned above). These
indemnities constitute a separate and independent obligation
from our other obligations, will give rise to a separate and
independent cause of action, will apply irrespective of any
indulgence granted by any holder of a
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note and will continue in full force and effect despite any
other judgment, order, claim or proof for a liquidated amount in
respect of any sum due under any note.
Registration
Rights
The following summary of the registration rights to be provided
in the registration rights agreement is not complete. Holders
should refer to the registration rights agreement for a full
description of the registration rights that apply to the notes.
To the extent a holder receives ADSs upon conversion of notes
that are not restricted ADSs, such ADSs may be sold over the
Nasdaq Global Market without needing to rely on the shelf
registration statement described below.
We have agreed to file a shelf registration statement under the
Securities Act not later than 150 days after the first date
of original issuance of the notes. The notes, any ordinary
shares represented by the ADSs issuable upon conversion of the
notes and any ADSs issuable upon conversion of the notes are
referred to collectively as registrable securities.
We will use our commercially reasonable efforts to have this
shelf registration statement declared effective not later than
210 days after the first date of original issuance of the
notes, and to keep it effective until the earliest of:
(1) two years from the latest date of original issuance of
the notes;
(2) the date when all registrable securities shall have
been registered under the Securities Act and disposed of;
(3) the date on which all registrable securities held by
non-affiliates are eligible to be sold to the public pursuant to
Rule 144(k) under the Securities Act; and
(4) the date on which the registrable securities cease to
be outstanding.
If we notify the holders in accordance with the registration
rights agreement to suspend the use of the prospectus upon the
occurrence of certain events, then the holders will be obligated
to suspend the use of the prospectus until the requisite changes
have been made.
A holder of registrable securities that sells registrable
securities pursuant to the shelf registration statement
generally will be required to provide information about itself
and the specifics of the sale, be named as a selling
securityholder in the related prospectus, deliver a prospectus
to purchasers, be subject to relevant civil liability provisions
under the Securities Act in connection with such sales and be
bound by the provisions of the registration rights agreement
which are applicable to such holder.
If:
(1) the shelf registration statement has not been filed
with the SEC by the 150th day after the first date of
original issuance of the notes;
(2) the shelf registration statement has not become
effective by the 210th day after the first date of original
issuance of the notes; or
(3) after the shelf registration statement has become
effective, such shelf registration statement ceases to be
effective (without being succeeded immediately by an effective
replacement shelf registration statement), or the shelf
registration statement or prospectus contained therein ceases to
be usable in connection with the resales of notes and any ADS or
other security issuable upon the conversion of the notes, in
accordance with and during the periods specified in the
registration rights agreement for a period of time (including
any suspension period) which exceeds 90 days in the
aggregate in any consecutive
12-month
period because either (i) any event occurs as a result of
which the prospectus forming part of such shelf registration
statement would include any untrue statement of a material fact
or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which
they were made not misleading, (ii) it shall be necessary
to amend such shelf registration statement or supplement the
related prospectus to comply with the Securities Act or Exchange
Act or the respective rules thereunder, or (iii) the
occurrence or existence of any pending corporate development or
other similar event with respect to us or a public filing with
the SEC that, in
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our reasonable discretion, makes it appropriate to suspend the
availability of a shelf registration statement and the related
prospectus; (each event as described above in clauses (1)
through (3), a registration default), additional
interest will accrue on the notes, from and including the date
on which the registration default shall occur to but excluding
the date on which all such registration defaults have been
cured, at the rate of (a) 0.25% of the principal amount of
the notes per year to and including the 90th day following
the occurrence of such registration default and (b) 0.50%
of the principal amount of the notes per year from and after the
91st day following the occurrence of such registration
default. If a holder has converted some or all of its notes into
ADSs, the holder will not be entitled to receive any additional
interest with respect to such ADSs or the principal amount of
the notes converted.
We have given notice of our intention to file the shelf
registration statement to each of the holders in the same manner
as we would give notice to holders of notes under the indenture.
We will give notice of the effectiveness of the shelf
registration statement to all holders. Holders will need to
complete the notice and questionnaire (the
questionnaire) attached as Annex A to the
offering memorandum if they wish to have their registrable
securities covered by the shelf registration statement and
related prospectus. Holders are required to deliver the
questionnaire prior to the filing of the shelf registration
statement so that they can be named as a selling security holder
in the prospectus. From and after the date the shelf
registration statement is declared effective, each holder
wishing to sell its registrable securities pursuant to the shelf
registration statement and related prospectus will deliver a
questionnaire to us at least 10 business days prior to any
intended distribution. Within five business days after the later
of receipt of a questionnaire or the expiration of any
suspension period in effect when such questionnaire is
delivered, we will file, if required by applicable law, a
post-effective amendment to the shelf registration statement or
a supplement to the prospectus contained in the shelf
registration statement. In no event will we be required to file
more than one post-effective amendment in any calendar quarter
or to file a supplement or post effective amendment during any
suspension period.
We will pay all expenses incident to our performance of and
compliance with the registration rights agreement, provide each
holder that is selling registrable securities pursuant to the
shelf registration statement copies of the related prospectus as
reasonably requested and take other actions as are required
under the terms of the registration rights agreement to permit,
subject to the foregoing, unrestricted resales of the
registrable securities.
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DESCRIPTION
OF SHARE CAPITAL
We are a Cayman Islands exempted company with limited liability
and our affairs are governed by our memorandum and articles of
association, as amended and restated from time to time, and the
Companies Law (2007 Revision) of the Cayman Islands, which is
referred to as the Companies Law below.
As of June 26, 2008, our authorized share capital consisted of
500,000,000 ordinary shares, with a par value of US$0.0001 each.
As of June 26, 2008, there were 241,954,744 ordinary shares
issued and outstanding.
The following are summaries of material provisions of our
amended and restated memorandum and articles of association and
the Companies Law insofar as they relate to the material terms
of our ordinary shares.
Description
of Ordinary Shares
General
All of our outstanding ordinary shares are fully paid and
non-assessable. Certificates representing the ordinary shares
are issued in registered form. Our shareholders who are
non-residents of the Cayman Islands may freely hold and vote
their ordinary shares.
Dividends
The holders of our ordinary shares are entitled to such
dividends as may be declared by our board of directors subject
to the Companies Law. Under our amended and restated memorandum
and articles of association, all dividends unclaimed for one
year after having been declared may be invested or otherwise
made use of by our board of directors for our exclusive benefit
until claimed, and we will not be deemed a trustee in respect of
such dividend or be required to account for any money earned.
All dividends unclaimed for six years after having been declared
may be forfeited by our board of directors and thereon will
revert to us.
Voting
Rights
The holder of each ordinary share is entitled to one vote for
each ordinary share held by such holder on all matters upon
which the ordinary shares are entitled to vote. Voting at any
meeting of shareholders is by show of hands unless a poll is
demanded. A poll may be demanded by the chairman of such meeting
or any other shareholder or shareholders present in person or by
proxy and holding at least 10% in par value of the shares giving
a right to attend and vote at the meeting.
A quorum required for a meeting of shareholders consists of at
least one shareholder present or by proxy or, if a corporation
or other non-natural person, by its duly authorized
representative holding not less than one-third of the
outstanding voting shares in our company. Shareholders
meetings may be convened by our board of directors on its own
initiative or upon a request to the directors by shareholders
holding in the aggregate 10% or more of our voting share
capital. Advance notice of at least 20 (but not more than
60) days is required for the convening of our annual
general shareholders meeting and any other general
shareholders meeting calling for the passing of a
resolution requiring two-thirds of shareholder votes, and
advance notice of at least 14 (but not more than 60) days
is required for the convening of other general shareholder
meetings.
An ordinary resolution to be passed by the shareholders requires
the affirmative vote of a simple majority of the votes attaching
to the ordinary shares cast in a general meeting, while a
special resolution requires the affirmative vote of no less than
two-thirds of the votes cast attaching to the ordinary shares. A
special resolution will be required for important matters such
as a change of name or making changes to our amended and
restated memorandum and articles of association.
Transfer
of Ordinary Shares
Subject to the restrictions of our amended and restated
memorandum and articles of association, as applicable, any of
our shareholders may transfer all or any of his or her ordinary
shares by an instrument of transfer in the usual or common form
or any other form approved by our board of directors.
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Our board of directors may, in its absolute discretion, decline
to register any transfer of any ordinary share which is not
fully paid up or on which we have a lien. Our board of directors
may also decline to register any transfer of any ordinary share
unless:
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the instrument of transfer is lodged with us, accompanied by the
certificate for the ordinary shares to which it relates and such
other evidence as our board of directors may reasonably require
to show the right of the transferor to make the transfer;
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the instrument of transfer is in respect of only one class of
ordinary shares;
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the instrument of transfer is properly stamped, if required;
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in the case of a transfer to joint holders, the number of joint
holders to whom the ordinary share is to be transferred does not
exceed four;
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the ordinary shares transferred are free of any lien in favor of
us;
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any fee related to the transfer has been paid to us; and
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the transfer to be registered is not to an infant or a person
suffering from mental disorder.
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If our directors refuse to register a transfer they shall,
within two months after the date on which the instrument of
transfer was lodged, send to each of the transferor and the
transferee notice of such refusal.
The registration of transfers may be suspended and the register
closed at such times and for such periods as our board of
directors may from time to time determine, provided, however,
that the registration of transfers shall not be suspended nor
the register closed for more than 45 days in any year.
Liquidation
On a return of capital on winding up or otherwise (other than on
conversion, redemption or purchase of ordinary shares), assets
available for distribution among the holders of ordinary shares
shall be distributed among the holders of the ordinary shares on
a pro rata basis. If our assets available for
distribution are insufficient to repay all of the
paid-up
capital, the assets will be distributed so that the losses are
borne by our shareholders proportionately.
Calls
on Ordinary Shares and Forfeiture of Ordinary
Shares
Our board of directors may from time to time make calls upon
shareholders for any amounts unpaid on their ordinary shares in
a notice served to such shareholders at least 14 days prior
to the specified time of payment. The ordinary shares that have
been called upon and remain unpaid are subject to forfeiture.
Redemption
of Ordinary Shares
Subject to the provisions of the Companies Law and other
applicable law, we may issue shares on terms that are subject to
redemption, at our option or at the option of the holders, on
such terms and in such manner as may be determined by special
resolution.
Variations
of Rights of Shares
If at any time, our share capital is divided into different
classes of shares, all or any of the special rights attached to
any class of shares may, subject to the provisions of the
Companies Law, be varied either with the consent in writing of
the holders of three-fourths of the issued shares of that class
or by a special resolution passed at a general meeting of the
holders of the shares of that class. The rights conferred upon
the holders of the shares of any class issued with preferred or
other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be
varied by the creation or issue of further shares ranking
pari passu with such existing class of shares. The rights
of holders of ordinary shares shall not be deemed to be varied
by the creation or issue of shares with preferred or other
rights which may be affected by the directors as provided in the
articles of association without any vote or consent of the
holders of ordinary shares.
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General
Meetings of Shareholders
The directors may, and shall on the requisition of shareholders
holding at least 10% in par value of the capital of our company
carrying voting rights at general meetings, proceed to convene a
general meeting of such shareholders. If the directors do not
within 21 days from the deposit of the requisition duly
proceed to convene a general meeting, which will be held within
a further period of 21 days, the requisitioning
shareholders, or any of them holding more than 50% of the total
voting rights of all of the requisitioning shareholders, may
themselves convene a general meeting. Any such general meeting
must be convened within three months after the expiration of
such 21-day
period.
Inspection
of Books and Records
Holders of our ordinary shares will have no general right under
Cayman Islands law to inspect or obtain copies of our list of
shareholders or our corporate records. However, we will provide
our shareholders with annual audited financial statements. See
Where You Can Find Additional Information About Us.
Changes
in Capital
We may from time to time by ordinary resolution:
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increase the share capital by such sum, to be divided into
shares of such classes and amounts, as the resolution shall
prescribe;
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consolidate and divide all or any of our share capital into
shares of a larger amount than our existing shares;
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convert all or any of our paid up shares into stock and
reconvert that stock into paid up shares of any denomination;
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sub-divide our existing shares, or any of them into shares of a
smaller amount provided that in the subdivision the proportion
between the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in case of the share
from which the reduced share is derived; or
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cancel any shares which, at the date of the passing of the
resolution, have not been taken or agreed to be taken by any
person and diminish the amount of our share capital by the
amount of the shares so cancelled.
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We may by special resolution reduce our share capital and any
capital redemption reserve in any manner authorized by law.
Exempted
Company
We are an exempted company with limited liability under the
Companies Law. The Companies Law distinguishes between ordinary
resident companies and exempted companies. Any company that is
registered in the Cayman Islands but conducts business mainly
outside of the Cayman Islands may apply to be registered as an
exempted company. The requirements for an exempted company are
essentially the same as for an ordinary company except for the
exemptions and privileges listed below:
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an exempted company does not have to file an annual return of
its shareholders with the Registrar of Companies;
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an exempted companys register of members is not open to
inspection;
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an exempted company does not have to hold an annual general
meeting;
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an exempted company may issue no par value, negotiable or bearer
shares;
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an exempted company may obtain an undertaking against the
imposition of any future taxation (such undertakings are usually
given for 20 years in the first instance);
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an exempted company may register by way of continuation in
another jurisdiction and be deregistered in the Cayman Islands;
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an exempted company may register as a limited duration company;
and
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an exempted company may register as a segregated portfolio
company.
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Limited liability means that the liability of each
shareholder is limited to the amount unpaid by the shareholder
on the shares of the company. We are subject to reporting and
other informational requirements of the Exchange Act, as
applicable to foreign private issuers. We intend to comply with
the Nasdaq Rules in lieu of following home country practice. The
Nasdaq Rules require that every company listed on the Nasdaq
hold an annual general meeting of shareholders. In addition, our
amended and restated articles of association allow directors or
shareholders to call special shareholder meetings pursuant to
the procedures set forth in the articles.
Differences
in Corporate Law
The Companies Law is modeled after that of English law but does
not follow many recent English law statutory enactments. In
addition, the Companies Law differs from laws applicable to
United States corporations and their shareholders. Set forth
below is a summary of the significant differences between the
provisions of the Companies Law applicable to us and the laws
applicable to companies incorporated in the State of Delaware
and their shareholders.
Mergers
and Similar Arrangements
Cayman Islands law does not provide for mergers as that
expression is understood under the Delaware General Corporation
law. However, there are statutory provisions that facilitate the
reconstruction and amalgamation of companies, provided that the
arrangement is approved by a majority in number of each class of
shareholders and creditors with whom the arrangement is to be
made, and who must in addition represent three-fourths in value
of each such class of shareholders or creditors, as the case may
be, that are present and voting either in person or by proxy at
a meeting, or meetings, convened for that purpose. The convening
of the meetings and subsequently the arrangement must be
sanctioned by the Grand Court of the Cayman Islands. While a
dissenting shareholder has the right to express to the court the
view that the transaction ought not to be approved, the court
can be expected to approve the arrangement if it determines that:
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the statutory provisions as to the due majority vote have been
met;
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the shareholders have been fairly represented at the meeting in
question;
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the arrangement is such that a businessman would reasonably
approve; and
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the arrangement is not one that would more properly be
sanctioned under some other provision of the Companies Law.
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When a take over offer is made and accepted by holders of 90% of
the shares within four months, the offeror may, within a
two-month period, require the holders of the remaining shares to
transfer such shares on the terms of the offer. An objection can
be made to the Grand Court of the Cayman Islands but this is
unlikely to succeed unless there is evidence of fraud, bad faith
or collusion.
If the arrangement and reconstruction is thus approved, the
dissenting shareholder would have no rights comparable to
appraisal rights, which would otherwise ordinarily be available
to dissenting shareholders of Delaware corporations, providing
rights to receive payment in cash for the judicially determined
value of the shares.
Shareholders
Suits
We are not aware of any reported class action or derivative
action having been brought in a Cayman Islands court. In
principle, we will normally be the proper plaintiff and as a
general rule a derivative action may not be brought by a
minority shareholder. However, based on English authorities,
which would in all likelihood be of persuasive authority in the
Cayman Islands, there are exceptions to the foregoing principle,
including when:
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a company acts or proposes to act illegally or ultra
vires;
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the act complained of, although not ultra vires, could
only be effected duly if authorized by more than a simple
majority vote that has not been obtained; and
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those who control the company are perpetrating a fraud on
the minority.
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Indemnification
of Directors and Executive Officers and Limitation of
Liability
Cayman Islands law does not limit the extent to which a
companys articles of association may provide for
indemnification of officers and directors, except to the extent
any such provision may be held by the Cayman Islands courts to
be contrary to public policy, such as to provide indemnification
against civil fraud or the consequences of committing a crime.
Our amended and restated memorandum and articles of association
permit indemnification of officers and directors for losses,
damages, costs and expenses incurred in their capacities as such
unless such losses or damages arise from dishonesty, fraud or
default of such directors or officers. This standard of conduct
is generally the same as permitted under the Delaware General
Corporation Law for a Delaware corporation. In addition, we
intend to enter into indemnification agreements with our
directors and senior executive officers that will provide such
persons with additional indemnification beyond that provided in
our amended and restated memorandum and articles of association.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers or
persons controlling us under the foregoing provisions, we have
been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable as a matter of
United States law.
Anti-Takeover
Provisions in the Amended and Restated Memorandum and Articles
of Association
Some provisions of our amended and restated memorandum and
articles of association may discourage, delay or prevent a
change in control of our company or management that shareholders
may consider favorable, including provisions that authorize our
board of directors to issue preference shares in one or more
series and to designate the price, rights, preferences,
privileges and restrictions of such preference shares without
any further vote or action by our shareholders.
However, under Cayman Islands law, our directors may only
exercise the rights and powers granted to them under our amended
and restated memorandum and articles of association, as amended
and restated from time to time, for what they believe in good
faith to be in the best interests of our company.
Directors
Fiduciary Duties
Under Delaware corporate law, a director of a Delaware
corporation has a fiduciary duty to the corporation and its
shareholders. This duty has two components: the duty of care and
the duty of loyalty. The duty of care requires that a director
act in good faith, with the care that an ordinarily prudent
person would exercise under similar circumstances. Under this
duty, a director must inform himself of, and disclose to
shareholders, all material information reasonably available
regarding a significant transaction. The duty of loyalty
requires that a director act in a manner he or she reasonably
believes to be in the best interests of the corporation. He or
she must not use his or her corporate position for personal gain
or advantage. This duty prohibits self-dealing by a director and
mandates that the best interest of the corporation and its
shareholders take precedence over any interest possessed by a
director, officer or controlling shareholder and not shared by
the shareholders generally. In general, actions of a director
are presumed to have been made on an informed basis, in good
faith and in the honest belief that the action taken was in the
best interests of the corporation. However, this presumption may
be rebutted by evidence of a breach of one of the fiduciary
duties. Should such evidence be presented concerning a
transaction by a director, a director must prove the procedural
fairness of the transaction, and that the transaction was of
fair value to the corporation.
As a matter of Cayman Islands law, a director of a Cayman
Islands company is in the position of a fiduciary with respect
to the company and therefore it is considered that he owes the
following duties to the company a duty to act
bona fide in the best interests of the company, a duty
not to make a profit based on his or her position as director
(unless the company permits him to do so) and a duty not to put
himself in a position where the interests of
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the company conflict with his or her personal interest or his or
her duty to a third party. A director of a Cayman Islands
company owes to the company a duty to act with skill and care.
It was previously considered that a director need not exhibit in
the performance of his or her duties a greater degree of skill
than may reasonably be expected from a person of his or her
knowledge and experience. However, English and Commonwealth
courts have moved towards an objective standard with regard to
the required skill and care and these authorities are likely to
be followed in the Cayman Islands.
Shareholder
Action by Written Consent
Under the Delaware General Corporation Law, a corporation may
eliminate the right of shareholders to act by written consent by
amendment to its certificate of incorporation. Cayman Islands
law and our amended and restated articles of association provide
that shareholders may approve corporate matters by way of a
unanimous written resolution signed by or on behalf of each
shareholder who would have been entitled to vote on such matter
at a general meeting without a meeting being held.
Shareholder
Proposals
Under the Delaware General Corporation Law, a shareholder has
the right to put any proposal before the annual meeting of
shareholders, provided it complies with the notice provisions in
the governing documents. A special meeting may be called by the
board of directors or any other person authorized to do so in
the governing documents, but shareholders may be precluded from
calling special meetings.
Cayman Islands law and our amended and restated articles of
association allow our shareholders holding not less than 10% of
the paid-up
voting share capital of the company to requisition a
shareholders meeting. As an exempted Cayman Islands
company, we are not obliged by law to call shareholders
annual general meetings. However, our amended and restated
articles of association require us to call such meetings if
required by the Companies Law, other applicable law, rules or
regulations or the Nasdaq Rules.
Cumulative
Voting
Under the Delaware General Corporation Law, cumulative voting
for elections of directors is not permitted unless the
corporations certificate of incorporation specifically
provides for it. Cumulative voting potentially facilitates the
representation of minority shareholders on a board of directors
since it permits the minority shareholder to cast all the votes
to which the shareholder is entitled on a single director, which
increases the shareholders voting power with respect to
electing such director. As permitted under Cayman Islands law,
our amended and restated articles of association do not provide
for cumulative voting. As a result, our shareholders are not
afforded any less protections or rights on this issue than
shareholders of a Delaware corporation.
Removal
of Directors
Under the Delaware General Corporation Law, a director of a
corporation with a classified board may be removed only for
cause with the approval of a majority of the outstanding shares
entitled to vote, unless the certificate of incorporation
provides otherwise. Under our amended and restated articles of
association, directors may be removed by ordinary resolution or
the unanimous written consent of all the shareholders.
Transactions
with Interested Shareholders
The Delaware General Corporation Law contains a business
combination statute applicable to Delaware corporations whereby,
unless the corporation has specifically elected not to be
governed by such statute by amendment to its certificate of
incorporation, it is prohibited from engaging in certain
business combinations with an interested shareholder
for three years following the date that such person becomes an
interested shareholder. An interested shareholder generally is a
person or a group who or which owns or owned 15% or more of the
targets outstanding voting stock within the past three
years. This has the effect of limiting the ability of a
potential acquirer to make a two-tiered bid for the target in
which all shareholders would not be treated equally. The statute
does not apply if, among other things, prior to the date on
which such shareholder becomes an interested shareholder, the
board of directors approves either the business combination or
the transaction which resulted in the person
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becoming an interested shareholder. This encourages any
potential acquirer of a Delaware corporation to negotiate the
terms of any acquisition transaction with the targets
board of directors.
Cayman Islands law has no comparable statute. As a result, we
cannot avail ourselves of the types of protections afforded by
the Delaware business combination statute. However, although
Cayman Islands law does not regulate transactions between a
company and its significant shareholders, it does provide that
such transactions must be entered into bona fide in the
best interests of the company and not with the effect of
constituting a fraud on the minority shareholders.
Dissolution;
Winding Up
Under the Delaware General Corporation Law, unless the board of
directors approves the proposal to dissolve, dissolution must be
approved by shareholders holding 100% of the total voting power
of the corporation. Only if the dissolution is initiated by the
board of directors may it be approved by a simple majority of
the corporations outstanding shares. Delaware law allows a
Delaware corporation to include in its certificate of
incorporation a supermajority voting requirement in connection
with dissolutions initiated by the board. Under the Companies
Law of the Cayman Islands and our amended and restated articles
of association, our company may be dissolved, liquidated or
wound up by the vote of holders of two-thirds of our shares
voting at a meeting or the unanimous written resolution of all
shareholders.
Variation
of Rights of Shares
Under the Delaware General Corporation Law, a corporation may
vary the rights of a class of shares with the approval of a
majority of the outstanding shares of such class, unless the
certificate of incorporation provides otherwise. Under Cayman
Islands law and our amended and restated articles of
association, if our share capital is divided into more than one
class of shares, we may vary the rights attached to any class
only with the consent in writing of the holders of 75% of the
issued shares of that class or with the sanction of a special
resolution passed at a general meeting of the holders of the
shares of that class.
Amendment
of Governing Documents
Under the Delaware General Corporation Law, a corporations
governing documents may be amended with the approval of a
majority of the outstanding shares entitled to vote, unless the
certificate of incorporation provides otherwise. As permitted by
Cayman Islands law, our amended and restated memorandum and
articles of association may only be amended by special
resolution or the unanimous written resolution of all
shareholders.
Rights
of Non-Resident or Foreign Shareholders
There are no limitations imposed by our amended and restated
memorandum and articles of association on the rights of
non-resident or foreign shareholders to hold or exercise voting
rights on our shares. In addition, there are no provisions in
our amended and restated memorandum and articles of association
governing the ownership threshold above which shareholder
ownership must be disclosed.
Directors
Power to Issue Shares
Subject to applicable law, our board of directors is empowered
to issue or allot shares or grant options and warrants with or
without preferred, deferred, qualified or other special rights
or restrictions. However, if any issue of shares (including any
issue of ordinary shares or any shares with preferred, deferred,
qualified or other special rights or restrictions) is proposed
and such shares proposed to be issued are at least 20% by par
value of the par value of all then issued shares, then the prior
approval by ordinary resolution of the holders of the ordinary
shares, voting together as one class, will be required. These
provisions could have the effect of discouraging third parties
from seeking to obtain control of our company in a tender offer
or similar transaction.
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Registration
Rights
Pursuant to the registration rights agreement entered into in
connection with this private placement, dated June 27,
2006, we granted to the holders of our ordinary shares which
were converted from our series A convertible preference
shares certain registration rights, which primarily include:
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Demand Registrations. Upon request of any of
the non-individual holders of our ordinary shares which were
converted from our series A convertible preference shares,
we shall effect registration with respect to the registrable
securities held by such holders on a form other than
Form F-3
(or any comparable form for a registration for an offering in a
jurisdiction other than the United States), provided we shall
only be obligated to effect three such registrations.
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Piggyback Registrations. The holders of our
ordinary shares which were converted from our series A
convertible preference shares and their permitted transferees
are entitled to piggyback registration rights,
whereby they may require us to register all or any part of the
registrable securities that they hold at the time when we
register any of our ordinary shares. All of such holders have
waived their piggyback registration rights in this offering.
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Registrations on
Form F-3. We
have granted the holders of our ordinary shares which were
converted from our series A convertible preference shares
and their permitted transferees of the registrable securities
the right to an unlimited number of registrations under
Form F-3
(or any comparable form for a registration in a jurisdiction
other than the United States) to the extent we are eligible to
use such form to offer securities.
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Post-Initial
Public Offering
Lock-Up
Pursuant to the registration rights agreement, each of the
shareholders other than the holders of series A convertible
preference shares has agreed, for a period of 12 months
after completion of our initial public offering, not to sell,
exchange, assign, pledge, charge, grant a security interest,
make a hypothecation, gift or other encumbrance, or enter into
any contract or any voting trust or other agreement or
arrangement with respect to the transfer of voting rights or any
other legal or beneficial interest in any ordinary shares,
create any other claim or make any other transfer or
disposition, whether voluntary or involuntary, affecting the
right, title, interest or possession in, to or of such ordinary
shares, unless otherwise approved by the non-individual holders
of series A convertible preference shares in writing. This
lock-up
period expired on December 20, 2007. In addition, pursuant
to the
lock-up
agreement dated June 20, 2006, Mr. Yonghua Lu, our
chairman and chief executive officer, and Mr. Hanfei Wang,
our chief operating officer, have agreed with us not to sell,
transfer or dispose of any ADSs, ordinary shares or similar
securities for a
lock-up
period of three years after completion of this our initial
public offering. Any amendment to the
lock-up
agreement requires unanimous written consent of all the
individuals who were parties to the
lock-up
agreement. In 2007, the
lock-up
periods of Mr. Yonghua Lu and Mr. Hanfei Wang were
reduced to one year and two years, respectively, under the first
amendment to the
lock-up
agreement. As a result, Mr. Lu is no longer subject to any
lock-up
restrictions pursuant to the agreement dated June 20, 2006.
However, pursuant to the second shareholders agreement entered
into in connection with the share purchase by Good Energies on
December 4, 2007, Yonghua Solar Power Investment Holding
Ltd., may not, subject to certain limited exceptions, transfer
any of our shares beneficially owned by it during the one year
period immediately following the date of such agreement, or
transfer more than 50% of the number of our shares it held on
December 27, 2007 during the second one year period
following the date of such agreement. On December 4, 2007,
all the individuals who were parties to the
lock-up
agreement further agreed that the
lock-up
agreement should not apply to any share transfer made by a
shareholder to Good Energies Investments (Jersey) Limited or its
affiliates.
70
DESCRIPTION
OF AMERICAN DEPOSITARY SHARES
American
Depositary Shares
The Bank of New York, as depositary, will register and deliver
ADSs. Each ADS represents five ordinary shares (or a right to
receive five ordinary shares) deposited with the Hong Kong
office of the Hongkong and Shanghai Banking Corp., as custodian
for the depositary. Each ADS also represents any other
securities, cash or other property which may be held by the
depositary. The depositarys corporate trust office at
which the ADSs are administered is located at 101 Barclay
Street, New York, New York 10286. The Bank of
New Yorks principal executive office is located at
One Wall Street, New York, New York 10286.
You may hold ADSs either (A) directly (i) by having an
American depositary receipt, which is a certificate evidencing a
specific number of ADSs, registered in your name, or
(ii) by holding ADSs in the Direct Registration System, or
(B) indirectly through your broker or other financial
institution. If you hold ADSs directly, you are an ADS holder.
This description assumes you hold your ADSs directly. If you
hold the ADSs indirectly, you must rely on the procedures of
your broker or other financial institution to assert the rights
of ADR holders described in this section. You should consult
with your broker or financial institution to find out what those
procedures are.
The Direct Registration System is a system administered by DTC
pursuant to which the depositary may register the ownership of
uncertificated American depositary shares, which ownership shall
be evidenced by periodic statements issued by the depositary to
the ADS holders entitled thereto.
As an ADS holder, we will not treat you as one of our
shareholders and you will not have shareholder rights. Cayman
Islands law governs shareholder rights. The depositary will be
the holder of the shares underlying your ADSs. As a holder of
ADSs, you will have ADS holder rights. A deposit agreement among
us, the depositary and you, as an ADS holder, and the beneficial
owners of ADSs set out ADS holder rights as well as the rights
and obligations of the depositary. New York law governs the
deposit agreement and the ADSs.
The following is a summary of the material provisions of the
deposit agreement. For more complete information, you should
read the entire deposit agreement and the form of American
depositary receipt. Directions on how to obtain copies of those
documents are provided under Where You Can Find Additional
Information.
Dividends
and Other Distributions
How
Will You Receive Dividends and Other Distributions on the
Shares?
The depositary has agreed to pay to you the cash dividends or
other distributions it or the custodian receives on shares or
other deposited securities, after deducting its fees and
expenses. You will receive these distributions in proportion to
the number of shares your ADSs represent.
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Cash. The depositary will convert any
cash dividend or other cash distribution we pay on the shares
into U.S. dollars, if it can do so on a reasonable basis
and can transfer the U.S. dollars to the United States. If
that is not possible or if any government approval is needed and
cannot be obtained, the deposit agreement allows the depositary
to distribute the foreign currency only to those ADR holders to
whom it is possible to do so. It will hold the foreign currency
it cannot convert for the account of the ADS holders who have
not been paid. It will not invest the foreign currency and it
will not be liable for any interest.
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Before making a distribution, any withholding taxes, or other
governmental charges that must be paid will be deducted. See
Taxation. The depositary will distribute only whole
U.S. dollars and cents and will round fractional cents to
the nearest whole cent. If exchange rates fluctuate during a
time when the depositary cannot convert the foreign currency,
you may lose some or all of the value of the distribution.
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Shares. The depositary may distribute
additional ADSs representing any shares we distribute as a
dividend or free distribution. The depositary will only
distribute whole ADSs. It will sell shares which would require
it to deliver a fractional ADS and distribute the net proceeds
in the same way as it does with cash. If the depositary does not
distribute additional ADSs, the outstanding ADSs will also
represent the new shares.
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Rights to Purchase Additional
Shares. If we offer holders of our securities
any rights to subscribe for additional shares or any other
rights, the depositary may make these rights available to you.
If the depositary decides it is not legal and practical to make
the rights available but that it is practical to sell the
rights, the depositary will use reasonable efforts to sell the
rights and distribute the proceeds in the same way as it does
with cash. The depositary will allow rights that are not
distributed or sold to lapse. In that case, you will receive
no value for them.
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If the depositary makes rights available to you, it will
exercise the rights and purchase the shares on your behalf. The
depositary will then deposit the shares and deliver ADSs to you.
It will only exercise rights if you pay it the exercise price
and any other charges the rights require you to pay.
U.S. securities laws may restrict transfers and
cancellation of the ADSs represented by shares purchased upon
exercise of rights. For example, you may not be able to trade
these ADSs freely in the United States. In this case, the
depositary may deliver restricted depositary shares that have
the same terms as the ADRs described in this section except for
changes needed to put the necessary restrictions in place.
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Other Distributions. The depositary
will send to you anything else we distribute on deposited
securities by any means it thinks is legal, fair and practical.
If it cannot make the distribution in that way, the depositary
has a choice. It may decide to sell what we distributed and
distribute the net proceeds, in the same way as it does with
cash. Or, it may decide to hold what we distributed, in which
case ADSs will also represent the newly distributed property.
However, the depositary is not required to distribute any
securities (other than ADSs) to you unless it receives
satisfactory evidence from us that it is legal to make that
distribution.
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The depositary is not responsible if it decides that it is
unlawful or impractical to make a distribution available to any
ADS holders. We have no obligation to register ADSs, shares,
rights or other securities under the Securities Act. We also
have no obligation to take any other action to permit the
distribution of ADSs, shares, rights or anything else to ADS
holders. This means that you may not receive the
distributions we make on our shares or any value for them if it
is illegal or impractical for us to make them available to
you.
Deposit,
Withdrawal and Cancellation
How
Are ADSs Issued?
The depositary will deliver ADSs if you or your broker deposits
shares or evidence of rights to receive shares with the
custodian. Upon payment of its fees and expenses and of any
taxes or charges, such as stamp taxes or stock transfer taxes or
fees, the depositary will register the appropriate number of
ADSs in the names you request and will deliver the ADSs to or
upon the order of the person or persons entitled thereto.
How Do
ADS Holders Cancel an American Depositary Share?
You may turn in your ADSs at the depositarys corporate
trust office. Upon payment of its fees and expenses and of any
taxes or charges, such as stamp taxes or stock transfer taxes or
fees, the depositary will deliver the shares and any other
deposited securities underlying the ADSs to you or a person you
designate at the office of the custodian. Or, at your request,
risk and expense, the depositary will deliver the deposited
securities at its corporate trust office, if feasible.
How Do
ADS Holders Interchange Between Certificated ADSs and
Uncertificated ADSs?
You may surrender your ADR to the depositary for the purpose of
exchanging your ADR for uncertificated ADSs. The depositary will
cancel that ADR and will send you a statement confirming that
you are the owner of uncertificated ADSs. Alternatively, upon
receipt by the depositary of a proper instruction from a holder
of uncertificated ADSs requesting the exchange of uncertificated
ADSs for certificated ADSs, the depositary will execute and
deliver to you an ADR evidencing those ADSs.
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Voting
Rights
How Do
You Vote?
You may instruct the depositary to vote the deposited
securities, but only if we ask the depositary to ask for your
instructions. Otherwise, you wont be able to exercise
your right to vote unless you withdraw the shares. However, you
may not know about the meeting enough in advance to withdraw the
shares.
If we ask for your instructions, the depositary will notify you
of the upcoming vote and arrange to deliver our voting materials
to you. The materials will (1) describe the matters to be
voted on and (2) explain how you may instruct the
depositary to vote the shares or other deposited securities
underlying your ADSs as you direct. For instructions to be
valid, the depositary must receive them on or before the date
specified. The depositary will try, as far as practical, subject
to the laws of the Cayman Islands and of the Memorandum and
Articles of Association, to vote or to have its agents vote the
shares or other deposited securities as you instruct. The
depositary will only vote or attempt to vote as you instruct.
We cannot assure you that you will receive the voting materials
in time to ensure that you can instruct the depositary to vote
your shares. In addition, the depositary and its agents are not
responsible for failing to carry out voting instructions or for
the manner of carrying out voting instructions. This means
that you may not be able to exercise your right to vote and
there may be nothing you can do if your shares are not voted as
you requested.
In order to give you a reasonable opportunity to instruct the
depositary as to the exercise of voting rights relating to
deposited securities, if we request the depositary to act, we
will try to give the depositary notice of any such meeting and
details concerning the matters to be voted upon sufficiently in
advance of the meeting date.
Fees and
Expenses
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Persons
Depositing or Withdrawing Shares Must Pay:
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For:
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US$5.00 (or less) per 100 ADSs (or
portion of 100 ADSs)
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Issuance of ADSs, including issuances
resulting from a distribution of shares or rights or other
property
Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement terminates
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US$0.02 (or less) per ADS
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Any cash distribution to you
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A fee equivalent to the fee that would
be payable if securities distributed to you had been shares and
the shares had been deposited for issuance of ADSs
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Distribution of securities distributed
to holders of deposited securities which are distributed by the
depositary to ADS holders
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US$0.02 (or less) per ADS per calendar
year
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Depositary services
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Registration or transfer fees
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Transfer and registration of shares on
our shareregister to or from the name of the depositary or its
agent when you deposit or withdraw shares
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Expenses of the depositary
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Cable, telex and facsimile transmissions
(when expressly provided in the deposit agreement)
Converting foreign currency to U.S.
dollars
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Taxes and other governmental charges the
depositary or the custodian have to pay on any ADS or share
underlying an ADS, for example, stock transfer taxes, stamp duty
or withholding taxes
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As necessary
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Any charges incurred by the depositary
or its agents for servicing the deposited securities
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As necessary
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The Bank of New York, as depositary, has agreed to reimburse us
for expenses we incur that are related to establishment and
maintenance of the ADR program, including investor relations
expenses and Nasdaq application
73
and listing fees. There are limits on the amount of expenses for
which the depositary will reimburse us, but the amount of
reimbursement available to us is not related to the amount of
fees the depositary collects from investors.
The depositary collects its fees for issuance and cancellation
of ADSs directly from investors depositing shares or
surrendering ADSs for the purpose of withdrawal or from
intermediaries acting for them. The depositary collects fees for
making distributions to investors by deducting those fees from
the amounts distributed or by selling a portion of distributable
property to pay the fees. The depositary may collect its annual
fee for depositary services by deduction from cash distributions
or by directly billing investors or by charging the book-entry
system accounts of participants acting for them. The depositary
may generally refuse to provide fee-attracting services until
its fees for those services are paid.
Payment
of Taxes
You will be responsible for any taxes or other governmental
charges payable on your ADSs or on the deposited securities
represented by any of your ADSs. The depositary may refuse to
register any transfer of your ADSs or allow you to withdraw the
deposited securities represented by your ADSs until such taxes
or other charges are paid. It may apply payments owed to you or
sell deposited securities represented by your American
depositary shares to pay any taxes owed and you will remain
liable for any deficiency. If the depositary sells deposited
securities, it will, if appropriate, reduce the number of ADSs
to reflect the sale and pay to you any proceeds, or send to you
any property, remaining after it has paid the taxes.
Reclassifications,
Recapitalizations and Mergers
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If
we:
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Then:
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Change the nominal or par value of our shares
Reclassify, split up or consolidate any of the deposited securities
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The cash, shares or other securities
received by the depositary will become deposited securities.
Each ADS will automatically represent its equal share of the new
deposited securities
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Distribute securities on the shares that are not distributed to you
Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
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The depositary may, and will if we ask
it to, distribute some or all of the cash, shares or other
securities it received. It may also deliver new ADSs or ask you
to surrender your outstanding ADSs in exchange for new ADSs
identifying the new deposited securities.
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Amendment
and Termination
How
May the Deposit Agreement Be Amended?
We may agree with the depositary to amend the deposit agreement
and the ADSs without your consent for any reason. If an
amendment adds or increases fees or charges, except for taxes
and other governmental charges or expenses of the depositary for
registration fees, facsimile costs, delivery charges or similar
items, or prejudices a substantial right of ADS holders, it will
not become effective for outstanding ADSs until 30 days
after the depositary notifies ADS holders of the amendment.
At the time an amendment becomes effective, you are
considered, by continuing to hold your ADS, to agree to the
amendment and to be bound by the ADRs and the deposit agreement
as amended.
How
May the Deposit Agreement Be Terminated?
The depositary will terminate the deposit agreement at our
direction by mailing a notice of termination to the ADS holders
then outstanding at least 60 days prior to the date fixed
in such notice for such termination. The depositary may also
terminate the deposit agreement by mailing a notice of
termination to us and the ADS holders then outstanding if at any
time 30 days shall have expired after the depositary shall
have delivered to our company a written notice of its election
to resign and a successor depositary shall not have been
appointed and accepted its appointment.
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After termination, the depositary and its agents will do the
following under the deposit agreement but nothing else: collect
distributions on the deposited securities, sell rights and other
property, and deliver shares and other deposited securities upon
cancellation of ADSs. Four months after termination, the
depositary may sell any remaining deposited securities by public
or private sale. After that, the depositary will hold the money
it received on the sale, as well as any other cash it is holding
under the deposit agreement for the pro rata benefit of
the ADS holders that have not surrendered their ADSs. It will
not invest the money and has no liability for interest. The
depositarys only obligations will be to account for the
money and other cash. After termination our only obligations
will be to indemnify the depositary and to pay fees and expenses
of the depositary that we agreed to pay.
Limitations
on Obligations and Liability
Limits
on Our Obligations and the Obligations of the Depositary; Limits
on Liability to Holders of ADSs
The deposit agreement expressly limits our obligations and the
obligations of the depositary. It also limits our liability and
the liability of the depositary. We and the depositary:
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are only obligated to take the actions specifically set forth in
the deposit agreement without negligence or bad faith;
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are not liable if either of us is prevented or delayed by law or
circumstances beyond our control from performing our obligations
under the deposit agreement;
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are not liable if either of us exercises discretion permitted
under the deposit agreement;
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have no obligation to become involved in a lawsuit or other
proceeding related to the ADSs or the deposit agreement on your
behalf or on behalf of any other party;
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may rely upon any documents we believe in good faith to be
genuine and to have been signed or presented by the proper party.
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In the deposit agreement, we and the depositary agree to
indemnify each other under certain circumstances.
Requirements
for Depositary Actions
Before the depositary will deliver or register a transfer of an
ADS, make a distribution on an ADS, or permit withdrawal of
shares, the depositary may require:
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payment of stock transfer or other taxes or other governmental
charges and transfer or registration fees charged by third
parties for the transfer of any shares or other deposited
securities;
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satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
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compliance with regulations it may establish, from time to time,
consistent with the deposit agreement, including presentation of
transfer documents.
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The depositary may refuse to deliver ADSs or register transfers
of ADSs generally when the transfer books of the depositary or
our transfer books are closed or at any time if the depositary
or we think it advisable to do so.
Your
Right to Receive the Shares Underlying Your ADRs
You have the right to cancel your ADSs and withdraw the
underlying shares at any time except:
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When temporary delays arise because: (i) the depositary has
closed its transfer books or we have closed our transfer books;
(ii) the transfer of shares is blocked to permit voting at
a shareholders meeting; or (iii) we are paying a
dividend on our shares.
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When you or other ADS holders seeking to withdraw shares owe
money to pay fees, taxes and similar charges.
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When it is necessary to prohibit withdrawals in order to comply
with any laws or governmental regulations that apply to ADSs or
to the withdrawal of shares or other deposited securities.
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This right of withdrawal may not be limited by any other
provision of the deposit agreement.
Pre-Release
of ADSs
The deposit agreement permits the depositary to deliver ADSs
before deposit of the underlying shares. This is called a
pre-release of the American depositary shares. The depositary
may also deliver shares upon cancellation of pre-released ADSs
(even if the ADSs are cancelled before the pre-release
transaction has been closed out). A pre-release is closed out as
soon as the underlying shares are delivered to the depositary.
The depositary may receive ADSs instead of shares to close out a
pre-release. The depositary may pre-release ADSs only under the
following conditions: (1) before or at the time of the
pre-release, the person to whom the pre-release is being made
represents to the depositary in writing that it or its customer
owns the shares or ADSs to be deposited; (2) the
pre-release is fully collateralized with cash or other
collateral that the depositary considers appropriate; and
(3) the depositary must be able to close out the
pre-release on not more than five business days notice. In
addition, the depositary will limit the number of ADSs that may
be outstanding at any time as a result of pre-release, although
the depositary may disregard the limit from time to time, if it
thinks it is appropriate to do so.
Direct
Registration System
In the deposit agreement, all parties to the deposit agreement
have acknowledged that the Direct Registration System and
Profile Modification System will apply to uncertificated ADSs
upon acceptance thereof to DRS by the DTC. The Direct
Registration System is the system administered by DTC pursuant
to which the depositary may register the ownership of
uncertificated American depositary shares, which ownership shall
be evidenced by periodic statements issued by the depositary to
the ADS holders entitled thereto. The Profile Modification
System is a required feature of the Direct Registration System
which allows a DTC participant, claiming to act on behalf of an
ADS holder, to direct the depositary to register a transfer of
those ADSs to DTC or its nominee and to deliver those ADSs to
the DTC account of that DTC participant without receipt by the
depositary of prior authorization from the ADS holder to
register such transfer.
In connection with and in accordance with the arrangements and
procedures relating to the Direct Registration System/Profile
Modification System, the parties to the deposit agreement
understand that the depositary will not verify, determine or
otherwise ascertain that the DTC participant which is claiming
to be acting on behalf of an ADS holder in requesting
registration of transfer and delivery described in the paragraph
above has the actual authority to act on behalf of the ADS
holder (notwithstanding any requirements under the Uniform
Commercial Code as in effect in the State of New York). In the
deposit agreement, the parties agree that the depositarys
reliance on and compliance with instructions received by the
depositary through the Direct Registration System Profile
Modification System and in accordance with the deposit
agreement, shall not constitute negligence or bad faith on the
part of the depositary.
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ENFORCEABILITY
OF CIVIL LIABILITIES
We are incorporated in the Cayman Islands to take advantage of
certain benefits associated with being a Cayman Islands exempted
company, such as:
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political and economic stability;
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an effective judicial system;
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a favorable tax system;
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the absence of exchange control or currency
restrictions; and
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the availability of professional and support services.
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However, certain disadvantages accompany incorporation in the
Cayman Islands. These disadvantages include:
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the Cayman Islands has a less developed body of securities laws
as compared to the United States and provides significantly less
protection to investors; and
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Cayman Islands companies may not have standing to sue before the
federal courts of the United States.
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Our constituent documents do not contain provisions requiring
that disputes, including those arising under the securities laws
of the United States, between us, our officers, directors and
shareholders, be arbitrated.
Substantially all of our current operations are conducted in
China, and substantially all of our assets are located in China.
A majority of our directors and officers are nationals or
residents of jurisdictions other than the United States, and a
substantial portion of their assets are located outside the
United States. As a result, it may be difficult for a
shareholder to effect service of process within the United
States upon such persons, or to enforce against us or them
judgments obtained in United States courts, including judgments
predicated upon the civil liability provisions of the securities
laws of the United States or any state in the United States.
We have appointed CT Corporation System, 111 Eighth Avenue, New
York, NY 10011, as our agent to receive service of process with
respect to any action brought against us in the United States
District Court for the Southern District of New York under the
federal securities laws of the United States or of any state in
the United States or any action brought against us in the
Supreme Court of the State of New York in the County of New York
under the securities laws of the State of New York.
Maples and Calder, our counsel as to Cayman Islands law, and
Zhong Lun Law Firm, Shanghai Office, our counsel as to PRC law,
have advised us, respectively, that there is uncertainty as to
whether the courts of the Cayman Islands and the PRC,
respectively, would:
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recognize or enforce judgments of United States courts obtained
against us or our directors or officers predicated upon the
civil liability provisions of the securities laws of the United
States or any state in the United States; or
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entertain original actions brought in each respective
jurisdiction against us or our directors or officers predicated
upon the securities laws of the United States or any state in
the United States.
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Maples and Calder has further advised us that a final and
conclusive judgment in the federal or state courts of the United
States under which a sum of money is payable, other than a sum
payable in respect of taxes, fines, penalties or similar
charges, may be subject to enforcement proceedings as a debt in
the courts of the Cayman Islands under the common law doctrine
of obligation.
Zhong Lun Law Firm, Shanghai Office, has advised us further that
the recognition and enforcement of foreign judgments are
provided for under the PRC Civil Procedures Law. PRC courts may
recognize and enforce foreign judgments in accordance with the
requirements of the PRC Civil Procedures Law based either on
treaties between the PRC and the country where the judgment is
made or on reciprocity between jurisdictions.
77
TAXATION
The following summary of the material Cayman Islands and
United States federal tax consequences of an investment in our
ADSs or ordinary shares is based upon laws and relevant
interpretations thereof in effect as of the date of this
prospectus, all of which are subject to change. This summary
does not deal with all possible tax consequences relating to an
investment in our ADSs or ordinary shares, such as the tax
consequences under U.S., state, local and other tax laws. To the
extent that the discussion relates to matters of Cayman Islands
tax law, it represents the opinion of Maples and Calder, our
Cayman Islands counsel. To the extent the discussion relates to
PRC tax law, it represents the opinion of Zhong Lun Law
Firm, Shanghai Office, our PRC counsel. To the extent that the
discussion relates to matters of U.S. federal income tax
law, it represents the opinion of Shearman & Sterling
LLP, our special U.S. counsel.
Cayman
Islands Taxation
The Cayman Islands currently levies no taxes on individuals or
corporations based upon profits, income, gains or appreciation
and there is no taxation in the nature of inheritance tax or
estate duty. No Cayman Islands stamp duty will be payable unless
an instrument is executed in, brought to, or produced before a
court of the Cayman Islands. The Cayman Islands is not party to
any double tax treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.
PRC
Taxation
Under the FIE Tax Law, any dividends payable by foreign-invested
enterprises to non-PRC investors were exempt from any PRC
withholding tax. In addition, any dividends payable, or
distributions made, by us to holders or beneficial owners of our
ADSs would not have been subject to any PRC tax, provided that
such holders or beneficial owners, including individuals and
enterprises, were not deemed to be PRC residents under the PRC
tax law and had not become subject to PRC tax.
Under the EIT Law, which took effect as of January 1, 2008,
enterprises established under the laws of non-PRC jurisdictions
but whose de facto management body is located in the
PRC are considered resident enterprises for PRC tax
purposes. The EIT Law does not define the term de facto
management. However, the Implementation Regulations for
the Enterprise Income Tax Law of the PRC issued by the State
Council on December 6, 2007 defined de facto management
body as an establishment that exerts substantial and
comprehensive management and control over the business
operations, staff, accounting, assets and other aspects of the
enterprise. Since substantially all of our management is
currently based in the PRC, and may remain in the PRC after the
effectiveness of the EIT Law, it is likely that we will be
regarded as a resident enterprise on a strict
application of the EIT Law and its implementation regulations.
If we are treated as a resident enterprise for PRC
tax purposes, we will be subject to PRC income tax on our
worldwide income at a uniform tax rate of 25%, excluding
the dividend income we receive from our PRC subsidiaries
which should have been subject to PRC income tax already.
Moreover, the EIT Law provides that an income tax rate of 10% is
normally applicable to interest and dividends payable to non-PRC
investors who are non-resident enterprises, to the
extent such interest and dividends are derived from sources
within the PRC. We are a Cayman Islands holding company and
substantially all of our income may be derived from dividends we
receive from our operating subsidiaries located in the PRC
(through our holding company structure). Thus, dividends paid to
us by our subsidiaries in China may be subject to the 10% income
tax if we are considered a non-resident enterprise
under the EIT Law.
If we are deemed by the PRC tax authorities as a resident
enterprise and declare dividends, under the existing
implementation rules of the EIT Law, interest on the notes and
dividends paid by us to our non-PRC enterprise shareholders and
ADS holders may be subject to the 10% withholding tax.
However, if we are deemed as a non-resident
enterprise, interest on the notes and dividends paid by us
to our non-PRC enterprise shareholders and ADS holders should
not be deemed to be derived from sources within the PRC under
the EIT Law and therefore should not be subject to the 10%
withholding tax. However, what will constitute income derived
from sources within the PRC is currently unclear. In addition,
gains on the disposition of shares or
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ADSs are currently not subject to PRC tax. However, these
conclusions are not entirely free from doubt. In addition, it is
possible that these rules may change in the future, possibly
with retroactive effect.
U.S.
Federal Income Taxation
The following discussion describes the material
U.S. federal tax consequences to U.S. Holders (defined
below) of the acquisition, ownership and disposition of the
notes and the ADSs into which the notes may be converted (or
ordinary shares subsequently received in exchange for ADSs).
This summary applies only to U.S. Holders that hold the
notes, ADSs or ordinary shares as capital assets and who
purchase the notes sold in this offering.
This discussion is based on the U.S. Internal Revenue Code
of 1986, as amended (the Code), current and proposed
U.S. Treasury regulations, rulings and judicial decisions
thereunder as of the date hereof. All of the foregoing
authorities are subject to change, which change could apply
retroactively and could affect U.S. federal income tax
consequences described below.
The following discussion does not deal with the tax consequences
to any particular investor or to persons in special tax
situations such as:
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certain financial institutions;
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insurance companies;
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broker dealers;
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U.S. expatriates;
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traders that elect to mark-to-market;
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tax-exempt entities;
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persons liable for alternative minimum tax;
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persons holding a note, ADS or ordinary share as part of a
straddle, hedging, conversion or integrated transaction;
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persons whose functional currency is not the
U.S. dollar; or
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persons that actually or constructively own 10% or more of our
voting stock.
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The discussion below of the U.S. federal income tax
consequences to U.S. Holders will apply to you
if you are a beneficial owner of notes, ADSs or ordinary shares
and you are, for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation organized in or under the laws of the United
States, any state in the United States or the District of
Columbia;
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an estate whose income is subject to U.S. federal income
taxation regardless of its source; or
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a trust that (1) is subject to the primary supervision of a
court within the United States and one or more U.S. persons
have the authority to control all substantial decisions of the
trust or (2) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a
U.S. person.
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If you are a partner in a partnership, or other entity treated
as a partnership for U.S. federal income tax purposes, that
holds notes, ADSs or ordinary shares, your tax treatment
generally will depend on your status and the activities of the
partnership. If you are a partner or a partnership holding the
notes, ADSs or ordinary shares, you should consult your own tax
advisors. This discussion does not contain a detailed
description of all the U.S. federal income tax consequences
to you in light of your particular circumstances and does not
address the effects of any state, local or
non-U.S. tax
laws. If you are considering the purchase of notes, you
should consult your own tax advisors concerning the particular
U.S. federal income tax consequences to you of the
acquisition, ownership and disposition of the notes, ADSs or
ordinary shares, as well as the consequences to you arising
under the laws of any other taxing jurisdiction.
79
Notes
Bond
Premium
In general, if you purchase a note for an amount in excess of
the principal amount of the note, such excess will constitute
bond premium. You may elect to amortize the premium (with a
corresponding decrease in adjusted tax basis) over the remaining
term of the note on a constant yield method as an offset to
interest when includible in income under your regular accounting
method. If you do not elect to amortize bond premium, the
premium will decrease the gain or increase the loss you will
otherwise recognize on a disposition of the note. An election to
amortize the bond premium on a constant yield method will also
apply to all debt obligations held or subsequently acquired by
you on or after the first day of the first taxable year to which
the election applies. The election may not be revoked without
consent of the U.S. Internal Revenue Service (the
IRS).
Market
Discount
If you purchase a note at a price less than the notes
principal amount, the amount of the difference will be treated
as market discount unless such difference is less than a
specified de minimis amount (.0025 of the notes
principal amount times the number of complete years to maturity
from the date you acquired the note). Market discount accrues
ratably over the remaining term of a note unless a holder elects
to accrue market discount on a constant yield basis. If you hold
a note with market discount, you will be required to treat any
gain recognized on the sale or other disposition of a note as
ordinary income rather than capital gain to the extent of the
market discount accrued on the note. You may elect to include
market discount in income as it accrues, in which case any gain
recognized on the sale or other disposition of a note will be
capital gain. Such election will apply to all debt instruments
that you acquire during or after the taxable year to which the
election applies, and may only be revoked with the consent of
the IRS.
Payment
of Interest
Interest on a note (including any additional amounts) will be
taxable to you as ordinary income at the time it is paid or
accrued in accordance with your usual method of accounting for
U.S. federal income tax purposes. We believe that the
likelihood that interest on a note would be subject to
withholding taxes is remote, and therefore do not intend to
treat the possibility of having to pay additional amounts as
affecting the yield to maturity of the notes. Our determination
that this possibility is remote is binding on you unless you
disclose such contrary position in a manner required by the
applicable Treasury regulations. Our determination, however, is
not binding on the IRS.
If PRC withholding tax were to become payable on interest on a
note, you would be required to include in income any deductions
for withholding taxes and any additional amounts paid. As a
result, you would be required to include a greater amount in
income than the actual cash you receive. You may be entitled to
deduct or credit foreign tax withheld, subject to applicable
limitations. For U.S. foreign tax credit purposes, interest
income on a note will constitute foreign source income and be
passive category income or, in certain cases,
general category income. The rules governing the
U.S. foreign tax credit are complex and investors are urged
to consult their tax advisors regarding the availability of the
credit under their particular circumstances. In addition, if PRC
withholding tax were to become payable on interest paid on a
note, the IRS could challenge our original determination that
the possibility of the imposition of PRC withholding tax was
remote, in which case you might be required to include in income
additional amounts before the additional amounts are actually
paid.
Sale,
Exchange, Redemption, Repurchase or other Disposition of
Notes
Subject to the PFIC rules discussed below, you will recognize
gain or loss upon the sale, exchange, redemption, repurchase or
other disposition of a note equal to the difference between the
amount realized (less any accrued but unpaid interest that you
did not previously include in income, which will be taxable as
described above) upon the sale, exchange, redemption, repurchase
or other disposition and your adjusted tax basis in the note.
Your tax basis in a note will be equal to the amount you paid
for the note. Any gain or loss recognized on a taxable
disposition of the note will be capital gain or loss. If you are
a non-corporate U.S. Holder, including an individual, and
you have held the note for more than one year, such long-term
capital gain will be subject to reduced rates of taxation under
current
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law. Your ability to deduct capital losses may be limited. Gain
or loss upon the sale, exchange, redemption or other disposition
of a note will be U.S. source gain or loss for
U.S. foreign tax credit limitation purposes.
Conversion
of Notes
You will not recognize gain or loss upon the conversion of your
notes for ADSs except to the extent of cash received in lieu of
a fractional ADS and except to the extent of amounts received
with respect to accrued interest, which will be taxable as such.
The amount of gain or loss you recognize on the receipt of cash
in lieu of a fractional ADS will be equal to the difference
between the amount of cash you receive in respect of the
fractional ADS and the portion of your adjusted tax basis in the
notes that is allocable to the fractional ADS. Such gain or loss
will be U.S. source gain or loss for U.S. foreign tax
credit purposes. The tax basis of the ADSs received upon a
conversion (other than ADSs attributable to accrued interest,
the tax basis of which will equal its fair market value) will
equal the adjusted tax basis of the note that was converted
(excluding the portion of the tax basis that is allocable to any
fractional ADS). Your holding period for the ADSs will include
the period during which you held the notes except that the
holding period of any ADSs received with respect to accrued
interest will commence on the day after the date of receipt.
Constructive
Distributions
The conversion rate of the notes will be adjusted in certain
circumstances. Under Section 305(c) of the Code,
adjustments (or failures to make adjustments) that have the
effect of increasing your proportionate interest in our assets
or earnings may in some circumstances result in a deemed
distribution to you. Adjustments to the conversion rate made
pursuant to a bona fide reasonable adjustment formula that has
the effect of preventing the dilution of the interests of the
holders of the notes, however, will not be considered to result
in a deemed distribution to you. Certain of the possible
conversion rate adjustments provided in the notes (including,
without limitation, adjustments in respect of taxable dividends
to holders of our ordinary shares) may not qualify as being
pursuant to a bona fide reasonable adjustment formula. If such
adjustments are made, you will be deemed to have received a
distribution even though you have not received any cash or
property as a result of such adjustments. Any deemed
distributions will be taxable as a dividend, return of capital,
or capital gain in as discussed below in
ADS Taxation of Dividends and
Other Distributions on the ADSs or Ordinary Shares. A
constructive dividend deemed paid to you may not be eligible for
the preferential rates of U.S. federal income tax
applicable in respect of certain dividends received by certain
non-corporate U.S. Holders as discussed below in
ADSs Taxation of Dividends and
Other Distributions on the ADSs or Ordinary Shares.
ADSs
and Ordinary Shares
The U.S. Treasury has expressed concerns that parties to
whom ADSs are pre-released may be taking actions that are
inconsistent with the claiming of foreign tax credits for
U.S. Holders of ADSs. Such actions would also be
inconsistent with the claiming of the reduced rate of tax,
described below, applicable to dividends received by certain
non-corporate U.S. Holders. Accordingly, the analysis of
the creditability of any foreign taxes and the availability of
the reduced tax rate for dividends received by certain
non-corporate U.S. Holders, each described below, could be
affected by actions taken by parties to whom the ADSs are
pre-released. The discussion below assumes that the
representations contained in the deposit agreement are true and
that the obligations in the deposit agreement and any related
agreement will be complied with in accordance with their terms.
If you hold ADSs, you should be treated as the holder of the
underlying ordinary shares represented by those ADSs for
U.S. federal income tax purposes. Exchanges of ordinary
shares for ADSs and ADSs for ordinary shares will not be subject
to U.S. federal income tax.
Taxation
of Dividends and Other Distributions on the ADSs or Ordinary
Shares
Subject to the passive foreign investment company
(PFIC) rules discussed below, the gross amount of
any distribution (including constructive dividends) to you with
respect to the ADSs or ordinary shares will be included in your
gross income as dividend income on the date of actual or
constructive receipt by the depositary, in the case of ADSs, or
by you, in the case of ordinary shares, but only to the extent
that the distribution is paid out of our current or accumulated
earnings and profits (as determined under U.S. federal
income tax principles). The dividends will
81
not be eligible for the dividends-received deduction allowed to
corporations in respect of dividends received from other
U.S. corporations.
With respect to certain non-corporate U.S. Holders,
including individual U.S. Holders, for taxable years
beginning before January 1, 2011, dividends may constitute
qualified dividend income and be taxed at the lower
applicable capital gains rate, provided that (1) the ADSs
or ordinary shares are readily tradable on an established
securities market in the United States, (2) we are not a
PFIC (as discussed below) for either our taxable year in which
the dividend was paid or the preceding taxable year, and
(3) certain holding period requirements are met. Under IRS
authority, the ordinary shares, or ADSs representing such
shares, are currently considered for the purpose of
clause (1) above to be readily tradable on an established
securities market in the United States because they are listed
on the Nasdaq. You should consult your tax advisors regarding
the availability of the lower rate for dividends paid with
respect to our ADSs or ordinary shares.
Dividends will constitute foreign source income for
U.S. foreign tax credit limitation purposes. If the
dividends are qualified dividend income (as discussed above),
the amount of the dividend taken into account for purposes of
calculating the U.S. foreign tax credit limitation will in
general be limited to the gross amount of the dividend,
multiplied by the reduced rate divided by the highest rate of
tax normally applicable to dividends. The limitation on foreign
taxes eligible for credit is calculated separately with respect
to specific classes of income. For this purpose, dividends
distributed by us with respect to the ADSs or ordinary shares
will constitute passive category income but could,
in the case of certain U.S. Holders, constitute
general category income.
Subject to certain conditions and limitations, any PRC
withholding taxes on dividends may be treated as foreign taxes
eligible for credit against your U.S. federal income tax.
Holders should consult their own tax advisors regarding the
creditability of any PRC tax.
To the extent that the amount of the distribution exceeds our
current and accumulated earnings and profits (as determined
under U.S. federal income tax principles), it will be
treated first as a tax-free return of your tax basis in your
ADSs or ordinary shares, and to the extent the amount of the
distribution exceeds your tax basis, the excess will be taxed as
capital gain. We do not intend to calculate our earnings and
profits under U.S. federal income tax principles.
Therefore, you should expect that any distribution we make will
be treated as a dividend.
Taxation
of Dispositions of ADSs or Ordinary Shares
Subject to the PFIC rules discussed below, you will recognize
taxable gain or loss on any sale, exchange or other taxable
disposition of an ADS or ordinary share equal to the difference
between the amount realized for the ADS or ordinary share and
your tax basis in the ADS or ordinary share. The gain or loss
will be capital gain or loss. If you are a non-corporate
U.S. Holder, including an individual U.S. Holder, who
has held the ADS or ordinary share for more than one year, you
will be eligible for reduced tax rates. The deductibility of
capital losses is subject to limitations. Any such gain or loss
that you recognize will be treated as U.S. source income or
loss for foreign tax credit limitation purposes.
Passive
Foreign Investment Company
We do not expect to be a PFIC, for U.S. federal income tax
purposes, for our current taxable year or the foreseeable
future. Our actual PFIC status for the current taxable year
ending December 31, 2008 will not be determinable until
after the close of the current taxable year ending
December 31, 2008, and, accordingly, there is no guarantee
that we will not be a PFIC for 2008 or any future taxable year.
A
non-U.S. corporation
is considered to be a PFIC for any taxable year if either:
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at least 75% of its gross income is passive; or
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at least 50% of the value of its assets (based on an average of
the quarterly values of the assets during a taxable year) is
attributable to assets that produce or are held for the
production of passive income.
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We will be treated as owning our proportionate share of the
assets and earnings and our proportionate share of the income of
any other corporation in which we own, directly or indirectly,
more than 25% (by value) of the stock.
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We must make a separate determination each year as to whether we
are a PFIC. As a result, our PFIC status may change. If we are a
PFIC for any year during which you hold notes, ADSs or ordinary
shares, absent a special election (as described below), we will
continue to be treated as a PFIC for all succeeding years during
which you hold notes, ADSs or ordinary shares.
If we are a PFIC for any year in which you hold notes, ADSs or
ordinary shares, you will be subject to special tax rules with
respect to any excess distribution that you receive
and any gain you realize from a sale or other disposition
(including a pledge) of the notes, ADSs or ordinary shares,
unless you make a mark-to-market election as
discussed below. Distributions you receive in a taxable year
that are greater than 125% of the average annual distributions
you received during the shorter of the three preceding taxable
years or your holding period for the notes, ADSs or ordinary
shares will be treated as an excess distribution. Under these
special tax rules:
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the excess distribution or gain will be allocated ratably over
your holding period for the notes, ADSs or ordinary shares;
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the amount allocated to the current taxable year, and any
taxable year prior to the first taxable year in which we became
a PFIC, will be treated as ordinary income; and
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the amount allocated to each other year will be subject to the
highest tax rate in effect for that year and the interest charge
generally applicable to underpayments of tax will be imposed on
the resulting tax attributable to each such year.
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The tax liability for amounts allocated to years prior to the
year of disposition or excess distribution cannot be
offset by any net operating losses for such years, and gains
(but not losses) realized on the sale of the notes, ADSs or
ordinary shares cannot be treated as capital, even if you hold
the notes, ADSs or ordinary shares as capital assets.
Alternatively, a U.S. Holder of marketable
stock (as defined below) in a PFIC may make a
mark-to-market election for such stock of a PFIC to elect out of
the tax treatment discussed above. If you make a mark-to-market
election for the ADSs, you will include in income each year an
amount equal to the excess, if any, of the fair market value of
the ADSs as of the close of your taxable year over your adjusted
basis in such ADSs. You are allowed a deduction for the excess,
if any, of the adjusted basis of the ADSs over their fair market
value as of the close of the taxable year. However, deductions
are allowable only to the extent of any net mark-to-market gains
on the ADSs included in your income for prior taxable years.
Amounts included in your income under a mark-to-market election,
as well as gain on the actual sale or other disposition of the
ADSs, are treated as ordinary income. Ordinary loss treatment
also applies to the deductible portion of any mark-to-market
loss on the ADSs, as well as to any loss realized on the actual
sale or disposition of the ADSs, to the extent that the amount
of such loss does not exceed the net mark-to- market gains
previously included for such ADSs. Your basis in the ADSs will
be adjusted to reflect any such income or loss amounts.
The mark-to-market election is available only for
marketable stock, which is stock that is regularly
traded in other than de minimis quantities on at least
15 days during each calendar quarter on a qualified
exchange, including the Nasdaq, or other market, as defined in
applicable U.S. Treasury regulations. The ADSs are listed
on the Nasdaq, and we expect that they will be regularly traded
on the Nasdaq. Consequently, if you are a holder of ADSs, the
mark-to-market election should be available to you were we to be
or become a PFIC. However, it is unclear whether a
U.S. Holder of notes or ordinary shares will be able to
make a mark-to-market election. You should consult your own tax
advisors regarding the U.S. federal income tax consequences
that would arise if we are treated as a PFIC while you hold
notes or ordinary shares.
If you hold notes, ADSs or ordinary shares in any year in which
we are a PFIC, you will be required to file IRS Form 8621
regarding distributions received on the ADSs or ordinary shares
and any gain realized on the disposition of the notes, ADSs or
ordinary shares. In addition, if we are a PFIC, we do not intend
to prepare or provide you with the information necessary to make
a qualified electing fund election. You are urged to
consult your tax advisor regarding the application of the PFIC
rules to your investment in notes, ADSs or ordinary shares.
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Information
Reporting and Backup Withholding
Interest on the notes and dividend payments with respect to ADSs
or ordinary shares and proceeds from the sale or other
disposition of the notes, ADSs or ordinary shares may be subject
to information reporting to the IRS and possible
U.S. backup withholding at a current rate of 28%. Backup
withholding will not apply, however, if you are a corporation or
a U.S. Holder who furnishes a correct taxpayer
identification number and makes any other required certification
or if you are otherwise exempt from backup withholding. If you
are a U.S. Holder who is required to establish exempt
status, you generally must provide such certification on IRS
Form W-9.
U.S. Holders should consult their tax advisors regarding
the application of the U.S. information reporting and
backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against your
U.S. federal income tax liability, and you may obtain a
refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund
with the IRS and furnishing any required information in a timely
manner.
84
BENEFIT
PLAN INVESTOR CONSIDERATIONS
This disclosure was written in connection with the promotion and
marketing of our notes, or the ADSs issuable upon conversion
thereof, by the issuer and the initial purchasers, and it cannot
be used by any holder for the purpose of avoiding penalties that
may be asserted against the holder under the Code. Prospective
purchasers of our notes, or the ADSs issuable upon conversion
thereof, should consult their own tax advisors with respect to
the application of the U.S. federal income tax laws to
their particular situations.
Subject to the restrictions described below, our notes, or the
ADSs issuable upon conversion thereof, may be purchased and held
by an employee benefit plan (ERISA Plan) subject to
Title I of the U.S. Employee Retirement Income
Security Act of 1974, as amended (ERISA), or by an
individual retirement account or other plan subject to
Section 4975 of the Code (together with ERISA Plans,
Plans). A fiduciary of a Plan must determine that
the purchase and holding of a common share is consistent with
its fiduciary duties under ERISA and the Code. The fiduciary of
a Plan, as well as any other prospective investor subject to
Section 4975 of the Code or any law that is similar to
ERISA or Section 4975 of the Code (Similar
Law), must also determine that its purchase and holding of
the common shares do not result in a non-exempt prohibited
transaction as defined in Section 406 of ERISA or
Section 4975 of the Code or in a violation of any Similar
Law. Each person who is a party in interest (as
defined under ERISA) or a disqualified person (as
defined under the Code) who engages in a non-exempt prohibited
transaction may be subject to excise taxes and other penalties
and liabilities under ERISA and the Code.
Each purchaser and transferee of our notes, or the ADSs issuable
upon conversion thereof, who is subject to ERISA
and/or
Section 4975 of the Code or a Similar Law will be deemed to
have represented by its acquisition and holding of our notes, or
the ADSs issuable upon conversion thereof, that its acquisition
and holding of the notes, or the ADSs issuable upon conversion
thereof, do not constitute or give rise to a non-exempt
prohibited transaction under ERISA, Section 4975 of the
Code or in a violation of any Similar Law.
85
PLAN OF
DISTRIBUTION
Sales of
Securities by the Selling Securityholders
We will not receive any of the proceeds of the sale of the notes
or the ADSs issued upon conversion of the notes, including our
ordinary shares represented by the ADS, offered by this
prospectus. The notes, the ADSs issuable upon conversion of the
notes and our ordinary shares represented by such ADSs may be
sold from time to time to purchasers:
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directly by the selling securityholders or their pledgees,
donees, transferees or any successors in interest (all of whom
may be selling securityholders); or
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through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or
commissions from the selling securityholders, the purchasers of
the notes, the ADSs issuable upon conversion of the notes and
our ordinary shares represented by such ADSs.
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The selling securityholders and any such broker-dealers or
agents who participate in the distribution of the notes, the
ADSs issuable upon conversion of the notes and our ordinary
shares represented by such ADSs may be deemed to be
underwriters. As a result, any profits on the sale
of the notes, the ADSs issuable upon conversion of the notes and
our ordinary shares represented by such ADSs by selling
securityholders and any discounts, commissions or concessions
received by any such broker-dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities
Act. If the selling securityholders were to be deemed
underwriters, the selling securityholders may be subject to
certain statutory liabilities of, including, but not limited to,
Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5
under the Exchange Act.
Any selling securityholder who is a broker-dealer
may be deemed to be an underwriter within the
meaning of Section 2(11) of the Securities Act. These
securityholders purchased their notes in the open market, not
directly from us, and we are not aware of any underwriting plan
or agreement, underwriters or dealers compensation,
or passive market-making or stabilization transactions involving
the purchase or distribution of these securities by these
securityholders. To our knowledge, none of the selling
securityholders who are affiliates of broker-dealers purchased
the notes outside of the ordinary course of business or, at the
time of the purchase of the notes, had any agreement or
understanding, directly or indirectly, with any person to
distribute the securities.
If the notes, the ADSs issuable upon conversion of the notes or
exercise of the warrant and our ordinary shares represented by
such ADSs are sold through underwriters or broker-dealers, the
selling securityholders will be responsible for underwriting
discounts or commissions or agents commissions.
The notes, the ADSs issuable upon conversion of the notes or
exercise of the warrant and our ordinary shares represented by
such ADSs may be sold in one or more transactions at:
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fixed prices;
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prevailing market prices at the time of sale;
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varying prices determined at the time of sale; or
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negotiated prices.
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These sales may be effected in transactions:
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on any national securities exchange or quotation service on
which the notes, the ADSs issuable upon conversion of the notes
or exercise of the warrant and our ordinary shares represented
by such ADSs may be listed or quoted at the time of the sale,
including the Nasdaq Global Market;
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in the over-the-counter market;
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in transactions otherwise than on such exchanges or services or
in the over-the-counter market; or
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through the writing of options.
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86
These transactions may include block transactions or crosses.
Crosses are transactions in which the same broker acts as an
agent on both sides of the trade.
In connection with sales of the notes, the ADSs issuable upon
conversion of the notes and our ordinary shares represented by
such ADSs, the selling securityholders may enter into hedging
transactions with broker-dealers. These broker-dealers may in
turn engage in short sales of the notes, the ADSs issuable upon
conversion of the notes and our ordinary shares represented by
such ADSs in the course of hedging their positions. The selling
securityholders may also sell the notes, the ADSs issuable upon
conversion of the notes and our ordinary shares represented by
such ADSs short and deliver notes, the ADSs issuable upon
conversion of the notes and our ordinary shares represented by
such ADSs to close out short positions, or loan or pledge notes,
the ADSs issuable upon conversion of the notes and our ordinary
shares represented by such ADSs to broker-dealers that in turn
may sell the notes, the ADSs issuable upon conversion of the
notes and our ordinary shares represented by such ADSs.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any
underwriter, broker-dealer or agent regarding the sale of the
notes, the ADSs issuable upon conversion of the notes and our
ordinary shares represented by such ADSs by the selling
securityholders. There can be no assurance that any selling
securityholder will sell any or all of the notes, the ADSs
issuable upon conversion of the notes and our ordinary shares
represented by such ADSs pursuant to this prospectus. In
addition, any notes, the ADSs issuable upon conversion of the
notes and our ordinary shares represented by such ADSs covered
by this prospectus that qualify for sale pursuant to
Rule 144 of the Securities Act may be sold under
Rule 144 rather than pursuant to this prospectus. We cannot
assure you that any such selling securityholder will not
transfer, devise or gift the notes, the ADSs issuable upon
conversion of the notes and our ordinary shares represented by
such ADSs by other means not described in this prospectus.
Although the notes issued in the initial placement are eligible
for trading on the PORTAL Market, notes sold using this
prospectus will no longer be eligible for trading in the PORTAL
system. We have not listed, and do not intend to list, the notes
on any securities exchange or automated quotation system. The
initial purchasers advised us that they intended to make a
market in the notes. However, they are under no obligation to do
so and may discontinue any market-making activities at any time
without any notice. We cannot assure you that any market for the
notes will develop or be sustained. If an active market is not
developed or sustained, the market price and liquidity of the
notes may be adversely affected.
Our ADSs are listed on the Nasdaq Global Market under the symbol
SOLF.
The selling securityholders and any other person participating
in such distribution will be subject to the Exchange Act.
Pursuant to the registration rights agreement, we and the
selling securityholders will be indemnified by the other against
certain liabilities, including certain liabilities under the
Securities Act or will be entitled to contribution in connection
with these liabilities.
87
EXPENSES
We have agreed to pay the expenses incidental to the
registration of the notes and the ordinary shares represented by
ADSs issuable upon conversion of the notes.
88
LEGAL
MATTERS
We are being represented by Shearman & Sterling LLP
with respect to legal matters of United States federal
securities and New York State law. The validity of the issuance
of the notes offered by this prospectus and the ordinary shares
represented by the ADSs issuable upon conversion of the notes
and certain other legal matters as to Cayman Islands law will be
passed upon for us by Maples and Calder. Legal matters as to PRC
law will be passed upon for us by Zhong Lun Law Firm, Shanghai
Office. Shearman & Sterling LLP may rely upon Maples
and Calder with respect to matters governed by Cayman Islands
law and Zhong Lun Law Firm, Shanghai Office with respect to
matters governed by PRC law.
89
EXPERTS
Our consolidated financial statements incorporated by reference
in our annual report on
Form 20-F
for the year ended December 31, 2007 and the effectiveness
of the our internal control over financial reporting as of
December 31, 2007, have been audited by Ernst &
Young Hua Ming, independent registered public accounting firm,
as set forth in their reports thereon included therein, and
incorporated herein by reference. Such consolidated financial
statements and the managements assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2007 have been incorporated herein by
reference and included herein, respectively, in reliance upon
such reports given on the authority of such firm as experts in
accounting and auditing.
The offices of Ernst & Young Hua Ming are located at
23/F, The Center, 989 Chang Le Road, Shanghai 200031,
Peoples Republic of China.
90
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
We will furnish to you, through the depositary, English language
versions of any reports, notices and other communications that
we generally transmit to holders of our ordinary shares.
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance with this
Act, we file annual reports and other information with the SEC.
You may read and copy any of this information in the SECs
Public Reference Room, 100 F Street, NE Washington, DC
20549. You may also obtain copies of this information by mail
from the Public Reference Section of the SEC,
100 F Street, NE Washington, DC 20549, at
prescribed rates. You can obtain information on the operation of
the SECs Public Reference Room in Washington, D.C. by
calling the SEC at
1-800-SEC-0330.
The SEC also maintains an Internet web site that contains
reports, proxy statements and other information about issuers,
like us, that file electronically with the SEC. The address of
that site is
http://www.sec.gov.
91
INCORPORATION
OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them. This means that we can disclose
important information to you by referring you to those
documents. Each document incorporated by reference is current
only as of the date of such document, and the incorporation by
reference of such documents shall not create any implication
that there has been no change in our affairs since the date
thereof or that the information contained therein is current as
of any time subsequent to its date. The information incorporated
by reference is considered to be a part of this prospectus and
should be read with the same care. When we update the
information contained in documents that have been incorporated
by reference by making future filings with the SEC, the
information incorporated by reference in this prospectus is
considered to be automatically updated and superseded. In other
words, in the case of a conflict or inconsistency between
information contained in this prospectus and information
incorporated by reference into this prospectus, you should rely
on the information contained in the document that was filed
later.
We incorporate by reference the documents listed below:
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Our annual report on
Form 20-F
for the fiscal year ended December 31, 2007 filed on
June 27, 2008.
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With respect to each offering of securities under this
prospectus, all reports on
Form 20-F
and any report on
Form 6-K
that so indicates it is being incorporated by reference, in each
case, that we file with the SEC on or after the date on which
the registration statement is first filed with the SEC and until
the termination or completion of that offering under this
prospectus.
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Our annual report on
Form 20-F
for the fiscal year ended December 31, 2007 filed on
June 27, 2008, contains a description of our business and
audited consolidated financial statements with a report by our
independent auditors. These financial statements are prepared in
accordance with US GAAP.
Copies of all documents incorporated by reference in this
prospectus, other than exhibits to those documents unless such
exhibits are specially incorporated by reference in this
prospectus, will be provided at no cost to each person,
including any beneficial owner, who receives a copy of this
prospectus on the written or oral request of that person made to:
Solarfun Power Holdings Co., Ltd.
666 Linyang Road
Qidong, Jiangsu Province 226200, Peoples Republic of
China
Tel:
(86-513)
8330-7688
You should rely only on the information that we incorporate by
reference or provide in this prospectus. We have not authorized
anyone to provide you with different information. We are not
making any offer of these securities in any jurisdiction where
the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other
than the date on the front of those documents.
92
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
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ITEM 8.
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
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Cayman Islands law does not limit
the extent to which a companys articles of association may
provide for indemnification of officers and directors, except to
the extent any such provision may be held by the Cayman Islands
courts to be contrary to public policy, such as to provide
indemnification against civil fraud or the consequences of
committing a crime. Our articles of association provide for
indemnification of officers and directors for losses, damages,
costs and expenses incurred in their capacities as such, except
through their own willful neglect or default.
We will agree to indemnify our
directors and officers against certain liabilities and expenses
incurred by such persons in connection with claims made by
reason of their being such a director or officer. We are also in
the process of subscribing for liability insurance on behalf of
our directors and officers.
Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended
(the Securities Act), may be permitted to directors,
officers or persons controlling us pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
See Exhibit Index beginning on page
II-7 of this registration statement.
(a) The undersigned Registrant
hereby undertakes:
(1) To file, during any period
in which offers or sales are being made, a post-effective
amendment to this registration statement;
(i) To include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the
prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any
increase or any decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement; and
(iii) To include any material
information with respect to the plan of distribution not
previously disclosed in the registration statement or any
material change to such information in the registration
statement;
provided, however, that paragraphs
(a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not
apply if the registration statement is on
Form F-3
and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed with or furnished to the SEC by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the
registration statement, or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the
registration statement.
(2) That, for the purpose of
determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-1
(3) To remove from
registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective
amendment to the registration statement to include any financial
statements required by Item 8.A of
Form 20-F
at the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be
furnished, provided that the Registrant includes in the
prospectus, by means of a post-effective amendment, financial
statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in
the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with
respect to registration statements on
Form F-3,
a post-effective amendment need not be filed to include
financial statements and information required by
Section 10(a)(3) of the Act or
Rule 3-19
of
Regulation S-K
if such financial statements and information are contained in
periodic reports filed with or furnished to the SEC by the
Registrant pursuant to Section 13 or Section 15(d) of
the Securities Act of 1934 that are incorporated by reference in
this
Form F-3.
(5) That, for the purpose of
determining liability under the Securities Act of 1933 to any
purchaser:
(i) Each prospectus filed by
the Registrant pursuant to Rule 424(b)(3) shall be deemed to be
part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration
statement; and
(ii) Each prospectus required
to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii), or (x) for the purpose of providing the information
required by section 10(a) of the Securities Act of 1933
shall be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus
is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability
purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective
date of the registration statement relating to the securities in
the registration statement to which that prospectus relates, and
the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof. Provided, however,
that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or
made in any such document immediately prior to such effective
date.
(6) That, for the purpose of
determining liability of the Registrant under the Securities Act
of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned Registrant
undertakes that in a primary offering of securities of the
undersigned Registrant pursuant to this registration statement,
regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or
sold to such purchaser by means of any of the following
communications, the undersigned Registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus
or prospectus of the undersigned Registrant relating to the
offering required to be filed pursuant to Rule 424;
(ii) Any free writing
prospectus relating to the offering prepared by or on behalf of
the undersigned Registrant or used or referred to by the
undersigned Registrant;
(iii) The portion of any other
free writing prospectus relating to the offering containing
material information about the undersigned Registrant or its
securities provided by or on behalf of the undersigned
Registrant; and
(iv) Any other communication
that is an offer in the offering made by the undersigned
Registrant to the purchaser.
II-2
(b) The undersigned Registrant
hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the
Registrants annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification
for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that
in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act of 1933 will be governed by the final
adjudication of such issue.
(d) The undersigned registrant
hereby undertakes to file an application for the purpose of
determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules an
regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act.
II-3
SIGNATURES
Pursuant to the requirements of the
Securities Act, the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for
filing on
Form F-3
and has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in
Shanghai, Peoples Republic of China, on June 27, 2008.
SOLARFUN POWER HOLDINGS CO.,
LTD.
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By:
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/s/ Henricus
Johannes Petrus Hoskens
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Name: Henricus
Johannes Petrus Hoskens
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Title:
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Chief Executive Officer
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POWER
OF ATTORNEY
Each person whose signature appears
below constitutes and appoints each of Henricus Johannes Petrus
Hoskens and Amy Jing Liu as his or her true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and
stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this registration
statement and any and all related registration statements
pursuant to Rule 462(b) of the Securities Act, and to file
the same, with all exhibits thereto, and other documents in
connection therewith, with the SEC, hereby ratifying and
confirming all that said attorney-in-fact and agent, or its
substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the
Securities Act, this registration statement has been signed by
the following persons in the capacities and on June 27,
2008.
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Signature
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Title
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Date
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/s/ Yonghua
Lu
Name:
Yonghua Lu
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Chairman
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June 27, 2008
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/s/ Sven
Michael Hansen
Name:
Sven Michael Hansen
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Director
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June 27, 2008
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/s/ Hanfei
Wang
Name:
Hanfei Wang
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Director and Chief Operating Officer
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June 27, 2008
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/s/ Thomas
J. Toy
Name:
Thomas J. Toy
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Independent Director
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June 27, 2008
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/s/ Terry
McCarthy
Name:
Terry McCarthy
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Independent Director
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June 27, 2008
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/s/ Ernst
A. Bütler
Name:
Ernst A. Bütler
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Independent Director
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June 27, 2008
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/s/ Yinzhang
Gu
Name:
Yinzhang Gu
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Independent Director
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June 27, 2008
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II-4
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Signature
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Title
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Date
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/s/ Philip
Comberg
Name:
Philip Comberg
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Independent Director
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June 27, 2008
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/s/ Johan
van Splunter
Name:
Johan van Splunter
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Independent Director
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June 27, 2008
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/s/ Henricus
Johannes Petrus Hoskens
Name:
Henricus Johannes Petrus Hoskens
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Chief Executive Officer
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June 27, 2008
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/s/ Amy
Jing Liu
Name:
Amy Jing Liu
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Chief Financial Officer
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June 27, 2008
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/s/ Ziv
Chen Yu
Name:
Ziv Chen Yu
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Financial Controller
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June 27, 2008
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II-5
SIGNATURE
OF AUTHORIZED REPRESENTATIVE OF THE REGISTRANT
Under the Securities Act, the
undersigned, the duly authorized representative in the United
States of Solarfun Power Holdings Co., Ltd., has signed this
registration statement or amendment thereto in Newark, Delaware,
on June 27, 2008.
Authorized U.S. Representative
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By:
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/s/ Gregory
F. Lavelle
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Name: Gregory F. Lavelle
Title: Managing
Director
II-6
INDEX
TO EXHIBITS
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Exhibit
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Number
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Description of
Document
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4
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.1
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Registrants specimen Certificate for Ordinary Shares*
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4
|
.2
|
|
Form of American Depositary Receipt*
|
|
4
|
.3
|
|
Form of Deposit Agreement, among the Registrant, the depositary
and owners and holders of the American Depositary Shares*
|
|
4
|
.4
|
|
Indenture, dated as of January 29, 2008, among the
Registrant, the trustee and the securities agent
|
|
4
|
.5
|
|
Registration Rights Agreement, dated as of January 29,
2008, between the Registrant and the initial purchasers
|
|
5
|
.1
|
|
Opinion of Maples & Calder regarding the validity of
securities being registered
|
|
8
|
.1
|
|
Opinion of Shearman & Sterling LLP regarding certain
U.S. tax matters
|
|
8
|
.2
|
|
Opinion of Zhong Lun Law Firm, Shanghai Office, regarding
certain PRC tax matters
|
|
12
|
.1
|
|
Statement of Computation of Ratio of Earnings to Fixed Charges
|
|
23
|
.1
|
|
Consent of Ernst & Young Hua Ming
|
|
23
|
.2
|
|
Consent of Maples & Calder (included in
Exhibit 5.1)
|
|
23
|
.3
|
|
Consent of Shearman & Sterling LLP (included in
Exhibit 8.1)
|
|
23
|
.4
|
|
Consent of Zhong Lun Law Firm, Shanghai Office (included in
Exhibit 8.2)
|
|
24
|
.1
|
|
Powers of Attorney (included on signature page of Part II
of this Registration Statement)
|
|
25
|
.1
|
|
Statement of eligibility of trustee
|
|
|
|
*
|
|
Previously filed
with the Registrants registration statement on
Form F-1
(File
No. 333-139258),
as amended, initially filed with the SEC on December 11,
2006.
|
II-7