CANADIAN SOLAR INC.
As filed with the Securities
and Exchange Commission on
March [ ], 2008
Registration
No. 333-149497
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 1
To
Form F-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CANADIAN SOLAR INC.
(Exact name of registrant as
specified in its charter)
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Canada
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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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No. 199 Lushan Road
Suzhou New District
Suzhou, Jiangsu 215129
Peoples Republic of China
(86-512)
6690 8088
(Address and telephone number of
Registrants principal executive offices)
CT Corporation System
111 Eighth Avenue
New York, New York
10011
(212) 664-1666
(Name, address and telephone
number of agent for service)
Copy to:
David T. Zhang, Esq.
Latham & Watkins
LLP
41st
Floor, One Exchange Square
8 Connaught Place
Central
Hong Kong
(852) 2522-7886
Approximate date of commencement of proposed sale to the
public: From time to time after this registration statement
becomes effective.
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 delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
CALCULATION
OF REGISTRATION FEE*
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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
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Amount
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Aggregate
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Aggregate
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Registration
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Securities to be Registered
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to be Registered
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Price Per Unit(1)
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Offering Price(1)
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Fee
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6.0% Convertible Senior Notes due 2017
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$75,000,000
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100%
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$75,000,000
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$2,947.50
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Common shares, no par value
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4,250,797(2)
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(2)
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(2)
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(3)
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(1)
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Estimated solely for the purpose of
calculating the registration fee in accordance with
Rule 457 under the Securities Act.
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(2)
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Represents the number of common
shares issuable upon conversion of the 6.0% Convertible
Senior Notes due 2017 at an initial conversion rate of 50.6073
common shares per US$1,000 principal amount of the notes and the
number of shares issuable upon an increase in the conversion
rate upon occurrence of a fundamental change. Pursuant to
Rule 416 under the Securities Act, the number of common
shares registered hereby include an indeterminate number of
common shares that may be issued upon conversion of the notes,
as this amount may be adjusted as a result of anti-dilution
provisions thereof.
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(3)
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Pursuant to Rule 457(i), there
is no additional filing fee with respect to the common shares
issuable upon conversion of the notes because no additional
consideration will be received by the registrant in connection
with the conversion of the notes.
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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 the Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act or until the registration statement shall
become effective on such date as the Commission acting pursuant
to said Section 8(a) shall determine.
The information in
this preliminary 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, DATED MARCH
[ ], 2008
CANADIAN SOLAR INC.
US$75,000,000
6.0% Convertible Senior
Notes due 2017
and the
Common Shares Issuable upon
Conversion of the Notes
We issued and sold US$75,000,000 aggregate principal amount of
our 6.0% Convertible Senior Notes due 2017 in a private
transaction on December 10, 2007. Selling securityholders
may use this prospectus to resell from time to time their notes
and the common shares issuable upon conversion of the notes.
Additional selling security holders may be named by prospectus
supplement. We will not sell any securities under this
prospectus or receive any proceeds from resales by selling
securityholders.
The notes mature on December 15, 2017. The notes bear
interest at the rate of 6.0% per annum, payable semi-annually in
arrears on June 15 and December 15 of each year, starting on
June 15, 2008, to holders of record at the close of
business on the preceding June 1 and December 1,
respectively. The notes will be convertible into our common
shares based on an initial conversion rate, subject to
adjustment, of 50.6073 common shares per US$1,000 principal
amount of notes (which represents an initial conversion price of
approximately US$19.76 per common share).
The notes are our senior unsecured obligations and rank equally
with our other unsecured and unsubordinated indebtedness. The
notes are effectively subordinated in right of payment to all of
our existing and future secured indebtedness and other
liabilities of our subsidiaries. For a more detailed description
of the notes, see the section entitled Description of
Notes beginning on page 47 of this prospectus.
The securityholders may require us to repurchase the notes on
December 24, 2012 and December 15, 2014. We are also
required to make an offer to purchase notes from the
securityholders upon a fundamental change.
Our common shares are listed on the Nasdaq Global Market under
the symbol CSIQ. The closing price of the common
shares on March 24, 2008 was $17.51 per share.
This investment involves risks. See the section entitled
Risk Factors beginning on page 16.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus
is ,
2008.
TABLE OF
CONTENTS
PROSPECTUS
i
ABOUT
THIS PROSPECTUS
This prospectus is part of a shelf registration
statement that we are filing with the Securities and Exchange
Commission, or the SEC. By using a shelf registration statement,
the selling securityholders may sell any combination of the
securities described in this prospectus from time to time and in
one or more offerings. This prospectus provides you with a
general description of the securities the selling
securityholders may offer. Each time any selling securityholders
sell securities, 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 in this prospectus. If there is any
inconsistency between the information in this prospectus and any
applicable prospectus supplement, you should rely on the
information in the applicable prospectus supplement. Before
purchasing any securities, you should carefully read this
prospectus, any applicable prospectus supplement and the
documents incorporated by reference herein and therein, together
with additional information described under the heading
Where You Can Find More Information.
You should rely only on the information contained or
incorporated by reference in this prospectus, a prospectus
supplement or any amendment. We have not authorized any other
person to provide you with different information. If anyone
provides you with different or inconsistent information, you
should not rely on it. This prospectus may be used only where it
is legal to sell these securities. The selling securityholders
are offering to sell, and seeking offers to buy, only the notes
and the shares of common stock covered by this prospectus, and
only under the circumstances and in the jurisdictions where it
is lawful to do so. The information contained in this prospectus
is current only as of its date, regardless of the time of
delivery of this prospectus or of any sale of the notes or the
shares of common stock. Our business, financial condition,
results of operations and prospects may have changed since those
dates.
References to notes in this prospectus are to the
US$75,000,000 aggregate principal amount of
6.0% Convertible Senior Notes due 2017.
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PROSPECTUS
SUMMARY
You should read the following summary together with the
entire prospectus, including the information incorporated by
reference and the more detailed information regarding us, our
financial statements and related notes appearing elsewhere in
this prospectus and in the documents incorporated herein by
reference, before making an investment decision. Unless the
context otherwise requires, in this prospectus, we,
us, our company, our, and
CSI refer to Canadian Solar Inc. and its
consolidated subsidiaries; China or PRC
refers to the Peoples Republic of China, excluding Taiwan,
Hong Kong and Macau; RMB or Renminbi
refers to the legal currency of China; $ or
U.S. dollars refers to the legal currency of
the United States; C$ refers to the legal currency
of Canada; and Euro or refers to
the legal currency of the European Union.
Canadian
Solar Inc.
We design, manufacture and sell solar cell and module products
that convert sunlight into electricity for a variety of uses. We
are incorporated in Canada and conduct all of our manufacturing
operations in China. Our products include a range of standard
solar modules built to general specifications for use in a wide
range of residential, commercial and industrial solar power
generation systems. We also design and produce specialty solar
modules and products based on our customers requirements.
Specialty solar modules and products consist of customized
modules that our customers incorporate into their own products,
such as solar-powered bus stop lighting, and complete specialty
products, such as solar-powered car battery chargers. Our
products are sold primarily under our own brand name and also
produced on an OEM basis for our customers. We also implement
solar power development projects, primarily in conjunction with
government organizations to provide solar power generation in
rural areas of China.
We currently sell our products to customers located in various
markets worldwide, including Germany, Spain, Canada, Korea and
China. We currently sell our standard solar modules to
distributors and system integrators. We sell our specialty solar
modules and products directly to various manufacturers who
integrate the specialty solar modules into their own products
and sell and market the specialty solar products as part of
their product portfolio.
We have historically manufactured our module products from solar
cells purchased from third-party manufacturers. In 2007, we
began to pursue a new business model that combines internal
manufacturing capacity supplemented by direct material purchases
and outsourced toll manufacturing relationships which we believe
provides the company with several competitive benefits. We
believe that this approach allows us to benefit from the
increased margin available to vertically integrated solar
manufacturers while reducing the capital expenditures required
relative to a fully vertically integrated business model. We
also believe that this business model provides us with greater
flexibility to respond to short-term demand patterns and
longer-term to take advantage of the availability of low-cost
outsourced manufacturing capacity. Additionally, these steps
towards increased vertical integration of our supply chain have
enabled us to improve production yields, control our inventory
more efficiently and improve cash management, resulting in
increased confidence in our forecasts for revenue growth and
margin improvement in the future.
We believe that we have contractually secured 90% of our silicon
and solar cell requirements to support solar module production
of 200 to 220MW in 2008. For silicon material supplies, we have
entered into a five-year supply agreement with Luoyang Zhong Gui
High Tech Co. Ltd in China from 2006 to 2010 for high purity
silicon. For silicon wafers, we have entered into a three-year
fixed price and volume agreement with LDK Solar Co., Ltd., or
LDK, from 2008 to 2010 for specified quantities of solar wafers,
including 50MW for delivery in 2008. We also have standby toll
manufacturing arrangements with LDK and other ingot and wafer
manufacturers to convert our virgin polysilicon and reclaimed
silicon feedstock into wafers. In January 2007, we entered into
a supply agreement with Deutsche Solar, a subsidiary of
SolarWorld AG of Germany, for a supply of multi-crystalline
silicon wafers through 2018. In November 2007, we entered into
various agreements with China Sunergy Co., Ltd. for a supply of
25MW of solar cells for delivery in 2008, and an agreement with
Gintech Energy Corporation of Taiwan for a supply of 17 to 22MW
of solar cells for delivery in 2008. We have other silicon wafer
and solar cell supply agreements in place. We continue to
evaluate new technologies, including the use of upgraded
metallurgical grade silicon material. If the results of our
evaluation are positive, we intend to use upgraded metallurgical
grade silicon material in the
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production of solar ingots, wafers, cells and modules. We
believe that the use of upgraded metallurgical grade silicon
material could increase our total solar module shipments by 30
to 40MW in 2008.
We have aggressively expanded our manufacturing capacity for
both solar cells and solar modules. We have continued to expand
our own in-house solar cell manufacturing abilities, completing
our first solar cell production line with an annual capacity of
25MW in the first quarter of 2007 and our second 25MW production
line in the third quarter of 2007. We have recently installed
our third and fourth solar cell production lines and our annual
solar cell production capacity was 100MW as of December of 2007.
Currently, we intend to use all of our solar cells in the
manufacturing of our own solar module products. At
September 30, 2007, we had 180MW of annual module
manufacturing capacity between our Suzhou, Changshu and Luoyang
facilities. Another new Changshu solar module plant was opened
in February 2008, which we anticipate will increase our total
annual solar module production capacity to 400MW by the first
quarter of 2008.
In addition, we have commenced work on two new projects:
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Expansion of our internal solar cell manufacturing capacity from
100 to 250MW. We expect to complete this project by the summer
of 2008.
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Construction of a solar ingot and wafer plant in the City of
Luoyang, China. We expect to complete the initial phase of this
project by the summer of 2008, which will give us an annual
solar wafer capacity of 40 to 60MW.
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We believe that the substantial industry and international
experience of our management team has helped us foster strategic
relationships with suppliers throughout the solar power industry
value chain. We also take advantage of our flexible and low cost
manufacturing capability in China to lower our manufacturing and
operating costs. We believe we have a proven track record of low
cost and rapid expansion of solar cell and solar module
manufacturing capacity.
We have grown rapidly since March 2002, when we sold our first
solar module products. Our net revenues increased from
$9.7 million in 2004 to $68.2 million in 2006, and
from $43.8 million for the nine months period ended
September 30, 2006 to $175.3 million for the nine
months ended September 30, 2007. We sold 2.2MW, 4.1MW and
14.9MW of our solar module products in 2004, 2005 and 2006,
respectively, and 10.9MW and 45.6MW for the nine months ended
September 30, 2006 and 2007, respectively.
Industry
Background
Solar power has recently emerged as one of the most rapidly
growing renewable energy sources. Solar cells are fabricated
from silicon wafers and convert sunlight into electricity
through a process known as the photovoltaic effect. Solar
modules, which are an array of interconnected solar cells
encased in a weatherproof frame, are mounted in areas with
direct exposure to the sun to generate electricity from
sunlight. Solar power systems, which are comprised of solar
modules, related power electronics and other components, are
used in residential, commercial and industrial applications and
for customers who have no access to an electric utility grid.
According to Solarbuzz, an independent solar energy research
firm, the global solar power market, as measured by annual solar
system installations, increased from 345MW in 2001 to 1,744MW in
2006, representing a CAGR of 38.3%. During the same period,
solar power industry revenues grew from approximately
$2.4 billion in 2001 to approximately $10.6 billion in
2006, representing a CAGR of 34.6%. Solarbuzz projects that
solar power industry revenues and solar system installations
will reach $18.6 billion and 4,177MW, respectively, by
2011. According to Solarbuzz, worldwide installations of solar
power systems are expected to grow at a CAGR of 19.1% from 2006
to 2011, led by shipments for on-grid applications, where solar
power is used to supplement a customers electricity
purchased from the utility network. We believe growth in the
near term will be constrained by the limited availability of
high-purity silicon.
We believe the following factors have driven and will continue
to drive growth in the solar power industry:
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government incentives for solar power and other renewable energy
sources;
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fossil fuel supply constraints and desire for energy security;
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growing awareness of the advantages of solar power, including
its peak energy generation advantage, fuel risk advantage,
scalability, reliability and environmentally friendly nature;
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advances in technologies making solar power more
cost-efficient; and
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large market among underserved populations in rural areas of
developing countries with little or no access to electricity.
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Our
Competitive Strengths
We believe that the following competitive strengths enable us to
compete effectively and to capitalize on the rapid growth in the
global solar power market:
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our ability to manage our supply chain via long term supply
contracts and toll manufacturing arrangements, allowing us to
secure a cost-effective supply of solar wafers and solar cells;
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our ability to quickly and cost-effectively increase our
internal manufacturing capacity for solar cells and modules;
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the strength of our customer relationships in the rapidly
expanding global solar market;
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our continued focus on maintaining a reputation for high quality
and reliable solar modules and excellent customer
support; and
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our established senior management team with significant industry
and international expertise.
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Our
Strategies
Our objective is to be a global leader in the development and
manufacture of solar module products. We have developed the
following strategies, based on our experience, to anticipate
changes in the industry:
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pursue a balanced and diversified solar cell supply strategy by
entering into long-term solar cell and solar wafer supply
contracts, toll manufacturing arrangements and developing our
in-house solar cell and solar wafer manufacturing capabilities;
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continue to proactively manage silicon raw material supply by
securing long term silicon raw materials contracts;
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continue to diversify silicon supply sources including the
development of products utilizing upgraded metallurgical grade
silicon;
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further diversify our geographic presence, customer base and
product mix;
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enhance innovation and efficiency through R&D; and
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build a leading global brand.
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Corporate
Structure
We were incorporated pursuant to the laws of the Province of
Ontario in October 2001. We changed our jurisdiction by
continuing under the Canadian federal corporate statute, the
Canada Business Corporations Act, or CBCA, effective
June 1, 2006. As a result, we are governed by the CBCA.
In November 2001, we established CSI Solartronics (Changshu)
Co., Ltd., or CSI Solartronics, which is our wholly owned
subsidiary located in Changshu, China. Through CSI Solartronics,
we focus primarily on the production of specialty solar modules
and products. In addition to CSI Solartronics, we also currently
have six other wholly owned subsidiaries: (i) CSI Solar
Manufacture Inc., or CSI Solar Manufacturing, located in Suzhou,
China, which we incorporated in January 2005, through which we
focus primarily on the production of standard solar modules;
(ii) CSI Solar Technologies Inc., or CSI Solar
Technologies, also located in Suzhou, China, which we
incorporated in August 2003, through which we focus on solar
module product development; (iii) CSI Central Solar Power
Co., Ltd., or CSI Luoyang, in Luoyang, China, which we
incorporated in February 2006, through which we currently
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manufacture solar modules and intend to manufacture solar ingots
and solar wafers; (iv) CSI Cells Co., Ltd., or CSI Cells,
formerly known as CSI Solarchip International Co., Ltd., which
we incorporated in June 2006 and completed the first cell
production line in the first quarter of 2007, through which we
manufacture solar cells; (v) Changshu CSI Advanced Solar
Inc., or CSI Advanced, which was incorporated in August 2006 and
through which we intend to manufacture solar modules; and
(vi) CSI Solar Inc., which was incorporated in Delaware in
June 2007. CSI Advanced is not yet operational and is currently
in the construction and preparatory phase. In May 2007, we set
up a representative office in Phoenix, Arizona, to enhance our
sales and marketing efforts in the U.S. market. This office
became affiliated with CSI Solar Inc. after its incorporation in
June 2007.
Corporate
Information
Our principal executive offices are located at No. 199
Lushan Road, Suzhou New District, Suzhou, Jiangsu 215129,
Peoples Republic of China. Our telephone number at this
address is
(86-512)
6690-8088
and our fax number is
(86-512)
6690-8087.
Our mailing address in Canada is located at 675 Cochrane Drive,
East Tower, 6th Floor, Markham, Ontario L3R 0B8. Our
telephone number at this address is (1-905)
530-2334 and
our fax number is
(1-905) 530-2001.
You should direct all inquiries to us at the address and
telephone number of our principal executive offices set forth
above. Our website is www.csisolar.com. The information
contained on our website does not form part of this prospectus.
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FORWARD-LOOKING
STATEMENTS
The information in this prospectus, any prospectus supplement
and the documents incorporated herein by reference contains
forward-looking statements that relate to future events,
including our future operating results and conditions, our
prospects and our future financial performance and condition,
results of operations, business strategy and financial needs,
all of which are largely based on our current expectations and
projections. These statements are made under the safe
harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995. You can identify these
forward-looking statements by terminology such as
may, will, expect,
anticipate, future, intend,
plan, believe, estimate,
is/are likely to or other and similar expressions.
Forward-looking statements involve inherent risks and
uncertainties. 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 power;
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our beliefs regarding 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 power;
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our beliefs regarding the future shortage or availability of the
supply of high-purity silicon;
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our beliefs regarding the acceleration of adoption of solar
power technologies and the continued growth in the solar power
industry;
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our beliefs regarding the competitiveness of our solar module
products;
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our expectations with respect to increased revenue growth and
improved profitability;
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our expectations regarding the benefits to be derived from our
supply chain management and vertical integration manufacturing
strategy;
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our ability to continue developing our in-house solar components
production capabilities and our expectations regarding the
timing and production capacity of our internal manufacturing
programs;
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our beliefs regarding our securing adequate silicon and solar
cell requirements to support our solar module production;
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our beliefs regarding the effects of environmental regulation;
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our beliefs regarding the changing competitive arena in the
solar power industry;
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our future business development, results of operations and
financial condition; and
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competition from other manufacturers of solar power products and
conventional energy suppliers.
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Known and unknown risks, uncertainties and other factors, may
cause our actual results, performance or achievements to be
materially different from any future results, performances or
achievements expressed or implied by the forward-looking
statements. See the section entitled Risk Factors
for a discussion of some risk factors that may affect our
business and results of operations. These risks are not
exhaustive. Other sections of this prospectus and the documents
incorporated herein by reference may include additional factors
that could adversely impact our business and financial
performance. Moreover, because we operate in an emerging and
evolving industry, new risk factors may emerge from time to
time. It is not possible for our management to predict all risk
factors, nor can we assess the impact of these factors on our
business or the extent to which any factor, or combination of
factors, may cause actual result to differ materially from those
expressed or implied in any forward-looking statement.
This prospectus, including the documents incorporated herein by
reference, also contains data related to the solar power market
in several countries. These market data, including market data
from Solarbuzz, include projections
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that are based on a number of assumptions. The solar power
market may not grow at the rates projected by the market data,
or at all. The failure of the market to grow at the projected
rates may materially and adversely affect our business and the
market price of our common shares and the notes. In addition,
the rapidly changing nature of the solar power market subjects
any projections or estimates relating to the growth prospects or
future condition of our market to significant uncertainties. If
any one or more of the assumptions underlying the market data
proves to be incorrect, actual results may differ from the
projections based on these assumptions. You should not place
undue reliance on these forward-looking statements.
The forward-looking statements made in this prospectus and in
the documents incorporated herein by reference relate only to
events or information as of the date on which the statements are
made in this prospectus or, in the case of statements made in
documents incorporated by reference, as of the respective dates
of those documents. Except as required by law, we undertake no
obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise, after the date on which the statements are
made or to reflect the occurrence of unanticipated events.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of
the Exchange Act, under which we file periodic reports, proxy
and information statements and other information with the SEC.
Copies of the reports, proxy statements and other information
may be examined without charge at the SECs Public
Reference Room, 100 F Street, N.E.,
Washington, D.C. 20549 or on the Internet at
http://www.sec.gov.
Copies of all or a portion of such materials can be obtained
from the Public Reference Section of the SEC upon payment of
prescribed fees. Please call the SEC at
1-800-SEC-0330
for further information about the Public Reference Room.
As a foreign private issuer, we are exempt from the rules under
the Exchange Act that prescribe the furnishing and content of
proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and short-swing
profit recovery provisions contained in Section 16 of the
Exchange Act. We are not currently required under the Exchange
Act to publish financial statements as frequently or as promptly
as are United States companies subject to the Exchange Act. We
will, however, continue to furnish our shareholders with annual
reports containing audited financial statements and will issue
quarterly press releases containing unaudited statements of
operations data as well as such other reports as may from time
to time be authorized by our board of directors or as may be
otherwise required.
We have filed with the SEC a registration statement on
Form F-3,
including all amendments to the registration statement under the
Securities Act with respect to the notes and the common issuable
upon conversion of the notes covered by this prospectus. This
prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in
the registration statement, certain parts of which are omitted
in accordance with the rules and regulations of the SEC. For
further information regarding us and the securities offered
under this prospectus, please see the registration statement and
the exhibits and schedules filed with the registration
statement. Statements contained in this prospectus regarding the
contents of any agreement or other document filed as an exhibit
to the registration statement or our other filings with the SEC
are not necessarily complete, and in each instance please see
the copy of the full agreement filed as an exhibit to the
applicable filing. We qualify each of these statements in all
respects by the reference to the full agreement.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus, and information that
we file later with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act, including all subsequent annual reports on
Form 20-F,
prior to termination of this offering. In addition we may
incorporate by reference any
Form 6-K
subsequently submitted by us by identifying in such
Form 6-K
that it is being incorporated by reference into this prospectus.
6
|
|
|
|
|
Our annual report on
Form 20-F
for the fiscal year ended December 31, 2006, filed with the
SEC on May 29, 2007; and
|
|
|
|
|
|
our reports of foreign private issuer on
Form 6-K
filed with the SEC on March 15, 2007, April 23, 2007,
May 14, 2007, June 11, 2007, August 15, 2007,
October 2, 2007, October 29, 2007, November 15,
2007, November 30, 2007, December 4, 2007,
December 5, 2007 and March 6, 2008.
|
We will provide without charge to each person to whom a copy of
this prospectus is delivered, including any beneficial owner,
upon the written or oral request of such person, a copy of any
or all of the documents incorporated by reference (other than
exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that
this prospectus incorporates). Requests should be directed to:
Canadian Solar Inc.
No. 199 Lushan Road
Suzhou New District
Suzhou, Jiangsu 215129
Peoples Republic of China
Attention: Investor Relations
Telephone:
(86-512)
6690 8088
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.
7
THE
OFFERING
The summary below highlights information contained elsewhere in
this prospectus. This summary is not complete and does not
contain all the information that you should consider before
investing in the notes. The Description of Notes
section of this prospectus contains a more detailed description
of the terms and conditions of the notes and shares of our
common shares issuable upon conversion of the notes. As used in
this section, references to Canadian Solar, the
company, we, us and
our refer only to Canadian Solar Inc. and do not
include its direct or indirect subsidiaries.
|
|
|
Issuer of notes and common
shares |
|
Canadian Solar Inc. |
|
Notes issued |
|
US$75,000,000 principal amount of 6.0% convertible senior notes
due 2017. |
|
Maturity |
|
December 15, 2017. |
|
Ranking |
|
The notes are our senior, unsecured obligations and rank equal
in right of payment to all of our other unsecured and
unsubordinated indebtedness. The notes are effectively
subordinated in right of payment to all of our existing and
future secured debt to the extent of such security and
structurally subordinated to the indebtedness and other
liabilities of our subsidiaries. As of September 30, 2007,
we had no secured debt outstanding and our direct and indirect
subsidiaries had approximately US$61.7 million of total
debt outstanding on a consolidated basis. |
|
Interest |
|
The notes bear interest at a rate of 6.0% per annum. Interest is
payable semi-annually in arrears on each June 15 and December 15
beginning on June 15, 2008. |
|
Conversion rights |
|
You may convert your notes prior to the close of business on the
trading day before the stated maturity date. The initial
conversion rate is 50.6073 common shares per US$1,000 principal
amount of notes, subject to adjustment. This is equivalent to an
initial conversion price of approximately US$19.76 per common
share. |
|
|
|
Upon conversion you will receive our common shares for your
notes. If we have obtained consent from holders, we may elect to
deliver cash or a combination of cash and common shares in
satisfaction of our conversion obligation. In no event will the
total number of common shares to be issued upon conversion of
any note exceed 56.6773 shares per $1,000 principal amount
of notes, subject to adjustment. See the section entitled
Description of Notes Conversion Rights
for more information. |
|
Conversion rate increase
upon fundamental change |
|
If you elect to convert your notes in connection with a
fundamental change that occurs on or before December 24,
2012 as described below under the section entitled
Description of Notes Adjustment to Conversion
Rate upon Occurrence of a Fundamental Change, we will, to
the extent described in this prospectus, increase the conversion
rate applicable to the notes. |
|
|
|
The amount of the increase in the applicable conversion rate, if
any, will be based on our common share price and the effective
date of the fundamental change. A description of how the
increase in the applicable conversion rate will be determined
and a table showing the increase that would apply at various
common share prices and |
8
|
|
|
|
|
fundamental change effective dates are set forth under the
section entitled Description of Notes
Adjustment to Conversion Rate upon Occurrence of a Fundamental
Change. |
|
Optional redemption by us |
|
We may redeem the notes on or after December 24, 2012 at a
redemption price equal to 100% of the principal amount of the
notes, plus accrued and unpaid interest to, but excluding, the
redemption date (i) in whole or in part, if the closing
price for our common shares exceeds 130% of the conversion price
for at least 20 trading days within a period of 30 consecutive
trading days ending within five trading days of the notice of
redemption, or (ii) in whole only, if at least 95% of the
initial aggregate principal amount of the notes originally
issued have been redeemed, converted or repurchased and, in each
case, cancelled. |
|
Purchase of notes at your option on specified dates |
|
You may require us to repurchase the notes for cash on
December 24, 2012 and December 15, 2014 at a
repurchase price equal to 100% of the principal amount, plus
accrued and unpaid interest to, but excluding, the repurchase
date. |
|
Offer to purchase the notes on a fundamental change |
|
We are required to make an offer to purchase your notes for cash
upon a fundamental change at 100% of the principal amount of the
notes, plus accrued and unpaid interest to, but excluding, the
purchase date. |
|
Additional amounts |
|
All payments made by us or any successor to us under or with
respect to the notes will be made without withholding or
deduction for taxes unless we are legally required to do so, in
which case, subject to certain exceptions and limitations, we
will pay such additional amounts as may be necessary so that the
net amount received by holders of the notes after such
withholding or deduction shall equal the amount that would have
been received in the absence of such withholding or deduction. |
|
Tax redemption |
|
In the event of certain changes to the laws governing a relevant
taxing jurisdiction, we will have the option to redeem, in whole
but not in part, the notes for a purchase price equal to 100% of
the principal amount of the notes to be purchased plus any
accrued and unpaid interest, including any additional amounts,
up to, but excluding, the repurchase date. Upon our giving a
notice of redemption, a holder may elect not to have its notes
redeemed, in which case such holder would not be entitled to
receive the additional amounts referred to in
Additional Amounts above after the
redemption date. |
|
Resale registration rights |
|
We prepared this prospectus in connection with our obligations
under a registration rights agreement with respect to the resale
of the notes and the common shares issuable upon conversion of
the notes. |
|
|
|
We will use our reasonable best efforts to keep such shelf
registration statement effective, subject to certain permitted
exceptions, until the earliest of (i) December 10,
2009; (ii) the date when all registrable securities shall
have been registered under the Securities Act and disposed of;
(iii) the date on which all registrable securities held by
non-affiliates are eligible to be sold to the public pursuant to |
9
|
|
|
|
|
Rule 144(k) under the Securities Act; and (iv) the
date on which the registrable securities cease to be outstanding. |
|
|
|
We will be required to pay additional interest, subject to some
limitations, to the holders of the notes if we fail to comply
with our obligations to register the notes and the common shares
issuable upon conversion of the notes or the registration
statement does not become effective within the specified time
periods. See the section entitled Description of
Notes Resale Registration Rights for more
information. |
|
Use of proceeds |
|
We will not receive any proceeds from the selling
securityholders sale of the notes or the common shares
issuable upon conversion of the notes. |
|
Trustee, paying agent and
conversion agent |
|
The Bank of New York. |
|
Book-entry form |
|
The notes have been issued in book-entry form and are
represented by global certificates deposited with, or on behalf
of, DTC and registered in the name of a nominee of DTC.
Beneficial interests in any of the notes will be shown on, and
transfers will be effected only through, records maintained by
DTC or its nominee and any such interest may not be exchanged
for certificated securities except in limited circumstances. |
|
Trading |
|
Prior to this offering, the notes have been eligible for trading
in the PORTAL
Marketsm.
Notes sold by means of this prospectus will not remain eligible
for trading in the PORTAL
Marketsm.
We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market. Our common
shares are traded on the Nasdaq Global Market under the symbol
CSIQ. |
|
Taxation |
|
For certain United States and Canadian federal income tax
consequences of the holding, disposition and conversion of the
notes, and the holding and disposition of our common shares, see
the section entitled Taxation. |
|
Risk factors |
|
You should carefully consider the information set forth in the
section of this prospectus entitled Risk Factors as
well as the other information included in or incorporated by
reference in this prospectus before deciding whether to invest
in the notes and our common shares into which the notes may be
converted. |
|
Ratio of Earnings to Fixed Charges |
|
Our ratio of earnings to fixed charges for the years ended
December 31, 2002, 2003, 2004, 2005, 2006 and the nine
months ended September 30, 2007 have been set forth in the
section of this prospectus entitled Ratio of Earnings to
Fixed Charges. |
10
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following summary consolidated statement of operations data
for the years ended December 31, 2003, 2004, 2005 and 2006
and summary consolidated balance sheet data as of
December 31, 2003, 2004, 2005 and 2006 are derived from our
audited consolidated financial statements, which have been
audited by an independent registered public accounting firm. The
auditor report on our consolidated statements of operations for
the years ended December 31, 2004, 2005 and 2006 and our
consolidated balance sheets as of December 31, 2005 and
2006 is incorporated by reference into this prospectus from our
annual report on
Form 20-F
for the year ended December 31, 2006. You should read the
summary consolidated financial data in conjunction with those
financial statements and the related notes. Our summary
consolidated statement of operations data for the year ended
December 31, 2003 and our consolidated balance sheet data
as of December 31, 2003 and 2004 have been derived from our
audited consolidated financial statements which are not included
in our annual report. Our summary consolidated statement of
operations data for the year ended December 31, 2002 and
our consolidated balance sheet data as of December 31, 2002
have been derived from our unaudited consolidated financial
statements, which are not included in our annual report, but
which have been prepared on the same basis as our audited
consolidated financial statements. The summary consolidated
statement of operations data for the nine months ended
September 30, 2006 and 2007 and summary balance sheet data
as of September 30, 2007 are derived from our unaudited
condensed consolidated financial statements.
The audited financial statements are prepared and presented in
accordance with U.S. GAAP. Our unaudited financial
statements have been prepared on the same basis as our audited
financial statements and, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair presentation have been included.
Our historical results do not necessarily indicate results
expected for any future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of US$, except share and per share data,
|
|
|
|
and operating data and percentages)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,042
|
|
|
$
|
4,113
|
|
|
$
|
9,685
|
|
|
$
|
18,324
|
|
|
$
|
68,212
|
|
|
$
|
43,841
|
|
|
$
|
175,339
|
|
Cost of
revenues(1)
|
|
|
2,628
|
|
|
|
2,372
|
|
|
|
6,465
|
|
|
|
11,211
|
|
|
|
55,872
|
|
|
|
31,601
|
|
|
|
166,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,414
|
|
|
|
1,741
|
|
|
|
3,220
|
|
|
|
7,113
|
|
|
|
12,340
|
|
|
|
12,240
|
|
|
|
9,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
81
|
|
|
|
39
|
|
|
|
269
|
|
|
|
158
|
|
|
|
2,909
|
|
|
|
1,676
|
|
|
|
4,560
|
|
General and administrative expenses
|
|
|
405
|
|
|
|
1,039
|
|
|
|
1,069
|
|
|
|
1,708
|
|
|
|
7,923
|
|
|
|
4,483
|
|
|
|
11,378
|
|
Research and development
expenses(2)
|
|
|
7
|
|
|
|
20
|
|
|
|
41
|
|
|
|
16
|
|
|
|
398
|
|
|
|
115
|
|
|
|
677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
493
|
|
|
|
1,098
|
|
|
|
1,379
|
|
|
|
1,882
|
|
|
|
11,230
|
|
|
|
6,274
|
|
|
|
16,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations
|
|
|
921
|
|
|
|
643
|
|
|
|
1,841
|
|
|
|
5,231
|
|
|
|
1,110
|
|
|
|
5,966
|
|
|
|
(7,448
|
)
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
(2,194
|
)
|
|
|
(1,980
|
)
|
|
|
(943
|
)
|
Interest income
|
|
|
|
|
|
|
1
|
|
|
|
11
|
|
|
|
21
|
|
|
|
363
|
|
|
|
91
|
|
|
|
396
|
|
Loss on change in fair value of derivatives related to
convertible Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(316
|
)
|
|
|
(6,997
|
)
|
|
|
(6,997
|
)
|
|
|
|
|
Loss on financial instruments related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
|
|
(1,190
|
)
|
|
|
(1,190
|
)
|
|
|
|
|
Other net
|
|
|
|
(3)
|
|
|
10
|
|
|
|
(32
|
)
|
|
|
(25
|
)
|
|
|
(90
|
)
|
|
|
(13
|
)
|
|
|
1,716
|
|
Income tax expense
|
|
|
(81
|
)
|
|
|
(34
|
)
|
|
|
(363
|
)
|
|
|
(605
|
)
|
|
|
(432
|
)
|
|
|
(202
|
)
|
|
|
77
|
|
Minority interests
|
|
|
(215
|
)
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain
|
|
|
625
|
|
|
|
411
|
|
|
|
1,457
|
|
|
|
3,804
|
|
|
|
(9,430
|
)
|
|
|
(4,325
|
)
|
|
|
(6,202
|
)
|
Extraordinary gain
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
625
|
|
|
|
761
|
|
|
|
1,457
|
|
|
|
3,804
|
|
|
|
(9,430
|
)
|
|
|
(4,325
|
)
|
|
|
(6,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary gain
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
0.04
|
|
|
|
0.05
|
|
|
|
0.09
|
|
|
|
0.25
|
|
|
|
(0.50
|
)
|
|
|
(0.25
|
)
|
|
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of US$, except share and per share data,
|
|
|
|
and operating data and percentages)
|
|
|
Shares used in computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
18,986,498
|
|
|
|
17,275,330
|
|
|
|
27,279,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
35.0
|
%
|
|
|
42.3
|
%
|
|
|
33.2
|
%
|
|
|
38.8
|
%
|
|
|
18.1
|
%
|
|
|
28.0
|
%
|
|
|
5.2
|
%
|
Operating margin
|
|
|
22.8
|
%
|
|
|
15.6
|
%
|
|
|
19.0
|
%
|
|
|
28.5
|
%
|
|
|
1.6
|
%
|
|
|
13.6
|
%
|
|
|
(4.2
|
)%
|
Net margin
|
|
|
15.5
|
%
|
|
|
18.5
|
%
|
|
|
15.0
|
%
|
|
|
20.8
|
%
|
|
|
(13.8
|
)%
|
|
|
(9.9
|
)%
|
|
|
(3.5
|
)%
|
|
|
|
(1) |
|
Share-based compensation expenses
are included in our cost of revenues and operating costs and
expenses.
|
|
(2) |
|
We also conduct research and
development activities in connection with our implementation of
solar power development projects. These expenditures are
included in our cost of revenues.
|
|
(3) |
|
Less than one thousand.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of September 30,
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands of US$)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
596
|
|
|
$
|
1,879
|
|
|
$
|
2,059
|
|
|
$
|
6,280
|
|
|
$
|
40,911
|
|
|
$
|
27,402
|
|
Restricted cash
|
|
|
|
|
|
|
27
|
|
|
|
27
|
|
|
|
112
|
|
|
|
825
|
|
|
|
3,357
|
|
Inventories
|
|
|
312
|
|
|
|
313
|
|
|
|
2,397
|
|
|
|
12,162
|
|
|
|
39,700
|
|
|
|
65,918
|
|
Accounts receivable, net
|
|
|
1,047
|
|
|
|
257
|
|
|
|
636
|
|
|
|
2,067
|
|
|
|
17,344
|
|
|
|
49,061
|
|
Advances to suppliers
|
|
|
3
|
|
|
|
81
|
|
|
|
370
|
|
|
|
4,740
|
|
|
|
13,484
|
|
|
|
18,731
|
|
Value added tax recoverable
|
|
|
167
|
|
|
|
142
|
|
|
|
22
|
|
|
|
815
|
|
|
|
2,281
|
|
|
|
7,926
|
|
Other current assets
|
|
|
51
|
|
|
|
95
|
|
|
|
150
|
|
|
|
257
|
|
|
|
2,398
|
|
|
|
2,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,176
|
|
|
|
2,794
|
|
|
|
5,661
|
|
|
|
26,433
|
|
|
|
116,943
|
|
|
|
174,868
|
|
Property, plant and equipment, net
|
|
|
291
|
|
|
|
244
|
|
|
|
453
|
|
|
|
932
|
|
|
|
7,910
|
|
|
|
31,688
|
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
91
|
|
Prepaid-rental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,103
|
|
|
|
1,178
|
|
Deferred tax assets (non-current)
|
|
|
9
|
|
|
|
15
|
|
|
|
31
|
|
|
|
65
|
|
|
|
3,639
|
|
|
|
3,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,476
|
|
|
|
3,053
|
|
|
|
6,145
|
|
|
|
27,430
|
|
|
|
129,634
|
|
|
|
211,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
3,311
|
|
|
|
51,651
|
|
Accounts payable
|
|
|
488
|
|
|
|
426
|
|
|
|
824
|
|
|
|
4,306
|
|
|
|
6,874
|
|
|
|
14,919
|
|
Other payable
|
|
|
65
|
|
|
|
398
|
|
|
|
302
|
|
|
|
892
|
|
|
|
993
|
|
|
|
5,189
|
|
Advances from suppliers and customers
|
|
|
113
|
|
|
|
18
|
|
|
|
273
|
|
|
|
2,823
|
|
|
|
3,225
|
|
|
|
9,496
|
|
Income tax payable
|
|
|
92
|
|
|
|
119
|
|
|
|
407
|
|
|
|
914
|
|
|
|
112
|
|
|
|
509
|
|
Amounts due to related parties
|
|
|
12
|
|
|
|
93
|
|
|
|
189
|
|
|
|
431
|
|
|
|
149
|
|
|
|
202
|
|
Embedded derivatives related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,679
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
61
|
|
|
|
147
|
|
|
|
761
|
|
|
|
1,022
|
|
|
|
1,191
|
|
|
|
1,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
831
|
|
|
|
1,201
|
|
|
|
2,756
|
|
|
|
15,367
|
|
|
|
15,855
|
|
|
|
83,296
|
|
Accrued warranty costs
|
|
|
39
|
|
|
|
79
|
|
|
|
167
|
|
|
|
341
|
|
|
|
875
|
|
|
|
2,552
|
|
Long term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,003
|
|
Convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,387
|
|
|
|
|
|
|
|
|
|
Financial instruments related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
261
|
|
|
|
261
|
|
|
|
261
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,131
|
|
|
|
1,541
|
|
|
|
3,184
|
|
|
|
20,463
|
|
|
|
16,730
|
|
|
|
95,851
|
|
Total shareholders equity
|
|
|
1,345
|
|
|
|
1,512
|
|
|
|
2,961
|
|
|
|
6,967
|
|
|
|
112,904
|
|
|
|
115,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
2,476
|
|
|
|
3,053
|
|
|
|
6,145
|
|
|
|
27,430
|
|
|
|
129,634
|
|
|
|
211,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
27,270,000
|
|
|
|
27,290,298
|
(4)
|
|
|
|
(4) |
|
Excluding 566,190 restricted
shares, which were subject to restrictions on voting and
dividend rights and transferability, as of September 30,
2007.
|
12
SUMMARY
OF RECENT FINANCIAL DEVELOPMENTS
Third
Quarter 2007 Financial Results
Net revenues for the third quarter 2007 were $97.4 million,
including $3.8 million of silicon material sales, compared
to net revenues of $17.8 million for the third quarter of
2006 and $60.4 million for the second quarter of 2007. Net
revenues for the second quarter of 2007 included
$2.7 million of silicon material sales. Net income for the
quarter was $0.5 million, or $0.02 per diluted share,
compared to net income of $0.24 million, or $0.01 per
diluted share, for the third quarter of 2006 and net loss of
$2.9 million, or $0.11 per diluted share, for the second
quarter of 2007.
Our return to profitability was achieved through continued sales
momentum, improved production yields, better inventory controls,
improved cash management and stable pricing. As a result, we
were able to increase our product shipments and improve our
profit margins as forecast despite modest price increases in
materials from some suppliers.
Results
of Operations for the Nine Months Ended September 30, 2006
and 2007
Net Revenues. Our total net revenues
increased 300.2% from $43.8 million for the nine months
ended September 30, 2006 to $175.3 million for the
nine months ended September 30, 2007. The increase was due
primarily to a significant increase in net revenues generated
from the sale of our solar module products from
$43.8 million for the nine months ended September 30,
2006 to $166.0 million for the nine months ended
September 30, 2007. However, as a percentage of total
revenues, solar module product sales decreased from 99.8% to
94.7% due to an increase in silicon material sales to third
party customers.
There was a significant decrease in other net revenues generated
from our implementation of solar power development projects from
$68,000 for the nine months ended September 30, 2006 to nil
for the nine months ended September 30, 2007, primarily due
to our substantial completion of the remaining milestones in the
Solar Electrification for Western China project in
2005, for which a portion of revenue had been recognized in 2006
after final customer acceptance.
The volume of our solar module products sold increased from
10.9MW for the nine months ended September 30, 2006 to
45.6MW for the nine months ended September 30, 2007. The
significant increase in the volume of our solar module products
sold was driven by several factors, including favorable
incentive programs that stimulated demand for our products in
our main target markets of Germany, Spain and Italy,
establishment of customer relationships with several large solar
integrators in our target markets and an increase in module
production capacity to fulfill this demand.
Cost of Revenues. Our cost of revenues
increased 425.9% from $31.6 million for the nine months
ended September 30, 2006 to $166.2 million for the
nine months ended September 30, 2007. The increase in our
cost of revenues was due primarily to a significant increase in
the quantity of solar cells needed to produce an increased
output of our standard solar modules and the rising prices of
silicon feedstock and solar cells arising from the industry-wide
shortage of high-purity silicon. As a percentage of our total
net revenues, cost of revenues increased from 72.1% for the nine
months ended September 30, 2006 to 94.8% for the nine
months ended September 30, 2007, with the increase
primarily due to rising prices of silicon feedstock and solar
cells arising from an industry-wide shortage of high-purity
silicon.
Gross Profit. As a result of the foregoing,
our gross profit decreased from $12.2 million for the nine
months ended September 30, 2006 to $9.2 million for
the nine months ended September 30, 2007. Our gross margin
decreased from 27.9% for the nine months ended
September 30, 2006 to 5.2% for the nine months ended
September 30, 2007. The decrease in gross margin was due
primarily to the rising prices of silicon feedstock and solar
cells arising from the industry-wide shortage of high-purity
silicon and a decrease in average selling prices for our solar
module products. We have increased our quarterly gross margin in
each quarter since the fourth quarter of 2006, from 0.4% in the
quarter ended December 31, 2006 to 6.5% in the quarter
ended September 30, 2007. Although we have improved our
gross margin through continued sales growth and effective cost
controls, we cannot assure you that we will continue to do so in
future periods.
13
Operating Expenses. Our operating expenses
increased by 164.8% from $6.3 million for the nine months
ended September 30, 2006 to $16.6 million for the nine
months ended September 30, 2007. The increase in our
operating expenses was due primarily to an increase in our
general and administrative expenses and selling expenses.
Operating expenses as a percentage of our total net revenue
decreased from 14.3% for the nine months ended
September 30, 2006 to 9.5% for the nine months ended
September 30, 2007.
Selling Expenses. Our selling expenses increased
from $1.7 million for the nine months ended
September 30, 2006 to $4.6 million for the nine months
ended September 30, 2007. Selling expenses as a percentage
of our total net revenues decreased from 3.8% for the nine
months ended September 30, 2006 to 2.6% for the nine months
ended September 30, 2007. The increase in our selling
expenses was due primarily to (i) the increase in
share-based compensation expenses that we incurred in connection
with our grant of share options and restricted shares to sales
and marketing personnel, (ii) the increase in freight
charges and export processing fees caused by our increasing use
of cost, insurance and freight sales terms in the nine months
ended September 30, 2007 comparing to mostly
free-on-board
or ex-work sales terms in the nine months ended
September 30, 2006 and (iii) an increase in salaries
and benefits as we hired additional sales personnel to handle
our increased sales volume.
General and Administrative Expenses. Our general and
administrative expenses increased by 153.8% from
$4.5 million for the nine months ended September 30,
2006 to $11.4 million for the nine months ended
September 30, 2007, primarily due to (i) the increase
in share-based compensation expenses that we incurred in
connection with our grant of share options and restricted shares
to general and administrative employees and (ii) increases
in salaries and benefits for our administrative and finance
personnel as we hired additional personnel in connection with
the growth of our business. As a percentage of our total net
revenues, general and administrative expenses decreased from
10.2% for the nine months ended September 30, 2006 to 6.5%
for the nine months ended September 30, 2007, primarily as
a result of the greater economies of scale that we achieved in
the nine months ended September 30, 2007.
Research and Development Expenses. Our research and
development expenses increased significantly from $115,000 for
the nine months ended September 30, 2006 to $676,672 for
the nine months ended September 30, 2007, due to increased
efforts in development of new products and technology
improvement. We expect our expenditures for research and
development efforts to increase significantly in 2008 as we
undertake technology development related to future product
offerings.
Share-Based Compensation Expenses. Our share-based
compensation expenses in the nine months ended
September 30, 2006 was $3.5 million as compared to
$7.0 million in the nine months ended September 30,
2007. This increase was due to the implementation of our
share-based compensation program in May 2006, thus share-based
compensation expenses allocated in 2006 occurred over a shorter
time period as compared to the nine months ended
September 30, 2007.
Interest Expenses. We incurred interest
expenses of approximately $2.0 million for the nine months
ended September 30, 2006 compared to $943,625 for the nine
months ended September 30, 2007. The interest expenses for
the nine months ended September 30, 2006 were in connection
with (i) the convertible notes that we sold to HSBC and
JAFCO in November 2005 and March 2006 and which were outstanding
before July 1, 2006, (ii) non-cash amortization of
discount on debts in relation to the convertible notes issued to
HSBC and JAFCO and (iii) interest payable for our various
short-term borrowings before our initial public offering in
November 2006. These convertible notes were converted on
July 1, 2006. As a result of relatively low debt levels in
the nine months ended September 30, 2007, our interest
expenses were comparatively lower for the nine months ended
September 20, 2007, compared to the same period in 2006.
Loss on Change in Fair Value of Derivatives Related to
Convertible Notes. We recorded nil for the loss on
change in fair value of derivatives related to convertible notes
for the nine months ended September 30, 2007 compared to
$7.0 million for the nine months ended September 30,
2006. After amending the terms of our convertible notes in March
2006, we no longer incurred this charge.
Loss on Financial Instruments Related to Convertible
Notes. We recorded nil for a non-cash charge for
the nine months ended September 30, 2007 compared to
$1.2 million for the nine months ended September 30,
2006. After
14
issuing the second tranche convertible notes together with
convertible notes issued pursuant to the investors option
in March 2006, we no longer incurred this charge.
Income Tax Income (Expense). Our income tax
expense was $202,430 for the nine months ended
September 30, 2006, as compared to a gain of $76,786 for
the nine months ended September 30, 2007, in part due to
the tax benefit from the amortization of an increase in deferred
tax assets associated with expenses related to our initial
public offering and based on Canadian tax regulations.
Net Loss. As a result of the cumulative
effect of the above factors, we recorded net loss of
$6.2 million for the nine months ended September 30,
2007, as compared to a $4.3 million net loss for the nine
months ended September 30, 2006.
Liquidity
and Capital Resources
To date, we have financed our operations primarily through cash
flows from operations, short-term borrowings, convertible note
issuances, as well as equity contributions by our shareholders.
We have significant working capital commitments because of the
rapid growth of our standard solar module business.
Additionally, some of our suppliers of silicon raw materials,
including polysilicon, solar wafers and solar cells require us
to make prepayments in advance of their shipment. In a long-term
supply contract, customary with the current industry practice,
we have agreed to make large amounts of prepayments in cash to
our supplier in advance of the planned delivery with the
prepayments being proportionally off-set at deliveries from the
supplier during the contract term. Due to the industry-wide
shortage of high-purity silicon, working capital and access to
financings to allow for the purchase of silicon raw materials
are critical to growing our business.
We believe that our current cash and cash equivalents,
anticipated cash flow from operations and planned commercial
bank borrowings will be sufficient to meet our anticipated cash
needs, including our cash needs for working capital, capital
expenditures and potential acquisitions for at least the next
12 months. We may, however, require additional cash due to
changing business conditions or other future developments. If
our cash is insufficient to meet our requirements, we may seek
to sell additional equity securities or debt securities or
borrow from lending institutions. We cannot assure you that
financing will be available in the amounts we need or on terms
acceptable to us, if at all.
15
RISK
FACTORS
Your investment in the notes involves a high degree of risk.
You should carefully consider the risks described below as well
as other information and data included in this prospectus,
including in our most recent annual report on
Form 20-F
and the documents incorporated by reference in this prospectus,
as the same may be updated from time to time by our future
filings under the Securities Exchange Act of 1934, or the
Exchange Act, before making an investment decision. Additional
risks and uncertainties not presently known to us or that we
currently believe are immaterial may also adversely impact our
business operations. If any of the events described in the risk
factors below, or other events described in the risk factors
incorporated by references occur, our business, financial
condition, operating results and prospects could be materially
affected and 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.
There is limited historical information available about our
company upon which you can base your evaluation of our business
and prospects. We began business operations in October 2001 and
shipped our first solar module products in March 2002. With the
rapid growth of the solar power industry, we have experienced a
high growth rate since our inception and, in particular, since
2004 after we began to sell standard solar modules. As such our
historical operating results may not provide a meaningful basis
for evaluating our business, financial performance and
prospects. We may not be able to achieve growth rates in future
periods similar to those we have experienced in recent periods,
and our business model at higher volumes is unproven.
Accordingly, you should not rely on our results of operations
for any prior periods as an indication of our future
performance. You should consider our business and prospects in
light of the risks, expenses and challenges that we will face as
an early-stage company seeking to develop and manufacture new
products in a rapidly growing market.
Our
quarterly operating results may fluctuate from period to period
in the future.
Our quarterly operating results may fluctuate from period to
period based on a number of factors, including:
|
|
|
|
|
the average selling prices of our solar modules and products;
|
|
|
|
the availability and pricing of raw materials, particularly
high-purity silicon and reclaimable silicon;
|
|
|
|
the availability, pricing and timeliness of delivery of solar
cells and wafers from our suppliers and toll manufacturers;
|
|
|
|
the rate and cost at which we are able to expand our internal
manufacturing capacity to meet customer demand and the
timeliness and success of these expansion efforts;
|
|
|
|
the impact of seasonal variations in demand linked to
construction cycles and weather conditions, with purchases of
solar products tending to decrease during the winter months in
our key markets, such as Germany, due to adverse weather
conditions that can complicate the installation of solar power
systems;
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timing, availability and changes in government incentive
programs and regulations, particularly in our target markets;
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unpredictable volume and timing of customer orders, some of
which are not fixed by contract but vary on a purchase order
basis;
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the loss of one or more key customers or the significant
reduction or postponement of orders from these customers;
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availability of financing for on-grid and off-grid solar power
applications;
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unplanned additional expenses such as manufacturing failures,
defects or downtime;
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acquisition and investment related costs;
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geopolitical turmoil within any of the countries in which we
operate or sell products;
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foreign currency fluctuations, particularly in the Euro,
U.S. Dollar and RMB;
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our ability to establish and expand customer relationships;
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changes in our manufacturing costs;
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changes in the relative sales mix of our products;
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our ability to successfully develop, introduce and sell new or
enhanced solar modules and products in a timely manner, and the
amount and timing of related research and development costs;
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the timing of new product or technology announcements or
introductions by our competitors and other developments in the
competitive environment; and
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increases or decreases in electric rates due to changes in
fossil fuel prices or other factors.
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We base our planned operating expenses in part on our
expectations of future revenue, and a significant portion of our
expenses will be fixed in the short-term. If revenue for a
particular quarter is lower than we expect, we likely will be
unable to proportionately reduce our operating expenses for that
quarter, which would harm our operating results for that
quarter. This may cause us to miss analysts guidance or
any guidance announced by us. If we fail to meet or exceed
analyst or investor expectations or our own future guidance,
even by a small amount, our share price could decline, perhaps
substantially.
The
current industry-wide shortage of high-purity silicon may
constrain our revenue growth and decrease our margins and
profitability.
We produce solar modules, which are an array of interconnected
solar cells encased in a weatherproof package, and products that
use solar modules. High-purity silicon is an essential raw
material in the production of solar cells and is also used in
the semiconductor industry generally. While we do have in-house
solar cell manufacturing capabilities, we continue to depend on
solar cell supplies from a few producers. There is currently an
industry-wide shortage of high-purity silicon because of
increased demand as a result of recent expansions of, and
increased demand in, the solar power and semiconductor
industries. The shortage of high-purity silicon has driven the
overall increase in silicon feedstock prices. For example,
according to a March 2007 report by Solarbuzz, the average
long-term silicon feedstock contracted price increased from
approximately $28-32 per kilogram in 2004 to $60-65 per kilogram
in 2007. In addition, according to Solarbuzz, prices of silicon
feedstock obtained through spot purchases or short-term
contracts went as high as $300 per kilogram in 2006, peaking in
the third quarter of 2006 before decreasing by 10% from this
peak by the first quarter of 2007. The shortage of high-purity
silicon has also resulted in a shortage of, and significant
price increases for, solar cells. According to Solarbuzz, the
average selling price of solar cells increased from the fourth
quarter of 2004 to the fourth quarter of 2005 by approximately
20% to 25%, depending on the size of the solar cells and the
type of technology; mainstream multicrystalline silicon cell
prices increased from the first quarter of 2006 to the first
quarter of 2007 by an average of 8%, while monocrystalline
silicon PV cell prices increased by a similar proportion.
The average price of silicon feedstock and solar cells remained
high in 2007. Any further increase in the demand from the
semiconductor industry will compound the shortage and price
increases. The shortage of high-purity silicon has constrained
our revenue growth in the past and may continue to do so.
Increases in the prices of silicon feedstock and solar cells
have in the past increased our production costs and may impact
our cost of revenues and net income in the future. The
production of high-purity silicon is capital intensive and
adding additional capacity requires significant lead time. While
we are aware that several new facilities for the manufacture of
high-purity silicon are under construction, we do not believe
that the supply shortage will be remedied in the very near term.
We expect that demand for high-purity silicon will continue to
outstrip supply for the near future. Furthermore, if we cannot
fulfill our solar cell needs through internal production and
obtain solar wafers and solar cells externally at commercially
viable prices, this could adversely affect our margins and
operating results. This would have a material negative impact on
our business and operating results.
17
If we
are unable to secure an adequate and cost effective supply of
solar wafers, cells or reclaimable silicon, our revenue, margins
and profits could be adversely affected.
Solar cells are the most important component of solar module
products. We engage in vertical integration of our supply chain
to secure a sufficient and cost-effective supply of solar cells
through a combination of internal solar cell component
manufacturing and also our sourcing of silicon feedstock, toll
manufacturing arrangements with suppliers of ingots, wafers and
cells and direct purchases from solar cell suppliers. While we
have been able to secure silicon to meet our production needs in
the past, due to ongoing industry shortages of silicon
feedstock, solar wafers and solar cells, we cannot assure you
that we will be able to continue to successfully manage our
supply chain and secure an adequate and cost-effective supply of
solar cells. For example, we have entered into several long-term
contracts with silicon raw material suppliers, but we cannot
assure you that we will be able to obtain adequate supplies from
them under these contracts or from other suppliers in sufficient
quantities and at commercially viable prices in the future.
Moreover, toll manufacturing arrangements may not be available
to us in the future or at higher volumes, in particular as
high-purity silicon becomes more readily available in the
future, which could have an adverse effect on our margins and
profitability. While we produce solar cells internally to meet a
portion of our solar cell needs, we cannot guarantee you that we
will be able to successfully produce enough solar cells to
supplement our solar cell needs. If we are unable to procure an
adequate supply of solar cells, either via contractual
arrangements providing solar cells to us at commercially viable
prices or through in-house production, we may be unable to meet
demand for our products and could lose our customers and market
share, and our margins and revenues could decline.
In addition, while we have been able to generate cost savings in
the past through our recycling of reclaimable silicon, we cannot
assure you that we will be able to secure sufficient reclaimable
silicon at higher volumes and reasonable prices in the future as
we believe there is a limited supply of reclaimable silicon
available in the market and intensified competition for these
materials as a result of new competitors entering the market.
Recently, there has been increased scrutiny by the Chinese
Customs authorities on the import of scrap silicon over a
concern that the recycling process for certain types of scrap
silicon may cause environmental damage if not performed in a
fully licensed factory. This has created certain disruptions to
our silicon reclamation business. Since December 2006, 1.2 tons
of our scrap silicon has been under detention by the Chinese
Customs authorities. In August 2007, following testing by
Chinese Customs authorities, one-fourth of this amount was
identified by them as prohibited solid waste. Although the case
is still pending, if the investigation deems any portion of this
scrap silicon to be prohibited solid waste, such portion of the
scrap silicon will have to be returned to its point of origin
and we may be assessed a fine with a penalty ranging from
RMB100,000 (US$12,813.80) to RMB1 million (US$128,137.70).
We are actively working with local industry groups, the Chinese
Customs authorities and the Chinese Environment Protection
Administration to define new procedures and regulations
governing scrap silicon. These new regulations may increase the
cost of reclamation and limit our ability to sustain or expand
our silicon reclamation program. If we are unable to secure a
sufficient supply of reclaimable silicon at reasonable prices
and reclaim this silicon on a cost-efficient basis, we cannot
assure you that we will be able to save cost through our
reclamation program and maintain our profit margin as a result
of further negative changes in the government policy.
Because
the markets in which we compete are highly competitive and many
of our competitors have greater resources than us, we may not be
able to compete successfully and we may lose or be unable to
gain market share.
We compete with a large number of competitors in the solar
module market. These include international competitors such as
BP Solar International Inc., or BP Solar, Sharp Solar
Corporation, or Sharp Solar, SolarWorld AG, or SolarWorld, and
competitors located in China such as Suntech Power Holdings Co.,
Ltd., Yingli Green Energy Holding Company Limited, Solarfun
Power Holdings Co., Ltd. and Trina Solar Limited. We expect to
face increasing competition in the future. Further, many of our
competitors are developing and are currently producing products
based on new solar power technologies that may ultimately have
costs similar to, or lower than, our projected costs. For
example, some of our competitors are developing or currently
producing products based on alternative solar technologies, such
as thin film photovoltaic materials, which they believe will
ultimately cost the same as or less than crystalline silicon
technologies, which we use. Solar modules produced using thin
film materials, such as amorphous silicon and cadmium telluride,
require significantly less silicon to produce than crystalline
silicon solar modules, such as our products, and are less
susceptible to increases in silicon costs. We may
18
also face competition from semiconductor manufacturers, several
of which have either announced plans to start or have already
commenced production of solar modules. In addition, from a
technological and capital investment point of view, the entry
barriers are relatively low in the solar module manufacturing
business given the low capital requirements and relatively
little technological complexity involved. Due to the scarcity of
high-purity silicon, supply chain management, access to
financing and establishment of name brand recognition and a
strong customer base are key entry barriers at present. However,
if high-purity silicon supplies increase, some of these barriers
may disappear or lessen and many new competitors may enter into
the industry resulting in rapid industry fragmentation and loss
of our market share.
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. In addition, our competitors may have stronger
relationships or may enter into exclusive relationships with
some of the key distributors or system integrators to whom we
sell our products. As a result, they may be able to respond more
quickly to changing customer demand or to devote greater
resources to the development, promotion and sales of their
products than we can. The sale of our solar module products
generated 97.7% and 87.6% of our net revenues in 2005 and 2006,
respectively, and 94.7% for the nine months ended
September 30, 2007. Our competitors with more diversified
product offerings may be better positioned to withstand a
decline in the demand for solar power products. Some of our
competitors have also become vertically integrated, from
upstream silicon wafer manufacturing to solar power system
integration. 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.
In the immediate future, we believe that in order to remain
competitive, we will need to continue focusing on securing
silicon feedstock and solar wafers for our in-house solar cell
manufacturing needs and expanding our internal production
capacity, developing our in-house solar wafer manufacturing
capacity, maintaining strategic relationships with a few select
suppliers to fulfill our remaining solar cell and solar wafer
needs and increasing our sales and marketing efforts to secure
customer orders. Many of our competitors have greater access to
silicon raw materials and cell supply, including stronger
strategic relationships with leading global and domestic silicon
feedstock suppliers, or have more significant silicon wafer and
cell manufacturing capabilities. We believe that as the supply
of high-purity silicon stabilizes and customers become more
knowledgeable and selective, the key to competing successfully
in the industry will shift to more traditional sales and
marketing activities. We have conducted very limited advertising
to date, focusing primarily on medium to larger sized solar
power distributors and integrators in the European market in the
past, and cannot assure you that we will be able to make that
transition successfully. The greater name recognition of some of
our competitors may make it difficult for us to compete as a
result of this industry transition. In addition, the solar power
market in general competes with other sources of renewable
energy and conventional solar power generation. If prices for
conventional and other renewable energy resources decline, or if
these resources enjoy greater policy support than solar power,
the solar power market could suffer.
The
reduction or elimination of government subsidies and economic
incentives for solar power could cause demand for our products,
our revenues, profits and margins to decline.
We believe that the near-term growth of the market, particularly
for on-grid applications, depends in large part on the
availability and size of government subsidies and economic
incentives. Because a substantial portion of our sales is made
in the on-grid market, the reduction or elimination of
government subsidies and economic incentives may adversely
hinder the growth of this market or result in increased price
competition, which could cause our revenues to decline.
Today, the cost of solar power substantially exceeds the cost of
power provided by the electric utility grid in many locations.
Governments around the world have used different policy
initiatives to accelerate the development and adoption of solar
power and other renewable energy sources. Renewable energy
policies are in place in the European Union, most notably
Germany and Spain, certain countries in Asia, and many of the
states in Australia and the United States. Examples of
customer-focused financial incentives include capital cost
rebates, feed-in tariffs, tax credits and net metering and other
incentives to end users, distributors, system integrators and
manufacturers of solar power products to promote the use of
solar power in both on-grid and off-grid applications and to
reduce dependency on other forms of energy. These government
economic incentives could be reduced or
19
eliminated altogether, or governmental entities could
reprioritize solar initiatives that they have launched. For
example, according to Solarbuzz, plans by the Shanghai municipal
government to install solar energy heating systems on 100,000
rooftops have stalled. Reductions in, or eliminations of,
government subsidies and economic incentives before the solar
power industry reaches a scale of economy sufficient to be
cost-effective in a non-subsidized market place could result in
decreased demand for our products and decrease our revenues,
profits and margins.
Existing
regulations and policies and changes to these regulations and
policies may present technical, regulatory and economic barriers
to the purchase and use of solar power products, which may
significantly reduce demand for our products.
The market for electricity generation products is heavily
influenced by government regulations and policies concerning the
electric utility industry, as well as policies promulgated by
electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of
customer-owned electricity generation. In a number of countries,
these regulations and policies have been modified and may
continue to be modified. Customer purchases of, or further
investment in the research and development of, alternative
energy sources, including solar power technology, could be
deterred by these regulations and policies, which could result
in a significant reduction in the potential demand for our
products. For example, without a regulatory mandated exception
for solar power systems, utility customers are often charged
interconnection or standby fees for putting distributed power
generation on the electric utility grid. These fees could
increase the cost to our customers of using our solar module
products and make them less desirable, thereby harming our
business, prospects, results of operations and financial
condition. In addition, pricing regulations and policies may
place limits on our ability to increase the price of our solar
module products in response to increases in our solar raw
material costs, including solar cells. We anticipate that our
products and their installation will be subject to oversight and
regulation in accordance with national and local regulations
relating to building codes, safety, environmental protection,
utility interconnection and metering and related matters. It is
difficult to track the requirements of individual jurisdictions
and design products to comply with the varying standards. For
example, the European Unions Restriction of Hazardous
Substances Directive, which took effect in July 2006, is a
general directive. Each European Union member state will adopt
its own enforcement and implementation policies using the
directive as a guide. Therefore, there could be many different
versions of this law that we will have to comply with to
maintain or expand our sales in Europe. Any new government
regulations or utility policies pertaining to our solar module
products may result in significant additional expenses to us
and, as a result, could cause a significant reduction in demand
for our solar module products. In particular, any changes to
existing regulations and policies or new regulations and
policies in Germany could have a material adverse effect on our
business and operating results. Sales to customers located in
Germany accounted for 75.3% and 56.9% of our net revenues in
2005 and 2006, respectively, and 72.8% for the nine months ended
September 30, 2007, in part because of the availability and
amounts of government subsidies and economic incentives in
Germany.
If
solar power technology is not suitable for widespread adoption,
or sufficient demand for solar power products does not develop
or takes longer to develop than we anticipate, our revenues may
not continue to increase or may even decline, and we may be
unable to sustain our profitability.
The solar power market is at a relatively early stage of
development, and the extent of acceptance of solar power
products is uncertain. Market data on the solar power industry
is not as readily available as for other more established
industries where trends can be assessed more reliably from data
gathered over a longer period of time. In addition, demand for
solar power products in our targeted markets, including Germany,
Spain, Korea, Italy and Greece, may not develop or may develop
to a lesser extent than we anticipate. Many factors may affect
the viability of widespread adoption of solar power technology
and demand for solar power products, including:
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cost-effectiveness, performance and reliability of solar power
products compared to conventional and other renewable energy
sources and products;
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availability of government subsidies and incentives to support
the development of the solar power industry;
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success of other alternative energy generation technologies,
such as wind power, hydroelectric power and biomass;
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fluctuations in economic and market conditions that affect the
viability of conventional and other renewable 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 solar power products, which
tend to decrease when the economy slows down;
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deregulation of the electric power industry and broader energy
industry; and
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changes in seasonal demands for our products, as illustrated by
the slowdown of our sales to Germany in the fourth quarter of
2006.
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If solar power technology is not suitable for widespread
adoption or sufficient demand for solar power products does not
develop or takes longer to develop than we anticipate, our
revenues may suffer and we may be unable to sustain our
profitability.
The
lack or unavailability of financing for on-grid and off-grid
solar power applications could cause our sales to
decline.
Our solar module products are used in both on-grid applications
and off-grid applications. Off-grid applications are used where
access to utility networks is not economical or physically
feasible. In some developing countries, government agencies and
the private sector have, from time to time, provided financing
on preferential terms for rural electrification programs. We
believe that the availability of financing programs could have a
significant effect on the level of sales of solar modules for
both on-grid and off-grid applications. If existing financing
programs for on-grid and off-grid applications are eliminated or
if financing programs are inaccessible or inadequate, the growth
of the market for on-grid and off-grid applications may be
materially and adversely affected, which could cause our sales
to decline. In addition, a rise in interest rates could render
existing financings more expensive and present an obstacle for
potential financings that would otherwise spur the growth of the
solar power industry, which could materially and adversely
affect our business.
Our
dependence on a limited number of solar wafer, solar cell and
silicon raw material suppliers could prevent us from timely
delivering our products to our customers in the required
quantities, which could result in order cancellations and
decreased revenues.
We purchase silicon raw materials, which include polysilicon,
solar wafers and solar cells, from a limited number of
third-party suppliers. Our major suppliers of silicon raw
materials include Luoyang Zhong Gui High Tech Co. Ltd., or
Luoyang Poly, of China, which provides us with specified minimum
levels of polysilicon, LDK of China, and Deutsche Solar AG, or
Deutsche Solar, of Germany, which provide us specified minimum
levels of solar wafers; and China Sunergy Co., Ltd., or China
Sunergy, and Gintech Energy Corporation of Taiwan, or Gintech,
which provides us specified minimum levels of solar cells. We
have also entered into annual supply agreements with a few other
overseas and domestic Chinese solar wafer and solar cell
suppliers. These suppliers may not be able to meet the specified
minimum levels set forth in the contracts. If we fail to develop
or maintain our relationships with these or our other suppliers,
we may not be able to internally produce or secure a supply of
solar cells at cost-effective prices, or at all. If that were to
occur, we may be unable to manufacture our products in a timely
manner or our products may be manufactured only at a higher
cost, and we could be prevented from delivering our products to
our customers in the required quantities and at prices that are
profitable. Problems of this kind could cause us to experience
order cancellations and loss of market share and harm our
reputation. The failure of a supplier to supply solar wafers,
solar cells or silicon raw materials that meet our quality,
quantity and cost requirements in a timely manner could impair
our ability to manufacture our products or increase our costs,
particularly if we are unable to obtain these solar wafers,
solar cells or silicon raw materials from alternative sources on
a timely basis or on commercially reasonable terms. For example,
in late 2006, one of our major suppliers of solar wafers
incurred serious fire damage with its silicon cast ingot
furnaces. This resulted in a chain reaction and caused the
shortage and price increase of multi-crystalline solar wafers,
which is a key material for our products.
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Our
dependence on a limited number of customers and our lack of
long-term contracts may cause significant fluctuations or
declines in our revenues.
We currently sell a substantial portion of our solar module
products to a limited number of customers, including
distributors and system integrators, and various manufacturers
who either integrate our products into their own products or
sell them as part of their product portfolio. Our top five
customers collectively accounted for approximately 53.4% and
84.0% of our net revenues in 2006 and for the nine months ended
September 30, 2007, respectively. Each of Iliotec and
Bihler contributed over 10% of our net revenues in 2006. Each of
Schüco, City Solar AG and pro solar Solarstrom contributed
over 10% of our net revenues for the nine months period ended
September 30, 2007. Sales to our customers are typically
made through one-year frame work sales agreements with quarterly
firm orders stipulating prices and product amounts as adjusted
or negotiated with customers. We anticipate that our dependence
on a limited number of customers will continue for the
foreseeable future. Consequently, any one of the following
events may cause material fluctuations or declines in our
revenues:
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reduction, delay or cancellation of orders from one or more of
our significant customers;
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loss of one or more of our significant customers and our failure
to identify additional or replacement customers; and
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failure of any of our significant customers to make timely
payment for our products.
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Even though our top five customers have contributed to a
significant portion of our revenues, we have experienced changes
in our top customers. As we continue to grow our business and
operations, we expect our top customers may continue to change.
We cannot assure you that we will be able to develop a
consistent customer base.
Cancellation
of customer product orders may make us unable to recoup
prepayments made to suppliers.
Suppliers of solar wafers, cells and silicon raw materials
typically require us to make prepayments well in advance of
shipment. While we also sometimes require our customers to make
partial prepayments, there is typically a lag between the time
of our prepayment for solar wafers, cells and silicon raw
materials and the time that our customers make prepayments to
us. As a result, the purchase of solar wafers, cells and silicon
feedstock, and other silicon raw materials through toll
manufacturing arrangements, has required, and will continue to
require, us to make significant working capital commitments
beyond that generated from our cash flows from operations to
support our estimated production output. In the event our
customers cancel their orders, we may not be able to recoup
prepayments made to suppliers in connection with our
customers orders, which could have an adverse impact on
our financial condition and results of operations.
We may
not be able to manage our expansion of operations
effectively.
We commenced business operations in October 2001 and have since
grown rapidly. We expect to continue to significantly expand our
business to meet the growth in demand for our products, as well
as to capture new market opportunities. To manage the potential
growth of our operations, we will be required to improve our
operational and financial systems and procedures and controls.
Our rapid growth has strained our resources and made it
difficult to maintain and update our internal procedures and
controls as necessary to meet the expansion of our overall
business. We must also increase production output, expand, train
and manage our growing employee base, and successfully establish
new subsidiaries to operate new or expanded facilities.
Additionally, access to additional funds to support the
expansion of our business may not always be available to us.
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. If we are unable to
manage our growth effectively, we may not be able to take
advantage of market opportunities, execute our business
strategies or respond to competitive pressures.
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Technological
changes in the solar power industry could render our products
uncompetitive or obsolete, which could reduce our market share
and cause our revenues and profit to decline.
The solar power market is characterized by evolving technology
standards that require improved features, such as more efficient
and higher power output, improved aesthetics and smaller size.
This requires us to develop new solar module products and
enhancements for existing solar module products to keep pace
with evolving industry standards and changing customer
requirements. Technologies developed by others may prove more
advantageous than ours for the commercialization of solar module
products and may render our technology obsolete. Our failure to
further refine our technology and develop and introduce new
solar module products could cause our products to become
uncompetitive or obsolete, which could reduce our market share
and cause our revenues to decline. We will need to invest
significant financial resources in research and development to
maintain our market position, keep pace with technological
advances in the solar power industry and effectively compete in
the future.
If our future innovations fail to enable us to maintain or
improve our competitive position, we may lose market share. If
we are unable to successfully design, develop and introduce or
bring to market competitive new solar module products, or
enhance our existing solar module products, we may not be able
to compete successfully. Competing solar power technologies may
result in lower manufacturing costs or higher product
performance than those expected from our solar module products.
In addition, if we are unable to manage product transitions, our
business and results of operations would be negatively affected.
Our
future success substantially depends on our ability to
significantly expand our internal solar components manufacturing
capacity, which exposes us to a number of risks and
uncertainties.
Our future success depends on our ability to significantly
increase our internal solar components manufacturing capacity.
If we are unable to do so, we may be unable to expand our
business, decrease our costs per watt, maintain our competitive
position and improve our profitability. Our ability to establish
additional manufacturing capacity is subject to significant
risks and uncertainties, including:
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the need to raise significant additional funds to purchase raw
materials and to build additional manufacturing facilities,
which we may be unable to obtain on commercially viable terms or
at all;
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delays and cost overruns as a result of a number of factors,
many of which are beyond our control, including delays in
equipment delivery by vendors;
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delays or denial of 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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If we are unable to establish or successfully operate our
internal solar components manufacturing capabilities, or if we
encounter any of the risks described above, we may be unable to
expand our business as planned. Moreover, even if we do expand
our manufacturing capacity we might not be able to generate
sufficient customer demand for our solar power products to
support our increased production levels.
Our
business depends substantially on the continuing efforts of our
executive officers, and our business may be severely disrupted
if we lose their services.
Our future success depends substantially on the continued
services of our executive officers, especially Dr. Shawn
Qu, our chairman, president and chief executive officer, Bing
Zhu, our chief financial officer, Bencheng Li, our vice
president, domestic corporate development, Gregory Spanoudakis,
our vice president of international sales and marketing and
Robert Patterson, our vice president of corporate and product
development and general manager of Canadian operations. If one
or more of our executive officers are unable or unwilling to
continue in their present positions, we may not be able to
replace them readily, if at all. Therefore, our business may be
severely disrupted, and we may incur additional expenses to
recruit and retain new officers, in particular those with a
significant mix of both international and China-based solar
power industry experience as many of our current officers have.
In addition, if any of our executives joins a competitor or
forms a competing company, whether in violation of their
agreements with us or otherwise, we may lose some of our
customers.
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We
face risks associated with the marketing, distribution and sale
of our solar module products internationally. If we are unable
to effectively manage these risks, they could impair our ability
to expand our business abroad.
In 2005 and 2006 and for the nine months ended
September 30, 2007, we sold approximately 97.2%, 79.3% and
97.8%, respectively, of our products to customers located
outside of China. The marketing, distribution and sale of our
solar module products in the international markets expose us to
a number of risks, including:
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fluctuations in the currency exchange rates of the Euro,
U.S. dollar and RMB;
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difficulty in engaging and retaining distributors and system
integrators who are knowledgeable about and, can function
effectively in, overseas markets;
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increased costs associated with maintaining marketing efforts in
various countries;
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difficulty and cost relating to compliance with the different
commercial and legal requirements of the overseas markets in
which we offer our products;
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cultural, language and logistical barriers to working with
customers in different countries; 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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Problems
with product quality or product performance, including defects,
in our products could damage our reputation, or result in a
decrease in customers and revenue, unexpected expenses and loss
of market share.
Our products may contain defects that are not detected until
after they are shipped or are installed because we cannot test
for all possible scenarios. These defects could cause us to
incur significant costs, divert the attention of our personnel
from product development efforts and significantly affect our
customer relations and business reputation. If we deliver solar
module products with errors or defects, or if there is a
perception that our products contain errors or defects, our
credibility and the market acceptance and sales of our solar
module products could be harmed. In one instance in 2005 and
another in 2006, customers raised concerns about the stated
versus actual performance output of some of our solar modules.
We determined that these concerns resulted from differences in
calibration methodologies and we resolved the issue with these
customers. However, the corrective actions and procedures that
we took may turn out to be inadequate to prevent further
incidents of the same problem or to protect against future
errors or defects. As we continue to develop our internal solar
cell manufacturing capabilities and expand into in-house solar
ingot and solar wafer production, we may have problems
standardizing product quality in these new areas of business. In
addition, some of our ingot, wafer and cell suppliers with whom
we have toll manufacturing arrangements previously raised
concerns about the quality and consistency of the silicon
feedstock, in particular the reclaimable silicon that we recycle
through our silicon reclamation program for re-use in the solar
power industry, that we have provided to them for their ultimate
conversion into solar cells. The use of reclaimed silicon in the
solar power supply chain has an inherent risk as it is difficult
to maintain the consistency and quality of reclaimed silicon at
the same level as high-purity silicon. The successful use of
reclaimed silicon requires extensive experience, know-how and
additional quality control measures from both the provider of
reclaimed silicon and the toll manufacturers. If we cannot
successfully maintain the consistency and quality of the
reclaimed silicon from our silicon reclamation program at an
acceptable level, this may result in less efficient solar cells
for our solar modules or in a lower conversion ratio of solar
cells per ton of silicon feedstock that we provide, and may
potentially delay and reduce our supply of solar cells. This may
reduce or eliminate the cost advantages of recycling silicon
through our silicon reclamation program. This could also cause
problems with product quality or product performance, including
defects in our products, and increase the cost of producing our
products.
We obtain some of the solar wafers and solar cells that we use
in our products from third parties, either directly or through
toll manufacturing arrangements, and we have limited control
over the quality of that portion of the solar wafers and solar
cells we incorporate into our solar modules. Unlike solar
modules, which are subject to certain uniform international
standards, solar wafers and solar cells generally do not have
uniform international standards, and it is often difficult to
determine whether solar module product defects are a result of
the solar cells or other components or reasons. We also rely on
third party suppliers for other components that we use in our
products, such as glass, frame and backing for our solar
modules, and electronic components for our specialty solar
modules and
24
products. Furthermore, the solar cells and other components that
we purchase from third party suppliers are typically sold to us
without any, or with only limited, warranty. The possibility of
future product failures could cause us to incur substantial
expense to repair or replace defective products. Furthermore,
widespread product failures may damage our market reputation,
reduce our market share and cause our revenues to decline.
Since
we cannot test our products for the duration of our standard
warranty periods, we may be subject to unexpected warranty
expense.
Our standard solar modules are typically sold with a two-year
guarantee for defects in materials and workmanship and a
10-year and
25-year
warranty against declines of more than 10.0% and 20.0%,
respectively, of the initial minimum power generation capacity
at the time of delivery. Our specialty solar modules and
products are typically sold with a one-year guarantee against
defects in materials and workmanship and may, depending on the
characteristics of the product, contain a limited warranty of up
to ten years, against declines of the minimum power generation
capacity specified at the time of delivery. We believe our
warranty periods are consistent with industry practice. Due to
the long warranty period, we bear the risk of extensive warranty
claims long after we have shipped our products and recognized
revenue. We began selling specialty solar modules and products
in 2002 and only began selling standard solar modules in 2004.
Any increase in the defect rate of our products would cause us
to increase the amount of warranty reserves and have a
corresponding negative impact on our operating results. Although
we conduct quality testing and inspection of our solar module
products, our solar module products have not been and cannot be
tested in an environment simulating the up to
25-year
warranty periods. As a result, we may be subject to unexpected
warranty expense and associated harm to our financial results as
long as 25 years after the sale of our products.
Our
future growth depends in part on our ability to make strategic
acquisitions and investments and to establish and maintain
strategic relationships, and our failure to do so could have a
material adverse effect on our market penetration and revenue
growth.
The solar power industry has only recently emerged as a high
growth market and is currently experiencing shortages of its key
component, high-purity silicon, due to rapid industry growth and
demand. We believe it is critical that we continue to manage
upstream silicon supply sources by, among other strategies,
continuing to pursue strategic acquisitions and investments in
solar cell and silicon raw materials suppliers to secure a
guaranteed supply and better control the specifications and
quality of the materials delivered and fostering strategic
relationships, particularly with silicon feedstock suppliers, as
we continue to develop our in-house solar component
manufacturing abilities, and partnerships with solar wafer and
solar cell suppliers. We cannot assure you, however, that we
will be able to successfully make such strategic acquisitions
and investments or establish strategic relationships with third
parties that will prove to be effective for our business. Our
inability in this regard could have a material adverse effect on
our market penetration, our revenue growth and our profitability.
Strategic acquisitions, investments and relationships 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 relationships
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.
We may
not succeed in developing and maintaining a cost-effective solar
cell manufacturing capability.
We plan to continue expanding our in-house solar cell
manufacturing capabilities to support our core solar module
manufacturing business. We completed installation of our first
four solar cell production lines in 2007, and expect the annual
solar cell production capacity from these production lines to
reach 100MW by the end of 2007. However, we only have limited
and recent operating experience in this area and we will face
significant challenges in the solar cell business. Manufacturing
solar cells is a highly complex process and we may not be able
to produce solar cells of sufficient quality to meet our solar
module manufacturing standards. Minor deviations in the
manufacturing process can cause substantial decreases in yield
and in some cases cause production to be suspended or yield no
output. We will need to make capital expenditures to purchase
manufacturing equipment for solar cell production and will also
need to make significant investments in research and development
to keep pace with technological advances in solar
25
power technology. The technologies, designs and customer
preferences for solar cells change more rapidly, and solar cell
product life cycles are shorter than those for solar modules. We
may not be able to successfully address these new challenges. We
will also face increased costs to comply with environmental laws
and regulations. Any failure to successfully develop and
maintain cost-effective solar cell manufacturing capability may
have a material adverse effect on our business and prospects.
In addition, although we intend to continue direct purchasing of
solar cells and our toll manufacturing arrangements through a
limited number of strategic partners, if we engage in the large
scale production of solar cells it may disrupt our existing
relationships with solar cell suppliers. One of our suppliers
has raised concerns with us over our decision to implement
internal solar cell product capabilities. If solar cell
suppliers discontinue or reduce the supply of solar cells to us,
either through direct sales or through toll manufacturing
arrangements, and we are not able to compensate for the loss or
reduction with our own manufacturing of solar cells, our
business and results of operations may be materially and
adversely affected.
We may
experience difficulty in developing our internal production
capabilities for ingots and wafers and, if developed, in
achieving acceptable yields and product performance as a result
of manufacturing problems.
We are in the process of developing our internal production
capabilities for the manufacture of silicon ingots and wafers.
We do not have prior operational experience in ingot and wafer
production and will face significant challenges in developing
this line of business, and may not be successful in doing so.
The technology is complex, and will require costly equipment and
the hiring of highly skilled personnel to implement. In
addition, we may experience delays in developing these
capabilities and in obtaining governmental permits required to
carry on these operations.
If we are able to successfully develop these production
capabilities, we will need to continuously enhance and modify
these capabilities in an effort to improve yields and product
performance. Microscopic impurities such as dust and other
contaminants, difficulties in the manufacturing process,
disruptions in the supply of utilities or defects in the key
materials and tools used to manufacture wafers can cause a
percentage of the wafers to be rejected, which in each case,
negatively affects our yields. We may experience production
difficulties that cause manufacturing delays and lower than
expected yields.
Problems in our facilities may limit our ability to manufacture
products, including but not limited to, production failures,
construction delays, human errors, equipment malfunction or
process contamination, which could seriously harm our
operations. We may also experience floods, droughts, power
losses and similar events beyond our control that would affect
our facilities. A disruption to any step of the manufacturing
process will require us to repeat each step and recycle the
silicon debris, thus adversely affecting our yields.
We may
fail to successfully bring to market our new specialty solar
modules and products, which may prevent us from achieving
increased sales, margins and market share.
We expect to continue to derive part of our revenues from sales
of our new specialty solar modules and products and will
increase our research and development expenses in connection
with developing these products. If we fail to successfully
develop our new specialty solar modules and products, we will
likely be unable to recover the expenses that we will incur to
develop these products and may be unable to increase our sales
and market share and to increase our margins. Many of our new
specialty solar modules and products have yet to receive market
acceptance, and it is difficult to predict whether we will be
successful in completing their development or whether they will
be commercially successful. We may also need to develop new
manufacturing processes that have yet to be tested and which may
result in lower production output.
Our
failure to protect our intellectual property rights in
connection with new specialty solar modules and products may
undermine our competitive position.
As we develop and bring to market new specialty solar modules
and products, we may need to increase our expenses to protect
our intellectual property and our failure to protect our
intellectual property rights may undermine our competitive
position. We currently use contractual arrangements with
employees and trade secret protections to protect our
intellectual property. Nevertheless, these afford only limited
protection and the actions we take to
26
protect our intellectual property rights as we develop new
specialty solar modules and products may not be adequate. We
currently have only three patents and five patent applications
pending in China for products that make up a relatively small
percentage of our net revenues and two trademark applications
pending in China. Policing unauthorized use of proprietary
technology can be difficult and expensive. Also, litigation,
which can be costly and divert management attention, may be
necessary to enforce our intellectual property rights, protect
our trade secrets or determine the validity and scope of the
proprietary rights of others.
We may
be exposed to infringement, misappropriation or other claims by
third parties, which, if determined adversely to us, could cause
us to pay significant damage awards.
Our success depends on our ability to use and develop our
technology and know-how and sell our solar module products
without infringing the intellectual property or other rights of
third parties. We do not have, and have not applied for, any
patents for our proprietary technologies outside China, although
we have sold, and expect to continue to sell, a substantial
portion of our products outside China. The validity and scope of
claims relating to solar power technology patents involve
complex scientific, legal and factual questions and analysis
and, therefore, may be highly uncertain. We may be subject to
litigation involving claims of patent infringement or violation
of intellectual property rights of third parties. In addition,
we have not yet registered our trade name, CSI,
outside of China, and our trademark application in China is
still pending. As a result, we could be subject to trademark
disputes and may not be able to police the unauthorized use of
our trade name. The defense and prosecution of intellectual
property suits, patent opposition proceedings 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. Additionally, we use
imported equipment in our production lines, without supplier
guarantees that our use does not infringe on third party
intellectual property rights in China. This creates a potential
source of litigation or infringement claims arising from such
use. An adverse determination in any such litigation or
proceedings to which we may become a party could subject us to
significant liability to third parties, require us to seek
licenses from third parties, to pay ongoing royalties, or to
redesign our products or subject us to injunctions prohibiting
the manufacture and sale of our products or the use of our
technologies. Protracted litigation could also result in our
customers or potential customers deferring or limiting their
purchase or use of our products until resolution of such
litigation.
In addition, our competitors and other third parties may
initiate legal proceedings against us or our employees that may
strain our resources, divert our management attention and damage
our reputation. For example, in March 2002, ICP Global
Technologies Inc., or ICP Global, a manufacturer of solar power
products, filed an action in the Superior Court of the Province
of Quebec, Canada (Action
No. 500-05
071241-028)
against our vice president of international sales and marketing,
Gregory Spanoudakis, and ATS Automation Tooling Systems Inc., or
ATS. ICP Global subsequently amended the complaint to include
us, our subsidiary, CSI Solartronics, and our chairman and chief
executive officer, Dr. Shawn Qu, as defendants. The amended
complaint contends that all of the defendants jointly engaged in
unlawful conduct and unfair competition in directing a business
opportunity away from ICP Global to us. Although there have been
no meaningful discovery, court filings or communications from
the plaintiff on this matter since early 2004, we cannot assure
you that ICP Global will not move forward with this case or that
the litigation will not be determined adversely to us. We also
cannot assure you that similar proceedings will not occur in the
future.
We
rely on dividends paid by our subsidiaries for our cash
needs.
We conduct significantly all of our operations through our
subsidiaries, CSI Solartronics (Changshu) Co., Ltd., CSI Solar
Manufacture Inc., CSI Solar Technologies Inc., CSI Central Solar
Power Co., Ltd., CSI Cells Co., Ltd. and Changshu CSI Advanced
Solar Inc., which are companies established in China. We rely on
dividends paid by these subsidiaries 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. Regulations in the PRC currently permit payment of
dividends only out of accumulated profits as determined in
accordance with accounting standards and regulations in China.
These subsidiaries are also required to set aside at least 10.0%
of their after-tax profit based on PRC accounting standards each
year to its general reserves until the accumulative amount of
such reserves reach 50.0% of its
27
registered capital. These reserves are not distributable as cash
dividends. In addition, if any of these subsidiaries 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.
If we
are unable to attract, train and retain technical personnel, our
business may be materially and adversely affected.
Our future success depends, to a significant extent, on our
ability to attract, train and retain technical personnel.
Recruiting and retaining capable personnel, particularly those
with expertise in the solar power industry, are vital to our
success. There is substantial competition for qualified
technical personnel, and there can be no assurance that we will
be able to attract or retain our technical personnel. If we are
unable to attract and retain qualified employees, our business
may be materially and adversely affected.
Fluctuations
in exchange rates could adversely affect our
business.
Historically, a major portion of our sales were denominated in
Euros, with the remainder in Renminbi and U.S. dollars. A
major portion of our costs and expenses is denominated in
U.S. dollars and Renminbi. Our Renminbi costs and expenses
primarily related to domestic sourcing of solar cells, wafers,
silicon and other raw materials, toll manufacturing fees, labor
costs and local overhead expenses. From time to time, we also
have loan arrangements with Chinese commercial banks that are
denominated in U.S. dollars and Renminbi. Therefore,
fluctuations in currency exchange rates could have a material
adverse effect on our financial condition and results of
operations. Fluctuations in exchange rates, particularly among
the U.S. dollar, Renminbi and Euro, affect our gross and
net profit margins and could result in fluctuations in foreign
exchange and operating gains and losses. We cannot predict the
impact of future exchange rate fluctuations on our results of
operations and we may incur net foreign currency losses in the
future.
Product
liability claims against us could result in adverse publicity
and potentially significant monetary damages.
As with other solar module product manufacturers, we are exposed
to risks associated with product liability claims if the use of
our solar module products results in injury. Since our products
generate electricity, it is possible that users could be injured
or killed by our products as a result of product malfunctions,
defects, improper installation or other causes. We only shipped
our first products in March 2002 and, because of our limited
operating history, we cannot predict whether product liability
claims will be brought against us in the future or the effect of
any resulting negative publicity on our business. Although we
carry limited product liability insurance, we may not have
adequate resources to satisfy a judgment if a successful claim
is brought 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. Even if the product liability claims against us are
determined in our favor, we may suffer significant damage to our
reputation.
Our
founder, Dr. Shawn Qu, has substantial influence over our
company and his interests may not be aligned with the interests
of our other shareholders.
As of February 14, 2008, Dr. Shawn Qu, our founder,
chairman and chief executive officer, beneficially owned 50.0%
of our outstanding share capital comprised of 27,320,389 common
shares, excluding restricted shares granted but yet to be vested
and subject to restrictions on voting and dividend rights and
transferability. As such, Dr. Qu has 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 common shares. These actions may be
taken even if they are opposed by our other shareholders.
28
Compliance
with environmental regulations can be expensive, and
noncompliance with these regulations may result in adverse
publicity and potentially significant monetary damages, fines
and suspensions of our business operations.
We are required to comply with all national and local
regulations regarding protection of the environment. As we
expand our silicon reclamation program and research and
development activities and move into solar ingot, solar wafer
and solar cell manufacturing, we have begun to generate material
levels of noise, waste water, gaseous wastes and other
industrial wastes in the course of our business operations.
Additionally, as we expand our internal solar components
production capacity, our risk of facility incidents with a
potential environmental impact also increases.
Except for a failure to obtain certain approvals prior to
starting production as disclosed in Risks
Related to Doing Business in China We may face a
potential risk for failing to comply with certain PRC legal
requirements, we believe that we are in compliance with
present environmental protection requirements and have all
necessary environmental permits to conduct our business as it is
presently conducted. However, if more stringent regulations are
adopted in the future, the costs of compliance with these new
regulations could be substantial. For example, we increased our
expenditures to comply with the European Unions
Restriction of Hazardous Substances Directive, which took effect
in July 2006, by reducing the amount of lead and other
restricted substances used in our solar module products.
Furthermore, we may need to comply with the European
Unions Waste Electrical and Electronic Equipment Directive
if we begin to sell specialty solar modules and products to
customers located in Europe or if our customers located in other
markets demand that our products be compliant.
If we fail to comply with present or future environmental
regulations, we may be required to pay substantial fines,
suspend production or cease operations. For instance, the
Chinese Customs have recently increased their scrutiny on the
import of scrap silicon over a concern that the recycling
process for certain types of scrap silicon may cause
environmental damage if not performed in a fully licensed
factory and have subjected certain importations of recyclable
silicon by some China-based companies, including us. See the
section entitled If we are unable to secure an
adequate and cost effective supply of solar wafers, cells or
reclaimable silicon, our revenue, margins and profits could be
adversely affected. Any failure by us to control the use
of, or to restrict adequately the discharge of, hazardous
substances could subject us to potentially significant monetary
damages and fines or suspensions of our business operations.
We may
not be successful in establishing our brand names among all
consumers in important markets and the products we sell under
our brand name may compete with the products we manufacture on
an OEM basis for our customers.
We sell our products primarily under our own brand name and also
on an OEM basis for our customers. In certain markets our brand
may not be as prominent as other more established solar power
vendors, and there can be no assurance that the CSI
brand name or any of our potential future brand names, will gain
acceptance among customers. Moreover, because the range of
products we sell under our own brands and those we manufacture
for our customers may be substantially similar, there can be no
assurance that, currently or in the future, there will not be
direct or indirect competition between products sold under the
CSI brand, or any of our other potential future brands, and
products that we manufacture on an OEM basis. This could
negatively affect our relationship with these customers.
If we
grant employee share options, restricted shares or other
share-based compensation in the future, our net income could be
adversely affected.
We adopted a share incentive plan in 2006. As of
November 26, 2007, we had issued 1,725,321 share
options and 566,190 restricted shares under our share incentive
plan. In December 2004, the Financial Accounting Standards
Board, or FASB, issued Statement of Financial Accounting
Standards, or SFAS, No. 123R, Share-Based
Payment. This statement, which became effective in our
first quarter of 2006, will prescribe how we account for
share-based compensation, and may have an adverse or negative
impact on our results of operations or the price of our common
shares. SFAS No. 123R requires us to recognize
share-based compensation as compensation expense in the
statement of operations based on the fair value of equity awards
on the date of the grant, with the compensation expense
recognized over the period in which the recipient is required to
provide service in exchange
29
for the equity award. This statement also requires us to adopt a
fair value-based method for measuring the compensation expense
related to share-based compensation. The additional expenses
associated with share-based compensation may reduce the
attractiveness of issuing share options or restricted shares
under our share incentive plan. However, if we do not grant
share options or restricted shares, or reduce the number of
share options or restricted shares that we grant, we may not be
able to attract and retain key personnel. If we grant more share
options or restricted shares to attract and retain key
personnel, the expenses associated with share-based compensation
may adversely affect our net income.
There
have been historical deficiencies with our internal controls and
there remain areas of our internal and disclosure controls that
require improvement. If we fail to maintain an effective system
of internal controls, we may be unable to accurately report our
financial results or prevent fraud, and investor confidence and
the market price of our common shares may be adversely
impacted.
We are subject to reporting obligations under the
U.S. securities laws. 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 the companys 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
managements assessment of the effectiveness of the
companys internal controls over financial reporting. These
requirements will first apply to our annual report on
Form 20-F
for the fiscal year ending on December 31, 2007. Our
management may conclude that our internal controls over our
financial reporting are not effective. Moreover, even if our
management concludes that our internal controls over financial
reporting is effective, our independent registered public
accounting firm may still decline to attest to our
managements assessment or may issue a report that is
qualified if it is not satisfied with our internal controls or
the level at which our controls are documented, designed,
operated or reviewed, or if it interprets the relevant
requirements differently from us. Our reporting obligations as a
public company will place a significant strain on our
management, operational and financial resources and systems in
the foreseeable future.
Prior to our initial public offering, we were a private company
of limited operating history with limited accounting and other
resources with which to adequately address our internal controls
and procedures. As a result, in our past audits, our auditors
had identified material weaknesses and deficiencies with our
internal controls. In our audit for the fiscal year ended
December 31, 2006, our auditors observed a number of
weaknesses and deficiencies with respect to our internal
controls under the standards established by the Public Company
Accounting Oversight Board. The material weaknesses identified
by our independent registered public accounting firm include
(i) insufficient accounting resources to properly identify
adjustments, analyze transactions and prepare financial
statements in accordance with U.S. GAAP, and (ii) a
lack of formal accounting policies and procedures for
U.S. GAAP to ensure that our accounting policies and
procedures are appropriately or consistently applied. Following
the identification of these material weaknesses and other
deficiencies, we have undertaken remedial steps and plan to
continue to take additional remedial steps to address these
material weaknesses and deficiencies and to further improve our
internal and disclosure controls, including hiring additional
staff, training our new and existing staff and installing new
enterprise resource planning, or ERP systems, in order to build
up a unified and integrated database of our company. In
addition, since the beginning of 2007, we have engaged an
advisory firm to advise us about complying with requirements of
the Sarbanes-Oxley Act, and have hired an individual experienced
in handling compliance with the requirements of Sarbanes-Oxley
Act. However, if we are unable to remedy the existing material
weaknesses and deficiencies in our internal and disclosure
controls and procedures, or if we fail to maintain an effective
system of internal and disclosure controls in the future, we may
be unable to accurately report our financial results or prevent
fraud and as a result, investor confidence and the market price
of our common shares may be adversely impacted. Furthermore, we
anticipate that we will incur considerable costs and devote
significant management time and efforts and other resources to
comply with Section 404 of the Sarbanes Oxley Act.
30
Risks
Related to Doing Business in China
Uncertainties
with respect to the Chinese legal system could have a material
adverse effect on us.
We conduct substantially all of our manufacturing operations
through our subsidiaries in China. These subsidiaries are
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. 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 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.
Fluctuation
in the value of the Renminbi may have a material adverse effect
on your investment.
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 an approximately 5.7% appreciation of
Renminbi against the U.S. dollar between July 21, 2005
and December 31, 2006. While the international reaction to
the Renminbi revaluation has generally been positive, there
remains significant international pressure on the PRC government
to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the
Renminbi against the U.S. dollar. As a portion of our costs
and expenses is denominated in Renminbi, the revaluation in July
2005 and potential future revaluation has and could further
increase our costs in U.S. dollar terms. In addition, as we
rely entirely on dividends paid to us by our operating
subsidiaries in China, any significant revaluation of the
Renminbi may have a material adverse effect on our revenues and
financial condition, and the value of, and any dividends payable
on, our common shares. For example, to the extent that we need
to convert U.S. dollars into Renminbi for our operations,
appreciation of the Renminbi against the U.S. dollar would
have an adverse effect on the Renminbi amount we receive from
the conversion. Conversely, if we decide to convert our Renminbi
into U.S. dollars for the purpose of making payments for
dividends on our common shares or for other business purposes,
appreciation of the U.S. dollar against the Renminbi would
have a negative effect on the U.S. dollar amount available
to us.
Restrictions
on currency exchange may limit our ability to receive and use
our revenues effectively.
Certain portions of our revenue and expenses are denominated in
Renminbi. If our revenues denominated in Renminbi increase or
expenses denominated in Renminbi decrease in the future, we may
need to convert a portion of our revenues into other currencies
to meet our foreign currency obligations, including, among
others, payment of dividends declared, if any, in respect of our
common shares. Under Chinas existing foreign exchange
regulations, our PRC subsidiaries are able to pay dividends in
foreign currencies, without prior approval from the State
Administration of Foreign Exchange, or SAFE, by complying with
certain procedural requirements. However, we cannot assure you
that the PRC government will not take further measures in the
future to restrict access to foreign currencies for current
account transactions.
Foreign exchange transactions by our PRC subsidiaries under most
capital accounts continue to be subject to significant foreign
exchange controls and require the approval of PRC governmental
authorities. In particular, if we finance our PRC subsidiaries
by means of additional capital contributions, these capital
contributions must be approved by certain government authorities
including the Ministry of Commerce or its local counterparts.
These limitations could affect the ability of our PRC
subsidiaries to obtain foreign exchange through equity financing.
We may
face a potential risk for failing to comply with certain PRC
legal requirements.
We are required to comply with the PRC Environmental Protection
Law. For example, some of our subsidiaries, such as CSI Luoyang
and CSI Cells, are required to have their manufacturing
facilities examined and approved by
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the PRC Environmental Protection Agency prior to the start of
production. However, due to discrepancies between interpretation
of the written law and its application to date, both CSI Luoyang
and CSI Cells began production earlier this year without
obtaining such approvals. As a result, there is a risk that we
may be ordered by the relevant environmental protection
administration to cease manufacturing at these operations and
face fines. We are currently negotiating with the relevant
authorities to complete the examination and obtain the requisite
approvals. We will need to undergo similar reviews and obtain
approvals prior to launching our solar wafer manufacturing
operations. There can be no assurance that we will obtain the
necessary approvals for our manufacturing operations in a timely
manner, if at all.
Also, some registration certificates of the PRC subsidiaries
have expired or have not been updated with current subsidiary
registration information, which may result in administrative
fines. We are currently conducting efforts to renew and update
these certificates with the relevant governmental authorities
and are hopeful of obtaining the renewed and updated
certificates in a timely manner.
In addition, we adopted a share incentive plan in 2006 that
grants employees, including some of our PRC employees, share
options and restricted shares. However, we have not yet filed
our share incentive plan with SAFE as required by the
Implementation Rule of the Individual Foreign Exchange
Administrative Measures (SAFE Rules). Since the SAFE
Rules were only adopted in February 2007, there is some
uncertainty as to how they will be interpreted and implemented.
If SAFE subsequently determines that we were required to obtain
its approval before allowing our PRC employees to participate in
our share incentive plan, this could have an adverse effect on
our ability to grant our PRC employees share options and
restricted shares.
Our
business benefits from certain PRC government incentives.
Expiration of, or changes to, these incentives could have a
material adverse effect on our operating results.
Under current PRC laws and regulations, a foreign invested
enterprise, or FIE, in China is typically subject to enterprise
income tax, or EIT, at the rate of 30% on taxable income, and
local income tax at the rate of 3% on taxable income. The PRC
government has provided various incentives to FIEs, including
each of our PRC subsidiaries, to encourage the development of
foreign investments. Such incentives include reduced tax rates
and other measures. FIEs that are determined by PRC tax
authorities to be manufacturing companies with authorized terms
of operation more than ten years, are eligible for: (i) a
two-year exemption from EIT from their first profitable year;
and (ii) a 50% reduction in its applicable EIT rate in the
succeeding three years. CSI Solartronics is entitled to a
preferential EIT rate of 24%, as it is a manufacturing
enterprise located in a coastal economic development zone in
Changshu. CSI Solartronics first profitable year was 2002
and its initial EIT preferential period ended in 2006. However,
CSI Solartronics has been granted a three year extension for the
50% reduction in its EIT rate by Changshu tax authority. Thus,
CSI Solartronics is currently subject to an EIT rate of 12%. CSI
Solar Manufacturing is entitled to a preferential EIT rate of
15%. CSI Solar Manufacturings first profitable year was
2005 and it was exempt from EIT until 2006. It is now subject to
an EIT rate of 7.5% until 2009. CSI Luoyang and CSI Cells became
profitable in 2007. As such, both CSI Luoyang and CSI Cells are
exempted from EIT until 2008 and will enjoy a 50% reduction in
their applicable EIT rates from 2009 to 2011. CSI Solar
Technologies and CSI Advanced are not currently profitable and
have therefore not applied for preferential tax treatment. If
these subsidiaries turn profitable, they will apply for
preferential tax rates and tax holidays. However, with the new
PRC EIT law becoming effective on January 1, 2008, a
foreign-invested enterprise which has yet to enjoy preferential
treatment due to lack of profitability, commencement of the
preferential five-year tax holiday will coincide with the year
the new EIT law comes into effect, i.e. January 1, 2008. As
these tax benefits expire, the effective tax rate of our PRC
subsidiaries may increase significantly, and any increase of
their EIT rates in the future could have a material adverse
effect on our financial condition and results of operations.
In addition, the National Peoples Congress, the Chinese
legislature, passed a new enterprise income tax law, which is
scheduled to take effect on January 1, 2008. The new law
applies a uniform 25% enterprise income tax rate to both foreign
invested enterprises and domestic enterprises. An enterprise
registered under the laws of a jurisdiction outside China may be
deemed a Chinese tax resident if its place of effective
management is in China and it will consequently be subject to
the EIT upon its worldwide income. Existing companies are
required to transition to the new EIT rate over a five year
period starting January 1, 2008. The PRC State Council has
recently promulgated detailed implementation rules for the new
Enterprise Income Tax Law. Because the tax law and related
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implementation rules are newly executed, there is uncertainty as
to how they will be interpreted and implemented. Although we are
carefully monitoring these legal developments and will timely
adjust our effective income tax rate when necessary, we cannot
assure you that the new Enterprise Income Tax Law will not cause
increases in the EIT rates applicable to our PRC subsidiaries,
which could have a material adverse effect on our financial
condition and results of operations.
Subject to the interpretation of the new enterprise income tax
law and its implementation rules, if we are deemed to be a
non-PRC tax resident following the implementation of the new
Enterprise Income Tax Law, we may be subject to an EIT rate of
10% on the dividends paid to us by our subsidiaries. However, as
the PRC has not promulgated further guidance on the
applicability of the new law or its related implementation
rules, there is uncertainty as to how it will be applied and
affect us.
There
may be some uncertainty surrounding a recently adopted PRC
regulation that requires certain offshore listings to be
approved by the China Securities Regulatory
Commission.
On August 8, 2006, six PRC regulatory agencies, including
the China Securities Regulatory Commission, or CSRC, promulgated
a regulation that took effect on September 8, 2006. This
regulation, among other things, requires offshore special
purpose vehicles, or SPVs, formed for listing purposes through
acquisitions of PRC domestic companies and controlled by Chinese
domestic companies or PRC individuals to obtain the approval of
the CSRC prior to publicly listing their securities on an
overseas stock exchange. On September 21, 2006, the CSRC
published on its official website a notice specifying the
documents and materials that are required to be submitted for
obtaining CSRC approval. We believe, based on the advice of our
PRC counsel, that this regulation does not apply to us and that
CSRC approval is not required because we are not an SPV covered
by the new regulation as we are owned and controlled by non-PRC
individuals and entities, and all our PRC subsidiaries are
foreign-funded and have been incorporated through our direct
investment instead of acquisition. However, since the regulation
has been adopted only for a few months, there may be some
uncertainty as to how this regulation will be interpreted or
implemented. If the CSRC or other PRC regulatory body
subsequently determines that we needed to obtain the CSRCs
approval for our initial public offering in November 2006, we
may face sanctions by the CSRC or other PRC regulatory agencies.
In such event, these regulatory agencies may impose fines and
penalties on our operations in the PRC, limit our operating
privileges in the PRC, or take other actions that could have a
material adverse effect on our business, financial condition,
results of operations, reputation and prospects, as well as the
trading price of our common shares. In the future, we may grow
our business in part by directly acquiring complementary
businesses. Complying with the requirements of the new
regulations and any other PRC laws to complete such transactions
could be time consuming, and any required approval processes,
including obtaining approval from the PRC regulatory agencies,
may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or
maintain our market share.
We
face risks related to health epidemics and other
outbreaks.
Our business could be adversely affected by the effects of avian
flu or another epidemic or outbreak. From 2005 to 2007, there
have been reports on the occurrences of avian flu in various
parts of China, including a few confirmed human cases and
deaths. Any prolonged recurrence of avian flu or other adverse
public health developments in China may have a material adverse
effect on our business operations. These could include our
ability to travel or ship our products outside of China, as well
as temporary closure of our manufacturing facilities. Such
closures or travel or shipment restrictions would severely
disrupt our business operations and adversely affect our results
of operations. We have not adopted any written preventive
measures or contingency plans to combat any future outbreak of
avian flu or any other epidemic.
Risks
Related to Our Common Shares
The
market price for our common shares may be
volatile.
The market price for our common shares has been and may continue
to be highly volatile and subject to wide fluctuations during
the period from November 9, 2006, the first day on which
our common shares were listed on the Nasdaq Global Market, until
March 24, 2008, the trading prices of our common shares
ranged from $6.50 to
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$31.44 per share and the closing sale price on
March 24, 2008 was $17.51 per share. The market price
for our common shares may continue to be volatile and subject to
wide fluctuations in response to factors including the following:
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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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actual or anticipated fluctuations in our quarterly operating
results;
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changes in financial estimates by securities research analysts;
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changes in the economic performance or market valuations of
other solar power companies;
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addition or departure of our executive officers and key research
personnel;
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announcements regarding patent litigation or the issuance of
patents to us or our competitors;
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fluctuations in the exchange rates between the U.S. dollar,
the Euro and RMB;
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release or expiry of
lock-up or
other transfer restrictions on our outstanding common
shares; and
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sales or perceived sales of additional common shares.
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In addition, the securities market has from time to time
experienced significant price and volume fluctuations that are
not related to the operating performance of particular
companies. These market fluctuations may also have a material
adverse effect on the market price of our common shares.
Substantial
future sales or perceived sales of our common shares in the
public market could cause the price of our common shares to
decline.
Sales of our common shares in the public market, or the
perception that these sales could occur, could cause the market
price of our common shares to decline. As of February 14,
2008, we had 27,320,389 common shares outstanding, excluding
restricted shares granted but yet to be vested and subject to
restrictions on voting and dividend rights and transferability.
In addition, the common shares outstanding will increase and be
available for sale when certain option holders receive our
common shares if they exercise their share options upon vesting,
subject to volume, holding period and other restrictions as
applicable under Rule 144 and Rule 701 under the
Securities Act. To the extent these shares are sold into the
market, the market price of our common shares could decline.
Your
right to participate in any future rights offerings may be
limited, which may cause dilution to your
holdings.
We may from time to time distribute rights to our shareholders,
including rights to acquire our securities. However, we cannot
make rights available to you 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. 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, you may be unable to
participate in our rights offerings and may experience dilution
in your holdings.
Our
articles of continuance contain anti-takeover provisions that
could adversely affect the rights of holders of our common
shares.
We adopted an amendment to our articles of continuance that
became effective immediately upon the closing of our initial
public offering. We have included certain provisions in our
amended articles of continuance that would limit the ability of
others to acquire control of our company, and deprive our
shareholders of the opportunity to sell their shares at a
premium over the prevailing market price by discouraging third
parties from seeking to obtain control of our company in a
tender offer or similar transactions.
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We have included the following provisions in our amended
articles of continuance that may have the effect of delaying or
preventing a change of control of our company:
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Our board of directors has the authority, without approval by
the shareholders, to issue an unlimited number of preferred
shares in one or more series. Our board of directors may
establish the number of shares to be included in each such
series and may fix the designations, preferences, powers and
other rights of the shares of a series of preferred shares.
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Our board of directors shall fix and may change the number of
directors within the minimum and maximum number of directors
provided for in our articles. Our board of directors may appoint
one or more additional directors, who shall hold office for a
term expiring no later than the close of the next annual meeting
of shareholders, subject to the limitation that the total number
of directors so appointed may not exceed one-third of the number
of directors elected at the previous annual meeting of
shareholders.
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You
may have difficulty enforcing judgments obtained against
us.
We are a corporation organized under the laws of Canada 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, we have been advised
by our Canadian counsel that a monetary judgment of a
U.S. court predicated solely upon the civil liability
provisions of U.S. federal securities laws would likely be
enforceable in Canada if the U.S. court in which the
judgment was obtained had a basis for jurisdiction in the matter
that was recognized by a Canadian court for such purposes. We
cannot assure you that this will be the case. It is unlikely
that an action could be brought in Canada in the first instance
for civil liability under U.S. federal securities laws.
There is uncertainty as to whether the courts of 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 PRC courts would be
competent to hear original actions brought in the PRC against us
or such persons predicated upon the securities laws of the
United States or any state.
We may
be classified as a passive foreign investment company, which
could result in adverse U.S. federal income tax consequences to
U.S. holders of our notes or common shares.
Based on the market price of our common shares and the
composition of our income and assets and our operations, we
believe we were not a passive foreign investment
company, or PFIC, for U.S. federal income tax
purposes for our taxable year ended December 31, 2007.
However, we must make a separate determination each year as to
whether we are a PFIC (after the close of each taxable year).
Accordingly, we cannot assure you that we will not be a PFIC for
our current taxable year or any future taxable year. A
non-U.S. corporation
will be considered a PFIC for any taxable year if either
(1) at least 75% of its gross income is passive income or
(2) at least 50% of the value of its assets is attributable
to assets that produce or are held for the production of passive
income. The market value of our assets is generally determined
by reference to the market price of our common shares, which may
fluctuate considerably. If we were treated as a PFIC for any
taxable year during which a U.S. person held a note or
common share, certain adverse U.S. federal income tax
consequences could apply to such U.S. person. See the
section entitled Taxation Certain U.S. Federal
Income Tax Considerations Passive Foreign Investment
Company.
We
incur increased costs as a result of being a public
company.
As a public company, we incur a significantly higher level of
legal, accounting and other expenses than we did as a private
company. In addition, the Sarbanes-Oxley Act of 2002, as well as
new rules subsequently implemented by SEC, and the Nasdaq Global
Market, have required changes in corporate governance practices
of public companies.
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We expect these new rules and regulations to increase our legal
and financial compliance costs and to make some activities more
time-consuming and costly. We are currently evaluating and
monitoring developments with respect to these new rules, and we
cannot predict or estimate the amount of additional costs we may
incur or the timing of such costs.
Risks
Related to the Notes
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. The notes rank equally with all our existing and
future unsecured, unsubordinated debt, and senior to all our
future subordinated debt. The notes rank junior to all our
existing and future secured debt to the extent of the collateral
securing such debt and are effectively subordinated to all
existing and future indebtedness and other liabilities of our
subsidiaries. As of September 30, 2007, we had:
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$15.3 million of unsecured, unsubordinated indebtedness
outstanding equal in right of payment to the notes;
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no secured indebtedness outstanding effectively senior in right
of payment to the notes to the extent of the collateral securing
such indebtedness; and
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no subordinated indebtedness.
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As of September 30, 2007, our subsidiaries had liabilities
(including trade and other payables but excluding intercompany
indebtedness) outstanding in an amount of $80.6 million,
which is structurally senior to the notes. The indenture for the
notes does not restrict us or our subsidiaries from incurring
additional debt or other liabilities. Our subsidiaries will not
guarantee any of our obligations under the notes.
We expect from time to time to incur additional indebtedness and
other liabilities and to refinance our existing indebtedness.
The indenture pursuant to which the notes are issued does not
limit the amount of indebtedness that we or any of our
subsidiaries may incur. In the event of our insolvency,
bankruptcy, liquidation, reorganization, dissolution or winding
up, we may not have sufficient assets to pay amounts due on any
or all of the notes then outstanding. See the section entitled
Description of Notes General.
Our
holding company structure makes us dependent on cash flow from
our subsidiaries to meet our obligations.
Most of our operations are conducted through, and most of our
assets are held by, our subsidiaries; therefore, we are
dependent on the cash flow of our subsidiaries to meet our debt
obligations, including our obligations under the notes. Our
subsidiaries are separate legal entities that have no obligation
to pay any amounts due under the notes or the guarantee or to
make any funds available for that purpose, whether by dividends,
loans or other payments. The ability of our subsidiaries to pay
dividends or otherwise transfer assets to us is subject to
various restrictions, including restrictions under applicable
law.
None of our subsidiaries has guaranteed or otherwise become
obligated with respect to the notes. Our right to receive assets
from and 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 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.
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There
are no restrictive covenants in the indenture for the notes
relating to our ability to incur future indebtedness or complete
other transactions.
The indenture governing the notes does not contain any financial
or operating covenants or restrictions on the payment of
dividends, the incurrence of indebtedness, transactions with
affiliates, incurrence of liens or the issuance or repurchase of
securities by us or any of our subsidiaries. We therefore may
incur additional debt, including secured indebtedness that would
be effectively senior to the notes to the extent of the value of
the assets securing such debt, or indebtedness at the subsidiary
level to which the notes would be structurally subordinated. We
cannot assure you that we will be able to generate sufficient
cash flow to pay the interest on our debt, including the notes
offered hereby, or that future working capital, borrowings or
equity financing will be available to pay or refinance any such
debt.
The
make whole premium that may be payable upon conversion in
connection with certain fundamental changes may not adequately
compensate you for the lost option time value of your notes as a
result of such fundamental change.
If you convert notes in connection with certain fundamental
changes that occur prior to December 24, 2012, we may be
required to increase the conversion rate for notes so
surrendered for conversion, as described under the section
entitled Description of Notes Adjustment to
Conversion Rate upon Occurrence of a Fundamental Change.
While these increases in the applicable conversion rate are
designed to compensate you for the lost option time value of
your notes as a result of such change, such increases are only
an approximation of such lost value and may not adequately
compensate you for such loss. In addition, even if a fundamental
change occurs, in some cases described below under the section
entitled Description of Notes Adjustment to
Conversion Rate upon Occurrence of a Fundamental Change
there will be no such conversion rate increase.
The
conversion rate for the notes may not be adjusted for all
dilutive events that may occur.
The conversion rate for the notes is subject to adjustment for
certain events including, but not limited to, the issuance of
share dividends on common shares, the issuance of certain rights
or warrants, subdivisions or combinations of our common shares,
certain distributions of assets, debt securities, share capital
or cash to holders of our common shares and certain issuer
tender or exchange offers as described under the section
entitled Description of Notes Conversion Rate
Adjustments. Such conversion rates will not be adjusted
for other events, such as share issuances for cash or
third-party tender offers, that may adversely affect the trading
price of the notes or any common shares. See the section
entitled Description of Notes Conversion Rate
Adjustments. We are not restricted from issuing additional
common shares during the life of the notes and have no
obligation to consider the interests of holders of the notes in
deciding whether to issue common shares. There can be no
assurance that an event that adversely affects the value of the
notes, but does not result in an adjustment to the conversion
rate, will not occur.
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 designated event under the
indenture.
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 downgrade of the credit rating
of the notes. The term fundamental change does not
apply to transactions in which 90% of the consideration
(excluding cash payments fractional shares and cash payments
made in respect of dissenters appraisal rights and cash
payment of the required cash payment, if any) paid for our
common shares in a merger or similar transaction is publicly
traded common shares. Our obligation to repurchase the notes
upon a designated event may not preserve the value of the notes
in the event of a highly leveraged transaction, reorganization,
merger or similar transaction. See the section entitled
Description of Notes Fundamental Change
Requires Us to Make an Offer to Purchase Notes.
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If we
have elected to pay cash or a combination of cash and common
shares upon conversion of the notes, you may receive less
proceeds than expected because the value of our common shares
may decline after you exercise your conversion
right.
Under the notes, if we have received shareholder approval and
have elected to pay cash or a combination of cash and common
shares upon conversion of the notes, a converting holder will be
exposed to fluctuations in the value of our common shares during
the period from the date such holder surrenders notes for
conversion until the date we settle our conversion obligation.
Under the notes, if we elect to settle all or any portion of our
conversion obligation in cash (other than solely cash in lieu of
any fractional shares), the amount of consideration that you
will receive upon conversion of your notes is in part determined
by reference to the volume weighted average prices of our common
shares for each trading day in a ten-trading day period. In
addition, if we elect to settle a portion, but less than all, of
our conversion obligation in cash (other than solely cash in
lieu of any fractional shares), and the market price of our
common shares at the end of such ten-trading day period is below
the average of the volume weighted average price of our common
shares during such period, the value of any common shares that
you will receive in satisfaction of our conversion obligation
will be less than the value used to determine the number of
shares you will receive.
If you
hold notes, you are not entitled to any rights with respect to
our common shares, but you are subject to all changes made with
respect to our common shares.
If you hold notes, you are not entitled to any rights with
respect to our common shares (including, without limitation,
voting rights and rights to receive any dividends or other
distributions on common shares), but you are subject to all
changes affecting the common shares. You will only be entitled
to rights on the common shares if and when we deliver common
shares to you in exchange for your notes. For example, in the
event that an amendment is proposed to our certificate of
incorporation or by-laws 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 common
shares, you will not be entitled to vote on the amendment,
although you will nevertheless be subject to any changes in the
powers, preferences or special rights of our common shares.
We may
not be able to raise the funds necessary to repay the notes when
due, finance a fundamental change, purchase the notes on
specified dates or make the payments due upon conversion, if
any.
At maturity, the entire outstanding principal amount of the
notes will become due and payable. In addition, upon the
occurrence of a fundamental change and upon each of
December 24, 2012 and December 15, 2014, holders of
notes may require us to purchase their notes. Furthermore, if we
have received shareholder approval and have elected to pay cash
or a combination of cash and common shares upon conversion of
the notes, we will be required to make cash payments to holders
on conversion thereof. However, it is possible that we would not
have sufficient funds to repay the notes at maturity, make the
required purchase of the notes or make cash payments on
conversion. In addition, certain important corporate events,
such as leveraged recapitalizations that would increase the
level of our indebtedness, would not constitute a fundamental
change under the indenture. See the section entitled
Description of Notes Fundamental Change
Requires Us to Make an Offer to Purchase Notes.
The
fundamental change purchase feature of the notes may delay or
prevent an otherwise beneficial attempt to take over our
company.
The terms of the notes require us to make an offer to purchase
the notes for cash in the event of a fundamental change. A
takeover of our company would trigger an option of the holder of
the notes to require us to purchase the notes. This may have the
effect of delaying or preventing a takeover of our company that
would otherwise be beneficial to investors in the notes.
An
active trading market for the notes may not
develop.
If you are able to sell your notes, we cannot assure you as to
the price at which any sales will be made. There is currently no
established public market for the notes, and no active trading
market might ever develop. Furthermore, trading prices of the
notes will depend on many factors, including prevailing interest
rates, the market for similar securities, the price, and
volatility in the price, of our common shares, our performance
and other factors. In
38
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. At
the time of the original issuance of the notes, the initial
purchaser of the notes informed us that it intended to make a
market in the notes. However, that purchaser is 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 purchaser ceases to act as the
market maker 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.
The
price of our common shares may be volatile, which may affect the
trading price of the notes.
In the past, the price of our common shares has experienced
volatility due to a number of factors, some of which are beyond
our control. The price of our notes and the common shares into
which the notes are convertible may continue to experience
volatility in the future from time to time. Among the factors
that could affect the price of our notes and the common shares
into which the notes are convertible are:
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our operating and financial performance and prospects;
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quarterly variations in key financial performance measurer, such
as earnings per share, net income and revenue;
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changes in revenue or earnings estimates or publication of
research reports by financial analysts;
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announcements of technological innovations or new products by us
or our competitors;
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speculation in the press or investment community;
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strategic actions by us or our competitors, such as acquisitions
or restructurings;
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sales of our common shares or other actions by investors with
significant shareholdings;
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general market conditions; and
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domestic and international economic, legal, political and
regulatory factors unrelated to our performance.
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The stock markets in general have experienced substantial
volatility that has often been unrelated to the operating of
particular companies. These broad market fluctuations may
adversely affect the trading price of our notes and the
underlying common shares. Any adverse effect upon the trading
price of our common shares would, in turn, adversely affect the
trading price of the notes.
Conversion
of the notes will dilute the ownership interest of existing
shareholders, including holders who had previously converted
their notes, or may otherwise depress the price of our common
shares.
The conversion of some or all of the notes will dilute the
ownership interests of existing shareholders. Any sales in the
public market of the common shares issuable upon such conversion
could adversely affect prevailing market prices of our common
shares. In addition, the existence of the notes may encourage
short selling by market participants because the conversion of
the notes could be used to satisfy short positions, or
anticipated conversion of the notes into our common shares could
depress the price of our common shares.
39
REASONS
FOR THE OFFER AND USE OF PROCEEDS
All sales of the notes or common shares issuable upon conversion
of the notes will be by or for the account of the selling
securityholders listed in this and any subsequent prospectus
supplement. We will not receive any proceeds from the sale by
any selling shareholder of the notes or the common shares
issuable upon conversion of the notes.
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
changes on a historical basis for the period indicated. The
ratios are calculated 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 represent interest, amortization of debt
discount and expense, and the estimated interest portion of
rental charges.
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Nine Months
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Ended
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Year Ended December 31,
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September 30,
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2002
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2003
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2004
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2005
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2006
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2007
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Ratio of earnings to fixed charges
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142
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X
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149
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X
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166
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X
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17
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X
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(1
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(2
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(1)
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Earnings for the year ended December 31, 2006 were
insufficient to cover fixed charges by approximately
$9.0 million as our operating results were negatively
impacted by downward market performance mainly in the last
quarter of this year.
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(2)
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Earnings for the nine months ended September 30, 2007 were
insufficient to cover fixed charges by approximately
$6.3 million as our operating results were negatively
impacted by a rapid increase in the cost of goods sold due to
the price pressure resulting from an industry-wide raw materials
shortage and the downward market performance in the first
quarter of this year.
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For the purpose of computing the consolidated ratio of earnings
to fixed charges, earnings consist of income from continuing
operations before income taxes, fixed charges, amortization of
capitalized interest, distributed income of equity investees and
losses before tax of equity investees for which charges arising
from guarantees are included in fixed charges, minus capitalized
interest and minority interest in pre-tax income of subsidiaries
that have not incurred fixed charges. Fixed charges consist of
interest expense, including capitalized interest, amortized
premiums, discounts and capitalized expenses related to
indebtedness and estimated interest included in rental expense.
40
PRICE
RANGE OF COMMON SHARES
Our common shares are traded on the Nasdaq Global Market under
the symbol CSIQ. The following table sets forth the
high and low intraday sales prices of our common shares for each
period indicated as reported on the Nasdaq Global Market. Our
common shares commenced trading on the Nasdaq Global Market on
November 9, 2006.
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Sales Price
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Period
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High
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Low
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US$
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US$
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2006
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Fourth Quarter (from November 10)
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16.73
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9.43
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2007
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First Quarter:
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January
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11.87
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9.26
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February
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14.36
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10.30
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March
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11.68
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8.72
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Second Quarter:
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April
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13.88
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9.60
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May
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11.80
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8.78
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June
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10.87
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9.21
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Third Quarter:
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July
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11.70
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8.57
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August
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9.25
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6.50
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September
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10.95
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7.08
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Fourth Quarter:
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October
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11.65
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8.67
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November
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18.88
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9.99
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December
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31.44
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15.62
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2008
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First Quarter:
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January
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31.10
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14.74
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February
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24.15
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17.32
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March (through March 24)
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22.67
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17.04
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The closing price of our common shares on March 24, 2008 as
reported by the Nasdaq Global Market was US$17.51.
DIVIDEND
POLICY
We have never declared or paid any dividends, nor do we have any
present plan to pay any cash dividends on our common shares in
the foreseeable future. We currently intend to retain most, if
not all, of our available funds and any future earnings to
operate and expand our business.
Our board of directors has complete discretion on whether to pay
dividends, subject to restrictions under the Canada Business
Corporations Act (the CBCA). See the section
entitled Description of Share Capital Common
Shares Dividends. Even if our board of
directors decides to pay dividends, the form, frequency and
amount will depend upon our future operations and earnings,
capital requirements and surplus, general financial condition,
contractual restrictions and other factors that the board of
directors may deem relevant. Cash dividends on our common
shares, if any, will be paid in U.S. dollars.
41
CAPITALIZATION
AND INDEBTEDNESS
The following table sets forth our capitalization (unaudited, in
thousands, except per share data) as of January 31, 2008.
This table should be read in conjunction with Summary
Consolidated Financial Data included in this prospectus
and our consolidated financial statements and notes thereto
incorporated by reference in this prospectus.
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As of January 31,
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2008
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Cash and cash equivalents
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$
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35,572
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Restricted cash
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1,670
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Long-term debt:
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6.0% Convertible Senior Notes due 2017
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$
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75,000
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Other long-term debt
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18,080
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Total long-term debt
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93,080
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Shareholders equity
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Common shares, unlimited authorized shares;
27,320,389 shares issued and
outstanding(1)
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99,454
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Additional paid-in capital
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26,534
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Accumulated deficit
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(146
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)
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Accumulated other comprehensive income
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7,754
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Total shareholders equity
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133,888
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Total capitalization
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226,968
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(1) |
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Excludes 1,725,321 common shares
issuable upon the exercise of options outstanding as of the date
of this prospectus and 768,367 common shares reserved for future
issuance under our 2006 equity incentive plan.
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42
EXCHANGE
RATE INFORMATION
Our business is primarily conducted in China, our functional
currency is Renminbi and a portion of our revenues are
denominated in Renminbi. We record transactions denominated in
other currencies at the rates of exchange prevailing when the
transaction occur. We translate monetary assets and liabilities
denominated in other currencies into Renminbi at rates of
exchange in effect at the balance sheet dates and record
exchange gains and losses in our statements of operations. We
have chosen the U.S. dollar as our reporting currency.
Accordingly we translate assets and liabilities using exchange
rates in effect at each period end and we use average exchange
rates for the statement of operations. We make no representation
that any Renminbi or U.S. dollar amounts could have been,
or could be, converted into U.S. dollars or Renminbi, as
the case may be, at any particular rate, the rates stated below,
or at all. The PRC government imposes control over its foreign
currency reserves in part through direct regulation of the
conversion of Renminbi into foreign exchange and through
restrictions on foreign trade. On March 24, 2008, the noon
buying rate was RMB7.1035 to US$1.00.
The following table sets forth information concerning exchange
rates between the RMB and the U.S. dollar for the periods
indicated based on the noon buying rate in The City of New York
for cable transfers of Renminbi as certified for customs
purposes by the Federal Reserve Bank of New York.
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Noon Buying Rate
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Period
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Period
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End
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Average(1)
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Low
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High
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(RMB Per US$1.00)
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2002
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8.2800
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8.2770
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8.2800
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8.2669
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2003
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8.2767
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8.2772
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8.2800
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8.2765
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2004
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8.2765
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8.2768
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8.2774
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8.2764
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2005
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8.0702
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8.1826
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8.2765
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8.0702
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2006
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7.8041
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7.9597
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8.0702
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7.8041
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2007
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7.2946
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7.5806
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7.8127
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7.2946
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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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7.2946
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|
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7.1818
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February
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|
|
7.1115
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|
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7.1644
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7.1973
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|
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7.1100
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March (through March 24)
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|
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7.055
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|
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7.0881
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7.1110
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7.0515
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(1) |
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Annual averages are calculated from
month-end rates. Monthly averages are calculated using the
average of the daily rates during the relevant period.
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43
DESCRIPTION
OF NOTES
We issued the notes under an indenture dated as of
December 10, 2007 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 notes and any common shares
issuable upon conversion of the notes are covered by a resale
registration rights agreement which we have entered into as of
December 10, 2007 pursuant to which we have agreed to, for
the benefit of the holders of notes, file this shelf
registration statement with the SEC covering resale of notes, as
well as our common shares issuable upon conversion of notes.
The following description is a summary of the material
provisions of the notes, the indenture and the resale
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 resale 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 the section entitled
Where You Can Find More Information.
For purposes of this description, references to the
Company, we, our and
us refer only to Canadian Solar, Inc. 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;
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are limited to an aggregate principal amount of US$75,000,000,
except as set forth below;
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will mature on December 15, 2017, unless earlier converted,
repurchased or redeemed;
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bear interest at a rate of 6.0% per annum on the principal
amount, payable semi-annually, in arrears, on each June 15 and
December 15, beginning on June 15, 2008 to holders of
record at the close of business on the preceding June 1 and
December 1, respectively;
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will bear additional interest if we fail to comply with certain
obligations set forth under the section entitled
Resale Registration Rights;
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include a requirement that we make an offer to purchase, in
whole or in part, for cash upon occurrence of a
fundamental change (as defined under the section
entitled Fundamental Change Requires Us to
Make an Offer to Purchase Notes) at a price equal to 100%
of the principal amount of any notes being purchased, plus
accrued and unpaid interest (including additional interest), if
any, to, but excluding, the repurchase date as described under
the section entitled Fundamental Requires Us
to Make an Offer to Purchase Notes;
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are redeemable by us at any time on or after December 24,
2012, 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 (i) in whole or in part,
if the last reported sale price (as defined below under the
section entitled Conversion Rights
General) of our common shares 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 common share in effect on
such trading date, or (ii) in whole only, if at least 95%
of the initial aggregate principal amount of the notes
originally issued have been redeemed, converted or repurchased
and, in each case, cancelled;
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will be redeemable, in whole but not in part, if as a result of
a change in or amendment to the laws of a Relevant Jurisdiction
(as defined under the section entitled
Additional Amounts) we are required
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44
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to pay Additional Amounts at a redemption price equal to 100% of
their principal amount, together with accrued and unpaid
interest and Additional Amounts, if any, subject to a
holders election not to be subject to such redemption;
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are subject to purchase by us at the option of the holder on
December 24, 2012 and December 15, 2014, 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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were 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.
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At any time prior to the close of business on the business day
before the stated maturity date, the notes may be converted into
common shares at an initial conversion rate of 50.6073 common
shares per US$1,000 principal amount of notes (equivalent to a
conversion price of approximately US$19.76 per common share),
subject to prior repurchase or redemption. The conversion rate
is subject to adjustment if certain events occur. See the
section entitled Conversion Rate
Adjustments and Adjustment to Conversion
Rate upon Occurrence of a Fundamental Change.
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.
Holders may not sell or otherwise transfer the notes or any
common shares issuable upon conversion of the notes except in
compliance with the provisions set under
Resale Registration Rights.
Other than restrictions described under
Fundamental Change Requires Us to Make an
Offer 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 Conversion upon Fundamental Change,
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 will 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 will initially act 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
45
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
Subject to the provisions described under
Resale Registration Rights, 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 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.
Ranking
The notes are our senior, unsecured obligations and rank equal
in right of payment to all of our other unsecured and
unsubordinated indebtedness. The notes are effectively
subordinated in right of payment to all of our existing and
future secured debt to the extent of such security and
structurally subordinated to the indebtedness and other
liabilities of our subsidiaries. As of September 30, 2007,
we had approximately no secured debt outstanding and our direct
and indirect subsidiaries had approximately US$61.7 million
of total debt outstanding on a consolidated basis.
The notes are our exclusive obligation. Our cash flow and our
ability to service our indebtedness, including the notes, is
dependent upon the earnings of our subsidiaries. In addition, we
are dependent on the distribution of earnings, loans or other
payments by our subsidiaries to us. Our subsidiaries are
separate and distinct legal entities. Our subsidiaries have not
guaranteed the notes or have any obligation to pay any amounts
due on the notes or to provide us with funds for our payment
obligations, whether by dividends, distributions, loans or other
payments. In addition, any payment of dividends, distributions,
loans or advances by our subsidiaries to us could be subject to
statutory or contractual restrictions. Payments to us by our
subsidiaries will also be contingent upon our subsidiaries
earnings and business considerations.
Our right to receive any assets of any subsidiary upon its
liquidation or reorganization, and, therefore, our right to
participate in those assets, will be structurally subordinated
to the claims of that subsidiarys creditors, including
trade creditors. In addition, even if we were a creditor of any
of our subsidiaries, our right as a creditor would be
subordinate to any security interest in the assets of our
subsidiaries and any indebtedness of our subsidiaries senior to
that held by us.
Interest
The notes bear interest at a rate of 6.0% per annum from
December 10, 2007, or from the most recent date to which
interest has been paid or duly provided for. Interest is payable
semiannually in arrears on June 15 and December 15 of each year,
beginning June 15, 2008. Interest on the notes will be
computed on the basis of a
360-day year
composed of twelve
30-day
months.
Interest will be paid to the person in whose name a note is
registered at the close of business on June 1 or
December 1, as the case may be, immediately preceding the
relevant interest payment date, except in the situations
described in Conversion Rights
General.
46
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
common shares upon conversion, will be 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 (including 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:
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(a)
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any tax, duty, assessment or other governmental charge that
would not have been imposed but for:
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(i)
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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, carried on business or engaged in a trade or business
therein or having or having had a permanent establishment
therein;
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(ii)
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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
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(iii)
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the failure of the holder or beneficial owner to comply with a
timely request from us or any successor 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 or beneficial owner;
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(b)
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any estate, inheritance, gift, sale, transfer, capital gains,
excise, personal property or similar tax, assessment or other
governmental charge;
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(c)
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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)
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any combination of taxes, duties, assessments or other
governmental charges referred to in the preceding clauses (a),
(b) or (c); or
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(2)
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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.
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47
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 common shares at an initial conversion rate
of 50.6073 common shares per US$1,000 principal amount of notes
(equivalent to an initial conversion price of approximately
US$19.76 per common share).
In certain circumstances, common shares issued upon conversion
of notes will be issued and delivered in the form of restricted
common shares.
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 common shares upon
conversion, unless the tax is due because a holder requests any
common shares 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 common shares
upon conversion.
Notes in respect of which a holder has delivered a purchase
notice or a notice of acceptance of our offer to purchase 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.
48
The last reported sale price of our common shares on
any date means the closing sale price per common share (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
Global Market or other principal U.S. securities exchange
on which our common shares are traded. If our common shares 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 common shares will be the last
quoted bid price for our common shares in the over-the-counter
market on the relevant date as reported by the National
Quotation Bureau or similar organization. If our common shares
are not so quoted, the last reported sale price of
the common shares will be the average of the mid-point of the
last bid and ask prices for our common shares 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 common
shares will be determined without reference to extended or after
hours trading.
The term trading day means a day during which
(i) there is no market disruption event (as defined below)
and (ii) the Nasdaq Global Market, or if our common shares
are not listed on the Nasdaq Global Market, the principal
U.S. securities exchange on which our common shares are
listed, is open for trading or if our common shares are not
admitted for trading or quotation on or by any exchange, bureau
or other organization referred to in the preceding paragraph
(excluding the third sentence of that paragraph), trading
day will mean any business day.
The term market disruption event means the
occurrence or existence for more than one-half hour period in
the aggregate on any trading day for our common shares 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 common shares or in any options,
contracts or future contracts relating solely to our common
shares, and such suspension or limitation occurs or exists at
any time before 1:00 p.m. (New York City time) on such day.
Conversion
upon Notice of Redemption
A holder of notes that we call for redemption may surrender
those notes for conversion at any time prior to the close of
business on the business day preceding the redemption date.
Notes in respect of which a holder has delivered a purchase
notice or a notice of acceptance of our offer to purchase 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.
Conversion
upon Specified Corporate Transactions
Holders who convert notes in connection with any fundamental
change occurring on or prior to December 24, 2012 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 Fundamental Change. Upon the
occurrence of a fundamental change, we are required to make an
offer to purchase their notes as set forth below under
Fundamental Change Requires Us to Make an
Offer to Purchase Notes.
Conversion
Procedures
You will not be required to pay transfer taxes or duties
relating to the issuance or delivery of our common shares if you
exercise your conversion rights, but you will be required to pay
any transfer tax or duties that may be payable relating to any
transfer involved in the issuance or delivery of the common
shares in a name other than your own. Certificates representing
common shares will be issued or delivered after all applicable
transfer taxes and duties, if any, payable by you have been paid.
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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49
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if required, furnish appropriate endorsements and transfer
documents;
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if required, pay funds equal to interest payable on the next
interest payment date; and
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pay all required transfer taxes or duties.
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The date you comply with these requirements is the
conversion date under the indenture.
If a holder has already delivered a purchase notice as described
under Fundamental Change Requires Us to Make
an Offer 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
Elections
With the consent of at least 25% of holders, as specified in
Modification and Amendment, we and the trustee may
amend the indenture to permit settlement upon conversion in cash
or any combination of cash and common shares in lieu of delivery
of common shares in satisfaction of our obligation upon
conversion of notes.
If we make such amendment to the indenture, we will inform the
holders through the trustee of the method we choose to satisfy
our obligation upon conversion (and the specified cash amount
(as defined below), if applicable), as follows:
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in respect of notes to be converted during the period beginning
12 scheduled trading days immediately preceding a redemption
date, purchase date, fundamental change purchase date or the
maturity date for such notes, no later than the date we deliver
our notice of redemption, repurchase, fundamental change or the
13th scheduled trading day preceding the maturity date, as
applicable; and
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in all other cases, no later than two trading days following the
applicable conversion date.
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If we do not give any notice within the time periods described
as to how we intend to settle, we will satisfy our conversion
obligation only in common shares (except for any cash in lieu of
fractional common shares).
Cash
Settlement Notices
With the consent of at least 25% of holders, as specified in
Modification and Amendment, we and the trustee may
amend the indenture to permit settlement upon conversion in cash
or any combination of cash and common shares. If we make such
amendment to the indenture and choose to satisfy any portion of
our conversion obligation in cash, other than solely cash in
lieu of any fractional common shares, we will notify holders as
described above of the amount to be satisfied in cash as a fixed
dollar amount per $1,000 principal amount of notes (the
specified cash amount) or we will specify that we
will satisfy the entire conversion obligation in cash.
We will treat all holders with the same cash settlement
averaging period (as defined below) in the same manner. We will
not, however, have any obligation to settle our conversion
obligations arising with respect to different cash settlement
averaging periods in the same manner. That is, we may choose
with respect to one cash settlement averaging period to settle
in common shares only and choose with respect to another cash
settlement averaging period to settle in cash or a combination
of cash and common shares.
Settlement
Upon Conversion
If we elect to settle a conversion of notes only in common
shares, such settlement will occur as soon as practicable after
we notify holders that we have chosen this method of settlement,
but in any event within three business days of the relevant
conversion date.
Settlements made entirely or partially in cash (other than cash
in lieu of fractional common shares), subsequent to obtaining
consent from holders, will occur on the third business day
following the final trading day of the cash settlement averaging
period.
50
The amount of cash
and/or
number of common shares, as the case may be, due upon conversion
will be determined as follows:
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(1)
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If we elect to satisfy the entire conversion obligation in
common shares, we will deliver to the holder a number of common
shares equal to (i) (A) the aggregate principal amount of
notes to be converted, divided by (B) 1,000,
multiplied by (ii) the conversion rate in effect on
the relevant conversion date (provided that we will
deliver cash in lieu of fractional common shares as described
below).
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(2)
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If we have obtained consent from holders as specified in
Modification & Amendment and we elect to
satisfy the entire conversion obligation in cash, we will
deliver to the holder, for each $1,000 principal amount of
notes, cash in an amount equal to the conversion value, as
defined below.
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(3)
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If we have obtained consent from holders as specified in
Modification & Amendment and we elect to
satisfy the conversion obligation in a combination of cash and
common shares, we will deliver to the holder, for each $1,000
principal amount of notes:
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cash in an amount equal to the lesser of (A) the specified
cash amount and (B) the conversion value (as defined
below); and
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if the conversion value is greater than the specified cash
amount, a number of common shares equal to the sum of the daily
common share amounts (as defined below) for each of the ten
trading days in the cash settlement averaging period (as defined
below), plus cash in lieu of any fractional common shares as
described below.
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The conversion value means the product of
(1) the conversion rate, multiplied by (2) the
average of the volume weighted average price (as defined below)
per common share on each of the trading days during the cash
settlement averaging period.
The volume weighted average price per common share
on any trading day means such price as displayed on Bloomberg
(or any successor service) page CSIQ <equity> VAP
in respect of the period from 9:30 a.m. to 4:00 p.m.,
New York City time, on such trading day; or, if such price is
not available, the volume weighted average price means the
market value per common share on such day as determined by a
nationally recognized independent investment banking firm
retained for this purpose by us.
The cash settlement averaging period means:
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with respect to any conversion date occurring on or after the
12th scheduled trading day immediately preceding a
redemption date, repurchase date, fundamental change purchase
date or the maturity date, the 10 consecutive trading day period
beginning on, and including, the 12th scheduled trading day
immediately prior to such redemption date or the maturity date,
subject to any extension due to a market disruption event;
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in all other cases, the 10 consecutive trading day period
beginning on, and including, the third trading day immediately
following the relevant conversion date.
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The daily common share amount means, for each
trading day of the cash settlement averaging period and each
$1,000 principal amount of notes surrendered for conversion, a
number of common shares (but in no event less than zero)
determined pursuant to the following formula:
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(
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volume weighted average
price
per common share on such
trading day
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×
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conversion rate
in effect on the
conversion date
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)
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-
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specified
cash
amount
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volume weighted average price per common share on
such trading day
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×
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10
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51
In calculating the daily common share amount, the conversion
rate on any day shall be appropriately adjusted to take into
account the occurrence on or before such trading day of any
event which would require an adjustment to the conversion rate
as set forth above under Conversion Rate
Adjustments.
A scheduled trading day means a day that is
scheduled to be a trading day.
It is expected that any newly issued common shares will be
accepted into the book-entry system maintained by DTC, and no
person receiving common shares shall receive or be entitled to
receive physical delivery of common shares, except in the
limited circumstances set forth in the indenture.
We will agree to take all such actions and obtain all such
approvals and registrations, including, without limitation, the
specific registrations with the relevant authority, with respect
to the conversion of the notes into our common shares.
We will deliver cash in lieu of any fractional common shares
issuable in connection with payment of the amounts above (based
on the last reported sale price of the common shares on the last
day of the applicable observation period).
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
common shares underlying their notes; or
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holders of common shares are not eligible to participate in the
relevant transaction described below.
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Adjustment
Events.
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(1)
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If we issue our common shares as a dividend or distribution on
common shares (including a common share bonus or as a result of
the capitalization of profits or reserves), or if we effect a
common share split or common 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 ex-dividend
date for such dividend or distribution, or the effective date of
such common share split or common share combination, as the case
may be;
CR´ = the conversion rate in effect immediately
after the opening of business on the ex-dividend date for such
dividend or distribution, or the effective date of such common
share split or common share combination, as the case may be;
OS0=
the number of common shares outstanding immediately prior to the
ex-dividend date for such dividend or distribution, or the
effective date of such common share split or common share
combination, as the case may be; and
OS´ = the number of common shares outstanding
immediately after the opening of business on the ex-dividend
date for such dividend or distribution, or the effective date of
such common share split or common share combination, as the case
may be.
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(2)
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If we distribute to all or substantially all holders of our
common 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 common shares, at a price per common
share less than the last reported sale price of our common
shares on the trading day
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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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where,
CR0=
the conversion rate in effect immediately prior to the
ex-dividend date for such distribution;
CR´ = the conversion rate in effect immediately after
the opening of business on the ex-dividend date for such
distribution;
OS0=
the number of common shares outstanding immediately prior to the
ex-dividend date for such distribution;
X = the total number of common shares issuable pursuant to
such rights or warrants; and
Y = the number of common shares equal to the aggregate
price payable to exercise such rights or warrants divided by the
average of the last reported sale prices of our common shares
over the ten consecutive
trading-day
period ending on the trading day immediately preceding the
ex-dividend date for such distribution.
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(3)
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If we distribute our share capital, evidences of our
indebtedness or other assets or property, or rights to acquire
our share capital or other securities, to all or substantially
all holders of our common 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
ex-dividend date for such distribution;
CR´ = the conversion rate in effect immediately after
the opening of business on the ex-dividend date for such
distribution;
SP0=
the average of the last reported sale prices of our common
shares over the ten consecutive
trading-day
period ending on the trading day immediately preceding the
ex-dividend date for such distribution; and
FMV = the fair market value (as determined by our board of
directors) of our share capital, evidences of indebtedness,
assets, property or rights distributed with respect to each
outstanding common share on the ex-dividend 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 share capital 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:
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;
53
FMV0=
the average of the last reported sale prices of the share
capital or similar equity interest distributed to holders of our
common shares applicable to one common 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 common
shares over the valuation period.
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)
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If we pay any cash dividend or distribution (other than the cash
portion of any distributions for which the conversion rate is
adjusted pursuant to paragraph (3) above) to all or
substantially all holders of our common shares (including as a
result of capital reductions and common share redemptions or
amortizations), 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
ex-dividend date for such dividend or distribution;
CR´ = the conversion rate in effect immediately after
the opening of business on the ex-dividend date for such
dividend or distribution;
SP0=
the average of the last reported sale prices of our common
shares over the ten consecutive
trading-day
period ending on the trading day immediately preceding the
ex-dividend date for such dividend or distribution; and
C = the full amount of such dividend or distribution per common
share we distribute to holders of our common shares.
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(5)
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If we or any of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common shares, if
(a) the cash and value of any other consideration included
in the payment per common share exceeds (b) the last
reported sale price of our common shares on the trading day
immediately following the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer,
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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x
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AC+(SP´-OS´)
OS0
x 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 common shares purchased in such tender or exchange
offer;
OS0= the
number of common shares outstanding immediately prior to the
date such tender or exchange offer expires;
OS´ = the number of common shares outstanding
immediately after the date such tender or exchange offer
expires; and
SP´ = the average of the last reported sale
prices of our common shares over the ten consecutive
trading-day
period commencing on the trading day immediately following the
date such tender or exchange offer expires.
54
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 common share combination) would result
in a decrease in the conversion rate, no adjustment to the
conversion rate will be made.
As used in this section, ex-dividend date means the
first date on which a sale of the common shares does not
automatically transfer the right to receive the relevant
issuance, dividend or distribution in question from the seller
of the common share to its buyer.
Except as stated herein and under Adjustment
to Conversion Rate upon Occurrence of a Fundamental
Change, we will not adjust the conversion rate for the
issuance of our common shares or any securities convertible into
or exchangeable for our common shares or the right to purchase
our common shares or such convertible or exchangeable securities.
Events that Will Not Result in
Adjustments. The applicable conversion rate will
not be adjusted, among other things:
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upon the issuance of any common 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 common shares under any such plan;
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upon the issuance of any common share, or any option, warrant,
right or exercisable, exchangeable or convertible security to
purchase our common shares, pursuant to any future agreements
entered into with suppliers of raw materials or machinery or
consideration or inducement to enter into such supply agreement,
except if such distribution is to all or substantially all
holders of our common shares;
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upon the issuance of any common shares or options or rights to
purchase those common 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 common 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 common 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 a common share. 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, with
respect to an offer to purchase by us to the holders, 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 common shares; or
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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 common shares would be
entitled to receive cash, securities or other property for their
common shares, you will be entitled thereafter to convert your
notes into:
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cash up to the aggregate principal amount thereof; and
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in lieu of common shares otherwise deliverable, the same type
(in the same proportions) of consideration received by holders
of our common shares in the relevant event (the reference
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property), subject to our right to deliver cash in lieu of
all or a portion of the reference property in accordance with
the applicable procedures set forth under
Settlement upon Conversion.
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The amount of cash and any reference property you receive will
be based on the daily conversion values of the reference
property and the applicable conversion rate, as described above.
For purposes of the foregoing, the type and amount of
consideration that a holder of our common shares would have been
entitled to in the case of reclassifications, consolidations,
mergers, combination, sales or conveyances of assets or other
transactions that cause our common shares 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 common
shares that affirmatively make such an election.
If holders of notes would otherwise be entitled to receive, upon
conversion of the notes, any property (including cash) or
securities that would not constitute prescribed
securities for the purposes of
clause 212(1)(b)(vii)(E) of the Income Tax Act (Canada)
(referred to herein as ineligible consideration),
such holders shall not be entitled to receive such ineligible
consideration but we or the successor or acquirer, as the case
may be, shall have the right (at the sole option of us or the
successor or acquirer, as the case may be) to deliver either
such ineligible consideration or prescribed
securities for the purposes of
clause 212(1)(b)(vii)(E) of the Income Tax Act (Canada)
with a market value equal to the market value of such ineligible
consideration. In general, prescribed securities would include
our common shares and other shares which are not redeemable by
the holder within five years of the date of issuance of the
notes. Because of this, certain transactions may result in the
notes being convertible into prescribed securities that are
highly illiquid. This could have a material adverse effect on
the value of the notes. We agree to give notice to the holders
of notes at least 30 days prior to the effective date of
such transaction in writing and by release to a business
newswire stating the consideration into which the notes will be
convertible after the effective date of such transaction. After
such notice, we or the successor or acquirer, as the case may
be, may not change the consideration to be delivered upon
conversion of the note except in accordance with any other
provision of the indenture.
Treatment of Rights. To the extent that we
have a rights plan in effect upon conversion of the notes into
common shares, you will receive, in addition to the common
shares, the rights under the rights plan, unless prior to any
conversion, the rights have separated from the common shares, in
which case the conversion rate will be adjusted at the time of
separation as if we distributed to all holders of our common
shares, share capital, 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 common shares or rights to
purchase our common shares in connection with a dividend or
distribution of common shares (or rights to acquire common
shares) or similar event.
Tax Effect. A holder may, in some
circumstances, including the distribution of cash dividends to
holders of our common 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 the section entitled
Taxation Certain U.S. Federal Income Tax
Considerations Constructive Distributions.
Adjustment
to Conversion Rate upon Occurrence of a Fundamental
Change
If a fundamental change (as defined below under
Fundamental Change Requires Us to Make an
Offer to Purchase Notes), occurs prior to
December 24, 2012, and a holder elects to convert its notes
in connection with such transaction, 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 fundamental change if the notice of
conversion of the notes is received by the conversion agent
from, and
56
including, the effective date of the fundamental change up to,
and including, the business day immediately prior to the
fundamental change purchase date. Upon surrender of notes for
conversion in connection with a fundamental change we will
deliver common shares unless we have previously obtained consent
from holders as specified in Modifications and
Amendments in which case we will have the right to
deliver, in lieu of common shares, including the additional
common shares, cash or a combination of cash and common shares
as described under Conversion
Rights Settlement Upon Conversion.
Notwithstanding the foregoing, the holders will not be entitled
to an adjustment to the conversion rate upon the occurrence of a
fundamental change if at least 90% of the consideration for our
common 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 fundamental
change 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 fundamental change, and as a
result of such transaction or transactions the notes become
convertible solely into such securities.
In connection with an applicable fundamental change, we will
increase the conversion rate by the number of additional common
shares (the additional common shares) as determined
by reference to the table below, based on the date on which the
fundamental change occurs or becomes effective (the
effective date), and the price paid per common
share, translated, if necessary, into U.S. dollars at the
exchange rate in effect on such, in the fundamental change (the
common share price). If holders of our common shares
receive only cash in the fundamental change, the common share
price shall be the cash amount paid per common share,
translated, if necessary, into U.S. dollars at the exchange
rate in effect on the effective date of the fundamental change.
Otherwise, the common share price shall be the average of the
last reported sale prices of our common shares over the five
trading-day
period ending on the trading day preceding the effective date of
the fundamental change.
The common share 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 common share prices will equal the common share
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 common share price adjustment and the denominator of
which is the conversion rate as so adjusted. The number of
additional common shares 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 common share
price and the number of additional common shares to be received
per US$1,000 principal amount of notes:
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Common Share Price (US$)
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Effective Date
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$17.64
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$19.00
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$20.00
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$21.00
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$22.00
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$23.00
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$24.00
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$25.00
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$26.00
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$27.00
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$28.00
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$30.00
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$32.50
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$35.00
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December 10, 2007
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6.07
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2.93
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4.19
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3.53
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2.97
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2.49
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2.07
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1.73
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1.42
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1.15
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0.92
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0.56
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0.25
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0.07
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December 15, 2008
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6.07
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2.93
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4.19
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3.53
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2.97
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2.49
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2.07
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1.73
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1.42
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1.15
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0.92
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0.56
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0.25
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0.07
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December 15, 2009
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6.07
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2.93
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4.19
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3.53
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2.97
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2.49
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2.07
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1.71
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1.39
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1.11
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0.88
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0.52
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0.23
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0.06
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December 15, 2010
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6.07
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2.93
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4.19
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3.53
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2.92
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2.38
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1.94
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1.56
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1.25
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0.98
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0.76
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0.43
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0.17
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0.02
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December 15, 2011
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6.07
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2.93
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4.05
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3.23
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2.46
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1.94
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1.53
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1.19
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0.92
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0.69
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0.51
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0.25
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0.07
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0.00
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December 24, 2012
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6.07
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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0.00
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The exact common share prices and effective dates may not be set
forth in the table above, in which case:
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If the common share price is between two common share price
amounts in the table or the effective date is between two
effective dates in the table, the number of additional common
shares will be determined by a straight-line interpolation
between the number of additional common shares set forth for the
higher and lower common share price amounts and the two dates,
as applicable, based on a
365-day year.
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If the common share price is greater than US$35.00 (subject to
adjustment), the conversion rate will not be adjusted.
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If the common share price is less than US$17.64 (subject to
adjustment), the conversion rate will not be adjusted.
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57
Notwithstanding the foregoing, in no event will the total number
of common shares issuable upon conversion exceed 56.6773 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.
Optional
Redemption by Us
We may not redeem the notes prior to December 24, 2012,
except as described under Tax
Redemption. At any time on or after December 24,
2012, we may redeem for cash all 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 (i) in
whole or in part, if the last reported sale price
(as defined above under Conversion
Rights General) of our common shares 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 common share in effect on such trading date or (ii) in
whole only, if at least 95% of the initial aggregate principal
amount of the notes originally issued have been redeemed,
converted or repurchased and, in each case, cancelled. 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. We will give
at least 20 days and no more than 60 days notice of
such redemption.
You may convert notes or portions of notes called for redemption
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 December 24, 2012 and December 15, 2014, 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.
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.
58
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, Form CB,
Form F-X
or any successor or similar schedule or form, 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 the section entitled Risk
Factors Risks Related to the Notes We
may not be able to raise the funds necessary to repay the notes
when due, finance a fundamental change, purchase the notes on
specified dates or make the payments due upon conversion, if
any. 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 Requires Us to Make an Offer to Purchase Notes
If a fundamental change (as defined below) occurs at any time,
we will be required to make you an offer 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
59
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.
A fundamental change will be deemed to have occurred
upon a change in control.
A change in control means any of the following
events:
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(i)
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a person or group within the meaning of
Section l3(d)(3) of the Exchange Act files a Schedule TO or
any schedule, form or report under the Exchange Act disclosing
that such person or group has become the direct or indirect
beneficial owner, as defined in
Rule 13d-3
under the Exchange Act, of our common shares representing more
than 50% of the voting power of our common shares entitled to
vote generally in the election of directors but with respect to
Dr. Shawn Qu and his Affiliated Entities, representing more
than 60%; or
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(ii)
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the first day on which a majority of the members of our board of
directors does not consist of continuing directors (as defined
below); or
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(iii)
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a consolidation, merger or binding share exchange (other than
any such transaction (a) that does not result in any
reclassification, conversions, exchange or cancellation of
outstanding common shares, and (b) pursuant to which
holders of our common shares immediately before the transaction
have the entitlement to exercise, directly or indirectly, 50% or
more of the total voting power of all common shares entitled to
vote generally in elections of directors of the continuing or
surviving or successor person immediately after giving effect to
such issuance), or any conveyance, transfer, sale, lease or
other disposition of all or substantially all of our properties
and assets to another person; or
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(iv)
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our shareholders approve any plan or proposal for our
liquidation.
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For purposes of defining a fundamental change:
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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;
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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
common shares 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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the term Affiliated Entities means Dr. Shawn Qu
and his estates, spouses, ancestors and lineal descendants (and
spouses thereof), the legal representatives of any of the
foregoing, and the trustee of any bona fide trust of which one
or more of the foregoing are sole beneficiaries or the grantors,
or any person of which any of the forgoing, individually or
collectively, beneficially own voting securities representing at
least a majority of the total voting power of all classes of
share capital of such person (exclusive of any matters as to
which class voting rights exist); and
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the term continuing directors means as of any date
of determination, any individual who on the date of the
indenture was a member of the board of directors, together with
any directors whose election, or, solely to fill the vacancy of
a continuing director, appointment by the board or whose
nomination for election by our shareholders is duly approved by
the vote of a majority of the directors on the board (or such
lesser number comprising a majority of a nominating committee if
authority for such nominations or elections has been delegated
to a nominating committee whose authority and composition have
been approved by at least a majority of the directors who were
continuing directors
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at the time such committee was formed) then still in office who
were either directors on the date of the indenture or whose
election, appointment (in the case of a vacancy of a continuing
director), or nomination for election was previously approved by
a majority of the continuing directors, either by specific vote
or by approval of the proxy statement issued by us in which such
individual is named as a nominee for director.
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Notwithstanding the foregoing, in the case of a consolidation or
merger, it will not constitute a change in control if at least
90% of the consideration for our common 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 consolidation or merger
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 consolidation or
merger the notes become convertible solely into such securities.
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 accept the purchase offer;
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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
acceptance notice has been delivered by a holder may be
converted only if the holder withdraws the fundamental change
acceptance notice in accordance with the terms of the
indenture; and
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the procedures that holders must follow to accept our offer 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 accept the offer to purchase, you must deliver, on or before
the fifth business day prior to the fundamental change purchase
date, a written acceptance notice to the paying agent. Your
acceptance 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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If the notes are not in certificated form, a holder wishing to
exercise this offer to purchase must comply with the applicable
procedures of the DTC.
You may withdraw any acceptance 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 acceptance notice.
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If the notes are not in certificated form, a holder must comply
with the applicable procedures of the DTC in order to withdraw
its notes.
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, Form CB,
Form F-X
or any successor or similar schedule or form, 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 acceptance 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 acceptance 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.
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 the
section entitled Risk Factors Risks Related to
the Notes We may not be able to raise the funds
necessary to repay the notes when due, finance a fundamental
change, purchase the notes on specified dates or make the
payments due upon conversion, if any. 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 make an offer to purchase the notes
when required following a fundamental change or fail to pay any
fundamental change purchase price on the fundamental change
purchase date, 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.
62
Tax
Redemption
If as a result of any change in or amendment to the statutes (or
any rules or regulations thereunder) of a Relevant Taxing
Jurisdiction (as defined above under
Additional Amounts), or any amendment to
or change in an official interpretation, administration or
application of such statutes, rules or regulations (including a
holding by a court of competent jurisdiction), which change or
amendment becomes effective or, in the case of a change in
official interpretation, is announced on or after the issue date
of the notes or, in the case of a successor, on or after the
date the successor assumes the obligations under the notes, we
or our successor has or will become obligated to pay Additional
Amounts as described above under Additional
Amounts, we or our successor may, at our or its option,
redeem all, but not less than all, of the notes, for cash at a
redemption price equal to 100% of their principal amount,
together with accrued and unpaid interest to, but excluding, the
date fixed for redemption and Additional Amounts, if any, upon
giving irrevocable notice not less than 20 days nor more
than 60 days prior to the date fixed for redemption (a
tax redemption). 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 Additional Amounts, if any. No notice of
such tax redemption may be given earlier than 60 days prior
to the earliest date on which we or any such successor would,
but for such tax redemption, be obligated to pay the Additional
Amounts. Notwithstanding the foregoing, we or any such successor
shall not have the right to so redeem the notes unless we have
or it has taken reasonable measures to avoid the obligation to
pay Additional Amounts.
In the event that we or any successor elects to so redeem the
notes, we or it will deliver to the trustee: (1) a
certificate, signed in our name or our successors name by
any two of our or its executive officers or by our or its
attorney in fact in accordance with our or its bylaws, stating
that we or our successor is entitled to redeem the notes
pursuant to their terms and setting forth a statement of facts
showing that the condition or conditions precedent to our right
or the right of any successor to so redeem have occurred or been
satisfied including, that we cannot avoid payment of such
Additional Amounts by taking reasonable measures available to us
or it and that all governmental requirements necessary for us or
any successor to effect the redemption have been complied with;
and (2) an opinion of counsel, who is acceptable to the
trustee, to the effect that we or our successor has or will
become obligated to pay Additional Amounts as a result of the
change or amendment.
Notwithstanding the foregoing, if we have or our successor has
given notice of a tax redemption as described above, each holder
of notes will have the right to elect that such holders
notes will not be subject to such tax redemption. If a holder
elects not to be subject to a tax redemption, we or our
successor will not be required to pay Additional Amounts with
respect to payments made in respect of such holders notes
following the date fixed for redemption, and all subsequent
payments in respect of such holders notes will be subject
to any tax required to be withheld or deducted under the laws of
a Relevant Taxing Jurisdiction. The obligation to pay Additional
Amounts to any electing holder for periods up to the date fixed
for redemption will remain subject to the exceptions set forth
above under Additional Amounts. Holders
must exercise their option to elect to avoid a tax redemption by
written notice to the trustee no later than the 15th day
prior to the date fixed for redemption.
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 is a person organized and existing under the laws of the
United States of America, any State thereof or the District of
Columbia or the laws of Canada or any province or territory
thereof, and such person (if not 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.
63
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:
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(1)
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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;
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(2)
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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;
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(3)
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our failure to comply with our obligations to convert the notes
into common shares, cash or a combination of cash and common
shares, as applicable, upon exercise of a holders
conversion right;
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(4)
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our failure to make an offer upon a fundamental change;
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(5)
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our failure to issue a fundamental change notice, in accordance
with the terms of the indenture;
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(6)
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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;
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(7)
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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$5 million (or its
equivalent in any other currency or currencies) 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 or being declared
due and payable, and such acceleration shall not have been
rescinded or annulled within 30 days after written notice
of such acceleration has been received by us or such
subsidiary; or
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(8)
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certain events of bankruptcy, insolvency, or reorganization with
respect to us or any of our significant subsidiaries
(collectively, the bankruptcy provisions).
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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 CSI Solartronics (Changshu) Ltd., CSI Solar Manufacture
Inc., CSI Solar Technologies Inc., CSI Central Solar Power Co.,
Ltd., CSI Solarchip International Co., Ltd. and Changshu CSI
Advanced Solar Inc., and any of their respective successors
shall at all times be significant subsidiaries.
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
64
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:
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(1)
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such holder has previously given the trustee written notice that
an event of default is continuing;
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(2)
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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;
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(3)
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such holders have offered the trustee security or indemnify
satisfactory to it against any loss, liability or expense;
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(4)
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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
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(5)
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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.
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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 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
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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:
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(1)
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reduce the percentage in aggregate principal amount of notes the
holders of which must consent to an amendment;
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(2)
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reduce the rate, or extend the stated time for payment, of
interest on any note;
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(3)
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reduce the principal amount, or extend the stated maturity, of
any note;
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(4)
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change the place or currency of payment of principal or interest
in respect of any note;
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(5)
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make any change that adversely affects the conversion rights of
any notes, including any change to the provisions described
under Conversion Rights;
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(6)
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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;
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(7)
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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;
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(8)
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make any change in the amendment provisions which require each
holders consent or in the waiver provisions; or
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(9)
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change our obligation to pay additional amounts.
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Notwithstanding the foregoing, with the consent of at least 25%
of holders, we and the trustee may amend the indenture to permit
settlement upon conversion in cash or any combination of cash
and common shares as specified in Conversion
Rights Settlement Upon Conversion.
Notwithstanding the foregoing, without the consent of any
holder, we and the trustee may amend the indenture to, among
other things:
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(1)
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cure any ambiguity, omission, defect or inconsistency;
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(2)
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provide for the assumption by a successor corporation,
partnership, trust or limited liability company of our
obligations as permitted under the indenture;
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(3)
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add guarantees with respect to the notes;
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(4)
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secure the notes;
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(5)
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add to our covenants for the benefit of the holders or surrender
any right or power conferred upon us;
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(6)
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increase the conversion rate or interest rate on the notes;
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(7)
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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 resale
registration rights agreement or the qualification of the
indenture under the Trust Indenture Act of 1939;
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(8)
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evidence and provide for the acceptance of the appointment of a
successor trustee under the indenture; or
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(9)
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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.
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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
66
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 common
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 the
Companys expense at their respective addresses in the
register of the Notes. Any such notice shall be deemed to have
been given on the later of such publication and the seventh day
after being so mailed.
Trustee
The Bank of New York is the trustee, registrar and conversion
agent and the paying agent.
Governing
Law and Submission to Jurisdiction
The indenture provides that it and the notes will be governed
by, and construed in accordance with, the laws of the State of
New York.
Each of the parties to the indenture will submit 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, N.Y. 10011, as our authorized agent upon which
process may be served in any such action.
Listing
And Trading
Prior to this offering, the notes have been eligible for trading
in the PORTAL
Marketsm.
Notes sold by means of this prospectus will not remain eligible
for trading in the PORTAL
Marketsm.
We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq Global Market. Our common
stock is quoted on the Nasdaq Global Market under the symbol
CSIQ.
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
67
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 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.
Resale
Registration Rights
The following summary of the resale registration rights provided
in the resale registration rights agreement is not complete.
Holders should refer to the resale registration rights agreement
for a full description of the resale registration rights that
apply to the notes.
To the extent a holder receives common shares upon conversion of
notes that are not restricted common shares, such common shares
may be sold over the Nasdaq Global Market without needing to
rely on the resale shelf registration statement described below.
The notes and any common shares issuable upon conversion of the
notes are referred to collectively as registrable
securities. Pursuant to the resale registration rights
agreement, we have filed the shelf registration statement
related to this prospectus to meet our obligations under the
resale registration rights agreement. We will use our
commercially reasonable efforts to keep the shelf registration
statement, of which this prospectus is a part, effective until
the earliest of:
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(1)
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two years from the latest date of original issuance of the notes;
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(2)
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the date when all registrable securities shall have been
registered under the Securities Act and disposed of;
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(3)
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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
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(4)
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the date on which the registrable securities cease to be
outstanding.
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If we notify the holders in accordance with the resale
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, and while our obligation under the registration rights
agreement to maintain an effective shelf registration rights
agreement remains in effect, 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 common share 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
60 days in the aggregate in any consecutive
12-month
period because either (i) any event occurs as a result of
which the prospectus
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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 our
reasonable discretion, makes it appropriate to suspend the
availability of a shelf registration statement and the related
prospectus (each such event, a resale registration
default), additional interest will accrue on the notes,
from and including the date on which the resale registration
default shall occur to but excluding the date on which all such
resale 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
resale 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 resale registration default. If
a holder has converted some or all of its notes into common
shares, the holder will not be entitled to receive any
additional interest with respect to such common shares or the
principal amount of the notes converted.
Attached to the offering memorandum, dated December 4,
2007, related to the private placement of the notes or otherwise
made available by us to holders, is a form of notice and
questionnaire to be completed and delivered by a holder of notes
prior to any intended distribution of registrable securities
pursuant to the shelf registration statement. Holders will need
to complete a notice and questionnaire if they wish to have
their registrable securities covered by the shelf registration
statement and related prospectus. Each holder wishing to be
named as a selling securityholder and sell its registrable
securities pursuant to the shelf registration statement and
related prospectus after the date the shelf registration
statement related to this prospectus is declared effective must
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.
Pursuant to the registration rights agreement, each holder must
indemnify us for certain losses in connection with the shelf
registration statement.
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DESCRIPTION
OF SHARE CAPITAL
We are a Canadian corporation, and our affairs are governed by
our articles of continuance, as amended from time to time (the
articles), bylaws as effective from time to time,
and the CBCA.
As of the date of this prospectus, our authorized share capital
consists of an unlimited number of common shares. As of the date
of this prospectus, 27,320,389 common shares were issued and
outstanding.
The following summary description of our share capital does not
purport to be complete and is qualified in its entirety by
reference to our articles and our amended bylaws. If you would
like more information on our common shares, you should review
our articles and bylaws and the CBCA.
Common
Shares
General
All of our common shares are fully paid and non-assessable. Our
common shares are issued in registered form and may or may not
be certificated although every shareholder is entitled at their
option to a share certificate that complies with the CBCA. There
are no limitations on the rights of shareholders who are not
residents of Canada to hold and vote common shares.
Dividends
Holders of our common shares are entitled to receive, from funds
legally available therefor, dividends when and as declared by
the board of directors. The CBCA restricts the directors
ability to declare, and our ability to pay, dividends by
requiring that certain solvency tests be satisfied at the time
of such declaration and payment. See the section entitled
Shareholders Rights Sources
of Dividends.
Voting
Rights
Each common share is entitled to one vote on all matters upon
which the common shares are entitled to vote.
Liquidation
With respect to a distribution of assets in the event of our
liquidation, dissolution or
winding-up,
whether voluntary or involuntary, or any other distribution of
our assets for the purposes of winding up our affairs, assets
available for distribution among the holders of common shares
shall be distributed among the holders of the common shares on a
pro rata basis.
Variations
of Rights of Shares
All or any of the rights attached to our common shares, or any
other class of shares duly authorized may, subject to the
provisions of the CBCA, be varied either with the unanimous
written consent of the holders of the issued shares of that
class or by a special resolution passed at a meeting of the
holders of the shares of that class.
Preferred
Shares
Our board of directors has the authority, without shareholder
approval, to issue an unlimited number of preferred shares in
one or more series. Our board of directors may establish the
number of shares to be included in each such series and may set
the designations, preferences, powers and other rights of the
shares of a series of preferred shares. While the issuance of
preferred shares provides us with flexibility in connection with
possible acquisitions or other corporate purposes, it could,
among other things, have the effect of delaying, deferring or
preventing a change of control transaction and could adversely
affect the market price of our common shares and the notes
offered in this prospectus. We have no current plan to issue any
preferred shares.
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Transfer
Agent and Registrar
The Bank of New York is the transfer agent and registrar for our
common shares. The Bank of New Yorks address is One Wall
Street, New York, New York 10286.
Shareholders
Rights
The CBCA and our articles and bylaws govern us and our relations
with our shareholders. The following is a summary of certain
rights of holders of our common shares under the CBCA. This
summary is not intended to be complete and is qualified in its
entirety by reference to our articles and bylaws.
Stated
Objects or Purposes
Our articles do not contain any stated objects or purposes and
do not place any limitations on the business that we may carry
on.
Shareholder
Meetings
We must hold an annual meeting of our shareholders at least once
every year at a time and place determined by our board of
directors, provided that the meeting must not be held later than
15 months after the preceding annual meeting or later than
six months after the end of our preceding financial year. A
meeting of our shareholders may be held at a place within Canada
determined by our directors or, if determined by our directors,
in New York, New York, United States of America, Los Angeles,
California, United States of America, London, England, the Hong
Kong Special Administrative Region of The Peoples Republic
of China or Shanghai, The Peoples Republic of China.
Voting at any meeting of shareholders is by show of hands unless
a poll or ballot is demanded. A poll or ballot may be demanded
by the chairman of our board of directors or by any shareholder
present in person or by proxy.
A special resolution is a resolution passed by not less than
two-thirds of the votes cast by the shareholders entitled to
vote on the resolution at a meeting at which a quorum is
present. An ordinary resolution is a resolution passed by not
less than a simple majority of the votes cast by the
shareholders entitled to vote on the resolution at a meeting at
which a quorum is present.
Notice
of Meeting of Shareholders
Our bylaws provide that written notice stating the place, day
and time of a shareholder meeting and the purpose for which the
meeting is called, shall be delivered not less than 21 days
nor more than 60 days before the date of the meeting.
Quorum
Under the CBCA, unless a corporations bylaws provide
otherwise, a quorum is present at a meeting of the shareholders,
irrespective of the number of shareholders actually present at
the meeting, if the holders of a majority of the shares entitled
to vote at the meeting are present in person or represented by
proxy. Our bylaws provide that a quorum shall be at least two
shareholders entitled to vote at the meeting represented in
person or by proxy and holding at least one-third of our total
issued and outstanding common shares.
Record
Date for Notice of Meeting of Shareholders
Our directors may fix in advance a date as the record date for
the determination of shareholders entitled to receive notice of
a meeting of shareholders, but such record date shall not
precede by more than 60 days or by less than 21 days
the date on which the meeting is to be held. If no record date
is fixed, the record date for the determination of shareholders
entitled to receive notice of a meeting of shareholders shall be
at the close of business on the day immediately preceding the
day on which the notice is given or, if no notice is given, the
day on which the meeting is held. If a record date is fixed,
notice thereof shall be given, not less than seven days before
the date so fixed by
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newspaper advertisement in the manner provided by the CBCA and
by written notice to each stock exchange in Canada on which our
shares are listed for trading.
Ability
to Requisition Special Meetings of the
Shareholders
The CBCA provides that the holders of not less than five percent
of the issued shares of a corporation that carry the right to
vote at a meeting sought to be held may give notice to the
directors requiring them to call a meeting.
Shareholder
Proposals
A shareholder entitled to vote at a meeting of shareholders who
has held common shares with a fair market value of at least
C$2,000 for at least six months may submit to us notice of a
proposal and discuss at the meeting any matter in respect of
which the shareholder would have been entitled to submit a
proposal. A proposal may include nominations for the election of
directors if the proposal is signed by one or more holders of
shares representing in the aggregate not less than five percent
of the shares entitled to vote at the meeting to which the
proposal is to be presented. This requirement does not preclude
nominations being made at a meeting of shareholders. The
proposal must be submitted to us at least 90 days before
the anniversary date of the notice of meeting that was sent to
shareholders in connection with the last annual meeting.
Vote
Required for Extraordinary Transactions
Under the CBCA, certain extraordinary corporate actions are
required to be approved by special resolution. Such
extraordinary corporate actions include:
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amendments to articles;
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arrangements;
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amalgamations other than amalgamations involving a holding body
corporate, one or more wholly owned subsidiaries
and/or one
or more sister corporations;
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continuances under the laws of another jurisdiction;
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voluntary dissolutions; and
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sales, leases or exchanges of all or substantially all the
property of a corporation other than in the ordinary course of
business.
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Related
Party Transactions
The CBCA does not prohibit related party transactions.
Dissent
Rights
The CBCA provides that our shareholders are entitled to exercise
dissent rights and demand payment of the fair value of their
shares in certain circumstances. For this purpose, there is no
distinction between listed and unlisted shares. Dissent rights
exist when we resolve to:
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amalgamate with a corporation other than a holding body
corporate, one or more wholly owned subsidiaries
and/or one
or more sister corporations;
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amend the our articles of incorporation to add, change or remove
any provisions restricting the issue, transfer or ownership of
shares;
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amend the ours articles to add, change or remove any restriction
upon the business or businesses that the we may carry on;
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continue under the laws of another jurisdiction;
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sell, lease or exchange of all or substantially all our property
other than in the ordinary course of business; or
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carry out a going-private or squeeze-out transaction.
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In addition, a court order in connection with an arrangement
proposed by us may permit shareholders to dissent if the
arrangement is adopted.
However, a shareholder is not entitled to dissent if an
amendment to the articles of incorporation is effected by a
court order approving a reorganization or by a court order made
in connection with an action for an oppression remedy.
Action
by Written Consent
Under the CBCA, shareholders can take action by written
resolution and without a meeting only if all shareholders sign
the written resolution.
Directors
Number
of Directors and Election
Under the CBCA the number of directors of a corporation must be
specified in the corporations articles. The articles may
provide for a minimum and maximum number of directors.
Our articles provide that the number of directors will not be
less than three or more than ten. Our board of directors
currently consists of six directors.
Our articles provide that our board of directors shall fix and
may change the number of directors within the minimum and
maximum number of directors provided for in our articles. In
addition, our board of directors may appoint one or more
additional directors, who shall hold office for a term expiring
not later than the close of the next annual meeting of
shareholders, but the total number of directors so appointed may
not exceed one-third of the number of directors elected at the
previous annual meeting of shareholders.
Shareholders of a corporation governed by the CBCA elect
directors by ordinary resolution at each annual meeting of
shareholders at which such an election is required.
Director
Qualifications
Under the CBCA, at least 25% of the directors must be Canadian
residents. A director must not be:
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under eighteen years of age;
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adjudicated as mentally unsound;
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a person that is not an individual; or
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a person who has the status of a bankrupt.
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Removal
of Directors; Staggered Term
Under the CBCA, a corporations shareholders may remove at
a special meeting any director before the expiration of his or
her term of office and may elect any qualified person in such
directors stead for the remainder of such term by ordinary
resolution.
Under the CBCA, directors may be elected for a term expiring not
later than the third annual meeting of shareholders following
the election. If no term is specified, a directors term
expires at the next annual meeting of shareholders. A director
may be nominated for re-election to the board of directors at
the end of the directors term.
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Vacancies
on the Board of Directors
Under the CBCA, vacancies that exist on the board of directors,
except a vacancy resulting from an increase in the number or the
minimum or maximum number of directors or a failure to elect the
number or minimum number of directors provided for in the
articles, may be filled by the board if the remaining directors
constitute a quorum. In the absence of a quorum, the remaining
directors shall call a meeting of shareholders to fill the
vacancy.
Limitation
of Personal Liability of Directors and Officers
Under the CBCA, in exercising their powers and discharging their
duties, directors and officers must act honestly and in good
faith with a view to the best interests of the corporation and
exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances. No provision
in the corporations articles, bylaws, resolutions or
contracts can relieve a director or officer from the duty to act
in accordance with the CBCA or relieve a director from liability
for a breach thereof. However, a director will not be liable for
breaching his or her duty to act in accordance with the CBCA if
the director relied in good faith on:
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financial statements represented to him by an officer or in a
written report of the auditor to fairly reflect the financial
condition of the corporation; or
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a report of a person whose profession lends credibility to a
statement made by such person.
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Indemnification
of Directors and Officers
Under the CBCA and pursuant to our bylaws, we may indemnify any
present or former director or officer or an individual who acts
or acted at our request as a director or officer, or an
individual acting in a similar capacity, of another entity,
against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably
incurred by such individual in respect of any civil, criminal,
administrative, investigative or other proceeding in which the
individual is involved because of that association with the
corporation or other entity. In order to qualify for
indemnification such director or officer must:
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have acted honestly and in good faith with a view to our best
interests, or, as the case may be, to the best interests of the
other entity for which he or she acted as director or officer or
in a similar capacity at our request; and
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in the case of a criminal or administrative action or proceeding
enforced by a monetary penalty, have had reasonable grounds for
believing that his or her conduct was lawful.
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Indemnification will be provided to an eligible director or
officer who meets both these tests and was substantially
successful on the merits in his or her defense of the action.
A director or officer is entitled to indemnification from us as
a matter of right if he or she is not judged by the court or
other competent authority to have committed any fault or omitted
to do anything that the individual ought to have done and
fulfilled the conditions set forth above.
Sources
of Dividends
Dividends may be declared at the discretion of the board of
directors. Under the CBCA, the directors may not declare, and we
may not pay, dividends if there are reasonable grounds for
believing that (i) we are, or would after such payment be
unable to pay our liabilities as they become due or
(ii) the realizable value of our assets would be less than
the aggregate of our liabilities and of our stated capital of
all classes of shares.
Amendments
to the Bylaws
The directors may by resolution make, amend or repeal any bylaw
unless the articles or bylaws provide otherwise. Our articles
and bylaws do not restrict the power of our directors to make,
amend or repeal bylaws. When the directors make, amend or repeal
a bylaw, they are required under the CBCA to submit the change
to the shareholders at the next meeting of shareholders.
Shareholders may confirm, reject or amend the bylaw, amendment
or repeal by ordinary resolution.
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Interested
Directors Transactions
Under the CBCA, if a director or officer has a material interest
in a material contract or transaction, the director generally
may not vote on any resolution to approve the contract or
transaction, but the contract is not void or voidable by reason
only of the relationship if such interest is disclosed in
accordance with the requirements set out in the CBCA, the
contract is approved by the other directors or by the
shareholders and the contract was fair and reasonable to the
corporation at the time it was approved.
Where a director or officer has an interest in a material
contract or transaction or a proposed material contract or
transaction that, in the ordinary course of the
corporations business, would not require approval by the
directors or shareholders, the interested director or officer
shall disclose in writing to the corporation or request to have
entered in the minutes of meetings of directors, the nature and
the extent of the interest forthwith after the director or
officer becomes aware of the contract or transaction or proposed
contract or transaction.
Committees
Under the CBCA, directors of a corporation may appoint from
their number a committee of directors and delegate to such
committee certain powers of the directors.
Derivative
Actions
Under the CBCA, a complainant (as defined below) may apply to
the court for leave to bring an action in the name of and on
behalf of a corporation or any of its subsidiaries, or to
intervene in an existing action to which such body corporate is
a party for the purpose of prosecuting, defending or
discontinuing the action. A complainant includes a present or
former shareholder, a present or former officer or director of
the corporation or any of its affiliates, or any other person
who in the discretion of the court is a proper person to make
such an application. Under the CBCA, no action may be brought
and no intervention in an action may be made unless the
complainant has given 14 days notice to the directors
of the corporation or its subsidiary of the complainants
intention to apply to the court. The court must be satisfied
that:
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the complainant is acting in good faith; and
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it appears to be in the interests of the corporation or its
subsidiary that the action be brought, prosecuted, defended or
discontinued.
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Under the CBCA, the court in a derivative action may make any
order it thinks fit, including orders pertaining to the conduct
of the action, the making of payments to former and present
shareholders and payment of reasonable legal fees incurred by
the complainant.
Oppression
Remedy
The CBCA provides an oppression remedy that enables a court to
make any order it thinks fit to rectify the matters complained
of, if the court is satisfied upon application of a complainant
(as defined below) that:
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any act or omission of the corporation or any of its affiliates
effects a result;
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the business or affairs of the corporation or any of its
affiliates are or have been conducted in a manner; or
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the powers of the directors of the corporation or any of its
affiliates are or have been exercised in a manner,
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that is oppressive or unfairly prejudicial to or that unfairly
disregards the interests of any security holder, creditor,
director or officer of the corporation.
A complainant for this purpose includes a present or former
shareholder, a present or former officer or director of ours or
any of our affiliates, the director appointed under the CBCA and
any other person who in the discretion of the court is a proper
person to make such an application.
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The exercise of the courts jurisdiction does not depend on
a finding of a breach of such legal and equitable rights.
Furthermore, the court may order a corporation to pay the
interim costs of a complainant seeking an oppression remedy, but
the complainant may be held accountable for such interim costs
on final disposition of the complaint.
Inspection
of Books and Records
Under the CBCA, our shareholders and creditors and, their
personal representatives may examine, free of charge during
normal business hours:
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our articles, bylaws and all amendments thereto;
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the minutes and resolutions of shareholders;
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copies of all notices of directors filed under the CBCA; and
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our securities register.
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Any of our shareholders may request a copy of the articles,
bylaws and all amendments thereto free of charge.
Exchange
Controls
Canada has no system of exchange controls. There are no Canadian
restrictions on the repatriation of capital or earnings of a
Canadian public company to non-resident investors. There are no
laws of Canada or exchange restrictions affecting the remittance
of dividends or similar payments to non-resident holders of our
common shares, except as described under
Taxation Canadian Federal Income Tax
Considerations.
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ENFORCEABILITY
OF CIVIL LIABILITIES
We were incorporated as an Ontario corporation in October 2001
and were continued as a Canadian corporation under the CBCA in
June 2006.
We are a corporation organized under the federal laws of Canada.
Most of our directors and officers and some of the experts named
in this prospectus reside principally outside the United States.
Because these persons are located outside the United States, it
may not be possible for you to effect service of process within
the United States upon those persons. Furthermore, it may not be
possible for you to enforce against us or them, in the United
States, judgments obtained in U.S. courts, because all or a
substantial portion of our assets and the assets of those
persons are located outside the United States. We have been
advised by WeirFoulds LLP, our Canadian counsel, that there are
defenses that can be raised to the enforceability, in original
actions in Canadian courts, of liabilities based upon the
U.S. federal securities laws and to the enforceability in
Canadian courts of judgments of U.S. courts obtained in
actions based upon the civil liability provisions of
U.S. federal securities laws, such that the enforcement in
Canada of such liabilities and judgments is not certain.
Therefore, it may not be possible to enforce those actions
against us, our directors and officers or the experts named in
this prospectus.
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 us or 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.
Chen & Co. Law Firm, our counsel as to PRC law, has
advised us that there is uncertainty as to whether the courts of
the PRC 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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Chen & Co. Law Firm 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. China does not
have any treaties or other arrangements that provide for the
reciprocal recognition and enforcement of foreign judgments with
the United States or Canada. As a result, it is generally
difficult to recognize and enforce in China a judgment rendered
by a court in either of these two jurisdictions.
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TAXATION
Certain
U.S. Federal Income Tax Considerations
The following discussion is a summary of certain
U.S. federal income tax considerations to U.S. Holders
(as defined below) of the purchase, ownership and disposition of
notes and common shares into which the notes may be converted.
This summary is based on the tax laws of the United States as in
effect on the date of this prospectus and on U.S. Treasury
regulations in effect or, in some cases, proposed, as of the
date of this prospectus, as well as judicial and administrative
interpretations thereof available on or before such date. All of
the foregoing authorities are subject to change, which change
could apply retroactively and could affect the tax consequences
described below. Except where noted, this summary deals only
with notes held as capital assets by U.S. Holders and with
common shares received by such U.S. Holders upon conversion
of such notes and held as capital assets. This summary does not
address all aspects of U.S. federal income taxes and does
not deal with all tax consequences that may be relevant to
holders in light of their personal circumstances or particular
situations, such as:
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tax consequences to holders who may be subject to special tax
treatment, including dealers in securities or currencies,
financial institutions, regulated investment companies, real
estate investment trusts, tax-exempt entities, insurance
companies, or traders in securities that elect to use a
mark-to-market method of accounting for their securities;
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tax consequences to holders holding notes or common shares as a
part of a hedging, integrated or conversion transaction or a
straddle or persons deemed to sell notes or common shares under
the constructive sale provisions of the Internal Revenue Code of
1986, as amended (the Code);
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tax consequences to holders of notes or common shares whose
functional currency is not the U.S. dollar;
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tax consequences to holders of notes or common shares that own,
actually or constructively, 10% or more of our common shares;
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tax consequences to investors in partnerships or other
pass-through entities;
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alternative minimum tax consequences, if any;
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any state, local or
non-U.S. tax
consequences; and
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any estate or gift tax consequences.
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If a partnership (or other entity treated as a partnership for
U.S. federal income tax purposes) holds notes or common
shares, the tax treatment of a partner will generally depend
upon the status of the partner and the activities of the
partnership. Partners in partnerships (or other entities treated
as partnerships for U.S. federal income tax purposes)
holding the notes or common shares should consult their tax
advisors.
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE
APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR
PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND
NON-U.S. TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF NOTES AND COMMON SHARES.
As used herein, the term U.S. Holder means a
beneficial owner of notes or common shares received upon
conversion of the notes that is, 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 (or any other entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
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an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust, if it (i) 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 (ii) has a valid election in
effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
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Payment
of Interest
Interest on a note will generally be taxable to a
U.S. Holder as ordinary income at the time it is paid or
accrued in accordance with the U.S. Holders method of
accounting for tax purposes. Interest income on a note generally
will constitute foreign source income and generally will
constitute passive category income or, in the case
of certain U.S. Holders, general category
income.
Additional
Interest
We may be required to pay additional interest in certain
circumstances described above under the heading
Description of Notes Additional Amounts.
We believe (and the rest of this discussion assumes) there is
only a remote possibility that we will be obligated to make any
such additional payments on the notes, and the notes therefore
will not be treated as contingent payment debt
instruments under applicable Treasury regulations.
Assuming our position is respected, any such additional interest
would generally be taxable to a U.S. Holder at the time
such payments are received or accrued, in accordance with the
U.S. Holders usual method of accounting for tax
purposes, subject to the discussion below under
Amortizable Bond Premium.
Our determination that the notes are not contingent payment debt
instruments is not binding on the Internal Revenue Service (the
IRS). If the IRS were to successfully challenge our
determination and the notes were treated as contingent payment
debt instruments, a U.S. Holder would be required, among
other things, to accrue interest income, regardless of the
U.S. Holders method of accounting, at a rate higher
than the stated interest rate on the notes and to treat as
taxable ordinary income, rather than capital gain, any gain
recognized on a sale, exchange or redemption of a note and the
entire amount of realized gain upon a conversion of a note. Our
determination that the notes are not contingent payment debt
instruments is binding on U.S. Holders unless they disclose
their contrary positions to the IRS in the manner that is
required by applicable U.S. Treasury regulations.
Market
Discount
If a U.S. Holder acquires a note other than at its original
issue at a cost (excluding any amount attributable to accrued
interest) that is less than the stated redemption price at
maturity, the amount of such difference is treated as
market discount for U.S. federal income tax
purposes, unless such difference is less than .0025 multiplied
by the stated redemption price at maturity multiplied by the
number of complete years until maturity (from the date of
acquisition).
Under the market discount rules of the Code, a U.S. Holder
is required to treat any gain on the sale, exchange, retirement
or other disposition of a note as ordinary income to the extent
of the accrued market discount that has not been previously
included in income. If a U.S. Holder disposes of a note
with market discount in certain otherwise nontaxable
transactions, such holder may be required to include accrued
market discount as ordinary income as if the holder had sold the
note at its then fair market value. In general, the amount of
market discount that has accrued is determined on a ratable
basis. A U.S. Holder may, however, elect to determine the
amount of accrued market discount on a constant yield to
maturity basis. This election is made on a
note-by-note
basis and is irrevocable.
With respect to notes with market discount, a U.S. Holder
may not be allowed to deduct immediately a portion of the
interest expense on any indebtedness incurred or continued to
purchase or to carry the notes. A U.S. Holder may elect to
include market discount in income currently as it accrues, in
which case the interest deferral rule set forth in the preceding
sentence will not apply. This election will apply to all debt
instruments that a U.S. Holder acquires on or after the
first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
U.S. Holders should consult their tax advisors before
making this election.
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Amortizable
Bond Premium
In general, if a U.S. Holders purchase price for a
note, reduced by (i) an amount equal to the value of the
conversion option and (ii) any amount attributable to
accrued interest, exceeds the stated principal amount of the
note, such excess will constitute bond premium. A
U.S. Holder generally may elect to amortize the premium
over the remaining term of the note on a constant yield method
as an offset to interest when includible in income under such
holders regular accounting method. If a U.S. Holder
does not elect to amortize bond premium, that premium will
decrease the gain or increase the loss such holder would
otherwise recognize on disposition of the note. An election to
amortize premium on a constant yield method will also apply to
all debt obligations held or subsequently acquired by the
electing U.S. Holder on or after the first day of the first
taxable year to which the election applies and may not be
revoked without the consent of the IRS. U.S. Holders should
consult their tax advisors before making this election.
Disposition
of Notes
Except as provided below under Conversion of Notes,
and subject to the passive foreign investment rules discussed
below under Passive Foreign Investment Company, a
U.S. Holder will recognize gain or loss on the sale,
exchange, redemption, retirement or other taxable disposition of
a note equal to the difference between the amount realized upon
the disposition (less any amount attributable to accrued but
unpaid interest not previously included in income, which will be
taxable as such) and the U.S. Holders tax basis in
the note. A U.S. Holders tax basis in a note
generally will be the U.S. Holders cost therefor,
reduced by (i) any principal payments received by such
holder and (ii) the amount of amortized bond premium, if
any, taken into account with respect to the note, and increased
by the amount of market discount, if any, previously included in
income with respect to the note. Such gain or loss will be
U.S. source gain or loss and generally will be capital gain
or loss (except as described above under
Market Discount) and will be long-term
capital gain or loss if at the time of the sale, exchange,
redemption or other disposition such note has been held by such
U.S. Holder for more than one year. Such gain or loss will
generally be U.S. source. Long-term capital gain realized
by a non-corporate U.S. Holder will generally be subject to
taxation at a reduced rate. The deductibility of capital losses
is subject to limitations.
In the event we are a passive foreign investment company, a
U.S. Holder generally will be taxed upon the sale,
exchange, redemption or other taxable disposition of a note in
the same manner that such U.S. Holder would be taxed upon
the sale, exchange, redemption or other taxable disposition of
common shares in a passive foreign investment company, except
that the notes will not be eligible for the
mark-to-market election. See the discussion under
Passive Foreign Investment Company, below.
Conversion
of Notes
If a U.S. Holder receives solely cash in exchange for notes
upon conversion, the U.S. Holders gain or loss will
be determined in the same manner as if the U.S. Holder
disposed of the notes in a taxable disposition (as described
above under Disposition of Notes). The tax treatment
of a conversion of a note into cash and common shares is
uncertain, and U.S. Holders should consult their tax
advisors regarding the consequences of such a conversion.
Treatment as a Recapitalization. If a
combination of cash and shares is received by a U.S. Holder
upon conversion of notes, we intend to take the position that
the notes are securities for U.S. federal income tax
purposes and that the conversion would be treated as a
recapitalization. In such case, gain, but not loss, would be
recognized equal to the excess of the fair market value of the
common shares and cash received (other than amounts attributable
to accrued interest, which will be treated as such) over a
U.S. Holders tax basis in the notes, but in no event
should the gain recognized exceed the amount of cash received
(other than cash received in lieu of a fractional share or cash
attributable to accrued interest). The amount of gain or loss
recognized on the receipt of cash in lieu of a fractional share
would be equal to the difference between the amount of cash a
U.S. Holder would receive in respect of the fractional
share and the portion of the U.S. Holders tax basis
in the common shares received that is allocable to the
fractional share. Except as described above under
Market Discount, any gain or loss
recognized on conversion or upon the receipt of cash in lieu of
a fractional share generally would be capital gain or loss and
would be long- term capital gain or loss if, at the time of the
conversion, the note has been held for more than one year.
However, in the event we are a passive foreign investment
company, a U.S. Holder generally will be subject to tax on
such gain in
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the same manner as if such gain were recognized on the sale of
common shares in a passive foreign investment company. See the
discussion under Passive Foreign Investment Company,
below.
The tax basis of the common shares received upon such a
conversion (including any fractional share deemed to be received
by the U.S. Holder but other than common shares
attributable to accrued interest, the tax basis of which would
equal the amount of accrued interest with respect to which the
common shares were received) would equal the tax basis of the
note that was converted, reduced by the amount of any cash
received (other than cash received in lieu of a fractional share
or cash attributable to accrued interest), and increased by the
amount of gain, if any, recognized (other than with respect to a
fractional share). A U.S. Holders holding period for
common shares would include the period during which the
U.S. Holder held the notes, except that the holding period
of any common shares received with respect to accrued interest
would commence on the day after the date of conversion.
Alternative Treatment as Part Conversion and
Part Redemption. If the above-discussed
conversion of a note into cash and common shares were not
treated as a recapitalization, the cash payment received may be
treated as proceeds from the sale of a portion of the note and
taxed in the manner described under Disposition of
Notes above (or in the case of cash received in lieu of a
fractional share, taxed as a disposition of a fractional share),
in which case the common shares received on such a conversion
would be treated as received upon a conversion of the other
portion of the note, which generally would not be taxable to a
U.S. Holder except to the extent of any common shares
received with respect to accrued interest. In that case, the
U.S. Holders tax basis in the note would generally be
allocated pro rata among the common shares received, the
fractional share that is sold for cash and the portion of the
note that is treated as sold for cash. The holding period for
the common shares received in the conversion would include the
holding period for the notes, except that the holding period of
any common shares received with respect to accrued interest
would commence on the day after the date of conversion.
Possible
Effect of the Change in Conversion Consideration
In certain situations, we may provide for the conversion of the
notes into shares of an acquirer. Depending on the
circumstances, such an adjustment could result in a deemed
taxable exchange to a U.S. Holder and the modified note
could be treated as newly issued at that time, potentially
resulting in the recognition of taxable gain or loss.
Dividends
and Other Distributions on the Common Shares
Subject to the passive foreign investment company rules
discussed below under Passive Foreign Investment
Company, the gross amount of all our distributions to a
U.S. Holder with respect to the common shares (including
any Canadian taxes withheld therefrom) will be included in the
U.S. Holders gross income as foreign source ordinary
dividend income on the date of receipt by the U.S. Holder,
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). To the extent that the
amount of the distribution exceeds our current and accumulated
earnings and profits, it will be treated first as a tax-free
return of a U.S. Holders tax basis in its common
shares, and to the extent the amount of the distribution exceeds
the U.S. Holders 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, a U.S. Holder should expect that a distribution
will be treated as a dividend. The dividends will not be
eligible for the dividends-received deduction allowed to
corporations in respect of dividends received from other
U.S. corporations.
With respect to non-corporate U.S. Holders for taxable
years beginning before January 1, 2011, dividends may
constitute qualified dividend income that is taxed
at the lower applicable capital gains rate provided that
(1) the common shares are readily tradable on an
established securities market in the United States or we are
eligible for the benefits of the income tax treaty between the
United States and Canada, (2) we are not a passive foreign
investment company (as discussed below) for either our taxable
year in which the dividend was paid or the preceding taxable
year, (3) certain holding period requirements are met and
(4) the U.S. Holder is not under an obligation to make
related payments with respect to positions in substantially
similar or related property. U.S. Treasury guidance
indicates that our common shares, which are listed on the Nasdaq
Global Market, are readily tradable on an established securities
market in the United States. There can be no assurance that our
common shares will be considered readily tradable on an
established securities market in later years. U.S. Holders
should consult their tax advisors regarding the availability of
the lower rate for dividends paid with respect to our common
shares.
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Subject to certain limitations, Canadian taxes withheld from a
distribution to a U.S. Holder will be eligible for credit
against such U.S. Holders U.S. federal income
tax liability. If a refund of the tax withheld is available to
the U.S. Holder under the laws of Canada or under the
income tax treaty between the United States and Canada, the
amount of tax withheld that is refundable will not be eligible
for such credit against the U.S. Holders
U.S. federal income tax liability (and will not be eligible
for the deduction against the U.S. Holders
U.S. federal taxable income). If the dividends are
qualified dividend income (as discussed above), the amount of
the dividend taken into account for purposes of calculating the
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 common shares generally will constitute passive
category income but could, in the case of certain
U.S. Holders, constitute general category
income. The rules relating to the determination of the
U.S. foreign tax credit are complex, and U.S. Holders
should consult their tax advisors to determine whether and to
what extent a credit would be available. A U.S. Holder that
does not elect to claim a foreign tax credit with respect to any
foreign taxes for a given taxable year may instead claim an
itemized deduction for all foreign taxes paid in that taxable
year.
Constructive
Distributions
The conversion rate of the notes will be adjusted in certain
circumstances. Adjustments (or failures to make adjustments)
that have the effect of increasing a U.S. Holders
proportionate interest in our assets or earnings may in some
circumstances result in a deemed distribution to a
U.S. Holder for U.S. federal income tax purposes.
Adjustments to the conversion rate made pursuant to a bona
fide reasonable adjustment formula that has the effect of
preventing the dilution of the interest of the holders of the
notes, however, will generally not be considered to result in a
deemed distribution to a U.S. Holder. Certain of the
possible conversion rate adjustments provided in the notes
(including, without limitation, adjustments in respect of
taxable dividends to holders of our common shares) will not
qualify as being pursuant to a bona fide reasonable
adjustment formula. If such adjustments are made, a
U.S. Holder will be deemed to have received a distribution
even though the U.S. Holder has not received any cash or
property as a result of such adjustments. In addition, an
adjustment to the conversion rate in connection with a
fundamental change may be treated as a deemed distribution. Any
deemed distributions will be taxable as a dividend, return of
capital, or capital gain as described in Dividends and
Other Distributions on the Common Shares above. It is not
clear whether a constructive dividend deemed paid to a
non-corporate U.S. Holder could be qualified dividend
income as discussed above under Dividends and Other
Distributions on the Common Shares.
Dispositions
of Common Shares
Subject to the passive foreign investment company rules
discussed below under Passive Foreign Investment
Company, a U.S. Holder will recognize
U.S. source taxable gain or loss on any sale, exchange or
other taxable disposition of a common share equal to the
difference between the amount realized for the common share and
the U.S. Holders tax basis in the common share.
Except as discussed below, such gain or loss generally will be
capital gain or loss and will be long-term capital gain or loss
if at the time of the sale, exchange or other disposition such
common shares have been held by such U.S. Holder for more
than one year. Long-term capital gain realized by a
non-corporate U.S. Holder will generally be subject to
taxation at a reduced rate. The deductibility of capital losses
is subject to limitations. Under the market discount rules of
the Code, any gain recognized by a U.S. Holder upon the
disposition of common stock should be treated as ordinary income
to the extent of any accrued market discount not previously
included in income by the U.S. Holder with respect to the
note converted into such common stock.
Passive
Foreign Investment Company
We do not expect to be a passive foreign investment company
(PFIC) for U.S. federal income tax purposes for
our current taxable year ending December 31, 2008. However,
our actual PFIC status for 2008 will not be determinable until
after the close of our 2008 taxable year, and there can be no
assurance that we will not be a PFIC for our 2008 taxable year
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 income, 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 (the asset test).
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We will be treated as owning our proportionate share of the
assets and earning our proportionate share of the income of any
other corporation in which we own, directly or indirectly, 25%
or more (by value) of the stock.
We must make a separate determination each year as to whether we
are a PFIC. As a result, our PFIC status may change. In
particular, because the total value of our assets for purposes
of the asset test will be calculated using the market price of
our common shares (assuming that we continue to a publicly
traded corporation for purposes of the applicable PFIC rules),
our PFIC status will depend in large part on the market price of
our common shares. Accordingly, fluctuations in the market price
of our common shares may result in our being a PFIC for any
year. If we are a PFIC for any year during which a
U.S. Holder holds common shares, we generally will continue
to be treated as a PFIC for all succeeding years during which
such U.S. Holder holds common shares, absent a special
election. For instance, if we cease to be a PFIC, a
U.S. Holder may avoid some of the adverse effects of the
PFIC regime by making a deemed sale election with respect to the
common shares. If we are a PFIC for any taxable year and any of
our
non-U.S. subsidiaries
is also a PFIC, a U.S. Holder would be treated as owning a
proportionate amount (by value) of the shares of the
lower-tier PFIC for purposes of the application of these
rules. U.S. Holders are urged to consult their tax advisors
about the application of the PFIC rules to any of our
subsidiaries.
If we are a PFIC for any taxable year during which a
U.S. Holder holds common shares, such U.S. Holder will
be subject to special tax rules with respect to any excess
distribution that it receives and any gain it realizes
from a sale or other disposition (including a pledge) of the
common shares, unless the U.S. Holder makes a
mark-to-market election as discussed below.
Distributions received by a U.S. Holder in a taxable year
that are greater than 125% of the average annual distributions
such U.S. Holder received during the shorter of the three
preceding taxable years or its holding period for the common
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
the U.S. Holders holding period for the common 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 common shares
cannot be treated as capital, even if the U.S. Holder holds
the common shares as capital assets. A U.S. Holders
holding period in its common shares generally will include its
holding period in the note exchanged for such common shares.
Alternatively, a U.S. Holder of marketable
stock (as defined below) in a PFIC may make a
mark-to-market election with respect to shares of a PFIC to
elect out of the tax treatment discussed above. If a
U.S. Holder makes a valid mark-to-market election for the
common shares, the U.S. Holder will include in income each
year an amount equal to the excess, if any, of the fair market
value of the common shares as of the close of its taxable year
over its adjusted basis in such common shares. The
U.S. Holder is allowed a deduction for the excess, if any,
of the adjusted basis of the common shares 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 common shares included in the
U.S. Holders income for prior taxable years. Amounts
included in a U.S. Holders income under a
mark-to-market election, as well as gain on the actual sale or
other disposition of the common shares, are treated as ordinary
income. Ordinary loss treatment also applies to the deductible
portion of any mark-to-market loss on the common shares, as well
as to any loss realized on the actual sale or disposition of the
common shares, to the extent that the amount of such loss does
not exceed the net mark-to-market gains previously included for
such common shares. A U.S. Holders basis in the
common shares will be adjusted to reflect any such income or
loss amounts. If a U.S. Holder makes such an
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election, the tax rules that ordinarily apply to distributions
by corporations that are not PFICs would apply to distributions
by us, except that the lower applicable capital gains rate for
qualified dividend income discussed above under
Dividends and Other Distributions on the Common
Shares would not apply.
The mark-to-market election is available only for
marketable stock, which is stock that is traded in
other than de minimis quantities on at least 15 days during
each calendar quarter on a qualified exchange, including the
Nasdaq Global Market, or other market, as defined in applicable
U.S. Treasury regulations. We expect that our common shares
will continue to be listed on the Nasdaq Global Market and,
consequently, the mark-to-market election would be available to
U.S. Holders of common shares were we to be a PFIC.
If a
non-U.S. corporation
is a PFIC, a holder of shares (but not a holder of convertible
notes) in that corporation can avoid taxation under the rules
described above by making a qualified electing fund
election to include its share of the corporations income
on a current basis. However, a U.S. Holder can make a
qualified electing fund election with respect to its common
shares only if we furnish the U.S. Holder annually with
certain tax information, and we do not intend to prepare or
provide such information.
A U.S. Holder that holds common shares in any year in which
we are a PFIC will be required to file IRS Form 8621
regarding distributions received on the common shares and any
gain realized on the disposition of the common shares.
U.S. Holders are urged to consult their tax advisors
regarding the application of the PFIC rules to their investment
in notes and common shares.
Information
Reporting and Backup Withholding
Payments of interest on the notes, dividends on common shares
and the proceeds of a sale or redemption of a note or common
share generally will be subject to information reporting to the
IRS and possible U.S. backup withholding at a current rate
of 28%, unless the conditions of an applicable exemption are
satisfied. Backup withholding will not apply to a
U.S. Holder who furnishes a correct taxpayer identification
number and makes any other required certification or who is
otherwise exempt from backup withholding. U.S. Holders who
are required to establish their exempt status can 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 a
U.S. Holders U.S. federal income tax liability,
and a U.S. Holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by timely filing the
appropriate claim for refund with the IRS and furnishing any
required information.
Canadian
Federal Income Tax Considerations
The following is, as of the date hereof, a fair and adequate
summary of the principal Canadian federal income tax
consequences generally applicable to a person (in this summary,
a Holder) who acquires Notes under the Offering at
par and who, at all relevant times for the purposes of the
Income Tax Act (Canada) (the Canadian Tax Act) deals
at arms length with and is not affiliated with the Company
and is the beneficial owner of the Notes and any common shares
to which the Notes have been converted (the Common
Shares and together, the Securities).
This summary is based on the facts set forth in this prospectus,
the current provisions of the Canadian Tax Act and regulations
thereunder, and counsels understanding of the current
published administrative and assessing policies and practices of
the Canada Revenue Agency (the CRA), and takes into
account all specific proposals to amend the Canadian Tax Act
(the Proposed Amendments) publicly announced by or
on behalf of the Minister of Finance (Canada) prior to the date
hereof. It is assumed that all such amendments will be enacted
as currently proposed, and that there will be no other change to
any relevant law or administrative or assessing policy or
practice, although no assurances can be given in this respect.
Except as otherwise expressly set out herein, this summary also
does not take into account any provincial, territorial or
foreign income tax law, or any income tax treaty or convention,
the implications of which may differ from the Canadian federal
income tax considerations.
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All amounts relative to the acquisition, holding or disposition
of the Securities (including adjusted cost base, interest,
dividends and proceeds of disposition) must be expressed in
Canadian dollars for purposes of the Canadian Tax Act. An amount
denominated in foreign currency, such as U.S. dollars,
would generally need to be converted into Canadian dollars based
on the rate of exchange quoted by the Bank of Canada at noon on
the day such amount arose.
This summary is of a general nature only and is not
exhaustive of all Canadian federal income tax considerations
that may be relevant to a particular Holder. It is not intended
to be, and should not be construed as, legal or tax advice to
any particular Holder. Therefore, each person contemplating a
purchase of Notes under the Offering is urged to consult the
persons own tax advisers with respect to the persons
particular circumstances.
Holders
Who Are Not Residents of Canada
This section of the summary applies solely to Holders who at all
relevant times for purposes of the Canadian Tax Act and any
applicable tax treaty or convention,
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are not and are not deemed to be resident in Canada,
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hold the securities as capital property,
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do not and are not deemed to use or hold any Securities in or in
the course of a business carried on in Canada, and
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do not carry on an insurance business in Canada and elsewhere,
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(each such Holder, a Non-Resident Holder).
Interest
A Non-Resident Holder to whom the Company pays or credits, or is
deemed to pay or credit, an amount as, on account of, or in lieu
of interest on a Note will not be subject to Canadian federal
income tax under the Canadian Tax Act on the amount.
Conversion
of Notes for Common Shares
A Non-Resident Holder who exchanges a Note for Common Shares
pursuant to the terms of the Note will not be subject to
Canadian federal income tax under the Canadian Tax Act as a
result of such exchange.
Disposition
of Notes or Common Shares
A Non-Resident Holder who realizes a capital gain on the actual
or deemed disposition of a Note or Common Share will not be
subject to Canadian federal income tax under the Canadian Tax
Act in respect of the capital gain unless such Note or Common
Share, as the case may be, constitutes taxable Canadian
property to the Non-Resident Holder for purposes of the
Canadian Tax Act and the Non-Resident Holder is not exempt from
Canadian federal income tax on such gain pursuant to the terms
of an applicable tax treaty or convention.
Generally, a Common Share owned by a Non-Resident Holder will
not be taxable Canadian property of the Non-Resident Holder at a
particular time provided that, at that time,
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the common shares of the Company are listed on the Nasdaq Global
Market,
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neither the Non-Resident Holder nor persons with whom the
Non-Resident Holder does not deal at arms length alone or
in any combination has owned 25% or more of the shares of any
class or series of shares in the capital of the Company at any
time in the previous five years, and
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the Common Share was not acquired in a transaction (including on
an exchange of the related Note pursuant to the terms of such
Note) as a result of which it was deemed to be taxable Canadian
property of the Non-Resident Holder.
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85
The Notes will not constitute taxable Canadian property of a
Non-Resident Holder provided that the common shares of the
Company are not taxable Canadian property.
Dividends
Dividends paid or credited or deemed to be paid or credited to a
Non-Resident Holder by the Company on the Common Shares will be
subject to Canadian withholding tax at the rate of 25% unless
reduced by the terms of an applicable tax treaty or convention.
Under the Canada-United States Tax Convention (1980) (the
U.S. Treaty), the rate of withholding tax on
dividends paid or credited to a Non-Resident Holder who is a
resident in the United States for purposes of the
U.S. Treaty (a U.S. Holder) is generally
limited to 15% of the gross amount of the dividend (or 5% in the
case of a U.S. Holder that is a corporation beneficially
owning at least 10% of the Companys voting
stock within the meaning of the U.S. Treaty).
U.S.
Holders
On September 21, 2007, the Minister of Finance (Canada) and
the United States Secretary of the Treasury signed the fifth
protocol to the U.S. Treaty (the Protocol)
which includes amendments to many of the provision of the
U.S. Treaty, including significant amendments to the
limitation on benefits provision. The Protocol will enter into
force once it is ratified by both the Canadian and United States
governments and will have effect in respect of withholding
taxes, after the first day of the second month that begins after
the date on which the Protocol enters into force.
U.S. Holders are urged to consult their own tax advisors to
determine the impact of the Protocol and their entitlement to
relief under the U.S. Treaty based on their particular
circumstances.
Holders
Who Are Residents of Canada
This section of the summary applies solely to a Holder who at
all relevant times for the purposes of the Canadian Tax Act:
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is or is deemed to be resident in Canada,
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holds the Securities as capital property,
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is neither a financial institution for the purposes
of the mark-to-market rules in the Tax Act nor a specified
financial institution,
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is not an entity an interest in which is a tax shelter
investment, and
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is not subject to proposed subsection 261(4) of the Canadian Tax
Act.
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(a Resident Holder).
The Securities generally will be considered to be capital
property to a Resident Holder unless the Resident Holder holds
the Securities in the course of carrying on a business of
trading or dealing in securities or otherwise as part of a
business of buying and selling securities, or has acquired them
in a transaction or transactions considered to be an adventure
or concern in the nature of trade.
A Resident Holder whose Securities might not constitute capital
property may, in certain circumstances, irrevocably elect under
subsection 39(4) of the Tax Act to have the Securities and all
other Canadian securities held by the Resident Holder treated as
capital property.
Taxation
of Interest
A Resident Holder that is a corporation, partnership, unit trust
or trust of which a corporation is a beneficiary, will be
required to include in its income for a taxation year any
interest on a Note that accrues to the Resident Holder to the
end of the taxation year or that becomes receivable or is
received by it before the end of the taxation year, to the
extent that the Resident Holder did not include the amount in
income for a preceding taxation year.
Any other Resident Holder, including an individual, will be
required to include in income for a taxation year any interest
on a Note received or receivable (depending upon the method
regularly followed by the Resident Holder in
86
computing income) by the Resident Holder in the taxation year to
the extent that the Resident Holder did not include the interest
in income for a preceding taxation year.
Conversion
of Notes for Common Shares
A Resident Holder who exchanges a Note for Common Shares
pursuant to the terms of the Note will be deemed to have
acquired those Common Shares at a cost equal to the adjusted
cost base of the Note to the Resident Holder immediately before
the exchange. The exchange will not be considered to be a
disposition of the Note for the purposes of the Canadian Tax
Act, and therefore will not give rise to a capital gain or
capital loss.
The adjusted cost base to the Resident Holder of the Common
Shares so received will be determined by averaging the cost of
those shares with the adjusted cost base of all other common
shares of the Company held by the Resident Holder as capital
property.
A Resident Holder who upon conversion of a Note receives $200 or
less in lieu of a fraction of a Common Share may treat this
amount either as proceeds of disposition of the fraction of the
Common Share, thereby realizing a capital gain or capital loss,
or as a reduction of the cost of the Common Shares that the
Resident Holder receives on the conversion.
Disposition
of Notes
A Resident Holder who disposes or is deemed to dispose of a
Note, including by sale, conversion, redemption, repayment or
purchase by the Company, generally will be required to include
in income for the taxation year in which the disposition occurs
the amount of interest accrued or deemed to accrue to the date
of disposition, to the extent that the Resident Holder has not
otherwise included the amount in income for the taxation year or
a preceding taxation year.
A Resident Holder who disposes of a Note (but excluding a
disposition by exchange of a Note exclusively for Common Shares
(other than an amount not more than the U.S. dollar
equivalent of Canadian $200 received in lieu of a fraction of a
Common Share) pursuant to the terms of the Note) generally will
realize a capital gain (or capital loss) equal to the amount by
which the Resident Holders proceeds of disposition, less
reasonable costs of disposition, exceed (or are exceeded by) the
adjusted cost base of the Note to the Resident Holder. Any
capital gain or loss so arising will be subject to the usual
rules governing the taxation of capital gains and capital
losses. See the section entitled Canadian Federal Income
Tax Considerations Holders Who are Residents of
Canada Capital Gains and Capital Losses.
Disposition
of Common Shares
A Resident Holder who disposes of a Common Share generally will
realize a capital gain (or capital loss) equal to the amount by
which the Resident Holders proceeds of disposition, less
reasonable costs of disposition, exceed (or are exceeded by) the
adjusted cost base of the Common Share to the Resident Holder.
Any capital gain or loss so arising will be subject to the usual
rules governing the taxation of capital gains and capital
losses. See the section entitled Canadian Federal Income
Tax Considerations Holders Who are Residents of
Canada Capital Gains and Capital Losses.
Capital
Gains and Capital Losses
A Resident Holder who realizes a capital gain or capital loss in
a taxation year will be required to include one half of the
capital gain (taxable capital gain) in income, and
may deduct one half of the capital loss (allowable capital
loss) against taxable capital gains realized in the
taxation year of the disposition. The Resident Holder may deduct
any unused allowable capital loss against net taxable capital
gains realized in any of the three preceding taxation years or
any subsequent taxation year, subject to and accordance with the
provisions of the Canadian Tax Act.
The amount of any capital loss arising from a disposition or
deemed disposition of a Common Share by a Resident Holder may,
to the extent and under circumstances specified in the Canadian
Tax Act, be reduced by the amount of certain dividends received
or deemed to be received by the Resident Holder on a Common
Share. Resident Holders to whom these rules may be relevant
should consult their own tax advisers.
87
Resident Holders who are individuals (other than certain trusts)
may be subject to alternative minimum tax in respect of realized
capital gains.
Dividends
A Resident Holder who is an individual (other than certain
trusts) will be required to include in income any taxable
dividend that the Resident Holder receives, or is deemed to
receive, on Common Shares, and will be subject to the
gross-up and
dividend tax credit rules applicable to taxable dividends
received from taxable Canadian corporations, including the
enhanced
gross-up and
dividend tax credit for eligible dividends (as
defined in the Canadian Tax Act). A taxable dividend will be
eligible for the enhanced
gross-up and
dividend tax credit if the paying corporation designates the
taxable dividend as an eligible dividend by providing written
notice to the dividend recipient. There may be limitations on
the ability of a corporation to designate dividends as eligible
dividends.
Resident Holders who are individuals (other than certain trusts)
may be subject to alternative minimum tax in respect of taxable
dividends.
A Resident Holder that is a corporation generally will be
required to include in income any taxable dividend that it
receives or is deemed to be receive on Common Shares, and
generally will be entitled to deduct an equivalent amount in
computing its taxable income.
A Resident Holder that is a private corporation or a
subject corporation (each as defined in the Canadian
Tax Act), may be liable under Part IV of the Canadian Tax
Act to pay a refundable tax of
331/3%
on any taxable dividend that it receives or is deemed to receive
on Common Shares to the extent that such taxable dividend is
deductible in computing such Resident Holders taxable
income. Any such Part IV tax will generally be refundable
to such Resident Holder at the rate of $1 for every $3 of
taxable dividends that it pays while it is a private corporation.
Canadian-Controlled
Private Corporations
A Resident Holder that is, throughout the relevant taxation
year, a Canadian-controlled private corporation (as
defined in the Canadian Tax Act) may be liable to pay an
additional refundable tax of
62/3%
on its aggregate investment income (as defined in
the Canadian Tax Act) for the year, including interest income,
taxable capital gains and non-deductible dividends.
88
SELLING
SECURITYHOLDERS
The notes were originally issued by us and sold by the initial
purchaser of the notes in transactions exempt from the
registration requirements of the Securities Act to persons
reasonably believed to be qualified institutional buyers as
defined by Rule 144A under the Securities Act. Selling
securityholders, including their transferees, pledgees or donees
or their successors, may from time to time offer and sell
pursuant to this prospectus any or all of the notes and common
shares into which the notes are convertible. Those purchasers
may have made subsequent transfers of the notes to purchasers
that are qualified institutional buyers pursuant to
Rule 144A. We have no knowledge whether the selling
securityholders listed below received the notes on the initial
distribution or through subsequent transfers after the close of
the initial private placement.
The following table sets forth information, as of March 24,
2008, with respect to the selling securityholders and the
principal amount of notes and the common shares issuable upon
conversion of the notes beneficially owned by each
securityholder that may be offered pursuant to this prospectus.
The information is based on information provided by or on behalf
of the selling securityholders.
The selling securityholders may offer all, some or none of the
notes or the common shares into which the notes are convertible.
Thus, we cannot estimate the amount of the notes or common
shares that will be held by the selling securityholders upon
consummation of any sales. The columns showing ownership after
completion of the offering assumes that the selling
securityholders will sell all of the notes and all of the shares
of common stock issuable upon conversion of the notes offered
pursuant to this prospectus. In addition, the selling
securityholders identified below may have sold, transferred or
otherwise disposed of all or a portion of their notes since the
date on which they provided the information regarding their
notes in transactions exempt from the registration requirements
of the Securities Act.
The number of common shares issuable upon conversion of the
notes shown in the table below assumes conversion of the full
amount of notes held by each selling securityholder at the
initial conversion rate of 50.6073 common shares per US$1,000
principal amount of notes and a cash payment in lieu of any
fractional shares. This conversion price is subject to
adjustment in certain events. Accordingly, the number of
conversion shares may increase or decrease from time to time.
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Principal Amount
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Common Shares
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of Notes
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Principal Amount
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Number of Common
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Owned After
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Beneficially
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of Notes
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Shares Being
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Completion of the
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Name and Address of Securityholder
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Owned
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Offered Hereby
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Registered Hereby
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Offering
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Aristeia International Limited
c/o Aristeia
Capital LLC
136 Madison Avenue, 3rd Floor
New York, NY 10016
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$
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9,361,000
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$
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9,361,000
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473,734.94
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Aristeia Partners LP
c/o Aristeia
Capital LLC
136 Madison Avenue, 3rd Floor
New York, NY 10016
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1,039,000
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1,039,000
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52,580.98
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Bancroft Fund Ltd.
65 Madison Avenue, Suite 550
Morristown, NJ 07960
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1,000,000
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1,000,000
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50,607.30
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CALAMOS Market Neutral Income Fund
CALAMOS Investment Trust
Calamos Advisors LLC
2020 Calamos Court
Naperville, IL 60563
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2,000,000
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2,000,000
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101,214.60
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Capital Ventures International
c/o Heights
Capital Management
101 California Street, Suite 3250
San Francisco, CA 94111
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5,000,000
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5,000,000
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253,036.50
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89
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Principal Amount
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Common Shares
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of Notes
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Principal Amount
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Number of Common
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Owned After
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Beneficially
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of Notes
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Shares Being
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Completion of the
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Name and Address of Securityholder
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Owned
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Offered Hereby
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Registered Hereby
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Offering
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Castle Convertible Fund, Inc.
c/o Fred
Alger Management, Inc.
111 5th Avenue
New York, NY 10003
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1,000,000
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1,000,000
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50,607.30
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ClearBridge Asset Management, Inc.
100 First Stamford Place, 6th Floor
Stamford, CT 06902
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4,650,000
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4,650,000
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235,323.95
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Cranshire Capital L.P.
3100 Dundee Road, Ste. 703
Northbrook, IL 60062
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2,500,000
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2,500,000
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126,518.25
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Ellsworth Fund Ltd.
65 Madison Avenue, Suite 550
Morristown, NJ 07960
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1,000,000
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1,000,000
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50,607.30
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Fore Convertible Master Fund, Ltd.
280 Park Ave, 43rd Floor
New York, NY 10017
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2,290,000
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2,290,000
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115,890.72
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Fore ERISA Fund, Ltd.
280 Park Ave, 43rd Floor
New York, NY 10017
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385,000
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385,000
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19,483.81
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Highbridge International LLC
1350 Avenue of the Americas
New York, NY 10019
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12,000,000
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12,000,000
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607,287.6
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Iroquois Master Fund Ltd.
641 Lexington Avenue, 26th Floor
New York, NY 10022
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5,275,000
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5,275,000
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266,953.51
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Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas,
40th
Floor
New York, NY 10020
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1,000,000
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1,000,000
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50,607.30
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The Northwestern Mutual Life Insurance Company
General Account
720 E. Wisconsin Avenue
Milwaukee, WI 53202
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4,750,000
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4,750,000
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240,384.68
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The Northwestern Mutual Life Insurance Company Group
Annuity Separate Account
720 E. Wisconsin Avenue
Milwaukee, WI 53202
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250,000
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250,000
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12,651.83
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Piper Jaffray & Co.
345 California Street, Suite 2300
San Francisco, CA 94104
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3,000,000
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3,000,000
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151,821.90
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Radcliffe SPC, Ltd. for and on behalf of the Class A
Segregated Portfolio
c/o RG
Capital Management, L.P.
3 Bala Plaza East, Suite 501
Bala Cynwyd, PA 19004
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10,000,000
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10,000,000
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506,073.00
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Sunrise Partners Limited Partnership
2 American Lane
Greenwich, CT 06831
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1,000,000
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1,000,000
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50,607.30
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90
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Principal Amount
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Common Shares
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of Notes
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Principal Amount
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Number of Common
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Owned After
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Beneficially
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of Notes
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Shares Being
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Completion of the
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Name and Address of Securityholder
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Owned
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Offered Hereby
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Registered Hereby
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Offering
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Vicis Capital Master Fund
c/o Vicis
Capital LLC
126 East 56th Street, Suite 700
New York, NY 10022
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3,000,000
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3,000,000
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151,821.90
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Based upon information provided by the selling securityholders,
none of the selling securityholders nor any of their affiliates,
officers, directors or principal equity holders has held any
position or office or has had any material relationship with us
within the past three years.
To the extent that any of the selling securityholders identified
above are broker-dealers, they may be deemed to be, under
interpretations of the SEC, underwriters within the
meaning of the Securities Act, with respect to the securities it
sells pursuant to this prospectus.
With respect to selling securityholders that are affiliates of
broker-dealers, based on information provided by the selling
securityholders we believe that such entities acquired their
notes and underlying common shares in the ordinary course of
business and, at the time of the purchase of the notes and the
underlying common shares, such selling securityholders had no
agreements or undertakings, directly or indirectly, with any
person to distribute the notes or underlying common shares.
If, after the date of this prospectus, a holder notifies us
pursuant to the registration rights agreement of its intent to
dispose of notes pursuant to the registration statement, we may
supplement this prospectus or amend the registration statement
to include that information. With respect to any holder who
acquires notes after the effectiveness of this registration
statement, we may supplement this prospectus or amend the
registration statement to add that holder to the foregoing table.
91
PLAN OF
DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes
or the common shares issuable upon conversion of the notes
offered by this prospectus. The notes or the common shares
issuable upon conversion of the notes 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 or the purchasers
of the notes or the common shares issuable upon conversion of
the notes.
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The selling securityholders and any such broker-dealers or
agents who participate in the distribution of the notes or the
common shares issuable upon conversion of the notes may be
deemed to be underwriters. As a result, any profits
on the sale of the notes or the common shares issuable upon
conversion of the notes 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 or the common shares issuable upon conversion of
the notes are sold through underwriters or broker-dealers, the
selling securityholders will be responsible for underwriting
discounts or commissions or agents commissions.
The notes or the common shares issuable upon conversion of the
notes 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 or the common shares issuable upon conversion of
the notes 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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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 or the common shares
issuable upon conversion of the notes, the selling
securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short
sales of the notes or the common shares issuable upon conversion
of the notes in the course of hedging their
92
positions. The selling securityholders may also sell the notes
or the common shares issuable upon conversion of the notes or
short and deliver notes or the common shares issuable upon
conversion of the notes to close out short positions, or loan or
pledge notes or the common shares upon conversion of the notes
to broker-dealers that in turn may sell the notes or the common
shares issuable upon conversion of the notes.
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 or the common shares issuable upon conversion of the notes
by the selling securityholders. There can be no assurance that
any selling securityholder will sell any or all of the notes or
the common shares issuable upon conversion of the notes pursuant
to this prospectus. In addition, any notes or the common shares
issuable upon conversion of the notes 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 or the common shares issuable upon conversion of the notes
or by other means not described in this prospectus.
Although the notes issued in the initial placement are eligible
for trading in the PORTAL
Marketsm,
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.
Our common shares are listed on the Nasdaq Global Market under
the symbol CSIQ.
The selling securityholders and any other person participating
in such distribution will be subject to the Exchange Act. The
Exchange Act rules include, without limitation,
Regulation M, which may limit the timing of purchases and
sales of any of the notes and the underlying common shares by
the selling securityholders and any other such person. In
addition, Regulation M of the Exchange Act may restrict the
ability of any person engaged in the distribution of the notes
and the underlying common shares to engage in market-making
activities with respect to the particular notes and the
underlying common shares being distributed for a period of up to
five business days prior to the commencement of such
distribution. This may affect the marketability of the notes and
the underlying common shares and the ability of any person or
entity to engage in market-making activities with respect to the
notes and the underlying common shares.
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.
We have agreed to pay the expenses incidental to the
registration, offering and sale of the notes and the common
shares issuable upon conversion of the notes to the public other
than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL
MATTERS
The validity of the notes offered by this prospectus will be
passed upon for us by Latham & Watkins LLP. The
validity of the common shares and certain other legal matters as
to Canadian law will be passed upon for us by WeirFoulds LLP.
EXPERTS
The financial statements and related financial statement
schedule incorporated in this prospectus by reference from our
annual report on
Form 20-F
have been audited by Deloitte Touche Tohmatsu CPA Ltd., an
independent registered public accounting firm, as stated in
their report, which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
The offices of Deloitte Touche Tohmatsu CPA Ltd. are located at
30/F, Bund Center, 222 Yan An Road East, Shanghai, Peoples
Republic of China.
93
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Expenses
The following is a statement of the expenses (all of which are
estimated) to be incurred by Canadian Solar Inc. in connection
with a distribution of securities registered under this
registration statement:
|
|
|
|
|
|
|
|
|
SEC registration fee
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|
$
|
|
|
|
|
2,947.50
|
|
Legal fees and expenses
|
|
|
|
|
|
|
200,000
|
|
Accounting fees and expenses
|
|
|
|
|
|
|
19,240.00
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|
Printing fees
|
|
|
|
|
|
|
1,500.00
|
|
Miscellaneous
|
|
|
|
|
|
|
500.00
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
|
224,187.50
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 8.
|
Indemnification
of Directors and Officers.
|
Under the Canada Business Corporations Act, and pursuant to our
bylaws, we may indemnify any present or former director or
officer or an individual who acts or acted at our request as a
director or officer, or an individual acting in a similar
capacity, of another entity, against all costs, charges and
expenses, including an amount paid to settle an action or
satisfy a judgment, reasonably incurred by such individual in
respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of
that association with the corporation or other entity. In order
to qualify for indemnification such director or officer must:
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|
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|
have acted honestly and in good faith with a view to our best
interests, or, as the case may be, to the best interests of the
other entity for which he or she acted as director or officer or
in a similar capacity at our request; and
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|
|
|
in the case of a criminal or administrative action or proceeding
enforced by a monetary penalty, have had reasonable grounds for
believing that his or her conduct was lawful.
|
Indemnification will be provided to an eligible director or
officer who meets both these tests and was substantially
successful on the merits in his or her defense of the action.
A director or officer is entitled to indemnification from the
company as a matter of right if he or she is not judged by the
court or other competent authority to have committed any fault
or omitted to do anything that the individual ought to have done
and fulfilled the conditions set forth above.
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|
Exhibit
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Number
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Exhibit Description
|
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4.1*
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|
Registrants specimen certificate.
|
4.2
|
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Indenture related to the Convertible Senior Notes due 2017,
dated as of December 10, 2007, between the registrant and
The Bank of New York, as trustee.
|
4.3
|
|
Form of 6.0% Convertible Senior Notes due 2017 (contained
in Exhibit 4.2).
|
4.4
|
|
Registration Rights Agreement dated as of December 10, 2007
between the registrant and Piper Jaffray & Co.
|
5.1
|
|
Opinion of WeirFoulds LLP regarding the validity of common
shares being registered.
|
5.2
|
|
Opinion of Latham & Watkins LLP regarding the validity
of the Convertible Senior Notes.
|
8.1
|
|
Opinion of Latham & Watkins LLP regarding certain U.S.
tax matters.
|
12.1
|
|
Statement of Computation of Ratio of Earnings to Fixed Charges.
|
23.1
|
|
Consent of Deloitte Touche Tohmatsu CPA Ltd.
|
23.2
|
|
Consent of WeirFoulds LLP (included in Exhibit 5.1).
|
23.3
|
|
Consent of Chen & Co. Law Firm.
|
II-1
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
23.4
|
|
Consent of Latham & Watkins LLP (included in
Exhibit 5.2 and Exhibit 8.1).
|
24.1
|
|
Powers of Attorney (included in signature pages in Part II
of this registration statement).
|
25.1
|
|
Statement of Eligibility of The Bank of New York as trustee on
Form T-1.
|
|
|
* |
Previously filed with the registrants registration
statement on
Form F-1
(File
No. 333-138144)
and incorporated herein by reference.
|
|
|
|
Previously filed with the registrants registration
statement on March 3, 2008 on Form F-3 (File No.
333-149497)
and incorporated herein by reference.
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|
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|
|
(a)
|
The Company hereby undertakes:
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|
|
|
|
(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 (the Act);
|
|
|
(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 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 Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement;
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|
|
(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 that information in the
registration statement;
|
Provided, however, that paragraphs (i), (ii) and
(iii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission
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.
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|
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(2)
|
That, for the purpose of determining any liability under the
Act, 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.
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|
(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 Company includes in the prospectus,
by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and
|
II-2
|
|
|
|
|
other information necessary to ensure that all other information
in the prospectus is at least as current as the date of those
financial statements.
|
|
|
|
|
(b)
|
The Company hereby undertakes that, for purposes of determining
any liability under the Act, each filing of its annual report
pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee
benefit plans annual report under Section 15(d) of
the Exchange Act) 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 will be deemed to be
the initial bona fide offering thereof.
|
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(c)
|
Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of
the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company
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 Company
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 Act and will be governed by the final adjudication of such
issue.
|
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, Canadian Solar Inc. has caused this Amendment
No. 1 to the registration statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City
of Suzhou, Peoples Republic of China on March 25,
2008.
CANADIAN SOLAR INC.
|
|
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|
By:
|
/s/ Shawn
(Xiaohua) Qu
|
Name: Shawn (Xiaohua) Qu
|
|
|
|
Title:
|
Chairman and Chief Executive
|
Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to the registration statement
has been signed by the following persons in the capacities
indicated on March 25, 2008.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Shawn
(Xiaohua) Qu
Shawn
(Xiaohua) Qu
|
|
Chairman and Chief Executive Officer
(principal executive officer)
|
|
|
|
*
Bing
Zhu
|
|
Director and Chief Financial Officer
(principal financial and accounting officer)
|
|
|
|
*
Robert
McDermott
|
|
Director
|
|
|
|
*
Lars-Eric
Johansson
|
|
Director
|
|
|
|
*
Michael
G. Potter
|
|
Director
|
|
|
|
*
Yan
Zhuang
|
|
Director
|
|
|
|
*
Name: Donald
J. Puglisi
Title: Managing Director,
Puglisi &
Associates
|
|
Authorized Representative in the United States
|
|
|
|
|
|
*By:
|
|
/s/ Shawn
(Xiaohua) Qu
Shawn
(Xiaohua) Qu
Attorney-in-fact
|
|
|
II-4
EXHIBIT
INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
4.1*
|
|
Registrants specimen certificate.
|
4.2
|
|
Indenture related to the Convertible Senior Notes due 2017,
dated as of December 10, 2007, between the registrant and The
Bank of New York, as trustee.
|
4.3
|
|
Form of 6.0% Convertible Senior Notes due 2017 (contained
in Exhibit 4.2).
|
4.4
|
|
Registration Rights Agreement dated as of December 10, 2007
between the registrant and Piper Jaffray & Co.
|
5.1
|
|
Opinion of WeirFoulds LLP regarding the validity of common
shares being registered.
|
5.2
|
|
Opinion of Latham & Watkins LLP regarding the validity of
the Convertible Senior Notes.
|
8.1
|
|
Opinion of Latham & Watkins LLP regarding certain U.S. tax
matters.
|
12.1
|
|
Statement of Computation of Ratio of Earnings to Fixed Charges.
|
23.1
|
|
Consent of Deloitte Touche Tohmatsu CPA Ltd..
|
23.2
|
|
Consent of WeirFoulds LLP (included in Exhibit 5.1).
|
23.3
|
|
Consent of Chen & Co. Law Firm.
|
23.4
|
|
Consent of Latham & Watkins LLP (included in Exhibit 5.2
and Exhibit 8.1).
|
24.1
|
|
Powers of Attorney (included in signature pages in Part II
of this registration statement).
|
25.1
|
|
Statement of Eligibility of The Bank of New York as trustee on
Form T-1.
|
|
|
|
* |
|
Previously filed with the registrants registration
statement on Form F-1 (File
No. 333-138144)
and incorporated herein by reference. |
|
|
|
|
|
Previously filed with the registrants registration
statement on on March 3, 2008 Form F-3 (File
No. 333-149497)
and incorporated herein by reference. |
II-5