CANADIAN SOLAR INC.
CALCULATION
OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
Maximum
|
|
|
|
|
Title of each class of
|
|
Amount to be
|
|
offering price
|
|
aggregate offering
|
|
Amount of
|
|
|
securities to be registered
|
|
registered
|
|
per share
|
|
price
|
|
registration fee
|
|
|
Common Shares, no par value
|
|
|
3,500,000
|
|
|
$
|
34.00
|
|
|
$
|
119,000,000
|
|
|
$
|
4,677(1
|
)
|
|
|
|
|
|
|
(1) |
Calculated in accordance with Rule 457(o) and
Rule 457(r) of the Securities Act of 1933, as amended and
relates to the registration statement on
Form F-3
(File No. 333-152325) filed by Canadian Solar Inc.
|
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-152325
PROSPECTUS SUPPLEMENT
(To Prospectus dated July 14, 2008)
3,500,000 Common
Shares
This is an offering of an aggregate of 3,500,000 common shares,
with no par value, of Canadian Solar Inc., or CSI.
Our common shares are listed on the Nasdaq Global Market under
the symbol CSIQ. On July 16, 2008, the closing
sale price of our common shares on the Nasdaq Global Market was
$35.65 per common share.
The underwriters have an option to purchase up to 525,000
additional common shares from CSI at the public offering price
less the underwriting discount to cover over-allotments of
common shares.
Investing in our common shares involves significant risks.
See Risk Factors beginning on
page S-12.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus supplement or the accompanying prospectus. Any
representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
|
|
|
|
|
|
|
Discounts and
|
|
|
|
|
Price to Public
|
|
Commissions
|
|
Proceeds to CSI
|
|
Per common share
|
|
$
|
34.00
|
|
|
$
|
1.785
|
|
|
$
|
32.215
|
|
Total
|
|
$
|
119,000,000
|
|
|
$
|
6,247,500
|
|
|
$
|
112,752,500
|
|
The underwriters expect to deliver the common shares on or about
July 22, 2008.
|
|
Deutsche
Bank Securities |
Piper Jaffray |
Oppenheimer &
Co.
The date of this prospectus supplement is July 16, 2008
TABLE OF
CONTENTS
|
|
|
|
|
Prospectus
Supplement
|
|
Page
|
|
|
|
|
ii
|
|
|
|
|
S-1
|
|
|
|
|
S-9
|
|
|
|
|
S-11
|
|
|
|
|
S-12
|
|
|
|
|
S-36
|
|
|
|
|
S-37
|
|
|
|
|
S-38
|
|
|
|
|
S-39
|
|
|
|
|
S-40
|
|
|
|
|
S-41
|
|
|
|
|
S-42
|
|
|
|
|
S-49
|
|
|
|
|
S-50
|
|
|
|
|
S-57
|
|
|
|
|
S-60
|
|
|
|
|
S-62
|
|
|
|
|
S-63
|
|
|
|
|
S-63
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
7
|
|
|
|
|
8
|
|
|
|
|
9
|
|
|
|
|
10
|
|
|
|
|
11
|
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
16
|
|
|
|
|
23
|
|
|
|
|
25
|
|
|
|
|
25
|
|
You should rely only on the information contained in this
document or to which we have referred you. We have not
authorized anyone to provide you with information that is
different. This document may only be used where it is legal to
sell these securities. The information in this document may only
be accurate on the date of this document.
ABOUT
THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering.
The second part consists of the accompanying prospectus, which
gives more general information, some of which may not be
applicable to this offering.
If the description of the offering varies between this
prospectus supplement and the accompanying prospectus or any
document incorporated by reference, you should rely on the
information in this prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus. We have not, and the underwriters 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. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates.
In this prospectus supplement and the accompanying prospectus,
unless otherwise indicated,
|
|
|
|
|
we, us, our, our
company, and CSI refer to Canadian Solar Inc.,
its predecessor entities and its subsidiaries;
|
|
|
|
China or PRC refers to the Peoples
Republic of China, excluding, for the purpose of this prospectus
supplement only, 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$ or Canadian $
refers to the legal currency of Canada, and Euro
refers to the legal currency of the European Union; and
|
|
|
|
shares or common shares refers to our
common shares.
|
ii
PROSPECTUS
SUPPLEMENT SUMMARY
The following summary contains information about us and the
offering. It may not contain all of the information that may be
important to you in making an investment decision. For a more
complete understanding of us and the offering, we urge you to
read this entire prospectus supplement and the accompanying
prospectus carefully, including the Risk Factors
section and the documents incorporated by reference, including
our financial statements and the notes to those statements
contained in such documents. Unless otherwise indicated or the
context otherwise requires, the information in this prospectus
supplement assumes that the underwriters in the offering do not
exercise their over-allotment option to purchase additional
common shares.
Overview
We design, develop, 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. In addition, we recently
commenced commercial production of
e-Modules, a
cost-effective medium power solar module product using 100%
upgraded metallurgical grade silicon, or UMgSi. We also design
and produce specialty solar modules and products manufactured
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. We sell
our products under our CSI brand name and to OEM
customers under their own brand names. 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, Italy, the United
States, South Korea, the Czech Republic, China and Canada. We
sell our standard solar modules to distributors, system
integrators and through OEM channels. We sell our
e-Modules to
distributors and system integrators. We sell our specialty solar
modules and products directly to various manufacturers who
integrate our specialty solar modules and products into their
own products and sell and market them as part of their own
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 us 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 and produce better returns
on our invested capital. We also believe that this approach
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, it has enabled us to improve production yields,
control our inventory more efficiently and improve cash
management, which we believe has resulted in increased
confidence in our forecasts for future revenue growth.
We believe that we have contractually secured 95% of our silicon
and solar cell requirements to support solar module production
of 230 to 260MW in 2008. For silicon material supplies, we have
entered into a five-year supply agreement with Luoyang Zhong Gui
High Tech Co. Ltd., or Luoyang Poly, for high purity silicon
from 2006 to 2010. For silicon wafers, we have entered into a
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 AG, or Deutsche Solar,
for a supply of multi-crystalline silicon wafers through 2018.
In November 2007, we entered into various agreements with China
Sunergy Co., Ltd., or China Sunergy, for a supply of 25MW of
solar cells for delivery in 2008, and an agreement with Gintech
Energy Corporation, or Gintech, for a supply of 17MW of solar
cells for delivery in 2008, with an option, subject to
availability, for an extra 5MW. We have other silicon wafer and
solar cell supply agreements in place, including a multi-year
solar wafer supply
S-1
contract with Jiangsu Shunda Group Corporation which should
provide us with wafer supplies through 2015, a solar cell supply
contract with Neo Solar Power and a UMgSi materials supply
contract with Timminco Limited, through its subsidiary Becancour
Silicon Inc., or BSI. We believe these contracts have
diversified our silicon wafer and cell supply sources and also
provide an option of securing additional wafer and cell supplies
from multiple sources, helping us to meet demand for our solar
products.
We have expanded our in-house manufacturing capacity for both
solar cells and solar modules. As of March 31, 2008, we had
400MW of combined annual module manufacturing capacity and 100
MW of annual cell manufacturing capacity. Currently, we intend
to use all of our solar cells in the manufacturing of our own
solar module products.
We recently announced our new capacity expansion plan which we
intend to complete during Q1 2009, which includes:
|
|
|
|
|
Increasing our annual internal module capacity to 800MW.
|
|
|
|
Expansion of our annual solar cell manufacturing capacity to
400MW.
|
|
|
|
Construction of a solar ingot and wafer plant in Luoyang, China,
which will give us an annual solar ingot and wafer capacity of
150 to 200MW.
|
We recently commenced commercial production of
e-Modules, a
cost-effective medium power solar module product using 100%
UMgSi, in March 2008. We converted one of our solar cell lines
and dedicated it to upgraded metallurgical grade cells in early
April 2008 and ramped up to full production shortly thereafter.
Delivery of
e-Modules to
some of our European and U.S. customers began in early May. We
have announced sales contracts for 24.5MW of
e-Modules
for shipment in 2008 and believe that we are on track to achieve
our prior estimate of shipping
30-40MW of
e-Modules in
2008. We believe our
e-Module
product gives us access to more price-sensitive markets such as
the United States and South Korea where traditional silicon
modules may not be as cost-competitive. We will continue to
receive shipments of UMgSi through 2011 and expect to increase
production of our UMgSi modules in the future.
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 $302.8 million in 2007, and
from $17.5 million for the three month period ended
March 31, 2007 to $171.2 million for the three months
ended March 31, 2008. We sold 2.2MW, 4.1MW, 14.9MW and
83.5MW of our solar module products in 2004, 2005, 2006 and
2007, respectively, and 3.9MW and 41.8MW for the three months
ended March 31, 2007 and 2008, 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 598MW in 2003 to 2,826MW in
2007, representing a CAGR of 47.4%. During the same period,
solar power industry revenues grew from approximately
$3.8 billion in 2003 to approximately $17.2 billion in
2007, representing a CAGR of 45.9%. Solarbuzz projects that
solar power industry revenues and solar system installations
will reach $23.7 billion and 6.2GW, respectively, by 2012.
According to Solarbuzz, worldwide installations of solar power
systems are expected to grow at a CAGR of
S-2
17.2% from 2007 to 2012. 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:
|
|
|
|
|
government incentives for solar power and other renewable energy
sources;
|
|
|
|
the increasing cost of fossil fuel, related supply constraints
and the desire for energy security;
|
|
|
|
growing awareness of the advantages of solar power, including
its peak energy generation advantage, fuel risk advantage,
scalability, reliability and environmentally friendly nature;
|
|
|
|
advances in technologies making solar power more cost-efficient;
and
|
|
|
|
the large market among underserved populations in rural areas of
developing countries with little or no access to electricity.
|
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:
|
|
|
|
|
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;
|
|
|
|
our ability to quickly and cost-effectively increase our
internal manufacturing capacity for solar cells and modules;
|
|
|
|
the geographic diversity of our customer base which reduces our
exposure to demand volatility in any given region;
|
|
|
|
the strength of our customer relationships in the rapidly
expanding global solar market;
|
|
|
|
our brand, which is associated with high quality and reliable
solar modules, excellent customer support and manufacturing
scale;
|
|
|
|
our ability to develop low-cost module technologies; and
|
|
|
|
our established senior management team with significant industry
and international expertise.
|
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:
|
|
|
|
|
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;
|
|
|
|
continue to proactively manage silicon raw material supply by
securing long-term silicon raw materials contracts;
|
|
|
|
broaden our addressable market by selling
e-Module
products into price-sensitive markets;
|
|
|
|
further diversify our geographic presence, customer base and
product mix;
|
|
|
|
enhance products and efficiency through R&D; and
|
|
|
|
build a leading global brand.
|
S-3
Recent
Developments
First
Quarter 2008 Financial Results
The following summary consolidated statement of operations data
for the three months ended March 31, 2007 and 2008 and
summary balance sheet data as of March 31, 2008 are derived
from our unaudited condensed consolidated financial statements.
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 Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(in thousands, except share and per share data, and operating
data and percentages)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
17,489
|
|
|
$
|
171,235
|
|
Cost of revenues(1)
|
|
|
17,143
|
|
|
|
143,000
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
346
|
|
|
|
28,235
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(1)
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
1,053
|
|
|
|
2,505
|
|
General and administrative expenses
|
|
|
3,086
|
|
|
|
5,426
|
|
Research and development expenses(2)
|
|
|
186
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,325
|
|
|
|
8,234
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations
|
|
|
(3,979
|
)
|
|
|
20,001
|
|
Interest expenses
|
|
|
(67
|
)
|
|
|
(2,246
|
)
|
Interest income
|
|
|
285
|
|
|
|
102
|
|
Other net
|
|
|
|
|
|
|
8,174
|
|
Income tax expense
|
|
|
(93
|
)
|
|
|
(7,036
|
)
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
(3,854
|
)
|
|
|
18,995
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.14
|
)
|
|
|
0.69
|
|
Diluted
|
|
|
(0.14
|
)
|
|
|
0.61
|
|
Shares used in computation:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
27,270,000
|
|
|
|
27,391,315
|
|
Diluted
|
|
|
27,270,000
|
|
|
|
32,392,020
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
2.0
|
%
|
|
|
16.5
|
%
|
Operating margin
|
|
|
(22.8
|
)%
|
|
|
11.7
|
%
|
Net margin
|
|
|
(22.0
|
)%
|
|
|
11.1
|
%
|
|
|
(1)
|
Share-based compensation expenses are included in our cost of
revenues and operating 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.
|
S-4
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
2008
|
|
|
|
(in thousands,
|
|
|
|
except share data)
|
|
|
Balance Sheet Data:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
32,195
|
|
Restricted cash
|
|
|
1,054
|
|
Inventories
|
|
|
80,784
|
|
Accounts receivable, net
|
|
|
119,398
|
|
Advances to suppliers
|
|
|
26,211
|
|
Value added tax recoverable
|
|
|
15,823
|
|
Other current assets
|
|
|
4,958
|
|
|
|
|
|
|
Total current assets
|
|
|
280,423
|
|
Property, plant and equipment, net
|
|
|
62,863
|
|
Other non-current assets
|
|
|
17,648
|
|
Prepaid-rental
|
|
|
1,664
|
|
Deferred tax assets (non-current)
|
|
|
4,686
|
|
|
|
|
|
|
Total assets
|
|
|
367,284
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
70,928
|
|
Accounts payable
|
|
|
17,474
|
|
Other payable
|
|
|
7,947
|
|
Advances from suppliers and customers
|
|
|
7,094
|
|
Income tax payable
|
|
|
4,608
|
|
Other current liabilities
|
|
|
2,268
|
|
|
|
|
|
|
Total current liabilities
|
|
|
110,319
|
|
Accrued warranty costs
|
|
|
5,591
|
|
Long-term debt
|
|
|
19,814
|
|
Convertible notes
|
|
|
75,000
|
|
Other non-current liabilities
|
|
|
4,421
|
|
|
|
|
|
|
Total liabilities
|
|
|
215,145
|
|
Total shareholders equity
|
|
|
152,139
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
367,284
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
27,770,158
|
|
Net revenues for the first quarter of 2008 were
$171.2 million, including $2.2 million of silicon
material sales, compared to net revenues of $17.5 million
for the first quarter of 2007 and $127.5 million for the
fourth quarter of 2007. Net revenues for the first quarter of
2007 and the fourth quarter of 2007 included $2.8 million
and $2.4 million of silicon material sales respectively.
Net income for the first quarter of 2008 was $19.0 million,
or $0.61 per diluted share, compared to a net loss of
$3.9 million, or $0.14 per diluted share, for the
first quarter of 2007 and net income of $5.9 million, or
$0.21 per diluted share, for the fourth quarter of 2007.
Net Revenues. Our total net revenues increased
by 879.1% from $17.5 million for the three months ended
March 31, 2007 to $171.2 million for the three months
ended March 31, 2008. The increase was due primarily to a
significant increase in net revenues generated from the sale of
our solar module products from $14.7 million for the three
months ended March 31, 2007 to $169.0 million for the
three months ended March 31, 2008.
The volume of our solar module products sold increased
from 3.9MW for the three months ended March 31, 2007
to 41.8MW for the three months ended March 31, 2008. 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. The average sales
price of our solar module products increased from $3.74 per watt
for the three months
S-5
ended March 31, 2007 to $4.27 per watt for the three
months ended March 31, 2008. The significant increase in
average selling price was due to continued strong demand for
solar modules combined with supply constraints based on material
shortages.
Cost of Revenues. Our cost of revenues
increased by 734.2% from $17.1 million for the three months
ended March 31, 2007 to $143.0 million for the three
months ended March 31, 2008. 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. As a percentage of our total net
revenues, cost of revenues decreased from 98.0% for the three
months ended March 31, 2007 to 83.5% for the three months
ended March 31, 2008, with the decrease primarily due to
(i) the increase in solar module average sales price,
(ii) the increased margin contribution from modules
manufactured from internally produced cells and
(iii) long-term supply contracts with volume purchase
discounts.
Gross Profit. As a result of the foregoing,
our gross profit increased from $0.3 million for the three
months ended March 31, 2007 to $28.2 million for the
three months ended March 31, 2008. Our gross margin
increased from 2.0% for the three months ended March 31,
2007 to 16.5% for the three months ended March 31, 2008.
Operating Expenses. Our operating expenses
increased by 90.4% from $4.3 million for the three months
ended March 31, 2007 to $8.2 million for the three
months ended March 31, 2008. The increase in our operating
expenses was due primarily to an increase in our general and
administrative expenses and selling expenses. As a result of
increased volumes of sales, the operating expenses as a
percentage of our total net revenue decreased from 24.7% for the
three months ended March 31, 2007 to 4.8% for the three
months ended March 31, 2008.
Interest Expenses. We incurred interest
expenses of approximately $0.1 million for the three months
ended March 31, 2007 compared to $2.2 million for the
three months ended March 31, 2008. The interest expenses
for the three months ended March 31, 2008 were in
connection with the increase of short-term and long-term
borrowings from banks, as well as the $75.0 million of
convertible notes issued in December, 2007.
Income Tax Expenses. Our income tax
expenses was $0.1 million for the three months ended
March 31, 2007, as compared to a income tax expenses of
$7.0 million for the three months ended March 31,
2008. The increase in income tax expenses was due primarily to:
(i) an increase in profit before tax that was realized for
the three months ended March 31, 2008 (about
$26.0 million) compared to the same quarter in 2007 and
(ii) an increase in the tax rate for CSI Solartronics and
CSI Solar Manufacturing from 12% and 7.5% to 25% and 12.5%,
respectively according to the new PRC income tax law.
Net Income. As a result of the
cumulative effect of the above factors, we recorded net income
of $19.0 million for the three months ended March 31,
2008, as compared to a $3.9 million net loss for the three
months ended March 31, 2007.
Induced
Conversion
On May 27, 2008, we made an offer to holders of our
$75.0 million 6.0% Senior Convertible Notes due 2017 to
increase the conversion rate from 50.3073 common shares per
$1,000 of notes to 53.6061 common shares. An aggregate
principal amount of $74.0 million of these notes were
tendered for conversion at the increased conversion rate. As a
result of the inducement for conversion, we recognized a charge
of approximately $10.0 million for consideration
transferred in excess of that transferrable under the original
terms. As of the date of this prospectus supplement,
$1.0 million of our 6.0% Senior Convertible Notes due 2017
remain outstanding.
New
loans
In early June 2008, we borrowed an aggregate principal amount of
$30 million from Shawn Qu, our founder, chairman, president
and chief executive officer for general working capital
purposes, pursuant to a promissory note between Dr. Qu and
us. Under the terms of the note, we will be required to repay
the loan on demand at any time after September 30, 2008.
Such loan is a related party transaction under
applicable SEC rules, and has been unanimously approved by our
Audit Committee.
S-6
We believe that our current cash and cash equivalents,
anticipated cash flow from operations, approved lines of credit
available to us from commercial banks and other financing
activities, including potential capital market financings, will
be sufficient to meet our anticipated cash needs, including our
cash needs for working capital and capital expenditures for the
rest of 2008 under our current market guidance. We may, however,
require additional cash due to changing business conditions or
other future developments, including any investments or
acquisitions we may decide to pursue. The availability of
commercial loans from Chinese commercial banks may also be
affected by administrative policies of the PRC government, which
in turn may affect our plans for business expansion. If our
existing cash or access to additional capital via bank
borrowings are insufficient to meet our requirements, we may
seek to sell additional equity securities or debt securities or
borrow from other sources. We cannot assure you that financing
will be available in the amounts we need or on terms acceptable
to us, if at all. The sale of additional equity securities or
debt securities, including convertible debt securities, would
dilute our shareholders. The incurrence of debt would divert
cash for working capital and capital expenditures to service
debt obligations and could result in operating and financial
covenants that restrict our operations and our ability to pay
dividends to our shareholders. If we are unable to obtain
additional equity or debt financing as required, our business
operations and prospects may suffer.
New
Supply Contracts
On June 30, 2008, we entered into a ten-year supply
agreement with LDK Solar Co., Ltd., or LDK, a manufacturer of
multi-crystalline and mono-crystalline solar wafer. Pursuant to
the terms of this agreement, LDK will supply approximately 800MW
of solar wafers to us through 2018. Delivery under the agreement
is expected to start in July 2009, with approximately 40MW being
shipped in 2009 and approximately 80MW annually in 2010 and
beyond.
Preliminary
2008 Second Quarter Results
On July 14, 2008, we announced our preliminary unaudited
results for our second quarter 2008. We expect our net revenues
for the second quarter 2008 to range between $210 million
and $214 million, compared to the prior forecast of
$185 million to $190 million. The preliminary net
revenue includes approximately $6 million of silicon and
other sales. Our gross profit is expected to range between
$33 million and $35 million. During the quarter, the
company shipped approximately 47MW of solar module products,
including about 2.2MW of UMgSi e-Modules and a small amount of
tolling business. As a result of the induced conversion of
$74 million of our 6.0% convertible senior notes due 2017,
which closed on June 27, 2008, we recognized a one-time,
non-cash charge of approximately $10 million equal to the
fair value of the common shares and other consideration
transferred in the transaction in excess of the fair value of
common shares issuable pursuant to the original conversion
terms. However, we expect to offset this one-time, non-cash
charge by the interest cost savings we will realize through
early conversion of the notes. These preliminary results are
subject to change following completion of our normal quarter-end
review process.
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 seven 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
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
S-7
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
manufacture solar modules; (vi) CSI Solar Power Inc., or
CSI Solar Power, located in Changshu, China, which we
incorporated in April 2008, through which we intend to also
produce solar modules; and (vii) CSI Solar Inc., which was
incorporated in Delaware in June 2007, through which we carry
out marketing and sales effects in the United States. 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. The following diagram illustrates
our companys organizational structure, and the place of
formation, ownership interest, affiliation and the operational
focus of each of our subsidiaries.
Corporate
Information
Our principal executive offices are located at No. 199
Lushan Rd, 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
supplement.
Our agent for service of process in the United States is CT
Corporation System located at 111 Eighth Avenue, New York, New
York 10011.
S-8
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following summary consolidated statement of operations data
for the years ended December 31, 2003, 2004, 2005, 2006 and
2007 and summary consolidated balance sheet data as of
December 31, 2003, 2004, 2005, 2006 and 2007 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, 2005, 2006 and
2007 and our consolidated balance sheets as of December 31,
2006 and 2007 is incorporated by reference into this prospectus
supplement from our annual report on
Form 20-F
for the year ended December 31, 2007. 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 2004 and our consolidated balance
sheet data as of December 31, 2003, 2004 and 2005 have been
derived from our audited consolidated financial statements which
are not included in our annual report incorporated herein by
reference.
The audited financial statements are prepared and presented in
accordance with U.S. GAAP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
(in thousands, except share and per share data, and operating
data and percentages)
|
|
|
Statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
4,113
|
|
|
$
|
9,685
|
|
|
$
|
18,324
|
|
|
$
|
68,212
|
|
|
$
|
302,798
|
|
Cost of revenues(1)
|
|
|
2,372
|
|
|
|
6,465
|
|
|
|
11,211
|
|
|
|
55,872
|
|
|
|
279,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,741
|
|
|
|
3,220
|
|
|
|
7,113
|
|
|
|
12,340
|
|
|
|
23,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(1) Selling expenses
|
|
|
39
|
|
|
|
269
|
|
|
|
158
|
|
|
|
2,909
|
|
|
|
7,531
|
|
General and administrative expenses
|
|
|
1,039
|
|
|
|
1,069
|
|
|
|
1,708
|
|
|
|
7,923
|
|
|
|
17,204
|
|
Research and development expenses(2)
|
|
|
20
|
|
|
|
41
|
|
|
|
16
|
|
|
|
398
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,098
|
|
|
|
1,379
|
|
|
|
1,882
|
|
|
|
11,230
|
|
|
|
25,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) from operations
|
|
|
643
|
|
|
|
1,841
|
|
|
|
5,231
|
|
|
|
1,110
|
|
|
|
(1,957
|
)
|
Interest expenses
|
|
|
|
|
|
|
|
|
|
|
(239
|
)
|
|
|
(2,194
|
)
|
|
|
(2,367
|
)
|
Interest income
|
|
|
1
|
|
|
|
11
|
|
|
|
21
|
|
|
|
363
|
|
|
|
562
|
|
Tax refund for reinvestment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
925
|
|
Loss on change in fair value of derivatives related to
convertible Notes
|
|
|
|
|
|
|
|
|
|
|
(316
|
)
|
|
|
(6,997
|
)
|
|
|
|
|
Loss on financial instruments related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
(263
|
)
|
|
|
(1,190
|
)
|
|
|
|
|
Other net
|
|
|
10
|
|
|
|
(32
|
)
|
|
|
(25
|
)
|
|
|
(90
|
)
|
|
|
2,443
|
|
Income tax expense
|
|
|
(34
|
)
|
|
|
(363
|
)
|
|
|
(605
|
)
|
|
|
(432
|
)
|
|
|
185
|
|
Minority interests
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before extraordinary gain
|
|
|
411
|
|
|
|
1,457
|
|
|
|
3,804
|
|
|
|
(9,430
|
)
|
|
|
(210
|
)
|
Extraordinary gain
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
761
|
|
|
|
1,457
|
|
|
|
3,804
|
|
|
|
(9,430
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary gain
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
0.05
|
|
|
|
0.09
|
|
|
|
0.25
|
|
|
|
(0.50
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation Basic
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
18,986,498
|
|
|
|
27,283,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share, diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary gain
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
|
0.05
|
|
|
|
0.09
|
|
|
|
0.25
|
|
|
|
(0.50
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computation Diluted
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
18,986,498
|
|
|
|
27,283,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
42.3
|
%
|
|
|
33.2
|
%
|
|
|
38.8
|
%
|
|
|
18.1
|
%
|
|
|
7.9
|
%
|
Operating margin
|
|
|
15.6
|
%
|
|
|
19.0
|
%
|
|
|
28.5
|
%
|
|
|
1.6
|
%
|
|
|
(0.6
|
)%
|
Net margin
|
|
|
18.5
|
%
|
|
|
15.0
|
%
|
|
|
20.8
|
%
|
|
|
(13.8
|
)%
|
|
|
(0.1
|
)%
|
|
|
(1)
|
Share-based compensation expenses are included in our cost of
revenues and operating 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.
|
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
(in thousands, except share data)
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,879
|
|
|
$
|
2,059
|
|
|
$
|
6,280
|
|
|
$
|
40,911
|
|
|
$
|
37,667
|
|
|
|
|
|
Restricted cash
|
|
|
27
|
|
|
|
27
|
|
|
|
112
|
|
|
|
825
|
|
|
|
1,626
|
|
|
|
|
|
Inventories
|
|
|
313
|
|
|
|
2,397
|
|
|
|
12,163
|
|
|
|
39,700
|
|
|
|
70,921
|
|
|
|
|
|
Accounts receivable, net
|
|
|
257
|
|
|
|
636
|
|
|
|
2,067
|
|
|
|
17,344
|
|
|
|
58,637
|
|
|
|
|
|
Advances to suppliers
|
|
|
81
|
|
|
|
370
|
|
|
|
4,740
|
|
|
|
13,484
|
|
|
|
28,745
|
|
|
|
|
|
Value added tax recoverable
|
|
|
142
|
|
|
|
22
|
|
|
|
815
|
|
|
|
2,281
|
|
|
|
12,247
|
|
|
|
|
|
Other current assets
|
|
|
95
|
|
|
|
150
|
|
|
|
257
|
|
|
|
2,398
|
|
|
|
10,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,795
|
|
|
|
5,661
|
|
|
|
26,433
|
|
|
|
116,943
|
|
|
|
219,900
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
244
|
|
|
|
453
|
|
|
|
932
|
|
|
|
7,910
|
|
|
|
51,486
|
|
|
|
|
|
Other non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
7,534
|
|
|
|
|
|
Prepaid-rental
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,103
|
|
|
|
1,616
|
|
|
|
|
|
Deferred tax assets (non-current)
|
|
|
15
|
|
|
|
31
|
|
|
|
65
|
|
|
|
3,639
|
|
|
|
3,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
3,053
|
|
|
|
6,145
|
|
|
|
27,430
|
|
|
|
129,634
|
|
|
|
284,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
3,311
|
|
|
|
40,374
|
|
|
|
|
|
Accounts payable
|
|
|
426
|
|
|
|
824
|
|
|
|
4,306
|
|
|
|
6,874
|
|
|
|
8,251
|
|
|
|
|
|
Other payable
|
|
|
398
|
|
|
|
302
|
|
|
|
892
|
|
|
|
993
|
|
|
|
6,153
|
|
|
|
|
|
Advances from suppliers and customers
|
|
|
18
|
|
|
|
273
|
|
|
|
2,823
|
|
|
|
3,225
|
|
|
|
1,962
|
|
|
|
|
|
Income tax payable
|
|
|
119
|
|
|
|
407
|
|
|
|
914
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
Amounts due to related parties
|
|
|
93
|
|
|
|
189
|
|
|
|
431
|
|
|
|
149
|
|
|
|
209
|
|
|
|
|
|
Embedded derivatives related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
3,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
147
|
|
|
|
761
|
|
|
|
1,022
|
|
|
|
1,191
|
|
|
|
2,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,201
|
|
|
|
2,756
|
|
|
|
15,367
|
|
|
|
15,855
|
|
|
|
59,213
|
|
|
|
|
|
Accrued warranty costs
|
|
|
79
|
|
|
|
167
|
|
|
|
341
|
|
|
|
875
|
|
|
|
3,879
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,866
|
|
|
|
|
|
Convertible notes
|
|
|
|
|
|
|
|
|
|
|
3,387
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
Financial instruments related to convertible notes
|
|
|
|
|
|
|
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
261
|
|
|
|
261
|
|
|
|
261
|
|
|
|
|
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,541
|
|
|
|
3,184
|
|
|
|
20,463
|
|
|
|
16,730
|
|
|
|
158,237
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,512
|
|
|
|
2,961
|
|
|
|
6,967
|
|
|
|
112,904
|
|
|
|
126,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
3,053
|
|
|
$
|
6,145
|
|
|
$
|
27,430
|
|
|
$
|
129,634
|
|
|
$
|
284,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
15,427,995
|
|
|
|
27,270,000
|
|
|
|
27,320,389
|
|
|
|
|
|
S-10
THE
OFFERING
The following summary contains basic information about our
common shares being offered. It may not contain all the
information that is important to you. For a more complete
understanding of our common shares, please refer to the section
of the accompanying prospectus entitled Description of
Common Shares.
|
|
|
Issuer |
|
Canadian Solar Inc. |
|
Common Shares Offered by us |
|
3,500,000 common shares |
|
Common Shares to Be Outstanding Immediately After This Offering |
|
35,629,138 common shares |
|
Over-allotment Option |
|
Up to 525,000 common shares |
|
NASDAQ Global Market Symbol |
|
CSIQ |
|
Use of Proceeds |
|
Our net proceeds from this offering will be approximately
$112.8 million (approximately $129.7 million if the
underwriters over-allotment option is exercised in full).
We plan to use the net proceeds we receive from this offering
for working capital, general corporate purposes and potential
future acquisitions. |
|
Risk Factors |
|
An investment in our common shares involves risks. You should
carefully consider the information set forth in the sections of
this prospectus supplement and the accompanying prospectus
entitled Risk Factors, as well as other information
included in or incorporated by reference into this prospectus
supplement and the accompanying prospectus before deciding
whether to invest in the common shares. |
The number of common shares that will be outstanding immediately
after this offering is based on 32,129,138 common shares
outstanding on June 30, 2008 and excludes:
|
|
|
|
|
1,302,948 common shares issuable upon the exercise of stock
options outstanding as of June 30, 2008, at a weighted
average exercise price of $6.52 per share;
|
|
|
|
87,375 common shares issuable upon the vesting of restricted
shares as of June 30, 2008; and
|
|
|
|
704,231 common shares reserved for future issuance under
our 2006 share incentive plan as of June 30, 2008.
|
Except as otherwise indicated, all information in this
prospectus supplement assumes no exercise by the underwriters of
their over-allotment option.
S-11
RISK
FACTORS
An investment in our common shares involves certain risks.
You should carefully consider the risks described below, and
those described below, as well as the other information included
or incorporated by reference in this prospectus supplement and
the accompanying prospectus before making an investment
decision. Our business, financial condition or results of
operations could be materially adversely affected by any of
these risks. The market or trading price of our common shares
could decline due to any of these risks, and you may lose all or
part of your investment. In addition, please read Special
Note Regarding Forward-Looking Statements in this
prospectus supplement and the accompanying prospectus where we
describe additional uncertainties associated with our business
and the forward-looking statements included or incorporated by
reference in this prospectus supplement and the accompanying
prospectus. Please note that additional risks not presently
known to us or that we currently deem immaterial may also impair
our business and operations.
Risks
Related to Our Company and Our Industry
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 wafer and 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 the March 2007 and 2008 reports by Solarbuzz, a
leading professional magazine for the solar industry, the
average long-term silicon feedstock contracted price increased
from approximately $28-32 per kilogram in 2004 to $65-75 per
kilogram in 2008. Prices of silicon feedstock obtained through
spot purchases or short-term contracts went as high as $400 per
kilogram in 2007, peaking in the second half of 2007 but were at
$250 per kilogram for three-month supply contracts. The shortage
of high-purity silicon has also resulted in a shortage of, and
significant price increases for, solar cells. Multicrystalline
silicon cell prices in Euros decreased from the first quarter of
2007 to the first quarter of 2008 by an average of 9%, while
monocrystalline silicon PV cell prices in Euros decreased by a
similar proportion. The blended average (mono and multi) cell
prices in Euros decreased from the first quarter of 2007 to the
first quarter of 2008 by 8.5%.
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 alleviated in the very near
term. We expect that demand for high-purity silicon will
continue to outstrip supply for the foreseeable 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 would likely have
a material adverse effect on our business and operating results.
If we
are unable to secure an adequate and cost effective supply of
solar wafers, solar 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 flexible 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. However, the industry-wide shortage of polysilicon
and silicon wafers has resulted in sharp increases and
significant volatility in
S-12
polysilicon and silicon wafer prices since 2003. Although we
seek to control our costs of raw materials by planning and
managing the timing of our spot market purchases, there is no
assurance that we will accurately predict future pricing trends
or that we can achieve our objective of securing adequate
quantities of polysilicon and silicon wafers at competitive
prices.
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.
These long-term supply contracts can also be terminated by our
suppliers under certain circumstances, including failure to make
timely payments or prepayments. Moreover, toll manufacturing
arrangements may not be available to us in the future or at
higher volumes, in particular to the extent high-purity silicon
becomes more readily available in the future, which could have a
material 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 satisfy (together
with externally produced solar cells) 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 the 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. In
April 2008, the Chinese Customs authorities ordered us to return
the detained 1.2 tons of scrap silicon to its point of origin.
On June 23, 2008, Suzhou Customs authority issued a
Non-punishment Decision Notice, in which the Customs authority
announced no administrative fine will be imposed on the company
regarding the above-mentioned prohibited solid waste import. 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.
The
prices for our supply of solar wafers, solar cells and
reclaimable silicon may increase due to the expanded production
capacity of our competitors, which may constrain our revenue
growth and decrease our margins and profitability.
We believe the average price of polysilicon and silicon wafers
will remain high and could increase further in the near term.
The increasing price of polysilicon and silicon wafers has
largely contributed to the increase in our production costs for
PV cells and modules in the past three years and may continue to
have the same effect in the future, notwithstanding our
continuing efforts to use polysilicon and silicon wafers more
efficiently. In addition, we may not be able to pass on to our
customers our increased production costs resulting from, among
other things, the increased costs of polysilicon and silicon
wafers. Despite the rise in the price of polysilicon and silicon
wafers, PV module manufacturers worldwide are expanding their
production capacities in response to the growing popularity
worldwide of PV products. We believe that such capacity
expansion, particularly in markets where government subsidies
for solar energy consumption are declining, will cause a gradual
decline in the price of PV modules as well
S-13
as lead to the possible commodization of PV modules leading to
increased price competition globally, which may more than offset
any cost savings from technological improvements that lead to a
more efficient use of polysilicon and silicon wafers.
Advance
payments to our polysilicon and silicon wafer suppliers and
credit term sales offered to some of our customers expose us to
the credit risks of such suppliers and customers and may
increase our costs and expenses, which could in turn have a
material adverse effect on our liquidity.
Under existing supply contracts with many of our multi-year
silicon wafer suppliers, and consistent with industry practice,
we make advance payments to our suppliers prior to the scheduled
delivery dates for silicon wafer supplies. In many such cases,
the advance payments are made in the absence of receiving
collateral for such payments. Moreover, we offer some of our
customers short term and/or medium term credit sales based on
our relationship with them and market conditions, also in the
absence of receiving collateral. As a result, our claim for such
payments or sales credit would rank as unsecured claims, which
would expose us to the credit risks of our suppliers and/or
customers in the event of their insolvency or bankruptcy.
Accordingly, any of the above scenarios may have a material
adverse effect on our financial condition, results of operations
and liquidity.
Our
ability to adjust our materials costs may be limited as a result
of entering into prepaid, fixed-price arrangements with our
suppliers, and it therefore may be difficult for us to respond
appropriately in a timely manner to market conditions, which
could materially and adversely affect our cost of revenues and
profitability.
We have in the past secured, and plan to continue to secure, our
supply of polysilicon and silicon wafers through prepaid supply
arrangements with overseas and domestic suppliers. In the past
three years, we have entered into supply contracts with some of
our suppliers under which these suppliers agreed to provide us
with specified quantities of silicon wafers, and we have made
prepayments to these suppliers in accordance with the supply
contracts. The prices of the supply contracts we have entered
into with some of our suppliers are fixed. If the prices of
polysilicon or silicon wafers were to decrease in the future and
we are locked into prepaid, fixed-price arrangements, we may not
be able to adjust our materials costs, and our cost of revenues
would be materially and adversely affected. In addition, if
demand for our PV products decreases, we may incur costs
associated with carrying excess materials, which may have a
material adverse effect on our operating expenses. To the extent
we are not able to pass these increased costs and expenses to
our customers, our profitability may be materially reduced.
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, our margins may suffer 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., Sharp Solar Corporation, SolarWorld
AG, 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 increased 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,
cadmium telluride and copper indium gallium diselenide (CIGS)
technology, 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 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
S-14
disappear or lessen and many new competitors may enter the
industry resulting in rapid industry fragmentation, increased
industry production capacity, leading to pressure on our gross
margins 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 96.0% for 2007. Many of our competitors have
more diversified product offerings and may be better positioned
to withstand a decline in the demand for solar power products.
Some of our competitors have also become more fully 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 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 to the extent
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 following this industry transition. In addition,
the solar power market in general competes with other sources of
renewable energy and conventional power generation. If prices
for conventional and other renewable energy resources decline,
or if these resources enjoy greater policy support than solar
power, the solar power market could suffer.
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 a result,
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;
|
S-15
|
|
|
|
|
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;
|
|
|
|
timing, availability and changes in government incentive
programs and regulations, particularly in our key and target
markets;
|
|
|
|
unpredictable volume and timing of customer orders, some of
which are not fixed by contract but vary on a purchase order
basis;
|
|
|
|
the loss of one or more key customers or the significant
reduction or postponement of orders from these customers;
|
|
|
|
availability of financing for on-grid and off-grid solar power
applications;
|
|
|
|
unplanned additional expenses such as manufacturing failures,
defects or downtime;
|
|
|
|
acquisition and investment related costs;
|
|
|
|
geopolitical turmoil within any of the countries in which we
operate or sell products;
|
|
|
|
foreign currency fluctuations, particularly in the Euro, U.S.
dollar and RMB;
|
|
|
|
our ability to establish and expand customer relationships;
|
|
|
|
changes in our manufacturing costs;
|
|
|
|
changes in the relative sales mix of our products;
|
|
|
|
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;
|
|
|
|
the timing of new product or technology announcements or
introductions by our competitors and other developments in the
competitive environment; and
|
|
|
|
increases or decreases in electric rates due to changes in
fossil fuel prices or other factors.
|
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
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 solar power 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.
Presently, 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
S-16
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 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 68.3% for 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, Italy, the United States, South Korea, the Czech
Republic, China and Canada, 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:
|
|
|
|
|
cost-effectiveness, performance and reliability of solar power
products compared to conventional and other renewable energy
sources and products;
|
S-17
|
|
|
|
|
availability of government subsidies and incentives to support
the development of the solar power industry;
|
|
|
|
success of other alternative energy generation technologies,
such as wind power, hydroelectric power, geothermal and biomass;
|
|
|
|
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;
|
|
|
|
capital expenditures by end users of solar power products, which
tend to decrease when the economy slows down;
|
|
|
|
deregulation of the electric power industry and broader energy
industry; and
|
|
|
|
changes in seasonal demands for our products.
|
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.
Adverse
changes in political and economic policies of the PRC government
could have a material adverse effect on the overall economic
growth of China, which could reduce the demand for our products
and materially and adversely affect our competitive
position.
All of our business operations are conducted in China.
Accordingly, our business, financial condition, results of
operations and prospects are affected significantly by economic,
political and legal developments in China. The Chinese economy
differs from the economies of most developed countries in many
respects, including:
|
|
|
|
|
the amount of government involvement;
|
|
|
|
the level of development;
|
|
|
|
the growth rate;
|
|
|
|
the control of foreign exchange; and
|
|
|
|
the allocation of resources.
|
The PRC government has implemented various measures to encourage
or control economic growth and guide the allocation of
resources. Some of these measures benefit the overall Chinese
economy, but may also have a negative effect on us. For example,
our financial condition and results of operations may be
adversely affected by government control over capital
investments or changes in tax regulations that are applicable to
us. The PRC government also exercises significant control over
Chinese economic growth through the allocation of resources,
controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to
particular industries or companies. Efforts by the PRC
government to slow the pace of growth of the Chinese economy
could result in decreased capital expenditures by solar energy
users, which in turn could reduce demand for our products.
S-18
The
increased tightening of PRC monetary policy may limit our
ability to obtain sufficient working capital under our existing
bank credit facilities.
As our operations are based in China, we are exposed to risks
associated with the regulatory regime of the PRC including
recent changes in monetary policy by the Peoples Bank of
China that raised the deposit reserve ratio, thereby reducing
the supply of money available for Chinese banks to lend. Since
our industry is capital intensive, we require significant
amounts of working capital on a continuous basis. We rely
primarily on our revolving credit facilities with a number of
local banks in order to make timely payments or prepayments to
our suppliers as well as for other operating costs. If the PRC
continues to implement tight monetary policy to limit lending by
Chinese banks over time, we could fall behind in our payments
and prepayments to suppliers, which may have a material and
adverse impact on us and our ability to grow our business.
We may
be unable to procure adequate sources of needed capital due to
market conditions beyond our control, which may adversely impact
our ability to grow our business.
Our operations are capital intensive. Despite our ability as a
publicly traded company to raise capital via public equity and
debt issuances in addition to traditional commercial banking
credit, a combination of the current weakness in global capital
markets due to an economic downturn and tightened credit control
policies by the PRC government aimed at dampening inflation may
adversely affect our results of operations if we are unable to
access necessary capital to achieve our performance targets and
expansion goals or make required prepayments under our supply
contracts. We rely on working capital financing from PRC
commercial banks for our daily operations. Although we are
currently able to obtain new commercial loans from these PRC
commercial banks, we cannot guarantee that we can continue to do
so, which may have a material and adverse impact to us and our
ability to grow our business. Our ability to obtain external
financing in the future is subject to a variety of
uncertainties, including:
|
|
|
|
|
our future financial condition, results of operations and cash
flows;
|
|
|
|
general market conditions for financing activities by
manufacturers of PV and related products; and
|
|
|
|
economic, political and other conditions in the PRC and
elsewhere.
|
If we are unable to obtain funding in a timely manner, on
commercially acceptable terms, or at all, our growth prospects
and future profitability may be adversely affected.
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 Poly, which provides us with specified
minimum quantities of polysilicon, LDK and Deutsche Solar, which
provide us specified minimum quantities of solar wafers, and
China Sunergy, Gintech and NSP, which provide us specified
minimum quantities 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. In connection with
our new UMgSi product initiative, we have entered into a supply
contract with BSI, to supply us with UMgSi for solar module
production. These suppliers may not be able to meet the
specified minimum quantities set forth in the contracts. If we
fail to develop or maintain our relationships with these or our
other suppliers, including failure to make any required payments
under our long-term contracts, 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 as well as subject us to
the possibility of litigation. 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
S-19
solar wafers incurred serious fire damage with its silicon cast
ingot furnaces. This resulted in a chain reaction and caused a
shortage and price increase of multi-crystalline solar wafers,
which is a key material for our products.
Our
dependence on a limited number of customers and our lack of
long-term customer 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
78.8% of our net revenues in 2006 and 2007, respectively.
Iliotec Solar GmbH, and Otto Bihler Maschinenfabrik
GmbH & Co. KG each contributed over 10% of our net
revenues in 2006. Schüco International KG, City Solar AG
and pro solar Solarstrom each contributed over 10% of our net
revenues for 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, subject to termination. 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:
|
|
|
|
|
reduction, delay or cancellation of orders from one or more of
our significant customers;
|
|
|
|
loss of one or more of our significant customers and our failure
to identify additional or replacement customers; and
|
|
|
|
failure of any of our significant customers to make timely
payment for our products.
|
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, including our
existing management team, 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.
S-20
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 and gross margin 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.
We
have recently begun to focus our efforts on development of and
expansion into the use of UMgSi as a component of our solar
products including
e-Modules.
We cannot assure you that these efforts will yield any
successful results, if at all.
In response to the shortage of high-purity silicon, we believe
that UMgSi provides a viable alternative source of silicon
materials, and have been focusing efforts on developing
technologies related to UMgSi solar products. We believe that we
have currently made significant progress in this arena, have
shipped
e-Modules,
our initial UMgSi solar product, and are launching full scale
commercial production of and sales of such UMgSi solar products
during the remainder of 2008. However, we have limited prior
manufacturing experience with this material and may encounter
unanticipated challenges in improving manufacturing yield.
Additionally, our
e-Modules
are new to the market and in the event that the longer term
market response to our UMgSi solar products, including
e-Modules,
is unfavorable, or if the average selling prices of our regular
modules decline significantly, use of this material may not be
economically viable. We cannot assure you that
e-Modules
will prove to be successful, which could have a material and
adverse effect on our revenues.
We
have limited experience in the high value-added building
integrated photovoltaic (BIPV) market and we may be unable to
manage the growth of our BIPV business or successfully operate
in the BIPV market.
Our first BIPV project was completed in Luoyang, China in 2007.
BIPV products generally enjoy higher profit margins when
compared to standard PV modules, due to solar energy generation
capabilities being integrated into the design of a building or
structure. We intend to further expand our capabilities in the
BIPV market and invest in research and development activities in
such products. Due to our limited experience in the BIPV market,
and the relatively small portion of our revenue that these
projects currently comprise, there can be no assurance that we
will successfully expand into this new area of business. We may
not have the necessary research and development capabilities or
marketing and sales personnel required to meet customer needs or
manage our growth. In addition, we may face competitors in the
BIPV market with substantially greater financial, technical,
manufacturing and other resources. If we are unable to manage
the growth of our BIPV business or if our BIPV products fail to
meet the needs of our customers, there may be a material adverse
effect on our reputation, our existing business, financial
condition or results of operations.
S-21
We
face risks associated with the marketing, distribution and sale
of our PV products internationally, and if we are unable to
effectively manage these risks, they could impair our ability to
expand our business abroad.
For the year ended December 31, 2007 and the three months
ended March 31, 2008, 97.8% and 98.8% of our products were
sold to customers outside of China, respectively. The
international marketing, distribution and sale of our PV
products expose us to a number of risks, including:
|
|
|
|
|
difficulties staffing and managing overseas operations;
|
|
|
|
fluctuations in foreign currency exchange rates;
|
|
|
|
increased costs associated with maintaining the ability to
understand local markets and trends, as well as developing and
maintaining an effective marketing and distributing presence in
various countries;
|
|
|
|
providing customer service and support in these markets;
|
|
|
|
our ability to manage our sales channels effectively as we
expand beyond distributors to include direct sales to systems
integrators, end users and installers;
|
|
|
|
difficulties and costs relating to compliance with the different
commercial, legal and regulatory requirements of the overseas
markets in which we offer our products;
|
|
|
|
failure to develop appropriate risk management and internal
control structures tailored to overseas operations;
|
|
|
|
inability to obtain, maintain or enforce intellectual property
rights;
|
|
|
|
unanticipated changes in prevailing economic conditions and
regulatory requirements; and
|
|
|
|
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.
|
If we are unable to effectively manage these risks, they could
impair our ability to expand our business abroad.
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:
|
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
delays or denial of required approvals by relevant government
authorities;
|
|
|
|
diversion of significant management attention and other
resources; and
|
|
|
|
failure to execute our expansion plan effectively.
|
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.
S-22
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 founder, chairman, president and chief executive
officer, who is also integral in our ability to maintain
relationships with key suppliers and customers, Charlotte Klein,
our compliance officer, Barry Luo, our corporate controller,
Bencheng Li, our vice president, business development (China),
Gregory Spanoudakis, our vice president, Europe, Tai Seng Png,
our vice president, business integration and Robert Patterson,
our vice president, business development (North America). Bing
Zhu, our chief financial officer for the past two years,
resigned from this position as of June 7, 2008. Arthur
Chien, formerly our vice president, finance, has since been
appointed as chief financial officer. 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.
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. In addition, our
e-Module
products are new to the market, and there has not been
sufficient time for them to be tested for potential defects by
market use. These defects could cause us to incur significant
costs, including the costs of replacing defective products,
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. 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. Currently, reclaimable silicon
comprises a small portion of our silicon supplies. For this
portion, 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. As a result, we
may incur replacement costs that we are unable to recoup from
third-party suppliers even if the defects already existed at the
time we received the solar products. 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
products. Furthermore, the solar cells and other
S-23
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 and gross margin 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. Similarly, our recently developed UMgSi solar
products, while silicon based and theoretically durable and
viable as a reliable component for solar power products, are
relatively new to the market, and subject to the same testing
limitations as our other solar products.
However, despite our research and development efforts, UMgSi
solar products are relatively new to the market and issues
related to these products that are currently unknown may surface
in the future after extended use. These issues could potentially
affect our market reputation and adversely affect our revenues,
giving rise to potential warranty claims by our customers. 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. Should these
future warranty claims exceed accrued provisions, this may
require us to adjust our financial forecasts and adversely
affect our future earnings and operating results.
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 revenues 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.
S-24
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 annual solar cell
production capacity from these production lines reached 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 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, results of operations
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
S-25
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 have three issued patents and nine patent
applications pending in the PRC for products that make up a
relatively small percentage of our net revenues. In addition, we
maintain two trademark registrations in China, including
CSI and its Chinese language version. We also have
fourteen trademark applications pending in China. These afford
only limited protection and the actions we take to protect our
intellectual property rights as we develop new specialty solar
modules and products may not be adequate. 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 we have fourteen trademark applications
that are still pending in China. 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, Europe, 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 founder, chairman, president 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.
S-26
We
rely on dividends paid by our subsidiaries for our cash
needs.
We conduct significantly all of our operations through our
subsidiaries, CSI Solartronics, CSI Solar Manufacturing Inc.,
CSI Solar Technologies, CSI Luoyang, CSI Cells and CSI Advanced,
which are companies established in China. We rely on dividends
paid by these subsidiaries for our cash needs, including the
funds necessary to pay any dividends or other cash distributions
that we may make to our shareholders, to service our debt 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 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 capable 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 capable 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 the necessary
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.
Prior to 2007, the majority of our sales had been denominated in
U.S. dollars. Since the beginning of 2007, the majority of our
sales have been denominated in Euros, although we may readjust
our denomination currency for sales revenue depending on market
conditions. In 2007, we incurred a net foreign currency exchange
gain, which was caused by the depreciation of the U.S. dollar
against the Euro in the amount of $2.7 million. We cannot
predict the impact of future exchange rate fluctuations on our
results of operations and may incur net foreign currency losses
in the future.
In addition, over the past three years, we have entered into
multi-year supply contracts with a number of suppliers, under
which, consistent with industry practice, we have made advance
payments in exchange for specified quantities of silicon wafers.
These contract prices are fixed in either Euro or Renminbi
currency denominations. 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. To the extent that we are unable to pass along increased
costs as a result of these exchange rate fluctuations to our
customers, our profitability may be materially reduced.
Product
liability claims against us could result in adverse publicity
and potentially significant monetary damages.
We, along with other solar module product manufacturers, 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
S-27
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 June 30, 2008, Dr. Shawn Qu, our founder,
chairman, president and chief executive officer, beneficially
owned 13,530,000 common shares, or 42.1% of our outstanding
share capital, excluding restricted shares granted but yet to be
vested and subject to restrictions on voting, dividend rights
and transferability. As a result, 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.
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, solar 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
S-28
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
December 31, 2007, we had granted 1,814,443 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,
prescribes 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 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 rules apply to us for the first time
in prospectus. Although our management may conclude that our
internal controls over financial reporting are effective, our
independent registered public accounting firm may 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
rules differently from us.
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, we have identified material
weaknesses and deficiencies with our internal controls. In our
audit for the fiscal year ended December 31, 2006, we
identified 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 included (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
S-29
build up a unified and integrated database of our company. The
material weaknesses identified by us were remediated in 2007 by
implementing additional control procedures and reinforcing
existing controls. As a result, our independent registered
public accounting firm concluded that we maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2007. 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 the Sarbanes-Oxley Act. However, if we are
unable to remedy the 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.
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 11.9% appreciation of the RMB against the U.S.
dollar between July 21, 2005 and December 31, 2007.
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
S-30
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 are required to have
their manufacturing facilities examined and approved by the PRC
environmental protection authorities prior to the start of
production. However, due to discrepancies between interpretation
of the written law and its application to date, some of our
subsidiaries, such as CSI Solartronics, began production without
obtaining such approvals. As a result, there is a risk that we
may be ordered by the relevant environmental protection
authorities to cease manufacturing at these operations and
subjected to 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.
We are required to comply with the PRC Construction Law and
relevant regulations in the process of constructing our
manufacturing facilities. For example, our PRC subsidiaries, CSI
Cells and CSI Advanced are required to have their recently
constructed manufacturing facilities examined and accepted by
relevant agencies before being put into service. However, CSI
Cells and CSI Advanced began operating these facilities without
completion of the required examination and acceptance procedure.
We are currently working with the relevant parties to undergo
the required examination and acceptance procedures. However,
there is a risk that we may be ordered by the relevant
construction administrative authorities to comply and be subject
to fines.
Two of our subsidiaries, CSI Luoyang and CSI Cells, commenced
construction of their manufacturing facilities without obtaining
a construction project planning permit or a construction permit,
both of which are required under PRC Construction Law. We are
currently cooperating with relevant government agencies to
obtain these required permits. However, there is a risk that we
may be ordered by the relevant construction administrative
authorities to comply and be subject to fines. We also may be
subject to actions by competent city planning administrative
authorities. If our construction is deemed to have had a serious
adverse impact on city planning, these authorities may order us
to cease construction or to demolish these facilities within a
short time period, or they may confiscate the illegal facilities
outright.
In addition, we adopted a share incentive plan in 2006 that
grants employees, including some of our PRC employees, share
options and restricted shares. We have not yet filed our share
incentive plan with SAFE as required by the Implementation Rules
of the Individual Foreign Exchange Administrative Measures, or
SAFE Rules, and the subsequent Foreign Exchange Operating
Procedures for Administration of Domestic Individuals
Participating in the Employee Share Ownership Plan or Share
Option Plan of An Overseas Listed Company, or Circular 78.
Because the SAFE Rules and Circular 78 are newly issued, there
is some uncertainty as to how they will be interpreted and
implemented. However, if we can not timely fulfill the stated
filing requirement, this could have an adverse effect on our
ability to grant share options and restricted shares to our PRC
employees.
Our
business benefits from certain incentives under PRC tax law and
regulations. The recent promulgation of the PRC Enterprise
Income Tax Law and, subsequently, the expiration of, or changes
to those incentives, as well as the creation or resumption of
certain types of taxation will result in our having to pay
additional PRC taxes, which could have a material adverse impact
on our operations.
Under the former PRC Income Tax Law on Foreign Invested
Enterprise and Foreign Enterprise, or the former Income Tax Law,
a foreign invested enterprise, or FIE, in China was typically
subject to an 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 provided various incentives
to FIEs, including each of our PRC subsidiaries, to encourage
the
S-31
development of foreign investments. Such incentives included
reduced tax rates and other measures. FIEs that were determined
by PRC tax authorities to be manufacturing companies with
authorized terms of operation of more than ten years were
eligible for: (i) a two-year exemption from EIT in their
first profitable year; and (ii) a 50% reduction in its
applicable EIT rate in the succeeding three years. Based on
these allowances, CSI Solartronics was initially entitled
to a preferential tax rate of 27%, consisting of 24% of state
income tax and 3% of local income tax as a manufacturing
enterprise located in a coastal economic development zone in
Changshu. CSI Solartronics first profitable year was
2002 and thus its initial EIT preferential period ended in 2006.
However, CSI Solartronics was granted a three year
extension for the 50% reduction in its EIT rate by the Changshu
tax authority. Thus, CSI Solartronics was subject to an EIT
rate of 12%. CSI Solar Manufacturing was initially entitled to a
preferential tax rate of 18%, consisting of 15% of state income
tax and 3% of local income tax. Following its first profitable
year of operations in 2005, CSI Solar Manufacturing was exempt
from EIT until 2006. Since then, it has been subject to an EIT
rate of 7.5%. CSI Luoyang and CSI Cells became profitable in
2007. As such, both CSI Luoyang and CSI Cells were 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.
On January 1, 2008, the PRCs new Enterprise Income
Tax Law, or the new EIT law, became effective. Under the new EIT
law, both FIEs and domestic enterprises are now subject to an
uniform EIT rate of 25%. Furthermore, dividends paid by an FIE
to a non-resident shareholder on post-2007 earnings are now
subject to a withholding tax of 10%, which may be reduced under
any applicable bi-lateral tax treaty between China and the
jurisdiction where the non-resident shareholder resides.
In addition, for FIEs established prior to March 16, 2007
(the promulgation date of the new EIT law) that have not
attained profitability by January 1, 2008 and, have
therefore not begun to realize the preferential tax treatment
available to them under the former income tax regime, the new
EIT law provides that the preferential five-year tax holiday
period will expire within five years. Since the tax holiday of
our subsidiaries CSI Solar Technologies and CSI Advanced
commenced January 1, 2008, under the new EIT Law, this
preferential five-year tax holiday period will expire
December 31, 2012.
As the preferential tax benefits currently enjoyed by our PRC
subsidiaries expire, their effective tax rates will increase
significantly. This could have a material adverse effect on our
financial condition and results of operations. Furthermore, our
subsidiaries CSI Solar Technologies and CSI Advanced, were not
profitable prior to January 1, 2008. As a result, should
these subsidiaries not attain profitability prior to
January 1, 2013, they will lose their right to enjoy the
preferential tax treatment available under the former Income Tax
Law. In addition, dividends paid to us by our PRC subsidiaries
from pre-2008 earnings are exempt from Chinese dividend
withholding tax even if such dividends are paid after
January 1, 2008. Dividends paid on post-2007 earnings of
are, however, subject to Chinese withholding tax (as described
above).
Under the new EIT law, an enterprise registered under the laws
of a jurisdiction outside China may be deemed a Chinese tax
resident and be subject to EIT upon its worldwide income, if its
place of effective management is in China. The PRC State Council
recently promulgated detailed implementation rules for the new
EIT law. Because the new EIT law and related 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 EIT law will not cause material increases in the
EIT rates applicable to us or our PRC subsidiaries, which could
have a material adverse effect on our financial condition and
results of operations.
If we are deemed to be a resident of PRC (in addition to being a
resident of Canada) under the new EIT law, we could be exposed
to an element of double taxation unless and until the issue of
our jurisdiction of residence is resolved by the revenue
authorities for each country through the competent authority
provisions of the Canada-China Tax Treaty. If it is ultimately
determined that we are a resident of PRC and not Canada for
these purposes, the Canadian income tax implications for
prospective investors will be materially different from those
described in Taxation Canadian Federal Income
Tax Considerations.
Subject to the recently promulgated circular by the PRC State
Council on the Implementation of the Grandfathering Preferential
Policies under the PRC Enterprise Income Tax Law (Decree No.
[2007] 39), or the
S-32
Implementation Circular, only a certain number of the
preferential policies provided under the former Income Tax Law,
regulations, and documents promulgated under the legal authority
of the State Council are eligible to be grandfathered in
accordance with Implementation Circular. Of the preferential
policies enjoyed by our PRC subsidiaries, only the
two-year exemption and three-year half
deduction tax preferential policies are grandfathered by
the Implementation Circular. As a result, commencing
January 1, 2008, CSI Solartronics is subject to an EIT rate
of 25% and CSI Solar Manufacturing is subject to an EIT rate of
12.5% until 2010, when it becomes subject to an EIT rate of 25%.
Furthermore, there is a trend by the Chinese government to
cancel or reduce its export tax refund policy. As our
subsidiaries currently receive export tax refunds from the PRC
government, we may face higher manufacturing costs as a direct
or indirect result of such policy changes.
In light of these tax changes, we are exploring preferential tax
treatment and applicable policies, if any, available to us under
the new EIT tax law. Despite any preferential tax treatment, we
expect our manufacturing costs and EIT rate under the new EIT
law to be higher than under the former Income Tax Law, which
could have a material adverse effect on our financial condition
and results of operations.
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.
We
rely on a limited number of suppliers for high-purity silicon,
solar wafers and solar cells as well as our production equipment
and consumables, and failure or delay by any of them in
delivering solar products, equipment or consumables to us could
adversely impact our production.
We rely on a limited number of solar product and equipment
suppliers for all of our principal manufacturing needs,
including high-purity silicon, solar wafers and solar cells as
well as our DSS furnaces, squarers that we use to cut
multicrystalline ingots into smaller blocks, wafering wire saws
that we use to slice these blocks into wafers and polysilicon
reactors that produce polysilicon with solar grade purity. We
also rely on a limited number of suppliers for consumables, such
as crucibles and slurry, that we use in our wafer production.
Our suppliers have supplied most of our current solar products,
equipment and spare parts, and we will also rely on them to
provide a substantial portion of the principal manufacturing
equipment and spare parts contemplated in our expansion program.
There is currently a shortage globally of much of the equipment
and consumables required for our manufacturing process and
capacity expansion.
If we fail to develop or maintain relationships with these and
other suppliers, or should any of our major suppliers encounter
difficulties in the manufacturing or shipment of their products,
including due to natural disasters or otherwise fail to supply
solar products, equipment or consumables according to our
requirements, it will be difficult for us to find alternative
providers on a timely basis and on commercially reasonable terms.
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 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 July 16,
2008, the market price of our common shares ranged from $6.50 to
$51.80 per share and the closing market price on July 16,
2008 was $35.65 per share. The market price for our common
shares may
S-33
continue to be volatile and subject to wide fluctuations in
response to a wide variety of factors, including the following:
|
|
|
|
|
announcements of technological or competitive developments;
|
|
|
|
regulatory developments in our target markets affecting us, our
customers or our competitors;
|
|
|
|
actual or anticipated fluctuations in our quarterly operating
results;
|
|
|
|
changes in financial estimates by securities research analysts;
|
|
|
|
changes in the economic performance or market valuations of
other solar power companies;
|
|
|
|
addition or departure of our executive officers and key research
personnel;
|
|
|
|
announcements regarding patent litigation or the issuance of
patents to us or our competitors;
|
|
|
|
fluctuations in the exchange rates between the U.S. dollar,
the Euro and RMB;
|
|
|
|
release or expiry of lock-up or other transfer restrictions on
our outstanding common shares; and
|
|
|
|
sales or perceived sales of additional common shares.
|
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 July 14, 2008,
we had 32,129,138 common shares outstanding, excluding
restricted shares granted but yet to be vested and subject to
restrictions on voting, dividend rights and transferability. In
addition, the number of common shares outstanding and be
available for sale will increase when the holders of our
convertible notes receive common shares upon the conversion of
their notes, or the holders of options to acquire our common
shares receive our common shares upon the exercise of their
options, subject to volume, holding period and other
restrictions as applicable under Rule 144 and Rule 701
under the Securities Act of 1933, as amended, or 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.
The following provisions in our amended articles of continuance
may deprive our shareholders of the opportunity to sell their
shares at a premium over the prevailing market price by delaying
or preventing a change of control of our company:
|
|
|
|
|
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
|
S-34
|
|
|
|
|
included in each such series and may fix the designations,
preferences, powers and other rights of the shares of a series
of preferred shares.
|
|
|
|
|
|
Our board of directors is entitled to 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 to 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.
|
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 do
not expect to be a passive foreign investment
company, or PFIC, for U.S. federal income tax purposes for
our current taxable year ending December 31, 2008. 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 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 significant legal, accounting and
other public-company related expenses. For example, the
Sarbanes-Oxley Act, and related rules and regulations
implemented by SEC and the Nasdaq Global Market, have changed
the corporate governance practices of public companies and have
increased our legal and financial compliance costs and made some
activities more time-consuming and costly. We cannot predict or
estimate the amount of our future legal, accounting and other
public-company related expenses, and the timing of such expenses.
S-35
USE OF
PROCEEDS
The net proceeds from the sale of the common shares are
estimated to be approximately $112.8 million, after
deducting estimated discounts and commissions but before
deducting estimated offering expenses (approximately
$129.7 million if the underwriters exercise their
over-allotment option to purchase additional common shares in
full).
We expect to use the net proceeds from this offering primarily
for working capital, general corporate purposes and potential
future acquisitions.
We may use a portion of the net proceeds to fund, acquire or
invest in complementary businesses or technologies, although we
have no present commitments with respect to any acquisition or
investment. Our management will have significant discretion in
applying the net proceeds of this offering. Pending such uses,
we will invest the net proceeds in short-term interest bearing
securities or bank deposits.
S-36
CAPITALIZATION
The following table sets forth our cash and cash equivalents,
restricted cash and capitalization (unaudited, in thousands,
except per share data) as of March 31, 2008:
|
|
|
|
|
on an actual basis;
|
|
|
|
as adjusted to give effect to the conversion of $74 million
of our 6.0% senior convertible notes due 2017 into
3,966,841 common shares on June 27, 2008 and the incurrence
of $30 million of unsecured debt in the form of a loan from
Shawn Qu, our founder, chairman, president and chief executive
officer; and
|
|
|
|
on a pro forma as adjusted basis to give effect to the
subsequent events referred to above and the receipt of estimated
net proceeds of $112.8 million from this offering (after
deducting estimated discounts and commissions but before
deducting estimated offering expenses payable by us).
|
This table should be read in conjunction with Recent
Developments included in this prospectus supplement and
our consolidated financial statements and notes thereto
incorporated by reference in this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008
|
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
Pro Forma
|
|
|
|
(in thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
32,195
|
|
|
$
|
62,195
|
|
|
$
|
174,947
|
|
Restricted cash
|
|
|
1,054
|
|
|
|
1,054
|
|
|
|
1,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured/Unguaranteed
|
|
|
18,390
|
|
|
|
18,390
|
|
|
|
18,390
|
|
Unsecured/Unguaranteed
|
|
|
76,424
|
|
|
|
32,424
|
|
|
|
32,424
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, unlimited authorized shares;
27,770,158 shares issued and outstanding(1)
|
|
|
97,572
|
|
|
|
178,917
|
|
|
|
291,670
|
|
Additional paid-in capital
|
|
|
28,733
|
|
|
|
28,733
|
|
|
|
28,733
|
|
Retained
earnings(2)
|
|
|
15,293
|
|
|
|
5,123
|
|
|
|
5,123
|
|
Accumulated other comprehensive income
|
|
|
10,541
|
|
|
|
10,541
|
|
|
|
10,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
152,139
|
|
|
|
223,314
|
|
|
|
336,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
246,953
|
|
|
$
|
274,128
|
|
|
$
|
386,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes 1,676,977 common shares issuable upon the exercise of
options outstanding as of March 31, 2008, 145,625 common
shares issuable upon the vesting of restricted shares as of
March 31, 2008, and 704,231 common shares reserved for
future issuance under our 2006 share incentive plan as of
March 31, 2008. |
(2) |
|
Reflects the charge of approximately $10 million related to
the induced conversion of $74 million of our 6.0% senior
convertible notes due 2017. |
S-37
DILUTION
Our as adjusted net book value as of March 31, 2008 was
$223.3 million, or $7.04 per share, based upon
31,736,999 shares outstanding as of that date after giving
effect to the conversion of $74,000,000 of our
6.0% Convertible Senior Notes due 2017 into 3,966,841
common shares on June 27, 2008 at the conversion rate of 53.6061
per $1,000 of notes. As adjusted net book value per share is
calculated by subtracting our total liabilities from our total
assets, and dividing this amount by the number of common shares
outstanding as of March 31, 2008 after giving effect to the
conversion of the convertible notes into 3,966,841 common
shares. After giving additional effect to the sale by us of
3,500,000 common shares offered in this offering at a
public offering price of $34.00 per share and after deducting
the underwriting discount and estimated offering expenses
payable by us, our pro forma as adjusted net book value as of
March 31, 2008 would have been $334.2 million, or
$9.48 per common share. This represents an immediate increase in
the as adjusted net book value of $2.44 per share to our
existing shareholders and an immediate dilution in the net book
value of $24.52 per share to new investors.
The following table illustrates the dilution on a per share
basis based on a public offering price per share of $34.00:
|
|
|
|
|
|
Public offering price per share
|
|
$
|
34.00
|
|
As adjusted net book value per share as of March 31, 2008
|
|
|
7.04
|
|
Increase per share attributable to new investors
|
|
|
2.44
|
|
Pro forma as adjusted net book value per share after giving
effect to the offering
|
|
|
9.48
|
|
Dilution per share in as adjusted net book value to new
investors in the offering
|
|
|
24.52
|
|
|
|
|
|
|
If the underwriters exercise their option in full to purchase
525,000 additional common shares in this offering, the pro forma
as adjusted net book value per share after the offering would be
$9.82 per share, the increase in the pro forma as adjusted
net book value per share to existing stockholders would be
$0.34 per share, and the decrease in dilution to the new
investors would be $0.34 per share.
The foregoing table does not take into effect further dilution
to new investors that could occur upon the exercise of
outstanding options having a per share exercise price less than
the offering price per share in this offering. As of
March 31, 2008, there were:
|
|
|
|
|
1,676,977 common shares issuable upon the exercise of options
outstanding;
|
|
|
|
145,625 common shares issuable upon the vesting of restricted
shares; and
|
|
|
|
704,231 common shares reserved for future issuance under our
2006 share incentive plan.
|
S-38
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, or 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.
S-39
MARKET
PRICE INFORMATION FOR OUR 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.
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
High
|
|
Low
|
|
Quarterly High and Low
|
|
|
|
|
|
|
|
|
Fourth Quarter 2006
|
|
$
|
16.73
|
|
|
$
|
9.43
|
|
First Quarter 2007
|
|
|
14.36
|
|
|
|
8.72
|
|
Second Quarter 2007
|
|
|
13.88
|
|
|
|
8.78
|
|
Third Quarter 2007
|
|
|
11.70
|
|
|
|
6.50
|
|
Fourth Quarter 2007
|
|
|
31.44
|
|
|
|
8.67
|
|
First Quarter 2008
|
|
|
31.10
|
|
|
|
14.74
|
|
Second Quarter 2008
|
|
|
51.80
|
|
|
|
21.15
|
|
Monthly Highs and Lows
|
|
|
|
|
|
|
|
|
January 2008
|
|
|
31.10
|
|
|
|
14.74
|
|
February 2008
|
|
|
24.15
|
|
|
|
17.32
|
|
March 2008
|
|
|
23.96
|
|
|
|
16.31
|
|
April 2008
|
|
|
28.45
|
|
|
|
21.15
|
|
May 2008
|
|
|
48.91
|
|
|
|
25.93
|
|
June 2008
|
|
|
51.80
|
|
|
|
35.05
|
|
July 2008 (through July 16, 2008)
|
|
|
38.99
|
|
|
|
29.55
|
|
The closing price of our common shares on July 16, 2008 as
reported by the Nasdaq Global Market was $35.65.
S-40
SHARES
ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will issue
3,500,000 common shares representing approximately 9.8% of
our total outstanding common shares. All of the common shares
sold in this offering will be freely transferable by persons
other than our affiliates who are subject to
restriction under the Securities Act. Sales of substantial
amounts of our common shares in the public market could
adversely affect prevailing market prices of our common shares.
Lock-Up
Agreements
We have agreed for a period of 90 days after the date of
this prospectus supplement, subject to the exceptions specified
in Underwriting, among other things, not to issue,
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant for the sale of, or lend or
otherwise dispose of or transfer, any common shares or any
securities convertible into or exercisable or exchangeable for
common shares; or enter into any swap, derivative or any other
arrangement or any transaction that transfers to another, in
whole or in part, any of the economic consequences of ownership
of the common shares or any securities convertible into or
exchangeable for the common shares.
Rule 144
In general, under Rule 144, a person (or persons whose
shares are aggregated) who is not deemed to have been an
affiliate of ours at any time during the three months preceding
a sale, and who has beneficially owned restricted securities
within the meaning of Rule 144 for at least six months
(including any period of consecutive ownership of preceding
non-affiliated holders) would be entitled to sell those shares,
subject only to the availability of current public information
about us. A non-affiliated person who has beneficially owned
restricted securities within the meaning of Rule 144 for at
least one year would be entitled to sell those shares without
regard to the provisions of Rule 144.
In general, under Rule 144, our affiliates or persons
selling shares on behalf of our affiliates are entitled to sell
upon expiration of the
lock-up
agreements described above, a number of common shares that does
not exceed the greater of:
|
|
|
|
|
1.0% of the then outstanding common shares, which will equal
approximately 356,291 common shares immediately after this
offering; or
|
|
|
|
the average weekly trading volume of our common shares or
otherwise, during the four calendar weeks preceding the date on
which notice of the sale is filed with the SEC.
|
Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
S-41
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 supplement, our authorized
share capital consists of an unlimited number of common shares
and an unlimited number of preferred shares issuable in series.
As of July 14, 2008, 32,129,138 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. We have no current
plan to issue any preferred shares.
S-42
Transfer
Agent and Registrar
BNY Mellon Shareowner Services is the transfer agent and
registrar for our common shares. BNY Mellon Shareowner
Services address is 480 Washington Boulevard, 29th Floor,
Jersey City, NJ 07310.
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 the CBCA and 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
S-43
fixed by 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:
|
|
|
|
|
amendments to articles;
|
|
|
|
arrangements;
|
|
|
|
amalgamations other than amalgamations involving a holding body
corporate, one or more wholly owned subsidiaries
and/or one
or more sister corporations;
|
|
|
|
continuances under the laws of another jurisdiction;
|
|
|
|
voluntary dissolutions; and
|
|
|
|
sales, leases or exchanges of all or substantially all the
property of a corporation other than in the ordinary course of
business.
|
Related
Party Transactions
The CBCA does not prohibit related party transactions.
Dissent
Rights
The CBCA provides that shareholders of a corporation 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 a corporation resolves to:
|
|
|
|
|
amalgamate with a corporation other than a holding body
corporate, one or more wholly owned subsidiaries
and/or one
or more sister corporations;
|
|
|
|
amend the corporations articles of incorporation to add,
change or remove any provisions restricting the issue, transfer
or ownership of shares;
|
|
|
|
amend the corporations articles to add, change or remove
any restriction upon the business or businesses that the
corporation may carry on;
|
|
|
|
continue under the laws of another jurisdiction;
|
S-44
|
|
|
|
|
sell, lease or exchange of all or substantially all the property
of the corporation other than in the ordinary course of
business; or
|
|
|
|
carry out a going-private or squeeze-out transaction.
|
In addition, a court order in connection with an arrangement
proposed by the corporation 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:
|
|
|
|
|
under eighteen years of age;
|
|
|
|
adjudicated as mentally unsound;
|
|
|
|
a person that is not an individual; or
|
|
|
|
a person who has the status of a bankrupt.
|
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.
S-45
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:
|
|
|
|
|
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
|
|
|
|
a report of a person whose profession lends credibility to a
statement made by such person.
|
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:
|
|
|
|
|
have acted honestly and in good faith with a view to the best
interests of the corporation, or, as the case may be, to the
best interests of the other entity for which the individual
acted as a director or officer or in a similar capacity at the
corporations request; and
|
|
|
|
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 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 thereby 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.
S-46
Interested
Directors Transactions
Under the CBCA, if a director or officer of a corporation has
any interest in a material contract or material transaction,
whether made or proposed, with the corporation if such director
or officer is a party to the contract or transaction or is a
director or an officer, or an individual acting in a similar
capacity, of a party to the contract or transaction or has a
material interest in a party to the contract or transaction, the
director generally may not vote on any resolution to approve the
contract or transaction, but the contract is not invalid by
reason only of the relationship if such interest is disclosed in
accordance with the requirements set out in the CBCA, the
contract or transaction is approved by the other directors or by
the shareholders and the contract or transaction 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, the Director appointed
under the CBCA or any other person who in the discretion of the
court is a proper person to make such an application. Under the
CBCA, no such action may be brought and no such intervention in
an action may be made unless the court is satisfied that:
|
|
|
|
|
the complainant has given notice to the directors of the
corporation or its subsidiary of the complainants
intention to apply to the court for such leave not less than
14 days before bringing the application, or as otherwise
directed by the court, if the directors of the corporation or
its subsidiary do not bring, diligently prosecute or defend or
discontinue the action;
|
|
|
|
the complainant is acting in good faith; and
|
|
|
|
it appears to be in the interests of the corporation or its
subsidiary that the action be brought, prosecuted, defended or
discontinued.
|
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 intention or final order it thinks fit to rectify the
matters complained of, if the court is satisfied upon
application of a complainant (as defined below) that:
|
|
|
|
|
any act or omission of the corporation or any of its affiliates
effects a result;
|
|
|
|
the business or affairs of the corporation or any of its
affiliates are or have been conducted in a manner; or
|
|
|
|
the powers of the directors of the corporation or any of its
affiliates are or have been exercised in a manner, that is
oppressive or unfairly prejudicial to or that unfairly
disregards the interests of any security holder, creditor,
director or officer of the corporation.
|
S-47
A complainant for this purpose includes a present or former
shareholder, a present or former officer or director of the
corporation or any of its 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.
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, their personal
representatives and the Director appointed under the CBCA may
examine, free of charge during our usual business hours:
|
|
|
|
|
our articles, bylaws and all amendments thereto;
|
|
|
|
the minutes and resolutions of shareholders;
|
|
|
|
copies of all notices of directors filed under the CBCA; and
|
|
|
|
our securities register.
|
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.
S-48
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 supplement 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 supplement.
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:
|
|
|
|
|
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
|
|
|
|
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.
|
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.
S-49
TAXATION
Certain
U.S. Federal Income Tax Considerations
The following discussion describes the material
U.S. federal income tax consequences to U.S. Holders
(defined below) under present law of an investment in our common
shares. This summary applies only to investors that hold our
common shares as capital assets and that have the
U.S. dollar as their functional currency. This discussion
is based on the tax laws of the United States as in effect on
the date of this annual report and on U.S. Treasury
regulations in effect or, in some cases, proposed, as of the
date of this annual report, 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.
The following discussion does not deal with the tax consequences
to any particular investor or to persons in special tax
situations such as:
|
|
|
|
|
banks;
|
|
|
|
certain financial institutions;
|
|
|
|
regulated investment companies;
|
|
|
|
real estate investment trusts;
|
|
|
|
insurance companies;
|
|
|
|
broker dealers;
|
|
|
|
U.S. expatriates;
|
|
|
|
traders that elect to mark to market;
|
|
|
|
tax-exempt entities;
|
|
|
|
persons liable for alternative minimum tax;
|
|
|
|
persons holding a common share as part of a straddle, hedging,
constructive sale, conversion or integrated transaction;
|
|
|
|
persons that actually or constructively own 10.0% or more of our
voting stock;
|
|
|
|
persons who acquired common shares pursuant to the exercise of
any employee share option or otherwise as compensation; or
|
|
|
|
persons holding common shares through partnerships or other
pass-through entities for U.S. federal income tax purposes.
|
U.S. HOLDERS 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 AND LOCAL
AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF COMMON SHARES.
The discussion below of the U.S. federal income tax
consequences to U.S. Holders will apply if you
are a beneficial owner of common shares and you are, for
U.S. federal income tax purposes,
|
|
|
|
|
an individual who is a citizen or resident of the United States;
|
|
|
|
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;
|
|
|
|
an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
|
|
|
|
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.
|
S-50
If you are a partner in partnership or other entity taxable as a
partnership that holds common shares, your tax treatment will
depend on your status and the activities of the partnership.
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.
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.
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 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. Such gain or loss generally will be
U.S. source 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.
S-51
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:
|
|
|
|
|
at least 75% of its gross income is passive income, or
|
|
|
|
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).
|
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:
|
|
|
|
|
the excess distribution or gain will be allocated ratably over
the U.S. Holders holding period for the common shares,
|
|
|
|
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
|
|
|
|
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.
|
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.
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.
S-52
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 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.
However, the mark-to-market election would not be available with
respect to our subsidiaries were they to be PFICs.
If a
non-U.S. corporation
is a PFIC, a holder of shares 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 common shares.
Information
Reporting and Backup Withholding
Dividends on common shares and the proceeds of a sale or
redemption of a 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 other required certifications 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 summary of the
principal Canadian federal income tax consequences generally
applicable to a person (in this summary, a Holder)
who acquires common shares in this offering 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 common shares.
This summary is based on the facts set forth in this prospectus,
the assumption that we are a resident of Canada, and not the
PRC, 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
S-53
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 set out below.
Subject to limited exceptions, all amounts relative to the
acquisition, holding or disposition of the common shares
(including adjusted cost base, 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 (or such other rate of exchange as is acceptable to the
CRA).
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 common shares under this 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,
|
|
|
|
|
are not and are not deemed to be resident in Canada,
|
|
|
|
hold the common shares as capital property,
|
|
|
|
do not and are not deemed to use or hold any common shares in or
in the course of a business carried on in Canada, and
|
|
|
|
do not carry on an insurance business in Canada and elsewhere,
|
(each such Holder, a Non-Resident Holder).
Disposition
of Common Shares
A Non-Resident Holder who realizes a capital gain on the actual
or deemed disposition of a common share will not be subject to
Canadian federal income tax under the Canadian Tax Act in
respect of the capital gain unless the common share 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,
|
|
|
|
|
the common shares (including those issued pursuant to this
offering) of the Company are listed on the Nasdaq Global Market
(or another designated stock exchange, within the
meaning of the Canadian Tax Act),
|
|
|
|
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
|
|
|
|
the common share is not otherwise deemed under the Canadian Tax
Act to be taxable Canadian property of the Non-Resident Holder.
|
A Non-Resident Holder for whom a common share is taxable
Canadian property should consult its own advisors.
S-54
Dividends
Dividends paid or credited or deemed to be paid or credited to a
Non-Resident Holder by us 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 and entitled to the benefits thereof (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 provisions 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:
|
|
|
|
|
is or is deemed to be resident in Canada,
|
|
|
|
holds the common shares as capital property,
|
|
|
|
is neither a financial institution for the purposes
of the mark-to-market rules in the Canadian Tax Act nor a
specified financial institution,
|
|
|
|
is not an entity an interest in which is a tax shelter
investment, and
|
|
|
|
is not subject to subsection 261(4) of the Canadian Tax Act.
|
(a Resident Holder).
The common shares generally will be considered to be capital
property to a Resident Holder unless the Resident Holder holds
the common shares 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 common shares might not constitute
capital property may, in certain circumstances, irrevocably
elect under subsection 39(4) of the Canadian Tax Act to have the
Securities and all other Canadian securities held by the
Resident Holder treated as capital property.
Disposition
of Common Shares
A Resident Holder who disposes or is deemed to have disposed 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.
A Resident Holder who realizes a capital gain or capital loss in
a taxation year on a disposition or deemed disposition of a
common share 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
S-55
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 that
is a corporation 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. Analogous rules apply where a
Resident Holder that is a corporation is, directly or through a
trust or partnership, a member of a partnership or a beneficiary
of a trust that owns common shares. Resident Holders to whom
these rules may be relevant should consult their own tax
advisers.
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 are 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 taxable capital
gains and non-deductible dividends.
S-56
UNDERWRITING
Subject to the terms and conditions of the common share
underwriting agreement, the underwriters named below, through
their representatives Deutsche Bank Securities Inc. and Piper
Jaffray & Co., have severally agreed to purchase from
us the following respective number of common shares at a public
offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus supplement:
|
|
|
|
|
Underwriters
|
|
Number of Shares
|
Deutsche Bank Securities Inc.
|
|
|
1,575,000
|
|
Piper Jaffray & Co.
|
|
|
1,575,000
|
|
Oppenheimer & Co. Inc.
|
|
|
350,000
|
|
|
|
|
|
|
Total
|
|
|
3,500,000
|
|
|
|
|
|
|
The common share underwriting agreement provides that the
obligations of the several underwriters to purchase the common
shares offered hereby are subject to certain conditions
precedent and that the underwriters will purchase all of the
common shares offered by this prospectus supplement and the
accompanying prospectus, other than those covered by the
over-allotment option described below, if any of these shares
are purchased.
We have been advised by the representatives of the underwriters
that the underwriters propose to offer the common shares to the
public at the public offering price set forth on the cover of
this prospectus supplement and to dealers at a price that
represents a concession not in excess of $1.07 per share
under the public offering price. The underwriters may allow, and
these dealers may re-allow, a concession of not more than
$0.10 per share to other dealers. After the offering,
representatives of the underwriters may change the offering
price and other selling terms.
We have granted to the underwriters an option, exercisable not
later than 30 days after the date of this prospectus
supplement, to purchase up to 525,000 additional common
shares at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this
prospectus supplement. The underwriters may exercise this option
solely to cover over-allotments made in connection with the sale
of the common shares offered by this prospectus supplement and
accompanying prospectus. To the extent that the underwriters
exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the
same percentage of these additional common shares as the number
of common shares to be purchased by it in the above table bears
to the total number of common shares offered by this prospectus
supplement. We will be obligated, pursuant to the option, to
sell these additional common shares to the underwriters to the
extent the option is exercised. If any additional common shares
are purchased, the underwriters will offer the additional shares
on the same terms as those on which the 3,500,000 shares
are being offered.
The underwriting discounts and commissions per share are equal
to the public offering price per common share less the amount
paid by the underwriters to us per common share. The
underwriting discounts and commissions are 5.25% of the initial
public offering price. We have agreed to pay the underwriters
the following discounts and commissions, assuming either no
exercise or full exercise by the underwriters of the
underwriters over-allotment option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
|
|
|
|
|
Without
|
|
|
With Full
|
|
|
|
|
|
|
Exercise of
|
|
|
Exercise of
|
|
|
|
|
|
|
Over-
|
|
|
Over-
|
|
|
|
|
|
|
Allotment
|
|
|
Allotment
|
|
|
|
Fee per share
|
|
|
Option
|
|
|
Option
|
|
Discounts and commissions paid by us
|
|
$
|
1.785
|
|
|
$
|
6,247,500
|
|
|
$
|
7,184,625
|
|
In addition, we estimate that our share of the total expenses of
this offering, excluding underwriting discounts and commissions,
will be approximately $1.8 million.
We have agreed to indemnify the underwriters against some
specified types of liabilities, including liabilities under the
Securities Act, and to contribute to payments the underwriters
may be required to make in respect of any of these liabilities.
S-57
We and our executive officers and directors have agreed that we
and they will not (a) issue, offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
for the sale of, or lend or otherwise dispose of or transfer any
common shares or any securities convertible into or exchangeable
or exercisable for or repayable with common shares, or file any
registration statement under the Securities Act with respect to
any of the foregoing, or (b) enter into any swap,
derivative or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of common shares or any
securities convertible into or exchangeable for or repayable
with common shares, whether any such transaction described in
clause (a) or (b) above is to be settled by delivery
of common shares or such other securities, in cash or otherwise,
or (c) make any demand for, or exercise any right with
respect to, the registration of any common shares or any
security convertible into or exercisable or exchangeable for the
common shares, or (d) publicly announce any intention to do
any of the foregoing for a
90-day
period after the date of this prospectus supplement without the
prior written consent of Deutsche Bank Securities Inc. and Piper
Jaffray & Co., subject to extension until the
expiration of an additional
18-day
period if we issue an earnings release or a release announcing
material news or a material event or if we announce that we will
release earnings results during the
16-day
period beginning on the last day of the
lock-up
period, except that (A) we may, without such consent, and
subject to other limited exceptions, grant options or issue and
sell common shares to be issued pursuant to existing employee
benefit plans, qualified share option plans or other employee
compensation benefit plans or pursuant to convertible
securities, options, warrants, or rights, in each case
outstanding on the date of this memorandum, (B) the
foregoing shall not apply to our executive officers and
directors with respect to shares acquired in open market
transactions after completion of the offering or transfers to
family members or certain other parties or as a gift, and
(C) our executive officers and directors who entered into
lock-up
agreements with the underwriters are permitted to sell or trade
any such securities during the
lock-up
period in accordance with the directors and officers
existing
Rule 10b5-1
trading plans. Under these
Rule 10b5-1
trading plans, these individuals have contracted or will
contract with brokers to buy or sell our common shares on a
periodic basis. Under these plans, a broker executes trades
pursuant to the parameters established by the executive officer
or director at the time of the creation of the plan, without
further direction from them.
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over
which they exercise discretionary authority.
In connection with the offering, the underwriters may purchase
and sell our common shares in the open market. These
transactions may include short sales, purchases to cover
positions created by short sales, stabilizing transactions and
penalty bids or purchase, or passive market making for the
purpose of pegging, fixing or maintaining the price of the notes
and our common shares, in accordance with Regulation M
under the Exchange Act:
|
|
|
|
|
Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the
offering. Covered short sales are sales made in an amount not
greater than the underwriters option to purchase
additional common shares from us in the offering. The
underwriters may close out any covered short position by either
exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through the
over-allotment option.
|
|
|
|
Naked short sales are any sales in excess of the over-allotment
option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position
is more likely to be created if underwriters are concerned that
there may be downward pressure on the price of the shares in the
open market prior to the completion of the offering.
|
|
|
|
Stabilizing transactions consist of various bids for or
purchases of our common shares made by the underwriters in the
open market prior to the completion of the offering.
|
|
|
|
The underwriters may impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a
portion of the underwriting discount received by it because the
representatives of the underwriters have repurchased shares sold
by or for the account of that underwriter in stabilizing or
short covering transactions.
|
S-58
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or slowing a decline in the
market price of our common shares. Additionally, these
purchases, along with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of our
common shares. As a result, the price of our common shares may
be higher than the price that might otherwise exist in the open
market. These transactions may be effected on the Nasdaq Global
Market, in the over-the-counter market or otherwise.
Some of the underwriters and their affiliates have performed
investment banking, commercial banking and commercial services
for us from time to time for which they have received customary
fees and expenses. In addition, the underwriters and their
affiliates also provide, or have provided, advisory and other
financial services to us. The underwriters and their affiliates
may, from time to time, engage in investment banking, commercial
banking and other transactions with and perform services for us
in the ordinary course of their business.
S-59
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the
information incorporated herein and therein by reference may
contain 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:
|
|
|
|
|
our expectations regarding the worldwide demand for electricity
and the market for solar power;
|
|
|
|
our beliefs regarding lack of infrastructure reliability and
long-term fossil fuel supply constraints;
|
|
|
|
our beliefs regarding the inability of traditional fossil
fuel-based generation technologies to meet the demand for
electricity;
|
|
|
|
our beliefs regarding the importance of environmentally friendly
power generation;
|
|
|
|
our expectations regarding governmental support for the
deployment of solar power;
|
|
|
|
our beliefs regarding the future shortage or availability of the
supply of high-purity silicon;
|
|
|
|
our beliefs regarding the acceleration of adoption of solar
power technologies and the continued growth in the solar power
industry;
|
|
|
|
our beliefs regarding the competitiveness of our solar module
products;
|
|
|
|
our expectations with respect to increased revenue growth and
improved profitability;
|
|
|
|
our expectations regarding the benefits to be derived from our
supply chain management and flexible vertical integration
manufacturing strategy;
|
|
|
|
our beliefs and expectations regarding the use of upgraded
metallurgical grade silicon materials (UMgSi) and solar power
products made of this material;
|
|
|
|
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;
|
|
|
|
our beliefs regarding our securing adequate silicon and solar
cell requirements to support our solar module production;
|
|
|
|
our beliefs regarding the effects of environmental regulation;
|
|
|
|
our beliefs regarding the changing competitive arena in the
solar power industry;
|
|
|
|
our future business development, results of operations and
financial condition; and
|
|
|
|
competition from other manufacturers of solar power products and
conventional energy suppliers.
|
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 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 supplement 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.
S-60
This prospectus supplement, 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 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
supplement 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 supplement 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.
S-61
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
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.
Our web site address is
http://www.csisolar.com.
The information on our web site, however, is not, and should not
be deemed to be, a part of this prospectus supplement or the
accompanying prospectus.
This prospectus supplement and the accompany prospectus are part
of a registration statement that we filed with the SEC and do
not contain all of the information in the registration
statement. The full registration statement may be obtained from
the SEC or us, as indicated below. Forms of the underwriting
agreement and other documents establishing the terms of the
offered securities are filed as exhibits to the registration
statement. Statements in this prospectus supplement or the
accompanying prospectus about these documents are summaries and
each statement is qualified in all respects by reference to the
document to which it refers. You should refer to the actual
documents for a more complete description of the relevant
matters. You may inspect a copy of the registration statement at
the SECs Public Reference Room in Washington, D.C.,
as well as through the SECs website.
S-62
LEGAL
MATTERS
Certain legal matters as to the United States federal and New
York law in connection with this offering will be passed upon
for us by Latham & Watkins LLP. Certain legal matters
as to United States federal and New York law in connection with
this offering will be passed upon for the underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation.
Certain other legal matters as to Canadian law will be passed
upon for us by WeirFoulds LLP. Certain legal matters as to
Canadian law will be passed upon for the underwriters by
Stikeman Elliott LLP. Legal matters as to PRC law will be passed
upon for us by Chen & Co. Law Firm. Latham &
Watkins LLP may rely upon WeirFoulds LLP with respect to matters
governed by Canadian law and Chen & Co. Law Firm with
respect to matters governed by PRC law.
EXPERTS
The financial statements and the related financial statement
schedule of Canadian Solar Inc. and subsidiaries (the
Company) incorporated in the prospectus by reference
from the Companys Annual Report on
Form 20-F
for the year ended December 31, 2007, and the effectiveness
of internal control over financial reporting as of
December 31, 2007 have been audited by Deloitte Touche
Tohmatsu CPA Ltd., an independent registered public accounting
firm, as stated in their reports which are incorporated herein
by reference (which reports (1) express an unqualified
opinion on the consolidated financial statements and related
financial statement schedule and include an explanatory
paragraph referring to the adoption of FASB Interpretation
No. 48, Accounting for Uncertainty in Income
Taxes, effective January 1, 2007 and (2) express
an unqualified opinion on the effectiveness of internal control
over financial reporting).
The offices of Deloitte Touche Tohmatsu CPA Ltd. are located at
30th Floor, Bund Center, 222 Yan An Road East, Shanghai,
Peoples Republic of China.
S-63
PROSPECTUS
Common
Shares
Debt Securities
We may offer and sell the securities in any combination from
time to time in one or more offerings, at prices and on terms
described in one or more supplements to this prospectus. The
debt securities may be convertible into or exercisable or
exchangeable for our common shares or our other securities. Our
common shares are listed on the NASDAQ Global Market under the
symbol CSIQ. In addition, this prospectus may be
used to offer securities for the account of persons other than
us.
This prospectus provides you with a general description of the
securities that may be offered. Each time we or any selling
security holder sell securities, we will provide a supplement to
this prospectus that contains specific information about the
offering and the terms of the securities. The supplement may
also add, update or change information contained in this
prospectus. We may also authorize one or more free writing
prospectuses to be provided in connection with a specific
offering. You should carefully read this prospectus, the
applicable prospectus supplement and any related free writing
prospectuses, as well as any documents incorporated by reference
in this prospectus and the applicable prospectus supplement,
before you invest in any of our securities.
Investing in our securities involves risks. See the
Risk Factors section contained in the applicable
prospectus supplement, any related free writing prospectus and
in the documents we incorporate by reference in this prospectus
to read about factors you should consider before investing in
our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or completeness of this
prospectus. Any representation to the contrary is a criminal
offense.
We or any selling security holder may sell the securities
described in this prospectus and any prospectus supplement to or
through one or more underwriters, dealers and agents, or
directly to purchasers, or through a combination of these
methods, on a continuous or delayed basis. See Plan of
Distribution. If any underwriters, dealers or agents are
involved in the sale of any of the securities, their names, and
any applicable purchase price, fee, commission or discount
arrangements between or among them, will be set forth, or will
be calculable from the information set forth, in the applicable
prospectus supplement.
The date of this prospectus is July 14, 2008.
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
7
|
|
|
|
|
8
|
|
|
|
|
9
|
|
|
|
|
10
|
|
|
|
|
11
|
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
16
|
|
|
|
|
23
|
|
|
|
|
25
|
|
|
|
|
25
|
|
ABOUT
THIS PROSPECTUS
You should read this prospectus and any prospectus supplement
together with the additional information described under the
heading Where You Can Find More Information About Us
and Incorporation of Documents by Reference.
In this prospectus, unless otherwise indicated or unless the
context otherwise requires,
|
|
|
|
|
we, us, our, and our
company refer to Canadian Solar Inc. and its 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, US$ or
U.S. dollars refers to the legal currency of
the United States, C$ and Canadian $ are
to the legal currency of Canada; and Euro refers to
the legal currency of the European Union; and
|
|
|
|
shares or common shares refers to our
common shares, with no par value.
|
This prospectus is part of an automatic shelf
registration statement that we filed with the Securities and
Exchange Commission, or SEC, as a well-known seasoned
issuer as defined in Rule 405 under the Securities
Act of 1933, as amended or the Securities Act, using a
shelf registration process. By using a shelf
registration statement, we or any selling security holder may
sell any combination of our common shares, and debt securities
from time to time and in one or more offerings. Each time we or
any selling security holder sell securities, we may provide a
supplement to this prospectus that contains specific information
about the securities being offered and the specific terms of
that offering. The 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
prospectus supplement, you should rely on the prospectus
supplement. Before purchasing any securities, you should
carefully read both this prospectus and any supplement, together
with the additional information described under the heading
Where You Can Find More Information About Us and
Incorporation of Documents by Reference.
You should rely only on the information contained or
incorporated by reference in this prospectus, in any applicable
prospectus supplement or any related free writing prospectus
that we may authorize to be delivered to you. 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. We will not
make an offer to sell these securities in any jurisdiction where
the offer or sale is not permitted. You should assume that the
information appearing in this prospectus, the applicable
supplement to this prospectus or in any related free writing
prospectus is accurate as of its respective date, and that any
information incorporated by reference is accurate only as of the
date of the document incorporated by reference, unless we
indicate otherwise. Our business, financial condition, results
of operations and prospects may have changed since those dates.
1
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
We file reports and other information with the SEC. Information
filed with the SEC by us can be inspected and copied at the
Public Reference Room maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. You
may also obtain copies of this information by mail from the
Public Reference Section of the SEC at prescribed rates. Further
information on the operation of the SECs Public Reference
Room in Washington, D.C. can be obtained by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains a web site that contains reports, proxy
and information statements and other information about issuers,
such as us, who file electronically with the SEC. The address of
that site is
http://www.sec.gov.
Our web site address is
http://www.csisolar.com.
The information on our web site, however, is not, and should not
be deemed to be, a part of this prospectus.
This prospectus and any prospectus supplement are part of a
registration statement that we filed with the SEC and do not
contain all of the information in the registration statement.
The full registration statement may be obtained from the SEC or
us, as indicated below. Forms of the indenture and other
documents establishing the terms of the offered securities are
filed as exhibits to the registration statement. Statements in
this prospectus or any prospectus supplement about these
documents are summaries and each statement is qualified in all
respects by reference to the document to which it refers. You
should refer to the actual documents for a more complete
description of the relevant matters. You may inspect a copy of
the registration statement at the SECs Public Reference
Room in Washington, D.C., as well as through the SECs
website.
INCORPORATION
OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them. This means that we can disclose
important information to you by referring you to those
documents. Each document incorporated by reference is current
only as of the date of such document, and the incorporation by
reference of such documents shall not create any implication
that there has been no change in our affairs since the date
thereof or that the information contained therein is current as
of any time subsequent to its date. The information incorporated
by reference is considered to be a part of this prospectus and
should be read with the same care. When we update the
information contained in documents that have been incorporated
by reference by making future filings with the SEC, the
information incorporated by reference in this prospectus is
considered to be automatically updated and superseded. In other
words, in the case of a conflict or inconsistency between
information contained in this prospectus and information
incorporated by reference into this prospectus, you should rely
on the information contained in the document that was filed
later.
We incorporate by reference the documents listed below:
|
|
|
|
|
Our annual report on
Form 20-F
for the fiscal year ended December 31, 2007 filed with the
SEC on June 3, 2008.
|
|
|
|
Our reports of foreign private issuer on
Form 6-K
filed with the SEC on June 6, 2008 and July 7, 2008.
|
|
|
|
All future annual reports on
Form 20-F,
and any report on
Form 6-K
that we indicate is incorporated by reference into this
prospectus, until we sell all of the securities offered by this
prospectus.
|
Our annual report on
Form 20-F
for the fiscal year ended December 31, 2007 filed on
June 3, 2008, contains a description of our business and
audited consolidated financial statements with a report by our
independent auditors. These financial statements are prepared in
accordance with accounting principles generally accepted in the
United States, or U.S. GAAP.
Copies of all documents incorporated by reference in this
prospectus, other than exhibits to those documents unless such
exhibits are specially incorporated by reference in this
prospectus, will be provided at no cost to each
2
person, including any beneficial owner, who receives a copy of
this prospectus on the written or oral request of that person
made to:
Canadian Solar Inc.
No. 199 Lushan Road
Suzhou New District
Suzhou, Jiangsu 215129
Peoples Republic of China
Telephone:
(86-512)
6690-8088
Attention: Chief Financial Officer
You should rely only on the information that we incorporate by
reference or provide in this prospectus and any supplement. 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.
3
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the
information incorporated herein and therein by reference may
contain forward-looking statements intended to
qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. These
statements, which are not statements of historical fact, may
contain estimates, assumptions, projections
and/or
expectations regarding future events, which may or may not
occur. Words such as anticipate,
believe, could, estimate,
expect, intend, may,
plan, potential, should,
will, would, or similar expressions,
which refer to future events and trends, identify
forward-looking statements. We do not guarantee that the
transactions and events described in this prospectus or in any
prospectus supplement will happen as described or that they will
happen at all. You should read this prospectus and any
accompanying prospectus supplement completely and with the
understanding that actual future results may be materially
different from what we expect. The forward-looking statements
made in this prospectus and any accompanying prospectus
supplement relate only to events as of the date on which the
statements are made. We undertake no obligation, beyond that
required by law, to update any forward-looking statement to
reflect events or circumstances after the date on which the
statement is made, even though our situation will change in the
future.
Whether actual results will conform with our expectations and
predictions is subject to a number of risks and uncertainties,
many of which are beyond our control, and reflect future
business decisions that are subject to change. Some of the
assumptions, future results and levels of performance expressed
or implied in the forward-looking statements we make inevitably
will not materialize, and unanticipated events may occur which
will affect our results. The Risk Factors section of
this prospectus directs you to a description of the principal
contingencies and uncertainties to which we believe we are
subject.
This prospectus also contains or incorporates by reference data
related to the solar power market in several countries,
including China. This market data, including market data from
Solarbuzz, an independent solar energy research firm, includes
projections 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 securities. In addition, the rapidly
changing nature of the solar power market and related regulatory
regimes 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.
4
OUR
COMPANY
We design, develop, 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. In addition, we recently
commenced commercial production of
e-Modules, a
cost-effective medium power solar module product using 100%
upgraded metallurgical grade silicon, or UMgSi. We also design
and produce specialty solar modules and products manufactured
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. We sell
our products under our CSI brand name and to OEM
customers under their own brand names. 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, Italy, the United
States, South Korea, the Czech Republic, China and Canada. We
sell our standard solar modules to distributors, system
integrators and through OEM channels. We sell our
e-Modules to
distributors and system integrators. We sell our specialty solar
modules and products directly to various manufacturers who
integrate our specialty solar modules and products into their
own products and sell and market them as part of their own
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 us 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 and produce better returns
on our invested capital. We also believe that this approach
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, it has enabled us to improve production yields,
control our inventory more efficiently and improve cash
management, which we believe has resulted in increased
confidence in our forecasts for future revenue growth.
We believe that we have contractually secured 95% of our silicon
and solar cell requirements to support solar module production
of 230 to 260MW in 2008. For silicon material supplies, we have
entered into a five-year supply agreement with Luoyang Zhong Gui
High Tech Co. Ltd., or Luoyang Poly, for high purity silicon
from 2006 to 2010. For silicon wafers, we have entered into a
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 AG, or Deutsche Solar,
for a supply of multi-crystalline silicon wafers through 2018.
In November 2007, we entered into various agreements with China
Sunergy Co., Ltd., or China Sunergy, for a supply of 25MW of
solar cells for delivery in 2008, and an agreement with Gintech
Energy Corporation, or Gintech, for a supply of 17MW of solar
cells for delivery in 2008, with an option, subject to
availability, for an extra 5MW. We have other silicon wafer and
solar cell supply agreements in place, including a multi-year
solar wafer supply contract with Jiangsu Shunda Group
Corporation which should provide us with wafer supplies through
2015, a solar cell supply contract with Neo Solar Power and a
UMgSi materials supply contract with Timminco Limited, through
its subsidiary Becancour Silicon Inc., or BSI. We believe these
contracts have diversified our silicon wafer and cell supply
sources and also provide an option of securing additional wafer
and cell supplies from multiple sources, helping us to meet
demand for our solar products.
We have expanded our in-house manufacturing capacity for both
solar cells and solar modules. As of March 31, 2008, we had
400MW of combined annual module manufacturing capacity and 100MW
of annual cell manufacturing capacity. Currently, we intend to
use all of our solar cells in the manufacturing of our own solar
module products.
5
We recently announced our new capacity expansion plan which we
intend to complete during Q1 2009, which includes:
|
|
|
|
|
Increasing our annual internal module capacity to 800MW.
|
|
|
|
Expansion of our annual solar cell manufacturing capacity to
400MW.
|
|
|
|
Construction of a solar ingot and wafer plant in Luoyang, China,
which will give us an annual solar ingot and wafer capacity of
150 to 200MW.
|
We recently commenced commercial production of
e-Modules, a
cost-effective medium power solar module product using 100%
UMgSi, in March 2008. We converted one of our solar cell lines
and dedicated it to upgraded metallurgical grade cells in early
April 2008 and ramped up to full production shortly thereafter.
Delivery of
e-Modules to
some of our European and U.S. customers began in early May. We
have announced sales contracts for 24.5MW of
e-Modules
for shipment in 2008 and believe that we are on track to achieve
our prior estimate of shipping 30 to 40MW of
e-Modules in
2008. We believe our
e-Module
product gives us access to more price-sensitive markets such as
the United States and South Korea where traditional silicon
modules may not be as cost-competitive. We will continue to
receive shipments of UMgSi through 2011 and expect to increase
production of our UMgSi modules in the future.
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
US$9.7 million in 2004 to US$302.8 million in 2007,
and from US$17.5 million for the three month period ended
March 31, 2007 to US$171.2 million for the three
months ended March 31, 2008. We sold 2.2MW, 4.1MW, 14.9MW
and 83.5MW of our solar module products in 2004, 2005, 2006 and
2007, respectively, and 3.9MW and 41.8MW for the three months
ended March 31, 2007 and 2008, respectively.
6
RISK
FACTORS
Please see the factors set forth under the heading Risk
Factors in our most recently filed Annual Report on
Form 20-F,
which is incorporated in this prospectus by reference, and, if
applicable, in any accompanying prospectus supplement, before
investing in any securities that may be offered pursuant to this
prospectus.
7
USE OF
PROCEEDS
We intend to use the net proceeds from the sale of the
securities as set forth in the applicable prospectus supplement.
We will not receive proceeds from sales of securities by persons
other than us except as may otherwise be stated in any
applicable prospectus supplement.
8
ENFORCEABILITY
OF CIVIL LIABILITIES
We were incorporated as an Ontario corporation in October 2001
and were continued as a Canadian corporation under the Canadian
federal corporate statute, the Canada Business Corporations Act,
or 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 U.S. 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:
|
|
|
|
|
recognize or enforce judgments of U.S. 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
|
|
|
|
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.
|
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.
9
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
Ratio of earnings to fixed charges
|
|
|
149X
|
|
|
|
166X
|
|
|
|
17X
|
|
|
|
|
(1)
|
|
|
|
(2)
|
|
|
|
(1) |
|
Earnings for 2006 were insufficient to cover fixed charges by
approximately $9.0 million. |
|
(2) |
|
Earnings for 2007 were insufficient to cover fixed charges by
approximately $0.4 million. |
10
DESCRIPTION
OF SECURITIES
We may issue from time to time, in one or more offerings, the
following securities:
|
|
|
|
|
common shares; and
|
|
|
|
debt securities.
|
We will set forth in the applicable prospectus supplement a
description of the debt securities and the common shares that
may be offered under this prospectus. The terms of the offering
of securities, the initial offering price and the net proceeds
to us will be contained in the prospectus supplement, and other
offering material, relating to such offer. The supplement may
also add, update or change information contained in this
prospectus. You should carefully read this prospectus and any
supplement before you invest in any of our securities.
11
DESCRIPTION
OF COMMON SHARES
We may issue our common shares either alone or underlying other
securities convertible into or exercisable or exchangeable for
our common shares.
Holders of our common shares are entitled to certain rights and
subject to certain conditions as set forth in our articles and
bylaws and the CBCA. See Description of Share
Capital.
12
DESCRIPTION
OF DEBT SECURITIES
We may issue series of debt securities, which may include debt
securities convertible into common shares. When we offer to sell
a particular series of debt securities, we will describe the
specific terms of that series in a supplement to this
prospectus. The following description of debt securities will
apply to the debt securities offered by this prospectus unless
we provide otherwise in the applicable prospectus supplement.
The applicable prospectus supplement for a particular series of
debt securities may specify different or additional terms.
The debt securities offered hereby may be secured or unsecured,
and may be either senior debt securities, senior subordinated
debt securities or subordinated debt securities. The debt
securities offered hereby will be issued under an indenture
between us and The Bank of New York Mellon, as trustee. The
indenture will be qualified under, subject to, and governed by,
the Trust Indenture Act of 1939, as amended. We have
summarized selected portions of the indenture below. The summary
is not complete. The form of the indenture has been incorporated
by reference as an exhibit to this registration statement and
you should read the indenture for provisions that may be
important to you.
General
The terms of each series of debt securities will be established
by or pursuant to a resolution of our board of directors and
detailed or determined in the manner provided in a board of
directors resolution, an officers certificate or by
a supplemental indenture. The particular terms of each series of
debt securities will be described in a prospectus supplement
relating to the series, including any pricing supplement.
We can issue an unlimited amount of debt securities under an
indenture that may be in one or more series with the same or
various maturities, at par, at a premium or at a discount. We
will set forth in a prospectus supplement, including any pricing
supplement, relating to any series of debt securities being
offered the initial offering price, the aggregate principal
amount and the terms of the debt securities, including the
following:
|
|
|
|
|
the title of the debt securities;
|
|
|
|
the price or prices (expressed as a percentage of the aggregate
principal amount) at which we will sell the debt securities;
|
|
|
|
any limit on the aggregate principal amount of the debt
securities;
|
|
|
|
the date or dates on which we will pay the principal on the debt
securities;
|
|
|
|
the rate or rates (which may be fixed or variable) per annum or
the method used to determine the rate or rates (including any
commodity, commodity index, stock exchange index or financial
index) at which the debt securities will bear interest and the
right, if any, to extend the maturity of the debt securities,
the date or dates from which interest will accrue, the date or
dates on which interest will commence and be payable and any
regular record date for the interest payable on any interest
payment date;
|
|
|
|
the place or places where the principal of, premium, and
interest on the debt securities will be payable;
|
|
|
|
the terms and conditions upon which we may redeem the debt
securities;
|
|
|
|
any obligation we have to redeem or purchase the debt securities
pursuant to any sinking fund or analogous provisions or at the
option of a holder of debt securities;
|
|
|
|
the dates on which and the price or prices at which we will
repurchase the debt securities at the option of the holders of
debt securities and other detailed terms and provisions of these
repurchase obligations;
|
|
|
|
the denominations in which the debt securities will be issued,
if other than denominations of $1,000 and any integral multiple
thereof;
|
|
|
|
whether the debt securities will be issued in the form of
certificated debt securities or global debt securities;
|
|
|
|
the portion of principal amount of the debt securities payable
upon declaration of acceleration of the maturity date, if other
than the principal amount;
|
13
|
|
|
|
|
the currency of denomination of the debt securities;
|
|
|
|
the designation of the currency, currencies or currency units in
which payment of principal of, premium and interest on the debt
securities will be made;
|
|
|
|
if payments of principal of, premium or interest on the debt
securities will be made in one or more currencies or currency
units other than that or those in which the debt securities are
denominated, the manner in which the exchange rate with respect
to these payments will be determined;
|
|
|
|
the manner in which the amounts of payment of principal of,
premium or interest on the debt securities will be determined,
if these amounts may be determined by reference to an index
based on a currency or currencies other than that in which the
debt securities are denominated or designated to be payable or
by reference to a commodity, commodity index, stock exchange
index or financial index;
|
|
|
|
any provisions relating to any security provided for the debt
securities;
|
|
|
|
any addition to or change in the events of default described in
the indenture with respect to the debt securities and any change
in the acceleration provisions described in the indenture with
respect to the debt securities;
|
|
|
|
any addition to or change in the covenants described in the
indenture with respect to the debt securities;
|
|
|
|
whether the debt securities will be senior or subordinated and
any applicable subordination provisions;
|
|
|
|
any other terms of the debt securities, which may modify or
delete any provision of the indenture as it applies to that
series; and
|
|
|
|
any depositaries, interest rate calculation agents, exchange
rate calculation agents or other agents with respect to the debt
securities.
|
We may issue debt securities that are exchangeable
and/or
convertible into our common shares. The terms, if any, on which
the debt securities may be exchanged for
and/or
converted will be set forth in the applicable prospectus
supplement. Such terms may include provisions for conversion,
either mandatory, at the option of the holder or at our option,
in which case the number of common shares or other securities to
be received by the holders of debt securities would be
calculated as of a time and in the manner stated in the
prospectus supplement. Neither the trustee nor the conversion
agent shall have any duty to verify calculations respecting
conversions. All such calculations shall be performed by us and
our agents. Neither the trustee nor the conversion agent shall
have any liability for not verifying our calculations and shall
be entitled to rely upon them.
We may issue debt securities that provide for an amount less
than their stated principal amount to be due and payable upon
declaration of acceleration of their maturity pursuant to the
terms of the indenture. We will provide you with information on
the U.S. federal income tax considerations, Canadian
federal income tax considerations and other special
considerations applicable to any of these debt securities in the
applicable prospectus supplement. If we denominate the purchase
price of any of the debt securities in a foreign currency or
currencies or a foreign currency unit or units, or if the
principal of and any premium and interest on any series of debt
securities is payable in a foreign currency or currencies or a
foreign currency unit or units, we will provide you with
information on the restrictions, elections, specific terms and
other information with respect to that issue of debt securities
and such foreign currency or currencies or foreign currency unit
or units in the applicable prospectus supplement.
14
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global securities that will be
deposited with, or on behalf of, a depositary (the
depositary) identified in the prospectus supplement.
Global securities will be issued in registered form and in
either temporary or definitive form. Unless and until it is
exchanged in whole or in part for the individual debt
securities, a global security may not be transferred except as a
whole by the depositary for such global security to a nominee of
such depositary or by a nominee of such depositary to such
depositary or another nominee of such depositary or by such
depositary or any such nominee to a successor of such depositary
or a nominee of such successor. The specific terms of the
depositary arrangement with respect to any debt securities of a
series and the rights of and limitations upon owners of
beneficial interests in a global security will be described in
the applicable prospectus supplement.
Governing
Law
The indenture and the debt securities will be governed by, and
construed in accordance with, the internal laws of the State of
New York.
15
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 and an
unlimited number of preferred shares issuable in series. As of
the date of this registration statement, 32,129,138 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
Directors 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 debt securities
in this prospectus. We have no current plan to issue any
preferred shares.
16
Transfer
Agent and Registrar
BNY Mellon Shareowner Services is the transfer agent and
registrar for our common shares. BNY Mellon Shareowner
Services address is 480 Washington Boulevard,
29th Floor, Jersey City, NJ 07310.
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 the CBCA and 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
17
fixed by 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:
|
|
|
|
|
amendments to articles;
|
|
|
|
arrangements;
|
|
|
|
amalgamations other than amalgamations involving a holding body
corporate, one or more wholly owned subsidiaries
and/or one
or more sister corporations;
|
|
|
|
continuances under the laws of another jurisdiction;
|
|
|
|
voluntary dissolutions; and
|
|
|
|
sales, leases or exchanges of all or substantially all the
property of a corporation other than in the ordinary course of
business.
|
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:
|
|
|
|
|
amalgamate with a corporation other than a holding body
corporate, one or more wholly owned subsidiaries
and/or one
or more sister corporations;
|
|
|
|
amend the our articles of incorporation to add, change or remove
any provisions restricting the issue, transfer or ownership of
shares;
|
|
|
|
amend the ours articles to add, change or remove any restriction
upon the business or businesses that the we may carry on;
|
|
|
|
continue under the laws of another jurisdiction;
|
18
|
|
|
|
|
sell, lease or exchange of all or substantially all our property
other than in the ordinary course of business; or
|
|
|
|
carry out a going-private or squeeze-out transaction.
|
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:
|
|
|
|
|
under eighteen years of age;
|
|
|
|
adjudicated as mentally unsound;
|
|
|
|
a person that is not an individual; or
|
|
|
|
a person who has the status of a bankrupt.
|
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.
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
19
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:
|
|
|
|
|
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
|
|
|
|
a report of a person whose profession lends credibility to a
statement made by such person.
|
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:
|
|
|
|
|
have acted honestly and in good faith with a view to the best
interests of the corporation, or, as the case may be, to the
best interests of the other entity for which the individual
acted as a director or officer or in a similar capacity at the
corporations request; and
|
|
|
|
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 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 thereby 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.
20
Interested
Directors Transactions
Under the CBCA, if a director or officer of a corporation has
any interest in a material contract or material transaction,
whether made or proposed, with the corporation if such director
or officer is a party to the contract or transaction or is a
director or an officer, or an individual acting in a similar
capacity, of a party to the contract or transaction or has a
material interest in a party to the contract or transaction, the
director generally may not vote on any resolution to approve the
contract or transaction, but the contract is not invalid by
reason only of the relationship if such interest is disclosed in
accordance with the requirements set out in the CBCA, the
contract or transaction is approved by the other directors or by
the shareholders and the contract or transaction 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, the Director appointed
under the CBCA or any other person who in the discretion of the
court is a proper person to make such an application. Under the
CBCA, no such action may be brought and no such intervention in
an action may be made unless the court is satisfied that:
|
|
|
|
|
the complainant has given notice to the directors of the
corporation or its subsidiary of the complainants
intention to apply to the court for such leave not less than
14 days before bringing the application, or as otherwise
directed by the court, if the directors of the corporation or
its subsidiary do not bring, diligently prosecute or defend or
discontinue the action;
|
|
|
|
the complainant is acting in good faith; and
|
|
|
|
it appears to be in the interests of the corporation or its
subsidiary that the action be brought, prosecuted, defended or
discontinued.
|
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 intention or final order it thinks fit to rectify the
matters complained of, if the court is satisfied upon
application of a complainant (as defined below) that:
|
|
|
|
|
any act or omission of the corporation or any of its affiliates
effects a result;
|
|
|
|
the business or affairs of the corporation or any of its
affiliates are or have been conducted in a manner; or
|
|
|
|
the powers of the directors of the corporation or any of its
affiliates are or have been exercised in a manner,
|
21
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 the
corporation or any of its 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.
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, their personal
representatives and the Director appointed under the CBCA may
examine, free of charge during our usual business hours:
|
|
|
|
|
our articles, bylaws and all amendments thereto;
|
|
|
|
the minutes and resolutions of shareholders;
|
|
|
|
copies of all notices of directors filed under the CBCA; and
|
|
|
|
our securities register.
|
Any of our shareholders may request a copy of the articles,
bylaws and all amendments thereto free of charge.
22
PLAN OF
DISTRIBUTION
We or any selling security holder may sell or distribute the
securities offered by this prospectus, from time to time, in one
or more offerings, as follows:
|
|
|
|
|
through agents;
|
|
|
|
to dealers or underwriters for resale;
|
|
|
|
directly to purchasers; or
|
|
|
|
through a combination of any of these methods of sale.
|
In addition, we may issue the securities as a dividend or
distribution or in a subscription rights offering to our
existing security holders. In some cases, we or dealers acting
for us or on our behalf may also repurchase securities and
reoffer them to the public by one or more of the methods
described above. This prospectus may be used in connection with
any offering of our securities through any of these methods or
other methods described in the applicable prospectus supplement.
Our securities distributed by any of these methods may be sold
to the public, in one or more transactions, either:
|
|
|
|
|
at a fixed price or prices, which may be changed;
|
|
|
|
at market prices prevailing at the time of sale;
|
|
|
|
at prices related to prevailing market prices; or
|
|
|
|
at negotiated prices.
|
Sale
through Underwriters or Dealers
If underwriters are used in the sale, the underwriters will
acquire the securities for their own account, including through
underwriting, purchase, security lending or repurchase
agreements with us or any selling security holder. The
underwriters may resell the securities from time to time in one
or more transactions, including negotiated transactions.
Underwriters may sell the securities in order to facilitate
transactions in any of our other securities (described in this
prospectus or otherwise), including other public or private
transactions and short sales. Underwriters may offer securities
to the public either through underwriting syndicates represented
by one or more managing underwriters or directly by one or more
firms acting as underwriters. Unless otherwise indicated in the
applicable prospectus supplement, the obligations of the
underwriters to purchase the securities will be subject to
certain conditions, and the underwriters will be obligated to
purchase all the offered securities if they purchase any of
them. The underwriters may change from time to time any initial
public offering price and any discounts or concessions allowed
or reallowed or paid to dealers.
If dealers are used in the sale of securities offered through
this prospectus, we or any selling security holder will sell the
securities to them as principals. They may then resell those
securities to the public at varying prices determined by the
dealers at the time of resale. The applicable prospectus
supplement will include the names of the dealers and the terms
of the transaction.
Direct
Sales and Sales through Agents
We or any selling security holder may sell the securities
offered through this prospectus directly. In this case, no
underwriters or agents would be involved. Such securities may
also be sold through agents designated from time to time. The
applicable prospectus supplement will name any agent involved in
the offer or sale of the offered securities and will describe
any commissions payable to the agent. Unless otherwise indicated
in the applicable prospectus supplement, any agent will agree to
use its commonly reasonable efforts to solicit purchases for the
period of its appointment.
23
We or any selling security holder may sell the securities
directly to institutional investors or others who may be deemed
to be underwriters within the meaning of the Securities Act with
respect to any sale of those securities. The terms of any such
sales will be described in the applicable prospectus supplement.
Delayed
Delivery Contracts
If the applicable prospectus supplement indicates, we or any
selling security holder may authorize agents, underwriters or
dealers to solicit offers from certain types of institutions to
purchase securities at the public offering price under delayed
delivery contracts. These contracts would provide for payment
and delivery on a specified date in the future. The contracts
would be subject only to those conditions described in the
prospectus supplement. The applicable prospectus supplement will
describe the commission payable for solicitation of those
contracts.
Market
Making, Stabilization and Other Transactions
Unless the applicable prospectus supplement states otherwise,
each series of offered securities will be a new issue and will
have no established trading market. We may elect to list any
series of offered securities on an exchange. Any underwriters
that we or any selling security holder uses in the sale of
offered securities may make a market in such securities, but may
discontinue such market making at any time without notice.
Therefore, we cannot assure you that the securities will have a
liquid trading market.
Any underwriter may also engage in stabilizing transactions,
syndicate covering transactions and penalty bids in accordance
with Rule 104 under the Securities Exchange Act of 1934.
Stabilizing transactions involve bids to purchase the underlying
security in the open market for the purpose of pegging, fixing
or maintaining the price of the securities. Syndicate covering
transactions involve purchases of the securities in the open
market after the distribution has been completed in order to
cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the securities
originally sold by the syndicate member are purchased in a
syndicate covering transaction to cover syndicate short
positions. Stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the
securities to be higher than it would be in the absence of the
transactions. The underwriters may, if they commence these
transactions, discontinue them at any time.
Derivative
Transactions and Hedging
We, any selling security holder and the underwriters may engage
in derivative transactions involving the securities. These
derivatives may consist of short sale transactions and other
hedging activities. The underwriters may acquire a long or short
position in the securities, hold or resell securities acquired
and purchase options or futures on the securities and other
derivative instruments with returns linked to or related to
changes in the price of the securities. In order to facilitate
these derivative transactions, we or any selling security holder
may enter into security lending or repurchase agreements with
the underwriters. The underwriters may effect the derivative
transactions through sales of the securities to the public,
including short sales, or by lending the securities in order to
facilitate short sale transactions by others. The underwriters
may also use the securities purchased or borrowed from us or
others (or, in the case of derivatives, securities received from
us in settlement of those derivatives) to directly or indirectly
settle sales of the securities or close out any related open
borrowings of the securities.
Loans of
Securities
We or a selling shareholder may loan or pledge securities to a
financial institution or other third party that in turn may sell
the securities using this prospectus and an applicable
prospectus supplement.
General
Information
Agents, underwriters, and dealers may be entitled, under
agreements entered into with us, to indemnification by us,
against certain liabilities, including liabilities under the
Securities Act. Our agents, underwriters, and dealers, or their
affiliates, may be customers of, engage in transactions with or
perform services for us or our affiliates, in the ordinary
course of business for which they may receive customary
compensation.
24
VALIDITY
OF THE SECURITIES
The validity of the debt securities offered hereby will be
passed upon for us by Latham & Watkins LLP. The
validity of the common shares offered hereby will be passed upon
for us by WeirFoulds LLP.
EXPERTS
The financial statements and the related financial statement
schedule of Canadian Solar Inc. and subsidiaries (the
Company) incorporated in this prospectus by
reference from the Companys Annual Report on
Form 20-F for the year ended December 31, 2007, and
the effectiveness of internal control over financial reporting
as of December 31, 2007 have been audited by Deloitte
Touche Tohmatsu CPA Ltd., an independent registered public
accounting firm, as stated in their reports which are
incorporated herein by reference (which reports (1) express
an unqualified opinion on the consolidated financial statements
and related financial statement schedule and include an
explanatory paragraph referring to the adoption of FASB
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, effective January 1, 2007 and
(2) express an unqualified opinion on the effectiveness of
internal control over financial reporting).
The offices of Deloitte Touche Tohmatsu CPA Ltd. are located at
30th Floor, Bund Center, 222 Yan An Road East,
Shanghai, Peoples Republic of China.
25
3,500,000
Common Shares
Canadian
Solar Inc.
|
|
Deutsche
Bank Securities |
Piper Jaffray |
Oppenheimer &
Co.
July 16, 2008