F-4/A 1 d922096df4a.htm AMENDMENT NO.3 TO FORM F-4 Amendment No.3 to Form F-4
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As filed with the Securities and Exchange Commission on September 29, 2015

Registration No.: 333-204069

 

 

 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

 

Amendment No.3

to

Form F-4

Registration Statement

Under

The Securities Act of 1933

 

 

SPI Energy Co., Ltd.

(Exact name registrant as specified in its Charter)

 

 

 

Cayman Islands   3674   N/A

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

7F/B Block, 1st Building, Jinqi Plaza

No. 2145 Jinshajiang Road, Putuo District

Shanghai, P.R. China

Telephone: +86 021-80129001

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

CT Corporation System

111 Eighth Avenue,

New York, NY 10011

(212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

Daniel B. Eng

Weintraub Tobin

475 Sansome Street, Suite 1800

San Francisco, CA 94111 USA

(415) 443-1400

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the flowing box and list the Securities Act Registration Statement number of the earliest effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ¨

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered(1)

 

Amount

to be

Registered(2)

 

Proposed

maximum

offering price per

share

 

Proposed

maximum

Aggregate

offering price

 

Amount of

registration fee

Ordinary Shares

  650,000,000   $1.98   $1,287,000,000   $149,549.40

Ordinary Shares

  10,000,000   $1.82   $18,200,000   $2,114.84

Ordinary Shares

  14,814,820   $1.65   $24,444,453   $2,840.45

Total

  674,814,820       $1,329,644,453   $154,504.69(3)

 

 

(1) American depositary shares, or ADSs, issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6. Each ADS represents ten (10) ordinary shares.
(2) Relates to ordinary shares, $0.00001 par value per share, of SPI Energy Co., Ltd., or SPI Energy, issuable to holders of common stock, $0.0001 par value per share, of Solar Power, Inc., or SPI, in the proposed redomicile merger of SPI whereby SPI will merge within and into a wholly-owned subsidiary of SPI Energy and in which holders of SPI common stock shall receive ADSs representing SPI Energy ordinary shares. The number of SPI Energy ordinary shares to be registered is based on the maximum number that is expected to be issued pursuant to the redomicile merger. The actual number of ordinary shares issued pursuant to the redomicile merger may be less than the number of ordinary shares being registered.
(3) Previously paid.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this consent solicitation statement/prospectus is not complete and may be changed. We may not sell these securities or accept any offers to buy these securities until the registration statement filed with the Securities and Exchange Commission is effective. This consent solicitation statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities, nor shall there be any sale of these securities, in any jurisdiction where such offer, solicitation or sale is not permitted or would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

Subject to completion, dated September 29, 2015

 

LOGO

[], 2015

To All the Shareholders of Solar Power, Inc.:

This consent solicitation statement/prospectus is being delivered to you on behalf of Solar Power, Inc.’s (the “Company”) board of directors to request that holders of the Company’s common stock as of September 29, 2015 (the “Record Date”), execute and return written consents to adopt and approve an Amended and Restated Agreement and Plan of Merger and Reorganization, dated as of September 29, 2015 (the “Merger Agreement”), which provides for a redomicile of the Company to the Cayman Islands through a merger (“Redomicile Merger”) that would result in each ten (10) shares of the Company’s common stock being converted into the right to receive one American depositary share, or ADS, representing ten (10) ordinary shares in the capital of SPI Energy Co., Ltd., a company incorporated under the laws of the Cayman Islands (“SPI Energy”), which ordinary shares will be issued by SPI Energy in connection with the Redomicile Merger. Following the Redomicile Merger, the former shareholders of the Company will become the beneficial owners of the capital stock of SPI Energy, and SPI Energy, together with its subsidiaries, will own and continue to conduct our business in substantially the same manner as is currently being conducted by the Company and its subsidiaries. SPI Energy will also be managed by substantially the same board of directors and executive officers that manage the Company today. In connection with the Redomicile Merger, we are also asking holders of the Company’s common stock to consent to adopt SPI Energy’s proposed Amended and Restated Memorandum and Articles contingent upon adoption and approval of the Merger Agreement, and effective immediately after consummation of the Merger. At the close of business on the Record Date, the Company had [●] shares of common stock outstanding and entitled to vote.

As a record holder of shares of the Company’s outstanding common stock on the Record Date, you are urged to complete, date and sign the enclosed written consent and promptly return it to the Company. The Company’s board of directors has set [●], 2015 as the final date for receipt of written consents. The Company reserves the right to extend the final date for receipt of written consents without any prior notice to shareholders.

As further explained in the accompanying consent solicitation statement/prospectus, our board of directors expects that the reorganization of the Company’s corporate structure, which will be facilitated by consent of the Redomicile Merger, will result in the following benefits:

 

    alignment of our structure with our international corporate strategy;

 

    reduction of our operational, administrative, legal and accounting costs over the long-term through the reduction of our reporting obligations and related expenses because SPI Energy is expected to qualify as a “foreign private issuer” under the rules and regulations of the Securities and Exchange Commission (“SEC”) and be exempt from certain rules under the Securities Exchange Act of 1934, as amended (“Exchange Act”), that would otherwise apply if SPI Energy were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer; and

 

    providing us with additional flexibility to pursue listings on international stock exchanges, such as The Hong Kong Stock Exchange (HKEx), should we desire to do so in the future.

We have chosen to redomicile under the laws of the Cayman Islands because of its political and economic stability, effective judicial system, absence of exchange control or currency restrictions and availability of professional and support services.

The Redomicile Merger cannot be completed unless the Merger Agreement is approved by the written consent of the holders of a majority of the Company’s outstanding shares. There are a number of risks which you should be aware of in considering whether to consent in favor of the proposal to approve the Merger Agreement. The accompanying written consent solicitation statement/prospectus contains important information about the Merger Agreement and related Redomicile Merger and the risks associated thereto and we encourage you to read it. In particular, you should carefully consider the discussion in the section of the consent solicitation statement/prospectus entitled “Risk Factors and Caution Regarding Forward-Looking Statements” beginning on page 17.

Generally, for U.S. federal income tax purposes, shareholders of the Company will not recognize gain or loss as a result of the Redomicile Merger. For a more detailed discussion of U.S. federal income tax considerations for shareholders, please see the section entitled “Material United States Federal Income Tax Consequences Relating to the Redomicile Merger and the Ownership and Disposition of SPI Energy American Depositary Shares” beginning on page 71. We urge you to consult your own tax advisor regarding the particular tax consequences of the Redomicile Merger for you.

This consent solicitation statement/prospectus describes the Merger Agreement and the actions to be taken in connection with the Redomicile Merger and provides additional information about the parties involved. Please give this information your careful attention. A summary of the dissenters’ rights that may be available to you is provided in the section entitled “Rights of Dissenting Shareholder” on page 59 of this consent solicitation statement/prospectus.

Regardless of the number of shares you own, your written consent is important. Please complete, date and sign the written consent furnished with this consent solicitation statement/prospectus and return it promptly to the Company by one of the means described in “Submission of Consents” on page 50 of this consent solicitation statement/prospectus. You may change or revoke your consent at any time before written consents from holders owning more than a majority of the outstanding shares approve and adopt the Merger Agreement and related Redomicile Merger have been filed with the corporate secretary of the Company.

Our Board of Directors has determined that the redomicile from California to the Cayman Islands to be effected by the Redomicile Merger is advisable and in the best interests of the Company and our shareholders and, as such, has unanimously approved the Merger Agreement and related Redomicile Merger. Our Board of Directors recommends that you consent to the Merger Agreement and Amended and Restated Memorandum and Articles.

We encourage you to read the accompanying consent solicitation statement/prospectus carefully because it explains the proposed Redomicile Merger, the documents related to the Redomicile Merger and other related matters. You can also obtain other information about us from documents that we have filed with the SEC.

 

Sincerely,
/s/ Xiaofeng Peng
Xiaofeng Peng, Chairman of the Board

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS WRITTEN CONSENT SOLICITATION STATEMENT/PROSPECTUS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This consent solicitation statement/prospectus is dated [●], 2015 and is being first mailed to Solar Power, Inc. shareholders on or about [●], 2015.


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SOLAR POWER, INC.

3500 Douglas Blvd., Suite 240

Roseville, CA 95661-3888

(916) 770-8100

NOTICE OF SOLICITATION OF WRITTEN CONSENT

General

This consent solicitation statement/prospectus dated [●], 2015 is being furnished in connection with the solicitation of written consents (the “Consent Solicitation”) of the shareholders of Solar Power, Inc., a California corporation (the “Company,” “SPI,” “us,” “we,” or “our”), to adopt and approve the Agreement and Plan of Merger and Reorganization (“Merger Agreement”) and related proposal as set forth as follows:

 

    To approve and adopt the Amended and Restated Agreement and Plan of Merger and Reorganization dated September 29, 2015, by and among SPI, SPI Energy, and SPI Merger Sub, Inc., a Delaware corporation (“SPI Merger Sub”), a copy of which is attached as Annex A to the accompanying consent solicitation statement/prospectus pursuant to which the Company will merge with and into SPI Merger Sub, with SPI Merger Sub changing its name to Solar Power, Inc., a Delaware corporation, and each ten (10) shares of the Company’s common stock will be converted into the right to receive one American depositary share, or ADS, representing ten (10) ordinary shares in the capital of SPI Energy Co., Ltd., a company incorporated under the laws of the Cayman Islands; and

 

    To approve and adopt SPI Energy’s Amended and Restated Memorandum and Articles of Association attached as Annex B.

Our board of directors unanimously adopted the Merger Agreement and Memorandum and Articles of Association Proposal and recommends that shareholders consent to the adoption of both proposals. The board of directors has decided to seek written consents rather than calling a special meeting of shareholders in order to eliminate the costs and management time involved in holding a special meeting. Written consents are being solicited from all of our shareholders of record pursuant to Article II, Section 11 of our bylaws.

Consent materials, which include this consent solicitation statement/prospectus and a written consent form (the “Written Consent”), are being mailed to all holders of our outstanding shares of our common stock, par value $0.0001 per share (the “Shares”), on or about [●]. 2015. Our board of directors set the close of business on September 29, 2015 as the record date for the determination of shareholders entitled to act with respect to the Consent Solicitation (the “Record Date”). As of the Record Date, the Company had [●] outstanding Shares held by approximately [●] holders of record.

Any beneficial owner of the Shares who is not a record holder must arrange with the person who is the record holder or such record holder’s assignee or nominee to: (i) execute and deliver a Written Consent on behalf of such beneficial owner, or (ii) deliver a proxy so that such beneficial owner can execute and deliver a Written Consent on its own behalf.

Shareholders who wish to consent must deliver their properly completed and executed Written Consents to the Corporate Secretary of the Company in accordance with the instructions set forth in the Written Consent. The Company reserves the right (but is not obligated) to accept any Written Consent received by any other reasonable means or in any form that reasonably evidences the giving of consent for the approval of the Merger Agreement and Memorandum and Articles of Association.

Requests for copies of this consent solicitation statement/prospectus and the Written Consent should be directed to the Company at the address or telephone number set forth above.

 

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The Company expressly reserves the right, in its sole discretion and regardless of whether any of the conditions of the Consent Solicitation have been satisfied, subject to applicable law, at any time prior to 5:00 p.m. Pacific Time on [●], 2015 (the “Expiration Date”) to (i) terminate the Consent Solicitation for any reason, including if the consent of shareholders holding a majority of the Shares has been received, (ii) waive any of the conditions to the Consent Solicitation, or (iii) amend the terms of the Consent Solicitation.

The final results of this Consent Solicitation will be disclosed in a current report on Form 8-K to be filed with the SEC by the Company.

All questions as to the form of all documents and the validity and eligibility (including time of receipt) and acceptance of Written Consents and revocations of Written Consents will be determined by the Company, in its sole discretion, which determination shall be final and binding.

Revocation of Consents

Written Consents may be revoked or withdrawn by any shareholder at any time before the Expiration Date or earlier termination of the Consent Solicitation. A notice of revocation or withdrawal must specify the record shareholder’s name and the number of Shares being withdrawn. After the Expiration Date, all Written Consents previously executed and delivered and not revoked will become irrevocable. Revocations may be submitted to the Corporate Secretary of the Company by the same methods as Written Consents may be submitted.

Solicitation of Consents

Our board of directors is sending you this consent solicitation statement/prospectus in connection with its solicitation of shareholder consent to approve the Merger Agreement. The Company will pay for the costs of solicitation. We will pay the reasonable expenses of brokers, nominees and similar record holders in mailing consent materials to shareholders. Because the approval of holders of a majority of the outstanding Shares is required to approve the Merger Agreement, not returning the Written Consent, or returning the Written Consent marked “Abstain,” will have the same effect as a vote against the Merger Agreement.

The Company has made no arrangements and has no understanding with any other person regarding the solicitation of consents hereunder, and no person has been authorized by the Company to give any information or to make any representation in connection with the solicitation of consents, other than those contained herein. In addition to solicitations by mail, consents may be solicited by directors, officers and other employees of the Company who will receive no additional compensation therefor.

Dissenters Rights

In order to comply with applicable dissenters’ rights, if the Merger Agreement is approved, the Company will send to its shareholders (i) a notice of the approval of the Merger Agreement by the outstanding Shares within 10 days after the date of that approval, accompanied by a copy of California Corporations Code Sections 1300-1304, (ii) a statement of the price determined by the Company to represent the fair market value of the dissenting Shares, and (iii) a brief description of the procedure to be followed if a shareholder desires to exercise dissenters’ right under those sections. Pursuant to the Merger Agreement, in the event that holders owning more than 1.0% of the outstanding Shares exercise their dissenters’ rights, the Company may terminate the Redomicile Merger. A copy of California Corporations Code Sections 1300-1304 is attached as Annex C.

Householding Matters

Shareholders that share a single address will receive only one consent solicitation statement/prospectus and Written Consent at that address, unless we have received instructions to the contrary from any shareholder at that address. This practice, known as “householding,” is designed to reduce our printing and postage costs. However,

 

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if a shareholder of record residing at such an address wishes to receive a separate copy of this consent solicitation statement/prospectus or of future consent solicitations (as applicable), he or she may write to us or call us at: Solar Power, Inc., 3500 Douglas Blvd., Suite 240, Roseville, CA 95661-3888, Attention: Erica Gatdula: (916) 770-8164 or, in China, Sara Li: +86-21-8012 9039. We will deliver separate copies of this consent solicitation statement/prospectus and form of Written Consent promptly upon such request. If you are a shareholder of record receiving multiple copies of the consent solicitation statement/prospectus and form of Written Consent, you can request householding by contacting us in the same manner. If you own your Shares through a bank, broker or other shareholder of record, you can request additional copies of this consent solicitation statement/prospectus and form of Written Consent or request householding by contacting the shareholder of record.

Written consents from the holders owning a majority of the shares of the Company’s common stock outstanding on the Record Date are required to adopt and approve the Merger Agreement, including the Redomicile Merger and transactions contemplated thereby.

Regardless of the number of shares you own, your Written Consent is important. Please complete, date and sign the Written Consent furnished with this consent solicitation statement/prospectus and return it promptly to the Company by one of the means described in “Submission of Consents” on page 50 of this consent solicitation statement/prospectus.

 

By Order of the Board of Directors,
/s/ Xiaofeng Peng
Xiaofeng Peng, Chairman of the Board

 

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TABLE OF CONTENTS

 

     PAGE  

Cautionary Statement Regarding Forward Looking Statements

     1   

Conventions that Apply to this Consent Solicitation/Prospectus

     2   

Information about the Proposed Redomicile Merger

     3   

Summary

     12   

Market for Solar Power Common Stock

     15   

Solar Power, Inc. Financial Information/Summary Pro Forma Financial Information

     15   

Risk Factors and Caution Regarding Forward-Looking Statements

     17   

Solicitation of Written Consents

     50   

Proposal 1 — Adoption of the Merger Agreement

     53   

Proposal 2 — Adoption of Amended and Restated Memorandum and Articles of Association of SPI Energy Co., Ltd.

     76   

Business of Solar Power, Inc.

     77   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     94   

Directors, Executive Officers and Significant Employees of the Company

     112   

Executive and Director Compensation of the Company

     115   

Security Ownership of Certain Beneficial Owners and Management of the Company

     119   

Related Party Transactions

     121   

Description of Share Capital of SPI Energy

     124   

Description of American Depositary Shares

     129   

Comparison of Rights under California and Cayman Islands Law

     137   

Enforceability of Civil Liabilities

     146   

Legal Matters

     148   

Experts

     149   

Where You Can Find More Information

     150   

Financial Statements of Solar Power, Inc.

     F-1   

Annex A — Amended and Restated Agreement and Plan of Merger and Reorganization

     A-1   

Annex B — Amended and Restated Memorandum and Articles of Association of SPI Energy Co., Ltd.

     B-1   

Annex C — Chapter 13 of the California General Corporation Law

     C-1   

 

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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This consent solicitation/prospectus contains or incorporates by reference forward looking statements within the meaning of the private securities litigation reform act of 1995 with respect to the restructuring and our financial condition, results of operations and business. This act protects public companies from liability for forward looking statements in private securities litigation if the forward looking statement is identified and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from the forward looking statements. Forward looking statements by their nature involve a degree of risk and uncertainty, including, but not limited to, the risks and uncertainties referred to under “Risk Factors” and elsewhere herein or in the documents incorporated by reference. All statements regarding the expected benefits of the restructuring are forward looking statements. The forward looking statements may include statements for the period following completion of the Redomicile Merger. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “continues,” “may,” “can,” “continue,” “potential,” “should,” “will,” “could,” “intends,” “plans” or similar expressions in this consent solicitation statement/prospectus or in the documents incorporated by reference. You should be aware that any forward looking statements in this consent solicitation statement/prospectus reflect only current expectations and are not guarantees of performance. Many possible events or factors could affect our future financial results and performance. This could cause our results or performance to differ materially from those we express in our forward looking statements. You should consider these risks when deciding how to vote. Also, as you make your decision how to vote, please take into account that forward looking statements speak only as of the date of this consent solicitation statement/prospectus or, in the case of documents incorporated by reference, the date of any such document, or in certain cases, as of a specified date.

We have identified factors that could cause actual plans or results to differ materially from those included in any forward looking statements. These factors include, but are not limited to, the following:

 

    an inability to realize expected benefits of the restructuring within the anticipated time frame, or at all;

 

    changes in tax law, tax treaties or tax regulations or the interpretation or enforcement thereof, including taxing authorities not agreeing with our assessment of the effects of such laws, treaties and regulations;

 

    an inability to execute any of our business strategies;

 

    costs or difficulties related to the Redomicile Merger and related restructuring transactions, which could be greater than expected; and

 

    such other risk factors as may be discussed in our reports filed with the SEC.

We disclaim any obligation or undertaking to disseminate any updates or revisions to our statements, forward looking or otherwise, to reflect changes in our expectations or any change in events, conditions or circumstances on which any such statements are based.

 

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CONVENTIONS THAT APPLY TO THIS CONSENT SOLICITATION/PROSPECTUS

Unless otherwise indicated and except where the context otherwise requires, in this consent solicitation/prospectus:

 

    “we,” “us,” “company,” “our,” or “SPI” refer to Solar Power, Inc., a California company, and its current and former subsidiaries for the relevant periods;

 

    “2013” and “2014” refer to our fiscal years ended December 31, 2013 and 2014, respectively;

 

    “AUD” and “Australian Dollar” refer to the legal currency of Australia;

 

    “China” and “PRC” refer to the People’s Republic of China, excluding, for purposes of this consent solicitation/prospectus, Taiwan, Hong Kong and Macau;

 

    “DG” refers to distributed generation;

 

    “EPC” refers to engineering, procurement and construction services;

 

    “EUR” and “Euro” refer to the legal currency of the 19 countries comprising the euro area;

 

    “FIT” refers to feed-in tariff(s);

 

    “LDK” refers to LDK Solar Co., Ltd.;

 

    “O&M” refers to operations and maintenance services;

 

    “PV” refers to photovoltaic;

 

    “RMB” and “Renminbi” refer to the legal currency of the People’s Republic of China;

 

    “Share” refers to shares of Solar Power, Inc.’s common stock, with par value of $0.0001 per share.

 

    “SPI Energy” refers to SPI Energy Co., Ltd., a company incorporated under the laws of the Cayman Islands.

 

    “U.K.” refers to the United Kingdom;

 

    “U.S.” refers to the United States of America; and

 

    “watt” or “W” refers to the measurement of total electrical power, where “kilowatt” or “kW” means one thousand watts, “megawatts” or “MW” means one million watts and “gigawatt” or “GW” means one billion watts.

Names of certain companies provided in this consent solicitation/prospectus are translated or transliterated from their original Chinese legal names.

Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

The conversion of amounts of Australian Dollars, Euros and Renminbi, respectively, into U.S. dollars in this consent solicitation/prospectus, made solely for the convenience of readers, is based on the noon buying rates in the city of New York for cable transfers of Australian Dollars, Euros and Renminbi, respectively, as certified for customs purposes by the Federal Reserve Bank of New York as of June 30, 2015, which was AUD 0.7704 to 1.00 U.S. dollar, EUR0.8965 to 1.00 U.S. dollar, RMB 6.2000 to $1.00 U.S. dollar, respectively, unless indicated otherwise. No representation is intended to imply that the Australian Dollar, Euro or Renminbi could have been, or could be, converted, realized or settled into U.S. dollars at the foregoing rates or any other rate.

 

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INFORMATION ABOUT THE PROPOSED REDOMICILE MERGER

The Board of Directors of the Company is providing this consent solicitation statement/prospectus in connection with seeking consent for the approval of the Merger Agreement and related Redomicile Merger. Only shareholders of record at the close of business on September 29, 2015, the Record Date, are entitled to notice of, and to provide Written Consents. As of the Record Date, [●] shares of the Company’s common stock, $0.0001 par value per share, were issued and outstanding, and no shares of the Company’s preferred stock, $0.0001 par value per share, were issued and outstanding. This consent solicitation statement/prospectus was mailed on or about [●], 2015 to all shareholders of the Company.

The following questions and answers are intended to address briefly some commonly asked questions regarding the Merger Agreement and, in particular, the proposed Redomicile Merger. These questions and answers may not address all issues that may be important to you. Please refer to the more detailed information contained elsewhere in this consent solicitation statement/prospectus, its annexes and the documents referred to.

Questions and Answers Relating to the Written Consent and Merger Agreement

 

Q: What is the purpose of the Written Consent and consent solicitation statement/prospectus?

 

A: To vote on the following proposals:

 

    To approve and adopt the Amended and Restated Agreement and Plan of Merger and Reorganization dated September 29, 2015, by and among the Company, SPI Energy, and SPI Merger Sub, Inc. a Delaware corporation (“SPI Merger Sub”), a copy of which is attached as Annex A to the accompanying consent solicitation statement/prospectus pursuant to which the Company will merge with and into SPI Merger Sub, with SPI Merger Sub changing its name to Solar Power, Inc., a Delaware corporation, and each ten (10) shares of the Company’s common stock being converted into the right to receive one American depositary share, or ADS, representing ten (10) ordinary shares in the capital of SPI Energy Co., Ltd., a company incorporated under the laws of the Cayman Islands. No fraction of an ADS shall be issued by virtue of the Redomicile Merger, but in lieu thereof each holder of shares of SPI common stock who would otherwise be entitled to a fraction of an ADS in connection with the Redomicile Merger shall receive from The Bank of New York Mellon, as the exchange agent, the net proceeds the exchange agent will receive from sale of the aggregate of those fractional ADSs. This document serves as a consent solicitation of the Company’s shareholders of the Merger Agreement and as a prospectus of SPI Energy used to offer ordinary shares in the capital of SPI Energy to the Company’s shareholders in exchange for their shares of the Company’s common stock pursuant to the terms of the Merger Agreement.

 

    To approve and adopt SPI Energy’s Amended and Restated Memorandum and Articles of Association (“Memorandum and Articles of Association”)

 

Q: What is the Board of Directors’ recommendation?

 

A: The Company’s Board of Directors recommends that you vote your shares:

“FOR” the adoption of the Merger Agreement and related Redomicile Merger and adoption of the Memorandum and Articles of Association.

 

Q: Who is entitled to Consent?

 

A: Shareholders who our records show owned shares of the Company’s common stock as of the close of business on the Record Date (September 29, 2015) may consent to the approval of the Merger Agreement.

Registered Shareholders. If your shares are registered directly in your name with the Company’s transfer agent, you are considered, with respect to those shares, the shareholder of record, and this consent

 

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solicitation statement/prospectus is being provided to you directly by the Company. As the shareholder of record, you have the right to consent to approve the Merger Agreement and Memorandum and Article of Association.

Street Name Shareholders. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in “street name.” This consent solicitation statement/prospectus is being forwarded to you by your broker, bank or other nominee, who is considered, with respect to those shares, the record holder. As the beneficial owner, you have the right to direct your broker, bank or other nominee to consent to approve the Merger Agreement.

 

Q: How many votes do I have?

 

A: For the Merger Agreement, you have one vote for each share of the Company’s common stock you own as of the Record Date.

 

Q: How can I vote my shares?

 

A: If you are the shareholder of record, you may vote your shares by using the Internet voting site, by the toll-free telephone number provided on the website to which the notice directs you or by completing, signing, dating and returning a requested written consent card in the provided, postage pre-paid envelope. Specific instructions for using the Internet and telephone voting systems are on the website and written consent card (and repeated in the box below). The Internet and telephone voting systems for shareholders of record will be available until 1:00 a.m., Central Time, on October         , 2015 (the morning of the Expiration Date).

If you are the beneficial owner of shares of the Company’s common stock held in street name, you have the right to direct your broker, bank or nominee on how to vote your shares. Your broker, bank or nominee has enclosed a voting instruction card for you to use in directing the broker, bank or nominee regarding how to vote your shares.

CONSENT BY INTERNET

Consent by Internet

• Go to www.investorvote.com/SOPW

• Or scan the QR code with your smartphone

• Follow the steps outlined on the secure website

Shares Held Through Broker, Bank or Nominee:

Internet: www.proxyvote.com

24 hours a day/7 days a week

Through 1:00 am Central Time, October         , 2015

INSTRUCTIONS:

Read this Consent Solicitation Statement/Prospectus.

Go to the applicable website listed above.

Have your notice of internet availability of consent materials, proxy card or voting instruction card in hand (including the control number specified on that notice or card) and follow the instructions.

 

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VOTE BY TELEPHONE

Call toll free 1-800-652-VOTE (8683) within the USA, US territories &

Canada on a touch tone telephone

• Follow the instructions provided by the recorded message

Shares Held of Record:

1-800-652-VOTE (8683)

Shares Held Through Broker, Bank or Nominee:

1-800-579-1639

Toll-free 24 hours a day/7 days a week

Through 1:00 am Central Time, October         , 2015

INSTRUCTIONS:

Read this Consent Solicitation Statement/Prospectus.

Call the applicable toll-free number above.

Have your Consent Solicitation Statement/Prospectus materials, proxy card or voting instruction card in hand (including the control number specified on that notice or card) and follow the instructions.

 

Q: How may I obtain a separate set of this consent solicitation statement/prospectus?

 

A: If you share an address with another shareholder, previously consented to receiving one copy of this consent solicitation statement/prospectus on a voter instruction card submitted for last year’s annual meeting of shareholders and do not participate in electronic delivery of proxy materials, only one copy of this consent solicitation statement statement/prospectus is being delivered to you. A shareholder at a shared address who received a single copy of this consent solicitation statement/prospectus may request a separate copy either by calling the number provided below or by mailing a written request to the Company at the address below:

Solar Power, Inc.

3500 Douglas Blvd., Suite 240

Roseville, CA 95661-3888

 

Attention:

  Erica Gatdula   or   Attn:   Sara Li

Telephone:

  (916) 770-8164     Telephone:   +86-21-80129039

Fax:

  (916) 770-8199    

Fax (China):

  +86 021-80129003

The Company will promptly mail a separate copy of this consent solicitation statement/prospectus upon such request, but any such request should be made as soon as possible. You may also download or review this consent solicitation statement/prospectus by going to the Company’s website at www.spisolar.com.

 

Q: Can I change my Written Consent?

 

A: For shares that you hold of record, you may change your Written Consent at any time prior to the Expiration Date. You may send your revocation by contacting Computershare Investor Services by email using proxyvote@computershare.com or fax to (919) 502-0674

 

or

Making a timely and valid later Internet or telephone vote, as the case may be, if you have previously voted on the Internet or by telephone.

 

 

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If you are the beneficial owner of shares held in street name, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in a timely manner.

 

Q: What is the requirement to approve the Merger Agreement and Memorandum and Articles of Association?

 

A: For the Redomicile Merger to be able to proceed, the majority of the outstanding shares of the Company’s common stock must vote “FOR” the adoption of the Merger Agreement and “FOR” the adoption of the Memorandum and Articles of Association.

 

Q: How are votes counted?

 

A: To approve the Merger Agreement and Memorandum and Articles of Association, you may vote “FOR,” “AGAINST” or “ABSTAIN.” If you elect to “ABSTAIN,” the abstention has the same effect as a vote “AGAINST” the Merger Agreement and Memorandum and Articles of Association.

If you provide specific instructions with regard to Merger Agreement and Memorandum and Articles of Association, your shares will be voted as you instruct on the Written Consent. If no instructions are indicated, the shares will be voted as recommended by the board of directors.

 

Q: Who will bear the cost of soliciting Written Consents?

 

A: This Consent Solicitation is made by the Company, and all costs associated with soliciting Written Consents will be borne by the Company. The Company will reimburse brokerage firms, banks and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Written Consents may be solicited by certain of the Company’s directors, officers and regular employees personally or by telephone, facsimile or electronic mail. No additional compensation will be paid to these persons for such services. In addition, the Company may engage a third party solicitor to assist in the obtaining written consents for which compensation will be paid by the Company.

 

Q: What if I have questions about lost stock certificates or need to change my mailing address?

 

A: You may contact our transfer agent, Computershare Trust Company, N.A., by telephone at 800-962-4284 or by going to the Computershare Trust Company, N.A. website at www.computershare.com/investor and clicking the Contact Us tab at the top of the page if you have lost your stock certificate or need to change your mailing address.

 

Q: Whom should I contact with questions?

 

A: Alternatively, you may obtain information from us by making a request by telephone or in writing as follows:

 

Solar Power, Inc.

3500 Douglas Blvd., Suite 240

Roseville, CA 95661-3888

  or  

Solar Power, Inc.

7F/B Block, 1st Building, Jinqi Plaza

No. 2145 Jinshajiang Road, Putuo District

Shanghai, PRC

Attention:

 

Erica Gatdula

    Attention:   Sara Li

Telephone:

 

(916) 770-8164

    Telephone:   +86-21-8012 9039
Fax:   (916) 771-8199     Fax:   +86-21-8012 9003

 

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Questions and Answers Relating to the Redomicile Merger

 

Q: What is the Redomicile Merger?

 

A: Under the Merger Agreement, the Company will merge with and into SPI Merger Sub, with SPI Merger Sub surviving the Redomicile Merger as a wholly owned subsidiary of SPI Energy and changing its name to Solar Power, Inc., Delaware corporation. Upon consummation of the Redomicile Merger, each ten (10) shares of the Company’s common stock will be converted into the right to receive one American depositary share, or ADS, representing ten (10) ordinary shares in the capital of SPI Energy, which ordinary shares will be issued by SPI Energy in connection with the Redomicile Merger. No fraction of an ADS shall be issued by virtue of the Redomicile Merger, but in lieu thereof each holder otherwise entitled to a fraction of an ADS shall receive cash in accordance with the Merger Agreement. The ADSs will be delivered by The Bank of New York Mellon, as depositary, also referred to the as the depositary. Following the Redomicile Merger, SPI Energy, together with its subsidiaries, will own and continue to conduct our business in substantially the same manner as it is currently being conducted by the Company and its subsidiaries. SPI Energy will also be managed by substantially the same board of directors and executive officers that manage the Company today.

 

Q: Why does the Company want to engage in the Redomicile Merger?

 

A: The Redomicile Merger is part of a reorganization of the Company’s corporate structure approved by our board of directors that we expect will, among other things, result in a reduction in operational, administrative, legal and accounting costs over the long term and provide us with flexibility to pursue listings on international stock exchanges, such as the HKEx. However, there can be no assurance that following the Redomicile Merger we will be able to realize these expected benefits for the reasons discussed in the section entitled “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Merger and Reorganization -The expected benefits of the Redomicile Merger and reorganization may not be realized.”

 

Q: Will the Redomicile Merger affect current or future operations?

 

A: The Redomicile Merger is not expected to have a material impact on how we conduct day-to-day operations. The new corporate structure would not change our future operational plans to grow our business, including our focus on our China business. The location of future operations will depend on the needs of the business, which will be determined without regard to SPI Energy’s jurisdiction of incorporation.

 

Q: Is the Redomicile Merger taxable to me?

 

A: U.S. holders will not recognize gain or loss for U.S. federal income tax purposes upon receipt of ADSs in exchange for the Company’s common stock. The aggregate tax basis in the ADSs received in the Redomicile Merger will equal such U.S. holder’s aggregate tax basis in the Company’s common stock surrendered. A U.S. holder’s holding period for the ADSs that are received in the Redomicile Merger generally should include such U.S. holder’s holding period for the common stock of the Company surrendered. Please see the section entitled “Material United States Federal Income Tax Consequences Relating to the Redomicile Merger and the Ownership and Disposition of SPI Energy American Depositary Shares” beginning on page 71.

THE TAX TREATMENT OF THE REDOMICILE MERGER UNDER STATE OR LOCAL LAW WILL DEPEND ON THE JURISDICTION. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR PRIOR TO CONSENTING REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE REDOMICILE MERGER TO YOU.

 

Q: Has the U.S. Internal Revenue Service rendered a ruling on any aspects of the Redomicile Merger?

 

A: No ruling has been requested from the U.S. Internal Revenue Service, or the IRS, in connection with the Redomicile Merger.

 

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Q: When do you expect to complete the Redomicile Merger?

 

A: If the adoption of the Merger Agreement is approved by our shareholders, we anticipate that the Redomicile Merger will become effective during the fourth quarter of 2015, although the Redomicile Merger may be abandoned by our board of directors prior to its completion. Please see the section entitled “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Redomicile Merger and Reorganization-Our Board of Directors may choose to defer or abandon the Redomicile Merger.”

 

Q: What types of information and reports will SPI Energy make available to shareholders following the Redomicile Merger?

 

A: Following completion of the Redomicile Merger, SPI Energy is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC. SPI Energy will remain subject to the provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. However, as a foreign private issuer, SPI Energy will be exempt from certain rules under the Securities Exchange Act of 1934, as amended (“Exchange Act”), that would otherwise apply if SPI Energy were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. For example:

 

    SPI Energy may include in its SEC filings financial statements prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, or with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, without reconciliation to U.S. GAAP;

 

    SPI Energy will not be required to provide as many Exchange Act reports, or as frequently or as promptly, as U.S. companies with securities registered under the Exchange Act. For example, SPI Energy will not be required to file current reports on Form 8-K within four business days from the occurrence of specific material events. Instead, SPI Energy will need to promptly furnish reports on Form 6-K any information that SPI Energy (a) makes or is required to make public under the laws of the Cayman Islands, (b) files or is required to file under the rules of any stock exchange, or (c) otherwise distributes or is required to distribute to its shareholders. Unlike Form 8-K, there is no precise deadline by which Form 6-K must be furnished. In addition, SPI Energy will not be required to file its annual report on Form 10-K, which may be due as soon as 60 days after its fiscal year end. As a foreign private issuer, SPI Energy will be required to file an annual report on Form 20-F within four months after its fiscal year end;

 

    SPI Energy will not be required to provide the same level of disclosure on certain issues, such as executive compensation;

 

    SPI Energy will be exempt from filing quarterly reports under the Exchange Act with the SEC;

 

    SPI Energy will not be subject to the requirement to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information;

 

    SPI Energy will not be required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and

 

    SPI Energy will not be required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

Accordingly, after the completion of the Redomicile Merger, if you hold SPI Energy securities, you may receive less information about SPI Energy and its business than you currently receive with respect to the Company and be afforded less protection under the U.S. federal securities laws than you are entitled to currently.

 

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If SPI Energy loses its status as a foreign private issuer at some future time, then it will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if it were a company incorporated in the U.S. The costs incurred in fulfilling these additional regulatory requirements could be substantial. Please see the sections entitled “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Redomicile Merger and Reorganization-The expected benefits of the merger and reorganization may not be realized” and “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Redomicile Merger and Reorganization.” If SPI Energy fails to qualify as a foreign private issuer upon completion of the Redomicile Merger, or loses its status as a foreign private issuer at some future time, SPI Energy would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that it would not incur as a foreign private issuer.

 

Q: Do I have to take any action to exchange my common stock in the Company to receive ADSs representing SPI Energy ordinary shares?

 

A: Each ten (10) shares of the Company’s common stock registered in your name or which you beneficially own through your broker will be converted into the right to receive one ADS representing ten (10) SPI Energy ordinary shares and such ordinary shares will be registered in the depositary’s name in SPI Energy’s register of members upon completion of the Redomicile Merger. Upon completion of the Redomicile Merger, only registered shareholders reflected in SPI Energy’s register of members will have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon SPI Energy ordinary shares registered in their respective names. As a holder of ADSs representing SPI Energy ordinary shares, you will receive distributions made on the SPI Energy ordinary shares from the depositary and will be entitled to instruct the depositary how to exercise voting rights attaching to those SPI ordinary shares, in each case subject to the terms of the deposit agreement that will govern the ADSs. Any attempted transfer of the Company’s common stock prior to the Redomicile Merger that is not properly documented and reflected in the stock records maintained by the Company’s transfer agent as of immediately prior to the Effective Time will not be reflected in holdings of ADSs representing SPI Energy’s ordinary shares upon completion of the Redomicile Merger. Registered holders of ADSs seeking to transfer ADSs representing SPI Energy ordinary shares following the Redomicile Merger will be required to provide customary transfer documents required by the depositary to complete the transfer. If you hold your shares of the Company’s common stock in an account with a broker or other securities intermediary, you will receive delivery of ADSs in your account with that same broker or other securities intermediary.

If you hold the Company’s common stock in certificated form, you may exchange your common stock certificates of the Company for ADSs in uncertificated form representing SPI Energy ordinary shares following the Redomicile Merger. We will request that all of the Company’s stock certificates be returned to our exchange agent following the Redomicile Merger. Soon after the closing of the Redomicile Merger, you will be sent a letter of transmittal from our exchange agent. It is expected that, prior to the Effective Time, The Bank of New York Mellon will be appointed as our exchange agent for the Redomicile Merger. The letter of transmittal will contain instructions explaining the procedure for surrendering your stock certificates in the Company to receive ADSs in uncertificated form representing SPI Energy ordinary shares. YOU SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED WRITTEN CONSENT. SPI Energy’s current transfer agent is Maples Fund Services (Cayman) Limited (“MaplesFS”) which will continue to serve as the transfer agent for SPI Energy ordinary shares after the Effective Time.

 

Q: What happens to the Company’s stock options and other equity awards at the effective time of the Redomicile Merger?

 

A:

At the Effective Time, all outstanding options to purchase shares of the Company’s common stock granted or issued prior to the Effective Time and all other outstanding equity awards granted under our equity compensation plans to directors, employees and consultants, as applicable, will entitle the holder to

 

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  purchase or receive, or receive payment based on, as applicable, an equal number of SPI Energy ordinary shares. Immediately prior to the Effective Time, all existing equity compensation plans of the Company, as may be amended, will be adopted and assumed by SPI Energy. We do not anticipate an increase to the total number of shares underlying options and awards outstanding under our assumed equity compensation plans or shares otherwise issuable thereunder. Future awards would be subject to and governed by the terms of our assumed equity compensation plans and any agreements entered into pursuant thereto.

 

Q: Can I trade my common stock in the Company before the Redomicile Merger is completed?

 

A: Yes. Common stock in the Company will continue to be quoted on the OTC Markets through the last trading day prior to the date of completion of the Redomicile Merger, which is anticipated to take place during the fourth quarter of 2015.

 

Q: After the Redomicile Merger, where can I trade my ADSs representing SPI Energy ordinary shares?

 

A: We expect that as of the Effective Time, the ADSs will be quoted on the OTC Markets. The Company and SPI Energy are in the process of applying for listing of the ADSs with the Nasdaq Capital Market and hope to complete that process concurrent with or shortly after the consummation of the Redomicile Merger.

 

Q: How will my rights as a shareholder of SPI Energy change after the Redomicile Merger relative to my rights as a shareholder of the Company prior to the Redomicile Merger?

 

A:

There are differences in rights afforded under California law and Cayman Islands law, including but not limited to: (i) whether shareholder approval for a sale of all or substantially all of the property of a company is required; (ii) whether shareholders have the right to inspect corporate records of a company; and (iii) under what circumstances may the shareholders bring a derivative suit on behalf of a company. The California law and Cayman Islands law also differ in terms of shareholder voting requirements: under California law, our current bylaws and articles of incorporation may be amended by the vote of a majority of shares of stock entitled to vote, unless the articles of incorporation requires the vote of a greater number of shares, whereas Cayman Islands law requires a special resolution of not less than two-thirds of the votes cast by those shareholders entitled to vote at a general meeting for any amendment to the memorandum and articles of association of SPI Energy. As a result, it may be more difficult for shareholders to amend the memorandum and articles of association of SPI Energy after the Redomicile Merger. In addition, the articles of association of SPI Energy after the Redomicile Merger will contain provisions that could delay, defer or prevent a merger, change in control or other corporate actions of SPI Energy that could be beneficial to our shareholders. See “Risk Factors and Caution Regarding Forward-Looking Statements—Risks Related to the Redomicile Merger and Reorganization—As a result of different shareholder voting requirements in the Cayman Islands relative to California, we will have less flexibility with respect to our ability to amend our constitutional documents and enter into certain business combinations that we now have” and “Risk Factors and Caution Regarding Forward-Looking Statements—Risks Related to Our Shares, Ordinary Shares of SPI Energy and the ADSs—The articles of association of SPI Energy contain anti-takeover provisions that could prevent a change in control even if such takeover is beneficial to SPI Energy shareholders.” Because of differences between California law and Cayman Islands law and differences between the governing documents of the Company and SPI Energy, we are unable to adopt governing documents for SPI Energy that are identical to the governing documents for the Company. SPI Energy’s proposed amended and restated memorandum and articles of association differ from the Company’s bylaws and articles of incorporation, both in form and substance, and the rights of shareholders of SPI Energy will change relative to your rights as a shareholder of the Company as a result of the Redomicile Merger and SPI Energy shareholders may not be afforded as many rights as a shareholder of SPI Energy under applicable laws and SPI Energy’s memorandum and articles of association as you had as a shareholder of the Company under applicable laws and the Company’s articles of incorporation and bylaws. Further, after the Redomicile Merger, you will be a holder of ADSs and not ordinary shares. Your rights as a holder of ADSs will differ

 

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  from the rights of a common shareholder of the Company and the rights of a holder of ordinary shares of SPI Energy and will be established by the terms of the deposit agreement that will govern the ADSs. Please see the sections entitled “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Redomicile Merger and Reorganization-Your rights as a shareholder of the Company will change as a result of the Redomicile Merger and you may not be afforded as many rights as a shareholder of SPI Energy under applicable laws and SPI Energy’s memorandum and articles of association as you were as a shareholder of the Company under applicable laws and SPI’s articles of incorporation and bylaws,” “Description of Share Capital of SPI Energy”, “Comparison of Rights under California and Cayman Islands Law” and “Description of American Depositary Shares.” Notwithstanding the foregoing, the changes above may not change your rights as a shareholder significantly in practice because SPI has a concentrated ownership structure with a few shareholders each holding more than five percent of the Company’s common stock. For further details on the security ownership of certain beneficial owners of the Company, please see the section entitled “Security Ownership of Certain Beneficial Owners and Management of the Company.” Additionally, as a foreign private issuer, SPI Energy will be permitted to follow corporate governance practices in accordance with Cayman Islands laws.

 

Q: Do I have Dissenters’ Rights?

 

A: In connection with the Redomicile Merger, our shareholders will have dissenters’ rights under California General Corporate Law.

 

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SUMMARY

The following summary highlights selected information from this consent solicitation statement/prospectus and may not contain all of the information that is important to you. To better understand the Merger Agreement, including the Redomicile Merger and other transactions contemplated thereby being considered by written consent by you, you should carefully read this entire consent solicitation statement/prospectus, including the Merger Agreement attached as Annex A to this consent solicitation statement/prospectus. For purposes of this consent solicitation statement/prospectus, the term “Merger Agreement” will refer to the Merger Agreement, as the same may be amended.

The Parties to the Merger Agreement

Solar Power, Inc. The Company is a global provider of photovoltaics (PV) solutions for business, residential, government and utility customers and investors. The Company provides a full spectrum of EPC services to third party project developers, as well as develops, owns and operates solar projects that sell electricity to the grid in multiple countries, including China, the U.S., the U.K., Panama, Greece, Japan and Italy. In early 2015, www.solarbao.com, primarily targeting customers in China and a first of its kind online energy e-commerce and investment platform, was launched. This platform enables individual and institutional investors to purchase PV based investments and enables retail customers to purchase solar kits should they plan on building DG projects. This platform is intended to create a network connecting investors keen on the solar industry and developers.

SPI Energy Co., Ltd. SPI Energy Co., Ltd. is a newly formed exempted company incorporated under the laws of the Cayman Islands and currently a wholly-owned subsidiary of the Company. An “exempted” company under the laws of the Cayman Islands is one which receives such registration as a result of satisfying the Registrar of Companies in the Cayman Islands that it conducts its operations mainly outside of the Cayman Islands and is as a result exempted from complying with certain provisions of the Companies Law (2013 Revision) of the Cayman Islands, such as the general requirement to file an annual return of its shareholders with the Registrar of Companies, and is permitted flexibility in certain matters, such as the ability to register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands. SPI Energy does not have a significant amount of assets or liabilities and has not engaged in any business since its formation other than activities associated with its anticipated participation in the Redomicile Merger.

SPI Merger Sub, Inc. SPI Merger Sub is a newly formed Delaware corporation and a wholly owned subsidiary of SPI Energy. SPI Merger Sub was formed for the sole purpose of facilitating the Redomicile Merger, does not have a significant amount of assets or liabilities, and has not engaged in any business since its formation other than activities associated with its anticipated participation in the Redomicile Merger.

The principal executive offices of each of the Company, SPI Energy and SPI Merger Sub are located at 7F/B Block, 1st Building, Jinqi Plaza, No. 2145 Jinshajiang Road, Putuo District, Shanghai, China; Telephone: +86 021-80129001; Facsimile: +86 021-80129002. The Company also has an office located at 3500 Douglas Blvd., Suite 240, Roseville, CA 95661-3888; Telephone: (916) 770-8100.

Background and Reasons for the Redomicile Merger

We believe the Redomicile Merger, which would change our place of incorporation from the United States to the Cayman Islands, is consistent with our international corporate strategy and would allow us to reduce operational, administrative, legal and accounting costs over the long term.

 



 

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Our corporate objective has been to enhance our position in key infrastructure products with attractive growth potential in selective geographic markets. To achieve this goal, our strategy has been focused on our core strengths and aligned with favorable long term market trends relating to China, the U.K., Panama, Greece, Japan and Italy.

Based upon the foregoing, in January 2015, we announced that we will move our headquarters to Shanghai, China, and we undertook an initiative to transition certain key functions, including our headquarters and finance, to China in order to eliminate functional duplication and reduce operating expenses. We also recently experienced significant changes in our management and our board of directors, and substantially all of our executive team and members of our board of directors reside outside the United States. The recent changes in the composition of our management and board of directors further support our reasons for moving our headquarters and our place of incorporation outside the United States.

The Merger Agreement

A copy of the Merger Agreement is attached as Annex A to this consent solicitation statement/prospectus. The Company encourages you to read the entire Merger Agreement carefully because it is the principal document governing the Redomicile Merger.

Amended and Restated Memorandum and Articles of Association

A copy of SPI Energy’s Amended and Restated Memorandum and Articles of Association is attached as Annex B to this consent solicitation statement/prospectus. The Company encourages you to read the entire Memorandum and Articles of Association because it is the governing document for SPI Energy.

SPI Energy Co., Ltd. Ordinary Shares

If the Redomicile Merger is completed, excluding dissenting shares, each ten (10) shares of the Company’s common stock shall convert into the right to receive one ADS representing ten (10) ordinary shares in the capital of SPI Energy, which ordinary shares will be issued by SPI Energy in connection with the Redomicile Merger. Following the Redomicile Merger, the former shareholders of the Company will become holders of ADSs representing SPI Energy ordinary shares, and SPI Energy, together with its subsidiaries, will own and continue to conduct our business in substantially the same manner as is currently being conducted by the Company and its subsidiaries.

Treatment of SPI Options, Warrants and Convertible Securities

In connection with the Redomicile Merger, each outstanding option, warrant or convertible security exercisable or convertible into common stock of the Company will be assumed by SPI Energy and will become an option, warrant or convertible security exercisable or convertible into an equal number of ordinary shares in the capital of SPI Energy under the same terms and conditions.

Overview of the Merger Agreement

The Company, Solar Energy and SPI Merger Sub are required to complete the Merger Agreement only if certain customary conditions are satisfied or waived, including the approval of the Merger Agreement by the Company’s shareholders; the registration statement on Form F-4, of which this consent solicitation statement/prospectus is a part, must have been declared effective by the SEC; and holders owning not more than 1.0% of the outstanding common stock as of the Record Date exercise their Dissenters’ rights.

Board of Directors; Management of the SPI Energy Following the Redomicile Merger

Following the Redomicile Merger, SPI Energy will be managed by substantially the same board of directors and executive officers that manage the Company.

 



 

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Accounting Treatment

The Redomicile Merger will be accounted for as a legal reorganization with no change in ultimate ownership interest immediately before and after the transaction. Accordingly, all assets and liabilities will be recorded at historical cost as an exchange between entities under common control.

Material U.S. Federal Income Tax Consequences

The Company will receive an opinion of Weintraub Tobin, United States counsel to the Company, that the Redomicile Merger will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, sometimes referred to herein as the Code or the IRC. U.S. holders will not recognize gain or loss for U.S. federal income tax purposes upon receipt of ADS in exchange for the Company’s common stock.

Comparison of Shareholder Rights

Upon consummation of the Redomicile Merger, the holders of issued and outstanding common stock of the Company will be entitled to receive ADSs representing SPI Energy ordinary shares. The rights of the holders of the Company’s common stock are governed by the Company’s Articles of Incorporation, bylaws and California General Corporation Law, while the rights of holders of SPI Energy’s ordinary shares are generally governed by SPI Energy’s memorandum and articles of association, as amended and restated from time to time, and the Companies Law (2013 Revision) of the Cayman Islands and the common law of the Cayman Islands. There are differences in rights afforded under California law and Cayman Islands law, including but not limited to: (i) whether shareholder approval for a sale of all or substantially all of the property of a company is required; (ii) whether shareholders have the right to inspect corporate records of a company; and (iii) under what circumstances may the shareholders bring a derivative suit on behalf of a company. Further, as a holder of ADSs, upon consummation of the Redomicile Merger, you will not be treated as one of the shareholders of SPI Energy and you will not have shareholder rights. Instead, the depositary will be treated as the holder of the shares underlying your ADSs. Please see the risk factor entitled “Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights” beginning on page 49.

Dissenters’ Rights in Connection with the Redomicile Merger

If the Merger Agreement is approved by written consent of the Company’s shareholders and is not abandoned or terminated, holders of the Company’s common stock who did not approve the Merger Agreement via written consent may, by complying with Sections 1300 through 1313 of the California General Corporation Law or CGCL, be entitled to dissenters’ rights as described herein and receive cash for the fair market value of their common stock. For more information about dissenters’ rights, see Sections 1300 through 1313 of the CGCL, attached as Annex C to this consent solicitation statement/prospectus.

Risks Associated with the Redomicile Merger

Holders of the Company’s common stock and, assuming consummation of the Redomicile Merger, SPI Energy’s ordinary shares, or ADSs representing such shares, will be subject to various risks associated with SPI Energy’s business and industries. These risks are discussed in greater detail under the section entitled “Risk Factors and Caution Regarding Forward-Looking Statements” in this consent solicitation statement/prospectus. The Company encourages you to read and consider all of these risks carefully.

 



 

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MARKET FOR SOLAR POWER COMMON STOCK

Our shares of common stock began quotation on the OTCBB under the symbol “SOPW.OB.” The high and low bid information in U.S. dollars on the OTCBB of our Shares during the periods indicated are as follows:

 

     High Bid      Low Bid  

September 1, 2015 through September 25, 2015

   $ 1.85       $ 1.48   

August 1, 2015 through August 31, 2015

   $ 1.99       $ 1.60   

July 1, 2015 through July 31, 2015

   $ 1.96       $ 1.35   

June 1, 2015 through June 30, 2015

   $ 2.05       $ 1.35   

May 1, 2015 through May 31, 2015

   $ 2.05       $ 1.65   

April 1, 2015 through April 30, 2015

   $ 2.19       $ 1.86   

March 1, 2015 through March 31, 2015

   $ 2.22       $ 1.72   

February 1, 2015 through February 28, 2015

   $ 1.81       $ 1.60   

January 1, 2015 through January 31, 2015

   $ 2.03       $ 1.55   

Fiscal Year Ended December 31, 2014

     

Fourth Quarter to December 31, 2014

   $ 2.95       $ 1.39   

Third Quarter to September 30, 2014

   $ 1.78       $ 0.22   

Second Quarter to June 30, 2014

   $ 0.33       $ 0.17   

First Quarter to March 31, 2014

   $ 0.37       $ 0.15   

Fiscal Year Ended December 31, 2013

     

Fourth Quarter to December 31, 2013

   $ 0.42       $ 0.06   

Third Quarter to September 30, 2013

   $ 0.22       $ 0.03   

Second Quarter to June 30, 2013

   $ 0.06       $ 0.03   

First Quarter to March 31, 2013

   $ 0.12       $ 0.05   

Fiscal Year Ended December 31, 2012

   $ 0.70       $ 0.05   

Fiscal Year Ended December 31, 2011

   $ 0.62       $ 0.20   

Fiscal Year Ended December 31, 2010

   $ 1.42       $ 0.15   

These Over-the-Counter Bulletin Board bid quotations reflect inter dealer prices, without retail mark up, mark down or commission and may not represent actual transactions. On September 25, 2015, the last reported sale price for our shares of common stock was $1.65 per share.

As of [●], 2015, the number of outstanding shares of common stock was 629,664,618 and we had approximately 2,900 holders of record. Of the Shares outstanding as of that date, 201,810,121 Shares, representing approximately 32.05% of the outstanding Shares, were owned U.S. shareholders. The number of Shares owned by U.S. shareholders includes 131,746,347 Shares owned by LDK Solar USA, Inc., a California company and subsidiary of LDK Solar Co., Ltd., a Cayman Islands company. If you exclude the Shares owned by LDK Solar USA, Inc., the percentage of Shares owned by U.S. shareholders would be approximately 11.12%.

We have never declared or paid cash dividends on our Shares and do not anticipate paying any cash dividends on our Shares in the foreseeable future.

The Company and SPI Energy are in the process of applying for listing of ADSs representing SPI Energy’s ordinary shares with the Nasdaq Capital Market and hope to complete that process concurrent with or shortly thereafter the consummation of the Redomicile Merger. ADSs would be issued upon consummation of the Redomicile Merger.

SOLAR POWER, INC. FINANCIAL INFORMATION

SUMMARY PRO FORMA FINANCIAL INFORMATION

The consolidated financial statements of the Company, including the notes to the financial statements, for the years ended December 31, 2014 and 2013 and the six months ended June 30, 2015 and 2014 are included in this consent solicitation statement/prospectus elsewhere.

 

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No financial information for either SPI Energy or SPI Merger Sub as they were formed for the sole purpose of effecting the Redomicile Merger. In addition, no pro forma financial information is present in this consent solicitation statement/prospectus because there are no significant pro forma adjustments required to be made to the historical consolidated balance sheet nor consolidated income statements of the Company to give effect to the Redomicile Merger. The Redomicile Merger will be accounted for as a legal reorganization with no change in ultimate ownership interest immediately before and after the transaction. Please see the section entitled “Adoption of The Merger Agreement-Accounting Treatment of the Redomicile Merger.”

 

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RISK FACTORS AND CAUTION REGARDING FORWARD-LOOKING STATEMENTS

In considering whether to consent to the proposal to adopt the Merger Agreement in connection with the Redomicile Merger, you should consider carefully the following risks or investment considerations, in addition to the other information in this consent solicitation statement/prospectus. In addition, please note that this consent solicitation statement/prospectus contains or incorporates by reference “forward-looking statements” and “forward-looking information” under applicable securities laws. These forward-looking statements include, but are not limited to, statements about the Redomicile Merger and reorganization and our plans, objectives, expectations and intentions with respect to future operations, including the benefits or impact described in this consent solicitation statement/prospectus that we expect to achieve as a result of the Redomicile Merger and reorganization. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “continues,” “may,” “intends,” “plans” or similar expressions in this consent solicitation statement/prospectus. Any forward-looking statements in this consent solicitation statement/prospectus reflect only expectations that are current as of the date of this consent solicitation statement/prospectus, are not guarantees of performance, and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our ability to control. Further, these forward-looking statements are based on assumptions with respect to business strategies and decisions that are subject to change. Actual results or performance may differ materially from those we express in our forward-looking statements. Except as may be required by applicable securities laws, we disclaim any obligation or undertaking to disseminate any updates or revisions to our statements, forward-looking or otherwise, to reflect changes in our expectations or any change in events, conditions or circumstances on which any such statements are based.

Set forth below, we have identified the factors, among others, that you should consider before making a decision on whether or not to consent to adopt the Merger Agreement, and we have identified certain of the risks that could cause our actual plans or results to differ materially from those included in the forward-looking statements contained or incorporated by reference herein. You should consider these risks when deciding whether to consent to adopt the Merger Agreement. In addition, you should also review carefully the risks affecting our business generally that could also cause our actual plans or results to differ materially from those included in the forward-looking statements contained or incorporated by reference herein.

Risks Relating to the Redomicile Merger and Reorganization

Your rights as a shareholder of the Company will change as a result of the Redomicile Merger and you may not be afforded as many rights as a shareholder of SPI Energy under applicable laws and SPI Energy’s memorandum and articles of association as you were as a shareholder of the Company under applicable laws and the Company’s articles of incorporation and bylaws.

Because of differences between California law and Cayman Islands law and differences between the governing documents of the Company and SPI Energy, we are unable to adopt governing documents for SPI Energy that are identical to the governing documents for the Company, but we have attempted to preserve in the memorandum and articles of association of SPI Energy the same allocation of material rights and powers between the shareholders and our board of directors that exists under the Company’s bylaws and articles of incorporation to the extent permitted by Cayman Islands law. Nevertheless, SPI Energy’s proposed amended and restated memorandum and articles of association differ from the Company’s bylaws and article of incorporation, both in form and substance, and your rights as a shareholder will change. For example:

 

    Under the California Corporations Code, a merger or disposition of all or substantially all of the property of a corporation not in the usual and regular course of the corporation’s business generally requires approval by the holders of a majority of the shares entitled to vote on the matter. However, under the Companies Law (2013 Revision) of the Cayman Islands (the “Companies Law”) and SPI Energy’s amended and restated articles of association, there is no requirement for shareholder approval for a sale of all or substantially all of SPI Energy’s assets.

 

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    Under the California Corporations Code, any shareholder may, upon written demand stating the purpose thereof, inspect the corporation’s books and records for a proper purpose during the usual hours for business. However, shareholders of a Cayman Islands company do not have any general rights to inspect corporate records of a company, and SPI Energy’s articles of association provide that the directors have the discretion as to whether, to what extent, when, where and under what conditions or regulations the accounts and books of the company may be open to the inspection of shareholders who are not directors.

 

    Under the California Corporations Code, a shareholder may bring a derivative suit provided the requirements to do so under California law have been met. However, for a Cayman Islands company, the decision to institute proceedings on behalf of a company is generally taken by the company’s board of directors, rather than the shareholders, and a shareholder of SPI Energy would be entitled to bring a derivative action on behalf of SPI Energy only in certain limited circumstances.

For a detailed discussion of these and other material differences, please see the comparison chart of your rights as a common shareholder of the Company against your rights as an ordinary shareholder of SPI Energy under the section entitled “Comparison of Rights under California and Cayman Islands Law.”

The laws of the Cayman Islands may not provide SPI Energy shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.

SPI Energy’s corporate affairs are governed by its memorandum and articles of association, as amended and restated from time to time, by the Companies Law (2013 Revision) of the Cayman Islands, or the Companies Law, and by the common law of the Cayman Islands. The rights of shareholders to take action against SPI Energy’s directors, actions by minority shareholders and the fiduciary duties of SPI Energy’s directors to SPI Energy under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. The rights of SPI Energy’s shareholders and the fiduciary duties of its directors, although clearly established under Cayman Islands law, are not specifically prescribed in statute or a particular document in the same way that they are in certain statutes or judicial precedents in some jurisdictions of the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, SPI Energy’s shareholders may have more difficulty in protecting their interests in the face of actions by SPI Energy’s management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. In addition, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States. The Cayman Island courts are also unlikely to impose liability against SPI Energy, in original actions brought in the Cayman Islands, based on certain civil liabilities provisions of U.S. securities laws.

As a result of different shareholder voting requirements in the Cayman Islands relative to California, we will have less flexibility with respect to our ability to amend our constitutional documents and enter into certain business combinations than we now have.

Under California law and our current bylaws and articles of incorporation, our bylaws and articles of incorporation may be amended by the vote of a majority of shares of stock entitled to vote on the matter to approve the amendment, unless the articles of incorporation requires the vote of a greater number of shares. Cayman Islands law requires a special resolution of not less than two-thirds of the votes cast by those shareholders entitled to vote who are present in person or by proxy at a general meeting for any amendment to the memorandum and articles of association of SPI Energy. As a result of this Cayman Islands law requirement, situations may arise where the flexibility we now have under California law would have provided benefits to our shareholders that will not be available in the Cayman Islands.

 

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In addition, under Cayman Islands law, certain corporate transactions, such as a merger, require the approval of a special resolution of not less than two-thirds of the votes cast at a general meeting by those shareholders entitled to vote who are present in person or by proxy. By contrast, a merger under California law would only require a simple majority of the outstanding stock of the company entitled to vote thereon. The increased shareholder approval requirements may limit our flexibility to enter into or complete certain business combinations that may be beneficial to shareholders.

For a detailed discussion of the differences in shareholder voting requirements in the Cayman Islands relative to California, please see the section entitled “Comparison of Rights under California and Cayman Islands Law.”

The expected benefits of the Redomicile Merger and reorganization may not be realized.

We have presented in this consent solicitation statement/prospectus the anticipated benefits of the Redomicile Merger and reorganization. Please see the section entitled “Adoption of the Merger Agreement—Background and Reasons for the Redomicile Merger.” We cannot be assured that all of the goals of the Redomicile Merger and reorganization will be achievable, and some or all of the anticipated benefits of the Redomicile Merger and reorganization may not occur, particularly as the achievement of the benefits are in many important respects subject to factors that we do not control. These factors would include such things as the reactions of third parties with whom we enter into contracts and do business and the reactions of investors and analysts. In addition, the anticipated reduction of SEC reporting requirements and related expenses may not be achieved in the event of changes to the SEC rules applicable to foreign private issuers or if we fail to qualify as a foreign private issuer. While we expect the Redomicile Merger and reorganization will enable us to reduce our operational, administrative, legal and accounting costs over the long term, these benefits may not be achieved.

As a foreign private issuer, SPI Energy will not be required to provide its shareholders with the same information as the Company would if the Company remained a U.S. public issuer and, as a result, you may not receive as much information about SPI Energy as you did about the Company and you may not be afforded the same level of protection as a beneficial owner of SPI Energy under applicable laws and the SPI Energy’s memorandum and articles of association as you were as a shareholder of the Company under applicable laws and the Company’s articles of incorporation and bylaws.

Following the completion of the Redomicile Merger, SPI Energy is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC. SPI Energy will remain subject to the mandates of the Sarbanes-Oxley Act. However, as a foreign private issuer, SPI Energy will be exempt from certain rules under the Exchange Act that would otherwise apply if SPI Energy were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. For example:

 

    SPI Energy may include in its SEC filings financial statements prepared in accordance with U.S. GAAP or with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB as issued by the IASB without reconciliation to U.S. GAAP;

 

    SPI Energy will not be required to provide as many Exchange Act reports, or as frequently or as promptly, as U.S. companies with securities registered under the Exchange Act. For example, SPI Energy will not be required to file current reports on Form 8-K within four business days from the occurrence of specific material events. Instead, SPI Energy will need to promptly furnish reports on Form 6-K any information that SPI Energy (a) makes or is required to make public under the laws of the Cayman Islands, (b) files or is required to file under the rules of any stock exchange, or (c) otherwise distributes or is required to distribute to its shareholders. Unlike Form 8-K, there is no precise deadline by which Form 6-K must be furnished. In addition, SPI Energy will not be required to file its annual report on Form 10-K. As a foreign private issuer, SPI Energy will be required to file an annual report on Form 20-F within four months after its fiscal year end;

 

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    SPI Energy will not be required to provide the same level of disclosure on certain issues, such as executive compensation;

 

    SPI Energy will be exempt from filing quarterly reports under the Exchange Act with the SEC;

 

    SPI Energy will not be subject to the requirement to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information;

 

    SPI Energy will not be required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and

 

    SPI Energy will not be required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

Thus, you may not be afforded the same protections or information under applicable laws and SPI Energy’s memorandum and articles of association which would be made available to you if we remain a U.S. corporation with publicly traded securities.

If SPI Energy fails to qualify as a foreign private issuer upon completion of the Redomicile Merger, or loses its status as a foreign private issuer at some future time, SPI Energy would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that it would not incur as a foreign private issuer.

Following completion of the Redomicile Merger, SPI Energy is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC. As a foreign private issuer, SPI Energy will be exempt from certain rules under the Exchange Act that would otherwise apply if SPI Energy were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. As a foreign private issuer, SPI Energy will not be required to provide its shareholders with the same information as the Company would if the Company remained a U.S. public issuer and, as a result, you may not receive as much information about SPI Energy as you did about the Company and you may not be afforded the same level of protection as a shareholder of SPI Energy under applicable laws and SPI Energy’s memorandum and articles of association as you were as a shareholder of the Company under applicable laws and the Company’s articles of incorporation and bylaws. While SPI Energy is expected to qualify as a foreign private issuer following the completion of the Redomicile Merger, if SPI Energy fails to qualify as a foreign private issuer upon completion of the Redomicile Merger, or loses its status as a foreign private issuer at some future time, SPI Energy will be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and would incur significant operational, administrative, legal and accounting costs that it would not incur as a foreign private issuer.

If we prepare our financial statements in accordance with IFRS following the Redomicile Merger, there may be a significant effect on our reported financial results.

The SEC permits foreign private issuers to file financial statements in accordance with IFRS as issued by IASB. At any time in the future, as a foreign private issuer, we may decide to prepare our financial statements in accordance with IFRS as issued by the IASB. The application by us of different accounting standards, a change in the rules of IFRS as issued by the IASB, or in the SEC’s acceptance of such rules, could have a significant effect on our reported financial results. Additionally, U.S. GAAP is subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Public Company Accounting Oversight Board, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. IFRS are subject to interpretation by the IASB. A change in these principles or interpretations could have a significant effect on our reported financial results.

 

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Changes in domestic and foreign laws, including tax law changes, could adversely affect SPI Energy, its subsidiaries and its shareholders, and our effective tax rate may increase whether we effect the Redomicile Merger or not.

Changes in tax laws, regulations or treaties or the interpretation or enforcement thereof, in both or either of the U.S. or Cayman Islands, could adversely affect the tax consequences of the Redomicile Merger to SPI Energy and its shareholders and/or our effective tax rates (whether associated with the Redomicile Merger or otherwise). While the Redomicile Merger is not anticipated to have any material impact on our effective tax rate, there is uncertainty regarding the tax policies of the jurisdictions where we operate, and our effective tax rate may increase and any such increase may be material.

The enforcement of civil liabilities against SPI Energy may be more difficult.

After the Redomicile Merger, substantially all of our executive officers and directors will reside outside of the United States. As a result, it may be more difficult to serve legal process within the United States upon any of these persons and it may also be difficult to enforce, both in and outside of the United States, judgments you may obtain in the U.S. courts against these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities laws. Because SPI Energy is a Cayman Islands company, investors could also experience more difficulty enforcing judgments obtained against SPI Energy in U.S. courts than would currently be the case for U.S. judgments obtained against the Company. In addition, it may be more difficult (or impossible) to bring some types of claims against SPI Energy in Cayman Islands courts than it would be to bring similar claims against a U.S. company in a U.S. court.

The market for ADSs representing SPI Energy shares may differ from the market for the Company’s shares.

ADSs representing ordinary shares of SPI Energy may appeal to different institutional investors, or impact the level of investment by current investors who may prefer or be required by internal guidelines to invest in companies that are incorporated in the United States. Accordingly, the reorganization may impact our institutional investor base, or the level of their respective investments in our securities, and may result in a change in the market prices, trading volume and volatility of the ADSs representing SPI Energy ordinary shares from those of our shares.

We expect to incur transaction costs and adverse financial consequences in the year of completion of the Redomicile Merger.

We expect to incur significant transaction costs in connection with the Redomicile Merger, which have been and will continue to be expensed as incurred. The substantial majority of these costs will be incurred regardless of whether the Redomicile Merger is completed and prior to your vote on the proposal. We expect to incur costs and expenses, including professional fees, to comply with the Cayman Islands corporate and other laws. In addition, we expect to incur attorneys’ fees, accountants’ fees, filing fees, mailing expenses, solicitation fees and financial printing expenses in connection with the Redomicile Merger, even if the Redomicile Merger is not approved or completed. The Redomicile Merger also may negatively affect us by diverting attention of our management and employees from our operating business during the period of implementation and by increasing other administrative costs and expenses.

Our Board of Directors may choose to defer or abandon the Redomicile Merger.

Completion of the Redomicile Merger may be deferred or abandoned, at any time, by action of our board of directors, whether before or after the deadline to submit consents. While we currently expect the Redomicile Merger to take place promptly after the proposal to adopt the Redomicile Merger agreement is approved, our board of directors may defer completion or may abandon the Redomicile Merger because of, among other reasons, changes in existing or proposed laws, our determination that the Redomicile Merger would involve tax

 

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or other risks that outweigh their benefits, our determination that the level of expected benefits associated with the Redomicile Merger would otherwise be reduced, a dispute with the taxation authorities over the Redomicile Merger (or certain aspects thereof), an unexpected increase in the cost to complete the Redomicile Merger or any other determination by our board of directors that the Redomicile Merger would not be in the best interests of the Company or its shareholders or that the Redomicile Merger would have material adverse consequences to the Company or its shareholders.

Risks Related to Our Business and Industry

We conduct our business in diverse locations around the world and are subject to economic, regulatory, social and political risks internationally and in the regions where we operate.

We currently conduct our business operations in China, the U.S., Japan, the U.K., Panama, Greece, Italy and Australia, and as of June 30, 2015, we owned and operated 50.9 MW of solar projects and have 94.7 MW of solar projects under construction across these jurisdictions. We also provide EPC services in China and the U.S. Our business is therefore subject to diverse and constantly changing economic, regulatory, social and political conditions in these jurisdictions.

Operating internationally exposes us to a number of risks globally and in each of the jurisdictions where we operate, including, without limitation:

 

    global economic and financial conditions, including the stability of credit markets, foreign currency exchange and their fluctuations;

 

    the supply and prices of other energy products such as oil, coal and natural gas in the relevant jurisdictions;

 

    changes in government regulations, policies, taxes and incentives, particularly those concerning the electric utility industry and the solar industry;

 

    reconciling heterogeneous, complex or contradictory regulations across different jurisdictions, international trade policies, including trade restrictions, embargoes and local sourcing or service requirements;

 

    political risks, including risks of expropriation and nationalization of assets, potential losses due to civil unrests, acts of terrorism and war, regional and global political or military tensions, strained or altered foreign relations;

 

    compliance with diverse and complex local environmental, safety, health and other labor laws and regulations, which can be onerous and costly, as the magnitude, complexity and continuous amendments to the laws and regulations are difficult to predict and liabilities, costs, obligations and requirements associated with these laws and regulations may be substantial;

 

    dependence on local governments, utility companies and other entities for electricity, water, telecommunications, transportation and other utilities or infrastructure needs;

 

    difficulties associated with local operating and market conditions, particularly regarding customs, taxation and labor;

 

    difficulties for our senior management, primarily based in Shanghai, to effectively monitor local execution teams in diverse locations;

 

    increased difficulty in protecting our intellectual property rights and heightened risk of intellectual property disputes;

 

    failure of our contractual parties to honor their obligations to us, and potential disputes with regulatory authorities, customers, contractors, suppliers or local residents or communities;

 

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    obtaining fair access and legal remedies or benefits through local judicial or administrative bodies; and

 

    failure to respond effectively to local competitive environment.

If economic recovery is slow in the markets where we operate, our business, financial condition, results of operations and prospects could be materially and adversely affected. Moreover, as we expand into additional markets, we may face unfamiliar regulatory regimes, business practices, governmental policies and industry conditions. As a result, our experience and knowledge of our existing markets may not be applicable to new markets that we enter, requiring significant time and resources to adapt our business to these unfamiliar markets. To the extent that our diverse business operations are affected by unexpected and adverse economic, regulatory, social and political conditions, we may experience business disruptions, loss of assets and personnel and other indirect losses and our business, financial condition and results of operations both locally and internationally could be materially and adversely affected.

The reduction, modification, delay or discontinuation of government subsidies and other economic incentives for the solar industry may reduce the profitability of our solar projects and materially adversely affect our business.

At present, solar power is not cost competitive with other energy sources in our existing markets and the new markets we plan to expand into. For a variety of technological and economic reasons, the cost of generating electricity from solar energy in these markets currently exceeds and, absent significant changes in technological or economic circumstances, will continue to exceed the cost of generating electricity from conventional and certain other competing energy sources. Therefore, government subsidies and incentives, primarily in the form of feed-in tariffs, or FIT, price support schemes, tax credits, net metering and other incentives to end users, distributors, system integrators and manufacturers of solar products are generally required to enable companies such as us to successfully operate in these markets.

Government subsidies and incentives vary by geographic market. The availability and size of such subsidies and incentives depend, to a large extent, on political and policy developments relating to environmental concerns and other macro-economic factors. These government subsidies and incentives are expected to gradually decrease in scope or be discontinued as solar power technology improves and becomes more affordable relative to other types of energy. Reductions have occurred in certain countries where we have operations, such as Greece, and subsidies and incentives may be further reduced or discontinued in Greece or other countries where we currently or intend to operate. Reductions may apply retroactively to existing solar projects, which could significantly reduce the value of our existing solar projects and other businesses. Even if reductions in government subsidies and economic incentives apply only to future solar projects, our operations in that country could be materially and adversely affected as we would not be able to leverage our existing presence to drive further growth. Moreover, certain solar subsidies and incentives are designed to expire or decline over time, are limited in total funding, require renewal from regulatory authorities or impose certain investment or performance criteria on our business partners or us, which we may not be able to satisfy. In addition, we may not be able to upgrade our technologies rapidly enough to compensate for foreseeable reductions in government subsidies and incentives. As a result, a significant reduction in the scope or discontinuation of government incentive programs in our existing and target markets could have a material adverse effect on our business, financial condition, results of operations and prospects.

Recent changes to our business strategy provide a limited history on which to base our prospects and anticipated results of operations. Our historical operating results may not serve as an adequate basis to evaluate our future prospects and results of operations.

Prior to 2014, we were primarily engaged in providing EPC services to developers of solar projects in the U.S. We have since 2014 expanded our EPC service business to China and commenced our global project

 

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development business under our independent power producer model, or IPP model, or our build-and-transfer model, or BT model, by ramping up our portfolio of solar projects. This limited operating history of developing and operating solar projects under our IPP and BT model may not be a reliable indicator of our future performance.

Given our limited operating history under the current business model, we may not be able to ascertain and allocate the appropriate financial and human resources necessary to grow these new business areas. We may invest considerable capital into growing these businesses but fail to address market or customer demands or otherwise fail to achieve satisfactory financial return. In particular, our results of operations, financial condition and future success depend largely on our ability to continue to identify suitable projects that complement our solar project pipeline through acquisitions and secondary development, as well as our ability to obtain the required regulatory approvals, financing and cost-effective construction services for these acquisitions. We must also sustainably manage and operate the solar projects that we acquire, develop and hold under our IPP model, or successfully identify buyers for solar projects under our BT model. In addition, in expanding into these new business areas, we may be competing against companies that previously have not been our significant competitors, such as companies that have substantially more experience than we do with respect to solar projects under our IPP and BT models. If we are unable to achieve growth in these new business areas, our overall growth and financial performance may be limited relative to our competitors and our operating results could be adversely impacted.

In addition, in early 2015, Solar Energy E-Commerce (Shanghai) Limited, or Solar Energy E-Commerce, launched the e-commerce and investment platform, www.solarbao.com, enabling retail customers and solar project developers to purchase various PV-related products and services. Our PRC subsidiary, Yan Hua Internet Technology (Shanghai) Co., Ltd., or Yan Hua Internet, has entered into a series of contractual arrangements with Solar Energy E-Commerce and its shareholders. Legal enforceability of these contractual arrangements has not been established primarily because the registration of the equity interest pledge agreement with the relevant PRC government bureau has not been completed as one of the legal shareholder’s equity in Solar Energy E-Commerce is restricted for pledge and transfer, making us unable to legally enforce our right under the equity interest pledge agreements and potentially other agreements. We are in the process of establishing a new corporate structure for the e-commerce business under which Solarbao will be migrated into a newly-established domestic company and one of our PRC subsidiaries will enter into a new set of contractual arrangements, including an equity interest pledge agreement, with the domestic company. We expect to be able to register the equity interest pledge agreement with the relevant PRC government bureau and consolidate the financial results of the newly-established domestic company as a variable interest entity in our financial statements.

Given its short operating history, it may be difficult to evaluate the performance and prospects of the e-commerce and investment business platform, and our ability to generate substantial revenue from the e-commerce and investment business remains unproven. There are also a number of risks related to the e-commerce and investment business, for example, its operations may be materially and adversely affected if it fails to adopt new technologies or adapt to changing user requirements or emerging industry standards.

Due to the change in our strategic focus and revenue generating efforts since 2014, our prior operating history and historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects. Period-to-period comparisons of our operating results and our results of operations for any period should not be relied upon as an indication of our performance for any future period. We have incurred net losses since our inception and as of December 31, 2014, we had an accumulated deficit of approximately $61.3 million. We may not be able to achieve or maintain profitability in the future.

We may not be able to acquire additional solar projects to grow our project portfolio, or effectively integrate or realize the anticipated benefits of our acquisitions.

Our current business strategy includes plans to further increase the number of solar projects we own and operate. Since 2014, we have significantly expanded our operations through acquisitions of solar projects across

 

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different development stages in China, Japan, the U.S., the U.K., Panama, Greece and Italy, and we may acquire additional businesses, products or technologies or enter into joint ventures or other strategic initiatives in the future. Accordingly, our ability to execute our expansion strategies depend on our ability to identify suitable investment or acquisition opportunities, which are subject to numerous uncertainties. We may not be able to identify favorable geographical markets for expansion or assess local demand for solar power, identify a sufficient number of projects as contemplated, or secure project financing and refinancing on reasonable terms for the contemplated acquisitions. In addition, our competitors may have substantially greater capital and other resources than we do, and may be able to pay more for an acquisition and may be able to identify, evaluate, bid for and acquire a greater number of projects than our resources permit.

Furthermore, we may not realize the anticipated benefits of our acquisitions and each transaction involves numerous risks, including, among others:

 

    difficulty in assimilating the operations and personnel of the acquired business;

 

    difficulty in effectively integrating the acquired assets, technologies or products with our operations;

 

    difficulty in maintaining controls, procedures and policies during the transition and integration;

 

    disruption of our ongoing business and distraction of our management from daily operations;

 

    inability to retain key technical and managerial personnel and key customers, suppliers and other business partners of the acquired business;

 

    inability to achieve the financial and strategic goals for the acquired and combined businesses as a result of insufficient capital resources or otherwise;

 

    incurring acquisition-related costs or amortization costs for acquired intangible assets that could impact our operating results;

 

    potential failure of the due diligence processes to identify significant issues with product quality, legal and financial liabilities, among others;

 

    potential failure to comply with local regulatory requirements or to obtain construction, environmental and other permits and approvals from governmental authorities in a timely manner or at all, which could delay or prevent such acquisitions; and

 

    potential failure to connect the acquired solar projects to the local grid on schedule and within budget, to ensure sufficient grid capacity for the life of the solar projects, or to collect FIT payments and other economic incentives as expected from local government authorities.

Acquisitions of companies are inherently risky, and ultimately, if we do not generate expected economic returns from the acquired businesses, or become responsible for any preexisting liabilities related to the acquired businesses, we may not fully realize the anticipated benefits of the acquisitions, which could adversely affect our business, financial condition or results of operations.

Our results of operations may be subject to fluctuations.

Historically, we have primarily generated revenue from the provision of EPC services. Before we achieve economies of scale in terms of our IPP projects and receive steady electricity generation income, our revenue in a given period will depend on the solar projects we provide EPC services to, or the number of solar projects sold under our BT model, and therefore subject to significant fluctuations. For instance, we may generate a significant portion of our revenues from the one-time sale of solar projects for certain periods. Moreover, certain aspects of our operations will also be subject to seasonal variations. For example, we may schedule significant construction activities to connect solar projects to the grids prior to a scheduled decrease in FIT rates in order to qualify for more favorable FIT policies.

 

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To the extent that we continue to develop, build and sell solar projects while we are ramping up our IPP projects, we may be exposed to similar risks going forward.

Failure to manage our evolving business could have a material adverse effect on our business, prospects, financial condition and results of operations.

We intend to expand our business significantly within our existing markets and in a number of selected new locations in the future. We also intend to significantly expand our global project development business in the future. As our operations evolve, we expect to encounter additional challenges to our internal management, construction contracting management, investment and acquisition management, project management, project funding infrastructure and financing capabilities. Our existing operations, personnel, systems and internal control may not be adequate to support our business expansion and may require additional unanticipated investments in our internal management infrastructure. To manage the future growth of our operations, we will be required to improve our administrative, operational and financial systems, procedures and controls, and maintain, expand, train and manage a growing number of employees. In additional, we will need to hire and train additional project development personnel to manage our growing portfolio of IPP and BT projects. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies successfully or respond to competitive pressures. As a result, our business, prospects, financial condition and results of operations could be materially and adversely affected.

We act as the general contractor for our customers for the provision of EPC services, and are subject to risks associated with construction, delays and other contingencies, which could have a material adverse effect on our reputation, business and results of operations.

Historically, we have primarily generated revenue from the provision of EPC services. We generally enter into fixed-price EPC contracts under which we act as the general contractor for our customers in connection with the installation of their solar power systems. All essential costs are estimated at the time of entering into the EPC contracts for a particular project, and are reflected in the overall fixed-price that we charge our customers. These cost estimates are preliminary and may or may not be covered by contracts between us or our subcontractors, suppliers or other parties to the project. In addition, we engage qualified and licensed subcontractors for the construction of our EPC projects. Shortages of such skilled labor could significantly delay a project or otherwise increase our costs. Should miscalculations in project planning or delay in execution occur (including those due to unexpected increases in inflation, commodity prices or labor costs), we may not be able to achieve our expected margins or recover our costs.

In addition, our EPC contracts generally provide for specified performance milestones. Delays in supply of PV module or components, construction delays, unexpected performance problems in electricity generation or other events may cause us to fail to meet these performance criteria, resulting in unanticipated and severe revenue and earnings losses and financial penalties. If we are unable to complete the development of a solar project, or fail to meet one or more agreed target construction milestone dates, any agreed upon system-level capacity or energy output guarantees or warranties (including, for some projects, twenty-five year performance warranties) or other terms under our EPC contracts, or the solar projects we develop cause grid interference or other damage, we may be subject to termination of such contracts or significant damages, penalties and/or other obligation under the EPC agreements or other agreements relating to the projects (including obligations to repair, replace and/or supplement additional modules and balance of system materials for the projects), particularly if our liabilities are not capped under the terms of such agreements, and we may not be able to recover our investment in the project. The occurrence of any of these events could have a material adverse effect on our reputation, business and results of operations.

 

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We generally recognize revenue from EPC services on a “percentage of completion” basis and payments are due upon the achievement of contractual milestones and any delay or cancellation of a project could adversely affect our business.

We generally recognize revenue from our EPC services on a “percentage of completion” basis, and as a result, revenues from our EPC services are driven by the performance of our contractual obligations, which is in turn generally driven by timelines of the installation of solar power systems at customer sites. Such arrangement could result in unpredictability of revenue and in the near term, a revenue decrease. As with any project-related business, there is potential for delays within any particular customer project. Variation of project timelines and estimates may impact our ability to recognize revenue in a particular period. In addition, certain EPC contracts may provide for payment milestones due at specified stages throughout the development of a project. Because we must invest substantially in a project in advance of achieving these milestones and receiving payments, delay or cancellation of the project could adversely affect our business and results of operations.

We may fail to comply with laws and regulations in the markets we operate.

The development, construction and operation of solar projects are highly regulated. We conduct our operations in many jurisdictions and are subject to different laws and regulations, including national and local regulations relating to building codes, taxes, safety, environmental protection, utility interconnection, metering and other matters. We also establish subsidiaries with operations in these countries and jurisdictions which are required to comply with various local laws and regulations. While we strive to work with our local counsel and other advisers to comply with the laws and regulations of each jurisdiction where we operate, there have been, and may continue to be, instances of non-compliances such as late filings of annual accounts with the appropriate governmental authorities, failure to notify governmental authorities of certain transactions, failure to hold annual meetings as required, failure to register director or address changes or other local requirements which may result in fines, sanctions or other penalties against our non-complying subsidiaries and its directors and officers. While we do not believe our past and continuing non-compliances, singularly or in the aggregate, will have a material adverse effect on our business, financial condition or results of operations, we cannot assure you that similar or other non-compliances will not occur in the future which may materially and adversely affect our business, financial condition or results of operations.

We are responsible for obtaining a variety of approvals, permits and licenses from various authorities for our solar projects. The procedures for obtaining such approvals, permits and licenses vary from country to country, making it onerous and costly to adhere to the varying requirements and standards of individual localities. Failure to obtain the required approvals, permits or licenses or to comply with the conditions associated therewith may result in fines, sanctions, suspension, revocation or non-renewal of approvals, permits or licenses, or even criminal liabilities, which could material and adversely affect our business, financial condition and results of operations. In addition, new government regulations pertaining to our business or solar projects may result in significant additional expenses. We cannot assure you that we will be able to promptly and adequately respond to changes of laws and regulations in various jurisdictions, or that our employees and contractors will act in accordance with our internal policies and procedures. Failure to comply with laws and regulations where we develop, own and operate solar projects may materially and adversely affect our business, results of operations and financial condition.

The market demand for solar power is strongly influenced by government regulations and policies concerning the electric utility industry as well as policies promulgated by electric utilities in each of the markets we operate. These regulations and policies often relate to electricity pricing and technical interconnection of electricity generation. Customer purchases of alternative energy sources, including solar power technology, could be deterred by these regulations and policies, which may significantly reduce the demand for our PV solutions. 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, rendering solar power less cost competitive in these markets and our PV solutions less desirable.

 

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It is difficult to ensure ongoing compliance with the changing requirements of individual markets. Any new government regulations or utility policies pertaining to solar projects may result in significant additional expenses to us or other industry participants and as a result could cause a significant reduction in demand for our PV solutions.

The solar industry competes with both conventional power industries and other renewable power industries.

The solar industry faces intense competition from all other players within the energy industry, including both conventional energy providers such as nuclear, natural gas and fossil fuels as well as other renewable energy providers, including geothermal, hydropower, biomass, wind, nuclear energy, natural gas and other fossil fuels. Other energy sources may benefit from innovations that reduce costs, increase safety or otherwise improve their competitiveness. New natural resources may be discovered, or global economic, business or political developments may disproportionately benefit conventional energy sources or other renewable energy sources at the expense of solar. Governments may strengthen their support for other renewable energy sources and reduce their support for the solar industry. For instance, the recent decline in oil prices has adversely impacted the competitiveness of solar energy. Failure for our customers, other business partners or us to compete with the providers of other energy sources may materially and adversely affect our business, results of operations and financial condition.

The market for solar project development is highly competitive.

There is currently intense competition in the solar industry, particularly in the downstream project development segment. Solar projects encounter competition from utilities, industrial companies and other independent power producers. In recent years, there has been increasing competition for the award of PPAs, which has in some markets resulted in an excess supply above designated reserve margins and has been a contributing factor in the declining electricity prices in many markets. In light of these conditions, we may not be able to obtain PPAs for our new solar projects under our IPP model, and we may not be able to renew PPAs on the same terms and conditions upon expiration, particularly in terms of securing an electricity sale price that enables profitable operation or the sale of a project at anticipated value, if at all.

We have only recently expanded our business to include global project development and may not have the same level of expertise and customer base as our competitors, which may affect our ability to successfully establish our presence in this market. Our current or potential competitors may have greater operational, financial, technical, market share, scale, management or other resources than us in our existing or target markets. Our competitors may also enter into strategic alliances with other competitors to our detriment, or may ally with our suppliers or contractors, thereby limiting our procurement choices and our flexibility in project development. Our current or potential competitors may offer PV solutions comparable or superior to ours at the same or lower prices, or adapt more quickly to industry trends than we do. Increased competition may result in price reductions, reduced profit margins and loss of market share.

Technological advances in the solar industry could render our PV solutions uncompetitive or obsolete.

The solar industry is characterized by its rapid adoption and application of technological advances. This requires us to develop new PV solutions and enhance our existing PV solutions to keep pace with and respond effectively to evolving technologies, market conditions and customer demands. Our competitors may develop technologies more advanced and cost-effective than ours. We will need to invest substantially in research and development to maintain our market position and effectively compete in the future. Our failure to further refine or enhance our technologies could render our technologies uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline.

In addition, we may invest in and implement newly-developed, less-proven technologies in our project development or in maintaining or enhancing our existing projects. There is no guarantee that these new

technologies will perform or generate customer demand as anticipated. The failure of our new technologies to perform as anticipated may materially and adversely affect our business and results of operations.

 

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If sufficient demand for solar projects develops slower than we anticipate, develops in ways inconsistent with our strategy, or fails to develop at all, our business, financial condition, results of operations and prospects could be materially and adversely affected.

The solar power market worldwide is at a relatively early stage of development compared to conventional power markets and other renewable power markets, such as that for hydropower. Thus, trends in the solar industry are based only on limited data and may be unreliable. Many factors may affect the demand for solar projects worldwide, including:

 

    the cost and availability of project financing for solar projects;

 

    fluctuations in economic and market conditions that improve the viability of competing energy sources;

 

    the cost-effectiveness, performance and reliability of solar projects compared to conventional and other non-solar energy sources;

 

    the availability of grid capacity allocated to solar power;

 

    political opposition to solar power due to environmental, land use, safety or other local concerns;

 

    the availability of government subsidies and incentives to support the development of the solar industry;

 

    public perceptions of the utility, necessity and importance of solar power and other renewable energies;

 

    the success of other alternative energy generation technologies, such as fuel cells, wind power and biomass; and

 

    utility and grid regulations that present unique technical, regulatory and economic barriers to the development, transmission and use of solar energy.

Our analysis and predictions concerning the future growth of the solar industry are based on complex facts and circumstances and may be incorrect. If market demand for solar projects in our existing or target markets fails to develop according to our expectations, our business, financial condition, results of operations and prospects could be materially and adversely affected.

Our substantial indebtedness could adversely affect our business, financial condition and results of operations.

We require a significant amount of cash to meet our capital requirements and fund our operations, including payments to suppliers for PV modules and components and to contractors for EPC services. As of December 31, 2014, we had $47.5 million in outstanding short-term borrowings (including the current portion of long-term bank borrowings) and no outstanding long-term bank borrowings (excluding the current portion).

Our existing debt may have significant consequences on our operations, including:

 

    reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes as a result of our debt service obligations;

 

    limiting our ability to obtain additional financing;

 

    increasing our vulnerability to changes in our business, the industry in which we operate and the general economy;

 

    potentially increasing the cost of any additional financing; and

 

    limit our ability to make future acquisitions.

Any of these factors and other consequences that may result from our substantial indebtedness could have an adverse effect on our business, financial condition and results of operations as well as our ability to meet our payment obligations under our existing debt facilities. Our ability to meet our payment obligations under our

 

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existing debt facilities depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control.

Our business requires significant financial resources. If we do not effectively manage our cash and other liquid financial assets and execute our liquidity plan, we may not be able to continue as a going concern.

We incurred net losses of $32.2 million and $5.2 million in 2013 and 2014, respectively. We incurred cash flow from operations of $11.2 million in 2013 and negative cash flow from operations of $56.5 million in 2014. Historically, we have primarily relied on cash from our operations, bank borrowings, private placements and financial leases to fund our operations.

Our management reviews our forecasted cash flows on an ongoing basis to ensure that we will have sufficient capital from a combination of cash flow from operations and proceeds from financing activities, if required, in order to fund our working capital and capital expenditures. We expect that our existing cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditure for at least the next 12 months - but generally inadequate to pursue new project acquisition or development initiatives without additional capital. The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, such as the timeliness of payments from our customers. We have filed liens to secure customer payments for each of our solar projects, but there is no assurance that such payments will be timely collected. Without access to sufficient level of capital from operations or through bank borrowings or other sources, we may not be able to execute our growth strategy or pursue additional projects, or may not be able to continue as a going concern, which could adversely affect our results of operations and impair our long-term growth.

Our growth prospects and future profitability and our ability to continue to acquire solar projects depends on the availability of sufficient financing on terms acceptable to us.

The development of solar projects requires significant up-front cash investments, including the costs of permit development, construction and associated operations. Since 2014, we have been expanding our solar project portfolio primarily by acquiring solar projects across different development stages. Such expansion strategy requires significant upfront capital expenditures which, depending on the respective development stages of the acquired projects, may not be recouped for a significant period of time. As a result, we are required to pursue a wide variety of capital resources to fund our operations, including private placements, bank loans, financial leases and other third-party financing options.

Our ability to obtain sufficient financing is subject to a number of uncertainties, including:

 

    our future financial condition, results of operations and cash flows;

 

    the general condition and liquidity of global equity and debt capital markets;

 

    internationally widespread regulatory and government support for solar power, such as through tax credits and FIT schemes;

 

    the availability of credit lines from banks and other financial institutions;

 

    economic, political, social and other conditions in the markets where we operate;

 

    our level of indebtedness and ability to comply with financial covenants under our debt financing; and

 

    tax and securities laws which may hamper our ability to raise capital.

Due to these or other reasons, we may not be successful in obtaining the required funds for project acquisition. Furthermore, we may be unable to refinance our bank borrowings on favorable terms, or at all, upon the expiration or termination of our existing loan facilities. In addition, rising interest rates could adversely affect our ability to secure financing on favorable terms. Our failure in securing suitable financing sources in a timely

 

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manner or at all, or on commercially acceptable terms, could significantly limit our ability to execute our growth strategies or future acquisitions, and may have a material adverse effect on our business, financial condition, results of operations and cash flows.

An increase in interest rates or lending rates or tightening of the supply of capital in the global financial market could make it difficult for our customers to finance the cost of EPC services or solar projects and could reduce the demand of our PV solutions.

Many of our customers depend on debt and/or equity financing to fund the initial capital expenditure required to develop, build and/or purchase solar projects. These structured finance arrangements are complex and rely heavily on the creditworthiness of the customer as well as required returns of the financial institutions. Depending on the status of financial markets and overall economic conditions, financial institutions may be unwilling or unable to provide financing to our customers, which could materially and adversely affect our ability to maintain or grow our revenues. In addition, an increase in interest rates or lending rates, or a reduction in the supply of debt financing or tax equity investments, could reduce the number of solar projects that receive financing or otherwise make it difficult for our customers to secure the financing necessary to develop, build or purchase a solar project on favorable terms, or at all, and thus lower demand for our PV solutions, which could limit our growth or reduce our net sales.

The significant period of time between our upfront investments in solar projects and their commencement of revenue generation could materially and adversely affect our liquidity, business and results of operations.

We have since 2014 commenced our global project development business under our IPP or BT models by ramping up our portfolio of solar projects. Months or even years may pass between the time that we make significant upfront investments in the solar projects and the time that we commence to receive revenue from the electricity generated by these solar projects after grid connection (under our IPP model) or from the sale of these projects (under our BT model). These upfront investments include, among others, legal, accounting and other professional fees, costs associated with feasibility studies and due diligence, payments for land use rights, construction costs, government permits and deposits for grid connection agreements and PPAs, all of which may not be refundable if a project fails to achieve completion. We have historically relied on private placements, bank loans and financial leases to cover costs and expenses incurred during project development.

In particular, there could be an especially long gap between the initial assessment of a project, the first steps of acquiring land use rights and negotiating interconnection agreements and the obtaining of governmental approvals for construction. Acquisition of land use rights can be particularly time-consuming if we are engaged in primary development and need to negotiate with land owners or government entities. The significant length of time it takes to develop solar projects increases the risk for adverse events to occur during such process, whether they be economic, environmental, political, social or otherwise, that could cause further delays in project development or increase the overall development costs. Such adverse developments or unanticipated delays could render us unable to recoup our initial investment in the solar projects, and materially and adversely affect our liquidity, profitability and results of operations.

We may encounter unexpected difficulties when developing solar power projects.

In 2014, we commenced our global project development business by ramping up our portfolio of solar projects under both our IPP and BT models. The attributable capacity of our projects in operation and projects under construction increased from nil as of December 31, 2013 to 50.9 MW and 94.7 MW as of June 30, 2015, respectively. In addition, we had an aggregate of 2,701.6 MW of projects in announced pipeline as of June 30, 2015. See “Solar Power, Inc.—Our Global Project Development Business.” The development of solar projects involve numerous risks and uncertainties and require extensive research, planning and due diligence. Before we can determine whether a solar project is economically, technologically or otherwise feasible, we may be required

 

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to incur significant capital expenditure for land and interconnection rights, preliminary engineering, permitting, legal and other work. Success in developing a particular solar project is contingent upon, among others:

 

    securing the rights to suitable project locations with access to the grid, necessary rights of way, and satisfactory land use permissions;

 

    rezoning land, as necessary, to support a solar project;

 

    negotiating and receiving on schedule the required permits and approvals for project development from government authorities;

 

    completing all required regulatory and administrative procedures needed to obtain permits and agreements;

 

    obtaining rights to interconnect the solar project to the grid or to transmit energy;

 

    paying interconnection and other deposits, some of which are non-refundable;

 

    negotiating favorable payment terms with module and other equipment suppliers and contractors;

 

    signing PPAs or other off-take arrangements that are commercially acceptable and adequate for providing financing;

 

    obtaining construction financing, including debt financing and equity contributions, as appropriate; and

 

    satisfactorily completing construction on schedule.

Successful completion of a particular solar project may be adversely affected by numerous factors, including, without limitation:

 

    unanticipated delays or changes in project plans;

 

    changes or additions to laws and regulations requiring additional permits, licenses and approvals, or difficulties in obtaining and maintaining existing governmental permits, licenses and approvals;

 

    the inability to obtain adequate financing with acceptable terms;

 

    unforeseeable engineering problems, construction or other unexpected delays and contractor performance issues;

 

    delays, disruptions or shortages of the supply of labor, equipment and materials, including work stoppages;

 

    defective PV module or other components sourced from our suppliers;

 

    adverse weather, environmental and geological conditions, force majeure and other events out of our control; and

 

    cost overruns due to any one or more of the foregoing factors.

Accordingly, some of the solar projects in our portfolio may not eventually commence operation and connect to the grid, or even proceed to construction. If a number of our solar projects are not completed, our business, financial condition and results of operations could be materially and adversely affected.

Our construction activities may be subject to cost overruns or delays.

We engage third-party contractors for the construction of solar projects. Construction of solar projects involves numerous risks and uncertainties, and may be adversely affected by circumstances outside of our control, including seasonal changes, inclement weather, failure to receive regulatory approvals on schedule or third-party delays in supplying PV modules or other materials. We may not be able to negotiate satisfactory construction agreements with third-party contractors, or our third-party contractors may not be able to contract with their subcontractors on a timely basis. In addition, if our contractors fail to adhere to our quality standards or otherwise fail to meet their contractual obligations to us, or if there is a shortage of contractors or labor strikes that prevents our contractors from completing their construction work on schedule or within budget, the solar projects may experience significant delays or cost overruns. Increases in the prices of solar products and components may also increase our procurement costs. Labor shortages, work stoppages and labor disputes could

 

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significantly delay a project or otherwise increase our costs. In addition, delays in obtaining or failure to obtain required construction permits could also delay or hinder the construction of our solar projects. A lack of proper construction permits or post-construction approvals could delay or prevent our solar projects from commencing operation and connecting to the relevant grid.

We may not be able to recover any of our losses resulting from construction cost overruns or delays. In addition, since the FIT applicable to a solar project generally depends on its lead time to grid connection, construction and connection delays may lead to a lower-than-expected FIT, which would adversely affect the long-term value and potentially the viability of the project. Many PPAs also require our solar projects to connect to the grid by a certain date. If the construction of solar project is significantly delayed, we may be in violation of our PPAs or may only be entitled to reduced FIT payments, if at all. A reduction or forfeiture of FIT payments would materially and adversely affect the financial results and results of operations for a solar power project. Any of the above contingencies could lead to our failure to generate expected return from our solar projects and result in unanticipated and significant revenue and earnings losses.

We rely on third-party suppliers and contractors when developing our solar power projects.

We source PV modules and other balance-of-system components from a wide selection of third-party suppliers and LDK and engage third-party contractors for the construction of solar projects. We typically enter into contracts with our suppliers and contractors on a project-by-project basis and do not maintain long-term contracts with our suppliers or contractors. Therefore, we are generally exposed to price fluctuations and availability of PV modules and balance-of-system components sourced from our suppliers and construction services procured from our contractors. For example, in light of changing market dynamics and government policies, the price and availability of PV modules have been subject to significant volatility in recent years. Increases in the prices of PV modules or balance-of-system components, decreases in their availability, fluctuations in construction, labor and installation costs, or changes in the terms of our relationship with our suppliers and contractors may increase the cost of procuring equipment and engaging contractors and hence materially adversely affect our financial condition and results of operations.

Furthermore, the delivery of defective products or products or construction services by our suppliers or contractors which are otherwise not in compliance with contract specifications, or the late supply of products or construction services, may cause construction delays or solar power projects that fail to adhere to our quality and safety standards, which could have a material adverse effect on our business, results of operations, financial condition and cash flow.

Warranties provided by our suppliers and contractors may be limited or insufficient to compensate our losses, or may not cover the nature of our losses incurred.

We expect to benefit from various warranties, including product quality and performance warranties, provided by our suppliers and contractors. These suppliers and contractors, however, may file for bankruptcy, cease operations or otherwise become unable or unwilling to fulfill their warranty obligations. Even if a supplier fulfills its warranty obligations, the warranty may not be sufficient to compensate us for all of our losses. In addition, the warranty period of inverters and transformers generally expire within 5 to 10 years after the date such equipment is delivered or commissioned and are subject to liability limits. Where damages are caused by defective products provided by our suppliers or construction services delivered by our contractors, our suppliers or contractors may be unable or unwilling to perform their warranty obligations as a result of their financial condition or otherwise, or if the warranty period has expired or a liability limit has been reached, there may be a reduction or loss of warranty protection for the affected projects, which could have a material adverse effect on our business, financial condition and results of operations.

Our solar projects may not perform up to our expectations.

The projects in our solar project portfolio are relatively new with expected operating lives of more than 20 years. The majority of our projects in operation as of June 30, 2015 had commenced operations within the last

 

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6 to 12 months. In addition, the projects we acquire in the future may not have commenced construction or operation or otherwise have a limited operating history. As a result, our assumptions and estimates regarding the future performance of these projects are, and will be, made without the benefit of a meaningful operating history, which may impair our ability to accurately assess the potential profitability of the projects. The performance of these projects will also be subject to risks inherent in newly constructed renewable energy projects, including breakdowns and outages, latent defects, equipment that performs below our expectations and system failures. Failure of some or all of our projects to perform up to our expectations could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to obtain long-term contracts for the sale of electricity generated by our solar projects under our IPP model at prices and on other terms favorable to attract financing and other investments.

Since 2014, we started acquiring solar projects across different stages of development globally and to hold some of these acquired projects under our IPP model. Obtaining long-term contracts for the sale of electricity generated by our solar projects under our IPP model at prices and on other terms favorable to us will be essential for obtaining financing or completing construction of these projects. We must compete for PPAs against other developers of solar and renewable energy projects. Furthermore, other sources of power, such as natural gas-fired power plants, have historically been cheaper than the cost of solar power and power from certain types of projects, such as natural gas-fired power plants, can be delivered on a firm basis. The availability of PPAs is subject to a number of economic, regulatory, tax and public policy factors. The inability to compete successfully against other power producers or otherwise enter into PPAs favorable to us would negatively affect our ability to develop and finance our projects and negatively impact our revenue.

We may be subject to unforeseen costs, liabilities or obligations when providing O&M services.

We provide ongoing O&M services to third-party solar projects under fixed-price long-term service agreements, pursuant to which we generally perform all scheduled and unscheduled maintenance and operating and other asset management services for the system. Our costs to perform these services are estimated at the time of entering into the O&M agreement for a particular project, and these are reflected in the fixed-price that we charge our customers under the O&M agreement. Should miscalculations in estimating these costs occur (including those due to unexpected increases in inflation or labor costs), our O&M services may not be profitable and our growth strategy and results of operations could be adversely affected. Because of the long-term nature of these O&M agreements, the adverse impacts on results of operations could be significant, particularly if our liabilities are not capped or subject to an above-market liability cap under the terms of the O&M agreement. In addition, we may be subject to substantial costs, liabilities or obligations in the event that the solar projects we maintain and operate do not meet any agreed-upon system-level availability or performance warranties.

We have limited insurance coverage.

Our insurance policies cover employee-related accidents and injuries, property damage, machinery breakdowns, fixed assets, facilities and liability deriving from our activities, including environmental liability. We consider our current insurance coverage to be adequate, but we cannot assure you that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Furthermore, our insurance coverage is subject to deductibles, caps, exclusions and other limitations. A loss for which we are not fully insured could have a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, due to rising insurance costs and changes in the insurance markets, we cannot assure you that our insurance coverage will continue to be available at comparable rates or on similar terms, if at all. We may also reduce or cancel our insurance coverage at any time. We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates and we may elect to self-insure a portion of our solar project portfolio. Any losses not covered by insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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In addition, the insurance industry in many parts of the world is still in an early stage of development. As we continue to expand our global presence, we cannot assure you that we will be able to obtain adequate insurance coverage in each of the new markets we enter. To the extent that our operations are not adequately insured in these markets, our business, financial condition and results of operations may be materially and adversely affected.

We may be the subject of product or strict liability claims if the provision of our EPC services or the solar projects we sell result in injury or damage, and we have limited insurance coverage to protect against such claims, as well as losses that may result from business interruptions or natural disasters.

Solar projects are highly sophisticated and generate and transfer large volumes of electric charge with the potential to harm or kill, whether by improper installation or other causes. We are therefore exposed to an inherent risk of product liability claims or class action suits in the event that the installation of the solar power systems during the provision of our EPC services, or the solar projects we sell under our BT model, results in injury or damage, and we may even be liable in some jurisdictions under a strict liability theory, where liability holds even if we are not at fault. Moreover, to the extent that a claim is brought against us, we may not have adequate resources to defend ourselves. We rely on our general liability insurance to cover product liability and other liability claims and have not separately obtained product liability insurance. The successful assertion of product or strict liability claims against us could result in significant monetary damages and, if our insurance coverage is inadequate, require us to make significant payments which could have a materially adverse effect on our financial results. Any such business disruption could result in substantial costs and diversion of resources.

Solar energy generation depends heavily on suitable meteorological conditions. If weather conditions are unfavorable, our power generation output, and therefore the revenue from our solar projects, may be substantially below our expectations.

The electricity produced and revenues generated by solar projects are highly dependent on suitable solar conditions and associated weather conditions. Such conditions are beyond our control. Furthermore, components of these generation systems, including solar panels and inverters, can be damaged by severe weather, such as heavy snowstorms, hailstorms, ice storms, lightning strikes, extreme winds, earthquakes or tornadoes. Replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable. Unfavorable weather and atmospheric conditions could reduce the output of our solar projects below projected generation, damage or impair the effectiveness of our projects or require shutdown of key equipment, impeding operation of our projects and our ability to achieve forecasted revenues and cash flows.

The amount of electricity solar projects produce is dependent in part on the amount of sunlight, or insolation, where the projects are located. Because shorter daylight hours in winter months results in less insolation, the generation of particular projects will vary depending on the season.

We base our investment decisions with respect to solar power generation assets on the findings of related solar studies conducted prior to construction or based on historical conditions at existing projects. However, actual climatic conditions at an asset site may not conform to the findings of these studies and, therefore, our solar projects may not meet anticipated production levels or the rated capacity of our projects, which could adversely affect our business, financial condition, results of operations and cash flows.

The operation of solar projects involves significant inherent risks and hazards that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The operation of solar projects involves numerous hazardous activities, including delivering electricity to transmission and distribution systems. We are subject to natural disasters such as earthquakes, floods, snow obscuration, high temperatures, lightning, hurricanes, long-term climate changes, volcanoes and wind risks, as well as other inherent risks affecting resource availability such as fire, explosion, soil and ice buildup, structural

 

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collapse and equipment failure. Moreover, we may suffer from negligent acts by our PPA counterparties or other third parties. Our roof-top projects could cause damage to the building roof, resulting in claims due to water damages or replacement of roofing materials. These and other hazards can cause significant personal injury or loss of life, severe damage to, and destruction of, property and equipment and contamination of, or damage to, the environment, wildlife takes or fatalities and suspension of operations. The occurrence of any of these events may result in lawsuits against us asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties.

In addition, the ongoing operation of solar projects face risks that include the breakdown or failure of equipment or processes or performance below expected levels of output or efficiency due to wear and tear, latent defect, design error or operator error or force majeure events, among others. Unplanned outages, including extensions of scheduled outages, occur from time to time and are an inherent risk of our business. Unplanned outages typically increase our operation and maintenance expenses and may reduce our revenues as a result of generating and selling less electricity.

If we fail to properly operate and maintain our solar projects, these projects may experience decreased performance, shortened operating life or shut downs. Our solar projects may also require periodic upgrading and improvement. Through changes in our own operation or local conditions, the costs of operating the project may increase, including costs related to labor, equipment, insurance and taxes. If we cause damage to third parties, we may become liable for the consequences of any resulting damage. We may also experience equipment malfunction or failure, leading to unexpected maintenance needs, unplanned outages or other operational issues. In addition, inconsistencies in the quality of solar panels, PV modules, balance-of-system components or maintenance services for our solar projects may affect the system efficiency of our projects.

Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, and any decreased operational or management performance, could reduce our solar projects’ power generating capacity below expected levels, reducing our revenues and profitability. Degradation of the performance of our solar projects above levels provided for in the relevant PPAs may also reduce our revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our projects may also reduce our profitability. In addition, damage to our reputation due to system failure or accidents could negatively impact our relationships with customers and local government authorities, which could also materially adversely affect our business. Negative public or community response to solar energy projects could adversely affect the approval for and construction of our projects. We maintain insurance coverage that we consider adequate but we cannot assure you that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject.

Environmental, health and safety laws and regulations subject us to extensive and increasingly stringent operational requirements, as well as potentially substantial liabilities arising out of environmental contamination.

We are subject to, in each of the jurisdictions we operate, numerous national and local laws, regulations, guidelines, policies, directives and other requirements governing or relating to, among others, land use and zoning matters and protection of human health and the environment, including those limiting the discharge and release of pollutants into the environment, and the protection of certain wildlife. These laws and regulations require our solar projects to, among others, obtain and maintain approvals and permits, undergo environmental impact assessments and review processes and implement environmental, health and safety programs and procedures to control risks associated with the construction, operation and decommissioning of solar projects. If our solar projects do not comply with applicable environmental laws, regulations or permit requirements, we may be required to pay significant fines or penalties or suspend or cease operations of the affected projects. Violations of environmental and other laws, regulations and permit requirements may also result in criminal sanctions or injunctions.

 

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Our solar projects may experience malfunctions and other unplanned events that result in personal injury and property damage. As such, the operation of our projects carries an inherent risk of environmental, health and safety liabilities (including potential civil actions, compliance or remediation orders, fines and other penalties), and may subject us to administrative and judicial proceedings. In addition, certain environmental laws and regulations may impose joint and several liability on past and present owners and operators of sites, related to the cleaning up of sites where hazardous wastes or materials were disposed or released.

We may continue to conduct acquisitions and enter into joint ventures, investments or other strategic alliances which may be unsuccessful.

We may continue to grow our operations through acquisitions, as well as joint ventures or other strategic alliances when appropriate opportunities arise. Such acquisitions, joint ventures and strategic alliances may expose us to additional operational, regulatory, market and geographical risks as well as risks associated with additional capital requirements and diversion of management attention. In particular, any future strategic alliances may expose us to the following risks:

 

    There may be unforeseen risks relating to our counterparty’s business and operations or liabilities that were not discovered by us through our legal and business due diligence prior to our investment. Such undetected risks and liabilities could have a material adverse effect on our reputation, business and results of operations in the future.

 

    We may not have experience acquiring, managing or investing in other companies. Business acquisitions may generally divert a significant portion of our management and financial resources from our existing business and the integration of the target’s operations may pose significant business challenges, potentially straining our ability to finance and manage our existing operations.

 

    There is no assurance that the expected synergies from any business acquisition, joint venture or strategic alliances will actually materialize. If we are not successful in the integration of a target’s operations, we may not be able to generate sufficient revenue from its operations to recover costs and expenses of the acquisition.

 

    Acquisition or participation in a new joint venture or strategic alliance may involve us in the management of operation in which we do not possess extensive expertise.

The materialization of any of these risks could have a material adverse effect on our business, financial condition and results of operations.

We rely substantially on our senior management team and our ability to attract, train and retain qualified personnel for our current and future success.

The industry experience, expertise and contributions of our chairman, Mr. Xiaofeng Peng, is essential to our continuing success. We will continue to rely on our senior management, regional management and other key employees to manage our business operations and implement our growth plans. If we were to lose the services of any of our senior or regional management personnel and were unable to recruit, train and retain personnel with comparable qualifications, our operations and growth could be adversely affected.

Our qualified and experienced project development teams are critical to our success. We may not be able to continue to attract, train and retain qualified personnel, including executive officers, project development personnel, project management personnel and other key personnel with the necessary experience and expertise. In particular, as we enter into new markets, we face challenges to recruit and retain qualified personnel who are familiar with local regulatory regimes and have adequate experiences in project development and operations.

There is substantial competition for qualified personnel in the downstream PV industry. Our competitors may offer more competitive packages or otherwise attract our personnel. Our costs to retain qualified personnel

 

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may also increase in response to competition. If we fail to continue to attract and retain a sufficient number of personnel with suitable managerial, technical or marketing expertise, our business operations could be adversely affected and our future growth and expansions may be inhibited.

The e-commerce and investment business platform has a short operating history and it may be difficult to evaluate its performance and prospects.

In early 2015, the e-commerce and investment platform, www.solarbao.com, primarily targeting retail customers residing in China and enabling retail customers or solar project developers to purchase various PV-related products and services, was launched by Solar Energy E-Commerce. Our PRC subsidiary, Yan Hua Internet, has entered into a series of contractual arrangements with Solar Energy E-Commerce and its shareholders. This platform is intended to create a network connecting investors seeking solar industry investment opportunities and solar project developers. This e-commerce and investment platform primarily generates revenue from commissions derived from the leasing of solar panels. If fewer transactions occur on this e-commerce and investment platform or our commission rates decrease, the commissions we receive would decrease. In addition, revenue from this e-commerce and investment platform may be affected by other factors, including increasing competition, slowing growth of the Chinese e-commerce industry, changes in government policies or general economic conditions.

Given its short operating history, our ability to generate substantial revenue from the e-commerce business remains unproven. The e-commerce and investment business has not been tested over time and we cannot be certain that we will be able to successfully manage or grow it. We may incur significant costs as we continue to maintain the e-commerce and investment platform. Given the limited operating history of the e-commerce and investment business, it may be difficult for you to evaluate its performance and prospects.

The online e-commerce and investment business may be materially and adversely affected if we are unable to adopt new technologies or adapt the e-commerce and investment platform to changing user requirements or emerging industry standards.

The e-commerce and investment platform, www.solarbao.com requires continuous enhancement and improvement in responsiveness, functionality and features to remain competitive. Our investors’ and customers’ needs, requirements and preferences of financial products and offerings are constantly evolving. Our ability to effectively identify, develop, acquire and deliver the services suitable to our customers as well as our responsiveness to technological advances are crucial to the success of this e-commerce and investment platform.

The development of www.solarbao.com platform and other proprietary technologies involves significant investment and business risks. For example, we may not have sufficient financial resources to repurchase the PV modules from investors and may not be able to pay the specified rate of lease return to investors if the underlying DG projects are not successfully developed. If that occurs, we may be found in breach of agreement entered into with investors and our liquidity and results of operations may be materially adversely affected. We may also be involved in legal proceedings if we are not able to pay investors. Our brand and reputation could be adversely affected if we become the target of any negative publicity as a result of actions taken by such investors. In addition, we may be required to substantially modify or adapt this platform to the evolving Internet, networking or telecommunications technologies or other technological advances. We may not be able to utilize new technologies effectively or adapt our online platform to the evolving requirements of our customers or emerging industry standards. If we are unable to adapt to changing market conditions or user requirements in a timely and cost-effective manner, our business may be materially and adversely affected.

 

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Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights may be costly.

We rely primarily on trade secrets, know-how and other proprietary information to protect our intellectual property. Nevertheless, these afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate to provide us with meaningful protection or commercial advantage. Third parties may be able to use the technologies that we have developed and compete with us, which could have a material adverse effect on our business, financial condition or results of operations. Our failure to protect our intellectual property and proprietary rights may undermine our competitive position. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property and proprietary rights. Policing the unauthorized use of proprietary technology can be difficult and expensive. In particular, the laws and enforcement procedures of the PRC and certain other markets where we operate are uncertain or do not protect intellectual property rights to the same extent as do the laws and enforcement procedures of the United States. We may need to resort to court proceedings to enforce our intellectual property rights in the future. Litigation relating to our intellectual property might result in substantial costs and diversion of resources and management attention away from our business. An adverse determination in any such litigation will impair our intellectual property rights and adversely affect our business, prospects and reputation.

We may be exposed to infringement or misappropriation claims by third parties which, if determined adversely to us, could cause us to pay significant damage awards.

Our success depends largely on our ability to use and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity and scope of claims relating to solar technology involve complex scientific, legal and factual questions and analysis and, therefore, may be highly uncertain. As we continue to expand internationally, we face a heightened risk of becoming the subject of claims for intellectual property infringement. We may be subject to litigation involving claims of patent infringement or violation of intellectual property rights of third parties. An adverse determination in any such litigation or proceedings against us could subject us to significant liabilities to third parties, including requiring us to seek licenses from third parties, to pay ongoing royalties or to pay monetary and punitive damages. Protracted litigation could also result in our customers or potential customers deferring or limiting their procurement of our PV solutions until resolution of such litigation, which could result in losses and adversely affect our reputation and results of operations.

Our management has identified a material weakness in our internal control over financial reporting. Additionally, our management may identify material weaknesses in the future that could adversely affect investor confidence, impair the value of our securities and increase our cost of raising capital.

Our management identified a material weakness in our internal control over financial reporting, which relates to a lack of segregation of duties, and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure and internal controls and procedures were not effective as of December 31, 2014. There can be no assurance as to how quickly or effectively we can remediate the material weakness in our internal control over financial reporting or that additional material weaknesses will not be identified in the future.

Any failure to remediate additional weaknesses or deficiencies in our internal control over financial reporting that may be discovered in the future or to implement new or improved controls, or difficulties encountered in the implementation of such controls, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure could, in turn, affect the future ability of our management to certify that our internal control over financial reporting is effective. Ineffective internal control over financial reporting could also subject us to the scrutiny of the SEC and other regulatory bodies which could cause investors to lose confidence in our reported financial information and subject us to civil or criminal penalties or shareholder litigation, which could have an adverse effect on the trading price of our Shares.

 

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In addition, if we identify additional deficiencies in our internal control over financial reporting, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our share price. Furthermore, additional deficiencies could result in future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Such non-compliance could subject us to a variety of administrative sanctions, including review by the SEC or other regulatory authorities.

Our independent registered public accounting firm may be suspended from practicing before the SEC if they are unable to continue to satisfy SEC investigation requests in the future. If a delay in completion of our audit process occurs as a result, we could be unable to timely file certain reports with the SEC, which may lead to the delisting of our Shares.

On January 22, 2014, Judge Cameron Elliot, an SEC administrative law judge, issued an initial decision suspending the Chinese member firms of the “Big Four” accounting firms, including KPMG network from, among others things, practicing before the SEC for six months. On February 12, 2014, the accounting firms filed an appeal with the SEC regarding the administrative law judge’s decision. On February 6, 2015, the Chinese member firms of the “Big Four” accounting firms, including our independent registered accounting firm, reached settlement with the SEC. As part of the settlement, each of the Chinese member firms of “Big Four” accounting firms agreed to settlement terms that include a censure; undertakings to make a payment to the SEC; procedures and undertakings as to future requests for documents by the SEC; and possible additional proceedings and remedies should those undertakings not be adhered to.

If the settlement terms are not adhered to, Chinese member firms of “Big Four” accounting firms, including our independent registered public accounting firm, may be suspended from practicing before the SEC which could in turn delay the timely filing of our financial statements with the SEC. In addition, it could be difficult for us to timely identify and engage another qualified independent auditor to replace our independent registered public accounting firm. A delay in completion of the audit process could delay the timely filing of our quarterly or annual reports with the SEC. A delinquency in our filings with the SEC may result in OTCBB initiating delisting procedures, which could have a material and adverse effect on our results of operation and financial condition.

Our independent registered public accounting firm’s audit documentation related to their audit report included in in the consent solicitation statement/prospectus may include audit documentation located in China. The Public Company Accounting Oversight Board, or PCAOB, currently cannot inspect audit documentation located in China and, as such, you may be deprived of the benefits of such inspection.

Our independent registered public accounting firm issued an audit opinion on the financial statements included in this in the consent solicitation statement/prospectus filed with the SEC. As an auditor of companies that are traded publicly in the U.S. and a firm registered with the PCAOB, our auditor is required by the laws of the U.S. to undergo regular inspections by the PCAOB. However, work papers located in China are not currently inspected by the PCAOB because the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities.

Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. However, the PCAOB is currently unable to inspect an auditor’s audit work related to a company’s operations in China and where such documentation of the audit work is located in China. As a result, our investors may be deprived of the benefits of PCAOB’s oversight of our auditors through such inspections.

The inability of the PCAOB to conduct inspections of our auditor’s work papers in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may consequently lose confidence in our reported financial information and procedures and the quality of our financial statements.

 

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Risks Related to Our International Operations

We are subject to risks associated with foreign currency exchange rates, fluctuations of which may negatively affect our revenue, cost of sales and gross margins and could result in exchange losses.

We currently operate in a number of jurisdictions including China, Japan, the U.K., Panama, Greece, the U.S., Italy and Australia, and our local operations are generally conducted in the functional currency of the home jurisdiction. The FIT and other subsidies enjoyed by solar projects are also denominated in local currencies. Thus, we deal on a regular basis in several currencies concurrently, which expose us to significant currency exchange risks. Any increased costs or reduced revenue as a result of foreign exchange rate fluctuations could adversely affect our profit margins. The fluctuation of foreign exchange rates also affects the value of our monetary and other assets and liabilities denominated in local currencies. Generally, an appreciation of the U.S. dollar against the relevant local currencies could result in a foreign exchange loss for assets denominated in such local currencies and a foreign exchange gain for liabilities denominated in such local currencies. Conversely, a devaluation of the U.S. dollar against the relevant local currencies could result in a foreign exchange gain for assets denominated in such local currencies and a foreign exchange loss for liabilities denominated in such local currencies.

We may also expand into emerging markets, some of which may have an uncertain regulatory environment relating to currency policy. Conducting business in such emerging markets could increase our exposure to foreign exchange risks. Although we access a variety of financing solutions that are tailored to the geographic location of our projects and to local regulations, we have not entered into any hedging transactions to reduce the foreign exchange risks, but may do so in the future when appropriate. However, if we decide to hedge our foreign exchange exposure in the future, we cannot assure you that we will be able to reduce our foreign currency risk exposure in an effective manner, at reasonable costs, or at all.

Certain of our solar projects are located in China, and therefore we are subject to risks associated with the Chinese legal system which could have a material adverse effect on us.

We are a California corporation and our operations in China are subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign owned companies. Since 1979, Chinese 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 Chinese 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. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since Chinese administrative authorities and courts have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult than in more developed legal systems to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may impede our ability to enforce the contracts we have entered into with customers, suppliers, other business partners and government authorities. In addition, such uncertainties, including the inability to enforce our contracts, could materially adversely affect our business and operations.

Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the U.S. or other countries. Furthermore, Chinese tax authorities may reduce or terminate tax incentives that our Chinese subsidiaries currently enjoy, and their enforcement practice of certain tax laws, such as laws regulating transfers of equity interests in our Chinese subsidiaries remain uncertain. Accordingly, we cannot predict the effect of future developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of national laws by local regulations. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

 

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Chinese regulations relating to overseas investment by Chinese residents may restrict our overseas and cross-border investment activities and adversely affect the implementation of our strategy as well as our business and prospects.

On July 4, 2014, the State Administration of Foreign Exchange of China, or SAFE, issued the Circular on the Administration of Foreign Exchange Issues Related to Overseas Investment, Financing and Roundtrip Investment by Domestic Residents through Offshore Special Purpose Vehicles, or the SAFE Circular 37, which replaced the former circular commonly known as “SAFE Circular 75” promulgated on October 21, 2005. The SAFE Circular 37 requires Chinese residents to register with the competent local SAFE branch in connection with their direct establishment or indirect control of an offshore special purpose vehicle, for the purpose of overseas investment and financing, with such Chinese residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. The SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as any change of basic information (including change of the Chinese residents, name and operation term), increase or decrease of capital contribution by Chinese individuals, share transfer or exchange, Redomicile Merger, division or other material event. In the event that a Chinese shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the Chinese subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its Chinese subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under Chinese law for evasion of foreign exchange controls.

The failure of our Chinese beneficial owners to comply with the registration procedures set forth in the SAFE Circular 37 may subject such beneficial owners and our Chinese subsidiaries to fines and legal sanctions. Such failure may also result in restrictions on our Chinese subsidiaries’ ability to distribute profits to us or our ability to inject capital into our Chinese subsidiaries or otherwise materially adversely affect our business, financial condition and results of operations. Furthermore, since the SAFE Circular 37 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted and implemented by the relevant Chinese government authorities. We cannot predict how these regulations will affect our business operations or future strategy.

We may rely on dividends paid by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our Shares.

With China being one of our major markets, we may rely on dividends to be paid by our wholly owned PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of our Shares and service any debt we may incur. If our wholly owned PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.

Under PRC laws and regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. In addition, at the discretion of the wholly foreign-owned enterprise, it may allocate a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends. Any limitation on the ability of our wholly owned PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

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If the PRC government finds that the structure we have adopted for the e-commerce business does not comply with PRC governmental restrictions on foreign investment in internet-based businesses, or if these laws or regulations or interpretations of existing laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of the e-commerce and investment platform.

Foreign ownership of internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government regulates the conduct of online commerce through strict business licensing requirements and other government regulations. These laws and regulations also limit foreign ownership in PRC companies that provide internet information distribution services. Companies operating internet-based businesses such as the www.solarbao.com e- commerce and investment platform primarily targeting retail customers in China are governed by these rules and regulations in China.

Since we are a California corporation and due to PRC governmental restrictions on foreign investment in internet-based business in China, Solar Energy E-Commerce was established in late 2014 and commenced operation in early 2015. Solar Energy E-Commerce operates www.solarbao.com e-commerce and investment platform which primarily targets retail customers residing in China. Our PRC subsidiary, Yan Hua Internet, entered into a series of contractual arrangements with Solar Energy E-Commerce and its shareholders on March 26, 2015. Legal enforceability of these contractual arrangements has not been established primarily because the registration of the equity interest pledge agreement with the relevant PRC government bureau has not been completed as one of the legal shareholder’s equity in Solar Energy E-Commerce is restricted for pledge and transfer, making us unable to legally enforce our right under the equity interest pledge agreements and potentially other agreements. We are in the process of establishing a new corporate structure for the e-commerce business under which Solarbao will be migrated into a newly-established domestic company and one of our PRC subsidiaries will enter into a new set of contractual arrangements, including an equity interest pledge agreement, with the domestic company. We expect to be able to register the equity interest pledge agreement with the relevant PRC government bureau and consolidate the financial results of the newly-established domestic company as a variable interest entity in our financial statements.

Although we believe that our current corporate structure of e-commerce business and the anticipated restructuring are in compliance with existing PRC laws, rules and regulations, we are advised by our PRC legal adviser, that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations, and these laws or regulations or interpretations of these laws or regulations may change in the future. For example, on January 19, 2015, the Ministry of Commerce of the PRC, or MOFCOM, published a draft of the PRC Law on Foreign Investment (Draft for Comment), or the Draft Foreign Investment Law, which is to regulate foreign invested enterprises, or FIEs, the same way as PRC domestic entities, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in a “Negative List.” See “ Business of Solar Power, Inc. — E-Commerce and Investment Business.” Because the Negative List has yet to be published, it is unclear whether it will differ from the current list of industries subject to restrictions or prohibitions on foreign investment. There is substantial uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective date of the final form of the law. While such uncertainty exists, we cannot assure you that the new foreign investment law, when it is adopted and becomes effective, will not have a material and adverse effect on our ability to conduct the e-commerce business through our contractual arrangements. Furthermore, the relevant government authorities have broad discretion in interpreting these laws and regulations. Accordingly, we cannot assure you that PRC government authorities will not ultimately take a contrary view.

If our contractual arrangements for the operation of the e-commerce business in China are found to be in violation of any existing or future PRC laws or regulations, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, shutting down or blocking the www.solarbao.com e-commerce and investment platform, discontinuing or placing restrictions on the www.solarbao.com operations, or taking other regulatory or enforcement actions that could be harmful to our

 

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business. Any of these actions may disrupt the operations of the e-commerce business and adversely affect our business, reputation, financial condition and results of operations.

We rely on contractual arrangements with Solar Energy E-Commerce and its shareholders for the operation of e-commerce business, which may not be as effective as direct ownership.

Because of PRC restrictions on foreign ownership of e-commerce businesses in China, we depend on contractual arrangements with Solar Energy E-Commerce in which we have no ownership interest to conduct the e-commerce business. These contractual arrangements are intended to provide us with effective control over this entity and allow us to obtain its economic benefits. Solar Energy E-Commerce is owned directly by our core management team, Mr. Xiaofeng Peng and Ms. Amy Jing Liu, and deputy chairman of our board of directors, Mr. Min Xiahou. However, these contractual arrangements may not be as effective in providing control as direct ownership. For example, Solar Energy E-Commerce and its shareholders could breach their contractual arrangements with us by, among other things, failing to operate the e-commerce business in an acceptable manner or taking other actions that are detrimental to our interests. If we were the controlling shareholder of Solar Energy E-Commerce with direct ownership, we would be able to exercise our rights as shareholders to effect changes to its board of directors, which in turn could implement changes at the management and operational level. However, under the current contractual arrangements, as a legal matter, if Solar Energy E-Commerce or its shareholders fail to perform their obligations under these contractual arrangements, we may have to incur substantial costs to enforce such arrangements, and rely on legal remedies under PRC law, including contract remedies, which may be time-consuming, unpredictable and expensive. If we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, our business and operations could be severely disrupted, which could materially and adversely affect our results of operations and damage our reputation. See “—If the PRC government finds that the structure we have adopted for the e-commerce business does not comply with PRC governmental restrictions on foreign investment in internet-based businesses, or if these laws or regulations or interpretations of existing laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of the e-commerce and investment platform.”

The shareholders of Solar Energy E-Commerce may have potential conflicts of interest with us, which may materially and adversely affect our business.

The individual shareholders of Solar Energy E-Commerce are also shareholders, directors and officers of our company. Conflicts of interest may arise between the roles of these individuals as shareholders, directors and officers of our company and as shareholders of Solar Energy E-Commerce. We cannot assure you that when conflicts arise, shareholders of Solar Energy E-Commerce will act in the best interest of our company or that the conflicts will be resolved in our favor. For example, these individuals with dual roles may decide to transfer significant business or assets of Solar Energy E-Commerce to other legal entities they own or control, or opportunities may arise in the future for these individuals to sell Solar Energy E-Commerce or its significant business or assets to third parties at a premium. Under either circumstance, the consideration of such a transfer or sale would be paid to the shareholders of Solar Energy E-Commerce, not to our company or our other shareholders, which may be materially detrimental to our other shareholders. In addition, these individuals may otherwise breach or cause Solar Energy E-Commerce to breach or refuse to renew its existing contractual arrangements with us. Currently, we do not have existing arrangements to address such potential conflicts of interest between these individuals and our company. If we cannot resolve any conflicts of interest or disputes between us and these shareholders, we would have to rely on legal proceedings, which may be expensive, time-consuming and disruptive to our operations. There is also substantial uncertainty as to the outcome of any such legal proceedings.

The heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us.

Pursuant to the Notice on Strengthening the Administration on Enterprise Income Tax for Non-resident Enterprise Equity Transfer (the “SAT Circular 698”) issued by China’s State Administration of Taxation

 

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(“SAT”) in December 2009 with retroactive effect from January 1, 2008, where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company, or an Indirect Transfer, using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

On February 3, 2015, the SAT released the Announcement on Several Issues concerning the Enterprise Income Tax on Income from the Indirect Transfer of Assets by Non-Resident Enterprises (Announcement 7). Announcement 7 does not replace Circular 698 in its entirety; instead, it abolishes certain provisions and provides more comprehensive guidelines on a number of issues. Although it becomes effective from the date of issuance, it also applies to transactions that took place prior to the effective date but review of which has not yet been concluded by the tax bureaus.

Announcement 7 stipulates that when a non-resident enterprise engages in an indirect transfer of assets, including shares of PRC resident enterprise, through an arrangement that does not have a bona fide commercial purpose in order to avoid China’s enterprise income tax, the transaction should be re-characterized as a direct transfer of the PRC assets. Announcement 7 stipulates SAT’s intention to provide relief to some qualified transactions. Article 6 of Announcement 7 provides for a safe harbor for indirect transfers resulting from qualified group internal reorganizations. An indirect transfer that satisfies all of the following three conditions will be deemed to have a bona fide commercial purpose and thus will not be taxable under Announcement 7:

 

  (i) the transferor and the transferee are qualified related enterprises, which will be the case if any of the following applies:

 

  (1) the transferor directly or indirectly owns 80% or more of the shares in the transferee;

 

  (2) the transferee directly or indirectly owns 80% or more of the shares in the transferor; or

 

  (3) 80% or more of the shares of both the transferor and transferee are directly or indirectly owned by the same shareholder.

Where more than 50% of the value of the equity interest of the non-resident intermediary enterprise is derived directly or indirectly from immovable assets located in PRC, the qualified ownership requirement will be increased to 100%.

 

  (ii) After the indirect transfer, the PRC tax payable on a potential subsequent indirect transfer of the same PRC taxable assets is no lower than the PRC tax that could have been payable on a similar or an identical indirect transfer if the first indirect transfer did not take place; and

 

  (iii) All the consideration paid by the transferee must consist of its own shares or shares of a related enterprise with which the transferee has a controlling relationship (excluding shares of listed companies).

Announcement 7 may be determined by the tax authorities to be applicable to previous investments or the current merger restructure by non-resident investors in our Company, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. Although we believe that the risk of SAT Circular 698 or Announcement 7 applying to the Redomicile Merger is low, we and our existing non-resident investors may become at risk of being taxed under Announcement 7 and may be required to expend valuable resources to comply with Announcement 7 or to establish that we should not be taxed under Announcement 7, which may have a material adverse effect on our financial condition and results of operations or such non-resident investors’ investments in us. We have conducted and may conduct acquisitions involving changes in corporate structures, and historically our shares were transferred by certain then shareholders to our current shareholders. We cannot

 

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assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on a transfer of our Shares or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in us.

The ongoing debt crisis in the Eurozone and market perceptions concerning the instability of the Euro and the European economy could adversely affect our business, results of operations and financing.

Concerns persist regarding the debt burden of certain Eurozone countries and their ability to meet future financial obligations, the overall stability of the Euro and the suitability of the Euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. In particular, Greece, our largest market in terms of attributable capacity of projects in operation, is widely viewed as requiring fundamental economic reforms which might affect the Euro as a currency. These concerns or market perceptions concerning these and related issues could adversely affect the value of our Euro-denominated assets and obligations and lead to future economic slowdowns.

Risks Related to our Shares, Ordinary Shares of SPI Energy and the ADSs

We have significant “equity overhang” which could adversely affect the market price of our Shares and impair our ability to raise additional capital through the sale of equity securities.

As of the Record Date, we had [●] Shares outstanding, including [●] Shares, or approximately [●]% of total Shares outstanding, held by LDK. The possibility that substantial amounts of our outstanding Shares may be sold by LDK or the perception that such sales could occur, or “equity overhang”, could adversely affect the market price of our Shares, ordinary shares of SPI Energy and ADSs representing those ordinary shares of SPI Energy, and could impair our ability to raise additional capital through the sale of equity securities in the future.

We are subject to litigation risks, including securities class actions and shareholder derivative actions, which may be costly to defend and the outcome of which is uncertain.

From time to time, we are subject to legal claims, with and without merit, that may be costly and which may divert the attention of our management and our resources in general. In addition, our solar projects may be subject to litigation or other adverse proceedings that may adversely impact our ability to proceed with construction or grid connection or sell a given project, which would adversely affect our ability to recognize revenue with respect to such project. The results of complex legal proceedings are difficult to predict. Lawsuits filed against us may assert types of claims that, if resolved against us, could give rise to substantial damages, and an unfavorable outcome or settlement of one or more of these lawsuits, or any future lawsuits, could have a material adverse effect on our business, financial condition, or results of operations. Even if these lawsuits are not resolved against us, the costs of defending such lawsuits may not be covered by our insurance policies. We cannot assure you that additional litigation will not be filed against us in the future.

The preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates, judgments, and assumptions that may ultimately prove to be incorrect.

The accounting estimates and judgments that management must make in the ordinary course of business affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the periods presented. If the underlying estimates are ultimately proven to be incorrect, subsequent adjustments could have a material adverse effect on our operating results for the period or periods in which the change is identified.

It may be difficult to effect service of process on, or to enforce any judgments obtained outside the PRC against us, our directors, or our senior management members who reside in the PRC.

Most of our existing directors and senior management members reside in the PRC and most of our assets and the assets of such persons are located in the PRC. Accordingly, it may be difficult for investors to effect

 

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service of process in the United States on us or on any of these persons or to enforce judgments obtained outside of the PRC against us or any of these persons. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments awarded by courts in many developed countries, including the U.S. and the U.K. Therefore, the recognition and enforcement in the PRC of judgments of a court in any of these jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or even impossible.

SPI Energy’s shareholders may experience future dilution.

SPI Energy’s amended and restated memorandum and articles of association, which will become effective upon completion of the Redomicile Merger, permits our board of directors, without shareholder approval, to authorize the issuance of preferred shares. The board of directors may classify or reclassify any preferred shares to set the preferences, rights and other terms of the classified or reclassified shares, including the issuance of preferred shares that have preference rights over SPI Energy’s ordinary shares with respect to dividends, liquidation and voting rights. Furthermore, substantially all of SPI Energy’s ordinary shares for which our outstanding stock options are exercisable are, once they have been purchased, eligible for immediate sale in the public market.

The issuance of additional shares in the capital of SPI Energy or the exercise of stock options or warrants could be substantially dilutive to your shares and may negatively affect the market price of the ADSs.

Our stock price is, and the price of the ADSs, may be highly volatile.

Our stock price and, after the Redomicile Merger, the price of the ADSs representing SPI Energy’s ordinary shares could be subject to wide fluctuations in the future in response to many events or factors, including those discussed in the preceding risk factors relating to our operations and the Redomicile Merger, as well as:

 

    Release of transfer restrictions on our outstanding Shares in connection with the registration of ordinary shares of SPI Energy pursuant to this Registration Statement on Form F-4 of which this consent solicitation statement/prospectus is a part of;

 

    actual or anticipated fluctuations in operating results, actual or anticipated gross profit as a percentage of net sales, our actual or anticipated rate of growth and our actual or anticipated earnings per share;

 

    changes in expectations as to future financial performance or changes in financial estimates;

 

    changes in governmental regulations or policies in the PRC and other countries in which we do business;

 

    our, or a competitor’s, announcement of new products, services or technological innovations;

 

    the operating and stock price performance of other comparable companies; and

 

    news and commentary emanating from the media, securities analysts or government bodies in the PRC relating to us and to the industry in general.

General market conditions and U.S. or international macroeconomic factors unrelated to our performance may also affect our share price and SPI Energy’s share price after the Redomicile Merger. For these reasons, investors should not rely on recent trends to predict future share prices or financial results. The Company and SPI Energy are in the process of applying for listing of the ADSs with the Nasdaq Capital Market and there is no assurance that such application would be approved if the trading price as quoted on the OTC Markets fluctuates significantly. Furthermore, following periods of volatility in a company’s securities, securities class action litigation against a company is sometimes instituted.

 

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The articles of association of SPI Energy contain anti-takeover provisions that could prevent a change in control even if such takeover is beneficial to SPI Energy shareholders.

SPI Energy will adopt an amended and restated memorandum and articles of association that will become effective immediately upon completion of the Redomicile Merger. Such articles of association contain provisions that could delay, defer or prevent a change in control of SPI Energy that could be beneficial to our shareholders. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that investors are willing to pay for the ADSs. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a price above the then current market price of the ADSs. These provisions provide that the board of directors of SPI Energy has authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with the ordinary shares, in the form of ADSs or otherwise. The board of directors may decide to issue such preferred shares quickly with terms calculated to delay or prevent a change in control of SPI Energy or make the removal of our management more difficult. If the board of directors decides to issue such preferred shares, the price of the ADSs may fall and the voting and other rights of holders of the ordinary shares of SPI Energy and the ADSs may be materially adversely affected.

You may not receive dividends or other distributions on ordinary shares of SPI Energy and you may not receive any value for them, if it is illegal or impractical to make them available to you.

Under Cayman Islands law, SPI Energy may only pay dividends out of its profits or share premium account subject to its ability to pay its debts as they fall due in the ordinary course of its business. SPI Energy’s ability to pay dividends will therefore depend on its ability to generate sufficient profits. SPI Energy cannot give any assurance that SPI Energy will declare dividends of any amounts, at any rate or at all in the future. We have not paid any dividends in the past. Future dividends, if any, will be paid at the discretion of our board of directors, subject to requirements under Cayman Islands law and SPI Energy’s memorandum and articles of association, as amended and restated from time to time, and will depend upon our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that our board of directors may deem relevant.

The depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares of SPI Energy or other deposited securities underlying the ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible for making such distribution if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing such distributions. In these cases, the depositary may determine not to distribute such property. SPI Energy has no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. SPI Energy also has no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on the ordinary shares of SPI Energy or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of the ADSs.

 

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Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.

As a holder of ADSs upon consummation of the Redomicile Merger, you will not be treated as one of the shareholders of SPI Energy and you will not have shareholder rights. Instead, the depositary will be treated as the holder of the shares underlying your ADSs. However, you may exercise some of the shareholders’ rights through the depositary, and you will have the right to withdraw the shares underlying your ADSs from the deposit facility.

Holders of ADSs may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the amended and restated memorandum and articles of association that will become effective immediately upon completion of the Redomicile Merger, the minimum notice period required to convene a general meeting is 14 clear days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. SPI Energy plans to make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholder meeting.

The depositary for ADSs will give SPI Energy a discretionary proxy to vote SPI Energy’s ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for your ADSs, the depositary will give SPI Energy a discretionary proxy to vote SPI Energy’s ordinary shares underlying your ADSs at shareholders’ meetings if you do not give voting instructions to the depositary, unless: (i) SPI Energy does not wish a proxy given, (ii) substantial opposition exists or (iii) the matter materially and adversely affects the rights of SPI Energy’s shareholders.

The effect of this discretionary proxy is that, if you fail to give voting instructions to the depositary, you cannot prevent SPI Energy’s ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence SPI Energy’s management.

You may be subject to limitations on transfers of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when SPI Energy’s books or the books of the depositary are closed, or at any time if SPI Energy or the depositary deem it advisable to do so because of any requirement of law or of any government or government body, or under any provision of the deposit agreement, or for any other reason.

 

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SOLICITATION OF WRITTEN CONSENTS

Purpose of the Consent Solicitation

You are being asked to consent to approve the Merger Agreement and thereby approve the Redomicile Merger. The Company’s board of directors has approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement and has determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Redomicile Merger, are in the best interests of the Company and its shareholders. The Company’s board of directors recommends that you consent to the Merger Agreement and thereby approve the Redomicile Merger and the other transactions contemplated by the Merger Agreement.

Record Date

The Company’s board of directors has set September 29, 2015 as the record date for determining the Company’s shareholders entitled to sign and deliver written consents with respect to the Merger Agreement.

Shareholders of the Company Entitled To Written Consent

Only the Company’s shareholders of record as of the close of business on the record date are entitled to sign and deliver Written Consents with respect to the Merger Agreement. As of the close of business on the record date, there were [●] shares of the Company’s common stock outstanding and entitled to sign and deliver Written Consents with respect to the Merger Agreement. Each share of the Company’s common stock is entitled to one vote. You are urged to return a completed, dated and signed Written Consent by 12:00 noon, [●] time, on [●], 2015.

Written Consents; Written Consents Required

Written consents from holders owning a majority of the outstanding shares of the Company’s common stock entitled to vote are required to adopt the Merger Agreement and adoption of Memorandum and Articles of Association.

Submission of Consents

You may consent to the approval of the Merger Agreement and Memorandum and Articles of Association with respect to your shares of the Company’s common stock by completing, dating and signing the Written Consent enclosed with this consent solicitation statement/prospectus and returning it in the self-address envelope to:

Computershare Investor Services

P. O. Box #43102

Providence, RI 02940-5068

 

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You may also consent to the approval of the Merger Agreement and Memorandum and Articles of Association by using the Internet or telephone by the following:

CONSENT BY INTERNET

Consent by Internet

• Go to www.investorvote.com/SOPW

• Or scan the QR code with your smartphone

• Follow the steps outlined on the secure website

Shares Held Through Broker, Bank or Nominee:

Internet: www.proxyvote.com

24 hours a day/7 days a week

Through 1:00 am Central Time, October         , 2015

INSTRUCTIONS:

Read this Consent Solicitation Statement/Prospectus.

Go to the applicable website listed above.

Have your notice of internet availability of consent materials, proxy card or voting instruction card in hand (including the control number specified on that notice or card) and follow the instructions.

VOTE BY TELEPHONE

Call toll free 1-800-652-VOTE (8683) within the USA, US territories &

Canada on a touch tone telephone

• Follow the instructions provided by the recorded message

Shares Held of Record:

1-800-652-VOTE (8683)

Shares Held Through Broker, Bank or Nominee:

1-800-579-1639

Toll-free 24 hours a day/7 days a week

Through 1:00 am Central Time, October         , 2015

INSTRUCTIONS:

Read this Consent Solicitation Statement/Prospectus.

Call the applicable toll-free number above.

Have your Consent Solicitation Statement/Prospectus materials, proxy card or voting instruction card in hand (including the control number specified on that notice or card) and follow the instructions.

The Company’s board of directors has set 12:00 noon, [●], on [●], 2015 as the date for the receipt of Written Consents. The Company reserves the right to extend the final date for the receipt of Written Consents beyond [●], 2015 in its sole discretion. Any such extension may be made without notice to the Company’s shareholders. Once a sufficient number of Written Consents to adopt and approve the Merger Agreement and the Memorandum and Articles of Association have been received, the Consent Solicitation will conclude.

 

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Executing Consents; Revocation of Consents

You may execute a Written Consent to approve the Merger Agreement and adoption of the Memorandum and Articles of Association of SPI Energy Co., Ltd. If you do not return your Written Consent, it will have the same effect as a vote against the Merger Agreement and adoption of the Memorandum and Articles of Association. If you are a record holder of shares of the Company’s common stock and you return a signed written consent without indicating your decision on the Merger Agreement and adoption of the Memorandum and Articles of Association, you will have consented to adopt and approve the Merger Agreement and adoption of the Memorandum and Articles of Association even though you did not indicate your decision.

If you are a record holder of shares of the Company’s common stock as of the close of business on the Record Date, you may change or revoke your Written Consent at any time prior to the Expiration Date (or, if earlier, before Written Consents of a sufficient number of shares to approve the Merger Agreement and adoption of the Memorandum and Articles of Association have been received by the Company). If you wish to change or revoke your Written Consent before that time, you may do so by delivering a notice of revocation by:

 

    Contacting Computershare Investor Services by email using proxyvote@computershare.com or fax to (818) 502-0674; or

 

    Making a timely and valid later Internet or telephone vote, as the case may be, if you have previously voted on the Internet or by telephone. If you are the beneficial owner of shares held in street name, you may change your vote by submitting new voting instructions to your broker, bank or other nominee in a timely manner.

Solicitation of Consents; Expenses

The expense of preparing, printing and mailing this consent solicitation statement/prospectus is being borne by the Company. Directors, officers and employees of the Company may solicit consents by telephone and personally, in addition to solicitation by mail. These persons will receive their regular salaries but no special compensation for soliciting consents.

 

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PROPOSAL 1

ADOPTION OF THE MERGER AGREEMENT

The Merger Agreement

The following includes a brief summary of the material provisions of the Merger Agreement, a copy of which is attached as Annex A and incorporated by reference into this consent solicitation statement/prospectus. We encourage you to read the Merger Agreement in its entirety for a more complete description of the Redomicile Merger. In the event of any discrepancy between the terms of the Merger Agreement and the following summary, the Merger Agreement will control.

Introduction

The Merger Agreement you are being asked to adopt and approve provides for a Redomicile Merger that would result in each ten (10) shares of common stock of the Company being converted into the right to receive one ADS representing ten (10) ordinary shares in the capital of SPI Energy, an exempted company incorporated under the laws of the Cayman Islands. Under the Merger Agreement, the Company will merge with and into SPI Merger Sub, a wholly owned subsidiary of SPI Energy, which itself is currently a wholly owned subsidiary of the Company, SPI Merger Sub surviving the Redomicile Merger as a wholly owned subsidiary of SPI Energy and subsequently changing its name to Solar Power, Inc. If the Merger Agreement is adopted by the shareholders, we anticipate that the Redomicile Merger will become effective during the fourth quarter 2015. Following the Redomicile Merger, SPI Energy, together with its subsidiaries, will own and continue to conduct our business in substantially the same manner as is currently being conducted by the Company and its subsidiaries. Immediately following the Redomicile Merger, you will own an interest in SPI Energy, which will be managed by substantially the same board of directors and executive officers that managed the Company immediately prior to the Redomicile Merger. Additionally, the consolidated assets and employees of SPI Energy will be the same as those of the Company immediately prior to the Redomicile Merger.

The Parties to the Redomicile Merger

Solar Power, Inc. The Company is a global provider of photovoltaics (PV) solutions for business, residential, government and utility customers and investors. The Company provides a full spectrum of EPC services to third party project developers, as well as develops, owns and operates solar projects that sell electricity to the grid in multiple countries, including China, the U.S., the U.K., Panama, Greece, Japan and Italy. In early 2015, www.solarbao.com, primarily targeting customers residing in China and a first of its kind online energy e-commerce and investment platform, was launched. This platform enables individual and institutional investors to purchase PV based investments and enables retail customers to purchase solar kits should they plan on building DG projects. This platform is intended to create a network connecting investors keen on the solar industry and developers. See “Business of Solar Power, Inc.”

SPI Energy Co., Ltd. SPI Energy Co., Ltd. is a newly formed exempted company incorporated under the laws of the Cayman Islands and a wholly-owned subsidiary of the Company. An “exempted” company under the laws of the Cayman Islands is one which receives such registration as a result of satisfying the Registrar of Companies in the Cayman Islands that it conducts its operations mainly outside of the Cayman Islands and is as a result exempted from complying with certain provisions of the Companies Law, such as the general requirement to file an annual return of its shareholders with the Registrar of Companies, and is permitted flexibility in certain matters, such as the ability to register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands. SPI Energy does not have a significant amount of assets or liabilities and has not engaged in any business since its formation other than activities associated with its anticipated participation in the Redomicile Merger. As mentioned above, following the Redomicile Merger, SPI Energy, together with its subsidiaries, will own and continue to conduct our business in substantially the same manner as is currently being conducted by the Company and its subsidiaries.

 

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SPI Merger Sub, Inc. SPI Merger Sub is a newly formed Delaware corporation and a wholly owned subsidiary of SPI Energy. SPI Merger Sub does not have a significant amount of assets or liabilities and has not engaged in any business since its formation other than activities associated with its anticipated participation in the Redomicile Merger.

The principal executive offices of each of the Company, SPI Energy and SPI Merger Sub are located at 7F/B Block, 1st Building, Jinqi Plaza, No. 2145 Jinshajiang Road, Putuo District, Shanghai, China; Telephone: +86 021-80129001; Facsimile: +86 021-80129002. SPI also has an office located at 3500 Douglas Blvd., Suite 240, Roseville, CA 95661-3888; Telephone: (916) 770-8100.

Background and Reasons for the Redomicile Merger

We believe the Redomicile Merger, which would change our place of incorporation from the United States to the Cayman Islands, is consistent with our international corporate strategy and would allow us to reduce operational, administrative, legal and accounting costs over the long term.

Our international corporate strategy has been focused on major developing economies such as China, other parts of Asia and Europe. Our corporate objective has been to enhance our position in key infrastructure products with attractive growth potential in selective geographic markets. To achieve this goal, our strategy has been focused on our core strengths and aligned with favorable long term market trends relating to China, the U.K., Panama, Greece, Japan and Italy.

Based upon the foregoing, in January 2015, we announced that we will move our headquarters to Shanghai, China, and we undertook an initiative to transition certain key functions, including our headquarters and finance, to China in order to eliminate functional duplication and reduce operating expenses. We also recently experienced significant changes in our management and our board of directors and, currently, substantially all of our executive team and members of our board of directors reside outside the United States. The recent changes in the composition of our management and board of directors further support our reasons for moving our headquarters and our place of incorporation outside the United States.

We currently have very limited operations in the United States and we believe there is no particular business reason to remain a company incorporated, and to maintain key corporate functions, in the United States. We believe that by reincorporating to a jurisdiction outside the United States, we will be able to qualify as a “foreign private issuer” under the rules and regulations of the SEC and thereby reduce our operational, administrative, legal and accounting costs. We have chosen to reorganize under the laws of the Cayman Islands because of its political and economic stability, effective judicial system, absence of exchange control or currency restrictions and availability of professional and support services. We also believe that being incorporated in the Cayman Islands could provide us with additional flexibility to pursue listings on international stock exchanges, such as the HKEx, should we desire to do so in the future.

As noted, following the completion of the Redomicile Merger, SPI Energy is expected to qualify as a “foreign private issuer” under the rules and regulations of the SEC and we expect that the reduced reporting obligations associated with being a foreign private issuer will reduce operational, administrative, legal and accounting costs in the long term. SPI Energy will remain subject to the mandates of the Sarbanes-Oxley Act. As a foreign private issuer, SPI Energy also will be exempt from certain rules under the Exchange Act that would otherwise apply if SPI Energy were a company incorporated in the United States or did not meet the other conditions to qualify as a foreign private issuer. For example:

 

    SPI Energy may include in its SEC filings financial statements prepared in accordance with U.S. GAAP or with IFRS as issued by the IASB without reconciliation to U.S. GAAP;

 

   

SPI Energy will not be required to provide as many Exchange Act reports, or as frequently or as promptly, as U.S. companies with securities registered under the Exchange Act. For example, SPI

 

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Energy will not be required to file current reports on Form 8-K within four business days from the occurrence of specific material events. Instead, SPI Energy will need to promptly furnish reports on Form 6-K any information that SPI Energy (a) makes or is required to make public under the laws of the Cayman Islands, (b) files or is required to file under the rules of any stock exchange, or (c) otherwise distributes or is required to distribute to its shareholders. Unlike Form 8-K, there is no precise deadline by which Form 6-K must be furnished. In addition, SPI Energy will not be required to file its annual report on Form 10-K, which may be due as soon as 60 days after its fiscal year end. As a foreign private issuer, SPI Energy will be required to file an annual report on Form 20-F within four months after its fiscal year end;

 

    SPI Energy will not be required to provide the same level of disclosure on certain issues, such as executive compensation;

 

    SPI Energy will not be required to conduct advisory votes on executive compensation;

 

    SPI Energy will be exempt from filing quarterly reports under the Exchange Act with the SEC;

 

    SPI Energy will not be subject to the requirement to comply with Regulation FD, which imposes certain restrictions on the selected disclosure of material information;

 

    SPI Energy will not be required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and

 

    SPI Energy will not be required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

SPI Energy expects to take advantage of these exemptions if the Redomicile Merger is effected. Accordingly, after the completion of the Redomicile Merger, if you hold SPI Energy securities, you may receive less information about SPI Energy and its business than you currently receive with respect to SPI and be afforded less protection under the U.S. federal securities laws than you are entitled to currently.

Additionally, as a foreign private issuer, SPI Energy will be permitted to follow corporate governance practices in accordance with Cayman Islands laws in lieu of certain exchange corporate governance standards, such as the following NASDAQ corporate governance standards requiring that:

 

    the majority of the board of directors be comprised of independent directors;

 

    executive compensation be determined by independent directors or a committee of independent directors;

 

    director nominees be selected, or recommended for selection by the board of directors, by independent directors or a committee of independent directors;

 

    an audit committee be comprised of at least three members, each of whom is an independent director and one of whom has finance and accounting experience; and

 

    all related party transactions be reviewed by the audit committee or another independent body of the board of directors.

Maples and Calder, our Cayman Islands counsel, has advised us that there are no comparable Cayman Islands laws related to the above corporate governance standards.

Concurrent with the process of the Redomicile Merger and thereafter, it is the intent of SPI Energy to list the ADSs on the Nasdaq Capital Market.

 

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We believe the Redomicile Merger and the related reorganization will enhance shareholder value. However, we cannot predict what impact, if any, the Redomicile Merger and reorganization will have in the long term in light of the fact that the achievement of our objectives depends on many things, including, among other things, future laws and regulations, as well as the development of our business.

For a discussion of the risk factors associated with the Redomicile Merger and reorganization, please see the section entitled “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Redomicile Merger and Reorganization.”

There are certain disadvantages that accompany reorganizing in the Cayman Islands, including:

 

    The Cayman Islands has a different body of securities laws and corporate laws as compared to the United States and may provide significantly less protection to investors;

 

    Cayman Islands companies may not have standing to sue before the federal courts of the United States; and

 

    SPI Energy’s constitutional documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between it and our officers, directors and shareholders be arbitrated.

SPI Energy’s corporate affairs are governed by SPI Energy’s memorandum and articles of association, as amended and restated from time to time, the Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors and officers of SPI Energy, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands, as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors, although clearly established under Cayman Islands law, are not specifically prescribed in statute or a particular document in the same way that they are in certain statutes or judicial precedent in some jurisdictions in the United States.

Additionally, a significant portion of our operations are conducted in the PRC, and a significant portion of our assets are located in the PRC. After the Redomicile Merger, substantially all of SPI Energy’s directors and all of its executive officers will continue to reside outside of the United States, and all or a substantial portion of such persons’ assets are or may be located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon SPI Energy or such persons, or to enforce against them in courts of the United States, Cayman Islands or PRC, 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.

The Redomicile Merger

The steps that have been taken to date, and that will be taken, to complete the Redomicile Merger are:

 

    The Company has formed SPI Energy, with the Company holding one ordinary share issued by SPI Energy.

 

    SPI Energy, in turn, has formed SPI Merger Sub and holds 100 shares of common stock of SPI Merger Sub.

 

   

Following the receipt of Written Consents adopting and approving the Merger Agreement and related transaction including the Redomicile Merger, and after waiting for the requisite period to determine which shareholders, if any, have exercised their dissenters’ rights, (i) the Company will merge with and into SPI Merger Sub, with SPI Merger Sub surviving and changing its name to Solar Power, Inc., and (ii) each ten (10) shares of the Company’s common stock will be converted into the right to receive one

 

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ADS representing ten (10) ordinary shares in the capital of SPI Energy, which ordinary shares will be issued by SPI Energy as part of the Redomicile Merger. No fraction of an ADS shall be issued by virtue of the Redomicile Merger, but in lieu thereof each holder of shares of SPI common stock who would otherwise be entitled to a fraction of an ADS in connection with the Redomicile Merger shall receive from The Bank of New York Mellon, as the exchange agent, the net proceeds the exchange agent will receive from sale of the aggregate of those fractional ADSs.

 

    SPI Energy will repurchase and cancel the one ordinary share issued to the Company prior to the Redomicile Merger and all SPI common stock will be cancelled.

 

    As a result, SPI Merger Sub, upon completion of the Redomicile Merger, will remain as a wholly owned subsidiary of SPI Energy.

Immediately prior to the Effective Time, all existing equity compensation plans of the Company, as may be amended, will be adopted and assumed by SPI Energy. Each outstanding option and other equity award issued under our equity compensation plans for the purchase or receipt of, or payment based on, each share of the Company’s common stock will represent the right to purchase or receive, or receive payment based on, one ordinary share in the capital of SPI Energy on substantially the same terms.

Additionally, at the Effective Time, SPI Energy will adopt and assume the obligations of the Company under or with respect to certain contracts or agreements as described in the Merger Agreement. The contracts and agreements will become the obligations of SPI Energy and will be performed in the same manner and without interruption until the same are amended or otherwise lawfully altered or terminated.

The Merger Agreement may be amended, modified or supplemented at any time before or after it is adopted by the shareholders of the Company. However, after adoption by the shareholders, no amendment, modification or supplement may be made or effected that requires further approval by the Company’s shareholders without obtaining that approval.

Possible Abandonment

Pursuant to the Merger Agreement, the board of directors of the Company may exercise its discretion to terminate, including but not limited to shareholders owning more than 1.0% of the outstanding shares exercise their dissenters’ rights, the Merger Agreement, and therefore abandon the Redomicile Merger, at any time prior to the Effective Time, including after the adoption of the Merger Agreement by the Company’s shareholders. Please see the section entitled “Risk Factors and Caution Regarding Forward-Looking Statements—Risks Relating to the Redomicile Merger and Reorganization—Our Board of Directors may choose to defer or abandon the Redomicile Merger.”

Additional Agreements

SPI Energy expects to enter into indemnification agreements with those directors, executive officers and other officers and employees (including officers and employees of its subsidiaries) who currently have indemnification agreements with the Company. The SPI Energy indemnification agreements will be substantially similar to the Company’s existing indemnification agreements and will generally require that SPI Energy indemnify and hold an indemnitee harmless to the fullest extent permitted by law for liabilities arising out of the indemnitee’s current or past association with SPI Energy, any subsidiary of SPI Energy or another entity where he or she is or was serving at SPI Energy’s request as a director or officer or in a similar capacity that involves services with respect to any employee benefit plan.

The indemnification agreements also provide for the advancement of defense expenses by SPI Energy. Please also see the section entitled “Comparison of Rights under California and Cayman Islands Law—Indemnification of Directors and Officers” for a description of indemnification of directors and officers under Cayman Islands law and SPI Energy’s memorandum and articles of association.

 

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Conditions to Completion of the Redomicile Merger

The following conditions must be satisfied or waived, if allowed by law, to complete the Redomicile Merger and reorganization:

 

    the Merger Agreement has been adopted by the requisite vote of shareholders of the Company;

 

    none of the parties to the Merger Agreement is subject to any decree, order or injunction that prohibits the consummation of the Redomicile Merger;

 

    the registration statement of which this consent solicitation statement/prospectus is a part of has been declared effective by the SEC and no stop order is in effect;

 

    all material consents and authorizations of, filings or registrations with, and notices to, any governmental or regulatory authority required of the Company, SPI Energy or their subsidiaries to consummate the Redomicile Merger have been obtained or made;

 

    the representations and warranties of the parties to the Merger Agreement set forth in the Merger Agreement are true and correct in all material respects, and the covenants of the parties set forth in the Merger Agreement (other than those to be performed after the Effective Time) have been performed in all material respects; and

 

    holders exercising their dissenters’ rights own no more than 1.0% of our outstanding shares of common stock.

Our board of directors currently does not anticipate any circumstances in which it would waive the conditions listed above; however, in the event it determines that a waiver of any such conditions is in the best interests of the Company and our shareholders and that such change to the terms of the Redomicile Merger does not make the disclosure provided to our shareholders materially misleading (for example, if a representation in the Merger Agreement is not true but there is otherwise no harm to the Company or our shareholders), our board of directors will not resolicit written consents to approve the Merger Agreement. If a waiver of any condition listed above would make the disclosure provided to our shareholders materially misleading, our board of directors will resolicit shareholder written consent to approve the Redomicile Merger. Additionally, our board of directors reserves the right to defer or abandon the Redomicile Merger as well for the reasons described under “Risk Factors and Caution Regarding Forward-Looking Statements-Risks Relating to the Redomicile Merger and Reorganization-Our Board of Directors may choose to defer or abandon the Redomicile Merger.”

Stock Compensation and Benefit Plans and Programs

As part of the Redomicile Merger, SPI Energy has agreed to assume all of the Company’s rights and obligations under the Company’s 2006 Equity Incentive Plan. Plans that provide benefits to employees of subsidiaries of the Company will, upon being assumed by SPI Energy, continue to provide benefits to such employees consistent with the current manner. For those plans that currently provide for the issuance of the Company common stock, following the Redomicile Merger, SPI Energy ordinary shares will be issued, with no anticipated increase to our “overhang,” which we define for this purpose as the total number of shares required to be issued pursuant to the exercise of options and/or other equity awards outstanding and assumed by SPI Energy in connection with the Redomicile Merger or shares otherwise available for issuance under our equity compensation plans assumed by SPI Energy. Except as described below, all rights to purchase or receive, or receive payment based on, each share of the Company’s common stock arising under our equity compensation plans will entitle the holder to purchase or receive, or receive payment based on, as applicable, one SPI Energy ordinary share.

Warrants, Convertible Debentures or Convertible Securities

In addition, as part of the Redomicile Merger, SPI Energy has agreed to assume all of the Company’s rights and obligations of any warrants, convertible debentures or other convertible securities that may convert into the

 

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Company’s common stock. All rights to purchase or receive, or receive payment based on, each share of the Company’s common stock arising under our warrants, convertible debentures or other convertible securities will entitle the holder thereof to purchase or receive, or receive payment based on, as applicable, one SPI Energy ordinary share.

Effective Time

Provided that we have obtained the requisite Written Consents, we anticipate that the Redomicile Merger will become effective during the fourth quarter 2015. Our board of directors will have the right, however, to defer or abandon the Redomicile Merger at any time if it concludes that completion of the Redomicile Merger would not be in the best interests of the Company or our shareholders.

Management of SPI Energy

Immediately prior to the Effective Time, the directors and officers of the Company at such time will be elected or appointed as the directors and officers of SPI Energy (to the extent the directors and officers of SPI Energy and the Company are not already identical), each such person to have the same office(s) with SPI Energy (and the same class designations and committee memberships in the case of directors) as he or she held with the Company, with the directors to serve until they are removed from office by an ordinary resolution of the SPI Energy shareholders or by a resolution of the board of directors of SPI Energy.

Recommendation and Required Vote

The consent of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to approve and adopt the Merger Agreement. Our board of directors believes that the Redomicile Merger, to be effected by the Merger Agreement, is advisable and in the best interests of the Company and our shareholders.

ACCORDINGLY, OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE REDOMICILE MERGER AND THE MERGER AGREEMENT. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS APPROVE THE ADOPTION OF THE MERGER AGREEMENT BY WRITTEN CONSENT.

Regulatory Approvals

The only governmental or regulatory approvals or actions that are required to complete the Redomicile Merger are compliance with U.S. federal and state securities laws and California and Delaware corporate law (including the filing with the Secretary of State of the State of Delaware of a certificate of merger).

Rights of Dissenting Shareholder

The following is a summary of Chapter 13 of the California General Corporate Law (CGCL), which sets forth the procedures for the Company’s shareholders to dissent from the Redomicile Merger and to demand statutory dissenters’ rights under the CGCL, including a brief description of the procedures to be followed if a holder of the Company’s common stock desires to exercise dissenters’ rights. The record holders of the Company’s common stock who have perfected their dissenters’ rights in accordance with Chapter 13 of the CGCL and have not withdrawn their demands or otherwise lost their rights to exercise their dissenters’ rights with respect to the Redomicile Merger are referred to herein as “Dissenting Shareholders,” and the shares of the Company’s common stock with respect to which they exercise dissenters’ rights are referred to herein as “Dissenting Shares.” This summary does not purport to be a complete statement of the provisions of California law relating to the rights of the Company’s shareholders to an appraisal of the value of their shares and is qualified in its entirety by reference to Chapter 13 of the CGCL, the full text of which is attached as Annex C hereto. Please note that failure to follow the procedures required by the CGCL could result in the loss of dissenters’ rights.

 

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If the Merger Agreement is approved by the required vote of the Company’s shareholders and is not abandoned or terminated, holders of the Company’s common stock who did not approve the Redomicile Merger may, by complying with Sections 1300 through 1313 of the CGCL, be entitled to dissenters’ rights as described herein and receive cash for the fair market value of their Dissenting Shares.

Dissenting Shareholders must satisfy each of the following requirements to qualify as Dissenting Shares under California law:

 

    the Dissenting Shares must have been outstanding on the Record Date;

 

    the shareholder must not have voted in favor of the Merger Agreement and any Written Consent submitted must have been marked to be either voted “Against” or “Abstain.” If shareholder returns a signed Written Consent without voting instructions or with instructions to vote “FOR” the Merger Agreement, his or her shares were automatically voted in favor of the Merger Agreement and they have lost their dissenters’ rights;

 

    the Dissenting Shareholder must make a written demand that the Company repurchase the Dissenting Shares at fair market value (as described below); and

 

    the Dissenting Shareholder must submit the Dissenting Shares certificates for endorsement (as described below).

Refusal to approve the Merger Agreement by written consent does not in and of itself constitute a demand for appraisal under California law.

Pursuant to Sections 1300 through 1313 of the CGCL, holders of Dissenting Shares may require the Company to repurchase their Dissenting Shares at a price equal to the fair market value of such shares which shall be determined as of, and immediately prior to, the first announcement of the terms of the proposed Redomicile Merger, excluding any appreciation or depreciation in consequence of the proposed Redomicile Merger, as adjusted for any stock split, reverse stock split or stock dividend that becomes effective thereafter.

Within ten days following approval of the Merger Agreement by the Company shareholders, the Company will mail a dissenters’ notice to each person who did not vote or abstained from voting in favor of or voted against the Merger Agreement. The Company dissenters’ notice must contain the following:

 

    notice of the approval of the Merger Agreement;

 

    a statement of the price determined by the Company to represent the fair market value of Dissenting Shares (which shall constitute an offer by SPI to purchase such Dissenting Shares at a stated price unless such shares lose their status as “Dissenting Shares” under Section 1309 of the CGCL);

 

    a brief description of the procedures for Dissenting Shareholders to exercise their rights; and

 

    a copy of Sections 1300 through 1304 of Chapter 13 of the CGCL.

Within 30 days after the date on which the dissenters’ notice was mailed by the Company to each person who did not vote or abstained from voting in favor of, or voted against, the Merger Agreement, a Dissenting Shareholder must:

 

    demand that the Company repurchase such shareholder’s Dissenting Shares;

 

    include in that demand the number and class of Dissenting Shares held of record that the Dissenting Shareholder demands that the Company purchase;

 

    state that the Dissenting Shareholder is demanding purchase of the shares and payment of their fair market value. The statement of fair market value constitutes an offer by the Dissenting Shareholder to sell the Dissenting Shares at such price within such 30-day period; and

 

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    submit to the Company certificates representing any Dissenting Shares that the Dissenting Shareholder demands SPI purchase, so that such Dissenting Shares may either be stamped or endorsed with the statement that the shares are Dissenting Shares or exchanged for certificates of appropriate denomination so stamped or endorsed. The demand statement and the Company’s certificates should be delivered to:

7F/B Block, 1st Building, Jinqi Plaza

No. 2145 Jinshajiang Road, Putuo District

Shanghai, P.R. China

Attention: Corporate Secretary

If upon the Dissenting Shareholder’s surrender of the certificates representing the Dissenting Shares, the Company and a Dissenting Shareholder agree upon the price to be paid for the Dissenting Shares and agree that such shares are Dissenting Shares, then the agreed price is required by law to be paid (with interest thereon at the legal rate on judgments from the date of the agreement) to the Dissenting Shareholder within the later of 30 days after the date of such agreement or 30 days after any statutory or contractual conditions to the completion of the Redomicile Merger are satisfied.

If the Company and a Dissenting Shareholder disagree as to the price for such Dissenting Shares or disagree as to whether such shares are entitled to be classified as Dissenting Shares, such Dissenting Shareholder has the right to bring an action in California Superior Court of the proper county, within six months after the date on which the notice of the shareholders’ approval of the Redomicile Merger is mailed, to resolve such dispute. In such action, the court will determine whether the shares of the Company’s common stock held by such shareholder are Dissenting Shares or as to the fair market value of the holder’s shares, or both, or may intervene in any action pending on such a complaint. If the complaint is not filed or intervention in a pending action is not made within the specified six-month period, the dissenters’ rights are lost.

In determining the fair market value of the Dissenting Shares, the court may appoint one or more impartial appraisers to make the determination. Within a time fixed by the court, the appraiser, or a majority of them, will make and file a report with the court. If the appraisers cannot determine the fair market value within ten days of their appointment, or within a longer time determined by the court, or the court does not confirm their report, then the court will determine the fair market value. The costs of the appraisal action, including reasonable compensation to the appraisers appointed by the court, will be allocated between the Company and Dissenting Shareholder as the court deems equitable. However, if the appraisal of the fair market value of the Company shares exceeds the price offered by the Company in the notice of approval, then the Company shall pay the costs. If the fair market value of the shares awarded by the court exceeds 125.0% of the price offered by SPI, then the court may in its discretion impose additional costs on the Company, including attorneys’ fees, fees of expert witnesses and interest.

Shareholders considering whether to exercise dissenters’ rights should consider that the fair market value of their Company common stock determined under Chapter 13 of the CGCL could be more than, the same as or less than the value of SPI Energy ordinary shares to be paid in connection with the Redomicile Merger, as set forth in the Merger Agreement. Also, the Company reserves the right to assert in any appraisal proceedings that, for purposes thereof, the fair market value of the Company common stock is less than the value of the SPI Energy ordinary shares to be issued and paid in connection with the Redomicile Merger, as set forth in the Merger Agreement.

Strict compliance with certain technical prerequisites is required to exercise dissenters’ rights. Shareholders wishing to exercise dissenters’ rights should consult with their own legal counsel in connection with compliance with Chapter 13 of the CGCL. Any shareholder who fails to comply with the requirements of Chapter 13 of the CGCL, attached as Annex C to this consent solicitation statement/prospectus, will forfeit the right to exercise dissenters’ rights and will, instead, receive SPI Energy ordinary shares to be issued and paid in connection with the Redomicile Merger, as set forth in the Merger Agreement.

 

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Shareholders should be aware that California law provides, among other things, that a Dissenting Shareholder may not withdraw the demand for payment of the fair market value of Dissenting Shares unless the Company consents to such request for withdrawal.

IN VIEW OF THE COMPLEXITY OF THE PROVISIONS OF CALIFORNIA LAW RELATING TO DISSENTERS’ RIGHTS, ALL SHAREHOLDERS THAT WISH TO EXERCISE DISSENTERS’ RIGHTS OR THAT WISH TO PRESERVE THEIR RIGHT TO DO SO SHOULD CAREFULLY REVIEW CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE, BECAUSE FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS. THOSE WISHING TO DISSENT SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER CHAPTER 13.

Ownership in SPI Energy

Each ten (10) shares of the Company’s common stock registered in your name or which you beneficially own through your broker will be converted into the right to receive one ADS representing ten (10) ordinary shares in the capital of SPI Energy and such ordinary shares will be registered in the depositary’s name in SPI Energy’s register of members upon completion of the Redomicile Merger, without any further action on your part. Upon completion of the Redomicile Merger, only registered shareholders reflected in SPI Energy’s register of members will have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon SPI Energy ordinary shares registered in their respective names. Any attempted transfer of the Company’s stock prior to the Redomicile Merger that is not properly documented and reflected in the stock records maintained by the Company’s transfer agent as of immediately prior to the Effective Time will not be reflected in SPI Energy’s register of members upon completion of the Redomicile Merger. Registered holders of ADSs representing SPI Energy’s ordinary shares seeking to transfer those ADSs following the Redomicile Merger will be required to provide customary transfer documents required by the depositary to complete the transfer.

If you hold the Company’s common stock in an account with a broker or other securities intermediary, you will receive delivery of ADSs in your account with that same broker or securities intermediary without any action on your part. If you hold the Company’s common stock in certificated form, you may exchange your stock certificates for new ADSs in uncertificated form representing SPI Energy ordinary shares following the Redomicile Merger. We will request that all Company stock certificates be returned to our exchange agent following the Redomicile Merger. Soon after the closing of the Redomicile Merger, you will be sent a letter of transmittal from our exchange agent. It is expected that, prior to the Effective Time, The Bank of New York Mellon will be appointed as our exchange agent for the Redomicile Merger. The letter of transmittal will contain instructions explaining the procedure for surrendering your stock certificates of the Company for ADSs in uncertificated form representing SPI Energy ordinary shares. YOU SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED WRITTEN CONSENT.

SPI Energy’s current transfer agent is MaplesFS which will continue to serve as the transfer agent for SPI Energy ordinary shares after the Effective Time.

Accounting Treatment of the Redomicile Merger

The Redomicile Merger will be accounted for as a legal reorganization with no change in ultimate ownership interest immediately before and after the transaction. Accordingly, no business combination has occurred and all assets and liabilities will be recorded at historical cost as an exchange between entities under common control.

Taxation

The following discussion of the material Cayman Islands, People’s Republic of China and United States federal income tax consequences is based upon laws and relevant interpretations thereof effective as of the date

 

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of this consent solicitation statement/prospectus, all of which are subject to change, possibly with retroactive effect. This discussion does not deal with all possible tax consequences relating to the Redomicile Merger or otherwise, such as the tax consequences under state and local and tax laws.

Cayman Islands Taxation

The Cayman Islands government (or any other taxing authority in the Cayman Islands) currently does not levy taxes on individuals or corporations based upon profits, income, gains or appreciation, and there is no taxation in the Cayman Islands in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to SPI Energy levied by the government of the Cayman Islands except for stamp duty which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. No stamp duties or other similar taxes or charges are payable under the laws of the Cayman Islands in respect of the execution or delivery of any of the documents relating the proposed Redomicile Merger or the performance or enforcement of any of them, unless they are executed in or thereafter brought within the jurisdiction of the Cayman Islands for enforcement purposes or otherwise. We do not intend that any documents relating to the proposed Redomicile Merger be executed in or brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands.

People’s Republic of China Taxation

Under the Corporate Income Tax Law of the People’s Republic of China (the “CIT Law”) and its implementation rules, both effective on January 1, 2008, all domestic and foreign investment companies will be subject to a uniform enterprise income tax at the rate of 25% and dividends from PRC enterprises to their foreign shareholders will be subject to a withholding tax at a rate of 10% if the foreign investors are considered as non-resident enterprises without any establishment or place within the PRC or if the dividends payable have no connection with the establishment or place of the foreign investors within the PRC, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a lower withholding tax rate. In accordance with Caishui (2008) No. 1 issued by the Ministry of Finance, or MOF, and SAT on February 22, 2008, the accumulative undistributed profits of foreign investment companies generated before January 1, 2008, and distributed to foreign investors after year 2008, shall be exempt from withholding tax.

The CIT Law has introduced the concept of “resident enterprises” and corresponding tax liability on resident enterprises’ worldwide income, whilst “non-resident enterprises” without any place or establishment in the PRC are required to pay 10% income tax on their passive incomes from sources within China only. A resident enterprise refers to an enterprise that (i) was established/incorporated within the PRC, or (ii) was established/ incorporated under the laws of a foreign jurisdiction but has its “de facto management body” in the PRC. A non-resident enterprise refers to an enterprise which was established/incorporated under the laws of a foreign jurisdiction and does not have its “de facto management body” in the PRC, but has an establishment or place in the PRC, or has China-sourced income even though it does not have any establishment or place in the PRC.

Under the implementation rules of the CIT Law, “de facto management body” is defined as an organization that has material and overall management and control over the business, personnel, accounts and properties of an enterprise. In April 2009, the SAT issued a Notice on Issues Relating to Determination of PRC-Controlled Offshore Enterprises as PRC Resident Enterprises Based on “De Facto Management Body” Test, or SAT Circular No. 82, under which, an offshore enterprise controlled by a PRC enterprise or a PRC enterprise group will be characterized as a “resident enterprise” due to the fact that its “de facto management body” is located within the PRC, if all of the following conditions are met at the same time: (i) the senior management personnel responsible for its daily operations and the place where the senior management departments discharge their responsibilities are located primarily in the PRC, (ii) its finance and human resources related decisions are made by or are subject to the approval of institutions or personnel located in the PRC, (iii) its major assets, books and records, company seals and minutes of its board of directors and shareholder meetings are located or kept in the PRC, and (iv) senior management personnel or 50% or more of the members of its board of directors with voting

 

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power of the enterprise reside in the PRC. SAT Circular No. 82 further specifies that the principle of “substance over form” shall be adopted in determining whether the “de facto management body” is located within China.

We currently are not treated as a PRC resident enterprise by the Chinese tax authority and as a result, we have not withheld PRC income taxes from our foreign investors and as a non-resident enterprise, we are subject to PRC withholding tax if we receive dividends directly from our PRC subsidiaries paid by them using funds out of their profits generated on and after January 1, 2008.

Nevertheless, a significant portion of our operations are currently based in the PRC and are likely to remain based in the PRC after the Redomicile Merger. Moreover, a significant portion of our management team, who are in charge of finance and human resources related decisions, will perform their duties mainly in the PRC, and over 50% of our board members habitually reside in the PRC. Our main properties, accounting books and records, company seals and minutes of board meetings are maintained in China.

However, the rules regarding the determination of the “de facto management body” are relatively new and whether such rules may apply to us is unclear. Due to lack of further written clarification by the SAT, there is still a uncertainty around the interpretation of each of the four conditions as specified in SAT Circular No. 82 and the principle of “substance over form” and the implementation of SAT Circular No. 82 by Chinese tax authorities in practice. It also remains unclear what percentage of shares of an offshore enterprise must be held by a PRC entity or group in order for the offshore enterprise to be deemed as an offshore enterprise controlled by a PRC enterprise or a PRC enterprise group, and whether shares held by PRC resident individuals are counted pursuant to SAT Circular No. 82.

Due to the lack of clear guidance on the determination of our tax residency under the CIT Law, it remains unclear whether the PRC tax authorities will treat us as a PRC resident enterprise either before or after the Redomicile Merger or what effect, if any, the Redomicile Merger will have on the determination. As a result, we cannot express an opinion as to the likelihood that we will be subject to the tax applicable to resident enterprises or non-resident enterprises under the CIT Law. If SPI Energy is treated as a PRC resident enterprise, it will be subject to PRC tax on its worldwide income at the 25% uniform tax rate, but the dividends distributed from its subsidiaries that are or deemed to be PRC resident enterprises should be tax-exempt income. In addition, if SPI Energy is considered a PRC resident enterprise, the dividends paid by it to the non-PRC shareholders may be regarded as income from sources within the PRC pursuant to SAT Circular No. 82, and therefore the non-PRC institutional shareholders may be subject to a 10% withholding tax, and the non-PRC individual shareholders may be subject to a 20% withholding tax unless they are able to claim a lower tax rate pursuant to applicable tax treaties.

Furthermore, if SPI Energy is treated as a PRC resident enterprise, there is a possibility that the capital gains realized by its non-PRC shareholders from the transfer of their shares may be regarded as income from sources within the PRC for PRC tax purposes. If such capital gains are taxed in China, the applicable income tax rate would be 10% for non-PRC institutional shareholders, and 20% for non-PRC individual shareholders. If the non-PRC shareholders are U.S. residents that are eligible for PRC-US Tax Treaty benefits, whether capital gains should be taxed in China is unclear.

Pursuant to Paragraph 5 of Article 12 of the PRC-US Tax Treaty, gains from the alienation of shares of a company which is a PRC resident other than those mentioned in paragraph 4 (which refers to shares of a company the property of which consists principally of real property in the PRC) and representing a participation of at least 25% may be taxed in China. Paragraph 6 of Article 12 of the PRC-US Tax Treaty further specifies that “[G]ains derived by a resident of a Contracting State from the alienation of any property other than that referred to in paragraphs 1 through 5 and arising in the other Contracting State may be taxed in that other Contracting State.” By virtue of this provision, the capital gains realized by U.S. residents may be taxed in the PRC if the capital gains are considered as “arising in” the PRC. Under the CIT Law and its implementing rules, the capital gains from transfer of shares may be considered as “arising in” the PRC if the enterprise whose shares are

 

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transferred is “located in” China. If SPI Energy is considered a PRC resident enterprise, and if the Chinese tax authorities take the position that a PRC resident enterprise is deemed to be located in China, the capital gains realized by the U.S. residents from transfer of their shares may be taxed in the PRC depending on how the PRC-US Tax Treaty is interpreted and implemented by the Chinese tax authorities.

Panamanian Tax Considerations

The following is a summary of material Panamanian tax consequences of the Redomicile Merger and of the ownership and disposition of SPI Energy ordinary shares after the Redomicile Merger, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon statutes, regulations, rulings and opinions as in effect on the date hereof. This summary does not address all aspects of Panamanian taxation that may be relevant in light of particular circumstances.

Tax Consequences of the Redomicile Merger

The Redomicile Merger would not be a taxable event in Panama.

Certain Panamanian Income Tax Considerations

Panama’s income tax regime is based on the principle of territoriality, under which only income deemed to arise from sources within Panama is subject to taxation. Therefore, income derived by corporations or individuals which is not deemed to be from a Panamanian source is not subject to income tax in Panama. In general terms, income earned from business or commercial activities performed in Panama as well as from investments within Panama is considered Panama source income, irrespective of where the income is received.

Panama’s corporate income tax rate is 25% on the entity’s net taxable income (total income minus exempt income and/or non-taxable income, foreign source income, and deductible costs and expenses).

However, the Tax Code provides for an alternative income tax calculation (“CAIR”) for entities earning annual taxable income over US$1,500,000.00. For such entities, the corporate income tax must be calculated by applying the corporate income tax rate of 25% over the highest of:

 

  a. Net taxable income (total income minus exempt income and/or non-taxable income, foreign source income, and deductible costs and expenses);

 

  b. 4.67% of the total taxable income.

Taxation of Distributions

Distributions paid by SPI Energy would not be subject to taxation in Panama.

Only dividend payments made by a company established in Panama that generates Panama source income or has a commercial license in Panama are subject to a dividend tax. Such distributions are subject to a dividend tax withholding at a rate of 10%, if the earnings distributed are derived from taxable income, and at a rate of 5% if the earnings arose out of foreign source income, export-related income and certain exempted income. On the other hand, the dividend tax withholding is 20%, in all cases, if the dividend is paid to holders of bearer shares. Dividends so distributed are not subject to further taxes in Panama and, therefore, the recipient does not report or pay additional income tax in Panama on such income.

Taxation of Dispositions

The sale or other disposition of the shares of SPI Energy would be subject to taxation in Panama to the extent SPI Energy has obtained Panama source income or owns real property in Panama, directly or through a subsidiary.

 

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Capital gains derived from the direct or indirect transfer of shares of a legal entity that has obtained Panama source income or owns real property in Panama is subject to income tax in Panama at a rate of 10%. However, the buyer is required by law to withhold 5% of the total consideration paid to the seller and to pay the withheld amount to the Tax Authority within 10 business days following the date of payment of the purchase price, as an advance payment on the seller’s capital gains tax.

The 5% withholding applied and paid by the buyer is in fact an “advance” on the capital gains tax due by the seller. However, the Panama’s taxation rules allows the seller to consider such payment as its definite and final capital gains tax due. If the 10% on the capital gain is higher than the 5% on the purchase price, the seller does not have the obligation to pay the difference to the Tax Authority. On the other hand, in the event the 5% withholding exceeded 10% of the capital gain actually realized on the sale, the seller has the option to file a sworn declaration before the Tax Authority claiming either a tax credit or a refund for the amounts paid in excess.

Stamp and Other Taxes

There are no other stamp or transfer taxes applicable to the Redomicile Merger payable in Panama. Notwithstanding the foregoing, documents related to the Redomicile Merger will become subject to stamp taxes in Panama, if and when submitted as evidence before any court or other governmental authority in Panama, at a rate of US$0.10 for each US$100.00 of the face value of the obligations stated therein.

Tax Treaties

There is currently no tax treaty for the avoidance of double taxation between the Cayman Islands and Panama or between the United States and Panama. There is, however, a tax information exchange agreement in force between the United States and Panama.

Greek Taxation

According to the Greek Tax Code legislation (N.4172 / 2013), profits made by legal persons and legal entities are subject to annual “Income tax of legal persons and legal entities.”

Profit from business is considered the total revenue from the business transactions net of corporate expenses, depreciation and provisions for bad debts. Revenue from business transactions include income from the sale of assets of the company, together with the proceeds of liquidation, such as those arising during the tax year. These profits are taxed at 26%.

Based on the tax return submitted by the legal person or legal entity as an advance is certified, an amount equal to 80% of the tax attributable to the income of the elapsed fiscal year is subject to such income tax. This is reduced by 50% for the new legal entities in the first three years of their declaration of commencement of business.

Additionally, the following payments by any legal person or legal entity doing business and having their residence in Greece are subject to withholding tax at the following rates:

 

  a. Dividends (10%)

 

  b. Interest (15%)

 

  c. Royalties (20%).

If double tax treaties are in place with lower tax rates, withholding tax will be paid according to the lower rates.

 

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Regardless of the foregoing, no tax is payable from dividends and similar payments paid to related legal entities, provided that:

 

  a. The related party holds at least 10% of the company (in the case of dividends) or 25% (in the case of interest and royalties),

 

  b. The minimum shareholding percentage is held for at least 24 months, and

 

  c. The receiving legal entity:

 

  i. is included in the types listed in Annex I, Part A of the Directive 2011/96/EC (société anonyme, società per azioni, Aktiengesellschaft etc.) and

 

  ii. is tax resident of a State/Member of the European Union.

If a taxpayer that is resident for tax purposes in Greece, distributes dividends, interest or royalties paid to a legal person who has not attained the 24 months of holding the minimum percentage ownership of shares or participation, but otherwise satisfies the other conditions, the entity liable for tax that is resident in Greece may temporarily refrain from paying the withholding tax if they deposit bank guarantee to the Tax Administration.

Italian Taxation

The following is a general abstract summary of certain material income tax rules applicable in Italy to Italian resident corporations based on Italian tax laws in force at the date hereof as well as the material Italian tax consequences of the Redomicile Merger and of the ownership of SPI Energy ordinary shares after the Redomicile Merger. The following is not intended to be an exhaustive analysis of all the tax aspects of the Italian taxation regulations and is a general description not specifically referred to the tax position of Solar Power, Inc.’s subsidiaries and assets located in Italy. The summary below is based on Italian laws currently in force, which are subject to any change occurring after the date hereof, which could be made on a retroactive basis.

Taxation of companies (S.p.A. and S.r.l.)

Italian resident corporations are generally subject to corporate income tax (IRES) and to regional tax on productive activities (IRAP).

The currently applicable IRES rate is 27.5%, which generally applies to Italian companies on their worldwide income. IRES is governed by the Income Tax Code (Testo Unico delle imposte sui redditi) introduced by Presidential Decree 917 of December 22, 1986 as subsequently amended (hereinafter, “TUIR”).

Costs and expenses may generally be deducted on an accrual basis for IRES purposes to the extent that they pertain to the business activity carried on by the company, subject to specific limitations.

Non-Italian resident corporations are subject to income tax in Italy only on any Italian-sourced income. Business income derived by non-Italian companies is subject to IRES in Italy to the extent that the non-residents carry on their activity through an Italian permanent establishment.

Regional Tax on productive activities (IRAP)

The standard IRAP rate is 3.9%. Regional authorities may decrease or increase this rate up to one percentage point. For IRAP purposes, the taxable base consists of the net value of production generated in each region of Italy, to be determined according to different criteria depending on the sector of activity of the company. Apart for certain exceptions, no deduction or limited deduction is generally granted for IRAP purposes for interest expenses, labor costs and bad debts. IRAP is regulated by Legislative Decree 446 of December 15, 1997, as subsequently amended.

 

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Group consolidated tax

The parent company, either resident in Italy or abroad in certain jurisdictions and subject to the satisfaction of certain criteria, controlling a group of Italian resident companies is entitled to opt for the domestic tax consolidation regime, under which a single IRES taxable base may be determined in the hands of the parent company for all the group entities.

Based on a scheme of legislative decree approved by the Government on April 20, 2015 and currently under examination before the Parliamentary Committees, the currently applicable tax consolidation regime may undergo material changes.

Other relevant corporate tax issues

The Italian tax legislation provides for an anti-avoidance rule aiming at tackling the abusive use of corporate structures (so-called “dummy” companies), imposing a tax on corporations on a “deemed minimum income”, to the extent that the total turnover of the relevant tax year, is lower than the amount resulting from the application of certain percentages to their business assets. The deemed minimum income is subject to IRES at the increased rate of 38%.

Taxation of non-Italian resident companies

Under the Italian domestic legislation, non-Italian resident corporations are subject to income tax in Italy only on Italian-sourced income, including capital gains on the transfer of participations in Italian companies, except for the participations in listed companies not exceeding 5% of capital or 2% of voting rights.

Dividends

Dividends paid by Italian resident companies to non-Italian resident companies without a permanent establishment in Italy to which the shares are effectively connected are generally subject to a 26% withholding or substitute tax, subject to reduction under the applicable treaty previsions and beneficial treatments under certain conditions.

Material tax consequences of Redomicile Merger

The Redomicile Merger would not be a taxable event in Italy to extent that, according to its governing law, it triggers the universal succession of SPI Merger Sub, Inc. in all rights and liabilities of Solar Power, Inc., consistently with what happens under the Italian civil law.

U.K. TAXATION

Corporation Tax on profits

Corporations are subject to Corporation Tax, or U.K. CT, in relation to both corporate income and corporate capital gains. However, U.K. corporation tax is only chargeable if a company is either resident in the U.K. for tax purposes or carries on a trade in the U.K. through a permanent establishment.

There are no indications that we may come within any of the tests for U.K. corporate residence. However, as a non-resident company, where we carry on a trade in the U.K. through a U.K. permanent establishment, we will be chargeable to U.K. CT on our profits, wherever they arise to the extent that the profits are attributable to the U.K. permanent establishment. Some of the business activities carried on by us, were these to continue to be carried out by SPI Energy after the Redomicile Merger, may constitute a U.K. permanent establishment. Further it is likely that we may be deemed to be “trading in” the U.K. through such a permanent establishment. The

 

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relevant profits chargeable would include trading income arising directly or indirectly through or from the permanent establishment and income from property or rights used by, or held by or for, the permanent establishment.

Against the liability for U.K. CT arising from the permanent establishment, deductions may be made for expenses incurred for its purposes, such as administrative expenses.

To the extent that any profits of ours are not to be attributable to the permanent establishment, we will still, generally, be subject to income tax on income with a U.K. source with exception for certain types of investment income, dividends from U.K. resident companies and certain annual payments.

Where applicable, the U.K. CT rate from April 1, 2015 is 20%.

Diverted profits tax

With effect from April 1, 2015, the U.K. has introduced a Diverted Profits Tax, or DPT, at the rate of 25% on the amount of the deemed diverted profits. However, DPT is unlikely to arise where there is a taxable presence in the U.K. (for example, through a permanent establishment or U.K. subsidiaries) or arm’s length pricing is applied; or there is sufficient economic substance in the non-U.K. companies and transactions in the group. Given the likelihood that (i) our business activities may constitute trade through U.K. permanent establishment; that (ii) if a U.K. permanent establishment is deemed not to exist, non-resident parts of us will not carry out activities relating to supplies of goods, services, etc (including electricity) or that these activities (if carried out) relate to supplies amounting to less than 10,000,000 British Pounds; and (iii) such activities will neither lack economic substance nor avoid creating a U.K. permanent establishment, it is not expected that DPT would be enforced against our business activities.

Tax Consequences of Redomicile Merger

The Redomicile Merger is highly likely to be treated as a reorganization pursuant to Chapter 4 of Part II of the U.K. Taxation of Chargeable Gains Act 1992 in any U.K. judicial proceeding or non-judicial determination since each of the shareholders will be of continued identity and hold securities in the same proportions, as long as (in relation to any shareholder) such shareholder does not receive any consideration from any other shareholders or the company. Any U.K. tax on chargeable gains to the shareholders from the exchange of the securities in connection with the Redomicile Merger is thus going to be deferred to the eventual disposal of these securities.

A tax known as stamp duty may be applicable on instruments executed in or relating, wheresoever executed, to any property situate, or to any matter or thing done or to be done in any part of the U.K. No stamp duties or other similar taxes or charges are payable under the laws of the U.K. in respect of the execution or delivery of any of the documents relating the Redomicile Merger or the performance or enforcement of any of them, unless they are executed in the U.K. It is not intended that any documents relating the Redomicile Merger be executed or relate to any property or matter or thing to be done in the jurisdiction of the U.K.

Other Issues

A tax arrangement applies between the Cayman Islands and the U.K., a double taxation convention (as amended) between the U.S. and the U.S. and a taxation convention between Hong Kong and the U.K. are also in place and apply to us.

Non-residents have no U.K. tax liability on dividends from U.K. companies and thus no withholding on dividend income from any subsidiaries of ours ought to be expected. No tax deduction is allowed to the non-U.K. tax liability on the dividend of a resident of a territory outside the U.K. in respect of the dividend.

 

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U.K. resident individual shareholders of our subsidiaries who receive overseas source dividend may be liable to U.K tax on such dividend, if such individual shareholders are treated as “higher rate” or “additional rate” taxpayers. In these situations, tax credit will be available under any relevant double taxation agreement, but only if the recipient owns less than 10% of the distributing company’s issued share capital.

Exchange and currency control

There are no exchange control regulations or currency restrictions in the U.K.

Japanese Tax Consideration

The following is a summary of material Japanese tax consequences of the Redomicile Merger and general information on taxation applicable to income earned by Japanese corporations and distribution of profits by Japanese corporations, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. Additionally, the following summary is based on that laws and regulations in effect as of the date hereof, and does not address all aspects of Japanese taxation that may be relevant in light of particular circumstances.

Tax Consequences of the Redomicile Merger

There are no court precedents or reliable laws and regulations that relate to the Redomicile Merger. Accordingly, it would be reasonable to consider the Redomicile Merger a non-taxable event in Japan.

Certain Japanese Income Tax Considerations

With regard to Japanese corporations, the Japanese income tax regime is based on the principle of worldwide taxation, under which all income earned by Japanese corporations established under Japanese law is subject to Japanese taxation with certain exceptions.

The rate of Japanese corporate income tax is 23.9% on the entity’s net taxable income (that is, total income minus exempt income and/or non-taxable income, foreign-sourced income, and deductible costs and expenses). The effective tax rate for a corporation in Tokyo with taxable income of 8 million Japanese Yen or more (which includes local corporation tax, enterprise tax and local inhabitant tax) is 33.10%.

Taxation of Distributions

The following is a summary of the principal Japanese tax consequences (limited to national taxes) on non-residents of Japan or non-Japanese corporations without a permanent establishment in Japan, or Non-Resident Holders, who hold shares of common stock in a non-listed Japanese corporation.

Generally, Non-Resident Holders are subject to Japanese withholding tax on dividends paid by non-listed Japanese corporations. Such Japanese corporations withhold taxes from dividends that they pay out, as required by Japanese law.

In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate of Japanese withholding tax or allowing for exemption from Japanese withholding tax, the rate of Japanese withholding tax applicable to dividends paid by a non-listed Japanese corporation to Non-Resident Holders is generally 20.42% for dividends due and payable on or before December 31, 2037. Due to the imposition of a special additional withholding tax (of 2.1% of the original withholding tax amount) to finance reconstruction efforts pursuant to the Great East Japan Earthquake, the original withholding tax rate of 20% will effectively be increased to 20.42% until December 31, 2037.

 

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Material United States Federal Income Tax Consequences Relating to the Redomicile Merger and the Ownership and Disposition of SPI Energy American Depositary Shares

The following is a summary of material U.S. federal income tax consequences of the Redomicile Merger and of the ownership and disposition of SPI Energy American Depositary Shares (“ADS”) after the Redomicile Merger, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. To the extent the discussion relates to matters of U.S. federal income tax law, and subject to the qualifications herein, it represents the opinion of Weintraub Tobin, a law corporation, our United States counsel. This summary is based upon the provisions of the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income or estate tax consequences different from those set forth below. We have not sought any ruling from the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant in light of particular circumstances, nor does it address the U.S. federal income tax consequences to persons who are subject to special rules under U.S. federal income tax law, including:

 

    banks, insurance companies or other financial institutions;

 

    persons subject to the alternative minimum tax;

 

    tax-exempt organizations;

 

    controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax;

 

    dealers in securities or currencies;

 

    traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

    persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below);

 

    holders who acquired our stock as compensation or pursuant to the exercise of a stock option;

 

    persons who hold our common stock as a position in a hedging transaction, “straddle,” or other risk reduction transaction; or

 

    persons who do not hold our common stock as a capital asset (within the meaning of Section 1221 of the Code).

In addition, unless expressly provided below, this discussion does not address any foreign, state, or local laws or U.S. federal estate and gift tax laws.

For purposes of this discussion, a U.S. holder is (i) an individual who is a citizen or resident of the United States for U.S. federal income tax purposes, (ii) a corporation, or 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 (or treated as such under applicable U.S. tax laws), any state thereof, or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source, or (iv) a trust if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) it has a valid election in effect under applicable law and regulations to be treated as a U.S. person for U.S. federal income tax purposes. A non-U.S. holder is a holder that is not a U.S. holder.

In the case of a partnership or entity classified as a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities

 

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of the partnership. Partners of partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them of the Redomicile Merger or of the ownership and disposition of SPI Energy ADS.

Tax Consequences of the Redomicile Merger to the Company and SPI Energy

SPI Energy Will Be Treated As a U.S. Corporation

Pursuant to Section 7874 of the Code, SPI Energy will be treated as a U.S. corporation for all purposes under the Code because (i) after the Redomicile Merger, SPI Energy will have acquired substantially all of the properties held directly or indirectly by the Company, (ii) after the Redomicile Merger, SPI Energy will not have substantial business activities in the Cayman Islands, and (iii) the former holders of the Company’s common stock will hold, by reason of owning shares of SPI common stock, at least 80% or more of the SPI Energy ADSs. Because SPI Energy will be treated as a U.S. corporation for all purposes under the Code, SPI Energy cannot be treated as a “passive foreign investment company,” as such rules apply only to non-U.S. corporations for U.S. federal income tax purposes, regardless of whether it would otherwise meet the applicable income and asset tests.

Taxation of the Company and SPI Energy

We expect that neither the Company nor SPI Energy will incur U.S. income tax as a result of completion of the Redomicile Merger.

Tax Consequences of the Redomicile Merger to U.S. Holders and Reporting Requirements

U.S. holders will not recognize gain or loss for U.S. federal income tax purposes upon receipt ADS representing an interest in of SPI Energy ordinary shares in exchange for SPI common stock. The aggregate tax basis in the ADSs received in the Redomicile Merger will equal each such U.S. holder’s aggregate tax basis in the Company’s common stock surrendered. A U.S. holder’s holding period for the ADSs that are received in the Redomicile Merger generally will include such U.S. holder’s holding period for the common stock of the Company surrendered.

U.S. holders who owned at least 5% of the Company’s outstanding stock or the Company common stock with a basis of $1,000,000 or more for U.S. federal income tax purposes who receive ADSs as a result of the Redomicile Merger will be required to file with such U.S. holders’ U.S. federal income tax returns for the year in which the Redomicile Merger takes place a statement setting forth certain facts relating to the Redomicile Merger. Such statements must include the U.S. holders’ tax basis in, and fair market value of, the SPI common stock surrendered in the Redomicile Merger.

U.S. holders should note that the state income tax consequences of the Redomicile Merger depend on the tax laws of such state. It is possible that the Redomicile Merger may be taxable under the tax laws of some states, including, e.g., California. U.S. holders are urged to consult their own tax advisors as to specific tax consequences to them of the Redomicile Merger in light of their particular circumstances, including the applicability and effect of any state, local, or foreign tax laws and of changes in applicable tax laws.

Tax Consequences of the Ownership and Disposition of SPI Energy American Depositary Shares to U.S. Holders Distributions

SPI Energy does not currently anticipate paying distributions on its ordinary shares. In the event that distributions are paid, however, the gross amount of such distributions will be included in the gross income of the U.S. holder as dividend income on the date of receipt to the extent that the distribution is paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be

 

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eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. Dividends received by non-corporate U.S. holders, including individuals, may be subject to reduced rates of taxation under current law. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on dividends paid by us. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code in the presence of the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC Tax Treaty, are not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

To the extent that dividends paid on our ordinary shares exceed current and accumulated earnings and profits, the distributions will be treated first as a tax-free return of tax basis on the SPI Energy ordinary shares, and to the extent that the amount of the distribution exceeds tax basis, the excess will be treated as capital gain.

Sale or Other Disposition

U.S. holders of ADSs will recognize taxable gain or loss on any sale, exchange, or other taxable disposition of ADSs equal to the difference between the amount realized for the ADSs and the U.S. holder’s tax basis in the ADSs. This gain or loss generally will be capital gain or loss. Non-corporate U.S. holders, including individuals, will be eligible for reduced tax rates if the ADSs have been held for more than one year. A U.S. holder’s holding period for ADSs should include such U.S. holder’s holding period for the SPI common stock surrendered in the Redomicile Merger. The deductibility of capital losses is subject to limitations. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on gain from the sale or other disposition of ADSs. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code in the presence of the U.S.-PRC Tax Treaty are not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

Recent Legislation

Recent legislation requires certain U.S. holders who are individuals, trusts or estates to pay a 3.8% tax on, among other things, dividends on and capital gains from the sale or other disposition of shares of stock for taxable years beginning after December 31, 2012. U.S. holders should consult their own advisors regarding the effect, if any, of this legislation on their ownership and disposition of SPI Energy ordinary shares.

Tax Consequences of the Redomicile Merger to Non-U.S. Holders

The receipt of ADSs in exchange for the Company’s common stock will not be a taxable transaction to non-U.S. holders for U.S. federal income tax purposes.

Tax Consequences of the Ownership and Disposition of SPI Energy American Depositary Shares to Non-U.S. Holders

Distributions

SPI Energy does not currently anticipate paying distributions on its ordinary shares. In the event that distributions are paid, however, such distributions will constitute dividends for U.S. tax purposes to the extent paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent that dividends paid on ordinary shares exceed current and accumulated earnings and profits, the distributions will be treated first as a tax-free return of tax basis on the ADSs, and to the extent that the amount of the distribution exceeds tax basis, the excess will be treated as capital gain.

 

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Any dividends paid to a non-U.S. holder by SPI Energy are treated as income derived from sources within the United States and generally will be subject to U.S. federal income tax withholding at a rate of 30% of the gross amount of the dividends, or at a lower rate provided by an applicable income tax treaty if non-U.S. holders provide proper certification of eligibility for the lower rate (usually on IRS Form W-8BEN). Dividends received by a non-U.S. holder that are effectively connected with such holder’s conduct of a U.S. trade or business (and, if an income tax treaty applies, such dividend is attributable to a permanent establishment maintained by the non-U.S. holder in the U.S.) are exempt from such withholding tax, provided that applicable certification requirements are satisfied. In such case, however, non-U.S. holders will be subject to U.S. federal income tax on such dividends, net of certain deductions, at the rates applicable to U.S. persons. In addition, corporate non-U.S. holders may be subject to an additional branch profits tax equal to 30% or such lower rate as may be specified by an applicable tax treaty on dividends received that are effectively connected with the conduct of a trade or business in the United States.

If non-U.S. holders are eligible for a reduced rate of U.S. withholding tax pursuant to an applicable income tax treaty, such non-U.S. holders may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale or Other Disposition

Any gain realized upon the sale or other disposition of ADSs generally will not be subject to U.S. federal income tax unless:

 

    the gain is effectively connected with the conduct of a trade or business in the United States, and, if an income tax treaty applies, is attributable to a permanent establishment maintained by such holder in the U.S.;

 

    the holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met; or

 

    SPI Energy is or has been a “U.S. real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period during which the holder has held ADSs.

Non-U.S. holders whose gain is described in the first bullet point above will be subject to U.S. federal income tax on the gain derived from the sale, net of certain deductions, at the rates applicable to U.S. persons, within the meaning of the Code. Corporate non-U.S. holders whose gain is described in the first bullet point above may also be subject to the branch profits tax described above at a 30% rate or lower rate provided by an applicable income tax treaty. Individual non-U.S. holders described in the second bullet point above will be subject to a flat 30% U.S. federal income tax rate on the gain derived from the sale, which may be offset by U.S.-source capital losses, even though such non-U.S. holders are not considered to be residents of the United States.

A corporation will be a USRPHC if the fair market value of its U.S. real property interests equals or exceeds 50 percent of the aggregate of its real property interests (U.S. and non-U.S.) and its assets used or held for use in a trade or business. Because we do not currently own significant U.S. real property, we believe, but our U.S. counsel has not independently verified, that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as U.S. real property interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during the applicable period that is specified in the Code.

 

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Backup Withholding and Information Reporting

Payments of dividends or of proceeds on the disposition of stock made to a holder of ADS shares may be subject to information reporting and backup withholding at a current rate of 28% unless such holder provides a correct taxpayer identification number on IRS Form W-9 (or other appropriate withholding form) or establishes an exemption from backup withholding, for example by properly certifying your non-U.S. status on a Form W-8BEN or another appropriate version of IRS Form W-8. Payments of dividends to holders must generally be reported annually to the IRS, along with the name and address of the holder and the amount of tax withheld, if any. A similar report is sent to the holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the holder’s country of residence.

Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Recently Enacted Legislation Affecting Taxation of Our American Depositary Shares Held by or Through Foreign Entities

Recently enacted legislation generally will impose a U.S. federal withholding tax of 30% on dividends and the gross proceeds of a disposition of the ADS paid to a “foreign financial institution” (as specially defined under these rules) unless such institution enters into an agreement with the U.S. government to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners). The legislation also will generally impose a U.S. federal withholding tax of 30% on dividends and, commencing on January 1, 2017, on the gross proceeds of a disposition of the ADS paid to a non-financial foreign entity unless such entity provides the withholding agent with a certification identifying the direct and indirect U.S. owners of the entity. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of this legislation on their investment in the ADS.

 

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PROPOSAL 2

ADOPTION OF AMENDED AND RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION OF SPI ENERGY CO., LTD.

In connection with the Redomicile Merger, SPI Energy intends to adopt the proposed Amended and Restated Memorandum and Articles of Association (“Memorandum and Articles of Association”) attached hereto as Annex B upon the completion of the Redomicile Merger. The Memorandum and Articles of Association of SPI Energy, an exempted company formed under the laws of the Cayman Islands, contains certain provisions that are different than those under SPI’s Articles of Incorporation and California law.

Among the material differences of provisions of SPI Energy’s Memorandum and Articles of Association and Cayman Islands law and the Company’s Articles of Incorporation and Bylaws and California law are the following:

 

    an amendment to SPI Energy’s Memorandum and Articles of Association or SPI Energy entering into certain corporate transactions including a merger requires approval by a special resolution of holders of SPI Energy’s ordinary shares representing not less than two-thirds of the votes cast at a general meeting by those Shareholders entitled to vote who are present in person or by proxy as compare to California law which, in general, requires approval by holders of SPI common stock representing a majority of the outstanding shares;

 

    under the proposed SPI Energy’s Memorandum and Articles of Association, a meeting of shareholders may be held provided a quorum of holders representing at least one-third of the votes attaching to the issued and outstanding ordinary shares entitled to vote at general meetings, present in person or by proxy as compared to a quorum of holders owning a majority of the outstanding shares of common stock is present in person or by proxy under SPI Bylaws and California law; and

 

    an increase in the number of SPI Energy’s authorized shares to 50,000,000,000 as compared to 1,000,000,000 under SPI’s Articles of Incorporation.

Because of these differences between SPI Energy’s Memorandum and Articles of Association under Cayman Islands law and SPI’s Articles and Bylaws and California law, SPI is separately seeking approval of SPI Energy’s Memorandum and Articles of Association. For more description of the differences between SPI Energy’s Memorandum and Articles of Association and Cayman Islands law and SPI Articles of Incorporation and Bylaws and California law, see Risk Factor—“Risks Relating to the Redomicile Merger and Reorganization” and “Comparison of Rights under California and Cayman Islands Law”.

SPI’s board of directors has evaluated these changes in corporate governance under SPI Energy’s proposed Memorandum and Articles of Association and Cayman Islands law and SPI’s Articles and Bylaws and California law in connection with the Redomicle Merger and believe that approval of SPI Energy’s proposed Memorandum and Articles of Association is in the best interest of our shareholders.

RECOMMENDATION OF THE BOARD

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL AND ADOPTION OF THE SPI ENERGY’S RESTATED MEMORANDUM AND ARTICLES OF ASSOCIATION.

The affirmative vote of the holders of a majority of the shares outstanding is required to approve Proposal 2.

The approval of Proposal 2 is conditioned upon the approval of the Redomicile Merger. If either Proposal 1 or 2 is not approved, the Redomicile Merger will not be effected.

 

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BUSINESS OF SOLAR POWER, INC.

We are a global provider of PV solutions for business, residential, government and utility customers and investors. We provide a full spectrum of EPC services to third party project developers, as well as develop, own and operate solar projects that sell electricity to the grid in multiple countries, including China, the U.S., the U.K., Panama, Greece, Japan and Italy. Prior to 2014, we were primarily engaged in providing EPC services to developers in the U.S. We were also engaged in the development, manufacture and marketing of a variety of PV modules, the key components of solar parks that convert sunlight into electricity, and balance-of- system components, including our in-house brand. We have discontinued our manufacturing business and liquidated our research and development function. Starting from 2014, we expanded our full spectrum EPC service business to China, where we provided comprehensive and quality services to large solar projects. In addition, we commenced our global project development business by ramping up our portfolio of global solar projects, including projects that we plan to hold in the long term and derive electricity generation revenue from under our independent power producer model, or IPP model, and projects that we plan to sell in the future when we are presented with attractive opportunities under our build-and-transfer model, or BT model. We grow our project portfolio primarily through acquisitions and act as a secondary developer for the projects we acquire which are under construction or in pipeline at the time they are added to our portfolio. Solar projects in our current portfolio include projects at all stages of development, including projects in operation, projects under construction and projects in pipeline. See “—Our Global Solar Project Development Business—Our Solar Project Portfolio.”

For our EPC service business, the scope of our work encompasses engineering design procurement of technical components from PV module and panel manufacturers and contracting of construction and installation, which reaches both upstream and downstream along the spectrum of the solar business value chain. We rigorously manage our engineering design quality, procurement supply chain and construction contractors. This level of design and supply chain management as well as construction quality control enables us to design, build and deliver world-class solar system configurations with components that can work optimally together. Our value-engineered system approach allows us to meet system design requirements while delivering highly efficient electric power output with a lifetime of reliable performance. In 2014, we focused on large solar projects in China, where the projects are eligible to receive various forms of government incentives and have access to funding options, and where we enjoy relatively high margins with respect to our EPC service business compared to projects in other jurisdictions. We derived approximately 83.3% of revenue from our EPC service business in China with an average gross profit margin of 17.0% for the year ended December 31, 2014. We also provide a comprehensive set of long-term O&M services over the anticipated life of a solar project for third party developers, including performance monitoring, system reporting, preventative maintenance and full warranty support. We have incurred net losses since our inception. We incurred net losses of $32.2 million and $5.2 million in 2013 and 2014, respectively.

For our global project development business, as of June 30, 2015, we had completed a series of acquisitions, consisting of (i) 26.6 MW of projects in Greece, acquired in December 2014 for a total consideration of US$140.5 million of its fair value, (ii) 20.0 MW of projects in China, acquired in December 2014 for a total consideration of RMB190 million (US$30.6 million), (iii) 33.6 MW of projects in the U.S., acquired in various dates in 2014 for a total consideration of US$31.5 million, and (iv) 4.3 MW of projects in Italy, acquired in February 2015 for a total consideration of US$11.8 million of its fair value. The Greek, Chinese and Italian projects were already connected to the grid and the U.S. projects were still under construction when the acquisitions were completed. During the six-month period ended June 30, 2015, we completed the construction of four PV solar projects in the U.S. and one PV solar project in UK and sold them to third parties at the consideration of $5.9 million and $16.1 million, respectively, which have been recognized as revenue accordingly.

As of June 30, 2015, we had started construction of an aggregate of 24.1 MW of projects in the U.K., 38.2 MW of projects in Japan and 32.4 MW of projects in the U.S. under our BT model. We anticipate that these projects will be connected to the grid by December 31, 2016.

 

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We had 2,701.6 MW of projects in announced pipeline as of June 30, 2015. See “—Our Global Project Development Business—Our Project Portfolio.” We expect to complete the acquisition of, or commence permitting processes for, our projects in announced pipeline as soon as practicable. We believe these new additions, combined with our existing project portfolio, demonstrate our broad geographic reach and established presence across key solar markets and mitigate country-specific risks.

As a market first innovation, in early 2015 www.solarbao.com, primarily targeting retail customers residing in China and a first-of-its-kind online energy e-commerce and investment platform, was launched. This platform enables individual and institutional investors to purchase PV-based investments and enables retail customers to purchase solar kits should they plan on building DG projects. Aside from being an independent revenue generating business, this e-commerce and investment platform is also being utilized by us as a financing channel for our DG projects. This platform is intended to create a network connecting investors keen on the solar industry and developers.

We raised a significant amount of cash for our working capital purposes from the issuance of shares of our common stock (“Shares”) and convertible notes in 2014 and 2015 to non-U.S. investors in private placements. In 2014 and 2015, we entered into various private placement share purchase agreements and option agreements with a number of non-U.S. investors and issued approximately 345.5 million unregistered Shares in reliance of Regulation S of the Securities Act, mostly at a per share purchase price benchmarked to the prevailing trading price of our Shares at the respective dates of these agreements, and raised an aggregate $218.9 million. We also raised $55.0 million of cash from issuing unregistered convertible notes to non-U.S. investors in reliance of Regulations S.

In December 2006, we became a public company through a reverse merger with Solar Power, Inc., then a Nevada corporation (formerly Welund Fund, Inc.). On March 31, 2011, LDK, a manufacturer of PV modules, obtained a controlling interest in Solar Power, Inc. through a significant investment that provided working capital and broader relationships to more aggressively pursue commercial and utility project opportunities globally. Prior to the expansion of our EPC service business and the commencement of our global project development business in 2014, LDK’s modules were used in a majority of the solar projects to which we provided EPC services; however, we maintained relationships with other module manufacturers for when circumstances required an alternative to LDK’s line of modules. See “Note 25—Related Party Transactions” to the to the Consolidated Financial Statements set forth under Item 8 herein for further discussion related to the accounts receivables and payables arising out of our historical dealings with LDK. Following the shifting of our strategic operational focus, we adopted a supplier-neutral approach for sourcing PV modules and panels for our acquired and independently developed projects in 2014 and 2015. Furthermore, consequent to the issuance of our Shares and convertible notes in private placements as described above, as of June 30, 2015, LDK beneficially owned 141,517,570 Shares or approximately 22.5% of our common stock, and is no longer our controlling shareholder.

Our Engineering, Procurement and Construction Service Business

Developing a PV system is a highly complex endeavor which requires technical expertise as well as process management and business skills. The engineers of a PV project must properly oversee the design and installation of the PV modules, racking and mounting systems, interconnection and balance-of-systems components, inverters, batteries and other electric and technical equipment that constitute a typical PV project and enables the project to generate electricity and interconnect with the local grid. As the engineer’s work is closely interrelated with the equipment installed in the project and the construction of the project itself, project developers generally contract out all three of these important tasks to a single EPC contractor who provides the engineering, procurement, and construction services that form the technical backbone of a successful PV power plant.

An EPC service provider generally plans, executes and manages the engineering design of a project, the procurement of required components and materials, and the construction of the project itself. Focused on the engineering and other technical aspects of the project, EPC services are distinguishable from the financial and

 

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regulatory aspects of developing a solar project generally handled by developers’ in-house teams. EPC work occupies a central position in the project development value chain, reaching both upstream to the procurement of equipment from PV module manufacturers and downstream to the contracting of construction and installation work. As a PV solution provider familiar with the entire PV development process, we are able to deliver sophisticated and specialized EPC solutions for PV project developers while also driving efficiencies up and down the value chain.

When providing EPC services to other developers, our expertise in the solar project development and manufacturing fields allows us to realize cooperative synergies and also exert leverage with third-party contractors that helps drive performance and create value for our customers. Our broad expertise can inform the overall development process, affording us a role in program management, project scheduling, quality management, and quality control of a project. Under this model we work closely and cooperatively with our customers and sub-contractors in successfully delivering completed solar projects, fostering and improving our existing relationships with established PV system developers, integrators and installers. Thus, our provision of EPC services is a critical contribution to projects in which we partner with project developers, a model we have historically executed in the U.S. and the U.K. and we continue to execute now.

We typically work with customers on-site to perform feasibility studies, manage deliveries and materials, and oversee design, installation, construction system start-up, testing, and grid connection. The size of the system is the primary determinant of EPC development timing, but for an average system in our experience the process takes three to six months. We use our in-house capabilities for engineering and procurement, which allows us to take advantage of our strong relationships with diverse supplier network for the provision of modules, racking systems, balance of system components and other items at competitive prices and terms. We generally outsource and oversee construction to specialized EPC construction sub-contractors.

We earn pre-agreed EPC service fees from our customers, who generally make milestone payments to us. In 2013 and 2014, we derived revenue of $39.3 million and $87.3 million, respectively, from the provision of our EPC services. Prior to 2014, our EPC work was primarily for customers in the U.S. In 2014, as a part of the commencement of our global project development business in the Chinese market, we began to undertake major EPC projects in certain parts of China. In 2014, we provided EPC services to three large Chinese projects having capacities of 21.0 MW, 30.0 MW, and 30.0 MW located in Jiangxi Province, Ningxia Autonomous Region, and Inner Mongolia Autonomous Region, respectively. Our three biggest EPC customers in 2014 were the respective owners of these three projects, all of which were regional developers in China.

Engineering Design

As a critical first step in the EPC process, engineering design involves the planning of the entire solar project, from feasibility studies of the land and irradiation levels to efficient arrangement of mounting, modules and connection systems. Our technical team takes responsibility over initial solar project engineering with support from third-party contractors. The engineering design process includes the site layout and the electrical design as well as assessment of a variety of factors to choose appropriate technologies for the project, particularly the modules and inverters. Through engineering design, we aim to reduce the risks, control the costs and improve the performance of our solar projects.

Procurement and Construction

In order to focus on our core downstream development and EPC service businesses, we no longer manufacture PV modules or produce other equipment such as controllers, inverters and balance of system components. Rather, we procure them from third-party manufacturers and install them in our PV systems as a part of our EPC business.

We procure PV modules and other key equipment for our project construction from independent suppliers and contract work to third-party EPC contractors in areas such as logistics, installation, construction and

 

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supervision. We believe this allows us to focus our resources on higher value-added tasks. We maintain an updated list of qualified and reliable global suppliers and local third-party contractors in the areas where we operate with a proven track record and with which we have established relationships.

We choose our suppliers and third-party EPC contractors through a competitive bidding process. The relevant departments of our headquarters organize and collect bids, communicate with bidders and coordinate with our regional development teams to meet local technical and legal requirements. This helps ensure we have a strong, reliable and experienced supplier and construction team working with us on every EPC project that we manage.

Procurement of PV Modules and Other Equipment

Our management team has strong relationships in the solar industry that enable a thorough understanding of component selection. We apply stringent quality assurance protocols when selecting components to ensure a long useful life and high compatibility with the solar project, local topography and local solar irradiation. We leverage our economies of scale and industry knowledge to obtain favorable prices, payment terms and warranty terms, thus delivering high project returns, reducing our working capital requirements and improving our liquidity.

The cost of PV modules, the primary equipment of our solar projects, typically takes up a substantial portion of the average total system costs. We procure our PV modules from a wide selection of suppliers including Hanwha Q CELLS Co., Ltd., CECEP Solar Energy Technology Co., Ltd., Znshine PV-tech Co., Ltd., Lightway Green New Energy Co., Ltd., and LDK, among others. Although we are no longer engaged in component manufacture, we believe that our strong historical experience in manufacturing upstream PV products provides us with insights into the upstream value chain and advantages in procuring PV system equipment in our EPC and downstream project development business.

We take into consideration technical specifications (such as size, type and power output), bid price, warranty and insurance programs, spectral response, performance in low light, nominal power tolerance levels, degradation rate, technical support and the reputation of the supplier when procuring project equipment. We typically require warranties in case of defects in materials or workmanship for duration of 10 years and a warranty for module capacity under normal testing conditions for a duration of 25 years (2-3% of capacity for the first year with a 0.5-0.8% linear degradation in capacity every year thereafter).

We are generally required to pay 100% of the purchase price within a period ranging from three months to six months after receipt, inspection and acceptance of the PV modules. We typically pay manufacturers deposits that represent 10% to 50% of the total purchase price.

Construction Contracting

When engaging as an EPC contractor, we generally outsource the construction of our PV power plants to third-party construction companies and closely monitor their execution of our designs. These companies are typically specialized EPC construction subcontractors. Our third-party contractors take contractual responsibility over construction. In executing construction oversight and management, we combine our hands-on experience in construction, installation and system integration to drive construction work, reduce construction risks, and realize overall project cost savings. Our construction oversight teams can conduct constructability reviews, provide construction support, contract administration and document control services, construction inspection, engineering support, instrumentation installation and monitoring, and on-site construction supervision and monitoring.

We utilize a number of metrics to manage and monitor the performance of the third-party contractors in terms of both quality and delivery time and to ensure compliance with applicable safety and other requirements. For instance, we may delegate representatives with relevant qualifications to review, supervise, organize and provide comments on the third-party contractor’s design, construction plan, construction guidelines, materials

 

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and documentations. We also conduct periodic inspections to examine project implementation and quality standards compared to our project planning and quality standards and prepare periodic reports for review and approval by the relevant departments in our corporate headquarters. If we identify any quality or progress issues which are attributable to the work of the third-party contractors, we will have further follow-up discussions with them and monitor their rectification work.

The third-party contractors are responsible for the quality of the project, and must maintain project-relevant insurance with us as a beneficiary. They must ensure the project complies with the related local safety, labor and environmental laws and regulations. We examine and keep records of the production-related safety documentation and insurance policies of our third-party contractors. All production-related tools and equipment used by our third-party contractors must be compliant with and certified by applicable regulatory standards. The contractors submit detailed quality assurance procedures and report on the progress, quality and safety of the project to us on a regular basis. The third-party contractors utilize a variety of measures to protect the location, including the transmission line, built facilities and infrastructure, from damage during the construction process.

We are generally entitled to compensation if the third-party contractors fail to meet the prescribed requirements and deadlines under their contracting agreements. We generally negotiate to pay our third-party contractors the remaining 5 or 10% of the contract price after the expiration of the quality warranty period, which generally lasts one to two years, or, if we pay the full contract price upon completion of the solar project, require the contractor to provide a bond in respect of the warranty obligations.

Commissioning and Warranties

We assess and evaluate our solar projects before completion. Upon completion of construction, we conduct commissioning tests prior to grid connection that include a detailed visual inspection of all significant aspects of the plant, an open circuit voltage test and a short circuit current test, and then a direct-current test after connecting to the grid. We focus commissioning tests on the quality of the construction and major equipment. These tests are conducted in order to ensure that the plant is structurally and electrically safe, and is sufficiently robust to operate as designed for the specified project lifetime.

After grid connection, we also conduct commissioning tests on electricity generation performance. As grid connection requires approval from power companies, post-grid connection commissioning tests also are conducted by local quality supervisors or third-parties approved by the power companies. In addition to the warranties provided by the manufacturers of modules and balance-of-system components, EPC contractors also typically provide a limited warranty against defects in workmanship, engineering design, and installation services under normal use and service conditions for a period of one to two years following the energizing of a section of a solar power plant or upon substantial completion of the entire solar power plant. In resolving claims under the workmanship, design and installation warranties, the new owner has the option of remedying the defect to the warranted level through repair, refurbishment, or replacement.

In April 2015, we entered into a share purchase agreement to acquire a rooftop EPC service provider in China. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition Activities—Other Solar Businesses—All-Zip Acquisition.”

Our Global Project Development Business

We develop and sell or own and operate solar projects which sell electricity to the grid in multiple countries, including China, the U.S., the U.K., Panama, Greece, Japan and Italy. In 2014, we commenced our global project development business by ramping up our portfolio of global solar projects, including projects that we plan to hold in the long term and derive electricity generation revenue from under our IPP model, as well as projects which we plan to sell in the future when we are presented with attractive opportunities under our BT model. We grow our project portfolio primarily through acquisitions and our project acquisition strategy is based on rigorous market research and due diligence on the target project’s capacity, local energy demands, applicable tariff regime, supporting infrastructure, local government support and topography for construction in the case of projects under construction and projects in pipeline, and we consider financing options, internal rate

 

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of return, key technical components, grid connection agreements and power purchase agreements, or PPAs, as well as guarantees on performance for projects in all development stages. We act as secondary developer for the projects we acquire which are under construction or in pipeline at the time they are added to our portfolio. We plan to hold the projects from which we will derive electricity generation revenue for the long term, or to sell them in the future if we are presented with attractive opportunities.

As of June 30, 2015, we had completed a series of acquisitions consisting of 26.6 MW of projects in Greece, 20.0 MW of projects in China, 33.6 MW of projects in the U.S. and 4.3 MW of projects in Italy. The Greek, Chinese and Italian projects were already connected to the grid when the acquisitions were completed, while the U.S. projects were still under construction.

We had started construction of an aggregate of 24.1 MW of projects in the U.K., 38.2 MW of projects in Japan and 32.4 MW of projects in the U.S. as of June 30, 2015. We expect that all of these projects will be connected to the grid by December 31, 2016.

Aside from the completed acquisitions and commenced developments described above, we have also announced to acquire or develop a vast portfolio of projects. In October and November 2014, we entered into framework agreements to purchase a large portfolio of projects in China with an aggregate capacity of up to 668.5 MW from three large project developers, including a subsidiary of China Guodian Corporation, or Guodian, one of the five largest power producers in China and a state-owned enterprise. Once completed, these acquisitions as well as other projects we are developing will constitute significant additions to our global solar project portfolio. In October 2014, we entered into a cooperation framework agreement with Guodian to develop a total of 1.5 GW projects in China from 2015 to 2017. In March 2015, we entered into agreements with independent third parties with whom we will partner to develop and acquire a total of up to 237.8 MW of solar projects in the U.S. and Mexico and 108.0 MW of solar projects in Panama. In April 2015, SPI Solar Japan G.K., our wholly owned subsidiary, entered into a sale and purchase agreement with an independent third party to acquire the PV project companies which owned the development rights of approximately 30 MW of solar projects in Japan.

Most of our solar projects are subject to the FIT policies of the countries or regions where they operate. FIT refers to the national and local subsidies to solar power generation supported by the government. For the FIT terms of our projects, please refer to “—Our Solar Project Portfolio.”

Our Solar Project Portfolio

We expect our solar projects to have operational lives of 25 to 27 years. As of June 30, 2015, our solar project portfolio consisted of:

 

    Projects in Operation“Projects in operation” refers to projects connected to the grid and selling electricity. As of June 30, 2015, we had projects in operation with an attributable capacity of 50.9 MW in Greece, China and Italy, and these projects generated and sold 57.8 GWh of electricity in 2014.

 

    Projects under Construction—“Projects under construction” refers to projects at the construction stage. We generally complete construction in three to six months after obtaining all the permits required for construction, if local climate and topographical conditions permit. We have 94.7 MW of projects under construction in the U.S., the U.K. and Japan as of June 30, 2015 and we expect substantially all of them to be connected to the grid by December 31, 2016.

 

    Projects in Announced Pipeline—“Projects in announced pipeline” refers to projects that we have entered into definitive agreements to develop with a third party in which we expect to own a majority of the equity interest, and projects we have entered into definitive agreements to acquire.

 

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The following summary sets forth our solar projects in operation, solar projects under construction and solar projects in announced pipeline as of the date of June 30, 2015.

Solar Projects in Operation*

 

Country

  

Project name

   Gross
capacity
(MW)
     Our
equity
holding
    Attributable
capacity
(MW)
     Ground/
Roof-top
   Connection
date
   FIT terms

Greece

   Sinsin Renewable Investment Limited      26.6         100     26.6       Ground    February to
October
2013
   EUR0.14-
0.38/kWha

China

   Gonghe County Xinte Photovoltaic Co., Ltd.      20.0         100     20.0       Ground    December
2013
   RMB1.00/kWhb

Italy

   CECEP Solar Energy (Luxembourg) Private Limited Company; Italsolar S.r.l.      4.3         100     4.3       Ground
and Roof-
top
   December
2009
   EUR0.22-
0.35/kWh
     

 

 

      

 

 

          
   Total      50.9           50.9            
     

 

 

      

 

 

          

 

a:  The PPA agreements did not fix the FIT. The FIT will be charged based on the relevant law in force in Greece. The current law in force is law 4254/2014. According the monthly FIT statements by the electricity supply bureau in Greece, the FIT range of the PV plants was EUR0.14~0.38/kwh in 2014.
b:  It is the government policy of Qinghai Province in China that the PV plants grid-connected at the end of 2013 are entitled with a total electricity price of RMB 1.0/kwh once approved by Development and Reform Committee of Qinghai Province, among which RMB 0.35/kwh is to be paid by State Grid Company directly as set out in the PPA agreement. The remaining part (RMB 0.65/kwh) will be paid as an additional tariff by central government through State Grid Company.

Solar Projects under Construction*

 

Country

   Our
equity
holding
    Number
of solar
projects
     Attributable
capacity
(MW)
     Ground/
Roof-top
   Scheduled
connection
date
   FIT
terms
 

U.K.

     100     3         24.1       Ground    2015      N/A 1 

Japan

     100     11         38.2       Ground and
roof-top
   2015-2016      N/A 1 

U.S.

     100     38         32.4       Ground    2015-2016      N/A 1 
    

 

 

    

 

 

          

Total

       52         94.7            
    

 

 

    

 

 

          

 

1.  Intended by us to be BT projects as of June 30, 2015, and may be held as our IPP projects upon completion of construction if we determine that the return of owning the projects and selling electricity is more attractive.

As of June 30, 2015, the total capital expenditure incurred for our solar projects under construction amounted to approximately $93.8 million and we expect to incur additional $88.0 million to compete these projects. As the total capital expenditure may be affected by various factors including, among others, increases in cost of key equipment and materials, failure to obtain sufficient financing, unexpected engineering or environmental issues as well as changes in regulatory requirements, the actual total capital expenditure may deviate significantly from such estimates. We expect to finance construction of these projects using cash from our operations and private placements, bank borrowings, financial leases as well as other third-party financing options.

 

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Solar Projects in Announced Pipeline*

 

    In October 2014, we entered into a definitive cooperation framework agreement with Guodian to develop a total of 1.5 GW of solar projects from 2015 to 2017 in China. We will provide financing and Guodian will provide assistance on the permitting process and EPC services to the projects. We expect to own an 80 to 100% equity interest in these projects. In October and November 2014, we also entered into definitive framework agreements to purchase a vast portfolio of projects of up to 668.5 MW in China from Guodian and other independent third parties. In addition, we have 117 MW of projects under construction in China for which we provided EPC services and that we expect to acquire as of the date of this consent solicitation statement/prospectus.

 

    In March 2015, we entered into a definitive joint development agreement with an independent third party to set up a joint venture which we will own a 75% equity interest in and utilize as a platform to develop more than 50.0 MW of water surface floating solar projects in the U.S. and Mexico.

 

    In March 2015, we also entered into a definitive joint development agreement with the owner of the Sacramento Kings, a sports team belonging to the preeminent National Basketball Association, to install approximately 180.0 MW of roof-top solar projects on the team’s entertainment and sports center located in Sacramento, California, U.S.

 

    In March 2015, we entered into a definitive joint development agreement with an independent third party, with whom we will partner and develop a total of up to 108.0 MW of solar projects in Panama.

 

    In March 2015, we entered into a definitive agreement with an independent third party to develop a total of 25.1 MW of projects in the U.K.

 

    In March 2015, we entered into a definitive share purchase agreement to acquire a controlling equity interest in 7.8 MW of operating projects in the U.S and 4.5 MW of operating projects in Italy. Closing of the purchase is subject to our satisfactory due diligence results on the projects, among others.

 

    In April 2015, we entered into a sale and purchase agreement to acquire 100% of the equity interest in approximately 30 MW of solar projects in Japan. The acquisition is subject to several customary closing conditions.

 

* Our project portfolio excludes projects for which we provide EPC services but in which we do not own any equity interest or expect to acquire.

Featured Markets

 

    China. We entered the Chinese market in 2014. As of June 30, 2015, we owned one solar project in operation with a total capacity of 20.0 MW, located in Qinghai Province, China. In 2014, that solar project received approximately 2,112 irradiation hours. We also had 2,285.5 MW of projects in announced pipeline. In China, all of the projects in our portfolio are eligible to receive FIT.

 

    U.S. We have been present in the U.S. market since our incorporation. As of June 30, 2015, we had 32.4 MW of solar projects under construction as well as 237.8 MW of projects in announced pipeline. In the U.S., all the projects under construction in our portfolio are eligible to receive FIT.

 

    U.K. We entered the U.K. market in 2014. As of June 30, 2015, we owned three solar projects under construction with a total capacity of 24.1 MW. We also had 25.1 MW of solar projects in announced pipeline. In the U.K., all of the projects in our portfolio are eligible for FIT.

 

    Greece. We entered the Greek market in 2014. As of June 30, 2015, we owned eight solar projects in operation with a total capacity of 26.6 MW. In 2014, those solar projects generated 37.7 GWh of electricity. In Greece, all of the projects in our portfolio are eligible for FIT.

 

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    Panama. We entered the Panamanian market in 2015. As of June 30, 2015, we had 108.0 MW of projects in announced pipeline that we expect to complete construction in 2017.

 

    Japan. We entered the Japanese market in 2014. We had 38.2 MW of solar projects under construction and 40.7 MW of projects in announced pipeline as of June 30, 2015. In Japan, all of our projects are eligible to receive FIT.

 

    Italy. We entered the Italian market in 2015. We had 4.3 MW of solar projects in operation and 4.5 MW of projects in announced pipeline as of June 30, 2015. In Italy, all of our projects are eligible to receive FIT.

Acquisition of Solar Projects

We made significant acquisitions of solar projects in 2014. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Recent Acquisition Activities.” We may keep acquiring completed solar projects or other assets from independent third-parties which we believe will synergize with our existing operations and expansion strategies. A majority of our directors must approve such acquisitions.

Our board of directors has formulated a uniform standard for assessing target assets with respect to the acquisition of solar projects, and such standard may be adjusted based on our company’s business, financial condition and results of operations from time to time. Our board of directors considers the following criteria when assessing potential acquisitions, among others:

 

    the internal rate of return of the project prior to leverage, taking into consideration of applicable FIT or PPA rate, and other applicable government incentives;

 

    our ratio of debt-service coverage;

 

    the solar irradiation hours of the project, after discounting for performance;

 

    the use of financeable and reliable brands for and technical specifications of the key components, including modules, invertors, mounting systems, racks/tracking systems, and EPC integration services;

 

    any performance guarantees required, as well as any compensation for failing to perform;

 

    clear and trustworthy opinions from third-party professionals after detailed technical, financial, tax and legal due diligence; and

 

    reasonable payment terms matching relevant milestones.

We rigorously conduct due diligence on our target projects before making the acquisitions and providing due considerations to the foregoing criteria. Upon the completion of the acquisitions, we either hold the projects in the long run or to sell them in the future at appropriate opportunities. For more information on the projects we have acquired or expect to acquire, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition Activities.”

Market Due Diligence

We aim to select solar projects located at sites with long solar irradiation hours, high energy demand, good supporting infrastructure, favorable tariff regimes, local government support and appropriate topography for construction where solar projects are likely to yield higher returns. We systematically analyze land cost, solar irradiation, grid connection capacity, land and property status, government support, availability of project financing and any other project information that would impact the overall economic return of the project. We target projects we believe to have an appropriate balance of financial returns, costs and risks.

 

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Permit Development Process

The permit development process is the process to obtain all the required permits, certifications and approvals from competent government authorities for solar project development. As of June 30, 2015, all of our solar projects in operation had been undertaken by us as a secondary developer.

We acquire solar projects which third parties have already begun developing by securing land use rights, development permits, or even beginning construction. We learn about potential projects for secondary development from our business partners, national or local governments, industry publications, overseas engineering exhibitions or overseas business liaison organizations. Our criteria for sourcing solar projects in the different markets in which we operate include land cost, solar irradiation, the availability of FIT benefits or other government incentives, grid connection capacity, local financing opportunities and other project information. The selection process involves detailed due diligence into the above criteria based on relevant company documentation, financial projections and the legal status of permits already secured by the project. We ensure that the projects we acquire through secondary development have a strong likelihood of being developed through to operational status.

After acquisition, we continue to develop the projects through to grid connection as our own. We pursue secondary permit development in markets with relatively liquid markets for energy permits that allow for smooth transfer of pre-operational solar assets from third-party developers to us. Under certain circumstances, we negotiate site acquisition, preliminary permits, grid connection agreements and PPAs for projects under our secondary development model depending on the development stage when we acquire them.

Permit Development Steps

The following sets forth each step of our permit development:

 

    Evaluating project sites and location—The critical factors to consider when evaluating the site of a solar project include its solar irradiation, its proximity to a grid connection point, zoning regulations and its general geographic and topographic features. If the project site is suitable for development or acquisition, our regional development team submits a site assessment report on the land and other related information to our corporate headquarters for evaluation and approval.

 

    Due diligence—Our in-house technical and EPC team, along with third-party experts we employ externally as needed, examine project items such as engineering and design specifications, technical risks and solar irradiation and environmental analyses. We pay specific attention to potential delays and cost overruns, grid capacity and additional costs which may not be captured in the technical design. We also ensure that the project has clean legal rights to the permits and other permissions it has secured. In all cases, we ensure that local regulations allow us to properly realize our business intentions for the project, whether by allowing us to hold the project under our IPP model or transfer it under our BT model.

 

    Market considerations—We target projects which have an appropriate balance of financial returns, costs and risks. Important factors include the applicable FIT associated with the project, the costs of maintenance, local taxes and fees, and the availability of local credit or other refinancing options. Our financial teams conduct financial forecasts based on information about the financial prospects of the solar project and the local energy market to make a profitability estimate and adjust our capital plan accordingly.

 

   

Permitting—Permit and licensing requirements vary depending on the jurisdiction of the solar project, but the key permits, licenses and agreements typically required for solar projects include land acquisition or lease contracts, environmental impact assessments, building or rezoning permits, planning consents, grid connection contracts and PPAs. We work closely with relevant government and

 

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private stakeholders to secure all necessary permits to develop a project, including local or regional planning authorities, electricity utilities, local communities, environmental agencies, as well as health and safety agencies.

Project Financing

A solar project sponsor typically sets up a project company as a special purpose vehicle to own a particular solar project and arrange for project financing. We typically enter contracts and other agreements under the name of the project company, which facilitates project financing by isolating the project and its assets, and any potential securitization requirements, from our broader global business.

A project’s construction costs are mainly funded by our working capital. We take opportunities to negotiate favorable credit terms with our equipment suppliers and EPC contractors when possible, such that payment is not due until several months after construction and grid connection are complete.

We generally seek to arrange debt financing for our solar projects from local banks and financial leasing companies in countries more open and receptive to renewable energy investments, such as China, where we primarily work with reputable banking institutions such as China Construction Bank Co., Ltd., Industrial and Commercial Bank of China Co., Ltd., China Minsheng Bank Co., Ltd. and Suzhou Bank Co., Ltd. In March 2015, we entered into cooperation framework agreements with each of these banks and obtained credit lines totaling RMB10.0 billion ($1.6 billion) from them. For solar projects in countries with more restricted access to debt financing, such as the U.S. and the U.K., we seek to arrange debt financing by leveraging our strong relationships with international financing sources such as reputable financial institutions like the China Development Bank and China Minsheng Bank.

In addition, as the e-commerce and investment platform launched in early 2015 continues to develop, we expect it to serve as an innovative and viable channel of funding our DG projects. See “—E-Commerce and Investment Business.”

Engineering, Procurement and Construction

Given the multi-jurisdiction coverage of our project portfolio, we choose to utilize our EPC capabilities or contract third party EPC contractors to service our own projects, based on our cost analysis taking into consideration of locations, topographical conditions as well as the quality and competition of local EPC service providers. For detailed information on our EPC capabilities, see “—Our Engineering, Procurement and Construction Service Business.”

Operation and Maintenance Business

We operate and maintain solar projects connected to the grid, usually for the same projects that we have provided EPC services to. We regularly maintain solar projects for our customers to ensure that these projects operate in good condition and comply with the recommendations issued by the grid company in order to remain connected. We utilize specialized software to monitor the performance and security of the solar projects on a real-time basis.

By operating the projects effectively and efficiently, we reduce down time and increase electricity output. A project’s major lifecycle costs mainly include the maintenance fee and the depreciation of modules, inverters and transformers. We monitor electricity production and any incidents or abnormalities which may impede normal operation. We adjust production levels based on the available capacity of the grid.

We also utilize our O&M capabilities for the projects in our portfolio and bear the associated costs. We operate and maintain our projects with the intention to maximize the utilization rate, rate of power generation and system life of our solar projects.

 

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E-Commerce and Investment Business

The platform of www.solarbao.com (“Solarbao”) was launched in early 2015 and is currently operational. It is a first-of-its-kind online energy e-commerce and investment platform targeting customers bases in China that offers a variety of functionalities, including:

 

    an e-commerce platform for retail customers or solar project developers to purchase various PV-related products and services, such as PV modules, kits or EPC services; and

 

    an Internet financing channel and a platform of PV-related wealth management products, through which we and third party DG project developers obtain project funding through purchasing PV modules from manufacturers, and subsequently onselling to and leasing back them from investors with a specified rate of leasing return. This Internet sale-and-leaseback model serves as an innovative and viable channel of funding our and third party developers’ DG projects, which historically have been difficult to finance due to market fragmentation and relatively small project size. It also provides investors with opportunities to obtain comparatively attractive rates of leasing return, through purchasing PV modules from us or third party developers and leasing them back. As of the date of this consent solicitation statement/prospectus, we expect that most of our PV-related wealth management products for the funding of DG projects on Solarbao offer investors annualized rates of return of between 4% and 10%.

Under the various functionalities of the e-commerce and investment platform outlined above, we expect that our revenue streams will include the difference between the returns on our DG projects and the returns that the investors are entitled to, the profit of purchasing PV modules from manufacturers and selling them to investors, pre-agreed platform utilization commissions from investors when they transfer their ownerships in PV modules and pre-agreed commissions from third-party project developers when they utilize the platform as a financing channel, among others.

We believe that the e-commerce and investment platform is a creative option to meet our project financing needs, in addition to facilitating our multi-channel growth, evidenced by the platform’s broad revenue generation segments. We intend to attract a broad customer base through our tailored marketing and promotion plan, including conventional advertising and innovative marketing. We also plan to create a network connecting investors keen on solar industry investment opportunities and project developers.

Foreign ownership of internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government regulates the conduct of online commerce through strict business licensing requirements and other government regulations. These laws and regulations also limit foreign ownership in PRC companies that provide internet information distribution services. Companies operating internet-based businesses such as the www.solarbao.com e-commerce and investment platform primarily targeting retail customers in China are governed by these rules and regulations in China.

According to the Administrative Rules for Foreign Investments in Telecommunications Enterprises (the “FITE Regulations”) issued by the State Council of the PRC on December 11, 2001 and amended on September 10, 2008, foreign investors’ ultimate equity ownership in an entity in the PRC providing value-added telecommunications services shall not exceed 50% and a foreign investor wishing to acquire any equity interest in a value-added telecommunications business in the PRC must demonstrate (i) a good track record, and (ii) experience in providing value-added telecommunications services. In accordance with the Catalog of Industries for Guiding Foreign Investment (2011 Revision) (the “Old Catalog”), our e-commerce business, which is defined as a type of value-added telecommunication services, is classified into “Catalog of industries in which foreign investment is restricted.” On March 10, 2015, the Ministry of Commerce of the PRC, or MOFCOM, and National Development and Reform Commission of the PRC published the Catalog of Industries for Guiding Foreign Investment (2015 Revision) (the “Revised Catalog”) which took effect on April 10, 2015. In the Revised Catalog, e-commerce, as opposed to other value-added telecommunication services, is exempted from the

 

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restricted category. However, this new change has not been reflected in the FITE Regulations by any amendment, thus we should still rely on the contractual arrangement among our PRC subsidiary, Solar Energy E-Commerce and its shareholders for the operation of the e-commerce business in order to comply with the FITE Regulations.

On January 19, 2015, the Ministry of Commerce of the PRC, or MOFCOM, published a draft of the PRC Law on Foreign Investment (Draft for Comment), or the Draft Foreign Investment Law, which the comment period ended on February 17, 2015. At the same time, MOFCOM published an accompanying explanatory note of the Draft Foreign Investment Law, or the Explanatory Note, which contains important information about the Draft Foreign Investment Law, including its drafting philosophy and principles, main content, plans to transition to the new legal regime and treatment of business in China controlled by foreign invested enterprises, or FIEs, primarily through contractual arrangements. The Draft Foreign Investment Law is intended to replace the current foreign investment legal regime consisting of three laws: the Sino-Foreign Equity Joint Venture Enterprise Law, the Sino-Foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-Invested Enterprise Law, as well as detailed implementing rules. The Draft Foreign Investment Law proposes significant changes to the PRC foreign investment legal regime. The proposed Draft Foreign Investment Law is to regulate FIEs the same way as PRC domestic entities, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in a “Negative List.” Because the Negative List has yet to be published, it is unclear whether it will differ from the current list of industries subject to restrictions or prohibitions on foreign investment. The Draft Foreign Investment Law also provides that only FIEs operating in industries on the Negative List will require entry clearance and other approvals that are not required of PRC domestic entities. As a result of the entry clearance and approvals, certain FIEs’ operating in industries on the Negative List may not be able to continue to conduct their operations through contractual arrangements. There is substantial uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective date of the final form of the law. While such uncertainty exists, we cannot assure you that the new foreign investment law, when it is adopted and becomes effective, will not have a material and adverse effect on our ability to conduct the e-commerce business through our contractual arrangements.

Since we are a California corporation and due to PRC governmental restrictions on foreign investment in internet-based business in China, Solar Energy E-Commerce was established in late 2014 and commenced operation in early 2015. Solar Energy E-Commerce operates www.solarbao.com e-commerce and investment platform which primarily targets retail customers residing in China. Our PRC subsidiary, Yan Hua Internet, entered into a series of contractual arrangements with Solar Energy E-Commerce and its shareholders on March 26, 2015. Legal enforceability of these contractual arrangements has not been established primarily because the registration of the equity interest pledge agreement with the relevant PRC government bureau has not been completed as one of the legal shareholder’s equity in Solar Energy E-Commerce is restricted for pledge and transfer, making us unable to legally enforce our right under the equity interest pledge agreements and potentially other agreements. We are in the process of establishing a new corporate structure for the e-commerce business under which Solarbao will be migrated into a newly-established domestic company and one of our PRC subsidiaries will enter into a new set of contractual arrangements, including an equity interest pledge agreement, with the domestic company. We expect to be able to register the equity interest pledge agreement with the relevant PRC government bureau and consolidate the financial results of the newly-established domestic company as a variable interest entity in our financial statements. See “Related Party Transactions—Contractual Arrangements with Solar Energy E-Commerce and Its Shareholders.”

We believe that the current corporate structure of Solarbao and the anticipated restructuring are in compliance with existing PRC laws, rules and regulations.

Our Australia Distribution Business

In March 2015, we entered into a definitive share purchase agreement to acquire 80% of the equity interest in Solar Juice Pty Limited (“Solar Juice”), a company incorporated in Sydney, Australia. Solar Juice engages in the business of distributing solar kits, including PV modules, balance-of-system components, solar monitoring

 

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systems and inverters, to retail or corporate customers in Australia and Southeast Asia. According to SolarBusinessServices, a consultancy, Solar Juice was ranked the number one solar product distributor in Australia based on wholesale volume in 2013 and 2014. As of June 30, 2015, Solar Juice had over 3,000 Business-to-Business accounts, of which 700 were active on a monthly basis. Solar Juice was acquired in May 2015. We believe that this business targeting attractive markets with high growth potential will be a valuable addition to our operations. For more information on our acquisition of Solar Juice, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Recent Acquisition Activities.”

Our Power Optimization Technology Business

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition Activities—Other Solar Businesses—Convertergy Technology Acquisition.”

Our Partnership with Energy Storage Solution Provider

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Acquisition Activities—Other Solar Businesses—ZBB Acquisition.”

Intellectual Property

We rely and will continue to rely on trade secrets, know-how and other unpatented proprietary information in our business. We own the following trademarks: Yes! Solar Solutions and Yes!, Sky Mount®. In addition, we have four Patent Cooperation Treaty applications, four provisional patents pending, one patent application and one design application for certain proprietary technologies.

Competition

The solar power market is intensely competitive and rapidly evolving, and we compete with major international and domestic companies over the development of solar projects. Our major competitors include leading global players such as SunPower Corporation, First Solar, Inc., Canadian Solar, Inc., SunEdison, Inc., SolarCity Corporation, Lightsource Renewable Energy Limited, and regional players such as West Holdings Corporation, Looop Inc., Zhenfa New Energy Science and Technology Co. Ltd., TBEA Sunoasis Co. Ltd., China Power Investment Corporation and other regional and international developers.

We believe that we can compete favorably with our competitors given that the key competitive factors for solar project development and operation include, without limitation:

 

    industry reputation and development track record;

 

    site selection and acquisition;

 

    permit and project development experience and expertise;

 

    relationship with government authorities and knowledge of local policies;

 

    ability to secure high-quality PV modules and balance-of-system components at favorable prices and terms;

 

    ready access to project financing;

 

    control over the quality, efficiency and reliability of project development;

 

    expertise in permit and project development; and

 

    expertise in providing EPC and O&M services.

 

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However, we cannot guarantee that some of our competitors do not or will not have advantages over us in terms of greater operational, financial, technical, management or other resources in particular markets or in general. In terms of the broader energy sector, the entire solar industry faces competition from other power generation sources, including conventional sources as well as other emerging technologies. Solar power has certain advantages and disadvantages when compared to other power generating technologies. The advantages include the ability to deploy products in many sizes and configurations, install products almost anywhere in the world, provide reliable power for many applications and reduce air, water and noise pollution. Yet other energy sources have advantages which may result in electric utilities, grid companies or other off-takers to enter PPAs or other electricity purchase arrangements with companies specializing in those energy sources rather than us or other companies specializing in solar power.

Suppliers

There are numerous suppliers of PV modules in the industry, and we have adopted a supplier-neutral approach. For both our EPC service business and global project development business, we select the suppliers based on whether we could obtain high-quality PV modules and balance-of-system components at favorable prices and payment terms. For both our EPC service and global project development business, we procure our PV modules from a broad range of suppliers including Hanwha Q CELLS Co., Ltd., CECEP Solar Energy Technology Co., Ltd., Znshine PV-tech Co., Ltd., Lightway Green New Energy Co., Ltd., and LDK, among others.

Customers and Marketing

We have historically provided EPC and O&M services, a line of business we are still engaged in. We are also selling electricity to the grid under our IPP model as well as selling solar projects under our BT model. Customers of our EPC services include independent power developers and producers as well as commercial and industrial companies. For our global project development business, we sell electricity to power companies and other electricity off-takers, including government-owned utility companies, operating in the United States, China, the U.K., Greece, and Italy under our IPP model. Purchasers of our BT projects included utility companies, independent power developers and producers, commercial and industrial companies as well as investors in the solar business. For example, in June and July 2015, we sold a 9.5 MW project and a 6.2 MW project to the infrastructure investment arm of BlackRock, Inc., a global leader in investment manager. Further, customers of our Australia distribution business include residential ones, towards which we distribute PV modules, balance of system components, solar monitoring systems and inverters.

Although we derived most of our revenue in 2014 from provision of our EPC services, we expect to increase the percentage of revenue generated from our global project development business. For detailed information about our largest customers in 2014, see “—Our Engineering, Procurement and Construction Service Business.”

We promote our reputation by participating in industry conferences worldwide and aggressively diligencing development opportunities in strong potential markets. Members of our senior and local management team routinely meet with industry players and interested investors. Our business development teams around the world have significant experience building business in local markets and actively pursue growth opportunities around the world. We intend to continue to increase our marketing efforts going forward.

We historically engaged in high-profile marketing activities focused on developing our brand awareness not just among the solar business developers who have traditionally been our customers, but also among the general public. For example, in 2009, then-Governor Arnold Schwarzenegger made a speech at one of our 40-acre solar projects outside Sacramento, a media opportunity that we embraced to build our brand awareness.

As we shift our business towards global project development and the expansion of our EPC business in China, we have continued to embrace unique marketing strategies. In 2015, we announced a partnership with the

 

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Sacramento Kings basketball team under which we will install a roof-top solar system on the Kings’ Entertainment and Sports Center in downtown Sacramento. The partnership includes a 12-year sponsorship agreement which will leverage the Kings’ marketing resources to provide branding and marketing support to our marketing activities around the globe. The Kings will also add brand support to the Solarbao e-commerce and investment platform, where we have also engaged with the famous Chinese pianist Lang Lang to act as spokesman for this new and exciting brand. In addition, we have undertaken “red packet” promotions, where we offered rebates on orders placed on Solarbao during Chinese New Year holiday in 2015 and other retail marketing programs in China to build brand awareness among the investors and individuals that we are targeting with the Solarbao platform and EPC services. We feel this will increase our competitiveness across the spectrum of our services as a global PV solutions provider.

Insurance

We maintain the types and amounts of insurance coverage that we believe are consistent with customary industry practices in all the countries where we operate. Our insurance policies cover employee-related accidents and injuries, property damage, machinery breakdowns, fixed assets, facilities and liability deriving from our activities, including environmental liability. We maintain business interruption insurance for interruptions resulting from incidents covered by insurance policies. We have not had any material claims under our insurance policies that would either invalidate our insurance policies or cause a material increase to our insurance premiums. We cannot assure you, however, that our insurance coverage will adequately protect us from all risks that may arise or in amounts sufficient to prevent any material loss.

Facilities

Our corporate headquarters are located in Shanghai, China, which occupies approximately 1,405 square meters and is under a three year lease that expires in October 2017. We occupy approximately 2,797 square feet of office space in Roseville, California, for financial reporting, legal and business development, under a lease that expires in October 2020. We retain 1,680 square feet of warehouse space in Rocklin, California under a lease that expires in July 2017. We also have leased offices in the U.S., the U.K., Japan, Hong Kong and other regions in China.

We believe that our facilities are in good condition and generally suitable and adequate for our needs in the foreseeable future. However, we will continue to seek additional space as needed to satisfy our growth.

Regulatory Matters

We operate in multiple jurisdictions, including China, the U.S., the U.K, Panama, Greece, Japan, Italy and Australia. We are therefore subject to complex laws, regulations and policies promulgated by the governments and government-run utilities of these jurisdictions, including FIT regulations, clean energy incentive rules and programs, laws and regulations that apply to all power producers, regulations that specifically apply to solar power project operators, EPC service providers as well as solar kit distributors, tax regulations and intellectual property laws, among others. We are also subject to a number of PRC laws governing foreign investment in various sectors in China. Pursuant to the Revised Catalog which took effect on April 10, 2015, our business as a provider of EPC services to solar projects as well as developing, owning and operating solar projects is classified into “catalog of industries in which foreign investment is encouraged,” such as construction and operation of new energy power stations (including, among others, solar energy, wind energy, geothermal energy, tidal energy, current energy, wave energy and biomass energy). In the Revised Catalog, e-commerce, as opposed to other value-added telecommunication services, is exempted from the restricted category. However, this new change has not been reflected in the FITE Regulations by any amendment, thus we should still rely on the contractual arrangement among our PRC subsidiary, Solar Energy E-Commerce and its shareholders for the operation of the e-commerce business in order to comply with the FITE Regulations. See “Risk Factors and Caution Regarding Forward-Looking Statements—Risks Related to Our International Operations—If the PRC government finds that

 

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the structure we have adopted for the e-commerce business does not comply with PRC governmental restrictions on foreign investment in internet-based businesses, or if these laws or regulations or interpretations of existing laws or regulations change in the future, we could be subject to severe penalties, including the shutting down of the e-commerce and investment platform.”

Employees

As of December 31, 2014, we had 141 employees, fourteen of whom were located in the U.S., three in the U.K., seven in Hong Kong, four in Japan and 113 in China. In line with our business expansion, the number of our employees grew rapidly as well. As of June 30, 2015, we had 566 employees, fourteen of whom were located in the U.S., five in the U.K., ten in Hong Kong, six in Japan, forty in Germany, eighteen in Australia and 473 in China. None of our employees are represented by a labor union nor are we organized under a collective bargaining agreement. We have never experienced a work stoppage and believe that our relations with our employees are good.

The following table sets forth the number of our employees for each of our major functions as of June 30, 2015:

 

Major functions

   Number of employees  

Managerial functions

     203   

Operating functions

     360   

Others

     3   
  

 

 

 

Total

     566   
  

 

 

 

Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the normal course of business. While we cannot predict the occurrence or outcome of these proceedings with certainty, we do not believe that an adverse result in any pending legal proceeding, individually or in the aggregate, would be material to our financial condition.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion highlights what we believe are the principal factors that have affected our financial condition and results of operations, as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our financial statements and related notes appearing elsewhere in this consent solicitation statement/prospectus. This discussion contains “forward-looking statements”, which can be identified by the use of words such as “expects”, “plans”, “will”, “may”, “anticipates”, “believes”, “should”, “intends”, “estimates” and other words of similar meaning. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these forward-looking statements. Such risks and uncertainties include, without limitation, the risks described in the section entitled “Risk Factors and Caution Regarding Forward-Looking Statements” beginning on page 17.

The following discussion is presented on a consolidated basis, and analyzes our financial condition and results of operations for the years ended December 31, 2014 and 2013 and the six-month periods ended June 30, 2015 and 2014.

Unless the context indicates or suggests otherwise reference to “we”, “our”, “us” and the “Company” in this section refers to the consolidated operations of Solar Power, Inc.

Overview

We are a global provider of PV solutions for business, residential, government and utility customers and investors. We provide a full spectrum of EPC services to third party project developers, as well as develop, own and operate solar projects that sell electricity to the grid in multiple countries, including China, the U.S., the U.K., Panama, Greece, Japan and Italy. Prior to 2014, we were primarily engaged in providing EPC services to developers in the U.S. We were also engaged in the development, manufacture and marketing of a variety of PV modules, the key components of solar parks that convert sunlight into electricity, and balance-of-system components, including our in-house brand. We have discontinued our development and manufacturing business. Starting from 2014, we expanded our full spectrum EPC service business to China, where we provided comprehensive and quality services to large solar projects in China. In addition, we commenced our global project development business by ramping up our portfolio of global solar projects, including projects that we plan to hold in the long term and derive electricity generation revenue from under our IPP model, and projects that we plan to sell in the future when we are presented with attractive opportunities under our build-and-transfer model, or BT model. Solar projects in our current portfolio include projects at all stages of development, including projects in operation, projects under construction and projects in pipeline. For detailed information on our project portfolio, please see “—Our Global Solar Project Development Business—Our Solar Project Portfolio.” We grow our project portfolio primarily through acquisitions and act as a secondary developer for the projects we acquire which are under construction or in pipeline at the time they are added to our portfolio. Although we derived most of our revenue from EPC services in 2014, we expect to derive an increasing percentage of our revenue from electricity generation from our IPP solar projects and sale of our BT solar projects as our global project development business expands.

In 2014, we substantially reduced our operating loss as compared to 2013. In addition, we raised a significant amount of cash for our working capital purposes from the issuance of Shares and convertible notes in 2014 to non-U.S. investors in private placements. In 2014, we entered into various private placement share purchase agreements and option agreements with a number of non-U.S. investors and issued approximately 328.7 million unregistered Shares in reliance of Regulation S of the Securities Act, mostly at a per share purchase price benchmarked to the prevailing trading price of our Shares at the respective dates of these agreements, and raised an aggregate $178.9 million. In 2014, we also raised $35.0 million of cash from issuing unregistered convertible notes to non-U.S. investors in reliance of Regulations S.

 

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Critical Accounting Policies and Estimates

Principles of Consolidation—The Consolidated Financial Statements include our accounts and companies in which we have a controlling interest. Intercompany transactions have been eliminated. The equity method of accounting is used for investments in affiliates and other joint ventures over which we have significant influence but do not have effective control. Investments in affiliates in which we cannot exercise significant influence are accounted for on the cost method.

Management also evaluates whether an interest is a variable interest entity and whether we are the primary beneficiary. Consolidation is required if both of these criteria are met. During the years ended December 31, 2014 and 2013, we did not have any variable interest entities requiring consolidation.

Equity Method—The equity method of accounting is used for investments in affiliates and other joint ventures over which the Company has significant influence but does not have control. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors, including, among others, representation on the Investee Company’s board of directors and ownership level. Under the equity method of accounting, the Company initially records the investment at cost and adjust the carrying amount each period to recognize the share of the earnings or losses of the investee based on the Company’s ownership percentage. The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. As disclosed in Note 11, an impairment loss on investment in affiliates of $7,500 was recognized for the year ended December 31, 2013. No share of equity in income or loss for the Company’s equity method investment was recorded for the years ended December 31, 2014 and 2013.

Revenue recognition

Product sales—Revenue on product sales is recognized when there is evidence of an arrangement, title and risk of ownership have passed (generally upon delivery), the price to the buyer is fixed or determinable and collectability is reasonably assured. The Company makes determination of our customer’s credit worthiness at the time it accepts their initial order. For cable, wire and mechanical assembly sales, there are no formal customer acceptance requirements or further obligations related to our assembly services once the Company ships its products. Customers do not have a general right of return on products shipped therefore the Company makes no provisions for returns.

Construction Contracts—Revenue on photovoltaic system construction contracts is generally recognized using the percentage-of-completion method of accounting, unless we cannot make reasonably dependable estimates of the costs to complete the contract or the contact value is not fixed, in which case we would use the completed contract method. Under the percentage-of-completion method, the Company measures the cost incurred on each project at the end of each reporting period and compares the result against the estimated total costs at completion. The percentage of cost incurred determines the amount of revenue to be recognized. Payment terms are generally defined by the contract and as a result may not match the timing of the costs incurred by the Company and the earnings accrued thereon. Such differences are recorded as costs and estimated earnings in excess of billings on uncompleted contracts (an asset account) or billings in excess of costs and estimated earnings on uncompleted contracts (a liability account). For the years ended December 31, 2014 and 2013, $5,600 and nil of progress payments have been netted against contracts costs disclosed in the account costs and estimated earnings in excess of billings on uncompleted contracts.

The percentage-of-completion method requires the use of various estimates, including, among others, the extent of progress towards completion, contract revenues and contract completion costs. Contract revenues and contract costs to be recognized are dependent on the accuracy of estimates, including direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and

 

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depreciation costs. The Company has a history of making reasonable estimates of the extent of progress towards completion, contract revenues and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that actual contract revenues and completion costs may vary from estimates. Under the completed-contract method, contract costs are recorded to a deferred project costs account and cash received are recorded to a liability account during the periods of construction. All revenues, costs, and profits are recognized in operations upon completion of the contract. A contract is considered complete and revenue recognized when all costs except insignificant items have been incurred and final acceptance has been received from the customer and receivables are deemed to be collectible. Provisions for estimated losses on uncompleted contracts, if any, are recognized in the period in which the loss first becomes probable and reasonably estimable.

Sales of project assets—For those projects where the Company is considered to be the owner, the project is accounted for under the requirements of real estate accounting. In the event of a sale, the method of revenue recognition is determined by considering the extent of the buyer’s initial and continuing investment and the nature and the extent of the Company’s continuing involvement. Generally, revenue and profit are recognized using the full accrual method once the sale is consummated, the buyer’s initial and continuing investment is sufficient to demonstrate a commitment to pay for the property, the buyer’s receivable is not subject to any future subordination, the Company has transferred the usual risk and reward of ownership to the buyer and the Company does not have a substantial continuing involvement with the property. When continuing involvement is substantial and not temporary, the Company applies the financing method, whereby the asset remains on the balance sheet and the proceeds received are recorded as a financing obligation. When a sale is not recognized due to continuing involvement and the financing method is applied, the Company records revenue and expenses related to the underlying operations of the asset in the Company’s Consolidated Financial Statements.

Services revenue under power purchase agreementsThe Company derives services revenues from PV solar systems held for own use through the sale of energy to grid operators pursuant to terms set forth in power purchase agreements or local government regulations (“PPAs”). The Company has determined that none of the PPAs contains a lease since (i) the purchaser does not have the rights to operate the project assets, (ii) the purchaser does not have the rights to control physical access to the project assets, and (iii) the price that the purchaser pays is at a fixed price per unit of output. Revenue is recognized based upon the output of electricity delivered multiplied by the rates specified in the PPAs, assuming all other revenue recognition criteria are met.

Operation and maintenanceOperation and maintenance revenue is billed and recognized as services are performed. Costs of these revenues are expensed in the period they are incurred.

Product and Performance Warranties—The Company offers the industry standard warranty up to 25 years PV modules and industry standard five to ten years on inverter and balance of system components. Due to the warranty period, the Company bears the risk of extensive warranty claims long after products have been shipped and revenues have been recognized. For the Company’s cable, wire and mechanical assemblies business, historically the related warranty claims have not been material. For the Company’s solar PV business, the greatest warranty exposure is in the form of product replacement.

During the quarter ended September 30, 2007 and continuing through the fourth quarter of 2010, the Company installed own manufactured solar panels. Other than this period, the Company only installed panels manufactured by unrelated third parties as well as the Company’s principal shareholder and formerly controlling shareholder, LDK Solar Co. Ltd. (“LDK”). Certain PV construction contracts entered into during the recent years included provisions under which we agreed to provide warranties to the buyer. As a result, we recorded the provision for the estimated warranty exposure on these contracts within cost of sales. Since the Company does not have sufficient historical data to estimate its exposure, the Company’s own historical data in combination with historical data reported by other solar system installers and manufacturers were considered when the warranty exposure is estimated.

Impairment of long-lived assetsThe Company’s long-lived assets include property, plant and equipment, project assets and other intangible assets with finite lives. The Company evaluates long-lived assets for

 

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impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events include but are not limited to significant current period operation or cash flow losses associated with the use of a long-lived asset or group of assets combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. The determination of fair value of the intangible and long lived assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future. Future cash flows can be affected by factors such as changes in global economies, business plans and forecast, regulatory developments, technological improvements, and operating results. Any impairment write-downs would be treated as permanent reductions in the carrying amounts of the assets and a charge to operations would be recognized. No impairments were recorded for long-lived assets during the year ended December 31, 2013. An impairment loss on project assets of $2,055 was recognized for the year ended December 31, 2014.

InventoriesInventories are carried at the lower of cost or market, determined by the first in first out cost method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process. Provisions are made for obsolete or slow-moving inventories based on management estimates. Inventories are impaired based on the difference between the cost of inventories and the market value based upon estimates about future demand from customers, specific customer requirements on certain projects and other factors. Inventory impairment charges establish a new cost basis for inventory and charges are not subsequently reversed to income even if circumstances later suggest that increased carrying amounts are recoverable. Inventory consisted of finished goods at December 31, 2014 and 2013.

Stock based compensation—The Company’s share-based payment transactions with employees, such as restricted shares and share options, are measured based on the grant- date fair value of the equity instrument issued. The fair value of the award is recognized as compensation expense, net of estimated forfeitures, over the period during which an employee is required to provide service in exchange for the award, which is generally the vesting period.

Allowance for doubtful accounts—The Company maintains allowances for doubtful accounts for uncollectible accounts receivable. The Company regularly monitors and assesses the risk of not collecting amounts owed by customers. This evaluation is based upon a variety of factors, including an analysis of amounts current and past due along with relevant history and facts particular to the customer. The Company does not have any off-balance-sheet credit exposure related to its customers.

Project assets—The Company acquires or constructs PV solar power systems (“project assets”) that are (i) held for development and sale, or (ii) held for the Company’s own use to generate income or return from the use of the project assets. Project assets are classified as either held for development and sale or as held for use within property, plant and equipment based on the Company’s intended use of project assets. The Company determines the intended use of the project assets upon acquisition or commencement of project construction. Classification of the project assets affects the accounting and presentation in the consolidated financial statements. Transactions related to the project assets held for development and sale are classified as operating activities in the consolidated statements of cash flows and reported as sales and costs of goods sold in the consolidated statements of operations upon the sale of the project assets and fulfillment of the relevant recognition criteria. The costs to construct project assets intended to be held for own use are capitalized and reported within property, plant and equipment on the consolidated balance sheets and are presented as cash outflows from investing activities in the consolidated statements of cash flows. The proceeds from disposal of project assets classified as held for own use are presented as cash inflows from investing activities within the consolidated statements of cash flows.

 

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Project assets costs consist primarily of capitalizable costs for items such as permits and licenses, acquired land or land use rights, and work-in-process. Work-in-process includes materials and modules, construction, installation and labor and other capitalizable costs incurred to construct the PV solar power systems.

For project assets related to projects that are held for development and sale, project costs incurred during construction are classified as noncurrent assets. Upon completion of the construction, the project assets are classified as current assets on the consolidated balance sheets when 1) they are available for immediate sale in their present condition subject to terms that are usual and customary for sales of these types assets; 2) The company is actively marketing the systems to potential third party buyers; and 3) It is probable that the system will be sold within one year.

No depreciation expense is recognized while the project assets are under construction or classified as held for sale. If facts and circumstances change such that it is no longer probable that the PV solar systems will be sold within one year of the system’s completion date, the PV solar systems will be reclassified to property, plant and equipment.

Project assets held for development and sale but are not expected to be constructed and sold within the next 12 months are reported as non-current assets.

For project assets held for development and sale, the Company considers a project commercially viable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. The Company also considers a partially developed or partially constructed project commercially viable if the anticipated selling price is higher than the carrying value of the related project assets plus the estimated cost to completion. The Company considers a number of factors, including changes in environmental, ecological, permitting, market pricing or regulatory conditions that affect the project. Such changes may cause the cost of the project to increase or the selling price of the project to decrease. The Company records an impairment loss of the project asset to the extent the carrying value exceed its estimated recoverable amount. The recoverable amount is estimated based on the anticipated sales proceeds reduced by estimated cost to complete such sales. In 2014, the Company provided impairment loss of $2,055 for certain project assets held for development and sale.

In addition to PV solar power systems that are developed for sale or held for the Company’s own use, the Company also invested in two PV solar power projects under engineering, procurement and construction (“EPC”) contracts with two third party project owners during the year ended December 31, 2014. Based on the Company’s intention to sell or hold for own use, the projects costs incurred for these two EPC contracts are presented as investing activities respectively in the consolidated statement of cash flows. In respect of these two EPC contracts, there was mutual understanding between the Company and the respective project owners upon the execution of the EPC contracts that the title and ownership of the PV solar power systems would transfer to the Company upon the completion of construction. Management determined that the substance of the arrangements is for the Company to construct the PV solar power systems under the legal title of the project owners and with the title and ownership of the systems transferred to the Company upon the construction completion, at which time such title transfer is permitted under local laws. The project assets under construction were pledged to the Company as at December 31, 2014.

Income taxes—The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted statutory tax rates applicable to future years. Realization of deferred tax assets is dependent upon the weight of available evidence, including expected future earnings. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Should we determine that we would be able to realize deferred tax assets in the future in excess of the net recorded amount, we would record an adjustment to the deferred tax asset valuation allowance. This adjustment would increase income in the period such determination is made.

 

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Profit from non-U.S. activities is subject to local country taxes but not subject to U.S. tax until repatriated to the U.S. It is the Company’s intention to permanently reinvest these earnings outside the U.S., subject to our management’s continuing assessment as to whether repatriation may, in some cases, still be in the best interests of the Company. The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations.

The Company recognizes the benefit of uncertain tax positions in its financial statements when it concludes that a tax position is more likely than not to be sustained upon examination based solely on its technical merits. Only after a tax position passes the first step of recognition will measurement be required. Under the measurement step, the tax benefit is measured as the largest amount of benefit that is more likely than not to be realized upon effective settlement. This is determined on a cumulative probability basis. The Company elects to accrue any interest or penalties related to its uncertain tax positions as part of its income tax expense. No reserve for uncertain tax positions was booked by the Company for the year ended December 31, 2014 and 2013.

Recent Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements and Property, Plant, and Equipment, which requires only disposals representing a strategic shift in operations to be presented as discontinued operations. Those strategic shifts should have a major effect on the entity’s operation and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations. These changes will become effective for the Company on January 1, 2015. Management does not expect the adoption of these changes to have a material impact on the Consolidated Financial Statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09 is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either a retrospective or cumulative effect transition method. The Company has not determined which transition method it will adopt, and is currently evaluating the impact that ASU 2014-09 will have on the consolidated financial statements and related disclosures upon adoption.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205- 40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for the Company for the fiscal year ending December 31, 2016 and for interim periods thereafter. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225- 20), which eliminates the concept of reporting for extraordinary items. ASU 2015-01 is effective for the Company for fiscal year ending December 31, 2016 and for interim periods thereafter. The Company is currently evaluating the impact of this standard on the Company’s consolidated financial statements.

On February 18, 2015, the FASB issued ASU No. 2015-02, Consolidation, which reduces the number of consolidation models and simplifies the current standard. Entities may no longer need to consolidate a legal entity in certain circumstances based solely on its fee arrangements when certain criteria are met. ASU 2015-02 reduces the frequency of the application of related-party guidance when determining a controlling financial interest in a variable interest entity. ASU 2015-02 is effective for the Company’s fiscal year ending December 31, 2015. The Company is currently evaluating the impact of this standard on the Company’s consolidated financial statements.

 

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Recent Acquisition Activities

In line with our strategic shifting of operational focus in 2014, we have entered into agreements to make acquisitions in order to expand our global project portfolio, including IPP and BT projects, as well as to diversify our solar businesses.

When making solar project acquisitions, we focus on attractive targets based on our assessment of the rate of return, taking into consideration a target project’s irradiation hours, applicable FIT rate, key technical components used as well as our cost of financing for the acquisition. See “Business—Our Global Project Development Business—Acquisition of Solar Projects” for more information on the criteria we apply when making project acquisitions.

When we pursue a target engaged in a solar business, such as a distribution business or a roof-top EPC business, we primarily select targets with higher gross profit margins, or in the case of a target engaged in a line of business complementary to our existing operations, with high potentials for us to realize synergies.

The following summary outlines the acquisitions we completed or for which have entered into definitive agreements since 2014:

Solar Projects

In July 2014, we completed the acquisition of a 100% equity interest in the project company owning a 4.5 MW project in Mountain Creek, New Jersey, U.S., or the KDC Mountain Creek Project. In 2012, we provided EPC services for the project and had a note receivable of $15.0 million due to us from the 100% project owner at that time, KDC Solar RTC, LLC (“KDC”). In December 2013, due to KDC’s inability to settle the note receivable, we exchanged our interest in the note receivable for a 64.5% equity interest in the KDC Mountain Creek project by entering into an exchange and release agreement with KDC. In April 2014, we entered into a first amendment and restated exchange and release agreement with KDC and reduced the percentage of our equity interest in the KDC Mountain Creek Project from 64.5% to 20.0% in exchange for 55.62% of the cash distributions from the KDC Mountain Creek Project. On July 29, 2014, we entered into another agreement with KDC to acquire the remaining 80% equity interest in the KDC Mountain Creek Project held by KDC with no payment of consideration by us, and settled the historical note receivable due to us from KDC.

In October 2014, we completed the acquisition of 100% equity interest in the project companies owning 14.3 MW of projects in Hawaii, U.S. for an aggregate purchase price of $4.8 million. The projects were under construction when we completed the acquisition. We issued 3,000,000 unregistered Shares to the sellers at a per Share price of $1.10, subject to certain adjustments contingent upon the trading price of our Shares, to account for approximately $3.3 million of the purchase price, with the remaining balance of $700,000 settled in cash of $500,000 and a waiver of receivables of $150,000 due to us from KDC.

In October 2014, we entered into a definitive framework agreement to purchase a 100% equity interest in an aggregate of 160.0 MW of projects in China with the affiliates of GD Solar Co., Ltd., a company established in China and a subsidiary of Guodian, one of the top power producers in China and a state owned enterprise that has achieved operational scale, for an aggregate consideration of RMB1,575.0 million ($253.4 million), subject to our due diligence results of the projects. The projects were in different development stages when we entered into the agreements. As of the date of this consent solicitation statement/prospectus, we are in the process of conducting due diligence of the projects specified in the agreements.

In October 2014, we entered into a definitive framework agreement to acquire a 100% equity interest in an aggregate of 360.0 MW of projects in China with ZhongNeng GuoDian New Energy Development and

 

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Investment Jiangsu Co., Ltd., a company established in China, as well as its affiliate, for an aggregate consideration to be determined based on due diligence results of the projects. We agreed to pay a deposit of RMB140.0 million ($22.5 million), deductible from the final purchase price. The projects were in different development stages when we entered into the agreements. As of the date of this consent solicitation statement/prospectus, we are in the process of conducting due diligence of the projects specified in the agreements.

In November 2014, we entered into a definitive framework agreement to acquire a 100% equity interest in an aggregate of 148.5 MW of projects in China with TBEA Xinjiang Sunoasis Co., Ltd., a company established in China and a subsidiary of TBEA Co., Ltd., a top machinery maker in China according to China Machinery Top 500 Research Report whose shares are listed on the Shanghai Stock Exchange under the code 600089, for an aggregate consideration to be determined in a definitive share purchase agreement. The projects were in different development stages when we entered into the agreement. As of the date of this consent solicitation statement/prospectus, we are in the process of conducting due diligence of the projects specified in the agreement.

In November 2014, we entered into a membership interest purchase agreement with Shotmeyer LLC, 100% owner of a 9.9 MW project in New Jersey, U.S., or the Beaver Run Project, for an aggregate consideration of $5.2 million in cash. We sold PV modules to the Beaver Run Project in 2011 and had accounts receivable of $2.9 million due to us at the time of acquisition. The accounts receivable was settled with a return of PV modules of $2.1 million.

In December 2014, we completed the acquisition of a 100% equity interest in the project company owning eight solar projects of an aggregate capacity of 26.6 MW in Greece for a consideration of $140.5 million of its fair value. All of the eight projects were connected to the grid and selling electricity when we completed the acquisition. We issued 38,225,846 unregistered Shares to the sellers at a per Share price of $2.43 and also with adjustments for the lockup period and other factors to account for 56% of the consideration set forth in the original purchase agreement and goodwill adjustment, with the remaining balance paid in cash.

In December 2014, we completed the acquisition of a 100% equity interest in the project company owning 20.0 MW of projects in Qinghai Province, China for an aggregate consideration of RMB190.0 million ($30.6 million). The projects were connected to the grid and selling electricity when we completed the acquisition. We paid RMB43.0 million ($6.9 million) in cash, with the remaining RMB147.0 million ($23.7 million) to settle payables due from the project company to its EPC service provider and to be paid with bank factoring financing in installments.

In February 2015, we completed the acquisition of a 100% equity interest in the project companies owning 4.3 MW of projects in Italy for an aggregate consideration of $11.8 million of its fair value. The projects were connected to the grid and selling electricity when we completed the acquisition. We issued 5,722,977 unregistered Shares to the sellers to account for 70% of the consideration at a per Share price of $1.72 and also with adjustments for the lockup period and other factors, with the remaining balance of Euro 3.1 million ($3.6 million) settled in cash.

In March 2015, we entered into a membership interest purchase agreement to acquire 100% of the interest in the holding company of 6.02 megawatt solar projects known as “Aerojet” in Rancho Cordova, California. In consideration of the purchase and sale described above, we will issue to the sellers on the closing date of the transaction preferred membership interests in a wholly owned subsidiary of the Company to be formed pursuant to a limited liability company agreement, the terms and conditions of which will be negotiated and agreed to between us and the sellers within 30 days after the effective date of the foregoing membership interest purchase agreement. The acquisition is subject to several closing conditions including completion of satisfactory due diligence.

In April 2015, SPI Solar Japan G.K., our wholly owned subsidiary, entered into a sale and purchase agreement to acquire 100% of the interest in approximately 30 megawatts (MW) of solar projects in Japan from

 

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Re Capital K.K., a subsidiary of China-based China Reinsurance (Group) Corporation, for an aggregate consideration of US$8.8 million, including (i) US$3.3 million by cash and (ii) US$5.5 million by equivalent value of Shares, the number of which would be determined by the average trading price of Shares from April 9 to April 15, 2015. The acquisition is subject to several customary closing conditions.

Other Solar Businesses

Solar Juice Acquisition

In March 2015, we entered into a share purchase agreement to acquire 80% of the equity interest in Solar Juice, a company incorporated in Sydney, Australia, for a total consideration of $15.6 million of its fair value at a per Share price of $1.78 and also with adjustments for the lockup period and other factors. Solar Juice distributes solar kits that include PV modules, balance-of-system components, solar monitoring systems and inverters to retail or corporate customers in Australia and Southeast Asia. Solar Juice procures PV modules from a wide range of reputable suppliers, such as TrinaSolar, JA Solar, Canadian Solar and LG. It also has adopted a supplier-neutral approach to minimize procurement costs. Solar Juice also distributes its in-house brand of PV modules, OpalSolar, which Solar Juice contracts with third parties to manufacture. SolarBusinessServices, a consultancy, ranks Solar Juice as the number one solar product distributor in terms of wholesale volume in 2013 and 2014. As of June 30, 2015, Solar Juice had over 3,000 Business-to-Business accounts, of which 700 were active on a monthly basis. In the fourth quarter of 2014, Solar Juice set up a distribution facility in Singapore and expanded its customer base into Sri Lanka, Malaysia, the Philippines, Thailand, Papua New Guinea, Fiji and the Cook Islands. Solar Juice was acquired in May 2015. We expect the acquisition of Solar Juice to expand our solar business to another continent with a broad customer base.

All-Zip Acquisition

In April 2015, we and Meitai Investment (Suzhou) Co., Ltd. (“Meitai Investment”), one of our PRC wholly owned subsidiaries, entered into a share purchase agreement with Shanghai All-Zip Roofing System Group Co., Ltd. (“All-Zip”), a company established in China, and all of its shareholders (collectively, the “All-Zip Sellers”) for the acquisition of 100% equity interest in All-Zip. Pursuant to the share purchase agreement, Meitai Investment agreed to purchase from the All-Zip Sellers 100% of the equity interest in All-Zip for an aggregate consideration of RMB275 million to be settled with Shares at $2.38 per share, subject to customary closing conditions and other terms and conditions set forth in the share purchase agreement. All-Zip is a leading one-stop EPC service provider in China for both ground-mounted and rooftop DG solar projects, encompassing installing solar mounting systems, all-in-one energy-saving roofing systems and rainwater collection and green roofing systems on projects for public buildings, integrated solar power stations and buildings. It holds multiple key patents concerning roofing, including its unique focal point management strategy. Its customers include airport facilities, cultural and sports venues, villas and industrial buildings, with representative projects including Wuhan New International Expo, Ordos Museum, Nanchang Sport Center and Shanghai Expo Axis. All-Zip was the only corporation to be invited to participate in the drafting of the China National Construction Standards and Specifications for roofing system works. We believe that All-Zip’s expertise and leading position in roof-top solar project development will be a valuable addition to our expanding presence in the Chinese market.

ZBB Acquisition

In April 2015, we and ZBB Energy Corporation (“ZBB”), a Wisconsin corporation, entered into a securities purchase agreement (the “ZBB Purchase Agreement”) pursuant to which ZBB will issue and sell to us for an aggregate purchase price of $33.4 million in cash a total of (i) 8,000,000 shares of ZBB’s common stock and (ii) 28,048 shares of ZBB’s Series C convertible preferred stock. The aggregate purchase price for the foregoing shares of ZBB’s common stock was based on a purchase price per share of $0.6678 and the aggregate purchase price for the foregoing shares of ZBB’s preferred stock was determined based on price of $0.6678 per common

 

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equivalent. In addition, the foregoing shares of ZBB’s preferred stock subject to this transaction were sold for $1,000 per share and are convertible at a conversion price of $0.6678, prepaid at closing; provided, that each one-fourth of such shares of preferred stock only become convertible after certain MW of solar projects are completed by us utilizing ZBB’s products and services. We will also be issued a warrant to purchase 50,000,000 shares of ZBB’s common stock for an aggregate purchase price of $36.7 million in cash and a per share exercise price equal to $0.7346. On July 13, 2015, we and ZBB closed the transaction contemplated by the ZBB Purchase Agreement and ZBB issued to us 8,000,000 shares of ZBB’s common stock, 28,048 shares of ZBB’s Series C convertible preferred stock and the warrant to acquire 50,000,000 shares of ZBB’s common stock at an exercise price equal to $0.7346. The warrant only becomes exercisable upon the completion of 40 megawatts worth of solar projects in accordance with the Supply Agreement described below. On July 13, 2015, in connection with the closing and pursuant to the ZBB Purchase Agreement, we entered into a supply agreement with ZBB pursuant to which we will purchase certain ZBB’s products and services from time to time, including energy management system solutions for solar projects, and entered into a governance agreement with ZBB, pursuant to which we are entitled to nominate one director to ZBB’s board of directors for so long as we hold certain number or more of ZBB’s common stock or preferred stock. We will be entitled to nominate more directors to ZBB’s board of directors following a schedule tied to convertibility schedule of the shares of ZBB’s preferred stock that we purchased under the ZBB Purchase Agreement.

ZBB is a developer of innovative energy management solutions serving the utility, commercial and industrial building markets. We believe that the energy storage market in which ZBB operates has experienced rapid growth, driven by commercial, industrial and residential customers seeking energy savings from solar and emergency back-up power from storage. In addition, utilities are increasingly seeking energy storage solutions that can make the grid become more resilient and less susceptible to failure.

Convertergy Acquisition

In May 2015, we entered into a share purchase agreement with the controlling shareholder of Convertergy Energy Technology Co., Ltd. (“Convertergy Technology”) to purchase 76.8% of the equity interest in Convertergy Technology for an aggregate consideration of $13.8 million together with repayment of a shareholder loan of $1.5 million and accrued interest on behalf of Convertergy Technology. The total consideration will be settled with Shares, the number of which will be determined based on 10-day average of the Shares’ closing prices preceding closing or another price as agreed by the parties. Founded in 2011, Convertergy Technology is headquartered in Shanghai, China. Utilizing its expertise in power electronics, wireless sensor networks and big data analysis, Convertegy Technology has developed a product portfolio that includes a module-level monitor, optimizer and cloud-based software system to optimize power output and reduce O&M costs. We expect that we will be able to utilize Convertergy Technology’s smart technologies for the solar projects we operate, and that combining such technologies with the Solarbao e-commerce platform will create a fully integrated energy internet platform.

We have funded our acquisitions primarily from cash generated from our financing activities and from credit facilities. Going forward we expect to fund our future acquisitions with cash generated from our operations, as well as equity and debt financing.

Results of Operations

Six months ended June 30, 2015, as compared to six months ended June 30, 2014

Net sales

Net sales were $59.9 million and $9.9 million for the six months ended June 30, 2015 and 2014, respectively, an increase of $50.0 million, or 505.1%. The increase in net sales for the six months ended June 30, 2015 over the comparative period was primarily due to: (i) our successful expansion into the China market resulting in the EPC revenue generated from China operations and (ii) the BT revenue generated from UK project. We generated revenue from the provision of EPC services to a 30.0 MW DG solar project in Zhongwei

 

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County, Ningxia Autonomous Region, China, or the Zhongwei Project; a 30.0 MW DG solar project in Alashan County, Inner Mongolia Autonomous Region, China, or the Alashan Project and a 20.0 MW DG solar project in Ulanqab, Inner Mongolia Autonomous Region, China, or the Ulanqab Project, in the aggregate amount of $18.9 million during the six months ended June 30, 2015. We generated BT revenue from a 9.5 MW grange farm project in UK, in the amount of $16.1 million during the six months ended June 30, 2015.

Cost of goods sold

Cost of goods sold was $49.3 million (82.3% of net sales) and $9.2 million (92.9% of net sales) for the six months ended June 30, 2015 and 2014, respectively, an increase of $40.1 million, or 435.9%. Total cost of goods sold was in line with our expansion of business operations in China for the provision of EPC services to solar projects located in China and the BT services in UK, mainly including costs of goods sold for the Zhongwei Project, the Alashan Project, the Ulanqab Project and the grange farm project, in the aggregate amount of $29.8 million for the six months ended June 30, 2015.

Gross margins were 17.7% and 7.1% for the six months ended June 30, 2015 and 2014, respectively. The increase in gross margin for the six months ended June 30, 2015 over that of the comparative period was due to our business expansion in China and the relatively high margins of our EPC business in China.

General and administrative expenses

General and administrative expenses were $49.9 million (83.3% of net sales) and $2.1 million (21.2% of net sales) for the six months ended June 30, 2015 and 2014, respectively, an increase of $47.8 million, or 2,276.2%. Our general and administrative expenses during the six months ended June 30, 2015 mainly consisted of the stock-based awards to our management, payroll expenses, and professional service fee such as legal and audit fees, in the amount of $34.2 million, $4.6 million, and $6.5 million, respectively. The increase in general and administrative expenses for the six months ended June 30, 2015 over the comparative period was in line with our business expansion during the current period.

Sales, marketing and customer service expenses

Sales, marketing and customer service expenses were $12.4 million (20.7% of net sales) and $0.4 million (4.0% of net sales) for the six months ended June 30, 2015 and 2014, respectively, an increase of $12.0 million, or 3,000%. Our sales, marketing and customer service expenses during the six months ended June 30, 2015 mainly consisted of advertising expenses and payroll expenses for marketing personnel, in the amount of $6.3 million and $3.5 million, respectively. The increase in sales, marketing and customer service expenses for the six months ended June 30, 2015 over the comparative period was in line with our business expansion during the current period.

Interest expense

Interest expense was $3.9 million and $1.2 million, respectively, for the six months ended June 30, 2015 and 2014. We expect that interest expense will continue to fluctuate in the future depending on the amounts and relevant interest rates of debt financing utilized in our operations.

Interest income

Interest income was $1.7 million and $0.8 million for the six months ended June 30, 2015 and 2014, respectively. Interest income represents income earned from bank deposits, short-term investments and notes receivable.

 

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Income tax expense

Our income tax expense was $1.3 million and nil for the six months ended June 30, 2015 and 2014, respectively. Our effective income tax rate for the six months ended June 30, 2015 and 2014 was negative 2.6% and zero, respectively. For both 2015 and 2014, we expect to generate taxable income in certain jurisdictions while experiencing an overall worldwide loss. The negative rate for the six months ended June 30, 2015 is a result of the tax liability of certain loss generating subsidiaries of ours in jurisdictions that cannot be offset by valuation allowance reserves resulted from losses incurred by subsidiaries in certain other jurisdictions.

Comparison of the year ended December 31, 2014 to the year ended December 31, 2013

Net sales—Our net sales were $91.6 million and $42.6 million for the year ended December 31, 2014 and 2013, respectively, an increase of $49.0 million, or 115.0%. Our net sales in 2013 and 2014 primarily consisted of revenue generated from provision of our EPC services. The increase in net sales for the years ended December 31, 2014 over the comparative period was due to our successful expansion into the China market in 2014 resulting in the EPC revenue generated from China operations. Our net sales in 2014 mainly consisted of the revenue generated from the provision of EPC services to 21.0 MW DG solar project in Xinyu County, Jiangxi Province, China, or the Xinyu Project, 30.0 MW DG solar project in Zhongwei County, Ningxia Autonomous Region, China, or the Zhongwei Project, and 30.0 MW DG solar project in Alashan County, Inner Mongolia Autonomous Region, China, or the Alashan Project, in the amount of $23.6 million, $27.9 million and $23.9 million, respectively.

Total cost of goods sold—Our total cost of goods sold was $79.5 million (86.7% of net sales) and $45.4 million (106.5% of net sales) for the years ended December 31, 2014 and 2013, respectively, an increase of $34.1 million, or 75.1%. Total cost of goods sold for the year ended December 31, 2014 was in line with our expansion of business operations in China and the provision of EPC services to solar projects located in China, mainly included costs of goods sold to the Xinyu Project, the Zhongwei Project and the Alashan Project, in the aggregate amount of $62.7 million.

Gross profit (loss)—We generated a gross profit of $12.2 million in 2014, compared to a gross loss of $2.8 million in 2013. Gross margins were 13.3% and negative 6.5% for the years ended December 31, 2014 and 2013, respectively. The reversal from gross loss in 2013 to gross profit in 2014 was primarily due to our business expansion in China and the relatively high margins of our EPC business in China.

General and administrative expenses—Our general and administrative expenses were $6.2 million (6.8% of net sales) and $17.5 million (41.1% of net sales) for the years ended December 31, 2014 and 2013, respectively, a decrease of $11.3 million, or 64.4%. The decrease in general and administrative expenses for the year ended December 31, 2014 over the comparative period was primarily due to the one-time bad debt reserve recorded against our accounts receivable of $9.5 million during the year of 2013 mainly due to the deterioration of the business operations of two of our customers, the respective owners of the Beaver Run Project and another project in the U.S. The bad debt reserve was reversed in 2014 with a positive balance of $3.6 million primarily due to the sale of the Beaver Run Project to us by its owner and the settlement of outstanding receivables due to us by the other project’s owner using modules.

Sales, marketing and customer service expense—Our sales, marketing and customer service expenses were $1.4 million (1.5% of net sales) and $2.1 million (4.8% of net sales) for the years ended December 31, 2014 and 2013, respectively, a decrease of $0.7 million, or 31.7%. The decrease in sales, marketing and customer service expense for the year ended December 31, 2014 over the comparative period was primarily due to our precision trimming down of sales, marketing and customer services expenses to reduce operational waste and the relatively low sales and marketing expenses required for our China operations.

Impairment expenses—We recorded impairment expenses of nil and $7.5 million (17.6% of net sales) for the years ended December 31, 2014 and 2013, respectively. The impairment expenses we recorded in 2013 were due to

 

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the difference of the amount of consideration we paid for in acquiring a solar project in the U.S. and the fair value of our investment. In 2013, we provided EPC services to KDC for the KDC Mountain Creek Project, with the EPC service fees in the form of a $15.0 million note receivable due from KDC. KDC was unable to satisfy its EPC service fees payment obligations and in December 2013, we entered into an exchange and release agreement with KDC, pursuant to which we agreed to exchange our $15.0 million note receivable due to us from KDC under the EPC agreement in exchange for 64.5% equity interest in the KDC Mountain Creek Project. We determined the fair value of our investment in the KDC Mountain Creek Project to be $7.5 million in 2013 based on an income approach applying discounted cash flows to measure the fair value using a 10% discount rate, utilizing a market approach by comparing the fair value to other similar sized solar projects taking into consideration the expected time and cost to complete the project. Consequently, we recorded a $7.5 million impairment charge in 2013. In 2014, we increased our equity interest in the KDC Mountain Creek Project to 100%. See “—Recent Acquisition Activities—Solar Projects.” We did not record any impairment expenses in 2014.

Engineering, design and product management expense—Our engineering, design and product management expenses in relation to our historical balance-of- system manufacturing operations were nil and $1.8 million (4.1% of net sales) for the years ended December 31, 2014 and 2013, respectively. The decrease in engineering, design and product management costs to nil for the year ended December 31, 2014 over the comparative period was primarily due to cessation of our manufacturing operations.

Interest expense—Our interest expense was $2.3 million (2.5% of net sales) and $4.3 million (10.1% of net sales), respectively, for the years ended December 31, 2014 and 2013. The decrease in interest expense of $2.1 million, or 47.7%, for the year ended December 31, 2014, over the comparative period was due to the cumulative effect of a one-time settlement of bank loans and related interest payment in 2013 as well as increases in interest from the amortization of the discount on the convertible bond held by Robust Elite, arising out of the $0.16 per Share contractual conversion price which was substantially lower than the market price of our Shares at the time of the issuance of the convertible bond in April 2014. See “Note 17Lines of Credit and Loans Payable” to the Consolidated Financial Statements set forth under Item 8 herein.

Interest income—Our interest income was $1.2 million (1.3% of net sales) and $1.7 million (3.9% of net sales) for the years ended December 31, 2014 and 2013, respectively. The decrease in interest income of $0.4 million over the comparative period was due to the conversion of two customers’ trade accounts receivable to construction in progress consequent of our acquisition of two projects to offset the EPC payments due to us from such customers, including acquisition of the KDC Mountain Creek Project discussed above.

Loss on extinguishment of convertible bonds—During the year of 2014, we incurred a one-time loss on extinguishment of convertible bond of $8.9 million (9.7% of net sales) due to termination of a convertible bond agreement that we entered into with Robust Elite, a non-U.S. investor, pursuant to which we issued Robust Elite a convertible bond in the principal amount of $11 million. On July 31, 2014, we extinguished the convertible bond and thereafter issued Robust Elite 68,750,000 Shares at $0.16 per share, the same price as the contractually required conversion price of the convertible bond which was substantially lower than the market price of our Shares at the time of issuance of convertible bond in April 2014. As a result of these transactions, we initially recorded a discount on the convertible bond, and upon extinguishment of the convertible bond and subsequent issuance of our Shares, a non-cash interest expense of $1.4 million and a non-cash loss of $8.9 million on the extinguishment of convertible bond during the year ended December 31, 2014.

Gain from deconsolidation—We recorded a gain from deconsolidation of US$3.5 million in the year ended December 31, 2013 (8.3% of net sales), arising out of our deconsolidation of SGT on December 30, 2013. We owned 100% equity interest in SGT prior to the deconsolidation. In November 2013, the board of directors of SGT approved a voluntary plan for liquidation due to its liquidity position and liabilities, and on December 30, 2013, a liquidator was appointed by the board of directors of SGT, resulting in us losing our controlling interest

 

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in SGT. We recognized a gain on the deconsolidation in 2013 as the liquidation was a run-off operation. We did not record any gain from deconsolidation in 2014.

Change in market value of derivative liability—Our change in market value of derivative liability was negative $1.0 million and nil, respectively, for the years ended December 31, 2014 and 2013. The change in market value of derivative liability for the year ended December 31, 2014 over the comparative period was primarily due to the change in fair value of the cash consideration contingent upon future price of our Shares as part of purchase price to acquire 14.3 MW of projects under construction in the U.S. that we completed in October 2014. See “—Recent Acquisition Activities.”

Other gains or expenses—We generated other gains of $2.3 million (2.5% of net sales) in the year ended December 31, 2014, compared to $0.7 million (1.6% of net sales) of other expenses that we incurred in 2013. The reversal of other expenses into other gains for the year ended December 31, 2014 over the comparative period was primarily due to the exchange gains from the payables due to Sinsin Europe Solar Asset Limited Partnership and Sinsin Solar Capital Limited Partnership in connection with the acquisition of the 26.6 MW of solar projects in Greece.

Income tax expense—We had a provision for income taxes of $3.0 million (3.3% of net sales) and $0.8 million (1.9% of net sales) for the years ended December 31, 2014 and 2013, respectively. Despite the significant improvement of our net sales and gross profit in 2014 compared to 2013, due to cumulative historical operating losses, we carry forward a net operating loss. The provision for income taxes for the year ended December 31, 2014 was primarily the result of taxable income generated by our China operations. The provision for income taxes for the year ended December 31, 2013 was primarily the result of the gain arising out of the liquidation and deconsolidation of SGT. See “Note 6Deconsolidation of Solar Green Technology” to the Consolidated Financial Statements set forth under Item 8 herein.

Net Loss—For the foregoing reasons, we incurred a net loss of $5.2 million (5.7% of net sales) for the year ended December 31, 2014, representing a significant decrease compared to a net loss of $32.2 million (75.6% of net sales) in 2013.

Liquidity

A summary of the sources and uses of cash and cash equivalents is as follows:

 

     For the Six Months Ended June 30,  
             2015                      2014          

Net cash used in operating activities

   $ (135,247    $ (7,970

Net cash generated from/(used in) investing activities

     17,916         (586

Net cash generated from financing activities

     75,167         13,490   

Effect of exchange rate changes on cash

     (26      (111
  

 

 

    

 

 

 

Net (decrease)/increase in cash and cash equivalents

   $ (42,190    $ 4,823   
  

 

 

    

 

 

 

As of June 30, 2015 and December 31, 2014, we had $114.4 million and $156.5 million, respectively, in cash and cash equivalents.

Operating Activities—Net cash used in operating activities of $135.2 million for the six months ended June 30, 2015 primarily consisting of (i) a net loss of $51.7 million, (ii) an increase in project assets of $26.4 million, (iii) an increase in restricted cash related to operating activities of $32.7 million, (iv) an increase in accounts receivable of $57.6 million, (v) an increase in prepaid expenses and other assets of $36.6 million and

 

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(vi) a decrease in accounts payable due to related parties of $4.1 million, partially offset by (i) stock-based compensation expense of $34.3 million, (ii) an decrease in costs and estimated earnings in excess of billings on uncompleted contracts of $31.5 million and (iii) an increase of accounts payable of $9.8 million.

Investing Activities—Net cash generated from investing activities was $17.9 million for the six months ended June 30, 2015, primarily as a result of (i) proceeds from disposal of short-term investments of $53.2 million and (ii) uplift of bank deposit with maturity over three months of $8.9 million, partially offset by (i) acquisition of short-term investments of $25.8 million, (ii) acquisitions of project assets of $11.6 million and (iii) placement of bank deposit with maturity over three months of $5.3 million.

Financing Activities—Net cash generated from financing activities was $75.2 million for the six months ended June 30, 2015, primarily consisting of (i) proceeds of $102.6 million from new short-term borrowings, (ii) net proceeds of $37 million from the issuance of our unregistered shares of common stock to various non-U.S. persons, (iii) proceeds of $20.0 million from issuance of convertible note and (iv) net proceeds of $6.0 million from loans on solarbao platform through Solar Energy, partially offset by the repayment of short-term borrowings of $90.5 million.

 

     For the Years Ended December 31,  
             2014                      2013          

Net cash (used in)/provided by operating activities

   $ (56,456    $ 11,212   

Net cash (used in)/provided by investing activities

     (44,885      5,669   

Net cash provided by/(used in) financing activities

     257,342         (33,599

Effect of exchange rate changes on cash

     (492      (74
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 155,509       $ (16,792
  

 

 

    

 

 

 

As of December 31, 2014 and 2013, we had $156.5 million and $1.0 million, respectively, in cash and cash equivalents.

Operating Activities—Net cash used in operating activities was $56.5 million for the year ended December 31, 2014, primarily as a result of (i) an increase in costs and estimated earnings in excess of billings on uncompleted contracts of $73.7 million, (ii) an increase in project assets of $55.1 million, (iii) a decrease in accounts payable due to related party of $12.9 million, and (iv) an increase in prepaid expenses and other assets of $5.0 million, partially offset by (a) an increase in accounts payable of $37.6 million, (b) an increase in note payable of $17.8 million, and (c) advances from customers of $17.7 million.

Net cash generated from operating activities was $11.2 million for the year ended December 31, 2013, primarily as a result of (i) a decrease in costs and estimated earnings in excess of billings on uncompleted contracts of $28.7 million, (ii) a decrease in project assets, noncurrent, of $16.0 million, and (iii) a decrease in accounts receivable of $11.5 million, partially offset by (a) a net loss of $32.2 million, (b) an increase in note receivable of $27.9 million, and (c) a decrease in accounts payable of $5.5 million.

Investing Activities—Net cash used in investing activities was $44.9 million for the year ended December 31, 2014, primarily as a result of (i) acquisitions of short-term investments such as bank financing products of $40.2 million, (ii) bank deposits with maturities over three months of $8.9 million, and (iii) acquisitions of new subsidiaries, net of cash required of $6.7 million, partially offset by proceeds from disposal of short-term investments of $12.9 million.

Net cash generated from investing activities was $5.7 million for the year ended December 31, 2013, primarily as a result of proceeds from repayment of notes receivable of $7.0 million, partially offset by issuance of notes receivable of $1.3 million.

 

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Financing Activities—Net cash generated from financing activities was $257.3 million for the year ended December 31, 2014, primarily consisting of (i) proceeds of $167.8 million from the issuance of our unregistered Shares to various non-U.S. investors in reliance of Regulation S, (ii) proceeds from lines of credit and loans payable of $47.5 million, and (iii) proceeds of $46.0 million from the issuance of our unregistered convertible notes to non-U.S. investors in reliance of Regulation S, partially offset by the payments on line of credit and loans payable in the amount of $4.3 million.

Net cash used in financing activities was $33.6 million for the year ended December 31, 2013, primarily due to payments on lines of credit and loans payable of $36.3 million, partially offset by proceeds from lines of credit and loans payable of $2.7 million.

Capital Resources and Material Known Facts on Liquidity

With a net loss of $51.7 million during the six months ended June 30, 2015, we had an accumulated deficit of $112.9 million as of June 30, 2015. During the six months ended June 30, 2015, we raised a substantial amount of cash from the unregistered issuance of shares of our common stock and convertible note to non-U.S. investors in private placements and from bank borrowings. We received $40.0 million and $20.0 million from non-U.S. investors in private placements for the unregistered issuance of shares of our common stock at the price between $2.0- $2.7 per share and for the issuance of convertible note. We also had short-term bank borrowings of an aggregate $63.4 million as of June 30, 2015 with an interest rate ranging between 2.4% and 6.6% per annum, which will mature by June 2016.

As of June 30, 2015, we had $114.4 million in cash and cash equivalents and $82.6 million in accounts receivable. As of June 30, 2015 and December 31, 2014, we had working capital of $44.9 million and $129.0 million, respectively.

With a net loss of $32.2 million in 2013, we had an accumulated deficit of $56.1 million and working capital of negative $36.6 million as of December 31, 2013. In February 2014, our former controlling shareholder, LDK, which owned approximately 71% of our Shares at that time, announced its application for provisional liquidation in the Cayman Islands in connection with its plans to resolve its offshore liquidity. When LDK made the provisional liquidation application, we did not have the ability to settle the payment due to LDK of $50.9 million which mostly arose out of historical trade payables, without obtaining additional sources of financing or accelerating the collection of outstanding receivables due to us, particularly in light of the possibility that LDK’s provisional liquidator might demand repayment of the amounts past due. In April 2014, we also received a notice from a bank claiming that we were in default due to our failure to repay a loan of a principal amount of $4.3 million. The risks and uncertainties described above had a significant negative impact on our financial viability and raised substantial doubt about our ability to continue as a going concern.

Subsequently, we significantly improved our cash resources and liquidity position in 2014. Despite our net loss of $5.2 million in 2014 and an accumulated deficit of $61.3 million as of December 31, 2014, we substantially reduced our operating loss compared to 2013. In addition, in 2014 and 2015 we raised a significant amount of cash from the issuance of our Shares and convertible notes to non-U.S. investors in private placements. We entered into various share purchase agreements and option agreements with a number of non-U.S. investors and issued approximately 345.5 million unregistered Shares in reliance of Regulation S, mostly at a per share purchase price benchmarked to the prevailing trading price of our Shares at the respective dates of these agreements, and raised an aggregate $218.9 million. As a result of these private placements, LDK’s equity interest in us decreased to 22.5% as of the date of this consent solicitation statement/prospectus, and it is no longer our controlling shareholder. We also raised $55.0 million of cash from issuing unregistered convertible notes to non-U.S. investors in reliance of Regulations S. As of June 30, 2015, we also had short-term bank borrowings of an aggregate $63.4 million having an interest rate ranging between 2.4% and 6.6% per annum, which will mature between July 2015 and June 2016.

 

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As of December 31, 2014, we had $156.5 million in cash and cash equivalents, $8.9 million of bank deposits with maturities over three months, $27.4 million of short-term investments and $22.7 million in accounts receivable. Our working capital increased from negative $36.6 million as of December 31, 2013 to positive $129.0 million as of December 31, 2014.

We repaid the complaining bank which claimed that we were in default of a total of $4.4 million to satisfy all of our outstanding obligations, and the bank subsequently withdrew its complaint. On November 7, 2014, the Grand Court of the Cayman Islands sanctioned the scheme of arrangements relating to LDK’s assets in the Cayman Islands as well as LDK and its affiliates incorporated in the Cayman. On November 18, 2014, the High Court of Hong Kong sanctioned a related scheme of arrangement with respect to LDK’s subsidiaries incorporated in Hong Kong. The related restructuring was completed on December 17, 2014. On February 18, 2015, all the related bankruptcy and liquidation proceedings in respect of LDK and its subsidiaries in the Cayman Islands, Hong Kong and the U.S. were closed. On December 31, 2014, LDK announced that its subsidiary, LDK Solar International Company Limited (“LDK HK”), entered into a settlement and mutual release agreement (the “LDK Settlement Agreement”) with us, pursuant to which LDK HK agreed to release and discharge us from all actions, claims, demands, damages, obligations, liabilities, controversies and executions arising out of our payables of approximately $28.8 million to LDK HK and subsidiaries, in exchange for a settlement amount of $11.0 million. Pursuant to the LDK Settlement Agreement, we are obligated to pay the outstanding $11 million settlement amount in installments before December 31, 2015 in accordance with a certain agreed schedule. However, LDK retains the right to cancel the agreed settlement and release if any installment payment is delayed for more than 30 days. We consequently did not eliminate the liability of $17.8 million waived in the LDK Settlement Agreement from our consolidated balance sheet as of December 31, 2014, given that the payment had not been fully settled. As of June 30, 2015, the remaining balance of the settlement amount was $5.0 million.

Given the current balance of our working capital and the events described above, the management believes that there were no significant events or conditions that may cast substantial doubt on our ability to continue as a going concern as of June 30, 2015.

As of June 30, 2015, we held cash and cash equivalents of US$46.0 million in aggregate outside of the PRC. As an offshore holding company, we are permitted under PRC laws and regulations to provide funding from the proceeds of our offshore fund raising activities to our PRC subsidiaries only through loans or capital contributions, subject to the satisfaction of the applicable government registration and approval requirements. As a result, there is uncertainty with respect to our ability to provide prompt financial support to our PRC subsidiaries when needed.

The implementation rules of the CIT Law provide that after January 1, 2008, an income tax rate of 10% will normally be applicable to dividends declared to non-resident enterprise investors which do not have an establishment or a place of business in the PRC, or have an establishment or a place of business but the relevant income is not effectively connected with such establishment or place of business, to the extent that such dividends are derived from source within the PRC. According to the Arrangement between the Mainland China and Hong Kong for the Avoidance of Double Taxation on Income signed on August 21, 2006, the PRC government may impose taxes on dividends payable by a PRC company to a Hong Kong resident with such taxes not exceeding either 10% or 5% of the gross amount of dividends payable, applicable when the equity interest percentage in the PRC company held by the Hong Kong resident is less than 25% and is at least 25%, respectively. As our PRC operating subsidiaries are held by our Hong Kong subsidiaries, we may be subject to the PRC taxes on dividends payable by our PRC operating subsidiaries to their Hong Kong parents as described above.

Although we do not have any present plans to declare any dividends or other distributions from our PRC subsidiaries, we may rely significantly on dividends and other distributions paid by our PRC subsidiaries for our cash and financing requirements in the future. There may be restrictions on the dividends and other distributions by our PRC subsidiaries. Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of

 

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their accumulated profits as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund a statutory reserve fund, until the aggregate amount of such fund reaches 50% of their respective registered capital. At their discretion, our PRC subsidiaries may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. The reserve fund and the staff welfare and bonus funds cannot be distributed as cash dividends. See “Risk Factors and Caution Regarding Forward-looking Statements—Risks Related to Our International Operations—We may rely on dividends paid by our PRC subsidiaries to fund any cash and financing requirements we may have. Any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our Shares.” Furthermore, our investments made as registered capital and additional paid-in capital of our PRC subsidiaries are also subject to restrictions on their distribution and transfer according to PRC laws and regulations.

As a result, our PRC subsidiaries are restricted in their ability to transfer their net assets to us in the form of cash dividends, loans or advances. As of June 30, 2015, the amount of the restricted net assets, which represents registered capital, additional paid-in capital and cumulative appropriations made to statutory reserves, was US$180.9 million.

Off-Balance Sheet Arrangements

As of December 31, 2014, we did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.

 

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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY

The following table sets forth the names and ages of the Company’s current board of directors, our named executive officers, our significant employees, and the principal offices and positions held by each person. Our executive officers are appointed by our board of directors. Our directors serve until the earlier occurrence of the appointment of his or her successor at the next meeting of shareholders, death, resignation or removal by the board. There are no family relationships among our directors and our named executive officers. SPI Energy will be managed by the executive officers and significant employees that manage the Company currently. The board of directors of SPI Energy shall consist of the current directors of the Company and Amy Jing Liu, the Company’s current chief financial officer and secretary.

 

Person

   Age     

Position

Xiaofeng Peng

     40       Chairman of the Board of Directors

Min Xiahou

     51       Deputy Chairman of the Board of Directors

Lang Zhou

     53       Director

Gang Dong

     33       Director

Jeffrey Yunan Ren

     39       Director

Roger Dejun Ye

     42       Chief Executive Officer

Amy Jing Liu

     43       Chief Financial Officer and Secretary of the Board

Hoong Khoeng Cheong

     50       Chief Operating Officer

Biographies

Set forth below is a brief biography of each director, named executive officer and significant employee that contains information regarding the individual’s service as a director, named executive officer or significant employee including business experience for the past five years. In addition, information for directors includes directorships held during the past five years, information concerning certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Board to determine that the individual should serve as a director for us.

Xiaofeng Peng

Mr. Peng has served as chairman of our Board since January 10, 2011. Mr. Peng was appointed chairman of the Board pursuant to the Stock Purchase Agreement entered into between us and LDK on January 5, 2011. Mr. Peng founded LDK in July 2005 and is its chairman of the board and chief executive officer. Prior to founding LDK, Mr. Peng founded Suzhou Liouxin Co., Ltd., or Suzhou Liouxin, in March 1997 and was its chief executive officer until February 2006. Suzhou Liouxin is a leading manufacturer of personal protective equipment in Asia. Mr. Peng graduated from Jiangxi Foreign Trade School in 1993 with a diploma in international business and from Beijing University Guanghua School of Management with an executive MBA degree in 2002.

Min Xiahou

Mr. Xiahou was our chief executive officer and director from August 19, 2013 to June 30, 2015 and has served as deputy chairman of our Board since July 1, 2015. Mr. Xiahou is also a senior vice president of LDK and has served as the general manager of LDK’s Solar Power System Division since May 2011. From 2008 to 2011, Mr. Xiahou served as the Board Chairman and General Manager of Xinyu Urban Construction Group, a state-owned construction corporation in China. Before that, Mr. Xiahou served in various government roles from 1989 to 2011. Mr. Xiahou received his Bachelor of Economics degree from Xiamen University, China in 1989. He is also a certified accountant in China.

 

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Lang Zhou

Dr. Zhou has served as our director since April 17, 2014. Dr. Zhou has been a professor of Nanchang University since 1997. Dr. Zhou has extensive experience in the solar industry. Dr. Zhou received a doctoral degree in materials science and engineering from University of Science and Technology Beijing, and received a Master of Science and a Bachelor of Science in materials science and engineering from Shanghai Jiaotong University in 1985.

Gang Dong

Dr. Dong has served as our director since July 2014. Dr. Dong was appointed as a director pursuant to the Amendment to the April 2014 Purchase Agreement between us and Robust Elite on June 3, 2014. Dr. Dong is the Head Strategist of Head & Shoulders Asset Management Limited, an affiliate of Robust Elite. Dr. Dong received his doctoral degree in Management Sciences from City University of Hong Kong in 2011. While earning his doctorate, he participated in many trading strategy development projects with various financial institutions. Dr. Dong is licensed with the Hong Kong Securities and Futures Commission for Type 1(dealing in securities dealing), Type 4 (advising on securities) and Type 9 (asset management) regulated activities.

Jeffrey Yunan Ren

Mr. Ren has served as our director since April 2015. Mr. Ren is a managing director of a private equity firm in Hong Kong. Mr. Ren currently serves as a non-executive director of Labixiaoxin Snacks Group Limited, a Chinese manufacturer and distributor of snacks listed on the Hong Kong Stock Exchange; an independent director of China Child Care Corporation, a Chinese manufacturer and distributor of child care products listed on the Hong Kong Stock Exchange; and a board member of numerous private companies. From March 2012 to June 2015, Mr. Ren served as a member of the Board of Directors and the Chairman of the Audit Committee of Tiger Media, Inc., a multi-platform media and data products and service company listed on the NYSE. From May to November 2013, Mr. Ren served as an independent director of Vision Fame International Holding Limited, a company focusing on the construction business and listed on the Hong Kong Stock Exchange. From June 2010 to March 2012, Mr. Ren served as president of a pharmaceutical investment holding company based in Hong Kong. Previously, Mr. Ren served as an executive director at UBS Investment Bank in Hong Kong from 2008 to 2010 and as a vice president at Lehman Brothers in Hong Kong from 2006 to 2008. Mr. Ren holds an LL.M. from Harvard Law School, and is a graduate of Peking University Law School (LL.B. and graduate program).

Roger Dejun Ye

Mr. Roger Dejun Ye has served as our chief executive officer since July 1, 2015. Mr. Ye currently serves as a partner in four solar funds focusing on investing in and acquiring domestic and international solar projects. He was also the chief executive officer of Yangtze Investment Co., Ltd., a joint investment platform of Solar Power Fund and China Three Gorges Corporation focusing on overseas solar projects, from 2011 to 2013. From 2006 to 2011, Mr. Ye held various positions at Suntech Power Holdings Co., Ltd., including head of global sales. Prior to that, Mr. Ye worked at Siemens Limited China for over eight years, serving in key sales roles in the company’s mobile communications division. Mr. Ye obtained his master’s degree in applied physics from Shanghai Jiao Tong University in 1999.

Amy Jing Liu

Ms. Liu has served as our chief financial officer, senior vice president and secretary of the board since September 18, 2014. Prior to this appointment and beginning in May 2009, Ms. Liu served as an independent financial advisor advising primarily mid to late-stage high growth companies listed on the U.S. or Hong Kong stock markets on business strategies, capital raising strategies, merger and acquisition opportunities, public offerings and investor communications. From October 2007 to April 2009, Ms. Liu was the chief financial officer

 

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of Hanwha Solarone Co., Ltd. (“Hanwha Solarone,” previously known as Solarfun Power Holdings Ltd.), a global supplier of PV cells and PV modules listed on the NASDAQ Global Market. Prior to joining Hanwha Solarone, Ms. Liu spent 13 years of her professional career serving in leadership positions at the Asia Pacific, Greater China or China offices of Thermo Fisher Scientific, DuPont, and Swire Coca-Cola. Ms. Liu graduated from China Nuclear Industrial University in 1994 with a major in statistics and received her MBA from Columbia Southern University. Ms. Liu is a certified accountant in China.

Hoong Khoeng Cheong

Mr. Cheong has served as our chief operating officer since May 26, 2014. Mr. Cheong has more than 20 years of engineering and operation experience in the solar and electronics industries. He served in various management positions in LDK from 2011 to 2014 and he was appointed as the Chairman of the Management Board and Chief Executive Officer of Sunways AG, a publicly-listed company in Germany. He previously served as our general manager from 2007 to 2011 and was responsible for PV system design and development as well as the manufacturing of key components for PV modules and racking systems before joining LDK. Prior to joining the solar industry in 2007, Mr. Cheong spent 16 years in the electronics industry responsible for engineering development and manufacturing of liquid crystal display products and he served as the Vice President of Engineering of an affiliate of Flextronics International Ltd. Mr. Cheong holds a Bachelor of Science degree in mechanical engineering from the University of Louisiana and obtained his Master of Science in computer integrated manufacturing from Nanyang Technology University in 1997.

 

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EXECUTIVE AND DIRECTOR COMPENSATION OF THE COMPANY

The following table sets forth all compensation awarded, earned or paid for services rendered to the Company in all capacities during fiscal year 2014 and 2013 to (i) each person who served as our chief executive officer during fiscal 2014; (ii) the two most highly compensated officers other than the chief executive officer who were serving as executive officers at the end of fiscal 2014 and whose total compensation for such year exceeded $100,000; and (iii) up to two additional individuals for whom disclosures would have been provided in this table, but for the fact that such persons were not serving as executive officers as of the end of fiscal 2014 (sometimes referred to collectively as the “named executive officers”). A column or table has been omitted if there was no compensation awarded to, earned by or paid to any of the named executive officers or directors required to be reported in such table or column in the respective fiscal year. We do not have any employment agreements, nor do we have severance terms or provisions for executive officers.

 

Name and Principal Position

   Year      Salary ($)      Bonus
($)
     Stock
Awards
($)
     Option
Awards ($)
    All Other
Compensation
($)
     Total ($)  

Min Xiahou, Chief Executive Officer and Director

     2014         74,967         —           —           263,938 1      —           338,905   
     2013         —           —           —           70,000 2      —           70,000   

Amy Jing Liu, Chief Financial Officer

     2014         41,285         —           —           1,301,210 3      —           1,342,495   
     2013         —           —           —           —          —           —     

Hoong Khoeng Cheong, Chief Operating Officer

     2014         173,960         —           —           351,918 4      —           525,878   
     2013         —           —           —           —          —           —     

Charlotte Xi, Former President, Chief Operations Officer, Interim Financial Officer, Director and special consultant to the Company’s Chairman of the Board of Directors5

     2014         295,480         —           —           —          —           295,480   
     2013         116,900         —           —           70,000        —           186,900   

Roger Le Yu, Former Interim Chief Financial Officer6

     2014         8,120         —           —           —          —           8,120   
     2013         —           —           —           —          —           —     

Note:

 

1  Reflects options granted to Mr. Xiahou to purchase 1,500,000 shares of our common stock at an exercise price of $0.31 and a grant date fair value of $0.18 with four-year vesting terms and which expire in June 2019. The amount reported represents the grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. Mr. Xiahou was our chief executive officer from August 19, 2013 to June 30, 2015 and has served as deputy chairman of our Board since July 1, 2015.

 

2  Reflects options granted to Mr. Xiahou to purchase 2,000,000 shares of our common stock at an exercise price of $0.05 and a grant date fair value of $0.035 with four-year vesting terms and which expire in August 2018. The amount reported represents the grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718.

 

3  Reflects options granted to Ms. Liu to purchase 2,000,000 shares of our common stock at an exercise price of $1.18 and a grant date fair value of $0.65 with four- year vesting terms and which expire in September 2024. The amount reported represents the grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. Ms. Liu was appointed chief financial officer, senior vice president and secretary of the Board on September 18, 2014.

 

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4  Reflects options granted to Mr. Cheong to purchase 2,000,000 shares of our common stock at an exercise price of $0.31 and a grant date fair value of $0.18 with four-year vesting terms and which expire in June 2019. The amount reported represents the grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718. Mr. Cheong was appointed our chief operating officer on May 26, 2014.

 

5  Ms. Xi was appointed a director on August 19, 2013 and then resigned on May 7, 2014. She resigned as our interim chief financial officer on May 16, 2014 and as our president and chief operating officer on May 25, 2014. She ceased to be the special consultant to our Chairman of the Board of Directors on September 30, 2014.

 

6  Mr. Yu was appointed as our interim chief financial officer on May 26, 2014 and resigned on September 18, 2014.

Executive Compensation Practices

The compensation paid to our named executive officers summarized in our Summary Compensation Table above is determined in accordance with employment agreements that we have entered into with each of our named executive officers. These agreements provided a compensation package to our named executive officers, which include both base salary and equity compensation components.

 

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Outstanding Equity Awards at Fiscal Year End

The following table summarizes the options awards granted to each of the named executive officer identified in the summary compensation table above pursuant to our 2006 Equity Incentive Plan. No stock options were exercised in the last fiscal year.

Outstanding Equity Awards at Fiscal Year-End

 

          Option Awards     Stock Awards  

Name

  Number of
securities
underlying
unexercised
options (#)
exercisable
    Number of
securities
underlying
options (#)
unexercisable
    Option
exercise
price ($)
  Option
expiration
date
  Number
of shares
or units of
stock that
have not
vested (#)
    Market
value of
shares or
units of
stock that
have not
vested ($)
    Equity
incentive
plan
awards:
number of
unearned
shares,
units or
other
rights that
have not
vested (#)
    Equity
incentive
plan
awards:
market or
payout
value of
unearned
shares,
units or
other
rights that
have not
vested ($)
 

Min Xiahou, then Chief Executive Officer and Director

    500,000        —        $0.05 and
$0.31
  June 2019     3,000,000        316,438 1      —          —     

Amy Jing Liu, Chief Financial Officer

    —          —        $1.18   September 2024     2,000,000        1,301,210 2      —          —     

Hoong Khoeng Cheong, Chief Operating Officer

    —          —        $0.31   June 2019     2,000,000        351,918 3      —          —     

Charlotte Xi, Former President, Chief Operations Officer, Interim Financial Officer, Director and special consultant to the Company’s Chairman of the Board of Directors4

    —          —        —     —       —          —          —          —     

Roger Le Yu, Former Interim Chief Financial Officer5

    —          —        —     —       —          —          —          —     

Note:

 

1  Reflects an option granted to Mr. Xiahou to purchase up to 2,000,000 shares of our common stock at an exercise price of $0.05 and 1,500,000 shares of our common stock at an exercise price of $0.31. This option expires in June 2019.

 

2  Reflects options granted to Ms. Liu to purchase 2,000,000 shares of our common stock at an exercise price of $1.18 and a grant date fair value of $0.65 with four- year vesting terms and which expire in September 2024.

 

3  Reflects options granted to Mr. Cheong to purchase 2,000,000 shares of our common stock at an exercise price of $0.31 and a grant date fair value of $0.18 with four-year vesting terms and which expire in June 2019.

 

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4  Ms. Xi resigned from our Board of Directors on May 7, 2014. She resigned as our president and chief operating officer on May 25, 2014. She ceased to be special consultant to our Chairman of the Board of Directors on September 30, 2014.

 

5  Mr. Yu resigned as our interim chief financial officer on September 18, 2014.

Retirement and Resignation Plans

On November 15, 2006, subject to approval of the Stockholders, we adopted the 2006 Plan reserving 9% of the outstanding Shares. On February 7, 2007, our stockholders approved the 2006 Plan reserving 9% of the outstanding Shares pursuant to the Definitive Proxy on Schedule 14A filed with the SEC on January 22, 2007.

Director Compensation Table

The following table sets forth the compensation received by each of our non-employee Directors.

 

Name

   Fees
Earned
or Paid
in Cash
($)
     Stock
Awards
($)
     Option
Awards
($)
     Non-Equity
Incentive Plan
Compensation
($)
     Non-Qualified
Deferred
Compensation
($)
     All Other
Compensation
($)
     Total ($)  

Xiaofeng Peng

     110,185         —           703,836         —           —           —           814,021   

Gang Dong

     —           —           17,596         —           —           —           17,596   

Lang Zhou

     7,500         5,037         17,596         —           —           —           30,133   

Jack Lai1

     —           —           —           —           —           —           —     

Note:

 

1  Mr. Lai resigned as our director on February 21, 2014.

Director Compensation Practices

According to our internal guidance on compensation on directors, all our non-employee directors are entitled to director compensation in the form of quarterly retainers and committee chairman retainers as set forth in the following table:

 

Quarterly retainer

   $ 6,250   

Annual Audit Committee Chairman

   $ 5,000   

Annual Audit Committee Vice Chairman

   $ 2,500   

Compensation Committee Chairman

   $ 3,000   

Governance and Nominating Committee Chairman

   $ 3,000   

In addition, we reimburse our directors for their reasonable expenses incurred in attending meetings of the board and its committees.

Additionally, when they join the board each of our independent Directors receives 25,000 restricted Shares that vest 25% annually over four years.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

AND MANAGEMENT OF THE COMPANY

The following table sets forth information as of September 25, 2015 regarding the beneficial ownership of the Company’s outstanding shares of common stock, including (a) each shareholder who is known by us to own beneficially in excess of 5% of our voting stock; (b) each director; (c) our named executive officers; and (d) our executive officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares, except to the extent that authority is shared by spouses under applicable law, and (ii) beneficial ownership with respect to their shares. The percentage of beneficial ownership is based upon 629,664,618 Shares outstanding as of September 25, 2015, including 608,592,718 Shares and 21,071,900 shares of restricted stock. As of the date of the consent solicitation/prospectus, we have only issued shares of common stock of par value $0.0001. Unless otherwise identified, the address of our directors and officers is 3500 Douglas Blvd., Suite 240, Roseville, California 95661.

 

Principal Shareholder    Shares Beneficially
Owned
    

Percentage

Beneficially Owned

 

LDK Solar USA, Inc.1

     131,746,347         20.9

LDK Solar Europe Holding SA2

     9,771,223         1.6

Robust Elite Limited3

     106,250,000         16.9

Joy Sky Investment Limited4

     55,560,000         8.8

Strong Textile Hong Kong Limited5

     42,060,000         6.7

Sinsin Europe Solar Asset Limited Partnership6

     38,225,846         6.1

Home Value Holding Co., Limited7

     34,400,000         5.5

Note:

 

1.  LDK Solar USA, Inc. LDK Solar USA, Inc. is wholly owned by LDK Solar CO., Ltd. The address of LDK Solar USA, Inc. LDK Solar USA, Inc. is 1290 Oakmead Parkway, Sunnyvale, CA 94085.1.

 

2.  LDK Solar Europe Holding S.A. is wholly owned by LDK Solar International Co., Ltd., which is in turn wholly owned by LDK Solar CO., Ltd. The address of LDK Solar Europe Holding S.A. is Rue Pafebruch 89B L-8303, Capellen Luxembourg.

 

3.  Robust Elite Limited is held by Unitone Group Limited, which is wholly owned by Hercules Star Limited. Mr. Chiu Fai Stanley Choi is the natural person exercising voting and investment power over shares of our common stock held by Robust Elite Limited. The address of Robust Elite Limited is 25 Floor, COSCO Tower, Queen’s Road Central, Hong Kong.

 

4. Mr. Dejun Ye is the natural person who has sole voting and investment power over shares of our common stock held by Joy Sky Investment Limited. The address of Joy Sky Investment Limited is Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.

 

5. Ms. Caihong Lu is the natural person who has sole voting and investment power over shares of our common stock held by Strong Textile Hong Kong Limited. The address of Strong Textile Hong Kong Limited is Unit E, 3/F, Wing Tat Commercial Building, 97 Bonham Strand East, Sheung Wan, Hong Kong.

 

6. Sinsin Europe Solar Asset Limited Partnership’s general partner is Solar Asset Management Capital Inc. Solar Asset Management Capital Inc. is wholly owned by SAM Capital Holdings Limited. The address of Sinsin Europe Solar Asset Limited Partnership is Suite 716, 10 Market Street, Grand Cayman KY1-9006, Cayman Islands.

 

7. Mr. Zhangxing Wang is the natural person exercising sole voting and investment power over shares of our common stock owned by Home Value Holding Co., Limited. The address of Home Value Holding Co., Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.

 

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Directors and Executive Officers    Shares Beneficially
Owned
    

Percentage

Beneficially Owned

 

Xiaofeng Peng, Chairman of the Board

     13,200,0001         2.1%   

Lang Zhou, Director

     *         *   

Gang Dong, Director

     *         *   

Min Xiahou, Deputy Chairman of the Board

     *         *   

Jeffrey Yunan Ren

               

Roger Dejun Ye, Chief Executive Officer

               

Hoong Khoeng Cheong, Chief Operating Officer

     *         *   

Amy Jing Liu, Chief Financial Officer

     *         *   

All Directors and Executive Officers as a Group

     22,600,0002         3.6%   

Note:

 

1  Consists of options to purchase 1,000,000 Shares and 12,200,000 shares of restricted stock.

 

2  Consists of options to purchase an aggregate of 2,675,000 Shares and an aggregate of 19,925,000 shares of restricted stock.

 

* Less than 1.0%.

 

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RELATED PARTY TRANSACTIONS

Transactions with Our Directors, Executive Officers and Shareholders

In 2013 and 2014, we did not provide EPC services or sell any PV modules or panels to LDK. As of December 31, 2014, we had nil accounts receivable from LDK. As of December 31, 2013, we had accounts receivable due from LDK of $3.9 million from our historical provision of EPC services and PV module or panel sales to LDK prior to 2013.

We purchased solar panels from LDK for our solar project development. In June 2012, we acquired 100% equity interest in SGT from its direct owners, LDK Europe, who owned 70% of equity interest in SGT prior to the acquisition, and the two founders of SGT. Because LDK was our controlling shareholder and 100% shareholder of LDK Europe at that time, the acquisition was treated as a transaction between entities under common control. As a result of the acquisition, we recognized the assets and liabilities of SGT at their historical values in our historical consolidated financial statements in accordance with U.S. GAAP, including payables due from SGT to LDK. As of December 31, 2013 and 2014 and June 30, 2015, we had accounts payable due to LDK of $50.9 million, $34.2 million and $29.3 million, respectively.

LDK filed an application for provisional liquidation in the Cayman Islands in connection with its plans to resolve its offshore liquidity issues in February 2014. On November 7, 2014, the Grand Court of the Cayman Islands sanctioned the scheme of arrangements relating to LDK’s assets in the Cayman Islands as well as LDK and its affiliates incorporated in the Cayman Islands. On November 18, 2014, the High Court of Hong Kong sanctioned a related scheme of arrangement with respect to LDK’s subsidiaries incorporated in Hong Kong. The related restructuring was completed on December 17, 2014. On February 18, 2015, all the related bankruptcy and liquidation proceedings in respect of LDK and its subsidiaries in the Cayman Islands, Hong Kong and the U.S. were closed. On December 31, 2014, LDK announced that its subsidiary, LDK HK, entered into the LDK Settlement Agreement with us, pursuant to which LDK HK agreed to release and discharge us from all actions, claims, demands, damages, obligations, liabilities, controversies and executions arising out of our payables of approximately $28.8 million to LDK HK and its subsidiaries, in exchange for a settlement amount of $11.0 million. Pursuant to the LDK Settlement Agreement, we are obligated to pay the outstanding $11.0 million settlement amount in installments before December 31, 2015 in accordance with a certain agreed schedule. However, LDK retains the right to cancel the agreed settlement and release if any installment payment is delayed for more than 30 days. We consequently did not eliminate the liability of $17.8 million waived in the LDK Settlement Agreement from our consolidated balance sheet as of December 31, 2014, given that the payment had not been fully settled.

As of June 30, 2015, the remaining balance of the settlement amount was $5.0 million, which was included in the accounts payable, and will be paid in accordance with the following schedule: $1.0 million on or before July 31, 2015, $2.0 million on or before September 30, 2015 and $2.0 million on or before December 31, 2015.

As of June 30, 2015 and December 31, 2014, the Company had prepaid $2,000 and $nil respectively to LDK as down payment to acquire three PV solar projects located in Italy and US from LDK. On March 30, 2015, the Company entered into a share purchase agreement (the “Share Purchase Agreement”) with LDK’s subsidiaries (collectively, the LDK Sellers”). Pursuant to the Share Purchase Agreement, the Company agreed to purchase from the Sellers (i) 100% equity interest in LD THIN S.R.L, a limited liability company incorporated in Italy, (ii) 54.1% equity interest in LAEM S.R.L, a limited liability company incorporated in Italy, and (iii) 100% equity interest in North Palm Springs Investments, LLC, a limited liability company incorporated in California, for an aggregate cash consideration of US$2,390. The Company will also assume certain indebtedness contemplated in the Share Purchase Agreement up to a maximum amount to be agreed upon among the Company and the Sellers prior to the closing date of the transaction. The transaction is subject to several closing conditions including completion of satisfactory due diligence.

 

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As of June 30, 2015 and December 31, 2014, the Company had prepaid $12 and $nil to LDK’s supplier for the purchase deposit on behalf of LDK.

As of June 30, 2015 and December 31, 2014, the Company owed to LDK of $50 and $nil as LDK made salary payment to certain employees on behalf of the Company, respectively.

As of June 30, 2015, LDK owned approximately 22.5% of our outstanding Shares.

Contractual Arrangements with Solar Energy E-Commerce and Its Shareholders

We, through our wholly-owned subsidiary, Yan Hua Internet, have entered into a series of contractual arrangements with Solar Energy E-Commerce and its shareholders, Mr. Xiaofeng Peng, chairman of our board of directors, Mr. Min Xiahou, deputy chairman of our board of directors and Ms. Amy Jing Liu, our chief financial officer:

Exclusive Consultancy and Service Agreement. Pursuant to the exclusive consultancy and service agreement entered into between Solar Energy E-Commerce and Yan Hua Internet, Solar Energy E-Commerce irrevocably appoints and designates Yan Hua Internet as its exclusive service provider to provide, among others, relevant technical and consulting services. The service fees are determined based on the actual services provided by Yan Hua Internet and up to the net income of Solar Energy E-Commerce during the relevant period. The term of this agreement is three years, which may be automatically extended upon expiration. Yan Hua Internet may terminate this agreement in its sole discretion at any time with a three-month prior written notice.

Exclusive Call Option Agreement. Through the exclusive call option agreement entered into among Yan Hua Internet, Solar Energy E-Commerce and its shareholders, Yan Hua Internet or its designated third party has an exclusive purchase option to acquire all or a part of the equity interest or assets in Solar Energy E-Commerce at any time when permitted by applicable PRC laws and regulations in its sole discretion. The transfer price will be the minimum amount of consideration permitted under PRC law at the time of transfer. In addition, without Yan Hua Internet’s or its controlling shareholder’s prior written consent, the shareholders of Solar Energy E-Commerce shall not transfer their equity interest in Solar Energy E-Commerce, and Solar Energy E-Commerce shall not transfer any of its assets. This agreement will remain effective until all of Solar Energy E-Commerce’s equity interest and assets are transferred to Yan Hua Internet or its designated third party, unless terminated by Yan Hua Internet at any time with a 30-day prior written notice.

Proxy Voting Agreement. Through the proxy voting agreement entered into among Yan Hua Internet, Solar Energy E-Commerce and its shareholders, each shareholder of Solar Energy E-Commerce undertakes to execute a power of attorney to exclusively assign his or her rights as shareholder of Solar Energy E-Commerce to Yan Hua Internet’s designated person, including voting right, right to transfer any equity interest in Solar Energy E-Commerce and right to appoint directors and officers. This agreement will remain effective unless terminated by mutual agreement or by the non-defaulting party in the case of a breach of contract.

Equity Interest Pledge Agreement. To ensure Solar Energy E-Commerce’s performance of its obligations under the exclusive consultancy and service agreement, the exclusive option agreement and the proxy voting agreement, the shareholders of Solar Energy E-Commerce have entered into an equity interest pledge agreement with Yan Hua Internet to pledge their equity interests in Solar Energy E-Commerce to Yan Hua Internet. This equity interest pledge agreement will remain effective until the full performance of the contractual obligations under the exclusive consultancy and service agreement, the exclusive call option agreement and the proxy voting agreement.

Legal enforceability of these contractual arrangements has not been established primarily because the registration of the equity interest pledge agreement with the relevant PRC government bureau has not been completed as one of the legal shareholder’s equity in Solar Energy E-Commerce is restricted for pledge and

 

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transfer, making us unable to legally enforce our right under the equity interest pledge agreements and potentially other agreements. We are in the process of establishing a new corporate structure for the e-commerce business under which Solarbao will be migrated into a newly-established domestic company and one of our PRC subsidiaries will enter into a new set of contractual arrangements, including an equity interest pledge agreement, with the domestic company. We expect to be able to register the equity interest pledge agreement with the relevant PRC government bureau and consolidate the financial results of the newly-established domestic company as a variable interest entity in our financial statements.

 

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DESCRIPTION OF SHARE CAPITAL OF SPI ENERGY

The following description of the material terms of SPI Energy’s ordinary shares following the Redomicile Merger includes a summary of specified provisions of the memorandum of association and articles of association of SPI Energy that will be in effect upon completion of the Redomicile Merger. This description is qualified by reference to the amended and restated form of memorandum of association and articles of association of SPI Energy that will become effective upon consummation of the Redomicile Merger, which are attached as an exhibit to the registration statement of which this consent solicitation statement/prospectus is a part of and incorporated herein by reference. You are encouraged to read the relevant provisions of the Companies Law and SPI Energy’s amended and restated memorandum and articles of association as they relate to the following summary.

Authorized Share Capital

SPI Energy is authorized to issue 50,000,000,000 shares of a par value of US$0.000001 each. The board of directors of SPI Energy is authorized to issue these shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares, at such times and on such other terms as they think proper.

As of the close of business on September 29, 2015, SPI Energy had one ordinary share issued and outstanding and no preference shares issued and outstanding. If the Redomicile Merger is completed, SPI Energy will issue approximately [●] ordinary shares in the Redomicile Merger and the one ordinary share issued and outstanding prior to the Redomicile Merger will be repurchased and cancelled.

Ordinary Shares

General

All of SPI Energy’s outstanding ordinary shares will be issued credited as fully paid and non-assessable. SPI Energy’s ordinary shares are issued in registered form, and are issued when registered in SPI Energy’s register of members. SPI Energy’s shareholders who are non-residents of the Cayman Islands may freely hold and transfer their ordinary shares.

Dividends

The holders of SPI Energy’s ordinary shares are entitled to such dividends as may be declared by SPI Energy’s board of directors, subject to the Companies Law and the memorandum and articles of association of SPI Energy, as amended and restated from time to time. Under Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or share premium account, provided that a dividend may not be paid if this would result in SPI Energy being unable to pay its debts as they fall due in the ordinary course of business.

Register of Members

Under Cayman Islands law, SPI Energy must keep a register of members and there shall be entered therein:

 

  (a) the names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member;

 

  (b) the date on which the name of any person was entered on the register as a member; and

 

  (c) the date on which any person ceased to be a member.

 

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Under Cayman Islands law, the register of members of SPI Energy is prima facie evidence of the matters set out therein (i.e., the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members shall be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. Upon the closing of this Redomicile Merger, the register of members shall be immediately updated to record and give effect to the issue of shares by SPI Energy that will underlie the ADSs. Once SPI Energy’s register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name in the register of members. If the name of any person is incorrectly entered in or omitted from SPI Energy’s register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a member of SPI Energy, the person or member aggrieved (or any member of SPI Energy or SPI Energy itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.

Voting Rights

Each holder of ordinary shares is entitled to one vote on all matters upon which the ordinary shares are entitled to vote on a show of hands or, on a poll, each holder is entitled to have one vote for each share registered in his name on the register of members. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of SPI Energy’s board of directors or by any one or more shareholders holding at least one-tenth of the paid-up shares given a right to vote at the meeting or one-tenth of the votes attaching to the issued and outstanding ordinary shares in SPI Energy entitled to vote at general meetings, present in person or by proxy.

A quorum required for a general meeting of shareholders consists of one or more shareholders who hold in aggregate at least one-third of the votes attaching to the issued and outstanding ordinary shares in SPI Energy entitled to vote at general meetings, present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Although not required by the Companies Laws or SPI Energy’s amended and restated memorandum and articles of association, SPI Energy expects to hold shareholders’ meetings annually and such meetings may be convened by SPI Energy’s board of directors on its own initiative or upon a request to the directors by shareholders holding in aggregate at least one-third of SPI Energy’s shares that carry the right to vote at general meetings. Advance notice of at least 14 days is required for the convening of SPI Energy’s annual general meeting and other shareholders meetings.

An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy in a general meeting.

Transfer of Ordinary Shares

Subject to the restrictions of SPI Energy’s articles of association, as applicable, any of SPI Energy’s shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by SPI Energy’s board.

SPI Energy’s board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which SPI Energy has a lien. SPI Energy’s directors may also decline to register any transfer of any ordinary share unless:

 

    the instrument of transfer is lodged with SPI Energy, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as SPI Energy’s board of directors may reasonably require to show the right of the transferor to make the transfer;

 

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    the instrument of transfer is in respect of only one class of ordinary shares;

 

    the instrument of transfer is properly stamped, if required;

 

    in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; or

 

    the ordinary shares transferred are free of any lien in favor of SPI Energy.

If SPI Energy’s directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal. The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register closed at such times and for such periods as SPI Energy’s board of directors may from time to time determine; provided, however, that the registration of transfers shall not be suspended and the register shall not be closed for more than 30 days in any year.

Liquidation

On a winding up of SPI Energy, if the assets available for distribution among its shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus will be distributed among its shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to SPI Energy for unpaid calls or otherwise. If SPI Energy’s assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by its shareholders in proportion to the par value of the shares held by them.

Calls on Ordinary Shares and Forfeiture of Ordinary Shares

SPI Energy’s board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption, Repurchase and Surrender of Ordinary Shares

SPI Energy may issue shares on terms that are subject to redemption, at SPI Energy’s option or at the option of the holders, on such terms and in such manner as may be determined before the issue of such shares, by SPI Energy’s board of directors or by a special resolution of SPI Energy’s shareholders. SPI Energy may also repurchase any of its shares provided that the manner and terms of such purchase have been approved by its board of directors or are otherwise authorized by its memorandum and articles of association. Under the Companies Law, the redemption or repurchase of any share may be paid out of SPI Energy’s profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if SPI Energy can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Law no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, SPI Energy may accept the surrender of any fully paid share for no consideration.

Variations of Rights of Shares

All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied either with the written consent of the holders of a majority of the issued shares of that class or with the sanction of an ordinary resolution passed at a general meeting of the holders of the shares of that class.

 

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Inspection of Books and Records

Holders of SPI Energy’s ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of SPI Energy’s list of shareholders or its corporate records. However, SPI Energy will provide its shareholders with annual audited financial statements. See “Where You Can Find More Information.”

Changes in Capital

SPI Energy may from time to time by ordinary resolution:

 

    increase its share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;

 

    consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;

 

    convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination;

 

    sub-divide its existing shares, or any of them into shares of a smaller amount that is fixed by the amended and restated memorandum and articles of association; and

 

    cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled.

Subject to Companies Law and confirmation by the Grand Court of the Cayman Islands on an application by SPI Energy for an order confirming such reduction, SPI Energy may by special resolution reduce its share capital and any capital redemption reserve in any manner authorized by law.

Issuance of Additional Preferred Shares

SPI Energy’s amended and restated memorandum and articles of association authorizes SPI Energy’s board of directors to issue additional ordinary shares from time to time as its board of directors shall determine, to the extent of available authorized but unissued shares.

SPI Energy’s amended and restated memorandum and articles of association authorizes SPI Energy’s board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

 

    the designation of the series;

 

    the number of shares of the series;

 

    the dividend rights, dividend rates, conversion rights, voting rights; and

 

    the rights and terms of redemption and liquidation preferences.

SPI Energy’s board of directors may issue preferred shares without action by its shareholders to the extent authorized but unissued. In addition, the issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Exempted Company

SPI Energy is an exempted company duly incorporated with limited liability under the Companies Law. The Companies Law distinguishes between ordinary resident companies and exempted companies. Any company, the objects of which are to conduct business mainly outside of the Cayman Islands, may apply to be registered as an

 

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exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for certain exemptions and privileges, including (a) an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies, (b) an exempted company is not required to open its register of members for inspection, (c) an exempted company does not have to hold an annual general meeting, (d) an exempted company may issue no par value, negotiable or bearer shares, and (e) an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands.

Transfer Agent

The transfer agent and registrar for SPI Energy’s ordinary shares is expected to be MaplesFS.

 

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DESCRIPTION OF AMERICAN DEPOSITARY SHARES

American Depositary Shares

The Bank of New York Mellon, as depositary, will register and deliver American Depositary Shares, also referred to as ADSs. Each ADS will represent ten (10) SPI Energy’s ordinary shares deposited with The Hongkong and Shanghai Banking Corporation Limited, as custodian for the depositary in Hong Kong. Each ADS will also represent any other securities, cash or other property which may be held by the depositary. The depositary’s office at which the ADSs will be administered is located at 101 Barclay Street, New York, NY 10286. The Bank of New York Mellon principal executive office is located at One Wall Street, New York, NY 10286.

You may hold ADSs either (A) directly (i) by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in your name, or (ii) by having uncertificated ADSs registered in your name, or (B) indirectly by holding a security entitlement in ADSs through your broker or other financial institution that is a direct or indirect participant in The Depository Trust Company, also called DTC. If you hold ADSs directly, you are a registered ADS holder, also referred to as an ADS holder. This description assumes you are an ADS holder. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADS holders described in this section. You should consult with your broker or financial institution to find out what those procedures are. Registered holders of uncertificated ADSs will receive statements from the depositary confirming their holdings.

As an ADS holder, SPI Energy will not treat you as one of its shareholders and you will not have shareholder rights. Cayman Islands law governs shareholder rights. The depositary will be the holder of the shares underlying your ADSs. As a registered holder of ADSs, you will have ADS holder rights. A deposit agreement among SPI Energy, the depositary, ADS holders and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs.

The following is a summary of the material provisions of the deposit agreement. For more complete information, you should read the entire deposit agreement and the form of ADR. Directions on how to obtain copies of those documents are provided on page 150.

Dividends and Other Distributions

How will you receive dividends and other distributions on the shares?

The depositary has agreed to pay or distribute to ADS holders the cash dividends or other distributions it or the custodian receives on shares or other deposited securities, upon payment or deduction of its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.

Cash. The depositary will convert any cash dividend or other cash distribution SPI Energy pays on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADS holders to whom it is possible to do so. It will hold the foreign currency it cannot convert for the account of the ADS holders who have not been paid. It will not invest the foreign currency and it will not be liable for any interest.

Before making a distribution, any withholding taxes, or other governmental charges that must be paid will be deducted. It will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, you may lose some of the value of the distribution.

Shares. The depositary may distribute additional ADSs representing any shares SPI Energy distributes as a dividend or free distribution. The depositary will only distribute whole ADSs. It will sell shares which would

 

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require it to deliver a fraction of an ADS (or ADSs representing those shares) and distribute the net proceeds in the same way as it does with cash. If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new shares. The depositary may sell a portion of the distributed shares (or ADSs representing those shares) sufficient to pay its fees and expenses in connection with that distribution.

Rights to purchase additional shares. If SPI Energy offers holders of its securities any rights to subscribe for additional shares or any other rights, the depositary may (i) exercise those rights on behalf of ADS holders, (ii) distribute those rights to ADS holders, or (iii) sell those rights and distribute the net proceeds to ADS holders, in each case after deduction or upon payment of its fees and expenses. To the extent the depositary does not do any of those things, it will allow the rights to lapse. In that case, you will receive no value for them. The depositary will exercise or distribute rights only if SPI Energy asks it to and provides satisfactory assurances to the depositary that it is legal to do so. If the depositary will exercise rights, it will purchase the securities to which the rights relate and distribute those securities or, in the case of shares, new ADSs representing the new shares, to subscribing ADS holders, but only if ADS holders have paid the exercise price to the depositary. U.S. securities laws may restrict the ability of the depositary to distribute rights or ADSs or other securities issued on exercise of rights to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.

Other Distributions. The depositary will send to ADS holders anything else SPI Energy distributes on deposited securities by any means it thinks is legal, fair and practical. If it cannot make the distribution in that way, the depositary has a choice. It may decide to sell what SPI Energy distributed and distribute the net proceeds, in the same way as it does with cash. Or, it may decide to hold what SPI Energy distributed, in which case ADSs will also represent the newly distributed property. However, the depositary is not required to distribute any securities (other than ADSs) to ADS holders unless it receives satisfactory evidence from SPI Energy that it is legal to make that distribution. The depositary may sell a portion of the distributed securities or property sufficient to pay its fees and expenses in connection with that distribution. U.S. securities laws may restrict the ability of the depositary to distribute securities to all or certain ADS holders, and the securities distributed may be subject to restrictions on transfer.

The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADS holders. SPI Energy has no obligation to register ADSs, shares, rights or other securities under the Securities Act. SPI Energy also has no obligation to take any other action to permit the distribution of ADSs, shares, rights or anything else to ADS holders. This means that you may not receive the distributions SPI Energy makes on its shares or any value for them if it is illegal or impractical to make them available to you.

Deposit, Withdrawal and Cancellation

How are ADSs issued?

The depositary will deliver ADSs if you or your broker deposits shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names you request and will deliver the ADSs to or upon the order of the person or persons that made the deposit.

How can ADS holders withdraw the deposited securities?

You may surrender your ADSs for the purpose of withdrawal at the depositary’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the shares and any other deposited securities underlying the ADSs to the ADS holder or a person the ADS holder designates at the office of the custodian. Or, at your request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible. The depositary may charge you a fee and its expenses for instructing the custodian regarding delivery of deposited securities.

 

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How do ADS holders interchange between certificated ADSs and uncertificated ADSs?

You may surrender your ADR to the depositary for the purpose of exchanging your ADR for uncertificated ADSs. The depositary will cancel that ADR and will send to the ADS holder a statement confirming that the ADS holder is the registered holder of uncertificated ADSs. Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS holder an ADR evidencing those ADSs.

Voting Rights

How do you vote?

ADS holders may instruct the depositary how to vote the number of deposited shares their ADSs represent. If SPI Energy requests the depositary to solicit your voting instructions (and SPI Energy is not required to do so), the depositary will notify you of a shareholders’ meeting and send or make voting materials available to you. Those materials will describe the matters to be voted on and explain how ADS holders may instruct the depositary how to vote. For instructions to be valid, they much reach the depositary by a date set by the depositary. The depositary will try, as far as practical, subject to the laws of the Cayman Islands and the provisions of SPI Energy’s articles of association or similar documents, to vote or to have its agents vote the shares or other deposited securities as instructed by ADS holders. If SPI Energy does not request the depositary to solicit your voting instructions, you can still send voting instructions, and, in that case, the depositary may try to vote as you instruct, but it is not required to do so.

Except by instructing the depositary as described above, you won’t be able to exercise voting rights unless you surrender your ADSs and withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. In any event, the depositary will not exercise any discretion in voting deposited securities and it will only vote or attempt to vote as instructed or as described in the following sentence. If SPI Energy asked the depositary to solicit your instructions at least 30 days before the meeting date but the depositary does not receive voting instructions from you by the specified date, it will consider you to have authorized and directed it to give a discretionary proxy to a person designated by SPI Energy to vote the number of deposited securities represented by your ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions at to be voted upon unless SPI Energy notifies the depositary that:

 

    it does not wish to receive a discretionary proxy;

 

    there is substantial shareholder opposition to the particular question; or

 

    the particular question would have an adverse impact on SPI Energy’s shareholders.

SPI Energy is required to notify the depositary if one of the conditions specified above exists.

SPI Energy cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise voting rights and there may be nothing you can do if your shares are not voted as you requested.

In order to give you a reasonable opportunity to instruct the depositary as to the exercise of voting rights relating to Deposited Securities, if SPI Energy requests the Depositary to act, SPI Energy agrees to give the depositary notice of any such meeting and details concerning the matters to be voted upon at least 30 days in advance of the meeting date.

 

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Fees and Expenses

 

Persons depositing or withdrawing shares

or ADS holders must pay:

   For:
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)   

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates

$.05 (or less) per ADS    Any cash distribution to ADS holders
A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs    Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders
$.05 (or less) per ADS per calendar year    Depositary services
Registration or transfer fees    Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares
Expenses of the depositary   

Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)

converting foreign currency to U.S. dollars

Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes    As necessary
Any charges incurred by the depositary or its agents for servicing the deposited securities    As necessary

The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable (or by selling a portion of securities or other property distributable) to ADS holders that are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

From time to time, the depositary may make payments to us to reimburse us for costs and expenses generally arising out of establishment and maintenance of the ADS program, waive fees and expenses for services provided to us by the depositary or share revenue from the fees collected from ADS holders. In performing its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates of the depositary and that may earn or share fees or commissions.

The depositary may convert currency itself or through any of its affiliates and, in those cases, act as principal for its own account and not as an agent, fiduciary or broker on behalf of any other person and earns revenue, including, without limitation, fees and spreads that it will retain for its own account. The depositary makes no representation that the exchange rate used or obtained in any currency conversion will be the most favorable rate that could be obtained at the time or as to the method by which that rate will be determined, subject to its obligations under the deposit agreement.

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary may refuse to register any transfer of your

 

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ADSs or allow you to withdraw the deposited securities represented by your ADSs until those taxes or other charges are paid. It may apply payments owed to you or sell deposited securities represented by your American Depositary Shares to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send to ADS holders any property, remaining after it has paid the taxes.

Tender and Exchange Offers; Redemption, Replacement or Cancellation of Deposited Securities

The depositary will not tender deposited securities in any voluntary tender or exchange offer unless instructed to do by an ADS holder surrendering ADSs and subject to any conditions or procedures the depositary may establish.

If deposited securities are redeemed for cash in a transaction that is mandatory for the depositary as a holder of deposited securities, the depositary will call for surrender of a corresponding number of ADSs and distribute the net redemption money to the holders of called ADSs upon surrender of those ADSs.

If there is any change in the deposited securities such as a sub-division, combination or other reclassification, or any merger, consolidation, recapitalization or reorganization affecting the issuer of deposited securities in which the depositary receives new securities in exchange for or in lieu of the old deposited securities, the depositary will hold those replacement securities as deposited securities under the deposit agreement. However, if the depositary decides it would not be lawful and to hold the replacement securities because those securities could not be distributed to ADS holders or for any other reason, the depositary may instead sell the replacement securities and distribute the net proceeds upon surrender of the ADSs.

If there is a replacement of the deposited securities and the depositary will continue to hold the replacement securities, the depositary may distribute new ADSs representing the new deposited securities or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

If there are no deposited securities underlying ADSs, including if the deposited securities are cancelled, or if the deposited securities underlying ADSs have become apparently worthless, the depositary may call for surrender or of those ADSs or cancel those ADSs upon notice to the ADS holders.

Amendment and Termination

How may the deposit agreement be amended?

SPI Energy may agree with the depositary to amend the deposit agreement and the ADRs without your consent for any reason. If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADS holders, it will not become effective for outstanding ADSs until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

How may the deposit agreement be terminated?

The depositary will initiate termination of the deposit agreement if SPI Energy instructs it to do so. The depositary may initiate termination of the deposit agreement if

 

    60 days have passed since the depositary told us it wants to resign but a successor depositary has not been appointed and accepted its appointment;

 

    SPI Energy delists its shares from an exchange on which they were listed and does not list the shares on another exchange;

 

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    SPI Energy appears to be insolvent or enters insolvency proceedings

 

    all or substantially all the value of the deposited securities has been distributed either in cash or in the form of securities;

 

    there are no deposited securities underlying the ADSs or the underlying deposited securities have become apparently worthless; or

 

    there has been a replacement of deposited securities.

If the deposit agreement will terminate, the depositary will notify ADS holders at least 90 days before the termination date. At any time after the termination date, the depositary may sell the deposited securities. After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement, unsegregated and without liability for interest, for the pro rata benefit of the ADS holders that have not surrendered their ADSs. Normally, the depositary will sell as soon as practicable after the termination date.

After the termination date and before the depositary sells, ADS holders can still surrender their ADSs and receive delivery of deposited securities, except that the depositary may refuse to accept a surrender for the purpose of withdrawing deposited securities if it would interfere with the selling process. The depositary may refuse to accept a surrender for the purpose of withdrawing sale proceeds until all the deposited securities have been sold. The depositary will continue to collect distributions on deposited securities, but, after the termination date, the depositary is not required to register any transfer of ADSs or distribute any dividends or other distributions on deposited securities to the ADSs holder (until they surrender their ADSs) or give any notices or perform any other duties under the deposit agreement except as described in this paragraph.

Limitations on Obligations and Liability

Limits on Obligations of the Depositary and SPI Energy; Limits on Liability to Holders of ADSs

The deposit agreement expressly limits the obligations of the depositary and SPI Energy. SPI Energy and the depositary:

 

    are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

 

    are not liable if either is prevented or delayed by law or circumstances beyond our or its control from performing our or its obligations under the deposit agreement;

 

    are not liable if either exercises discretion permitted under the deposit agreement;

 

    are not liable for the inability of any holder of ADSs to benefit from any distribution on deposited securities that is not made available to holders of ADSs under the terms of the deposit agreement, or for any special, consequential or punitive damages for any breach of the terms of the deposit agreement;

 

    have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person;

 

    are not liable for the acts or omissions of any securities depository, clearing agency or settlement system; and

 

    may rely upon any documents either believes in good faith to be genuine and to have been signed or presented by the proper person.

In the deposit agreement, the depositary and SPI Energy agree to indemnify each other under certain circumstances.

 

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Requirements for Depositary Actions

Before the depositary will deliver or register a transfer of ADSs, make a distribution on ADSs, or permit withdrawal of shares, the depositary may require:

 

    payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;

 

    satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

 

    compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

The depositary may refuse to deliver ADSs or register transfers of ADSs when the transfer books of the depositary or the transfer books of SPI Energy are closed or at any time if the depositary or SPI Energy thinks it advisable to do so.

Your Right to Receive the Shares Underlying your ADSs

ADS holders have the right to cancel their ADSs and withdraw the underlying shares at any time except:

 

    when temporary delays arise because: (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our shares;

 

    when you owe money to pay fees, taxes and similar charges; or

 

    when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of shares or other deposited securities.

This right of withdrawal may not be limited by any other provision of the deposit agreement.

Pre-release of ADSs

The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying shares. This is called a pre-release of the ADSs. The depositary may also deliver shares upon cancellation of pre-released ADSs (even if the ADSs are canceled before the pre-release transaction has been closed out). A pre-release is closed out as soon as the underlying shares are delivered to the depositary. The depositary may receive ADSs instead of shares to close out a pre-release. The depositary may pre-release ADSs only under the following conditions: (1) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer owns the shares or ADSs to be deposited; (2) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; and (3) the depositary must be able to close out the pre-release on not more than five business days’ notice. In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of pre-release, although the depositary may disregard the limit from time to time if it thinks it is appropriate to do so.

Direct Registration System

In the deposit agreement, all parties to the deposit agreement acknowledge that the Direct Registration System, also referred to as DRS, and Profile Modification System, also referred to as Profile, will apply to the ADSs. DRS is a system administered by DTC that facilitates interchange between registered holding of uncertificated ADSs and holding of security entitlements in ADSs through DTC and a DTC participant. Profile is feature of DRSs that allows a DTC participant, claiming to act on behalf of a registered holder of uncertificated ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS holder to register that transfer.

 

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In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not determine whether the DTC participant that is claiming to be acting on behalf of an ADS holder in requesting registration of transfer and delivery as described in the paragraph above has the actual authority to act on behalf of the ADS holder (notwithstanding any requirements under the Uniform Commercial Code). In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile system and in accordance with the deposit agreement will not constitute negligence or bad faith on the part of the depositary.

Shareholder communications; inspection of register of holders of ADSs

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications or otherwise make those communications available to you if SPI Energy asks it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to SPI Energy’s business or the ADSs.

 

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COMPARISON OF RIGHTS UNDER CALIFORNIA AND CAYMAN ISLANDS LAW

Your rights as a shareholder of the Company are governed by the CGCL and the Company’s articles of incorporation and bylaws. After the Redomicile Merger, you will become a shareholder of SPI Energy and your rights will be governed by the Companies Law and SPI Energy’s memorandum of association and articles of association.

The principal attributes of the Company’s common stock and SPI Energy ordinary shares are similar. However, there are differences between your rights under the CGCL and under the Companies Law. In addition, there are differences between the Company’s articles of incorporation and bylaws and SPI Energy’s memorandum of association and articles of association. The following discussion is a summary of certain material differences in your rights that would result from the Redomicile Merger. As such, this summary does not cover all the differences between Companies Law and the CGCL affecting corporations and their shareholders or all of the differences between the Company’s articles of incorporation and bylaws and SPI Energy’s memorandum of association and articles of association. While we believe this summary is accurate in all material respects, the following descriptions are qualified in their entirety by reference to the complete text of the relevant provisions of the Companies Law, the CGCL, the Company’s articles of incorporation and bylaws and SPI Energy’s memorandum of association and articles of association. SPI Energy plans to adopt an amended and restated memorandum and articles of incorporation, which will become effective immediately upon the completion of the Redomicile Merger and will replace its existing memorandum and articles of association in their entirety. A copy of SPI Energy’s amended and restated memorandum of association and articles of association that will become effective upon consummation of the Redomicile Merger is attached hereto as an exhibit to this Registration Statement on Form F-4 of which this consent solicitation statement/prospectus is a part of. We encourage you to read the laws and documents referenced above.

 

    

CGCL/SPI Articles of Incorporation
and Bylaws

  

Companies Law/SPI Energy’s
Memorandum of Association and
Articles of Association

The ability for shareholders to put proposals before meetings   

SPI’s Articles and Bylaws do not provide shareholders with any right to put any proposal before a shareholder meeting.

   Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association.
  

Special meetings of the shareholders may be called at any time by the president, by the board of directors, the chairman of the board or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting.

 

In the case of a special meeting the notice shall specify the general nature of the business to be transacted and no other business may be transacted at said meeting.

   SPI Energy’s articles of association allow its shareholders holding shares representing in aggregate not less than one-third of the votes attaching to the issued and outstanding shares of SPI Energy entitled to vote at general meetings, to requisition an extraordinary general meeting of the shareholders, in which case the directors of SPI Energy are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, SPI Energy’s articles of association do not provide its shareholders with any right to put any proposals before annual general

 

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Articles of Association

      meetings or extraordinary general meetings not called by such shareholders.
Proceedings of Directors   

Under California law, no contract between a corporation and one or more of its directors is void because such are present at the meeting of the board which approves the contract if (i) the material facts as to the transaction and as to such director’s interest are fully disclosed to the shareholders and such contract is approved by the shareholders in good faith, with the shares owned by the interested director not being entitled to vote thereon, or (ii) the material facts as to the transaction and as to such director’s interest are fully disclosed and the board approves the contract in good faith by a vote sufficient without counting the vote of the interested director and the contract or transaction is just and reasonable as to the corporation at the time it is approved or (iii) as to contracts not approved as provided in paragraph (i) or (ii), the person asserting the validity of the contract sustains the burden of proving that the contract was just and reasonable as to the corporation at the time it was approved.

   A director who is in any way, whether directly or indirectly, interested in a contract, proposed contract, or arrangement with SPI Energy must declare the nature of his interest at a meeting of SPI Energy’s directors.
     

 

A general notice given to SPI Energy’s directors by any director to the effect that he is a member of any specified company or firm and is to be regarded as interested in any contract or arrangement which may thereafter be made with that company or firm shall be deemed a sufficient declaration of interest in regard to any contract or arrangement so made or consummated.

     

 

A director may vote with respect to any contract, proposed contract, or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of SPI Energy’s directors at which any such contract or proposed contract or arrangement is considered.

Shareholder Approval of Business Combinations; Fundamental Changes    Under the CGCL, a merger, consolidation, sale, lease, exchange or other disposition of all or substantially all of the property of a corporation not in the usual and regular course of the corporation’s business, or a dissolution of the corporation, is generally required to be approved by the holders of a majority of the shares outstanding and entitled to vote on the matter, unless the articles of incorporation provides otherwise. The Company’s articles of incorporation does not provide otherwise.    There are a number of mechanisms for acquiring a Cayman Islands company including: (1) a court-approved “scheme of arrangement” under the Companies Law; (2) through a tender offer by a third party; and (3) through a merger or consolidation between the Cayman Islands company and another company incorporated in the Cayman Islands or another jurisdiction (provided the merger or consolidation is allowed by the laws of that other jurisdiction).
   In general, under the CGCL, reorganization in which the surviving corporation will issue less than one-    A scheme of arrangement with one or more class or series of shareholders requires the sanction of the scheme of

 

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and Bylaws

  

Companies Law/SPI Energy’s
Memorandum of Association and
Articles of Association

   sixth of such corporation’s stock does not require shareholder approval. In addition, mergers in which one corporation owns 90% or more of each class of stock of a second corporation may be completed without the vote of the second corporation’s board of directors or shareholders. In certain situations, the approval of a business combination may require approval by a certain number of the holders of a class or series of shares.    arrangement by the Cayman Islands court and the approval of a majority in number of the registered holders of each participating class or series of shares voting on the scheme of arrangement, representing 75% or more in value of the shares of each participating classes or series voted on such proposal at the relevant meeting excluding any shares held by the acquiring party. If a scheme of arrangement receives the approval of shareholders of a company and is subsequently sanctioned by the Cayman Islands court, all holders of ordinary shares of the company will be bound by the terms of the scheme of arrangement.
   The CGCL does not contain a procedure comparable to a scheme of arrangement under the Companies Law.    The Companies Law provides that when an offer is made for shares of any class or series of a Cayman Islands company and, within four months of the offer, the holders of not less than 90% of such class or series accept the offer, the offeror may, for two months after that four-month period, require the remaining shareholders of the relevant class or series to transfer their shares on the same terms as the original offer. In those circumstances, non-tendering shareholders will be compelled to sell their shares, unless within one month from the date on which the notice to compulsorily acquire was given to the non-tendering shareholder, the non-tendering shareholder is able to convince a Cayman Islands court to order otherwise.
      Authorization of a merger or consolidation requires: (a) the passing of a special resolution by the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in each such company’s constitutive documents. In addition, the consent of each holder of a fixed or

 

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Memorandum of Association and
Articles of Association

      floating security of a constituent company must be obtained, unless the court waives such requirement.
      Under SPI Energy’s articles of association and the Companies Law, there is no requirement for shareholder approval for a sale of all or substantially all of SPI Energy’s assets.
Special Vote Required for Combinations with Interested Shareholders    There is no provision in the CGCL or the Company’s articles of incorporation prohibiting or requiring a special vote in connection with business combinations with interested shareholders.    There is no provision in the Companies Law or SPI Energy’s articles of association prohibiting business combinations with interested shareholders.
Dissenter Rights; Rights to Dissent; Compulsory Acquisition    Under the CGCL, a shareholder of a corporation does not have dissenters’ rights in connection with a reorganization, if, among other things, the corporation’s shares are listed on a national securities exchange certified by the Commissioner of the Department of Business Oversight.    The Companies Law and SPI Energy’s articles of association do not specifically provide for appraisal rights. However, in connection with the compulsory transfer of shares to a 90% shareholder of a Cayman Islands company as described under “Shareholder Approval of Business Combinations; Fundamental Changes,” a minority shareholder may apply to the Cayman Islands court within one month of receiving notice of the compulsory transfer objecting to that transfer. In these circumstances, the burden is on the minority shareholder to show that the court should exercise its discretion to prevent the compulsory transfer. The court is unlikely to grant any relief in the absence of bad faith, fraud, unequal treatment of shareholders or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.
      In connection with a merger or a consolidation, dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures set out in the Companies Law, subject to certain exceptions.

 

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and Bylaws

  

Companies Law/SPI Energy’s
Memorandum of Association and
Articles of Association

Shareholder Consent to Action Without Meeting    Under the CGCL, unless otherwise provided in the articles of incorporation, except for the election of directors, any action that can be taken at a meeting of the shareholders may be taken without a meeting if written consent to the action is signed by the holders of outstanding stock having the minimum number of votes necessary to authorize or take the action at a meeting of the shareholders. The Company’s bylaws provide that its shareholders may act by written consent.    SPI Energy’s articles of association permits resolutions, including special resolutions, to be effected by an unanimous written resolution. A special resolution is a resolution that is either (a) passed by a majority of not less than two-thirds of shareholders as, being entitled to do so, vote in person or by proxy at a general meeting, or (b) signed by all the shareholders entitled to vote on that resolution.
Distributions and Dividends; Repurchases and Redemptions    A corporation may make a distribution, including dividends and the repurchase of shares, to the corporation’s shareholders provided the board of directors has determined in good faith either of the following: (1) the amount of retained earnings of the corporation immediately prior to the distribution equals or exceeds the sum of (A) the amount of the proposed distribution plus (B) the preferential dividends arrears amount; or (2) immediately after the distribution, the value of the corporation’s assets would equal or exceed the sum of its total liabilities plus the preferential rights amount.    Under the Companies Law, the board of directors may declare the payment of dividends to holders of ordinary shares out of SPI Energy’s (1) profits available for distribution, or (2) “share premium account”, which represents the excess of the price paid to SPI Energy’s on the issue of its shares over the par or “nominal” value of those shares and is similar to the U.S. law concept of additional paid in capital.
     

 

However, no dividends may be paid if, after payment, SPI Energy would not be able to pay its debts as they come due in the ordinary course of business.

     

 

Dividends on ordinary shares, if any, are at the discretion of the directors and depend on, among other things, SPI Energy’s results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that the directors deems relevant, as well as SPI Energy’s ability to pay dividends in compliance with the Cayman Islands law. Under the Cayman Islands law, SPI Energy is not required to present proposed dividends or distributions to its shareholders for approval or adoption. SPI Energy may pay dividends in any currency.

      The directors are also entitled to issue shares with preferred rights to participate in dividends declared by SPI Energy. The holders of such preference

 

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Memorandum of Association and
Articles of Association

      shares may, depending on their terms, rank senior to the ordinary shares with respect to dividends.
      Under the Companies Law, shares of a Cayman Islands company may be redeemed or repurchased out of profits of the company, out of the proceeds of a fresh issue of shares made for that purpose or out of capital, provided the company’s articles authorize this and it has the ability to pay its debts as they come due in the ordinary course of business.
      SPI Energy’s articles of association provide that the company may make a payment in respect of the redemption or purchase of its own shares otherwise than out of profits or the proceeds of a fresh issue of shares.
Removal of Directors; Terms of Directors   

Under the CGCL, any or all of the directors may be removed without cause if the removal is approved by the outstanding shares, subject to no director may be removed (unless the entire board is removed) when the votes cast against removal would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast and the entire number of directors authorized at the time of the director’s most recent election were then being elected.

 

At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting.

  

Under SPI Energy’s articles of association, the directors of SPI Energy are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by a resolution of the board of directors.

 

In addition, the office of any director shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors, (ii) dies or is found to be or becomes of unsound mind, (iii) resigns his office by notice in writing to SPI Energy, or (iv) the board of directors resolves that his office be vacated.

 

Directors may be elected by a resolution of the board of directors, or by an ordinary resolution of the shareholders.

Inspection of Books and Records    Under the CGCL, the accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board shall be open to inspection upon the written demand on the corporation of any shareholder for a purpose reasonably related to such holder’s interests as a shareholder.    Shareholders of a Cayman Islands company do not have any general rights to inspect or obtain copies of the list of shareholders or corporate records of a company (other than the register of mortgages and charges and the memorandum and articles of association). Under SPI Energy’s

 

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Memorandum of Association and
Articles of Association

      articles of association, the directors have the discretion as to whether, to what extent, when, where and under what conditions or regulations the accounts and books of the company or any of them shall be open to the inspection of members who are not directors.
      The Companies Law requires that the register of mortgages and charges of a corporation be open to inspection by any shareholder or creditor of the company at all reasonable times.
Amendment of Governing Documents   

Under the CGCL, articles of incorporation may be amended if approved by the board and approved by the outstanding shares, either before or after the approval by the board.

 

Under the CGCL, bylaws may be adopted, amended or repealed either by approval of the outstanding shares or by the approval of the board subject to certain exceptions such as the reduction or expansion of the range of the number of directors to the board.

   The Companies Law and SPI Energy’s articles of association provide that SPI Energy’s memorandum of association and articles of association may only be amended by passing a special resolution of its shareholders to effect such amendment.
Indemnification of Directors and Officers   

In general under the CGCL, a corporation is generally permitted to indemnify its directors and officers against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, other than an action brought on behalf of the corporation, and against expenses actually and reasonably incurred in the defense or settlement of a derivative action, provided that there is a determination that the individual acted in good faith and in a manner reasonably believed to be in best interests of the corporation and its shareholders. That determination must be made by: (1) a majority of the disinterested directors; (2) independent legal counsel, if a quorum does not exist; (3) the shareholders; (4) the court in which the proceeding is pending.

 

  

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

 

SPI Energy’s articles of association provide that its directors and officers shall be indemnified against all actions, proceedings, costs, charges, expenses, losses, damages and liabilities incurred or sustained by such director or officer, other than by reason of such person’s own dishonesty, willful default or fraud, in or about the conduct of SPI Energy’s business or affairs or in the execution or discharge of his duties,

 

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Memorandum of Association and
Articles of Association

  

Without court approval, however, no indemnification may be made in respect of any derivative action in which an individual is adjudged liable to the corporation.

 

Under the CGCL, a corporation may advance expenses relating to the defense of any proceeding to directors and officers contingent upon those individuals’ commitment to repay any advances, unless it is determined ultimately that those individuals are entitled to be indemnified.

   powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning SPI Energy or its affairs in any court whether in the Cayman Islands or elsewhere.
Limited Liability of Directors   

The CGCL permits the adoption of a provision in a corporation’s articles of incorporation to eliminate liability of the directors of the corporation for monetary damages to the fullest extent permissible under California law.

 

The Company’s articles of incorporation provides that, to the fullest extent permitted by the CGCL, directors are not personally liable to the company or its shareholders for monetary damages for breach of fiduciary duty as a director.

  

Cayman Islands law, in certain circumstances, permits a company to limit the liability of a director to the company. The considerations under Cayman Islands law with regard to the limitation of a director’s liability are similar to those that apply to the enforcement of provisions relating to the indemnification of directors discussed above under “Indemnification of Directors and Officers.” A Cayman Islands court will enforce such a limitation except to the extent that enforcement of the relevant provision may be held to be contrary to public policy.

 

      SPI Energy’s articles of association provide that no current or former director and officer of the company shall be liable to the company for any loss or damage incurred by the company as a result (whether direct or indirect) of the carrying out of their functions unless that liability arises through such person’s own dishonesty, willful default or fraud.
Shareholder Lawsuits    Under the CGCL, a shareholder bringing a derivative suit must have been a shareholder at the time of the wrong complained of or that the stock was transferred to him by operation of law from a person who was such a shareholder. In addition, the shareholder must remain a shareholder    In the Cayman Islands, the decision to institute proceedings on behalf of a company is generally taken by the company’s board of directors. In certain limited circumstances, a shareholder may be entitled to bring a derivative action on behalf of SPI Energy. However, the consideration of

 

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Memorandum of Association and
Articles of Association

  

throughout the litigation. There is no requirement under the CGCL to advance the expenses of a lawsuit to a shareholder.

 

Under the CGCL, an individual may also commence a class action suit on behalf of himself or herself and other similarly situated shareholders where the requirements for maintaining a class action under California law have been met.

   such suits has been limited. In this regard, the Cayman Islands courts ordinarily would permit a claim to be brought by a minority shareholder, in respect of a cause of action vested in a Cayman Islands company, in the name of and seeking relief on behalf of the company only (1) in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of a company; (2) where the act complained of is illegal or alleged to constitute a fraud against the company or against any minority shareholder; or (3) where the act is beyond the corporate power of the company or otherwise requires approval by a greater percentage of the company’s shareholders than actually approved it; and, in each case, where the act complained of is not capable of subsequent ratification by any majority of the company’s shareholders at a general meeting. The cause of action may be against the director, another person or both.
      A shareholder may also be permitted to bring an action in his or her own name against a Cayman Islands company, a director or any other person in respect of any direct loss suffered by such shareholder as a result of any negligence, default, breach of duty or breach of trust. In any such action, however, a loss suffered by the company will not be regarded as a direct loss suffered by the individual shareholder. A shareholder may also be permitted to bring an action on the basis that the company’s affairs are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of shareholders generally or to some shareholders in particular.

 

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ENFORCEABILITY OF CIVIL LIABILITIES

SPI Energy is incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides less protection for investors. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.

Substantially all of SPI Energy’s assets are located outside the United States. In addition, a majority of SPI Energy’s directors and officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon SPI Energy or these persons, or to bring an action against SPI Energy or against these persons in the United States, in the event that you believe that your rights have been infringed under the securities laws of the United States or any state in the United States. 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 SPI Energy and its officers and directors. SPI Energy has appointed Solar Power, Inc. as its agent to receive service of process in the United States.

Maples and Calder, our counsel as to Cayman Islands law, has advised us that there is uncertainty as to whether the courts of the Cayman Islands would (1) recognize or enforce judgments of U.S. courts obtained against SPI Energy or its 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 (2) entertain original actions brought in the Cayman Islands against SPI Energy or its directors or officers, predicated upon the securities laws of the United States or any state in the United States.

Maples and Calder has informed us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty, and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. Because such a determination has not yet been made by a court of the Cayman Islands, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.

It is our understanding that the PRC does not have treaties with the United States and many other countries providing for the reciprocal recognition and enforcement of judgments of courts and that there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of United States courts against SPI Energy or the directors or officers of SPI Energy predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

Additionally, it is our understanding that it may be difficult for you to bring an original action against us or against our directors and officers who are nationals or residents of countries other than the United States in a PRC court in the event that you believe that your rights have been infringed under the U.S. federal securities laws, PRC laws, Cayman Islands laws or otherwise because we are incorporated under the laws of the Cayman

 

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Islands and it may be difficult for U.S. shareholders, by virtue only of holding our ordinary shares, to establish a connection to the PRC as required by the PRC Civil Procedures Law in order for a PRC court to have jurisdiction.

It is our understanding that Greece does not have any treaties or other agreements with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. The enforcement of foreign judgments are provided for under the Greek Civil Procedure Code. According to the Greek Civil Procedure Code, a Greek court may enforce a judgment of U.S. courts against us or our directors or officers if the Greek court determines that (i) the U.S. court judgment is enforceable under U.S. Law, (ii) the U.S. court had jurisdiction over the parties under Greek law, (iii) the losing party had its right to appear before the respective U.S. court and the right of being represented by counsel in the trial unless such rights were deprived by a legal provision that also applied to U.S. citizens, (iv) the judgment is not contrary to the judgment by a Greek court issued on the same case and between the same parties and (v) the judgment is not contrary to good morals and public policy, as determined by the Greek court.

It is our understanding that Japan does not have any treaties or other agreements with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments and the recognition and enforcement of foreign judgments are provided for under the Japanese Civil Procedure Law. According to the Japanese Civil Procedure Law, a final and binding judgment rendered by a foreign court shall be recognized and enforced by a Japanese court. Such judgement shall be enforced upon an action seeking its execution being made, and only when (i) the jurisdiction of the foreign court is recognized under laws or regulations or conventions or treaties of Japan; (ii) the losing party received service (excluding a service by publication or any other service similar thereto) of a summons or order necessary for the commencement of the suit, or appeared before a court without receiving such service; (iii) the judgment and the court proceedings are not contrary to public policy in Japan; and (iv) a Japanese court judgment on the same ground would be recognized in the foreign court that rendered the foreign judgment.

It is our understanding that Panama does not have any treaties or other agreements with the United States or the Cayman Islands that provide for the reciprocal enforcement of foreign judgments and judgments of courts outside Panama. Therefore, foreign judgments, including but not limited to judgments of United States courts, may only be recognized and enforced by the courts of Panama in the event that the Supreme Court of Panama validates the judgment by the issuance of a writ of exequatur. Subject to a writ of exequatur, any final judgment rendered by any federal or state court located in the State of New York will be recognized, conclusive and enforceable in the courts of Panama without reconsideration of the merits, provided that (i) such foreign court grants reciprocity to the enforcement of judgments of courts of Panama, (ii) the party against whom the judgment was rendered, or its agent, was personally served in such action, (iii) the judgment arises out of a personal action against the defendant, (iv) the obligation in respect of which the judgment was rendered is lawful in Panama and does not contradict the public policy of Panama, (v) the judgment is properly authenticated by diplomatic or consular officers of Panama or pursuant to the 1961 Hague Convention on the legalization of documents and (vi) a copy of the final judgment is translated into Spanish by a licensed translator in Panama.

Judgments of U.S. courts may be enforceable in Italy. Final enforceable and conclusive judgments rendered by U.S. courts, even if obtained by default,