Convertible Loan Note Financing

THIS ANNOUNCEMENT (INCLUDING ITS APPENDICES) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD BREACH ANY APPLICABLE LAW OR REGULATION

Cardiff, UK
24 January 2025

Convertible Loan Note Financing

IQE plc (AIM: IQE, “IQE” or the “Company”), one of the leading global suppliers of compound semiconductor wafer products and advanced material solutions, is pleased to announce that, further to the announcement of 18 November 2024, it has entered into subscription agreements with a consortium of existing investors and certain senior executives and Directors, led by its largest shareholder Lombard Odier¹ (the “Noteholders”).

Under the terms of the subscription agreements, the Noteholders have conditionally agreed to subscribe for, and IQE has conditionally agreed to issue, secured zero-coupon convertible loan notes with a conversion price of 15 pence per ordinary share in the Company pursuant to a convertible loan note instrument (the “CLN”) (the “Loan Notes”) at 85% of the Loan Notes’ face value to raise aggregate subscription proceeds for IQE of £18 million (the “Proposed Transaction”). The initial term of the Loan Notes is 12 months, with an option to extend the Loan Notes for a further six months. Full details of the subscription agreements and CLN are set out below at Appendix 1.

The CLN will be secured against the Company’s assets in the UK and subordinated to the Company’s existing financing facility with HSBC UK Bank PLC (“HSBC”) which will be amended and restated upon issuance of the Loan Notes. The directors do not expect the need to raise near term capital following the completion of the Proposed Transaction.

No offer or invitation is being made to shareholders more generally to purchase, acquire or subscribe for any of the Loan Notes (as defined below). No application will be made for the admission of the Loan Notes to trading on AIM or any recognised securities exchange.

General Meeting

The issuance of the Loan Notes, and therefore the Proposed Transaction is conditional, inter alia, on the passing of resolutions by shareholders (the “Resolutions”) at a general meeting of IQE (the “General Meeting”). IQE will shortly send a circular (the “Circular”) and a notice convening the General Meeting. The Circular includes, inter alia, details of the CLN and the Resolutions, which are being proposed (a) by way of ordinary resolution, to approve the directors’ authority to allot ordinary shares with an aggregate nominal value of up to £1,538,823.53, being equal to 153,882,353 new ordinary shares over which rights to subscribe are being granted by the Company pursuant to the issuance of the Loan Notes and, in the event that the conversion of the principal amount of the Loan Notes into new ordinary shares (the “Conversion”) does not take place, warrants to subscribe for ordinary shares (the “Warrants”); and (b) by way of special resolution, to empower the directors to allot and issue equity securities for cash on a non-pre-emptive basis with an aggregate nominal value of up to £1,538,823.53, being equal to 153,882,353 new ordinary shares over which rights to subscribe are being granted by the Company pursuant to the issuance of the Loan Notes and, in the event that Conversion does not take place, the Warrants.

As previously announced, the Company is undertaking a Strategic Review which the directors believe will unlock significant unrealised value within the IQE group. The Proposed Transaction is integral to the Strategic Review and the Company’s ability to demonstrate financial resilience to both our customers and potential parties to the Strategic Review. Shareholders should be aware that if the Resolutions are not approved at the General Meeting, the Proposed Transaction cannot complete and IQE will not receive the net proceeds from the issuance of the Loan Notes. The directors of IQE independent of the Proposed Transaction, believe that successful completion of the Proposed Transaction is required to maintain sufficient short-term liquidity whilst the Company completes the ongoing strategic review.

The Noteholders who are currently holders of (or who control the exercise of voting rights attaching to) IQE’s ordinary shares have each undertaken to vote their existing holdings of ordinary shares in favour of the Resolutions, as set out below.

The General Meeting will be held at the offices of White & Case LLP at 5 Old Broad St, London EC2N 1DW at 10:00 a.m. on Monday 10 March 2025. A copy of the Circular will shortly be available to download from the Company’s website at: https://www.iqep.com/investors/.

Related Party Transaction

Lombard Odier owns c.15% of the Company and is represented on the Company’s board (the “Board”) by Harmesh Suniara. Accordingly, entry by Lombard Odier into a subscription agreement and the related issuance of Loan Notes to Lombard Odier constitutes a related party transaction under Rule 13 of the AIM Rules for Companies by virtue of Lombard Odier’s position as a substantial shareholder in IQE and Harmesh Suniara’s representation of Lombard Odier on the Board. As such, Harmesh Suniara has not been involved in the approval of the Proposed Transaction by the Board.

Entry by Mark Cubitt and Bami Bastani into subscription agreements and the related issuance of the Loan Notes to Mark Cubitt and Bami Bastani constitutes a related party transaction under Rule 13 of the AIM Rules for Companies by virtue of their positions as Directors of IQE. Accordingly, neither Mr Cubitt nor Mr Bastani voted on the board resolutions required to approve the Proposed Transaction.

Entry by Tom Dale into a subscription agreement and the related issuance of Loan Notes to Tom Dale constitutes a related party transaction under Rule 13 of the AIM Rules for Companies by virtue of his position as a director of certain subsidiaries of IQE.

The directors of the Company independent of the Proposed Transaction, having consulted with the Company’s Nominated Adviser, Peel Hunt, consider the terms of the Proposed Transaction to be fair and reasonable insofar as the Company’s shareholders are concerned.

Update on the Strategic Review

The Board believes there is a significant market opportunity in IQE’s core operations and remains focused on reducing its cost structure for profitable growth, servicing its customers and maximising value for shareholders. IQE will provide a further update when appropriate. At this stage, there can be no certainty as to the outcome of the review.

The Board remains confident in IQE’s long-term prospects because of the Company’s leading position in providing advanced compound semiconductors to a base of global marquee customers across several market verticals and the alignment of IQE’s core capabilities with broader semiconductor market growth vectors.

Use of proceeds

Following the ongoing strategic review and significant strategic progress detailed above, IQE is undertaking the Proposed Transaction to provide additional short-term liquidity whilst the Company completes its strategic review. The proceeds from the Proposed Transaction will be applied towards the Company’s short-term working capital requirements.

Lombard Odier Nominee Director

As previously announced by IQE on 17 May 2023 as part of a previous placing fundraising, Lombard Odier (as a substantial shareholder in IQE participating in such fundraising) was granted the right to nominate a non-executive director to the Board as a representative of funds or accounts managed on a discretionary basis by Lombard Odier, subject to Lombard Odier continuing to exercise or control, directly or indirectly, 12% or more of IQE’s ordinary shares. In recognition of the significant additional investment to be made in IQE by Lombard Odier pursuant to the Proposed Transaction, IQE has agreed to grant by Lombard Odier an additional non-executive director appointment right for so long as funds or accounts managed by Lombard Odier continue to hold any Loan Notes.

Mark Cubitt, Executive Chair of IQE, commented:

“We are pleased a consortium led by our largest shareholder is providing this Convertible Loan Note which demonstrates continued support for IQE and belief in its long-term strategy and significant market opportunity. In parallel, IQE continues to make progress on its comprehensive strategic review of its asset base to ensure that it has a strong capital position to further invest in its core operations, with a particular focus on its Taiwan operations, for which all options are being assessed, including a full sale and IPO. IQE will provide further updates as appropriate.”


_{¹Lombard Odier Asset Management (Europe) Ltd acting as discretionary investment manager or sub-adviser for and on behalf of certain funds and accounts managed by it and / or agent of Lombard Odier Asset Management (USA) Corp acting in its capacity as discretionary investment manager for and on behalf of certain funds and accounts managed by it.}


Download the full press release

Contacts:

IQE plc
+44 (0) 29 2083 9400
Mark Cubitt
Jutta Meier
Amy Barlow

Lazard (Financial Adviser)
+44 (0) 20 7187 2000
Cyrus Kapadia
Keiran Wilson
Alexander Fiallos

Peel Hunt (Nomad and Joint Broker)
+44 (0) 20 7418 8900
Ben Cryer
Kate Bannatyne
Adam Telling           

Deutsche Numis (Joint Broker)
+44 (0) 20 7260 1000
Simon Willis
Hugo Rubinstein
Iqra Amin

Headland Consultancy (Financial PR)
+ 44 (0) 20 38054822
Andy Rivett-Carnac: +44 (0) 7968 997 365
Chloe Francklin: +44 (0)78 3497 4624

ABOUT IQE

http://iqep.com

IQE is one of the leading global suppliers of advanced compound semiconductor wafers and materials solutions that enable a diverse range of applications across:

• Smart Connected Devices
• Communications Infrastructure
• Automotive and Industrial
• Aerospace and Security

As a scaled global epitaxy wafer manufacturer, IQE is uniquely positioned in this market which has high barriers to entry. IQE supplies the global market and is enabling customers to innovate at chip and OEM level. By leveraging the Company’s intellectual property portfolio including know-how and patents, it produces epitaxy wafers of superior quality, yield and unit economics.

IQE is headquartered in Cardiff UK, with employees across eight manufacturing locations in the UK, US and Taiwan, and is listed on the AIM Stock Exchange in London.

IMPORTANT NOTICES

Lazard & Co., Limited (“Lazard”), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively as financial adviser to IQE and no one else in connection with the Strategic Review and will not be responsible to anyone other than IQE for providing the protections afforded to clients of Lazard & Co., Limited nor for providing advice in relation to the Strategic Review or any other matters referred to in this announcement. Neither Lazard & Co., Limited nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Lazard & Co., Limited in connection with this announcement, any statement contained herein or otherwise.

Peel Hunt LLP (“Peel Hunt”), which is authorised and regulated in the United Kingdom by the FCA and is a member of the London Stock Exchange, is acting for the Company in connection with the Proposed Transaction and will not be acting for any other person (including a recipient of this document) or otherwise be responsible to any person for providing the protections afforded to clients of Peel Hunt or for advising any other person in respect of the Proposed Transaction or any transaction, matter or arrangement referred to in this document. Peel Hunt’s responsibilities as the Company’s nominated adviser and broker under the AIM Rules for Nominated Advisers are owed solely to the London Stock Exchange and are not owed to the Company or to any Director or to any other person in respect of the Proposed Transaction.

Numis Securities Limited (trading as “Deutsche Numis”) (“Deutsche Numis”), which is authorised and regulated in the United Kingdom by the FCA, is acting as Joint Broker to the Company and will not be acting for any other person or otherwise be responsible to any person for providing the protections afforded to clients of Deutsche Numis or for advising any other person in respect of the Proposed Transaction or any transaction, matter or arrangement referred to herein. Neither Deutsche Numis nor any of its affiliates (nor any of their respective directors, officers, employees or agents), owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Deutsche Numis in connection with the Proposed Transaction or any statement contained herein or otherwise. No representation or warranty, express or implied, is made by Deutsche Numis as to the contents of this Announcement.

DISCLAIMER

Neither the information nor any opinion contained in this announcement constitutes an inducement or offer to purchase or sell or a solicitation of an offer to purchase or sell any securities or other investments in IQE or any other company by IQE or any of its affiliates in any jurisdiction. This announcement does not consider the investment objective, financial situation, suitability or the particular need or circumstances of any specific individual who may access or review this announcement and may not be taken as advice on the merits of any investment decision. This announcement is not intended to provide the sole basis for evaluation of, and does not purport to contain all information that may be required with respect to, any potential investment in IQE. Any person who is in any doubt about the matters to which this announcement relates should consult an authorised financial adviser or other person authorised under the UK Financial Services and Markets Act 2000.

FORWARD LOOKING STATEMENTS

This announcement contains certain forward-looking statements and information that are based on IQE’s beliefs, as well as assumptions made by, and information currently available to, IQE. These statements include, but are not limited to, statements about strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements that are not historical facts. When used herein, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and “project” and similar expressions (or their negative) are intended to identify forward-looking statements. These statements reflect IQE’s current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual results, performance or achievements may vary materially and adversely from those described herein. There is no assurance or guarantee with respect to the prices at which any securities of IQE or any other company will trade, and such securities may not trade at prices that may be implied herein. Any estimates, projections or potential impact of the opportunities identified by IQE herein are based on assumptions that IQE believes to be reasonable as of the date hereof, but there can be no assurance or guarantee that actual results or performance will not differ, and such differences may be material and adverse. No representation or warranty, express or implied, is given by IQE or any of its officers, employees or agents as to the achievement or reasonableness of, and no reliance should be placed on, any projections, estimates, forecasts, targets, prospects or returns contained herein. Neither IQE nor any of its directors, officers, employees, advisers or representatives shall have any liability whatsoever (for negligence or misrepresentation or in tort or under contract or otherwise) for any loss howsoever arising from any use of information presented in this announcement or otherwise arising in connection with this announcement. Any historical financial information, projections, estimates, forecasts, targets, prospects or returns contained herein are not necessarily a reliable indicator of future performance. Nothing in this announcement should be relied upon as a promise or representation as to the future. Nothing in this announcement should be considered as a profit forecast.

DISTRIBUTION

Not for release, publication or distribution, in whole or in part, directly or indirectly, in, into or from any jurisdiction where to do so would constitute a violation of the relevant laws of that jurisdiction. The distribution of this announcement in certain countries may be restricted by law and persons who access it are required to inform themselves and to comply with any such restrictions. IQE disclaims all responsibility where persons access this announcement in breach of any law or regulation in the country of which that person is a citizen or in which that person is residing or is domiciled.