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TMCNet:  IQE plc : Acquisition of Kopin Wireless for $75 million, placing to raise £16.5 million and trading update

[January 10, 2013]

IQE plc : Acquisition of Kopin Wireless for $75 million, placing to raise £16.5 million and trading update

(Thomson Reuters ONE Via Acquire Media NewsEdge) THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES, CANADA, AUSTRALIA, NEW ZEALAND, JAPAN, THE REPUBLIC OF IRELAND OR SOUTH AFRICA OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL Acquisition of Kopin Wireless for $75 million, placing to raise £16.5 million and trading update Cardiff, UK. 10 January 2013.  IQE plc (AIM:IQE, "IQE", the "Company" or the "Group"), has agreed to acquire the compound semiconductor ("CS") epiwafer manufacturing business ("Kopin Wireless") of Kopin Corporation ("Kopin") for total consideration of $75 million in cash (the "Acquisition").



Kopin Wireless is the leading global manufacturer of heterojunction bipolar transistor ("HBT") materials which are used in power amplifiers ("PA"), a key wireless component in mobile devices.  These are produced using Metal Organic Chemical Vapour Deposition ("MOCVD") epitaxial wafer technology.

Acquisition highlights: * $60 million payable in cash ("Initial Consideration") to Kopin on completion of the Acquisition ("Completion") and $15 million payable in cash to Kopin on the third anniversary of Completion ("Deferred Consideration") * Significantly extends IQE's market share and leadership in wireless industry supply and delivers a market leading position in MOCVD HBT * Builds substantially on IQE's risk mitigation strategy in wireless - adding Skyworks Solutions, Inc. ("Skyworks"), which has a long standing supply agreement with Kopin Wireless, as a major customer * Taiwan manufacturing facility adds to IQE's global manufacturing footprint and will provide the Group with a strong position to access the growing Asian semiconductor market * Attractive terms - earnings enhancing from 2013 financial year onwards * Significant cost synergies of at least £7 million per annum expected from 2014 Acquisition financing: * New banking facility with HSBC for $40 million * $20 million will be funded from the £16.5 million proceeds of the Placing (defined below) * Organic cash flow to pay the Deferred Consideration of $15 million payable in January 2016 Placing * IQE intends to raise approximately £16.5 million through a placing by the Joint Bookrunners, Espirito Santo Investment Bank and Canaccord Genuity Limited, of 56,900,961 new ordinary shares ("Placing Shares") at a price of 29 pence per Placing Share (the "Placing Price") (the "Placing") * The Placing Shares represent approximately 8.82 per cent. of the Group's enlarged share capital following Admission (defined below) * The Placing Price represents a discount of approximately 0.85 per cent. to the closing mid-market price of IQE's ordinary shares of 29.25 pence on 9 January 2013, being the last practicable date before this announcement * The books for the Placing will open with immediate effect and are expected to close no later than 4.30 p.m. today Trading update for 2012 For the year ended 31 December 2012, IQE expects revenue to be in the range of £87 million to £88 million, with earnings before interest, tax, depreciation and amortisation in the range of £16 million to £17 million and net debt as at 31 December 2012 of approximately £15.5 million.

Drew Nelson, CEO of IQE, said: "This acquisition is our third key transaction in the past 12 months. It significantly enhances our scale and provides us with a highly complementary product line in the wireless space.

"The transaction marks another major step forward in our risk mitigation strategy, whilst significantly boosting our wireless market share.  At the same time, it delivers excellent opportunities for additional business growth, particularly in Taiwan and from there into the Asian semiconductor market.

"This transaction will be a key driver of significant earnings and cash generation and also brings substantial financial and scale benefits.  This will enable the Group to make significant cost savings from FY14 onwards and further underpins our leading position in the supply of wafers to the global compound semiconductor industry." There will be an analyst conference call at 2.30 p.m.; please contact Lucy Moseley at College Hill on +44 (0)20 7457 2040 or lucy.moseley@collegehill.com for details.

Enquiries: Contacts: IQE plc                                                                +44 (0) 29 2083 9400 Drew Nelson Phil Rasmussen Chris Meadows Espirito Santo Investment Bank                                       + 44 (0) 20 7456 9191 Richard Crawley/James Staveley/Alastair Maclachlan Canaccord Genuity                                                         + 44 (0) 20 7523 8000 Simon Bridges/Cameron Duncan College Hill                                                                +44 (0) 20 7457 2020 Adrian Duffield/Kay Larsen Rationale for Acquisition During the last 12 months the Group has significantly boosted its market leadership in wafer supply to the wireless industry, and has taken substantial steps to achieve risk mitigation in those markets. At the same time, the Group is well positioned to rapidly build a global leadership position in the supply of wafers for the burgeoning CPV sector. As a result, IQE has built a powerful platform for continuing growth and cash generation.

The Kopin Wireless transaction represents IQE's third strategic and complementary transaction since the start of 2012, following the Solar Junction Corporation and RFMD agreements in February and June 2012 respectively.

Additionally, the Group announced in December 2012 substantial progress in its optoelectronics business, with its first single production order valued at more than £1 million for a new generation of opto devices for data storage and high speed data transmission applications.

The Acquisition of Kopin Wireless builds on IQE's strategic developments in 2012 to further extend IQE's leadership in wireless industry supply and deliver a market leading position in MOCVD HBTs.

The transaction also builds on IQE's risk mitigation strategy and market share in wireless, adding Skyworks as a major customer and increasing IQE's wireless market share. Skyworks' current contract with Kopin Wireless runs until the end of 2013 and guarantees a significant proportion of Skyworks' business.

Additionally, the move extends IQE's global manufacturing footprint with the addition of a Taiwan manufacturing facility, providing a strong position to access the growing Asian semiconductor market. Following the Acquisition, the Board believes that the Group will be able to use its expanded global footprint and the increase in scale of IQE's business to deliver significant cost synergies. The Board expects to deliver cost savings of at least £7 million per annum on a recurring basis from 2014 . It is expected that the Group will incur one-off exceptional costs of approximately £3 million in 2013 and £2 million in 2014 as part of the plan to achieve these synergies.

IQE will finance the Initial Consideration through a new banking facility with HSBC for $40 million and $20 million from the proceeds of the Placing. The Deferred Consideration will be paid from the enlarged Group's organic cash flow.

The Directors believe that the Acquisition will be earnings enhancing from the 2013 financial year onwards.

Terms of the acquisition agreement Under the terms of the acquisition agreement between Kopin and IQE (the "Acquisition Agreement"), IQE KC LLC, a subsidiary of IQE, has agreed to acquire the assets, certain liabilities and the trading business including all necessary contracts, licenses and permissions of the US business of Kopin Wireless, and IQE has agreed to acquire Kopin's controlling interest in Kopin Taiwan Corporation ("KTC") of approximately 90.2 per cent. Following Completion of the Acquisition, there will continue to be a minority interest of approximately 9.8 per cent. in KTC.

The total consideration payable under the Acquisition Agreement of $75 million is payable in cash as follows: * $60 million payable upon completion of the Acquisition, which is expected to be on or around 16 January 2013; and * $15 million payable on the third anniversary of the Acquisition, which is expected to be in January 2016.

Further information on Kopin Wireless Kopin Wireless is a division of Kopin, a NASDAQ listed company (NAS: KOPN) co- founded in 1984 by John Fan (current CEO) with a market capitalisation of approximately $221 million (as at close of business on 31 December 2012). It is engaged in manufacturing CS epiwafer with a focus on wireless applications, and supplies into the same markets as IQE. Kopin Wireless currently operates from two key operating bases: * US based III-V operations based in Taunton, Massachusetts; and * KTC, based in Hsinchu, Taiwan.

Skyworks is a major customer of Kopin Wireless and there is a supply contract in place between both parties until December 2013. In addition, Kopin Wireless supplies HBT transistor wafers to Advanced Wireless Semiconductor Company ("AWSC"), which provides foundry services to Skyworks. Kopin estimated that in the year ended 31 December 2012, 28 per cent. of its total group revenues of $131.1 million were derived from sales of gallium arsenide products to Skyworks.

Other significant customers of Kopin Wireless include RFMD and TriQuint.

In the year ended 31 December 2011 Kopin Wireless generated audited revenues of $66.5 million and in the nine months to 29 September 2012 it has generated unaudited revenues of $44.0 million. Management information indicates that Kopin Wireless generated EBITDA in the same periods of $11.2 million and $7.5 million respectively. The net assets of the Kopin Wireless division being acquired are expected to be approximately $42 million.

Key terms of bank finance The Group has entered into an acquisition banking facility with HSBC Bank plc for $40 million ("Acquisition Facility") with a margin of 250 to 295 basis points above US LIBOR. The Acquisition Facility will be repayable as follows: * 20 quarterly instalments of $1 million each commencing on 31 March 2013; * a bullet repayment of $16 million payable on 30 June 2015; and * a final repayment of $4 million payable on 31 December 2017 The terms of the Acquisition Facility include market standard covenants in relation to interest cover and the Group net debt to EBITDA ratio. All existing banking facilities remain in place.

Terms of the Placing IQE intends to raise approximately £16.5 million through the placing by the Joint Bookrunners of 56,900,961 new ordinary shares of 1 pence each ("Ordinary Shares") with institutional investors at the Placing Price of 29 pence per Ordinary Share (the "Placing").

The Placing Shares are equivalent to approximately 8.82 per cent. of the Group's enlarged ordinary share capital following Admission (defined below) and the Placing Price represents a discount of approximately 0.85 per cent. to the 29.25 pence closing mid-market price of IQE's ordinary shares on 9 January 2013, being the last practicable date before this announcement. The Placing is being carried out using the existing share authorities of the Group, which were granted at the Annual General Meeting of IQE on 25 May 2012.

The books for the Placing will open with immediate effect and are expected to close no later than 4.30 p.m. today. The timing of the closing of the books and the making of allocations may be accelerated or delayed at the Joint Bookrunners' discretion.  The appendix to this announcement contains the detailed terms and conditions of the Placing.

By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this announcement in its entirety, including the appendix, and to be making such offer on the terms and subject to the conditions contained herein and to be making the representations, warranties, undertakings and acknowledgements contained in the appendix to this announcement.

Approximately £12.5 million ($20 million) of the placing proceeds will be used to satisfy part of the Initial Consideration. The remaining £4.0 million will be used for general corporate purposes and to satisfy the expenses of the Acquisition and Placing.

The Placing Shares will be credited as fully paid and rank pari passu with the existing issued Ordinary Shares when issued.  Application will be made for the Placing Shares to be admitted to trading on AIM, which is expected to become effective at 8.00 a.m. on 15 January 2013 ("Admission"). Settlement of the Placing Shares is expected to take place within the CREST system following Admission.

The Placing is conditional, inter alia, on: * all conditions to the Acquisition Facility being satisfied other than Completion and Admission; * all conditions to the Acquisition Agreement being complete other than satisfaction of the Initial Consideration; * the placing agreement between the Company and the Joint Bookrunners relating to the Placing becoming unconditional in all other respects; and * the Admission of the Placing Shares to trading on AIM becoming effective by no later than 8.00 a.m. on 15 January 2013 or such other date as the Joint Bookrunners and the Company may agree.

Participation in the Placing will be limited to institutional investors. Members of the general public are not eligible to take part in the Placing.

IMPORTANT NOTICE This announcement has been issued by, and is the sole responsibility of, the Company.

The Appendix to this announcement (which forms part of this announcement) sets out the terms and conditions of the Placing.

By participating in the Placing (as defined below), each person who is invited to and who chooses to participate in the Placing (a "Placee") by making an oral and legally binding offer to acquire Placing Shares will be deemed (i) to have read and understood this announcement in its entirety (including the Appendix); (ii) to be making such offer on the terms and subject to the conditions herein' and (iii) to be providing the representations, warranties and acknowledgements contained in the Appendix.

Members of the public are not eligible to take part in the Placing and no public offering of securities will be made.

This announcement is for information purposes only and is directed only at: (a) persons in member states of the European Economic Area who are qualified investors as defined in Article (2)(1)(e) ("qualified investors") of Directive 2003/71/EC; and (b) in the United Kingdom, qualified investors who are persons (1) who have professional experience in matters relating to investments falling within Article 19(1) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the "Order"); (2) falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the Order; or (3) other persons to whom it may otherwise lawfully be communicated without being accompanied by any further statements and/or warnings required by the Order and not included in this Announcement (all such persons together being referred to as "Relevant Persons").

This announcement must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this announcement or the Placing relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. As regards all persons other than Relevant Persons, the details of the Placing and the book-building set out in this announcement are for information purposes only. Execution Noble & Company Limited which is authorised and regulated in the United Kingdom by the Financial Services Authority (the "FSA"), is acting as Nominated Adviser and broker to the Company for the purposes of the AIM Rules for Companies and the AIM Rules for Nominated Advisers in connection with the Placing and Admission and is not acting for, and will not be responsible to, any person other than the Company for providing the protections afforded to customers of Execution Noble & Company Limited or for advising any other person on any transaction or arrangement referred to in this announcement. Execution Noble Limited, which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively as financial adviser to and broker to the Company and for no one else in connection with the Placing and is not advising any other person or treating any other person as its customer in relation to or in connection with the Placing and is not advising any other person or treating any other person as its customer in relation to the matters referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Execution Noble Limited or for providing advice in relation to the Placing or any matter referred to in this announcement.

Together Execution Noble & Company Limited and Execution Noble Limited carry out their UK investment banking business as Espirito Santo Investment Bank ("BESI").

Canaccord Genuity Limited ("Canaccord"), which is authorised and regulated in the United Kingdom by the FSA, is acting exclusively as financial adviser to and broker to the Company and for no one else in connection with the Placing and is not advising any other person or treating any other person as its customer in relation to or in connection with the Placing and is not advising any other person or treating any other person as its customer in relation to the matters referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Canaccord or for providing advice in relation to the Placing or any matter referred to in this announcement.

Appendix Placing terms and conditions IMPORTANT INFORMATION REGARDING THE PLACING FOR PLACEES ONLY 1.    Eligible participants Members of the public are not eligible to take part in the Placing. This Appendix and the terms and conditions set out herein are for information purposes only and are directed only at: a)    persons in member states of the European Economic Area who are qualified investors as defined in section 86(7) of the Financial Services and Markets Act 2000 ("FSMA"), as amended, ("qualified investors") being persons falling within the meaning of article 2(1)(e) of the EU Prospectus Directive (which means directive 2003/71/EC and includes any relevant implementing directive measure in any member state) (the "Prospectus Directive"); and b)    in the United Kingdom, qualified investors who are persons who (i) have professional experience in matters relating to investments falling within article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); (ii) are persons falling within article 49(2)(a) to (d) ("high net worth companies, unincorporated associations, etc") of the order; or (iii) are persons to whom it may otherwise be lawfully communicated, (all such persons in (a) and (b) together being referred to as "relevant persons").

                 This Appendix and the terms and conditions set out herein must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this Appendix and the terms and conditions set out herein relates is available only to relevant persons and will be engaged in only with relevant persons. This Appendix does not itself constitute an offer for sale or subscription of any securities in the Company.

Each Placee should consult with its own advisers as to legal, tax, business and related aspects of an investment in Placing Shares.

2.    Overseas jurisdictions The distribution of this announcement and/or issue of Placing Shares pursuant to the Placing or otherwise in certain jurisdictions outside the United Kingdom may be restricted by law. Persons who seek to participate in the Placing must inform themselves about and observe any such restrictions. In particular, this announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or subscribe for Placing Shares in the United States, Canada, Australia, Japan, South Africa, New Zealand or the Republic of Ireland or any other jurisdiction in which such offer or solicitation, publication or distribution is or would be unlawful.  Persons receiving the announcement including this Appendix (including, without limitation, custodians, nominees and trustees) must not distribute, mail or send it in, into or from the United States, or use the United States mails, directly or indirectly, in connection with the Placing, and by so doing may invalidate any related purported application for Placing Shares.

The Placing Shares have not been and will not be registered under the US Securities Act of 1933, as amended ("US Securities Act") or under the securities laws of any state or other jurisdiction of the United States, and, subject to certain exceptions, may not be offered or sold, resold or delivered, directly or indirectly in or into the United States, or to, or for the account or benefit of, any US persons (as defined in Regulation S under the US Securities Act). No public offering of the Placing Shares is being made in the United States. No money, securities or other consideration from any person inside the United States is being solicited pursuant to this announcement or the Placing and, if sent in response to the information contained in this announcement, will not be accepted. This announcement is not an offer of securities for sale into the United States.

3.    Details of the placing agreement and the Placing Shares BESI and Canaccord (the "Joint Bookrunners") have entered into a placing agreement (the "Placing Agreement") dated 10 January 2013 with the Company under which the Joint Bookrunners have, on the terms and subject to the conditions set out therein, each undertaken to use their reasonable endeavours to procure subscribers for the Placing Shares. The Placing is not being underwritten by the Joint Bookrunners.

The Joint Bookrunners are arranging the Placing as agents for and on behalf of the Company. BESI and Canaccord will determine in their absolute discretion the extent of each Placee's participation in the Placing, which will not necessarily be the same for each Placee. No commission will be payable to Placees in respect of their Placing Shares.

The Placing Shares will, when issued, be credited as fully paid and will be issued subject to the Company's Memorandum and Articles of Association and will rank pari passu in all respects with the existing issued Ordinary Shares in the capital of the Company ("Existing Ordinary Shares"), including the right to receive all dividends and other distributions declared, made or paid on or in respect of the Existing Ordinary Shares after the date of issue of the Placing Shares.

Each Placee will be required to pay to BESI, on the Company's behalf, the Placing Price for each Placing Share allocated to it by BESI or Canaccord (as applicable) and agreed to be acquired by it under the Placing in accordance with the terms set out in this Appendix. Each Placee's obligation to acquire and pay for Placing Shares under the Placing will be owed to each of BESI or Canaccord (as applicable) and the Company.  Each Placee has an immediate, separate, irrevocable and binding obligation, owed to BESI or Canaccord (as applicable), to pay to BESI (or as it may direct) in cleared funds an amount equal to the product of the Placing Price and the number of Placing Shares allocated to such Placee and which it has agreed to subscribe for. Each Placee will be deemed (i) to have read and understood this Appendix in its entirety; (ii) to be participating in the Placing upon the terms and conditions contained in this Appendix; and (iii) to be providing the representations, warranties, agreements, acknowledgements and undertakings, in each case as contained in this Appendix.

To the fullest extent permitted by law and applicable FSA rules (the "FSA Rules"), neither (i) BESI nor Canaccord, (ii) any director, officer, employee or consultant of BESI or Canaccord, or (iii) to the extent not contained within (i) or (ii), any person connected with BESI or Canaccord as defined in the FSA Rules ((i), (ii) and (iii) being together "Affiliates" and individually an "Affiliate"), shall have any liability to Placees or to any person other than the Company in respect of the Placing.

4.    Conditions of the Placing The Joint Bookrunners' obligations under the Placing Agreement in respect of the Placing Shares are conditional on, inter alia: a)    none of the warranties contained in the Placing Agreement being untrue, inaccurate or misleading as at the date of the Placing Agreement and the date of Admission as though they had been given and made on such dates (by reference to the facts and circumstances existing at such dates); b)    the Company allotting, subject only to Admission, the Placing Shares in accordance with the Placing Agreement; and c)     Admission taking place not later than 8.00 a.m. on 15 January 2013 or such later date as the Company and the Joint Bookrunnners may otherwise agree; d)    the Acquisition Facility dated 10 January 2013 between the Company and HSBC Bank plc being unconditional in all respects save for Completion and Admission; and e)    the Acquisition Agreement between the Company and Kopin dated 10 January 2013 being unconditional in all respects other than satisfaction of the Final Consideration.

If: i)      any of the conditions contained in the Placing Agreement in relation to the Placing Shares are not fulfilled or waived by BESI and Canaccord by the respective time or date where specified (or such later time or date as the Company, BESI and Canaccord may agree); ii)     any of such conditions becomes incapable of being fulfilled; or iii)    the Placing Agreement is terminated in the circumstances specified below, the Placing in relation to the Placing Shares will lapse and the Placee's rights and obligations hereunder in relation to the Placing Shares shall cease and terminate at such time and each Placee agrees that no claim can be made by the Placee in respect thereof. BESI and Canaccord may, at their discretion and upon such terms as it thinks fit, waive compliance by the Company with certain of the Company's obligations in relation to the conditions in the Placing Agreement save that the above condition relating to Admission taking place may not be waived. Any such extension or waiver will not affect Placees' commitments as set out in this Announcement.

Neither BESI, Canaccord nor the Company shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision it may make as to whether or not to waive or to extend the time and /or date for the satisfaction of any condition to the Placing nor for any decision they may make as to the satisfaction of any condition or in respect of the Placing generally and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of the Company, BESI and Canaccord.

It is anticipated that the conditions set out in this Appendix will be fulfilled by 15 January 2013 in respect of the Placing. BESI and Canaccord may agree with the Company to extend the time for the satisfaction of any of the conditions of the Placing (provided that such time may not be extended beyond 5.00 p.m. on 31 January 2013 (the "Long Stop Date"). The Company will inform each Placee if any such extension is agreed and all subsequent dates mentioned in this Announcement will be adjusted appropriately.

5.    Right to terminate under the Placing Agreement Subject to the paragraph below, if the conditions are not satisfied or waived by 15 January 2013 in respect of the Placing or such later time as may be agreed by BESI, Canaccord and the Company but in any event not later than 5.00 p.m. on the Long Stop Date), the Placing will not proceed and Placees' rights and obligations will cease and determine and no claims will be capable of being made by any Placee in respect of the Placing, and any payments made by Placees will be returned as soon as possible thereafter at the Placee's own risk without interest.

Each Joint Bookrunner is entitled, at any time before Admission, to terminate the Placing Agreement in relation to the obligations in respect of the Placing Shares by giving notice to the Company in certain circumstances, including a breach of the warranties given to the Joint Bookrunners in the Placing Agreement or the failure of the Company to comply with obligations under the Placing Agreement which (in either case) the Joint Bookrunners reasonably consider to be material in the context of the Placing or, the occurrence of a force majeure event which in the reasonable opinion of the Joint Bookrunners is or will be or may be materially prejudicial to the Company or the Placing.  By participating in the Placing, Placees agree that the exercise by the Joint Bookrunners of any right of termination or other discretion under the Placing Agreement shall be within the absolute discretion of the Joint Bookrunners and that they need not make any reference to Placees and that they shall have no liability to Placees whatsoever in connection with any such exercise. The Company will inform each Placee if the Joint Bookrunnners' obligations under the Placing Agreement do not become unconditional by 8.00 a.m. on 15 January 2013, or such later time and date as the Joint Bookrunners may in their absolute discretion determine (being no later than 5.00pm on the Long Stop Date).

6.    Participation and settlement A Placee's commitment to acquire a fixed number of Placing Shares under the Placing will be agreed orally with BESI or Canaccord (as applicable). Such agreement will constitute a legally irrevocable binding commitment on such Placee's part to acquire that number of Placing Shares at the Placing Price on the terms and conditions set out or referred to in this Appendix.

After such agreement is entered into, a written confirmation will be dispatched to the Placee by BESI  confirming (i) the number of Placing Shares that such Placee has agreed to acquire, (ii) the aggregate amount such Placee will be required to pay for those Placing Shares and (iii) settlement instructions to pay BESI, as agent of the Company. It is expected that such written confirmations will be despatched by the date on which this announcement is published and that the "trade date" for settlement purposes will be 10 January 2013 and the "settlement date" will be 15 January 2013.

Settlement of transactions in the Placing Shares (ISIN: GB0009619924; SEDOL: 0961992) will take place within the CREST system, subject to certain exceptions, on a delivery versus payment ("DVP") basis. Placees should match their instructions to BESI's CREST participant I.D. 601. This is a CREST account which is operated by Pershing on BESI's behalf.  The account ID is ETCLT. BESI reserves the right to require settlement for and delivery of any Placing Shares to any Placees by such other means that it deems appropriate if delivery or settlement is not possible or practicable within the CREST system within the timetable set out in this Appendix or would not be consistent with the regulatory requirements in any Placee's jurisdiction. A Placee whose Placing Shares are to be delivered to a custodian or settlement agent should ensure that the written confirmation is copied and delivered immediately to the appropriate person within that organisation.

Placees should instruct their CREST agent to make arrangements for payment for any Placing Shares which Placees are required to acquire as soon as possible.

Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. No Placee (or any nominee or other agent acting on behalf of a Placee) will be entitled to receive any fee or commission in connection with the Placing.

No UK stamp duty or stamp duty reserve tax should be payable to the extent that the Placing Shares are issued into CREST to, or to the nominee of, a Placee who holds those shares beneficially (and not as agent or nominee for any other person) within the CREST system and registered in the name of such Placee or such Placee's nominee provided that the Placing Shares are not issued to a person whose business is or includes issuing depositary receipts or the provision of clearance services or to an agent or nominee for any such person.

The agreement to settle a Placee's subscription (and/or the subscription of a person for whom such Placee is contracting as agent) free of stamp duty and stamp duty reserve tax depends on the settlement relating only to a subscription by it and/or such person direct from the Company for the Placing Shares in question. Such agreement assumes that the Placing Shares are not being subscribed for in connection with arrangements to issue depositary receipts or to transfer the Placing Shares into a clearance service. If there are any such arrangements, or the settlement relates to any other subsequent dealing in the Placing Shares, UK stamp duty or stamp duty reserve tax may be payable, for which neither the Company, BESI nor Canaccord will be responsible, and the Placee to whom (or on behalf of whom, or in respect of the person for whom it is participating in the Placing as an agent or nominee) the allocation, allotment, issue or delivery of Placing Shares has given rise to such UK stamp duty or stamp duty reserve tax undertakes to pay such UK stamp duty or stamp duty reserve tax forthwith and to indemnify on an after-tax basis and to hold harmless the Company, BESI and Canaccord in the event that any of the Company, BESI and/or Canaccord has incurred any such liability to UK stamp duty or stamp duty reserve tax. If this is the case, each Placee should seek its own advice and notify BESI or Canaccord (as applicable) accordingly.

In addition, Placees should note that they will be liable for any stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the UK by them or any other person on the subscription by them of any Placing Shares or the agreement by them to subscribe for any Placing Shares.

7.   No prospectus No prospectus has been or will be submitted for approval by the FSA in relation to the Placing or the Placing Shares. Placees' commitments in respect of Placing Shares will be made solely on the basis of the information contained in this announcement and on the terms contained in the announcement and this Appendix.

Each Placee, by accepting a participation in the Placing, undertakes that it has neither received nor relied on any other information, representation, warranty or statement made by or on behalf of BESI, Canaccord or the Company and neither the Company nor BESI nor Canaccord will be liable for any Placee's decision to participate in the Placing based on any other information, representation, warranty or statement. Each Placee acknowledges and agrees that it has relied on this announcement and its own investigation of the business, financial or other position of the Company in accepting a participation in the Placing. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation.

8.   Payment default A Placee's entitlement to receive any Placing Shares will be conditional on the receipt of payment by BESI from the relevant Placee by the relevant time to be stated in the written confirmation referred to at paragraph 6 above, or by such later time and date as BESI and Canaccord may in their absolute discretion determine. BESI and Canaccord may, in their absolute discretion, waive such condition, and shall not be liable to any Placee in the event of it deciding whether to waive or not to waive such condition.

If any Placee fails to make such payment by the required time for any Placing Shares:- (i) the Company may release itself (if it decides in its absolute discretion to do so) and will be released from all obligations it may have to allot and/or issue any such Placing Shares to such Placee or at its direction which are then unallotted and/or unissued; (ii) the Company may exercise all rights of lien, forfeiture and set-off over and in respect of any such Placing Shares to the fullest extent permitted under its Articles of Association or otherwise by law and to the extent that such Placee then has any interest in or rights in respect of any such shares; (iii) the Company or, as applicable, BESI or Canaccord may sell (and each of them is irrevocably authorised by such Placee to do so) all or any of such shares on such Placee's behalf and then retain from the proceeds, for the account and benefit of the Company or, where applicable, BESI or Canaccord (a) any amount up to the total amount due to it as, or in respect of, subscription monies, or as interest on such monies, for any Placing Shares, (b) any amount required to cover any stamp duty or stamp duty reserve tax arising on the sale, and (c) any amount required to cover dealing costs and/or commissions necessarily or reasonably incurred by it in respect of such sale; and (iv) such Placee shall remain liable to the Company and to BESI or Canaccord (as applicable) for the full amount of any losses and of any costs which it may suffer or incur as a result of it (a) not receiving payment in full for such Placing Shares by the required time, and/or (b) the sale of any such Placing Shares to any other person at whatever price and on whatever terms are actually obtained for such sale by or for it. Interest may be charged in respect of payments not received by BESI or Canaccord (as applicable) for value by the required time referred to above at the rate of two percentage points above the current base rate of The Royal Bank of Scotland.

9.    Placees' warranties and undertakings to the Company, BESI and Canaccord Placees will be deemed to have read and understood this Announcement, including this Appendix, in its entirety and to be making an offer to acquire Placing Shares on the terms and conditions, and to be providing the representations, warranties, acknowledgements, and undertakings contained in this Appendix. In particular, each such Placee (and any person acting on behalf of the Placee) represents, warrants and acknowledges to the Company, BESI and Canaccord that: a)    it is a person of a kind described in Article 19 (Investment Professionals) and/or Article 49 (High net worth companies, unincorporated associations, etc.) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (as amended) or is otherwise a person to whom it would otherwise be lawful to offer a participation; b)    it agrees to and accepts all of the terms set out in this Appendix and that it has the power and authority to subscribe for the Placing Shares and to give all confirmations and to execute and deliver all documents necessary to effect such subscription; c)     its rights and obligations in respect of the Placing will terminate only in the circumstances described in this Appendix and will not be capable of rescission or termination by it in any circumstances; d)    it will pay the full amount at the Placing Price as and when required in respect of all Placing Shares allocated to it in accordance with such terms and will do all things necessary on its part to ensure that payment for such shares and their delivery to it or at its direction is completed in accordance with the standing CREST instructions (or, where applicable, standing certificated settlement instructions) that it has in place with BESI or Canaccord (as applicable) or puts in place with BESI or Canaccord (as applicable) with its agreement; e)    it is not accepting its Placing Participation on a non-discretionary basis other than as agent for persons who are acquiring shares in the ordinary course of business and who fall within Article 2.1 (e)(i) of the Prospectus Directive 2003; f)     it is not and does not regard itself as being a customer of BESI or Canaccord (as applicable) in relation to the Placing, and BESI or Canaccord (as applicable) will not have any duties or responsibilities towards it or its clients for providing protections afforded to their customers under the rules of the FSA (the "Rules") or for advising it with regard to the Placing Shares and that BESI or Canaccord (as applicable) shall not be responsible to it or any other person for providing the protections afforded to its customers whether under the Rules or otherwise, or for advising it  or any other person in respect of or in connection with such arrangements. In addition any payment by it will not be treated as client money governed by the Rules. It agrees that BESI or Canaccord (as applicable) shall not be liable to it for any matter arising out of its role as placing agent or otherwise in connection with the Placing and that, where any such liability nevertheless arises as a matter of law, it will immediately waive any claim against BESI or Canaccord (as applicable) which it may have in respect thereof; g)    neither BESI nor Canaccord have any duty to it similar or comparable to rules of "best execution", "suitability" and "risk warnings" as set out in the Conduct of Business Sourcebook of the FSA. It accepts that it is not relying on BESI or Canaccord to advise whether or not the Placing Shares are in any way a suitable investment for it; h)    in agreeing to subscribe for Placing Shares it is not relying on any information, representation or warranty in connection with the Placing, the Company, the Placing Shares, or otherwise, other than as contained in the announcement including this Appendix (for which the only person(s) responsible to it is or are the person(s) stated in the announcement as having accepted responsibility for such information, representation, warranty or statement). It is not relying on any representation or warranties or agreements by BESI or Canaccord or any director, employee or agent of BESI or Canaccord or any other person, except as set out in the express terms of the announcement including this Appendix; i)      it confirms that it has made an investigation of the pertinent facts relating to the operation of the Company to the extent it deems necessary in order to be fully informed with respect thereto; j)     it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Company and it is able to bear the economic risk of a complete loss of its investment in the Company; k)    it is entitled to subscribe for or purchase the Placing Shares comprised in its Placing Participation under the laws of all relevant jurisdictions which apply to it and that it has fully observed such laws and obtained all governmental and other consents which may be required thereunder and complied with all necessary formalities; l)      it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business or that it will acquire, hold, manage and dispose of the Placing Shares for the purposes of its business; m)   in accepting a Placing Participation it is acting as principal and for no other person and that its acceptance of that commitment will not give any other person a contractual right to require the issue by the Company of any of the Placing Shares; n)    it is entitled to acquire Placing Shares under the laws of all relevant jurisdictions which apply to it and it has complied, and will fully comply, with all such laws (including where applicable, the Terrorism Act 2000, the Anti- Terrorism, Crime and Security Act 2001, the Proceeds of Crime Act 2002, and the Money Laundering Regulations 2007 (the "Regulations"), each as amended from time to time) and has obtained all governmental and other consents (if any) which may be required for the purpose of, or as a consequence of, such acquisition, and it will provide promptly to BESI or Canaccord (as applicable) such evidence, if any, as to the identity or location or legal status of any person which BESI or Canaccord may request from it in connection with the Placing (for the purpose of complying with any such laws or regulations or ascertaining the nationality of any person or the jurisdiction(s) to which any person is subject or otherwise) in the form and manner requested by BESI or Canaccord (as applicable) on the basis that any failure by it to do so may result in the number of Placing Shares that are to be allotted and/or issued to it or at its direction pursuant to the Placing being reduced to such number, or to nil, as BESI or Canaccord (as applicable) may decide in their sole discretion; o)    that it has identified its clients in accordance with the Regulations and that it has complied fully with its obligations pursuant to the Regulations; p)    it has observed the laws of all requisite territories, obtained any requisite governmental or other consents, complied with all requisite formalities and paid any issue, transfer or other taxes due in connection with its application in any territory and that it has not taken any action which will or might result in the Company, BESI or Canaccord acting in breach of the regulatory or legal requirements of any territory in connection with the Placing, application for Placing Shares or the admission to AIM of the Placing Shares; q)    neither it, its affiliates nor any persons acting on its or their behalf has taken or will take, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to cause or result in, the stabilisation in violation of applicable laws or manipulation of the price of the Ordinary Shares in the Company to facilitate the sale or resale of the Placing Shares; r)     it will not distribute any press announcement relating to the Placing or any other offering material, directly or indirectly, in or into the United States, Canada, Japan, the Republic of Ireland, New Zealand, South Africa or Australia or to any person resident in such countries; s)     neither it, its affiliates, nor any person acting on its or their behalf, has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any offer and sale of the Placing Shares in the United States; neither has it nor any of its affiliates, nor any person acting on its or their behalf used or will use in connection with its Placing Participation, directly or indirectly, the postal system of, any instrument (including, without limitation, facsimile transmission, telex, telephone and the internet) of interstate or foreign commerce of, or any facilities or a national securities exchange of the United States; t)     is acquiring the Placing Shares in an 'offshore transaction' in accordance with Regulation S promulgated under the United States Securities Act of 1933, as amended, for its own account or for an account with respect to which it exercises sole investment discretion, and that at the time it originates its subscription or acquisition it (and any such account) is outside the United States or such account (other than an estate or trust) is held for the benefit or account of a non-US person; the Placing Shares are being offered and sold outside the United States in accordance with Regulation S and none of the Placing Shares have been or will be registered under the US Securities Act; u)    BESI or Canaccord may (in its absolute discretion) satisfy its obligations to procure Placees by itself agreeing to become a Placee in respect of some or all of the Placing Shares or by nominating any other Affiliate or any person associated with any Affiliate to do so; v)    it is not, and is not acting in relation to the Placing as nominee or agent for, a person who is or may be liable to stamp duty or stamp duty reserve tax in respect of any agreement to acquire (or any acquisition of) shares or other securities at a rate in excess of 0.5 per cent. (including, without limitation, under sections 67, 70, 93 or 96 of the Finance Act 1986 concerning depositary receipts and clearance services), and the allocation, allotment, issue and/or delivery to it, or any person specified by it for registration as holder, of Placing Shares will not give rise to a liability under any such section; w)   that the person who it specifies for registration as holder of the Placing Shares will be (i) itself or (ii) its nominee, as the case may be. Neither BESI, Canaccord nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax resulting from a failure to observe this requirement.

Each Placee and any person acting on behalf of such Placee agrees to participate in the Placing and it agrees to indemnify the Company and BESI or Canaccord (as applicable) in respect of the same on the basis that the Placing Shares will be credited to the CREST stock account of BESI (CREST participant ID: 601) who will hold them as nominee for the subscribers of such shares until settlement in accordance with its standing settlement instructions; x)     it irrevocably appoints any director or employee of BESI or Canaccord (as applicable) as its agent for the purpose of executing and delivering to the Company and/or its registrars any document on its behalf necessary to enable it to be registered as the holder of the Placing Shares being issued to it; y)    it will not make any offer to the public of the Placing Shares for the purposes of the Prospectus Regulations 2005, Schedule 11 to FSMA or section 85 of FSMA; z)     it agrees to be bound by the terms of the Memorandum and Articles of Association of the Company; aa)  this Appendix and any contract which may be entered into between the Placee and BESI or Canaccord (as applicable) and/or the Company pursuant to it or the Placing shall be governed by and construed in accordance with the laws of England, for which purpose it submits to the exclusive jurisdiction of the courts of England and Wales as regards any claim, dispute, or matter arising out of or relating to this Appendix or such contract, except that each of the Company, BESI and Canaccord shall have the right to bring enforcement proceedings in respect of any judgement obtained against such Placee in the courts of England and Wales in the courts of any other relevant jurisdiction; bb)  it confirms that it is not presently acting in concert, as defined in the City Code on Takeovers and Mergers, with any existing shareholder or other Placee; cc)   each right or remedy of the Company, BESI or Canaccord provided for in this Appendix is in addition to any other right or remedy which is available to such person and the exercise of any such right or remedy in whole or in part shall not preclude the subsequent exercise of any such right or remedy; dd)  any document that is to be sent to it in connection with the Placing will be sent at its risk and may be sent to it at any address provided by it to BESI or Canaccord (as applicable); ee)  none of its rights or obligations in respect of the Placing is conditional on any other person agreeing to acquire any Placing Shares under the Placing and no failure by any other Placee to meet any of its obligations in respect of the Placing shall affect any of its obligations in respect of the Placing; ff)    BESI and Canaccord do not owe any fiduciary or other duties to any Placee in respect of any representations, warranties, undertakings or indemnities in the Placing Agreement. Each Placee and any person acting on behalf of the Placee acknowledges and agrees that BESI, Canaccord or any of their affiliates may, at its absolute discretion, agree to become a Placee in respect of some or all of the Placing Shares; and gg)  the Company, BESI and Canaccord and others will rely upon the truth and accuracy of the foregoing representations, warranties, acknowledgements and undertakings which are given by each Placee (or persons acting on their behalf) to BESI and Canaccord on its own behalf and on behalf of the Company and are irrevocable.

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: IQE plc via Thomson Reuters ONE [HUG#1669552]

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