HG Semiconductor Limited — Capital/Financing Update 2025

Jan 2, 2025

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

HG SEMICONDUCTOR LIMITED

宏光半導體有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 6908)

(1) TERMINATION OF CAPITAL INJECTION AGREEMENT

AND

(2) DISCLOSEABLE TRANSACTION

GRANT OF PUT OPTION UNDER THE NEW SHAREHOLDERS' AGREEMENT

Reference is made to the announcements of HG Semiconductor Limited (the "Company") dated 28 September 2023 and 13 October 2023 (the "Announcements") in relation to, among other things, the Capital Injection Agreement. Unless otherwise specified, capitalised terms used herein shall have the same meanings as those defined in the Announcements.

TERMINATION OF CAPITAL INJECTION AGREEMENT

As mentioned in the Announcements, on 28 September 2023, the Target Company, an indirect nonwholly owned subsidiary of the Company, entered into the Capital Injection Agreement with the Project Company, Swift Power, Join Gain, and the Investor pursuant to which, among others, the Investor has conditionally agreed to pay a total of RMB100 million to the Target Company to subscribe for new registered capital of the Target Company. The first contribution amount of RMB55 million had been paid by the Investor and Completion took place upon satisfaction of the all the Conditions Precedent. Upon Completion and as at the date of this announcement, the Target Company was and is owned by Swift Power, the Employee Shareholding Platform, Join Gain, Red Mont and the Investor as to approximately 59.09%, 19.10%, 8.17%, 4.55% and 9.09%, respectively.

The payment conditions for the Second Contribution Amount specified in the Capital Injection Agreement have been fully met and the Target Company has issued written payment notices to the Investor on 5 January 2024 and 25 March 2024, respectively. On 15 June 2024, the same parties to the Capital Injection Agreement entered into a memorandum of understanding (the "Extension Memorandum") to extend the date of payment by the Investor of the second contribution amount of RMB45 million (the "Second Contribution Amount") towards the new registered capital of the Target Company to 31 December 2024. However, the Investor is unable to complete the payment of the Second Contribution Amount within the extended period.

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Pursuant to the Extension Memorandum, the Target Company, the Project Company, the Investor, the Employee Shareholding Platform, Swift Power, Join Gain and Red Mont entered into the termination agreement (the “Termination Agreement”) which became effective on 1 January 2025, pursuant to which, among others, the parties have agreed and confirmed that the Capital Injection Agreement together with its appendices (including but not limited to the Shareholders’ Agreement) and the Extension Memorandum have been terminated on the date of the Termination Agreement and the parties have also agreed that the Investor is no longer required to pay the Second Contribution Amount. It is further agreed and confirmed under the Termination Agreement, among others, that the Investor shall bear no liabilities to the other parties in connection with its non-payment of the Second Contribution Amount. In addition, the Investor has acknowledged and confirmed that the Target Company, the Project Company, Swift Power, Join Gain and Red Mont had committed no breaches of the Capital Injection Agreement in their execution and performance of the Capital Injection Agreement together with its appendices (including but not limited to the Shareholders’ Agreement) and the Extension Memorandum and that there are no forms of liability for breach of contract.

According to the Termination Agreement, the parties have agreed and confirmed to calculate and adjust the Target Company’s registered capital after the Capital Injection, based on the amount actually paid by the parties (including the first contribution amount of RMB55 million paid by the Investor) (the “Adjustment”). The parties have agreed and authorized the board of directors of the Target Company to handle the relevant procedures for the Adjustment with the relevant registration authority and other procedures to effect the Adjustment. Set out below is the shareholding structure of the Target Company immediately before and after completion of the Adjustment:

	Immediately before completion of the Adjustment		Immediately after completion of the Adjustment
	Amount of registered capital (USD)	Approximate equity interest in the Target Company (%)	Amount of registered capital (USD)	Approximate equity interest in the Target Company (%)
Shareholders
Swift Power	10,872,267.32	59.0909	10,872,267.32	61.6114
Employee Shareholding Platform	3,514,251.33	19.1000	3,514,251.33	19.9147
Join Gain	1,503,718.20	8.1727	1,503,718.20	8.5213
Red Mont	836,328.26	4.5455	836,328.26	4.7393
The Investor	1,672,656.51	9.0909	919,961.08	5.2132
Total	18,399,221.62	100.00	17,646,526.19	100.00

Note: The aggregate percentage may not add up to 100% due to rounding.

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GRANT OF PUT OPTION UNDER THE NEW SHAREHOLDERS' AGREEMENT

Pursuant to the Termination Agreement, the Target Company, Swift Power, the Employee Shareholding Platform, Join Gain, Red Mont and the Investor entered into a new shareholders' agreement (the “New Shareholders’ Agreement”), which took effect on 1 January 2025, in respect of the Target Company, which serves as an extension of the Shareholders’ Agreement in order to set out, among others, the rights and obligations of the shareholders of the Target Company and the governance structure of the Target Company.

Board Composition

The board of directors of the Target Company (the “Target Board”) shall consist of three directors. Two directors shall be nominated by Swift Power and the remaining one director shall be nominated through election. Swift Power shall have the right to nominate two additional directors to the Target Board.

In comparison to the Shareholders’ Agreement and pursuant to the New Shareholders’ Agreement, since the equity interest of the Target Company held by the Investor shall decrease after the Adjustment, no director shall be nominated by the Investor. Swift Power, the wholly-owned subsidiary of the Company, shall nominate a majority of the directors for the Target Board.

Special Rights of the Investor

Most Favorable Treatment

The Target Company and Swift Power undertake that the Investor shall automatically be entitled to the same preferential rights of any of the original shareholders of the Target Company as entitled under the transaction documents (if any), except for the different treatment expressly agreed in the transaction documents.

Non-competition and Full-time Services of the Key Employees

The Target Company and Swift Power shall procure the key employees as confirmed by the Target Board to devote all their working time and efforts to the business of the Target Group from the date of the New Shareholders’ Agreement, and to use their best efforts to develop the business of the Target Group and to protect the interests of the Target Group.

After arm’s length negotiation with the Investor and pursuant to the New Shareholders’ Agreement, the key employees shall be confirmed by the Target Board instead of the Investor which shall enhance the flexibility of the Target Company’s talent recruitment.

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Restrictions on Equity Transfer

Pursuant to the New Shareholders’ Agreement, without the prior written consent of the Target Company and Swift Power, the Investor shall not directly or indirectly transfer all or part of the equity interest of the Target Company directly or indirectly held by them in any form to the competitors of the Target Group. Any transfer of shares in violation of the provisions of the restriction shall be null and void, and the transferee shall not enjoy its rights as a shareholder of the Target Company, nor shall the Target Company regard it as a shareholder.

After arm’s length negotiation with the Investor and pursuant to the New Shareholders’ Agreement, the terms for restrictions on equity transfer for Swift Power, Join Gain and the Employee Shareholding Platform have been removed which would enhance the flexibility of the Group to seek for other strategic business partners.

Right of First Refusal

During the period from the date of the New Shareholders’ Agreement to the date prior to the Target Company completing the Qualified Listing and subject to the above-mentioned restriction on equity transfer, if any of Swift Power, Join Gain and Red Mont transfers its equity interest in the Target Company to any entity, the Investor shall have the first right to acquire such equity interest at the same price and on the same terms and conditions. The Investor as the first right holder may, at its discretion, allocate its preemptive right between itself and its affiliates.

Co-sale Right

During the period from the date of the New Shareholders’ Agreement to the date prior to the Target Company completing the Qualified Listing, if the Investor, as the first right holder, receives the notice of intention to transfer from the other shareholder(s) of the Target Company and chooses not to exercise its first right, the Investor shall have the right (but not the obligation) to, within 20 days from the date of receipt of the notice of intention to transfer, send the co-sale notice to the Target Company and the proposed transfer shareholder(s), requesting them to sell the corresponding number of shares of the Target Company owned by the Investor at the same time as the proposed transfer shareholder(s) at the same price, terms and conditions specified in the proposed transfer notice.

Pre-emptive Right

During the period from the date of the New Shareholders’ Agreement to the date prior to the Target Company completing the Qualified Listing, if the Target Company increases its registered capital, issues new shares, or carries out subsequent financing in the future, the Investor shall have the right (but not the obligation) to subscribe for the newly increased registered capital or new shares of the Target Company in proportion to its capital contribution to the Target Company at the same price and on the same terms and conditions in priority to any remaining shareholders and third parties. The Investor may, in its sole discretion, allocate its preemptive right to which it is entitled between itself and its affiliates.

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Anti-dilution

If the Target Company increases its registered capital or issues new shares or securities convertible or exercisable into equity at the unit price per dollar of registered capital or the unit price per share being lower than the unit price per dollar of registered capital or the unit price per share paid by the Investor through the Capital Injection, the Investor shall have the right (but not the obligation) to prevent dilution of its shareholding by way of (i) requesting the Target Company to issue the corresponding number of additional shares of the Target Company to the Investor at the lowest price permitted by applicable law; or (ii) requesting Swift Power to transfer part of their equity interest in the Target Company to the Investor at the lowest price permitted by applicable laws; or (iii) requesting the Target Company and Swift Power to compensate in cash; or (iv) requesting the Target Company and Swift Power to implement a combination of the methods under (i), (ii) and (iii) above.

Put Option

If the Target Company fails to complete the Qualified Listing by 30 June 2032, the Investor shall have the right to send a written notice (the "Repurchase Notice") to the Target Company and Swift Power (the "Repurchase Obligors") to request the Repurchase Obligors to jointly and severally purchase all or part of the equity interest in the Target Company held by the Investor (the "Repurchase Equity Interest") at the repurchase price as detailed below. The Repurchase Obligors shall be obliged to purchase and accept the Repurchased Equity Interest from the Investor within three (3) months after receiving the Repurchase Notice ("Repurchase Price Payment Period") and take necessary actions to complete the repurchase (including but not limited to paying the repurchase price in full and completing all legal procedures such as change registration, filing and approval required for the equity repurchase within such period).

The repurchase price is the sum of 100% of the Total Subscription Price paid by the Investor to the Target Company and the return calculated at the rate of 6% per annum using simple interest incurred for the period commencing on the date of payment by the Investor of its capital contribution to the Target Company and ending on the date of payment in full of the repurchase price to the Investor, as well as the dividends declared but not actually paid to the Investor as approved by the shareholders' meeting of the Target Company over the years.

After arm's length negotiation with the Investor and pursuant to the New Shareholders' Agreement, the deadline for the Qualified Listing has been extended from 30 June 2030 to 30 June 2032 which can enhance the flexibility of the Target Group's listing plan. In addition, the simple rate to calculate the return in relation to the repurchase price has been reduced from 8% to 6% which is favorable to the Target Company and Swift Power as the Repurchase Obligors.

The Company would comply with the relevant requirements under Chapter 14 and/or Chapter 14A of the Listing Rules in the event of the exercise of any right under the right of first refusal, the preemptive right, the anti-dilution right and the put option mentioned above.

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INFORMATION OF THE TARGET COMPANY AND THE PROJECT COMPANY

The Target Company

The Target Company is a company incorporated in the PRC with limited liability. As at the date of this announcement, the Target Company (i) is owned by Swift Power, the Employee Shareholding Platform, Join Gain, Red Mont and the Investor as to approximately 59.09%, 19.10%, 8.17%, 4.55% and 9.09%, respectively; (ii) is the sole shareholder of the Project Company; and (iii) is holding the entire equity interest of the Project Company as its major assets. The business scope of the Target Company includes manufacturing and sales of semiconductor products and related equipment, manufacturing, sales and design of integrated circuits and related chips, manufacturing and sales of electronic products, computer software, hardware, and auxiliary equipment, provision of technical development services, consultation and promotional services.

The Project Company

The Project Company is a company incorporated in the PRC with limited liability. As at the date of this announcement, the Project Company is wholly owned by the Target Company. The Group has commenced its GaN business through the Target Group and set up a new factory in the Xuzhou Economic and Technological Development Zone which comprised 7,000 square meters ultra clean chambers and 850 square meters office area (the "Xuzhou Factory"). It was contemplated that a production line for manufacturing GaN related products would be installed in the Xuzhou Factory, the facilities of which would be further upgraded to full automation in the future.

Further to the first contribution amount of RMB55 million paid by the Investor to accelerate the pace of the Group's GaN production, Xuzhou Factory completed the production and commissioning of GaN epitaxial wafer equipment at the beginning of 2024 and met the conditions for 6-inch epitaxial wafer production in its Xuzhou Factory. Xuzhou Factory also completed the purchase, installation and commissioning of the core equipment of the wafer production line, leading to the establishment of the wafer production line. Xuzhou Factory is currently conducting research and development of 8-inch epitaxial wafers, a new products line, and it is expected to achieve mass production in the first half of 2025. The products of Xuzhou Factory are positioned in medium and high power chips. In the last quarter of 2024, the GaN chip products have entered the tape-out stage and are expected to pass reliability testing and be launched on the market in 2025.

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The unaudited consolidated financial information of the Target Group for the two years ended 31 December 2023 and the six months period ended 30 June 2024 prepared in accordance with the generally accepted accounting principles in the PRC is as follows:

| | For the year ended 31 December 2022
(RMB'000)
(unaudited) | For the year ended 31 December 2023
(RMB'000)
(unaudited) | For the six months period ended 30 June 2024
(RMB'000)
(unaudited) |
| --- | --- | --- | --- |
| Net loss before tax | (42,108) | (42,534) | (13,564) |
| Net loss after tax | (42,108) | (42,534) | (13,564) |

The unaudited net assets of the Target Group as at 30 June 2024 were approximately RMB132.14 million.

INFORMATION OF THE INVESTOR

The Investor is a private investment fund for equity investment. The general partner of the Investor is Nanjing Jianeng Youchuang Investment Management Partnership (Limited Partnership) (南京嘉能友創投資管理諮詢有限公司) ("NJY Investment Management") which is owned as to 51% and 49% by Zhejiang Youchuang (Hangzhou) Private Equity Management Company Limited (浙大友創(杭州)私募基金管理有限公司) ("Zhejiang Youchuang") and Henan Huirong Jianeng Innovative Investment Company Limited* (河南匯融嘉能創新投資有限公司) ("Henan Huirong Jianeng"), respectively. The Investor has a total of 4 limited partners. As at the date of this announcement, the Investor is holding approximately 9.09% equity interest in the Target Company.

Zhejiang Youchuang is the fund manager of the Investor and it is owned as to 61%, 20% and 19% by Hangzhou Ziyangdian Investment Management Company Limited (杭州子養電投資管理有限公司) ("Hangzhou Ziyangdian"), Shenzhen City Zijingang Asset Management Company Limited (深圳市紫金港資本管理有限公司), Zhejiang Zheda Qizhen Entrepreneurial Investment Company Limited (浙江浙大啟真創業投資有限公司) respectively. Hangzhou Ziyangdian is owned as to 47.54%, 27.87%, 16.39% and 8.20% by Wang Xiaoju (王孝鋼), Xie Yu (謝瑋), Liu Jianbin (劉健斌) and Liu Zuwei (柳祖未) respectively.

Henan Huirong Jianeng is owned as to 51% by Harvest Tech Investment Management Company Limited (嘉實科技投資管理有限公司) which is wholly owned by Harvest Tech Investment Management (HK) Co., Limited (嘉實科技投資管理(香港)有限公司) ("Harvest Tech Investment Management").

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INFORMATION OF SWIFT POWER, THE EMPLOYEE SHAREHOLDING PLATFORM, JOIN GAIN AND RED MONT

Swift Power

Swift Power is an indirect wholly owned subsidiary of the Company incorporated in Hong Kong with limited liability and is an investment holding company. As at the date of this announcement, Swift Power is holding approximately 59.09% equity interest in the Target Company.

Employee Shareholding Platform

The Employee Shareholding Platform is a limited partnership established in the PRC for an employee share incentive scheme of the Target Group established for providing certain employees of the Group with opportunities to indirectly invest in the Target Company. As at the date of this announcement, the Employee Shareholding is holding approximately 19.10% equity interest in the Target Company.

Join Gain

Join Gain is an investment holding company incorporated in Hong Kong with limited liability which is indirectly wholly owned by Ms. Qin Xiaolu (“Ms. Qin”). Pursuant to the disclosure form dated 21 October 2022 (being the latest disclosure form filed up to the date of this announcement) as published on the website of the Stock Exchange, Ms. Qin was interested in 39,085,000 Shares, representing approximately 5.20% of the total issued Shares as at the date of this announcement and Ms. Qin Anqi, a daughter of Ms. Qin, was interested in 100,500,000 Shares, representing approximately 13.38% of the total issued Shares as at the date of this announcement. As at the date of this announcement, Join Gain is holding approximately 8.17% equity interest in the Target Company.

Red Mont

Red Mont is an investment holding company incorporated in Hong Kong with limited liability which is wholly owned by Mr. Zhan Haisu (“Mr. Zhan”). Pursuant to the disclosure form dated 23 August 2023 (being the latest disclosure form filed up to the date of this announcement) as published on the website of the Stock Exchange, Mr. Zhan was interested in 129,453,785 Shares, representing approximately 17.24% of the total issued Shares as at the date of this announcement. As at the date of this announcement, Red Mont is holding approximately 4.54% equity interest in the Target Company.

REASONS FOR AND BENEFITS OF ENTERING INTO THE TERMINATION AGREEMENT AND THE NEW SHAREHOLDERS' AGREEMENT

The Company is an exempt company incorporated in the Cayman Islands. The Group is principally engaged in the design, development, manufacturing, subcontracting and sales of semiconductor products, including light-emitting diode (“LED”) beads, new generation of semiconductor GaN chips, and GaN device related application products in the PRC.

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In 2024, the Company continued to fully deploy the third-generation semiconductor industry chain while maintaining its solid foundation in initial LED bead business. Further to the first contribution amount of RMB55 million paid by the Investor to accelerate the pace of the Group's GaN production, the Group completed the production and commissioning of GaN epitaxial wafer equipment at the beginning of 2024 and met the conditions for epitaxial wafer production in its Xuzhou Factory. The Group also completed the purchase, installation and commissioning of the core equipment of the wafer production line, leading to the establishment of the wafer production line. In the last quarter of 2024, the GaN chip products have entered the tape-out stage and are expected to pass reliability testing and be launched on the market in 2025.

Although the payment of the Second Contribution Amount was not completed, having considered the formation of the strategic alliance with Harvest Tech Investment Management or its associates for the comprehensive business cooperation through the first contribution amount of RMB55 million paid by the Investor, Swift Power, the Target Company, the Project Company agreed to enter into the Termination Agreement with the Investor, the Employee Shareholding Platform, Join Gain and Red Mont, pursuant to which, among others, the parties have agreed and confirmed that the Capital Injection Agreement together with its appendices (including but not limited to the Shareholders' Agreement) and the Extension Memorandum have been terminated on the date of the Termination Agreement. Further, the New Shareholders' Agreement serves as an extension of the Shareholders' Agreement in order to set out, among others, the rights and obligations of the shareholders of the Target Company and the governance structure of the Target Company. As mentioned in the section headed "Special Rights of the Investors" in this announcement above, the Group, after arm's length negotiation with the Investors, is able to conclude better terms in relation to the composition of the Target Board, the talent recruitment, the restrictions on equity transfer, the deadline for the Qualified Listing and the lower simple rate for calculation of the return for the repurchase price under the Put Option.

On 31 December 2024, the Company implemented a right issue on the basis of one (1) Rights Share for every four (4) Shares held which is expected to raise the maximum net proceeds of approximately HK$87.8 million and the relevant prospectus has been despatched on 31 December 2024. Even in the absence of the Second Contribution Amount, the Directors consider the termination of the Capital Injection Agreement in relation to the Second Contribution Amount will not have any material adverse impact on the business operation and financial position of the Group.

The Directors (including the independent non-executive Directors) consider the terms of the Termination Agreement and the New Shareholders' Agreement are normal commercial terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and the termination of the Capital Injection Agreement together with its appendices (including but not limited to the Shareholders' Agreement) and the Extension Memorandum will not have any material adverse impact on the business operation and financial position of the Group.

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LISTING RULES IMPLICATIONS

For illustrative purposes, pursuant to the New Shareholders’ Agreement, the estimated maximum repurchase price under the Put Option is approximately RMB84.75 million calculated on the following principal assumptions and bases: (i) the first contribution amount of RMB55 million paid by the Investor on 28 September 2023; (ii) the Investor will continue to hold approximately 5.2132% equity interest in the Target Company; (iii) the Investor will exercise the Put Option in full by giving written notice to the Repurchase Obligors on 30 June 2032; and (iv) the repurchase price will be paid to the Investor on 30 September 2032, being the last day of the three months’ period after the Investor has given the Repurchase Notice.

As the exercise of the Put Option is not at the discretion of the Company, it will be classified as if the Put Option has been exercised under the Listing Rules. As the highest applicable percentage ratio in respect of the grant of the Put Option is more than 5% but less than 25% on the basis of the estimated maximum repurchase price as disclosed above, the grant of the Put Option constitutes a discloseable transaction for the Company and is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.

By order of the Board
HG Semiconductor Limited
Dr. Xu Zhihong
Chairman and Executive Director

Hong Kong, 2 January 2025

As at the date of this announcement, the executive Directors are Dr. Xu Zhihong, Mr. Zhao Yi Wen, Mr. Li Yang and Mr. Leung Kin Pang; and the independent non-executive Directors are Mr. Zou Haiyan, Mr. Siu Miu Man, Simon, MH. and Ms. Liu Wanwen.

If there is any inconsistency in this announcement between the Chinese and English versions, the English version shall prevail.

• For illustration purposes only