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PROSPECTUS
Element ASA (A Norwegian public limited liability company incorporated under the laws of Norway)
Listing on the Oslo Stock Exchange of 2,650,000 Consideration Shares, each with a par value of NOK 1.60, issued in
connection with the PALCapital Transaction
Listing on the Oslo Stock Exchange of 2,789,351 Conversion Shares, each with a par value of NOK 1.60, issued in connection with the Note Conversion
Listing on the Oslo Stock Exchange of 463,333 Private Placement Shares, each with a par value of NOK 1.60, issued
in connection with the Private Placement This prospectus (the "Prospectus") has been prepared in connection with (i) the listing by Element ASA (the "Company" or "Element"), a public limited liability company incorporated under the laws of Norway (together with its consolidated subsidiaries, the "Group") on Oslo Børs, a stock exchange operated by Oslo Børs ASA (the "Oslo Stock Exchange"), of 2,650,000 Consideration Shares issued as transaction consideration in connection with the Company's acquisition of all shares in PalCapital Ventures, Inc., (ii) the listing of 2,789,351 Conversion Shares issued through conversion of notes issued in the Note Conversion, and (iii) the listing of 463,333 Private Placement Shares issued in the Private Placement.
The date of this Prospectus is 6 February 2020
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IMPORTANT INFORMATION
This Prospectus has been prepared in connection with the listing of the Consideration Shares, the Conversion Shares and the Private Placement, as described herein. For the definitions of terms used throughout this Prospectus, see Section 19 "Definitions" of this Prospectus. All Sections of the Prospectus should be read in context with the information included in Section 4 "General Information". This Prospectus has been prepared to comply with the Norwegian Securities Trading Act of 29 June 2007 no. 75 (the "Norwegian Securities Trading Act") and related secondary legislation, including the Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2014/71/EC, as amended, and as implemented in Norway in accordance with Section 7-1 of the Norwegian Securities Trading Act (the "EU Prospectus Regulation"). The Company has furnished the information in this Prospectus in order to provide a presentation of the Group and to inform the existing shareholders and the market about the listing of the Consideration Shares, the Conversion Shares and the Private Placement Shares. Unless otherwise indicated, the source of information included in this Prospectus is the Company. In making an investment decision, prospective investors must rely on their own examination, and analysis of, and enquiry into the Group, including the merits and risks involved. Neither the Company nor any of its representatives or advisers, is making any representation to any offeree or purchaser of the Shares regarding the legality of an investment in the Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Shares. No action has been or will be taken in any jurisdiction other than Norway by the Company that would permit the possession or distribution of this Prospectus, any documents relating to the Prospectus, or any amendment or supplement to the Prospectus, in any country or jurisdiction where this is unlawful or specific action for such purpose is required. The distribution of this Prospectus in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus may come are required by the Company to inform themselves about and to observe such restrictions. The Company shall not be responsible or liable for any violation of such restrictions by prospective investors. The restrictions and limitations listed and described in the Prospectus are not exhaustive and other restrictions and limitations in relation to this Prospectus that are not known or identified at the date of this Prospectus may apply in various jurisdictions. The securities described herein have not been and will not be registered under the US Securities Act of 1933 as amended (the "US Securities Act"), or with any securities authority of any state of the United States. Accordingly, the securities described in this Prospectus may not be offered, pledged, sold, resold, granted, delivered, allotted, taken up, or otherwise transferred, as applicable, in the United States, except in transactions that are exempt from, or in transactions not subject to, registration under the US Securities Act and in compliance with any applicable state securities laws. Any dispute regarding the Prospectus shall be governed by Norwegian law and Norwegian courts alone, with Oslo District Court as exclusive legal venue, shall have jurisdiction alone shall have jurisdiction in all matters relevant hereto.
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TABLE OF CONTENTS
1 SUMMARY ..................................................................................................................... 7
1.1 Introduction and warnings ..................................................................................................... 7
1.2 Key information on Element ASA ........................................................................................... 8
1.3 Key information on the Securities ........................................................................................ 10
1.4 Key information on the admission to trading and the offer of securities ............................ 11
2 RISK FACTORS .............................................................................................................. 13
2.1 General risks relating to investment activities ..................................................................... 13
2.2 Risks relating to the Group's investment within the mining sector ..................................... 14
2.3 Risks related to the Company's activities and investments within the digital and block-chain sector .............................................................................................................................................. 16
2.4 Financial risks ........................................................................................................................ 17
2.5 Risks related to the Shares ................................................................................................... 18
3 RESPONSIBILITY FOR THE PROSPECTUS ......................................................................... 19
4 GENERAL INFORMATION .............................................................................................. 20
4.1 The approval of this Prospectus by the Norwegian Financial Supervisory Authority .......... 20
4.2 Simplified prospectus in accordance with Article 14 of the Prospectus Regulation ............ 20
4.3 Other important investor information ................................................................................. 20
4.4 Presentation of financial and other information .................................................................. 20
5 LISTING OF NEW SHARES .............................................................................................. 23
5.1 The PALCapital Transaction .................................................................................................. 23
5.2 The Note Conversion ............................................................................................................ 25
5.3 The Private Placement .......................................................................................................... 28
5.4 The Consideration Shares, the Conversion Shares and the Private Placement Shares ........ 30
5.5 Dilution ................................................................................................................................. 31
5.6 The Company's share capital following the issuance of the Consideration Shares, the Conversion Shares and the Private Placement Shares ............................................................................ 31
5.7 Interests of natural and legal persons .................................................................................. 31
5.8 Proceeds and expenses......................................................................................................... 31
5.9 Jurisdiction and choice of law ............................................................................................... 32
6 THE BUSINESS OF THE COMPANY ................................................................................. 33
6.1 Introduction .......................................................................................................................... 33
6.2 The strategy .......................................................................................................................... 33
6.3 Historical development ......................................................................................................... 34
6.4 The investment in PALCapital Ventures, Inc. (PALCapital) ................................................... 36
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6.5 The Mindoro Nickel Project, the Philippines ........................................................................ 38
6.6 Legal and arbitration proceedings ........................................................................................ 43
7 MATERIAL CONTRACTS ................................................................................................ 45
7.1 Convertible Note Facility and its termination ....................................................................... 45
7.2 Sale of OSEAD Fund Units ..................................................................................................... 46
7.3 Divestment of holdings in AMI ............................................................................................. 47
8 RELATED PARTY TRANSACTIONS................................................................................... 49
8.1 Agreement with ProCorp AS ................................................................................................. 49
8.2 Agreement with Nils Kristoffer Gram ................................................................................... 49
8.3 Service Agreement with Pacific Alliance Limited .................................................................. 49
9 SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER INFORMATION .............. 50
9.1 Introduction and basis for preparation ................................................................................ 50
9.2 Summary of accounting policies and principles ................................................................... 50
9.3 Selected statement of comprehensive income .................................................................... 50
9.4 Selected statement of financial position .............................................................................. 51
9.5 Selected statement of cash flows ......................................................................................... 53
9.6 Selected statement of changes in equity ............................................................................. 54
10 FINANCIAL INFORMATION ............................................................................................ 57
10.1 Capitalisation and indebtedness........................................................................................... 57
10.2 Working capital statement ................................................................................................... 59
10.3 Summary of investments ...................................................................................................... 60
10.4 Trend information ................................................................................................................. 60
10.5 Significant changes ............................................................................................................... 60
11 BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE .. 62
11.1 Board of Directors ................................................................................................................. 62
11.2 Management ........................................................................................................................ 63
11.3 Share based incentive programs .......................................................................................... 64
11.4 Conflicts of interests etc. ...................................................................................................... 66
12 CORPORATE INFORMATION; SHARES AND SHARE CAPITAL; SHAREHOLDERS ................. 67
12.1 Incorporation; registration number; registered office and other Company information .... 67
12.2 The Shares ............................................................................................................................. 67
12.3 Shareholder rights ................................................................................................................ 67
12.4 Major shareholders............................................................................................................... 67
12.5 Financial instruments – warrants and convertible securities ............................................... 68
12.6 Authorisation to increase the share capital and to issue Shares.......................................... 70
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12.7 Authorisation to acquire treasury Shares ............................................................................. 71
12.8 Dividend policy and general information on dividends ........................................................ 71
12.9 The Articles of Association .................................................................................................... 72
12.10 Certain aspects of Norwegian law ........................................................................................ 73
13 TAXATION .................................................................................................................... 78
13.1 Norwegian taxation .............................................................................................................. 78
14 SECURITIES TRADING IN NORWAY ................................................................................ 82
14.1 Introduction .......................................................................................................................... 82
14.2 Trading and settlement ........................................................................................................ 82
14.3 Information, control and surveillance .................................................................................. 82
14.4 The VPS and transfer of shares ............................................................................................. 83
14.5 Shareholder register – Norwegian law ................................................................................. 83
14.6 Foreign investment in shares listed in Norway .................................................................... 84
14.7 Disclosure obligations ........................................................................................................... 84
14.8 Insider trading ....................................................................................................................... 84
14.9 Mandatory offer requirement .............................................................................................. 84
14.10 Compulsory acquisition ........................................................................................................ 85
14.11 Foreign exchange controls .................................................................................................... 86
15 SELLING AND TRANSFER RESTRICTIONS ........................................................................ 87
15.1 General ................................................................................................................................. 87
15.2 United States ........................................................................................................................ 87
15.3 Other jurisdictions ................................................................................................................ 89
16 REGULATORY DISCLOSURES ......................................................................................... 90
16.1 Legal requirements to disclose certain information ............................................................. 90
16.2 Overview and summary of information disclosed to the market......................................... 90
17 INCORPORATION BY REFERENCE AND DOCUMENTS ...................................................... 95
17.1 Cross Reference Table .......................................................................................................... 95
17.2 Documents on display .......................................................................................................... 95
18 ADDITIONAL INFORMATION ......................................................................................... 96
18.1 Independent Auditors ........................................................................................................... 96
18.2 Legal Advisors ....................................................................................................................... 97
18.3 Confirmation regarding sources ........................................................................................... 97
19 DEFINITIONS ................................................................................................................ 98
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APPENDICES
Appendix A ARTICLES OF ASSOCIATION A1
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1 SUMMARY
1.1 Introduction and warnings
1.1.1 Warnings
This summary contains all the sections required by the Prospectus Regulation to be included in a summary for a Prospectus regarding this type of securities and issuer. This summary should be read as an introduction to the Prospectus. Any decision to invest in the securities described in this Prospectus should be based on a consideration of the Prospectus as a whole by the investor. An investment in the Company's Shares involves inherent risk and an investor investing in the securities could lose all or part of the invested capital. Where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff investor might under the applicable national legislation of a Member State, have to bear the costs of translating the Prospectus before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the Summary including any translation thereof, and applied for its notification, but only if the Summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus or it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in such securities.
1.1.2 Overview of the issuer, its securities and the competent authority having approved this Prospectus
Name of securities Element (ticker "ELE" on the Oslo Stock Exchange) ISIN NO 0003055808 Issuer Element ASA Issuer's office address Karenslyst Allé 53, 0279 Oslo, Norway Issuer's postal address Karenslyst Allé 53, 0279 Oslo, Norway Issuer's LEI (Legal Entity Identifyer) 5967007LIEEXZXHW3S18 Issuer's phone number +47 23 08 23 08 Issuer's e-mail [email protected] Issuer's website www.elementasa.com
The information included on www.elementasa.com does not form part of the Prospectus.
The competent authority approving the Prospectus The Financial Supervisory Authority of Norway (Nw: Finanstilsynet).
Visiting address, the Financial Supervisory Authority of Norway
Revierstredet 3, 0151 Oslo, Norway
Postal address, the Financial Supervisory Authority of Norway
Postboks 1187, Sentrum 0107 Oslo, Norway
E-mail, the Financial Supervisory Authority of Norway [email protected] Date of approval of this Prospectus 6 February 2020
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1.2 Key information on Element ASA
1.2.1 Who is the issuer of the securities
Corporate information
The Company's legal and commercial name is Element ASA. The Company is a Norwegian public limited company incorporated in Norway under and governed by the Norwegian Public Limited Companies Act, with business registration number 976 094 875. Element is domiciled in Oslo, Norway. The Company's LEI (Legal Entity Identifier) number is 5967007LIEEXZXHW3S18.
Principal activities
Element is a project investment company within the mining sector and the digital and block-chain sector. Historically the main business of the Company has been to be a mineral exploration company holding mineral exploitation or exploration rights for nickel-cobalt-mineralized areas on the island of Mindoro in the Philippines (the Mindoro Nickel Project). The Company's main assets are; (i) the Mindoro Nickel Project, (ii) a holding of all shares in PALCapital Ventures Inc. ("PALCapital"), an investment company with early stage investments within the digital and distributed ledger/blockchain sectors, and (iii) claims for repayment of debt with a total principal amount of USD 4,842,042. In the first half of 2019, the Company, under a new Board and management, communicated to the market its intention to realise its portfolio of mineral assets and partly shift focus over to investments in the digital sector. In October 2019, the Company divested all its ownership in OSEAD Fund/ CMT and in December 2019, the Company divested its holdings in AMI and further terminated the Convertible Note Facility with EHGOSF/ ABO. In August 2019, the Company acquired PALCapital, a company owning token rights and equity right options in a portfolio of early-stage companies within the digital and blockchain sectors. The strategic rationale for this transaction is to build a portfolio of digital investments, an asset class which traditionally have been less liquid than publicly listed securities. Equity investors around the world who wants exposure to the digital segment of the economy, have so far had few avenues to achieve this objective, save for participating in start-up companies early fund raising rounds, or buy coins/tokens in Initial Coin Offering/Initial Token Offering (ICO/ITO) events. Due to the nature of such early-phase investments, the investors would typically have to hold the asset for 3-5 years before they could have an exit. For many investors, both funds and individuals, who want to have exposure to the digital economy but want or must be invested in liquid assets, Element could be able to offer the investors exposure to the digital industry, while at the same time letting the investor stay in a liquid security, the Element share, which they could trade on a regulated market place, Oslo Børs. Subsequent to the initial investment in PALCapital in August 2019, Element acquired 0.46% of the common equity in GlobexUS Holdings, Corp, a Blockchain-as-a-Service solutions company, with the trading name Horizon-Globex. This investment was made in January 2020. The equity is currently held by Element ASA, but the Company intend to transfer the equity to PALCapital at a later stage. While the plan is for the Company to keep a meaningful exposure to the digital economy, the Company will also consider other non-digital investments.
Major shareholders
As of the date of this Prospectus, the following shareholders own or control more than 5 % of the issued share capital in the Company:
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• Alpha Blue Ocean Inc., holding 2,608,551 Shares, corresponding to 13.89% of the outstanding votes and Shares; and
• Hope For More AS, holding 2,650,000 Shares, corresponding to 14.12% of the outstanding votes and Shares. In so far as is known to the Company, no person or entity, directly or indirectly, jointly or severally, may exercise or could exercise control over the Company. The Company is not aware of any agreements or similar understandings that the operation of which may at a subsequent date result in a change of control in the Company.
Executive management
The executive management of the Company consist of two individuals, namely Geir Johansen (Chief Executive Officer) and Hans Ola Haavelsrud (Chief Operational Officer).
Statutory auditor
The Company's independent auditors are Plus Revisjon AS, which has registration no. 990 422 052 and registered address at Rosenkrantz' gate 20, 0160 Oslo, Norway.
1.2.2 What is the key financial information regarding the issuer
Selected consolidated statement of comprehensive income
Three months ended
30 September Nine months ended
30 September Year ended
31 December (In USD thousands) 2019 2018 2019 2018 2018 2017 (unaudited) (unaudited) (unaudited) (unaudited) Operating Loss -757 -1,309 -2,595 -2,847 -3,802 -2,005
Net financial items -250 -3,930 -3,014 -5,179 -9,267 -1,272
Loss for the period -2,708 -5,401 -7,817 -8,479 -13,922 -3,920
Total comprehensive income attributable to Element shareholders
-2,919 -5,119
-7,942 -8,353 12,570 3,899 Selected consolidated statement of financial position
Nine months ended
30 September
Year ended 31 December
(in USD thousands) 2019 2018 2017 (unaudited) Total assets 15,656 19,550 10,114 Total equity 12,304 16,507 6,440 Total liabilities 3,353 3,043 3,674 Total equity and liabilities
15,656 19,550 10,114
Selected consolidated statement of cash flow
Three months ended 30
September Nine months ended
30 September Year ended
31 December (In USD thousands) 2019 2018 2019 2018 2018 2017
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(unaudited) (unaudited) (unaudited) (unaudited) Cash flow from operating activities
-897 -5,600 -3,859 -2,687 -7,278 -2,736
Cash flow from investment activities
- -3,023 - -9,635 -9,631 -1,400
Cash flow from financing activities
817 5,722 2,674 10,144 14,977 6,009
1.2.3 What are the key risks specific to the issuer?
• The Group only has funding for a limited time period (until June 2021). As the Group's current assets are not generating steady income, there is a risk that the Company will not be able to obtain funding for its operations when the current funds run out.
• Element is a project investment company within the mining sector and the digital and block-chain sector, currently holding only a limited number of investments. The Company is therefore exposed to market risk and a lack of diversity in the investment portfolio, and cannot fully control or influence the operations and performance of its investments. Further, returns might be adversely affected by poor performance of even a single investment.
• The Group's investments are illiquid and may be difficult to realize. • The Group is currently seeking or considering to divest its investment within the mining sector. If the
Company is able to divest this investment, the Company will no longer have any exposure towards the mining sector (apart from its claims for repayment of debt owed by Eardley and AMI). However, the Group may not be able to divest its investments within the mining sector at favourable terms, or at all.
• The Group is entitled to receive block-chain based tokens, subject to the terms and conditions of certain agreements, and has not yet received any such tokens. No assurance can be given that the Group will receive any such tokens.
• The Group may not have sufficient liquidity to meet its liabilities as they fall due.
1.3 Key information on the Securities
1.3.1 What are the main features of the securities
The securities' type, class and ISIN
The Shares of the Company have been created under the Norwegian Public Limited Companies Act and are registered in book-entry form with the VPS under ISIN NO NO0003055808.
The securities' currency, denomination, par value, the number of securities issued and the term of the securities
The Shares (including the Consideration Shares, the Conversion Shares and the Private Placement) are issued in NOK. As of the date of this Prospectus, the Company's share capital is NOK 30,038,843.20, divided into 18,774,277 Shares, with each Share having a par value of NOK 1.60.
The rights attached to the securities
The Company has one class of Shares and each Share carries one vote. All the Shares are validly issued and fully paid. All shareholders have equal voting rights in the Company. Pursuant to the Norwegian Public Limited Liability Companies Act, the Shares have equal rights to the Company's profits, in the event of liquidation and to receive dividend, unless all the shareholders agree otherwise. In the event of insolvency, the Shares will be subordinated all debt.
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Restrictions on transferability
Neither the Norwegian Public Limited Liability Companies Act nor the articles of associations provide for any restrictions on the transfer of Shares or a right of first refusal for the Company or its shareholders. Share transfers are not subject to approval by the Board of Directors. The transferability of the Shares may, however, be restricted in certain jurisdictions, and each investor in the Company should inform themselves about and observe such restrictions.
Dividend policy It is the Company's goal to give shareholders a competitive return on invested capital over time. This return will be achieved primarily through increase in share price and dividends. To date the Company has not paid out any dividends. Considering the Company's liquidity situation and cash flow situation, it is unlikely that the Company will pay dividends in the short term.
1.3.2 Where will the securities be traded
The Shares are listed and tradable on the Oslo Stock Exchange, under ticker "ELE". The Consideration Shares, the Conversion Shares and the Private Placement Shares will be listed and tradable on the Oslo Stock Exchange as soon as possible after the publication of this Prospectus. The Company has not applied for admission to trading of the Shares on any other stock exchange or regulated market.
1.3.3 What are the key risks that are specific to the securities
A brief summary of the key risks that are specific to the Shares are set out below:
• Shareholders not participating in future offerings of Shares or other equity investments will be diluted.
1.4 Key information on the admission to trading and the offer of securities
1.4.1 Under which conditions and timetable can I invest in this security
Listing of Consideration Shares, Conversion Shares and Private Placement Shares
The Consideration Shares were issued as transaction consideration on 15 August 2019 to PALCapital (through its wholly owned subsidiary Hope For More AS) in relation to the PALCapital Transaction. The Consideration Shares were issued at a subscription price of NOK 1.60 per Consideration Share, corresponding to the par value of the Shares. The Conversion Shares were issued to EHGOSF in connection with conversion of Notes under the Convertible Note Facility. A number of 1,937,500 Conversion Shares were issued on 19 August 2019 and 851,851 Conversion Shares were issued on 11 October 2019. The Conversion Shares issued on 19 August 2019 were issued at a subscription price of NOK 1.60 per Conversion Share, corresponding to the par value of the Shares. The Conversion Shares issued on 11 October 2019 were issued at a subscription price of NOK 2.70. The Private Placement Shares were issued to a group of Norwegian investors on 22 October 2019 in the Private Placement. The Private Placement Shares were issued at a subscription price of NOK 4.50 per share.
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This Prospectus relates solely to the listing of the Consideration Shares, the Conversion Shares and the Private Placement Shares, and does not constitute an offer or an invitation to buy, subscribe or sell Consideration Shares, the Conversion Shares and the Private Placement Shares. The dilution for the existing shareholders from the issuance of the Consideration Shares, the Conversion Shares and the Private Placement relative to the Shares outstanding prior to the issuance of the Consideration Shares (i.e. on 14 August 2019) is approximately 31%. Total expenses related to the PALCapital Transaction, the Note Conversion, the Pending Note Conversion and the Private Placement is estimated to NOK 1,242,000. No expenses will be charged to the investors by the Company.
1.4.2 Why is this Prospectus being produced?
This Prospectus has been produced to enable admission to trading of the Consideration Shares, the Conversion Shares and the Private Placement Shares.
Estimated net proceeds and use of proceeds
The issuance of the Consideration Shares and the Conversion Shares were settled through conversion of debt, and did not consequently not entail any cash proceeds for the Company. The Private Placement raised net proceeds of NOK 2,050,000 million, which will be used for general corporate purposes.
Underwriting
Neither the PALCapital Transaction, the Note Conversion nor the Private Placement were underwritten.
Material conflicts
PAL has an interest in the issuance of the Consideration Shares as it received such Consideration Shares as consideration in the PALCapital Transaction. EHGOSF has an interest in the issuance of the Conversion Shares as it received such Conversion Shares through the Note Conversion. Beyond the abovementioned, the Company is not aware of any material conflicts of interest pertaining to the admission to trading of the Consideration Shares, the Conversion Shares and the Private Placement Shares.
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2 RISK FACTORS
An investment in the Company and its Shares involves inherent risk. An investor should consider carefully all information set forth in this Prospectus and, in particular, the specific risk factors set out below. An investment in the Shares is suitable only for investors who understand the risks associated with this type of investment and who can afford a loss of the entire investment. The risks and uncertainties described in this Section 2 are the material known risks and uncertainties faced by the Group as of the date hereof, and represents those risk factors that the Company believes to represent the most material risks for investors when making their investment decision in the Shares. The risk factors included in this Section 2 "Risk Factors" are presented in a limited number of categories, where each risk factor is sought placed in the most appropriate category based on the nature of the risk it represents. Within each category the risk factors deemed most material for the Group, taking into account their potential negative effect for the Group and the probability of their occurrence, are set out first. This does not mean the remaining risk factors are ranked in order of their materiality or comprehensibility, nor based on a probability of their occurrence. The absence of negative past experience associated with a given risk factor does not mean that the risks and uncertainties in that risk factor are not genuine and potential threats, and they should be therefore be considered prior to making an investment decision. If any of the following risks were to materialize, either individually, cumulatively or together with other circumstances, it could have a material adverse effect on the Group and/ or its business, results of operations, cash flows, financial condition and/ or prospects, which may cause a decline in the value and trading price of the Shares, resulting in loss of all or part of an investment in the Shares.
2.1 General risks relating to investment activities
2.1.1 The Group is subject to general investment risks
Element is a project investment company within the mining sector and the digital and block-chain sector. As of the date hereof, the Company has ownership interests in the mining sector and hold rights to convertible notes and conditional rights to cryptocurrency in the digital and block-chain sector, and the Group is exposed to market risk related to these assets (i.e. the risk that the market determines the value of the Group's investments). Further, the Company has a majority holding in its investment in the Mindoro Nickel Project. As a consequence of the market risk, and with regards to its investments in the digital and block-chain sector the lack of control over the underlying companies of these investments, the Group cannot fully control or influence the operations and performance of its investments. Further, there is political risk which entails that unexpected changes in legislation and other kinds of regulation, including tax regulation, may affect the value of the Group's investments negatively. The Group may only participate in a limited number of investments. This implies that returns might be adversely affected by poor performance of even a single investment. Further, suitable investments may not always be available at a particular time or the Group may not be able to fund the investments it wishes to complete. As a consequence, there can be no guarantee that the Group will be able to utilize its available capital for favourable investments. There can be no assurance that the Group's investments will provide a positive return. Each of the companies the Group has invested in and hold interests in may, in a worst-case scenario, become insolvent and become bankrupt and thereby entail a complete loss of the value of the Company's investment.
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2.1.2 Changes in key personnel and investment philosophy may affect the Group's investments
Investment in an investment company, such as Element, may be seen as an investment in the competences of the employees of the investment companies, and the investment philosophy, investment process and risk management of the investment company. The Company and its shareholders is thus exposed to the risk of key personnel resigning from the Company and/or that the Company's board of directors (the "Board") determines that the Company shall change its investment philosophy, investment process and risk management procedures.
2.1.3 The Group's investments are illiquid and may be difficult to realize
There does not exist a regulated market for trading of the assets the Group has invested in and they must be considered as illiquid. Thus, the Group may not be able to realize their investments at favourable terms, or at all. If the Group is not able to realize its investments at favourable terms, or at all, this may adversely affect the Group's operations, earnings and financial condition.
2.2 Risks relating to the Group's investment within the mining sector
2.2.1 The Group is currently seeking or considering to divest its investments within the mining sector
The Group currently holds ownership interests in a nickel-laterite deposit located on the island of Mindoro in the Philippines (the "Mindoro Nickel Project"). This project has been under development by the Group during the past 23 years, and significant activities remain if the project shall reach revenue generating phase. The investment in the Mindoro Nickel Project gives the Company exposure towards the mining sector and the risks inherent in developing and operating projects in that sector. The Mindoro Nickel Project is currently in a phase with minimal activity and no ongoing development or exploration activity. Consequently, this project does not have positive cash flow as of the date of this Prospectus, and significant investments and resources must be made to make the Mindoro Nickel Project cash flow positive. In addition, the further development of the project is subject to significant mining development risks, including risks related to ore processing technology, environmental monitoring and protection, production and operation, and risks related to the regulatory environment for mining operations. These factors must be expected to affect the terms of, and the possibility to complete, a divestment of the Mindoro Nickel Project negatively. The Company has currently classified its investment in the Mindoro Nickel Project as an "Asset held for Sale", and has for several years seeked to divest this investment. The Group may not be able to divest its investment in the Mindoro Nickel Project at favourable terms, or at all, and this may adversely affect the Group's operations, earnings and financial condition. If the risk factors described in this Section 2.2 materializes or threatens to materialize, there will be an increased risk of the Company not being able to divest the investment in the Mindoro Nickel Project. If the Company is able to divest its investment in the Mindoro Nickel Project, the Company will no longer have any exposure towards the mining sector. Investors seeking exposure towards this sector through an investment in the Company must therefore be prepared that this exposure may be reduced or may no longer be available following a sale of the assets in the Mindoro Nickel Project. If the Group is not able to divest its investment in the Mindoro Nickel Project, the Group may discontinue all operation in the Philippines. If this happens, the Group will have to pay cost related to closing down all activities, dismissal of all staff and returning the MSPAs back to the Philippine Authorities. The cost for discontinuing all operations could be higher or lower than expected and this would affect the future earnings of the Group.
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In light of the above, the risk factors which normally are attributable to mining companies, including risks related to minerals and metal prices, production and operations, risks related to competition, risks related to government regulations, are no longer considered as material risks for the Company.
2.2.2 The political and regulatory framework for mining companies on the Philippines may make it more difficult to divest the Mindoro Nickel Project
In December 2009, provincial authorities in the Philippines issued a Provincial Ordinance declaring a 25 year moratorium on mining (Ordinance no. 001-2002). It is the Company's view that the provincial moratorium is neither consistent with the Constitution nor the Mining Act. However, the enforcement of the provincial moratorium has caused all the Company's activities relating to the Mindoro Nickel Project to be halted, and will continue to do so until the provincial moratorium is voided by a court decision based on inconsistency with the Constitution and/or the Mining Act. Significant risks exist with respect to the possibility of being able to successfully lift the provincial moratorium either through judicial action or otherwise, and no predictions can be made to the outcome of any such attempt to lift the moratorium. In August 2018, AMC received an approval from the Mines and Geosciences Bureau for bulk sampling of up to 500 tons of nickel ore from the Mindoro Nickel Project. On 25 April 2019, AMC received a cease and desist order from the Provincial Governor in Oriental Mindoro. The bulk sampling were intended to be used for pilot testing of CRSM technology (an alternative processing technology). However, the Company has abandoned its investment in the CRSM technology, and is complying with the cease and desist order. The situations described above showcase that the political and regulatory framework for mining companies on the Philippines is unpredictable, which may have an adverse effect on the terms and conditions on which the Company may divest the Mindoro Nickel Project and on the ability of the Company to divest the Mindoro Nickel Project at all.
2.2.3 Risks related to current corporate structure
Under Philippine law, Mineral Production Sharing Agreements ("MPSAs") or other similar arrangements are required to perform activities such as exploration and utilization of minerals. MPSAs can only be held by Filipino citizens. Corporations at least 60% owned by Filipino citizens qualify as such. The Group has four MPSAs of which three are held by Aglubang Mining, Corporation ("AMC") and one by Alagag Mining, Inc. ("Alagag"). Both AMC and Alagag are directly owned by corporations owned at least 60% by Filipino citizens. However, in the case "Narra Nickel Mining and Development Corp., et al. v. Redmont Consolidated Mines Corp." ("Narra Decision"), the Supreme Court of the Philippines applied the so-called Grandfather Rule in determining the Filipino ownership of corporate entities engaged in nationalized and partly nationalized industries such as the mining industry. The 1987 Philippine Constitution and the Philippine Mining Act of 1995 reserve the exploration, development and utilization of natural resources to Filipinos or to corporations at least sixty percent (60%) of whose capital is owned by Filipinos, subject to certain exceptions. The Narra Decision applied the Grandfather Rule in determining the nationality of the companies involved in that case because there was doubt in the Court's mind on the Philippine nationality of such companies. The Grandfather Rule calls for tracing the ownership of stocks in layered corporations up to their ultimate holders. If the Grandfather Rule were to be applied to AMC and Alagag, there is a possibility that AMC and Alagag may be held to be non-Philippine nationals for purposes of holding the MPSAs as all of their shares will be traced to the Company. AMC and Alagag will thus be considered as being wholly owned by foreigners and hence disqualified from being MPSA contractors under existing laws governing the mining industry and its operations. In essence, the Grandfather Rule does away with the legal fiction created by the control test in according Philippine nationality to corporations that are at least 60% Filipino-owned. In so doing, the Filipino interest becomes diluted while foreign interest is indirectly increased.
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If the Mines and Geosciences Bureau (MGB) should opt, either on its own initiative or upon a complaint by an interested party, to re-evaluate the corporate structure of the Group and apply the Grandfather Rule as applied in the Narra Decision, this may result in the termination of the MPSAs on the ground that the MPSA holders are foreign companies and not qualified Filipino citizens. If the scenario described above should materialize, the Group would subsequently lose ownership to all currently held mineral licenses relating to the Mindoro Nickel Project and would, as a consequence, have to perform a full write-down of the booked value of its investment in the Mindoro Nickel Project. The Company, AMC and Alagag have plans to restructure to render the Grandfather Rule inapplicable and make the Mindoro Nickel Project fully compliant with Philippine nationality rules. The Company is currently exploring various possibilities for such restructuring, but one solution may be to transfer shareholdings internally within the Group in order to comply with the Grandfather Rule.
2.3 Risks related to the Company's activities and investments within the digital and block-chain sector
2.3.1 Risks related to the PALCapital portfolio companies
The Group is exposed towards the digital and block-chain sector through its investment in PALCapital Ventures, Inc. ("PALCapital"). PALCapital holds rights to receive Fanchain tokens issued by SportsCastr International Ltd., which right the Company intends to exercise at such time as the Fanchain tokens are listed on a new trading platform, , and, further, rights to receive blockchain based tokens to be issued by two other companies (TradeStars and MetaMe) (contingent upon each of the companies actually completing an issuance of blockchain based tokens to third parties) and also hold (i) rights to convertible notes, and (ii) restricted shares in one company. No assurance can be given that the portfolio companies of PALCapital will actually issue any further blockchain based tokens, and consequently there is a risk that the Group will not receive any blockchain based tokens under the agreements. If the Group does not receive any blockchain based tokens, it will be unlikely that the Group is able to realize any gains on the contractual rights that PALCapital currently holds. Further, all of the portfolio companies of PALCapital are companies with no or only insignificant revenues, with unproven business models and ability to attract revenue and users. The value of the contractual rights that PALCapital currently holds and the tokens and equity (when received) may be negatively impacted if the companies are not able to attract users and revenue or if blockchain technologies and cryptocurrencies are not successful in reaching a sufficient level of adoption by the general public.
2.3.2 Risks relating to the cryptocurrency regulatory environment
Regulation of cryptocurrency, digital tokens and token offerings is underdeveloped and is likely to evolve quickly. For example, cryptocurrency tokens may already be classified as securities (dependent on the characteristics of the tokens) and changes in legislation may entail that all tokens are considered as securities. Any changes in the cryptocurrency regulatory environment may affect the value and liquidity of the Group's investments within the digital and blockchain sectors. Further, the Group may incur both management and economic resources on adjusting to compliance with any new regulations coming into force.
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2.4 Financial risks
2.4.1 The Group only has funding for a limited time period and does not currently own any revenue generating assets
As of the date of this Prospectus, the Company expects to have funding to cover its present requirements until June 2021. As the Group's current assets are not generating income, there is a risk that the Company will not be able to obtain funding for its operations when the current funds run out. Given that the Group does not currently hold any assets generating steady revenue, it must identify other means of funding following June 2021, or even earlier if the Company incurs further obligations or liabilities (for example through new investments). The Company may also require additional funding in the future due to pursuance of new business opportunities or due to unforeseen liabilities or investments. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favourable to the Company. A failure to obtain suitable funding may imply that the Company will become insolvent and, if no other alternatives exist, enter into administration.
2.4.2 The Group may not have sufficient liquidity to meet its liabilities as they fall due
Liquidity risk measures the risk that the Company may not be able to meet its liabilities as they fall due and therefore, continue trading. The Company's policy on overall liquidity is to ensure that there are sufficient committed funds in place which, when combined with available cash resources, are sufficient to meet the funding requirements for the foreseeable future. Failure to obtain sufficient financing could result in the delay or indefinite postponement of exploration, development or production on any or all of the Company's projects. No assurance can be given as to the fact that the Company may be able to meet its liabilities as they fall due and therefore, continue trading.
2.4.3 The Group is subject to fluctuations in exchange rates
The functional currency of the Company is NOK, while the presentation currency for the Group is USD. Fluctuations in exchange rates can have an impact on the Company's financial results. The Company's costs are mostly incurred in Norwegian krone and Philipino Pesos. The Company does not undertake hedging activities against these potential fluctuations and, while this may expose the Company to greater risk, there are no assurances that hedging strategies, if implemented, would be successful.
2.4.4 Documentary stamp duty risk
Philippine documentary stamp tax (DST) payments by certain Philippine companies in the ownership structure related to intercompany loan transactions for the period 2008 to 2011 remain outstanding and carried forward. Settlement awaits assessment by the authorities, considering the recent regulations issued as applicable to such transactions. The financial exposure is expected to be approximately USD 1.24 million. The Group has included these claims in the balances sheet for its Philippine subsidiaries, which all have been classified as assets held for sale, but has not yet received any claim for payment of the documentary stamp duty risk.
2.4.5 Risks related to payment of Occupational Fees
In deference to local mining moratorium ordinances, the Local Government Units ("LGU") in whose areas of jurisdiction the MPSAs are located have not accepted the Group's mandatory annual occupational fees since 2008 for MPSA No. 167-2000-IV, since 2009 for MPSA No. 277-2009-IVB and since 2010 for MPSA Nos. 341-2010-IVB and 342-2010-IVB. In lieu of showing receipts for the annual payments, the Mines and Geosciences Bureau (MGB) requires
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the Group to show proof that all efforts to make the said payments have been made and are documented. To date, the cumulative occupational fees not accepted by LGUs amount to USD 207,000, which will become due upon LGU acceptance of the annual orders of payment issued by the MGB. The occupational fees are assessed by the MGB annually on the basis of a fixed fee on the hectarage of licensed areas, and total amount of cumulative occupational fees may consequently increase from the figure cited herein. The Group has included these claims in the balances sheet for its Philippine subsidiaries (except for the fees payable for the period 2020 – 2021), which all have been classified as assets held for sale. It is unclear when and if the LGUs will accept payment of the occupational fees. If the LGUs accept payment of the occupational fees, the payment must be funded by Element ASA and there is a risk that such funding will imply that the Company cannot complete investments or activities that it would otherwise carry out or that such funding from Element ASA may not be available at all.
2.5 Risks related to the Shares
2.5.1 Shareholders not participating in future offerings of Shares or other equity investments will be diluted
As the Group does not currently hold any revenue generating assets and as the Company only has working capital resources for a limited time, there is a risk that the Company may be required to raise additional equity in the future. Such equity raise may not be directed towards all shareholders. There is also a risk that investors will be diluted due to the exercise of warrants or other instruments convertible into Shares. Shareholders not participating in future offerings of Shares or other equity instruments, or in directed issuances of Shares, will be diluted. Under Norwegian law, unless otherwise resolved or authorized at the Company's general meeting of shareholders, existing shareholders in the Company have pre-emptive rights proportionate to the aggregate amount of the Shares they hold with respect to offer shares and other equity investments issued by the Company for cash consideration. However, shareholders not able or that choose not to exercise such pre-emptive rights will experience dilution of their shareholding. The exercise of pre-emptive rights by certain shareholders not residing in Norway (including, but not limited to those in the U.S., Australia, Canada, Hong Kong, Switzerland or Japan) may be restricted by applicable law, practice or other considerations, and such shareholders may not be entitled to exercise such rights, unless the rights and Shares are registered or qualified for sale under the relevant legislation or regulatory framework. Shareholders in jurisdictions outside Norway who are not able or not permitted to exercise their pre-emptive rights in the event of a future equity or other offering may suffer dilution of their shareholdings. Furthermore, the general meeting of the Company (or the Board, if duly authorized) may in the future pass resolutions to deviate from the pre-emptive rights of its shareholders. The issue of additional securities in the Company in connection with funding of operations, future acquisitions, any Share incentive or option plan or otherwise may have a negative impact on the price of the Shares and dilute all shareholdings. To the extent that the Company issues Shares against contribution in kind, the existing shareholders (at that time) will be diluted. Exercise of options or other securities that hold a right to require issuance of one or more Shares may also cause a dilution of existing shareholders.
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3 RESPONSIBILITY FOR THE PROSPECTUS
This Prospectus has been prepared in connection with the listing of the Consideration Shares, the Conversion Shares and the Private Placement Shares. The Board of Directors of the Company hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of our knowledge in accordance with the facts and contains no omissions likely to affect its import.
6 February 2020
The Board of Directors of Element ASA
Thomas Christensen
Chairman
Nils Kristoffer Gram Director
Kari Mette Toverud Director
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4 GENERAL INFORMATION
4.1 The approval of this Prospectus by the Norwegian Financial Supervisory Authority
The Financial Supervisory Authority of Norway (Nw: Finanstilsynet) (the "NFSA") has reviewed and approved this Prospectus, as competent authority under the EU Prospectus Regulation. The NFSA only approves this Prospectus as meeting the standards of completeness, comprehensibility and consistency imposed by the EU Prospectus Regulation, and such approval should be considered an endorsement of the issuer or the quality of the securities that are the subject of this Prospectus. The Prospectus was approved by the Norwegian FSA on 6 February 2020. This Prospectus is valid for a period of 12 months from the date of approval by the NFSA.
4.2 Simplified prospectus in accordance with Article 14 of the Prospectus Regulation
This Prospectus has been drawn up as part of a simplified prospectus regime in accordance with Article 14 of the EU Prospectus Regulation and the level of disclosures in this Prospectus is in accordance with that regime.
4.3 Other important investor information
The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Article 23 of the EU Prospectus Regulation, significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, occurring between the time of approval of this Prospectus by the Norwegian FSA and the listing of the Consideration Shares, the Conversion Shares and the Private Placement Shares, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus shall under any circumstances imply that there has been no change in the Group's affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. No person is authorised to give information or to make any representation concerning the Company other than as contained in this Prospectus. If any such information is given or made, it must not be relied upon as having been authorised by the Company or by any of its affiliates, representatives, advisors or selling agents of any of the foregoing.
4.4 Presentation of financial and other information
4.4.1 Financial information
The Group's audited consolidated financial statements as of, and for the year ended, 31 December 2018, which includes comparative figures for the year ended 31 December 2017, has been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). The audited consolidated financial statements as of, and for the year ended, 31 December 2018, which includes comparative figures for the year ended 31 December 2017, are hereinafter referred to as the "Annual Financial Statements" and have been incorporated by reference into this Prospectus. The Group's unaudited interim financial statements as of, and for the three and nine months period ended 30 September 2019 (with comparable figures for the corresponding interim period in 2018) have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting ("IAS 34"). The unaudited interim financial statements as of, and for the three and nine months period ended 30 September 2019 (with comparable figures for the corresponding interim period in 2018) are hereinafter referred to as the "Interim Financial Statements" and have been incorporated by reference into this Prospectus.
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The Annual Financial Statements and the Interim Financial Statements are hereinafter referred to as the "Historical Financial Information". Please refer to Section 17 "Incorporation by Reference and Documents" for further information on documents incorporated by reference. The Annual Financial Statements have been audited by Plus Revisjon AS, as set forth in their report included in the Annual Financial Statements. The Company presents the Historical Financial Information in USD (presentation currency).
4.4.2 Industry and market data
This Prospectus contains statistics, data, statements and other information relating to markets, market sizes, market shares, market positions and other industry data pertaining to Element's business and the industries and markets in which it operates. Unless otherwise indicated, such information reflects Element's estimates based on analysis of multiple sources, including data compiled by professional organisations, consultants and analysts and information otherwise obtained from other third party sources, such as annual and interim financial statements and other presentations published by listed companies operating within the same industry as Element, as well as Element' internal data and its own experience, or on a combination of the foregoing. Although Element believes its estimates to be reasonable, these estimates have not been verified by any independent sources, and Element cannot assure prospective investors as to their accuracy or that a third party using different methods to assemble, analyse or compute market data would obtain the same results. In addition, behaviour, preferences and trends in the marketplace tend to change. Element does not intend, and does not assume any obligations to update industry or market data set forth in this Prospectus. Industry publications or reports generally state that the information they contain has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. Element has not independently verified and cannot give any assurances as to the accuracy of market data contained in this Prospectus that was extracted from these industry publications or reports and reproduced herein. Market data and statistics are inherently predictive and subject to uncertainty and not necessarily reflective of actual market conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. As a result, prospective investors should be aware that statistics, data, statements and other information relating to markets, market sizes, market shares, market positions and other industry data in this Prospectus and projections, assumptions and estimates based on such information may not be reliable indicators of Element's future performance and the future performance of the industry in which it operates. Such indicators are necessarily subject to a high degree of uncertainty and risk due to the limitations described above and to a variety of other factors, including those described in Section 2 "Risk Factors" and elsewhere in this Prospectus.
4.4.3 Other information
In this Prospectus, all references to "NOK" are to the lawful currency of Norway, all references to "USD" are to the lawful currency of the United States and all references to "EUR" are to the lawful common currency of the EU member states who have adopted the Euro as their sole national currency. The Historical Financial Information is published in USD.
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4.4.4 Rounding
Certain figures included in this Prospectus have been subject to rounding adjustments (by rounding to the nearest whole number or decimal or fraction, as the case may be). Accordingly, figures shown for the same category presented in different tables may vary slightly. As a result of rounding adjustments, the figures presented may not add up to the total amount presented.
4.4.5 Cautionary note regarding forward-looking statements
This Prospectus includes forward-looking statements that reflect the Group's current intentions, beliefs or current expectations concerning, among other things, financial position, operating results, liquidity, prospects, growth, strategies and the industries and markets in which the Group operates. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "anticipates", "assumes", "believes", "can", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "should", "will", "would" or, in each case, their negative, or other variations or comparable terminology. Forward-looking statements as a general matter are all statements other than statements as to historic facts or present facts or circumstances. They appear in a number of places throughout this Prospectus, including, without limitation, in Section 6 "The Business of the Company", and include, among other things, statements relating to:
• the Group's strategy, outlook and growth prospects and the ability of the Group to implement its strategic initiatives;
• the Group's future results of operations; • the Group's financial condition; • the Group's working capital, cash flows and capital investments; • the Group's dividend policy; • the impact of regulations on the Group; • general economic trends and trends in the Group's industries and markets; and • the competitive environment in which the Group's operates.
Prospective investors in the Shares are cautioned that forward-looking statements are not guarantees of future performance and that the Group's actual financial position, operating results and liquidity, and the development of the industries and markets in which the Group operates, may differ materially from those made in or suggested by the forward-looking statements contained in this Prospectus. The Group can provide no assurances that the intentions, beliefs or current expectations upon which its forward-looking statements are based will occur. These forward-looking statements are subject to risks, uncertainties and assumptions, including those discussed elsewhere in this Prospectus. These forward-looking statements speak only as of the date of this Prospectus. Save as required by section 7-1 of the Norwegian Securities Trading Act or by other applicable law, the Group expressly disclaims any obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Group or to persons acting on the Group's behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Prospectus. Accordingly, prospective investors are urged not to place undue reliance on any of the forward-looking statements herein.
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5 LISTING OF NEW SHARES
5.1 The PALCapital Transaction
5.1.1 Description of the PALCapital Transaction
On 14 August 2019, the Company entered into and consummated a share purchase agreement with Pacific Alliance Limited, LLC ("PAL") to acquire 100% of the shares in PALCapital Ventures, Inc. ("PALCapital") (the "PALCapital Transaction"). PALCapital is an investment company with early stage investments within the digital and distributed ledger/blockchain sectors and currently hold rights to receive Fanchain tokens issued by SportsCastr International Ltd., which right the Company intends to exercise at such time as the Fanchain tokens are listed on a new trading platform, , and further holds rights to acquire equity (in AdNode) and rights to tokens (if issued) in two other companies (TradeStars and MetaMe) within the digital and blockchain industry. For further information about PALCapital and its holdings, please refer to Section 6.4 "The investment in PALCapital Ventures, Inc. (PALCapital)". The purchase price in the PALCapital Transaction was NOK 4,240,000, and was settled by the Company's issuance of a receivable for the same amount in favour of PAL. The receivable was thereafter transferred to Hope For More AS, a Norwegian company wholly owned by PAL. Hope For More AS subscribed for 2,650,000 new shares in the Company (the "Consideration Shares") at a conversion price of NOK 1.60 per share, corresponding to the par value of the Company's Shares at the closing date of the PALCapital Transaction, and settled the share deposit by conversion of the receivable mentioned above. The issuance of the Consideration Shares was resolved pursuant to the existing authorization to the Company's Board to increase the Company's share capital, as adopted at the ordinary annual general meeting held on 28 June 2019, see Section 5.1.2 "Resolution to issue the Consideration Shares". The share capital increase pertaining to the issuance of the Consideration Shares was registered in the Norwegian Register of Business Enterprises on 15 August 2019.
5.1.2 Resolution to issue the Consideration Shares
On 28 June 2019, the Company's general meeting adopted the following resolution to authorize the Board to increase the Company's share capital (translated from Norwegian):
(i) In accordance with section 10-14 of the Norwegian Public Limited Liability Companies Act, the Board is granted the authority to increase the Company's share capital by issuance of new shares with a total nominal amount of NOK 5,970,254.40, corresponding to 3,731,409 new shares, each with a par value of NOK 1.60, through one or several share capital increases.
(ii) The Board determines the terms of the share capital increase completed under the authorization.
(iii) The authorization includes increase of the share capital against contribution in kind or right to undertake special obligations under the Public Limited Liabilities Act section 10-2.
(iv) The authorization may be used in connection with mergers in accordance with the Public Limited Liability Companies Act section 13-5.
(v) The authorization applies until the annual general meeting in 2020, but not beyond 30 June 2020.
(vi) The existing shareholders' pre-emptive right in accordance with section 10-4 of the Norwegian Public Limited Liability Companies Act may be deviated from.
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(vii) The Board is authorized to amend the Articles of Association's provision regarding the size of the share capital and number of shares in accordance with the capital increases decided by the Board under this authorization.
(viii) The authorization granted in the ordinary general meeting on 29 June 2018 is withdrawn.
On 14 August 2019, the Company's Board resolved to issue the Consideration Shares (translated from Norwegian):
(i) The Company's share capital is increased with NOK 4,240,000 through issuance of 2,650,000 new shares, each with a par value of NOK 1.60.
(ii) The subscription price per share shall be NOK 1.60.
(iii) The new shares may be subscribed by Hope For More AS. The subscription of the new shares shall be made on a separate subscription form within the end of 14 August 2019.
(iv) The subscription amount shall be settled through set-off of a receivable held by the subscriber against the Company in the amount of NOK 4 240 000. Such set-off shall be deemed to have occurred upon subscription of the shares.
(v) The new shares shall rank pari passu with the existing shares and carry full shareholder rights in the Company from the time of subscription of shares and the simultaneous set-off of the NOK 4,240,000 payable to the subscriber, including the right to receive dividends and vote. The shares will, however, initially be registered on a separate, non-tradable ISIN. The shares shall be converted to the ordinary ISIN of the company and made tradable on the Oslo Stock Exchange following approval and publication of a listing prospectus.
(vi) Section 4 of the Company's articles of association is amended accordingly.
(vii) The estimated expenses related to the share capital increase are NOK 100,000.
5.1.3 Delivery and listing of the Consideration Shares
The Consideration Shares issued in connection with the PALCapital Transaction have been fully paid and the pertaining share capital increase have been registered in the Norwegian Register of Business Enterprises, and have in all respects equal rights as the existing Shares of the Company. Please see Section 5.4 "The Consideration Shares, the Conversion Shares and the Private Placement Shares" for a description of the Consideration Shares. The Consideration Shares will not be admitted to trading on the Oslo Stock Exchange until the NFSA has approved and the Company has published this Prospectus. Pending such approval and publication, the Consideration Shares were issued in the VPS on 16 August 2019, on a separate and interim International Securities Identification Number ("ISIN"), namely ISIN NO 001 0860943. Upon approval and publication of this Prospectus, the Consideration Shares will be transferred to the same ISIN as the existing Shares in the Company (i.e. ISIN NO 0003055808). The Consideration Shares will not be sought or admitted to trading on any other regulated market than the Oslo Stock Exchange. Please refer to Section 15 "Selling and Transfer Restrictions" for a description of certain selling and transfer restrictions applicable to the Consideration Shares.
5.1.4 Lock-up restrictions
PAL has entered into a lock-up undertaking on the Consideration Shares that will be gradually lifted during the first 12 months following completion of the PALCapital Transaction, as follows:
(i) 16.6% of the Consideration Shares may be disposed of at any time after the date falling three (3) months from 14 August 2019;
(ii) additional 16.6% of the Consideration Shares may be disposed of at any time after the date falling six (6) months from 14 August 2019;
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(iii) additional 16.7% of the Consideration Shares may be disposed of at any time after the date falling nine (9) months from 14 August 2019; and
(iv) the remaining 50% of the Consideration Shares may be disposed of after the date falling twelve (12) months from 14 August 2019.
The lock-up undertaking is further subject to customary terms and conditions.
5.1.5 Participation of major existing shareholders and members of the Company's management, supervisory or administrative bodies
Hope For More AS, which were allocated all of the Consideration Shares, is wholly owned by PAL, which is owned by James Haft. James Haft has been engaged by Element as a consultant since May 2019. Other than set out above, no major existing shareholders or member of the Company's management, supervisory or administrative bodies were allocated Consideration Shares in the PALCapital Transaction.
5.2 The Note Conversion
5.2.1 Description of the Note Conversion
On 16 August 2019, the Company carried out a conversion of 31 Notes (with a total conversion amount of NOK 3,100,000) (the "Note Conversion") under the first and second sub-tranche of the third tranche of the Convertible Note Facility. Another Note Conversion was made on 7 October 2019, when the Company converted 23 Notes (with a total conversion amount of NOK 2,300,000) under the first and second sub-tranche of the third tranche of the Convertible Note Facility. The total conversion amount under the Note Conversion was consequently NOK 5,400,000. The Note Conversion implied an issuance of 1,937,500 new Shares in the Company (the "Conversion Shares") at par value (NOK 1.60) to EHGOSF on 19 August 2019, and of 851,851 Conversion Shares at a conversion price of NOK 2.70 to EHGOSF on 11 October 2019. The share capital increases pertainings to the issuance of the Conversion Shares were registered in the Norwegian Register of Business Enterprises on 19 August 2019 and on 11 October 2019. For further information about the Convertible Note Facility, please refer to Section 7.1 "Convertible Note Facility".
5.2.2 Resolution to issue the Notes
On 18 March 2019, the Company's general meeting resolved to issue the Notes related to the Note Conversion by passing the following resolutions (translated from Norwegian):
(i) The Company's convertible notes in the amount of NOK 500,000,000 (the "Convertible Loan") as approved by the general meeting on 6 June 2018 and as set out in a loan agreement entered into between the Company and European High Growth Opportunities Securitization Fund, represented by European High Growth Opportunities Securitization Fund Manco SA (the "Investor"), dated 15 May 2018, as amended latest by an amendment agreement dated 21 February 2019 (the "Loan Agreement") will be amended on the terms set out below.
(ii) The Convertible Loan originally consist of 10 tranches, where each tranche is a convertible loan under the public limited liability companies act ("PLCA"), each with a par value of NOK 50,000,000. Tranche 3 of the convertible loan (as set out in section 4.3 in the minutes of extraordinary general meeting of 6 June 2018) will be amended so that it is split into no more than 7 sub-tranches where each sub-tranche
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is a convertible loan pursuant to the PLCA (collectively referred to as the "Loan Tranches", each a "Loan Tranche"). The first Loan Tranche is in the amount of NOK 20,000,000, whereas the remaining Loan Tranches are in an amount of minimum NOK 5,000,000 and a maximum of NOK 15,000,000, however so that the aggregate amount of all Loan Tranches shall not exceed NOK 50,000,000. This resolution relates to the first Loan Tranche ("Loan Tranche 1"). The Company shall simultaneously issue warrants connected to Loan Tranche 1.
(iii) The final maturity date of Loan Tranche 1 is 12 months from the date on which the resolution regarding Loan Tranche 1 is registered in the Norwegian Register of Business Enterprises (the "Maturity Date").
(iv) Loan Tranche 1 shall consist of 200 notes, each for an amount of NOK 100 000, in aggregate NOK 20,000,000. The Loan shall not carry interest.
(v) Loan Tranche 1 may be subscribed for by the Investor upon the request of the Company or the Investor, as further regulated in the Loan Agreement. The existing shareholders' preferential right to subscribe the notes pursuant to the PLCA section 11-4 is thus deviated from. In the event of oversubscription, the allocation shall be made by the board of directors.
(vi) The notes may be subscribed at a price corresponding to the par value of each note, i.e. NOK 100,000.
(vii) Loan Tranche 1 may be subscribed at a separate subscription document during the period between 18 March 2019 and 6 June 2022.
(viii) The subscription amount shall be settled simultaneously with subscription of Loan Tranche 1 through cash payment to a bank account indicated by the Company.
(ix) The Loan is unsecured and pari passu with other non-subordinated debt in the Company.
(x) Each noteholder may convert all or some of its notes to shares in the Company in the period from registration of Loan Tranche 1 in the Norwegian Register of Business Enterprises and until the Maturity Date. It will technically not be possible to convert the notes until after the notes have been registered with the Norwegian Central Securities Depository. All notes that have not been converted to shares within the Maturity Date, shall automatically be converted into shares on the Maturity Date.
(xi) The subscription price upon conversion of notes to shares shall be 100% of the lowest daily volume weighted average price of the shares of the Company on Oslo Stock Exchange as reported by Bloomberg during the 10 consecutive trading days (as further regulated in the Loan Agreement) prior to the trading day the Company receives a conversion notice. Shares issued through conversion are entitled to dividends from the date the share capital increase is registered in the Norwegian Register of Business Enterprise.
(xii) In the event of changes in the Company's share capital, including increase or decrease of the share capital, issuance of subscription rights or through dissolution, merger, demerger or reorganization, each noteholder shall have the same rights as those of a shareholder as provided in the PLCA section 11-2 (2) no. 11 second sentence.
(xiii) The conversion right may not be separated from the receivable or exercised independently of the receivable, cf. the PLCA section 11-2 (2) no. 13.
(xiv) The resolution to issue Loan Tranche 1 and the resolution to issue the connected warrants tranche as stipulated in section 5.1 below are mutually dependent on each other.
(xv) The resolution by the general meeting of 6 June 2018 relating to tranche 3 of the convertible loan (sections 4.3 and 5.3 in the minutes from extraordinary general meeting of 6 June 2018) is hereby withdrawn and will be replaced by sections 4 and 5 of these minutes.
And
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(i) The Company's convertible notes in the amount of NOK 500,000,000 (the "Convertible Loan") as approved by the general meeting on 6 June 2018 and as set out in a loan agreement entered into between the Company and European High Growth Opportunities Securitization Fund, represented by European High Growth Opportunities Securitization Fund Manco SA (the "Investor"), dated 15 May 2018, as amended latest by an amendment agreement dated 21 February 2019 (the "Loan Agreement") will be amended on the terms set out below.
(ii) The Convertible Loan originally consist of 10 tranches, where each tranche is a convertible loan under the public limited liability companies act ("PLCA"), each with a par value of NOK 50,000,000. Tranche 3 of the convertible loan (as set out in section 4.3 in the minutes of extraordinary general meeting of 6 June 2018) will be amended so that it is split into no more than 7 sub-tranches where each sub-tranche is a convertible loan pursuant to the PLCA (collectively referred to as the "Loan Tranches", each a "Loan Tranche"). The first Loan Tranche is in the amount of NOK 20,000,000, whereas the remaining Loan Tranches are in an amount of minimum NOK 5,000,000 and a maximum of NOK 15,000,000, however so that the aggregate amount of all Loan Tranches shall not exceed NOK 50,000,000. This resolution relates to the second Loan Tranche ("Loan Tranche 2"). The Company shall simultaneously issue warrants connected to Loan Tranche 2.
(iii) The final maturity date of Loan Tranche 2 is 12 months from the date on which the resolution regarding Loan Tranche 2 is registered in the Norwegian Register of Business Enterprises (the "Maturity Date").
(iv) Loan Tranche 2 shall consist of minimum 50 and a maximum of 150 notes, each for an amount of 100,000. The Loan shall not carry interest.
(v) Loan Tranche 2 may be subscribed for by the Investor upon the request of the Company or the Investor, as further regulated in the Loan Agreement. The existing shareholders' preferential right to subscribe the notes pursuant to the PLCA section 11-4 is thus deviated from. In the event of oversubscription, the allocation shall be made by the board of directors.
(vi) The notes may be subscribed at a price corresponding to the par value of each note, i.e. NOK 100,000.
(vii) Loan Tranche 2 may be subscribed at a separate subscription document during the periods between 20 March 2019 and 6 June 2022.
(viii) The subscription amount shall be settled simultaneously with subscription of Loan Tranche 2 through cash payment to a bank account indicated by the Company.
(ix) The Loan is unsecured and pari passu with other non-subordinated debt in the Company.
(x) Each noteholder may convert all or some of its notes to shares in the Company in the period from registration of Loan Tranche 2 in the Norwegian Register of Business Enterprises and until the Maturity Date. It will technically not be possible to convert the notes until after the notes have been registered with the Norwegian Central Securities Depository. All notes that have not been converted to shares within the Maturity Date, shall automatically be converted into shares on the Maturity Date.
(xi) The subscription price upon conversion of notes to shares shall be 100% of the lowest daily volume weighted average price of the shares of the Company on Oslo Stock Exchange as reported by Bloomberg during the 10 consecutive trading days (as further regulated in the Loan Agreement) prior to the trading day the Company receives a conversion notice. Shares issued through conversion are entitled to dividends from the date the share capital increase is registered in the Norwegian Register of Business Enterprise.
(xii) In the event of changes in the Company's share capital, including increase or decrease of the share capital, issuance of subscription rights or through dissolution, merger, demerger or reorganization, each noteholder shall have the same rights as those of a shareholder as provided in the PLCA section 11-2 (2) no. 11 second sentence.
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(xiii) The conversion right may not be separated from the receivable or exercised independently of the receivable, cf. the PLCA section 11-2 (2) no. 13.
(xiv) The resolution to issue Loan Tranche 2 and the resolution to issue the connected warrants tranche as stipulated in section 5.2 below are mutually dependent on each other.
No further resolutions by the general meeting of the Company or the Board was required to issue the Conversion Shares.
5.2.3 Delivery and listing of the Conversion Shares
The Conversion Shares issued in connection with the Note Conversion have been fully paid and the pertaining share capital increase have been registered in the Norwegian Register of Business Enterprises, and have in all respects equal rights as the existing Shares of the Company. Please see Section 5.4 "The Consideration Shares, the Conversion Shares and the Private Placement Shares" for a description of the Conversion Shares. The Conversion Shares will not be admitted to trading on the Oslo Stock Exchange until the NFSA has approved and the Company has published this Prospectus. Pending such approval and publication, the Consideration I Shares were issued in the VPS on 19 August 2019, on a separate and interim ISIN, namely ISIN NO 001 0860943. Upon approval and publication of this Prospectus, the Conversion Shares will be transferred to the same ISIN as the existing Shares in the Company (i.e. ISIN NO 0003055808). The Conversion Shares will not be sought or admitted to trading on any other regulated market than the Oslo Stock Exchange. Please refer to Section 15 "Selling and Transfer Restrictions" for a description of certain selling and transfer restrictions applicable to the Conversion Shares.
5.2.4 Participation of major existing shareholders and members of the Company's management, supervisory or administrative bodies
EHGOSF, a major shareholder in the Company (i.e. holding more than 5% of the Shares), was allocated all of the Conversion Shares. Other than set out above, no major existing shareholders or member of the Company's management, supervisory or administrative bodies were allocated Conversion Shares in the Note Conversion.
5.3 The Private Placement
5.3.1 Description of the Private Placement
On 14 October 2019, the Company announced that it had completed a private placement, directed towards a group of Norwegian investors, of 463,333 new shares (the "Private Placement Shares") at a subscription price of NOK 4.50 per Private Placement Share (the "Private Placement"), thereby raising gross proceeds of NOK 2,085,000. Three of the investors in the Private Placement also held shares in the Company prior to the Private Placement, with a total holding of 94,361 shares, corresponding to 0.005% of the outstanding shares prior to the Private Placement. Apart from this, none of the investors are shareholders in the Company as of today. Prior to approving the Private Placement, the Board considered the principle of equal treatment of shareholders in relation to the Private Placement. The Private Placement constituted a deviation from the principle of equal treatment and the pre-emptive rights of the shareholders as not all shareholders were invited to subscribe for the Private Placement Shares. The Board considered that the deviation from these rules were justifiable, as the subscription price per Private Placement Share of NOK 4.50 was higher than the closing price of the Company's
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shares on 14 October 2019, of NOK 3.83 per Share. The Board further emphasized that the Private Placement enabled the Company to raise equity in an effective manner, and that the total dilution resulting from the Private Placement was limited. The Private Placement Shares was issued based on an existing authorization to the Board to issue shares approved by the annual general meeting on 28 June 2019. The Private Placement was carried out to raise working capital and the net proceeds from the Private Placement of approximately NOK 2,050,000 will be used for working capital purposes. The share capital increase pertaining to the issuance of the Private Placement Shares was registered in the Norwegian Register of Business Enterprises on 22 October 2019.
5.3.2 Resolution to issue the Private Placement Shares
On 28 June 2019, the Company's general meeting adopted the following resolution to authorize the Board to increase the Company's share capital (translated from Norwegian):
(i) In accordance with section 10-14 of the Norwegian Public Limited Liability Companies Act, the Board is granted the authority to increase the Company's share capital by issuance of new shares with a total nominal amount of NOK 5,970,254.40, corresponding to 3,731,409 new shares, each with a par value of NOK 1.60, through one or several share capital increases.
(ii) The Board determines the terms of the share capital increase completed under the authorization.
(iii) The authorization includes increase of the share capital against contribution in kind or right to undertake special obligations under the Public Limited Liabilities Act section 10-2.
(iv) The authorization may be used in connection with mergers in accordance with the Public Limited Liability Companies Act section 13-5.
(v) The authorization applies until the annual general meeting in 2020, but not beyond 30 June 2020.
(vi) The existing shareholders' pre-emptive right in accordance with section 10-4 of the Norwegian Public Limited Liability Companies Act may be deviated from.
(vii) The Board is authorized to amend the Articles of Association's provision regarding the size of the share capital and number of shares in accordance with the capital increases decided by the Board under this authorization.
(viii) The authorization granted in the ordinary general meeting on 29 June 2018 is withdrawn.
On 14 October 2019, the Company's Board resolved to issue the Private Placement Shares (translated from Norwegian):
(i) The share capital of the Company is increased with up to NOK 741,332.80 through issuance of up to 463,333 new shares, each with a par value of NOK 1.60;
(ii) The shares are subscribed at a subscription price of NOK 4.50 per share, corresponding to a share premium of NOK 2.90 per share. The total subscription amount is NOK 2,085,000.
(iii) The shares are subscribed by the investors, and with the allocation, as set out in Appendix 1 to the minutes. The pre-emptive right of the existing shareholders pursuant to section 10-4 of the Norwegian Public Limited Companies Act is thereby deviated.
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(iv) Subscription of the new shares shall be made in a separate subscription document within 14 October 2019 at 16.00 hours.
(v) The share deposit shall be paid at the latest on 17 October 2019 to the Company's share issue account 1503.99.56990.
(vi) The new shares will rank pari passu in all respects with the existing shares and give full shareholder rights, including the right to dividends, from such time as the share capital increase is registered in the Norwegian Register of Business Enterprises. The new shares will, however, be registered in the VPS at a separate ISIN until the Company publishes an approved prospectus for listing of the new shares on the Oslo Stock Exchange.
(vii) Section 4 in the Company's articles of association is amended accordingly.
(viii) The costs of the share capital increase are estimated to be NOK 35,000.
5.3.3 Delivery and listing of the Private Placement Shares
The Private Placement Shares have been fully paid and the pertaining share capital increase have been registered in the Norwegian Register of Business Enterprises, and will in all respects be equal to the existing Shares of the Company. Please see Section 5.4 "The Consideration Shares, the Conversion Shares and the Private Placement Shares" for a description of the Private Placement Shares. The Private Placement Shares will not be admitted to trading on the Oslo Stock Exchange until the NFSA has approved and the Company has published this Prospectus. Pending such approval and publication, the Private Placement Shares were issued in the VPS on 29 October 2019, on a separate and interim ISIN, namely ISIN NO NO 001 0860943. Upon approval and publication of this Prospectus, the Private Placement Shares will be transferred to the same ISIN as the existing Shares in the Company (i.e. ISIN NO 0003055808). The Private Placement Shares will not be sought or admitted to trading on any other regulated market than the Oslo Stock Exchange. Please refer to Section 15 "Selling and Transfer Restrictions" for a description of certain selling and transfer restrictions applicable to the Private Placement Shares. A number of 219,200 Private Placement Shares have been delivered as existing and tradable Shares in the Company by the Company, under a share lending arrangement where chairman Thomas Christensen agreed to lend a total of 400,000 Shares to the Company.
5.3.4 Participation of major existing shareholders and members of the Company's management, supervisory or administrative bodies
No major existing shareholders or member of the Company's management, supervisory or administrative bodies were allocated Private Placement Shares in the Private Placement.
5.4 The Consideration Shares, the Conversion Shares and the Private Placement Shares
The Consideration Shares, the Conversion Shares and the Private Placement Shares are ordinary shares in the Company each having a par value of NOK 1.60. The Consideration Shares, the Conversion Shares and the Private Placement Shares are issued electronically in registered, book-entry form in accordance with the PLCA. The rights attached to the Consideration Shares, the Conversion Shares and the Private Placement Shares are the same as those attached to the Company's existing Shares and all such shares rank pari passu with the existing Shares in all respects (including the right to receive dividends and vote). The Consideration Shares has held the right to receive dividends from the date of subscription of the Consideration Shares, i.e. 14 August 2019. The Conversion Shares has held the right to receive dividends from the date the share capital increase relating to these shares was registered in the Norwegian Register of Business Enterprises (i.e. on 19 August 2019 for 1,937,500 of the Conversion
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Shares and on 11 October 2019 for 851,851 of the Conversion Shares). The Private Placement Shares has held the right to receive dividends from the date the share capital increase relating to these shares was registered in the Norwegian Register of Business Enterprises (i.e. on 22 October 2019).
5.5 Dilution
The dilution for the existing shareholders from the issuance of the Consideration Shares, the Conversion Shares and the Private Placement relative to the Shares outstanding prior to the issuance of the Consideration Shares (i.e. on 14 August 2019) is approximately 31%.
5.6 The Company's share capital following the issuance of the Consideration Shares, the Conversion Shares and the Private Placement Shares
Following the issuance of the Consideration Shares, the Conversion Shares and the Private Placement Shares, the share capital of the Company is NOK 30,038,843.20 comprising of 18,774,277 Shares each with a par value of NOK 1.60.
5.7 Interests of natural and legal persons
PAL has an interest in the issuance of the Consideration Shares as it received such Consideration Shares as consideration in the PALCapital Transaction. EHGOSF has an interest in the issuance of the Conversion Shares as it received such Conversion Shares through the Note Conversion. Other than the above mentioned and the description of participation of major existing shareholders and members of the Company's management, supervisory or administrative bodies in set out in Section 5.1.5 and Section 5.2.4, the Company is not aware of any interest (including conflict of interests) of any natural or legal persons involved in the PALCapital Transaction, the Note Conversion and the Private Placement.
5.8 Proceeds and expenses
The Consideration Shares were issued against contribution consisting of all shares in PALCapital and did, as such, not give any cash proceeds to the Company. Costs in relation to the PALCapital Transaction and the issuance and listing of the Consideration Shares, was approximately NOK 767,000, primarily for financial and legal advisors. The Conversion Shares were issued by conversion of outstanding debt pursuant to the Note Conversion under the Convertible Note Facility and did, as such, not give any cash proceeds to the Company. Costs in relation to the Note Conversion and the issuance and listing of the Conversion Shares, was approximately NOK 450,000, primarily for financial and legal advisors. The Private Placement Shares were issued for gross proceeds of NOK 2,085,000. Costs in relation to the Private Placement and the issuance and listing of the Private Placement Shares, was approximately NOK 35,000, primarily for financial and legal advisors. The Private Placement consequently raised net proceeds of approximately NOK 2,050,000. No expenses will be charged to the investors by the Company.
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5.9 Jurisdiction and choice of law
The Consideration Shares, the Conversion Shares and the Private Placement Shares have been issued under Norwegian law in accordance with the Norwegian Public Limited Companies Act (the "PLCA").
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6 THE BUSINESS OF THE COMPANY
6.1 Introduction
Historically the main business of the Company has been to be a mineral exploration company holding mineral exploration rights for nickel-cobalt-mineralized areas on the island of Mindoro in the Philippines (the "Mindoro Nickel Project"). In 2016, a new Board and management was put in place and the key focus and strategy of the Company was changed from being a single asset company developing the Mindoro Nickel Project, to being an investment firm focusing on investments in mature mineral assets with a short path to cash flow and using environmentally friendly technology. In November 2016, the Company announced that it had entered into a financing agreement with Alpha Blue Ocean Inc. (ABO), and an agreement with Ambershaw Metallics Inc. (AMI) and Legacy Hill Resources Ltd. ("LHR") to invest in the Bending Lake Project in Canada. In 2017, the Company started a project aiming at issuing cryptocurrency tokens, and in 2018 the Company invested in a call option to acquire an indirect minority ownership stake in a listed Moroccan mining company (CMT). The Company has over several years worked to realise the Mindoro Nickel Project, through sale or other forms of partnership agreements. However, several attempts to realise the asset have not yet succeeded. In December 2016, the Company entered into a cooperation agreement with Spruance Investments Ltd and its principal Jose Roy Borromeo to assist in sourcing a buyer or a local partner for the Mindoro Nickel Project in the Philippines, however this cooperation agreement is no longer active. The Company is still actively trying to divest the Mindoro Nickel Project. During the period between October – December 2019, the Company divested its holdings in Osead Fund/ CMT and in AMI, and also terminated the Convertible Note Facility with EHGOSF (for further information, please refer to Section 7 "Material contracts"). These transactions are expected to enable the Company to focus more of its resources toward digital initiatives. In addition to the investments described below, the Company also holds claims for repayment of debt towards Eardley and AMI, which has arisen in connection with the Company's divestment of its holdings in AMI. For further information about these claims, see Section 7.3 "Divestment of holdings in AMI".
6.2 The strategy
In the first half of 2019, the Company, under a new Board and management, communicated to the market its intention to realise its portfolio of mineral assets and partly shift focus over to investments in the digital sector. In October 2019, the Company divested all its ownership in OSEAD Fund/ CMT and in December 2019, the Company divested its holdings in AMI and further terminated the Convertible Note Facility with EHGOSF/ ABO. In August 2019, the Company acquired PALCapital Ventures Inc., a company owning token rights and equity right options in a portfolio of early-stage companies within the digital and blockchain sectors. The strategic rationale for this transaction is to build a portfolio of digital investments, an asset class which traditionally have been less liquid than publicly listed securities. Equity investors around the world who wants exposure to the digital segment of the economy, have so far had few avenues to achieve this objective, save for participating in start-up companies early fund raising rounds, or buy coins/tokens in Initial Coin Offering/Initial Token Offering (ICO/ITO) events. Due to the nature of such early-phase investments, the investors would typically have to hold the asset for 3-5 years before they could have an exit. For many investors, both funds and individuals, who want to have exposure to the digital economy but want or must be invested in liquid assets, Element could be able to offer the investors exposure to the
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digital industry, while at the same time letting the investor stay in a liquid security, the Element share, which they could trade on a regulated market place, Oslo Børs. While the plan is for the Company to keep a meaningful exposure to the digital economy, the Company will also consider other non-digital investments.
6.3 Historical development
A brief history of events of significance to the Company's current project portfolio is outlined in the table below:
Year Event / milestone 1997 Mindex ASA was listed on the Oslo Stock Exchange and received its first exploration permit for
the Mindoro Nickel Project in the Philippines. 2000 Mindex ASA and Crew Development Corporation merged and were listed on the Toronto Stock
Exchange and the Oslo Stock Exchange. The Mindoro Nickel Project in the Philippines was granted the first of its four 25-year Mineral Production and Sharing Agreement, which is a type of mineral agreement with built-in regulatory mechanisms and time lines to take advanced projects with proven mineral reserves to production.
2005 The Nordli molybdenum project in Hurdal, Norway was added to the Group's portfolio. 2005-2007 Resource definition drilling was conducted on the Nordli porphyry-molybdenum deposit,
followed by metallurgical test work for separation of molybdenite (MoS2) from the ore, and a mine engineering scoping study. This provided basic parameters for a first-pass evaluation of possible scenarios for development.
2006 Crew Minerals ASA was spun off from Crew Gold Corporation and listed on the Oslo Stock Exchange.
2007 Crew Minerals ASA changed name to Intex Resources ASA. 2009 A 10-year exploitation licence was granted for the Nordli molybdenum project. 2009 The Mindoro Nickel Project's MPSA No. 277-2009-IVB was issued. The Mindoro Nickel Project
received an Environmental Compliance Certificate ("ECC") in October, but the ECC was "temporarily revoked" in December without due process or formal default as a result of rallying by anti-mining non-governmental organisations. The decision was appealed by the Group.
2010 The Mindoro Nickel Project's MPSA No. 341-2010-IVB and MPSA No. 342-2010-IVB were issued. Following this, the four MPSAs cover a contiguous area of 11,315 hectares (113.15 km2). The DFS was completed for the Mindoro Nickel Project, outlining detailed mining, engineering, environmental and community development plans..
2015 The Mindoro Nickel Project's ECC was reinstated by order of the Office of the President of the Philippines.
2016 Revised strategy and aim to diversify the Company. Agreement with LHR and initial investment in AMI with an option to acquire 51% of AMI.
2017 The Mindoro Nickel Project's ECC was cancelled by the Secretary of the Department of Environment and Natural Resources, ostensibly because the project had not been developed within the ECC's period of validity. The Company promptly filed a motion for reconsideration and reinstatement.
2017 The Secretary of the Department of Environment and Natural Resources issued show cause orders for 75 MPSAs across the Philippines, including the Group's four MPSAs in Mindoro, alleging they are all in violation and should be cancelled because they are located within watersheds. This despite the fact that various agencies under the same Department during the process of granting the MPSAs issued clearance certificates to the contrary. The Group has filed
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its response, claiming a cancellation on this basis would be a violation of due process, is arbitrary, and goes beyond the authority of the Secretary.
2017 Amended agreement with AMI and LHR. Additional financing to AMI and extension of the option to acquire 51% of the Company. The Company secures a 5% ownership interest in AMI through purchase of the AMI Shares.
2017 Secures NOK 5 million in a private placement. 2017 Secures NOK 50 million Convertible Note Facility with EHGOSF. 2017 Signs an agreement with Harmonychain AS to develop an asset-backed digital token. 2017 Changes company name from Intex Resources to Element. 2017 Cecilie Grue is employed as new permanent CEO. 2017 Secures NOK 500 million Convertible Note Facility with ABO. 2017 Initiated lab testing program related to an alternative processing technology for the Mindoro
Nickel Project (CRSM). 2018 Signs Investment and Shareholders' Agreement regarding AMI with LHR, which implies that the
Company's shareholding in AMI may be increased with up to 51%. 2018 Acquired a call option to indirectly acquire 18.5% of the outstanding shares in CMT, the second
largest mining company in Morocco and listed on the Casablanca Stock Exchange. 2019 Thomas Christensen replaced Lars Christian Beitnes as the chairman of the Board in the
Company. 2019 Geir Johansen replaced Cecilie Grue as the CEO of the Company. 2019 Decided not to exercise the call option to indirectly acquire an 18.5% shareholding in CMT and
announced the intention to sell the remaining 396 fund units. 2019 Initiated cost reduction and downsizing of the Philippine subsidiary and invoked the force
majeure clause in the Company's MPSA due to the mining moratorium enacted by the Philippine authorities since 2009.
2019 Announced the decision to sell or otherwise divest the Company's ownership in AMI project due to a significant change of the development strategy, and sell or otherwise divest the Company's ownership in the Mindoro Nickel Project.
2019 Stopped the asset-backed token project which the Company started in 2017, where the Company was to issue tokens backed by its own metal reserves.
2019 Based on due diligence and lab testing at SINTEF of the CRSM technology, the Company decided to abandon the proposed investment in the CRSM technology.
2019 The license for the Nordli molybdenum resource in Hurdal, Norway, expired and the Company decided not to renew it.
2019 Engaged James Haft as a consultant within the blockchain based digital economy and made the strategic acquisition of PALCapital, a portfolio of four early stage digital companies owned by James Haft, to strengthen its position within the digital and blockchain based sectors.
2019 Completed a divestments of all fund units in Osead Fund, and thereby exiting the Company's investment in CMT for sales proceeds of EUR 1,300,000 in cash.
2019 Terminated the Convertible Note Facility with EHGOSF. 2019 Completed a divestment of its holdings in AMI, through a partial repayment and refinancing of
a convertible bond loan and a sale of the Company's shares in AMI.
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6.4 The investment in PALCapital Ventures, Inc. (PALCapital)
On 14 August 2019, the Company entered into and consummated a share purchase agreement with PAL to acquire 100% of the shares in PALCapital. For further information about the PALCapital Transaction, see Section 5.1 "The PALCapital Transaction". PAL is wholly owned by James Haft, a U.S. resident based in New York who has been engaged by Element as a consultant since May 2019. The background for the Company's acquisition of PALCapital was to provide a platform for early-stage investments within the digital and blockchain sectors. PALCapital is an investment company with early stage investments within the digital and distributed ledger/blockchain sectors. PALCapital was acquired as Element sought to gain exposure to the digital industry. PALCapital currently holds interests in:
AdNode
AdNode is a marketing and advertising company that seeks to bring accountability to digital marketing, through its AdNode virtual platform. The main features of the AdNode virtual platform are:
• Smart Contract for insertion orders o Participants can create agreements that are saved on the blockchain with pre-defined terms for
billable ad impressions based on viewability, brand safety, geography, and/ or audience verification.
• Near real-time reporting o The performance of publishers can be benchmarked in near real-time, based on data from existing
ad measurement vendors, to shift spending to the most efficient programs.
• Automated reconciliation o Invoices are automatically generated and final with blockchain-certified sales receipts attached.
PALCapital has purchased convertible notes in AdNode for the amount of USD 50,000, and also holds 4,444 restricted shares in AdNode. The shares in AdNode are restricted by the provisions of Regulation D, Rule 501 of the U.S. Securities Act, implying that the shares can only be sold to certain persons who may be deemed as "accredited investors" under the U.S. Securities Act for a period of 1 year following the date of purchase. After the expiry of the 1 year period (i.e. on 14 August 2020), the shares may be sold to any eligible acquirer under the terms of Regulation D, Rule 501 of the U.S. Securities Act. On a fully diluted basis PALCapital controls 0.4% of the shares in AdNode. A gain on the investment in AdNode can be accomplished through a sale of the shares in AdNode, or through dividend distributions.
metaME
metaMe, Inc., is a US company which seeks to bring control of personal data back to the individual consumer. metaMe introduces a universal way to own and exchange your data and a marketplace in which you can sell it for a fair price in a safe way. metaMe gives your digital self a home and gives you a personal AI dedicated to you, using your data to serve your needs. A key part of metaMe's product offering are "metaPods" – a new class of data asset with immutable rules backed into them that do not require us to trust the entities that they are shared with. metaPods use cryptography, smart contracts and distributed ledger technologies to enforce ethical data policies.
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metaMe is further working towards issuing its own cryptocurrency token, and PALCapital hold the right to receive an amount of tokens corresponding to USD 150,000 upon the first issuance of tokens to third parties. The Company is uncertain on when the tokens will be issued, but expects it to happen at least during a period of 24 months from the date of this Prospectus. PALCapital is not required to make any further investment to receive such tokens. Element expects to sell the tokens it receives from metaMe, and will assess the pricing of the tokens to decide a beneficial time to complete such sale.
TradeStars
TradeStars provide a fantasy sports platform powered by the Ethereum blockchain where users can own, create, trade and monetize digital assets that represents real-life sports performance. It's a decentralized gaming experience in which people can express their passion for sports, compete against each other, and demonstrate "How much their sports knowledge is worth". Built on the Ethereum blockchain, TradeStars' platform is not controlled by an individual organization. There is no single agent with the power to modify the rules of the software, the economics of the assets, or prevent others from accessing the platform. Each digital asset is permanently owned by the community and lies in a blockchain-based digital registry, giving the owner full control over it. TradeStars is working towards issuing its own cryptocurrency token, and PALCapital hold the right to receive an amount of tokens corresponding to 1.5% of the tokens to be issued upon the first issuance of tokens to third parties. The Company is uncertain on when the tokens will be issued, but expects it to happen at least during a period of 24 months from the date of this Prospectus. PALCapital is not required to make any further investment to receive such tokens. The Tradestars tokens will not be connected to any assets, and their value will be determined by the supply and demand for the token (similar to the pricing of BitCoins). Even though the business model of TradeStars is still in development, it is currently anticipated that TradeStars will generate revenues from sales of tokens and interests in athletes participating in various sports events. Further, TradeStars expects to earn revenues from trade-related fees as the users build and manage portfolios of tokens issued by TradeStars. TradeStars also expect to earn revenues from sale of data relating to the tokens and the activities of its users. There are a number of fantasy manager games worldwide that can be seen as competitors of TradeStars, with FanDuel (https://www.fanduel.com/) and DraftKings (www.draftkings.com) being prominent examples of competitors. Competitors that existed prior to TradeStars can be seen to have an advantage in the market over TradeStars, due to their existing customer basis and brand recognition.
SportsCastr
SportsCastr has developed an ultra-low latency live video streaming platform, where the users can stream their own commentaries about an ongoing sports event, host half-time shows, or share game predictions or recaps. The ultra-low latency makes it possible to use SportsCastr for alternative commentary while a game is on. The streaming platform provides the streamers with the possibility to add "studio graphics", such as real-time score. The streams can also be embedded on external websites and blogs. The live viewers can send virtual gifts or tips to the streamer, in the form of cryptocurrency tokens which can be exchanged for cash. SportsCastr has issued its own cryptocurrency token, named FanChain. The FanChain token is currently listed on the cryptocurrency exchanges Liquid (www.liquid.com) and LAToken (www.latoken.com). The Company holds rights to receive an amount of Fanchain tokens issued by SportsCastr International Ltd. corresponding to USD 250,000 as
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determined by the value of the FanChain token at initial issuance. The initial issuance price of the FanChain token was USD 0.25 per token, implying that the Company shall receive 1,000,000 Fanchain tokens. The Company intends to exercise its right to receive FanChain tokens at such time as the Fanchain tokens are listed on another trading platform than those mentioned above, currently expected during the first half of 2020. SportsCastr expects to generate revenue through sale of the FanChain token, payment for access to certain content on the platform, advertising and sale of user data. The FanChain tokens will not be connected to any assets, and their value will be determined by the supply and demand for the token (similar to the pricing of BitCoins).
Investment in Horizon-GlobeX
Subsequent to the initial investment in PALCapital in August 2019, Element acquired 0.46% of the common equity in GlobexUS Holdings, Corp, a Blockchain-as-a-Service solutions company, with the trading name Horizon-Globex. This investment was made in January 2020. The equity is currently held by Element ASA, but the Company intend to transfer the equity to PALCapital at a later stage. Horizon-GlobeX offers a suite of integrated blockchain software applications directed towards the financial sector. Horizon-Globex's solutions seeks to combine Wall Street and Silicon Valley to power the next generation of exchanges and securities offerings in the U.S. and globally. Current product solutions include asset tokenization through Tokenetics (tokenetics.com); a white-label KYC smartphone app to onboard and verify investors through KYCware (kycware.com); anti-money laundering screening against a database of global sanctions, watchlists, PEPs, and blockchain forensics through AMLCop (amlcop.com); transfer agent custody and dividend payment tools through CustodyWare (custodyware.com), and an advanced retail trading app for secondary trading on digital securities marketplaces using Open Order Book (openorderbook.com). All software applications can be utilized independently or integrated with one another. Horizon generates revenue from its proprietary securities trading ecosystem licensed-to and operated-for regulated financial institutions around the world. The company aims to lower the barrier of entry and speed up adoption for issuers, investors, and other market participants who want access to new markets. A gain on the investment in Horizon-Globex can be accomplished through a sale of the shares in Horizon-Globex, or through dividend distributions.
6.5 The Mindoro Nickel Project, the Philippines
6.5.1 Introduction
The Mindoro Nickel Project is a large nickel-laterite deposit located on the island of Mindoro in the Philippines. The Mindoro Nickel Project contains the geologic resources that have been explored since 1996. A "Definitive Feasibility Study" ("DFS") related to the Mindoro Nickel Project was completed in 2010. The Company is actively seeking to sell its Mindoro Nickel Project, and will reduce its activity level starting from the first quarter of 2020 with an intention of identifying and implementing alternative strategies with the aim to immediately liquidate the asset. The resource estimates set out in the DFS are currently not deemed relevant for the Company as it will not initiate further exploration or drilling related to the project, nor does it expect to be able to divest the Mindoro Nickel Project at terms reflecting the amount of resources estimated in the DFS.
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6.5.2 Resources and reserves
The nickel-bearing laterite profile is comprised of two distinct ore horizons termed "limonite" and "saprolite", which are both developed in situ by prolonged tropical weathering of underlying ultramafic (high-magnesium, low-silica) rocks. Over tens or hundreds of thousands of years, metals like nickel, cobalt, iron and aluminium of the original bedrock become relatively enriched, as other components like silica- and magnesium-rich minerals are gradually dissolved and removed by rain- and groundwater percolating through cracks and fissures. The highest grades of nickel and cobalt are usually found in the lower part of the limonite horizon and upper part of the saprolite horizon, while chromite and scandium are enriched in the limonite horizon along with iron and aluminium. The ratio of limonite to saprolite in the Mindoro Nickel deposit is roughly 1:1, which means that the deposit can be most rationally exploited if the two ore types are mined and processed simultaneously. Within the four MPSA areas, six sub-areas with nickel-laterite resources are recognized: Lower Kisluyan, Buraboy, Upper Kisluyan, Shabo, Kapawa and Alag-ag. The most easily accessible resource sub-areas are Lower Kisluyan, located at elevations of 150-600 m (above sea level) and Buraboy at 300-900 m. Terrain elevations increase towards the west and south, with the Kapawa resource area as the highest at 1,100-1,350 m. The resources and reserves used in the DFS were estimated on the basis of drilling programmes conducted in two major campaigns during the years 1997-2001 and 2007-2009. The DFS included 1,740 drill-holes in the two resources areas Lower Kisluyan and Buraboy. Although these campaigns of exploration also included drilling in the other four resource areas Upper Kisluyan, Shabo, Alag-ag and Kapawa, the spacing of drilling in those areas was generally too wide to justify inclusion in the DFS. The geological map below shows the MPSA areas, the location of individual sub-areas and drill-hole locations and areas and drill-holes included in the DFS (indicated with heavy blue line):
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6.5.3 Titles and permits
The Group's mineral rights are held under four Mineral Production and Sharing Agreements (MPSA), docketed as MPSA No. 167-2000-IV, MPSA No. 277-2009-IVB, MPSA No. 341-2010-IVB, and MPSA No. 342-2010-IVB, covering the six resource areas Lower Kisluyan, Buraboy, Upper Kisluyan, Alag-Ag, Kapawa and Shabo, with a total tenement area of 11,315 hectares (113.15 km2). Under Philippine law, MPSAs can only be held by Filipino citizens. Corporations at least 60% owned by Filipino citizens qualify as such. The Group's MPSAs are therefore held by the entities Aglubang Mining Corp. and Alagag Mining, Inc., both of which are directly owned by corporations owned at least 60% by Filipino citizens. However, the Supreme Court of the Philippines has in the Narra Decision held that a so called Grandfather Rule shall be applied, and this rule calls for tracing the ownership of stocks in layered corporations up to their ultimate holders. If the Mines and Geosciences Bureau (MGB) should opt, either on its own initiative or upon a complaint by an interested party, to re-evaluate the corporate structure of the Group and apply the Grandfather Rule as applied in the Narra Decision, this may result in the termination of the MPSAs on the ground that the MPSA holders are foreign companies and not qualified Filipino citizens. The MPSAs are contracts between the Philippine Government, the owner of the country's mineral resources, and a mining company, the contractor, giving the contractor the exclusive right to conduct mining operations within, but not title to, the contract areas covered. The contractor shall provide the necessary financing, technology, management, personnel and shares in the production whether in kind or value, with the Philippine Government. An MPSA is a type of 25-year mineral agreement with built-in regulatory mechanisms and time lines to advance projects with proven mineral reserves to the stage of production. During the first eight years of the MPSA, exploration
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activities are to be conducted within time constrained exploration periods of two years at a time, each two year permit being subject to the authorities' approval of the performance during past exploration periods. The contractor may also be allowed to convert its agreement into any of the modes of mineral agreements or technical assistance agreement covering the remaining period of the original agreement. MPSAs can be renewed for a second 25-year period. The Philippine Government is intent on implementing a "Use It or Lose It" policy that requires timely and verifiable compliance with the various MPSA contract obligations, under which a contractor is obligated to conduct the activities stated in the approved work programs within the timeframe and budget estimates approved in the exploration periods. Non-compliance carries the risk of revocation, cancellation (or loss) of the MPSAs. As part of the project advancement process under the MPSA regime, a "Declaration of Mining Project Feasibility" ("DMPF"), a mandatory milestone in the process leading to a licence to operate, needs to be initiated (i.e., supporting documentation submitted) within the final approved exploration period. For MPSA No. 167-2000-IV, the deadline for renewing the DMPF will be six months following the Department of Environment and Natural Resources (DENR's) lifting of the suspension of the MPSA obligations. For the remaining three MPSAs, the deadline for renewing the DMPF will be two years following the lifting of the suspension of the MPSA obligations. The MPSA holder may, by giving due notice at any time during the term of the MPSA, apply for its cancellation for causes which, in the opinion of the MPSA holder, render continued mining operation no longer feasible or viable. In this case, the DENR Secretary will decide on the application within 30 days from notice given by the MPSA holder. The DENR Secretary’s approval of the cancellation is subject to the condition that the MPSA holder has met all the accrued financial, fiscal and legal obligations under the MPSA. In the event the Group decides to apply for a voluntary cancellation of the MPSAs, the Group will be liable to pay Documentary Stamp Taxes of USD 1.24 million, retrenchement benefits to employees of approximately USD 0.2 million, in addition to any costs in connection with restoration of the contract areas. Mining tenement titles and descriptions:
Mining tenement Hectares Location Date granted Expiry date Remarks
MPSA No. 167-2000-IV
2,290.6714 Victoria, Oriental Mindoro
7 December 2000 6 December 2025 MPSA cancelled in July 2001, reinstated in November 2005
MPSA No. 277-2009-IVB
4,686.0828 Sablayan, Occidental Mindoro
23 March 2009 22 March 2034
MPSA No. 341-2010-IVB
863.9107 Victoria, Oriental Mindoro
9 June 2010 8 June 2035
MPSA No. 342-2010-IVB
3,474.7438 Sablayan, Occidental Mindoro
9 June 2010 8 June 2035
Total Area 11,315.4087
6.5.4 Recent political development in the Philippines
The political environment for mining companies in the Philippines has become very challenging for the mineral resources sector. In December 2009, provincial authorities in the Philippines issued a Provincial Ordinance declaring a 25 year moratorium on mining (Ordinance no. 001-2002). It is the Company's view that the provincial moratorium is neither
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consistent with the Constitution nor the Mining Act. However, the enforcement of the provincial moratorium has caused all the Company's activities relating to the Mindoro project to be halted, and will continue to do so until the provincial moratorium is voided by a court decision based on inconsistency with the Constitution and/or the Mining Act. Significant risks exist with respect to the possibility of being able to successfully lift the provincial moratorium either through judicial action or otherwise, and no predictions can be made to the outcome of any such attempt to lift the moratorium. In August 2018, AMC received an approval from the Mines and Geosciences Bureau for bulk sampling of up to 500 tons of nickel ore from the Mindoro Nickel Project. On 25 April 2019, the AMC received a cease and desist order from the Provincial Governor in Oriental Mindoro. The bulk sampling were intended to be used for pilot testing of CRSM technology (an alternative processing technology). However, the Company has abandonded its investment in the CRSM technology, and is complying with the cease and desist order.
6.5.5 Social acceptability
In connection with the permitting process related to the Mindoro Nickel Project, the Group has signed memoranda of agreement ("MOAs") with the local Mangyan indigenous people who live in the MPSA areas, defining a number of initiatives to support them. The MOAs are specific agreements with those Mangyan tribal groups whose ancestral lands will be affected by mining operations. The MOAs are coterminous with the MPSAs and thus cover the whole span of the mining project from exploration, development, operation and closure. Specific provisions on community development assistance projects for the indigenous people are enumerated during the exploration and development stages, which culminates in the payment of royalties on the gross proceeds of mining revenues accruing from each mining area of the MPSAs when the mines are operational. The Group is continuously building the relationship with the indigenous people through several community relations and development programs. These programs are required by law, and are being conducted in major fields such as: education and scholarships; health, water and sanitation; agriculture and livelihood; capacity building initiatives and local infrastructure support. In the Province of Oriental Mindoro, there are various LGUs that are recipients of annual so-called occupation fees under the MPSAs. These LGUs have refused to accept these annual payments citing the existence of the memorandum ordinances. In consultation with the Mines and Geosciences Bureau of the Philippines, all efforts to make annual payments have been documented under sworn statements and filed accordingly with the bureau. To date, the cumulative occupational fees not accepted by LGUs amount to USD 207,000, which will become due upon LGU acceptance of the annual orders of payment issued by the MGB.
6.5.6 Environmental conditions
As a component of its environment and community development program, the Group has designed the Livelihood Enhancement through Agro-Forestry or LEAF. It seeks to provide tree-based livelihood assistance to the Mindoro Nickel Project's host and impact barangays, as well as to surrounding communities. At the same time, LEAF serves as the Group's contribution to the Philippine government's National Greening Program. Rehabilitation, monitoring, and maintenance of drill pads, trails, and camp sites in exploration sites are also undertaken under LEAF. The Group has planted or distributed nearly 285,000 seedlings over some 450 hectares of land in Occidental Mindoro and Oriental Mindoro, the Mindoro Nickel Project's host provinces. Tree-planting activities are undertaken in cooperation with local government units, people's organisations and private sector groups using seedlings sourced from the Company's four nurseries in the two provinces. In an effort to send the clear message that mining is
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compatible with sustainability, Company personnel has adopted agro-forestry, with farming high-value crops such as rubber as centrepiece rehabilitation program. The requirements for mitigation of environmental risks and hazards form part of the licenses and permits that the Government requires for the project in all its phases. The environmental obligations are contained in environment work programs during exploration and development and environmental protection and enhancement programs and final mine rehabilitation and decommissioning plans during operation and closure. These are screened, evaluated and approved by the competent authorities and implementation progress subjected to close monitoring. The Company's Environmental Compliance Certificate (ECC) has currently been cancelled and the Company has filed a Motion for Reconsideration to reverse this cancellation. As the Company currently does not have specific plans to start exploitation of nickel, the current status of the ECC is not decisive for the operations of the Company. However, an ECC must be in place upon exploitation from the Mindoro Nickel Project.
6.5.7 Status as of the date of the Prospectus
On 28 August 2019, the Group invoked the Force Majeure clause in the MPSA agreement. This was done for the Group to be relieved of some of the obligations under the MPSA, which the Group is not able to execute due to the Moratorium and the Cease and Desist Order received in April 2019. As of the date of this Prospectus, the Force Majeure provisions have been enacted for all the MPSA. In January 2020, the Philippine authorities approved the Group's request for suspension, due to force majeure, of the obligations set out in the mineral licenses which it holds, reducing to a minimal level the activities which the Group needs to perform to maintain its mineral licenses. The Force Majeure period will continue until the 25 year moratorium on mining imposed by provincial authorities in the Philippines in December 2009 either is cancelled or expires. No exploration activity is ongoing as of the date of this Prospectus. All ongoing field activities are related to mandatory environmental and community information and education campaigns and programmes that must be conducted as per the requirements from DENR during the Force Majeure period. The political and regulatory climate continues to adversely affect the Mindoro project and the Group has prepared for legally addressing the Provincial Moratorium Ordinances and have them declared as unconstitutional by judicial authority. As of the date of this Prospectus, the Company estimates total annual operating expenditure of USD 206,000 for running the Group's operation in the Philippines and ensuring compliance with the relevant MPSA obligations under the Force Majeure period. Further, the Group maintains several discussions with companies that could potentially be interested in buying the Mindoro Nickel Project or in other ways cooperate with the Group for the development of the Mindoro Nickel Project. The Company is actively seeking to sell its Mindoro Nickel Project and will reduce its activity level starting from the first quarter of 2020 with an intention of identifying and implementing alternative strategies with the aim to immediately liquidate the asset.
6.6 Legal and arbitration proceedings
From time to time, the Group is involved in litigation, disputes and other legal proceedings arising in the normal course of its business. Other than set out in this Section 6.6 "Legal and arbitration proceedings", neither the Company nor any other company in the Group is, nor has been, during the course of the preceding 12 months involved in any legal, governmental or arbitration proceedings which may have, or have had in the recent past, significant effects on the Company's and/or the Group's financial position or profitability. Further, other than as set out in this Section 6.6 "Legal and arbitration proceedings", the Company is not aware of any such proceedings which are pending or threatened.
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6.6.1 Administrative penalty from the Oslo Stock Exchange
On 9 May 2019, the Company received an administrative penalty of NOK 586,200 from the Oslo Stock Exchange for non-compliance with the rules on ongoing disclosure of inside information related to resignation of former auditor EY, as the information that EY had decided to withdraw from their assignment had not been disclosed in due time and that the information that was given was sufficiently precise. For further information, please refer to Section 18.1.2 "Former auditor of the Company".
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7 MATERIAL CONTRACTS
7.1 Convertible Note Facility and its termination
7.1.1 General information
On 15 May 2018, the Company entered into an agreement (the "Issuance Agreement") with EHGOSF regarding a zero coupon convertible note facility in the amount of NOK 500 million (the Convertible Note Facility). Certain of the terms regarding the Convertible Note Facility has been amended in amendment agreements entered into on 27 June 2018, 29 August 2018, 7 November 2018 and 21 February 2019. The general meeting of the Company passed all necessary resolutions to issue the loan tranches and warrants on 6 June 2018. However, the general meeting held on 18 March 2019 resolved to divide the third tranche of the Convertible Note Facility into one sub-tranche of NOK 20 million and several sub-tranches. On 10 December 2019, the Company, EHGOSF and ABO entered into a settlement and termination agreement (the "Settlement and Termination Agreement") which terminated the Issuance Agreement and a share lending agreement entered into between the abovementioned parties. Upon entering into the Settlement and Termination Agreement, the parties to that agreement irrevocably waived any and all potential claims against each other under the Issuance Agreement, the share lending agreement and otherwise. The Company further paid a termination fee of NOK 2,600,000. Under the Convertible Note Facility, the Company had the possibility of drawing down up to ten tranches of convertible loans for a total amount of NOK 50,000,000 in each tranche, each tranche consisting of convertible loan notes ("Notes") with a nominal value of NOK 100,000 each. In connection with each tranche, the Company also issued a tranche of warrants. EHGOSF was entitled to a cash commitment fee equal to 5% of the total commitment of the Convertible Note Facility of NOK 500 million, and such fee has been paid in full.
7.1.2 Further information about the Notes
Each Note could be converted into Shares in the Company at a conversion price corresponding to the lowest daily closing VWAP of the Shares during the 10 consecutive trading days period prior to the trading day the Company received a conversion notice. In addition, the result of the aforementioned calculation was rounded down to the nearest 10th. Each loan tranche matured on the date falling 12 months after issuance of the pertaining Notes and warrants in the VPS. If a loan tranche had not been converted into Shares on the maturity date, it should be automatically converted into Shares at the conversion price described above. Each loan tranche was unsecured and ranked pari passu with other non-subordinated debt in the Company.
7.1.3 Characteristics of the warrants
As mentioned above, the Company issued warrants (for no consideration) to EHGOSF in connection with each loan tranche. The warrants were divided into two different categories, one category of warrants which issued in connection with each tranche, including the first tranche ("Tranche Warrants") and warrants issued only in connection with the issuance of the first Tranche ("Upfront Warrants").
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The Tranche Warrants was issued in connection with each Tranche, and shall give EHGOSF the right to a number of shares equal to 20% of the par value of the Tranche in question divided by the exercise price of the respective Tranche Warrants. The exercise price of the Tranche Warrants shall be equal to 120% of the lowest daily volume weighted average price of the shares of the Company on the Oslo Stock Exchange during the 10 consecutive trading days prior to the trading day the notice of drawdown of the Tranche in question is made by the Company. If the weekly volume weighted average price of the Company's Shares exceeds 130% of the exercise price of the Tranche Warrants and the Upfront Warrants, EHGOSF shall be required to exercise 50% of the relevant Tranche Warrants and Upfront Warrants within 10 trading days. A total of 555,556 Upfront Warrants was issued upon issuance of the first tranche. The exercise price of the Upfront Warrants is NOK 90 per Upfront Warrant. The Tranche Warrants and the Upfront Warrants may be exercised at any time by EHGOSF. The Company is obliged to deliver new Shares to EHGOSF within ten trading days after exercise of the warrants. All warrants issued under the Convertible Note Facility expire on 6 June 2022.
7.1.4 Currently outstanding Notes and warrants
As of the date of this Prospectus, there are 1,706,638 warrants (consisting of 1,151,082 Tranche Warrants and 555,556 Upfront Warrants) outstanding. No Notes are outstanding under the Convertible Note Facility. Further, the Company has previously held a NOK 50 million convertible note facility with ABO which was entered into on 4 October 2017 (the "Old Convertible Note Facility"). All loan tranches under the Old Convertible Note Facility has been drawn, and there are currently no notes outstanding thereunder. However, there are still 309,367 warrants outstanding under the Old Convertible Note Facility that may be exercised at any time by ABO. If the weekly volume weighted average price of the warrants under the Old Convertible Note Facility exceed 130% of the exercise price of these warrants, ABO shall be required to exercise 50% of the relevant warrants within 10 trading days.
7.2 Sale of OSEAD Fund Units
In August 2018, the Company entered into a call option agreement with Manco, whereby Element was granted a right to acquire up to 50% of the units in the OSEAD Fund (the "Call Option") in order to gain an indirect ownership in Compagnie Minière de Touissit SA (CMT), the second largest mining company in Morocco (the "Call Option Agreement"). The Call Option Agreement provided Element with an option to purchase all or some of the units in the OSEAD Fund in one or several instalments from Manco for a period initially expiring on 30 June 2019 (however subject to extension on certain terms and conditions). The Call Option was subject to Element paying a Call Option price to Manco of EUR 1,000,000 on the date of the Call Option Agreement, and of EUR 2,000,000 on 30 September 2018. In the event that the Call Option was not exercised by Element before 30 June 2019, Manco was entitled to keep EUR 500,000 of the Call Option price, and was further entitled to keep EUR 2,500,000 of the Call Option price against delivery of 396 units in the Osead Fund to Element. In March 2019, the Company decided to not exercise the Call Option and 396 units in the Osead Fund was therefore delivered to the Company.
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On 25 October 2019, the Company entered into an agreement with Manco Groupe Osead S.A ("Manco") to transfer the Company's 396 fund units in OSEAD Fund to Manco for a total consideration of EUR 1,300,000 (corresponding to a unit price of EUR 3,282.83 per unit). EUR 1,000,000 of the consideration was settled in cash by Manco and EUR 300,000 was settled by release of funds held in a separate restricted account pursuant to the Call Option Agreement. The Company may become entitled to an additional purchase price if Manco sell any units in the OSEAD Fund for a unit price exceeding EUR 3,282.83 per unit during the first 12 months after the date of the agreement. If Manco makes such sale within six months, Element shall receive 50% of the consideration exceeding the unit price. If Manco makes such sale after six months, but before 12 months, Element shall receive 30% of the consideration exceeding the unit price.
7.3 Divestment of holdings in AMI
7.3.1 Background
Element initiated its investment in AMI in 2016, and formalized an investment and shareholders' agreement regarding Ambershaw Metallics Inc. with Legacy Hill Resources Ltd. (LHR) in February 2018 (the "Investment and Shareholders Agreement"). AMI is a metals and mining company incorporated under the laws of the Province of British Columbia, Canada. AMI is controlled by LHR who has experience in magnetite mining and pelletising technology. In 2016, AMI acquired the Bending Lake iron deposit in NW Ontario, Canada, which hosts a NI 43-101 compliant resource of 336 Mt magnetite ore upgradable to 68% Fe. The deposit has been intermittently explored since 1953 and is well defined. It is located in a region with well-developed infrastructure; road access to the Trans-Canada highway, 60 km from railroad yard at Ignace, and 310 km by road from the Port of Thunder Bay on Lake Superior. The Bending Lake iron deposit is located in the Bending Lake and Wapegeisi Lake areas approximately 65 kilometers southeast of Dryden and 40 kilometers west of Ignace, Ontario, Canada. The property is comprised of 73 freehold mining patents covering 4864 hectares and 3 licenses of occupation covering 127 hectares. Under the Investment and Shareholders Agreement, the Company acquired the following assets:
• 7,890,727 shares in AMI, corresponding to 26.7% of the outstanding share capital of AMI; • Convertible debt with a principal of USD 4,850,000 and USD 492,042 in incurred interest as of 30 November
2019 (the "Convertible Bond"). In July 2019, the Company announced its intention to consider strategic alternatives for its holdings in AMI as the required resources and capital commitments needed to develop AMI could not be supported by Element's balance sheet and funding availability. Further, the AMI project did not longer have the cash flow profile that the Company was looking for at the time when the investment decision was made.
7.3.2 Divestment agreement
On 20 December 2019, the Company entered into agreements for the divestment of its shares in AMI and its claims under the Convertible Bond as further described below. The transactions were closed on 27 December 2019.
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Sale of the AMI shares
The 7,890,727 shares in AMI were sold to Eardley Settlement Ltd. ("Eardley") at a purchase price of USD 1,500,000. The purchase price was settled by Eardley by a promissory note issued by Eardley to Element at the closing date. The promissory note shall fall due for payment on 27 December 2024, but can be prepaid, and shall carry an interest rate of 7% per annum. However, if Eardley settles the promissory note prior to 31 December 2020, Element shall give Eardley a discount of USD 45,000 on the purchase price. Eardley's obligation to repay the promissory note is secured by a first priority pledge over the AMI shares.
Repayment and refinancing of the Convertible Bond
The agreements to repay and refinance the Convertible Bond has been entered into with AMI and LHR. On closing, AMI repaid USD 2,000,000 of the principal of the Convertible Bond in cash to Element. The remaining principal and incurred interest of the Convertible Bond as of the repayment date, USD 3,342,042 as per 30 November 2019, shall be converted into two new balloon term loans. The first term loan shall amount to USD 500,000 (the "Term Loan 1"), and shall together with accrued interest from the Closing date and until and including the repayment date be repaid on 31 July 2020. The second term loan shall amount to USD 2,350,000 plus accrued interest of USD 492,042 as of the Closing date (the "Term Loan 2"), and shall together with accrued interest from the Closing date and until and including the repayment date. The maturity date of the Term Loan 2 is 27 December 2024. If AMI repays Term Loan 2 before the final maturity date, AMI shall be granted a discount on the outstanding amount as set out below: -The outstanding amount of Term Loan 2 shall be discounted with 50% if the Term Loan 2 is repaid during 2020; -The outstanding amount of Term Loan 2 shall be discounted with 30% if the Term Loan 2 is repaid during 2021; and -The outstanding amount of Term Loan 2 shall be discounted with 15% if the Term Loan 2 is repaid during 2022; Both loans carry an interest rate of 7% pro anno which shall be paid on the maturity date. Both loans shall be secured by a first ranking fixed and floating charge over the business and assets of AMI. In the event that AMI obtains project finance (including overdraft facilities) from an un-affiliated person of AMI to progress the existing project of AMI, and such project finance lender(s) requires a first ranking security over the assets of the Company (including the assets secured by the Term Loans) and any associated reasonable intercreditor agreement with Element, Element shall enter into such a reasonable intercreditor agreement and execute any other reasonable, related documentation to give effect to such requirements, provided that the new priority charge shall not exceed USD 3,000,000.
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8 RELATED PARTY TRANSACTIONS
8.1 Agreement with ProCorp AS
On 28 June 2019, the Company entered into a framework agreement with ProCorp AS whereby the Company may purchase consultancy services within the ordinary operations of the Company from ProCorp AS. Such services may inter alia relate to services within corporate and business development, and strategy development. ProCorp AS provides specialized assistance within inter alia these fields. The compensation for the services under the framework agreement are based on an agreed upon and market term hourly rate, and/or a market term fixed price for certain pre-defined assignments, and is otherwise on terms and conditions that is customary for these kinds of agreements. Chairman Thomas Christensen owns approximately 70% of the shares in ProCorp AS. In addition, Board member Nils Kristoffer Gram is employed in ProCorp AS as Chief Operating Officer. The general meeting of the Company approved the framework agreement on 28 June 2019.
8.2 Agreement with Nils Kristoffer Gram
Board member Nils Kristoffer Gram has an agreement with the Company which gives him the right to invoice the Company for any work for the Company beyond normal work for the Board. As at the date of this Prospectus, no such additional work has been done or invoiced.
8.3 Service Agreement with Pacific Alliance Limited
On 1 May 2019, the Company entered into a service framework agreement with Pacific Alliance Limited, LLC ("PAL"). Under the agreement, PAL, represented by James Haft, shall act as a business consultant to the management of Element with main focus on developing a sound business platform within the digital economy for Element. James Haft shall work for the Company on a part-time basis and will make himself available for Element for approximately 33% of full working capacity. PAL is entitled to a monthly compensation of USD 15,000 per month, plus an additional contribution of USD 2,000 per month to cover indirect office expenses and rent. The agreement initially had a term until 31 October 2019. The agreement is still in force, however on a month-by-month basis. PAL and its ultimate shareholder James Haft is a major shareholder of the Company through the company Hope for More AS.
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9 SELECTED HISTORICAL FINANCIAL INFORMATION AND OTHER INFORMATION
9.1 Introduction and basis for preparation
The following selected financial information has been extracted from the Group's audited consolidated financial statements as of, and for the year ended, 31 December 2018, which includes comparative figures for 2017 (Annual Financial Statements). The selected financial information as of and for the year ended 31 December 2017 has been extracted from the comparative figures included in the Group's audited financial statements as of and for the year ended 31 December 2018. Selected financial information for the three and nine month periods ended 30 September 2019 and 30 September 2018 have been extracted from the Group's unaudited interim financial statements for the three and nine months ended 30 September 2019 (the Interim Financial Statements), which includes comparative figures for the corresponding interim period in 2018. The Annual Financial Statements have been prepared in accordance with IFRS. The Interim Financial Statements have been prepared in accordance with IAS 34. The Annual Financial Statements and the Interim Financial Statements are incorporated by reference in this Prospectus. Please refer to Section 17 "Incorporation by Reference and Documents" for further information on documents incorporated by reference. The following summary of financial data should be read in conjunction with, and is qualified in its entirety by reference to, the other information contained in the Prospectus and the documents incorporated by reference, including that the Company's auditor has included an emphasis of matter in connection with a material uncertainty related to going concern in the Annual Financial Statements for 2018, see Section 18.1.1 "Current auditor of the Company" for further information.
9.2 Summary of accounting policies and principles
For information regarding accounting policies and the use of estimates and judgements, please refer to Note 1 of the Annual Financial Statement as of, and for the year ended, 31 December 2018.
9.3 Selected statement of comprehensive income
The table below sets out selected data from the Group's consolidated interim statement of comprehensive income for the three and nine month periods ended 30 September 2019 and 2018, and its consolidated statement of comprehensive income for the years ended 2018 and 2017.
Three months ended
30 September Nine months ended
30 September Year ended
31 December (In USD thousands) 2019 2018 2019 2018 2018 2017 (unaudited) (unaudited) (unaudited) (unaudited) Net income/loss from equity accounted investments
-
-82 -
-198 - -
Exploration and evaluation costs - - - -3 -3 -3
Salary and social security cost -254 -398 -884 -745 -1,228 -482
Other Operating expenses -503 -828 -1,711 -1,900 -2,571 -1,520
Operating Loss -757 -1,309 -2,595 -2,847 -3,802 -2,005
Financial income 18 105 8 120 207 53
Financial costs -268 -4,035 -3,021 -5,299 -9,083 -1,315
Equity accounted investments - - - - -391 -10
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Net financial items -250 -3,930 -3,014 -5,179 -9,267 -1,272
Loss before tax -1,007 -5,239 -5,609 -8,026 -13,069 -3,277
Income Taxes - - - - - -
Loss after tax -1,007 -5,239 -5,609 -8,026 -13,069 -3,277
Loss discontinued operations, after tax
-1,700
-162 -2,208 -453 -854 -643
Loss for the period -2,708 -5,401 -7,817 -8,479 -13,922 -3,920
Basic and diluted earnings per share (USD)
-0.16 -0.06 -0.45 -0.11 -0.15 -0.08
Basic and diluted earnings per share (USD) – continued operations
-0.06 -0.05 -0.32 -0.10 -0.14 -0.06
Basic and diluted earnings per share (USD) – discontinued operations
-0.10 -0.01
-0.13 -0.01 -0.01 -0.01
Other comprehensive income:
Items that will be reclassified to income statement
Currency translation adjustments -211 282 -125 126 1,351 21
Other comprehensive income -211 282 -125 126 1,351 21
Total comprehensive income -2,919 -5,119 -7,942 -8,353 -12,570 -3,899
Total comprehensive income attributable to Element shareholders
-2,919
-5,119 -7,942 -8,353 12,570 3,899
9.4 Selected statement of financial position
The table below sets out selected data from the Group's consolidated statement of financial position as of, and for the nine month period ended 30 September 2019, and its consolidated statement of financial position for the years ended 2018 and 2017.
Nine months ended
30 September
Year ended 31 December
(in USD thousands) 2019 2018 2017 (unaudited) ASSETS
52
Property, plant and equipment
7
10 3
Equity accounted investments
3,080
3,060 428
Total non-current assets 3,087 3,070 432 Financial investments 6,527 7,252 1,153 Other receivables 1,174 1,632 74 Cash and cash equivalents
679 1,878 2,619
Total current assets 8,380 10,762 3,845 Assets classified as held for sale
4,189 5,718 5,837
Assets classified as held for sale
4,189 5,718 5,837
TOTAL ASSETS 15,656 19,550 10,114 EQUITY Share capital 3,134 1,229 643 Other paid-in-capital 94,363 93,392 79,000 Cumulative translation adjustments
11,736 11,861 10,510
Other equity -96,930 -89,975 -83,713 Total equity 12,304 16,507 6,440 LIABILITIES Other long term liabilities
- - -
Total long term liabilities
- - -
Trade payables 263 261 247 Derivatives - - 721 Convertible notes 264 - - Other current liabilities 636 563 502 Total current liabilities 1,163 824 1,470 Liabilities associated with assets classified as held for sale
2,190 2,219 2,204 Liabilities associated with assets classified as held for sale
2,190 2,219 2,204 TOTAL EQUITY AND LIABILITIES
15,656 19,550 10,114
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9.5 Selected statement of cash flows
The table below sets out selected data from the Group's consolidated statement of cash flows as of, and for the three and nine month periods ended 30 September 2019 and 2018, and its consolidated statement of comprehensive income for the years ended 2018 and 2017.
Three months ended 30
September Nine months ended
30 September Year ended
31 December (In USD thousands) 2019 2018 2019 2018 2018 2017 (unaudited) (unaudited) (unaudited) (unaudited) Profit/-loss for the year, continued operations
-1,007 -5,240 -5,609
-8,026 -13,068 -3,277
Profit/-loss for the year, discontinued operations
-1,700 -162 -2,208
-453 -854 -643
Operating activities Depreciation 1 - 3 3 - 6 Non-cash expenses related to options and warrants
1,596 2,439 3,523
7,017 7,660 369
Change in trade and other receivables
326 -1,117 458 -2,856 -666 -47
Change in trade payables and other current liabilities
-183 -1,419 75 1,608 -646 1,243
Changes in other long term liabilities
- - - - - -317
Change in assets held for sale
71 -102 -101 19 296 -70
Cash flow from operating activities
-897 -5,600 -3,859 -2,687 -7,278 -2,736
Investment activities Net expenditure on property, plant and equipment
-
-12
- -12 -8 - Equity accounted investments
- - - -2,915 -2,915 -438
Investment in other financial assets
- -3,011 - -6,708 -6,708 -961
Cash flow from investment activities
- -3,023 - -9,635 -9,631 -1,400
Financing activities Proceeds from new shares issued
-315 5,722 - 10,144 15,230 6,009
Repurchase of shares 5 - -77 - -253 - Proceeds from borrowing 1,127 - 2,751 2,751
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Cash flow from financing activities
817 5,722 2,674 10,144 14,977 6,009
Net change in cash and cash equivalents
-80 -2,901 -1,185 -2,178 -1,932 1,874
Cash and cash equivalents at the start of the period
1,108 3,275 2,127 2,708 2,708 834
Sum translation effects -211 282 -128 126 1,351 - Cash and cash equivalents at the end of the period/ year
817 656
817 656 2,127 2,708
9.6 Selected statement of changes in equity
The table below sets out selected data from the Group's consolidated statement of changes in equity for the nine months period ended 30 September 2019 and for the years ended 31 December 2018 and 2017.
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(In USD thousands) Share capital
Other paid-in capital
Cumulative translation adjustments
Other equity
Held for sale
Total
Equity at 1 January 2017 339 69,599 14,015 -13,243 -66,757 3,953 Loss for the period - - - -3,920 - -3,920 Other comprehensive income
20
3,676
-3,505
-
-170
21
Total comprehensive income
20
3,676
-3,505
-3,920
-170
3,899
Capital increase 284 5,725 - - - 6,009 Share options cost - - - 145 - 145 Converted warrants - - - 232 - 232 Total transactions with owners
284
5,725
-
377
-
6,386
Equity at 31 December 2017 643 79,000 10,510 -16,786 -66,927 6,440 Equity at 1 January 2018 643 79,000 10,510 -16,786 -66,927 6,440 Loss for the period - - - -13,068 -854 -13,922 Other comprehensive income
-
-
1,351
-
-
1,351
Total comprehensive income
-
-
1,351
-13,068
-854
-12,570
Capital increase 597 14,634 - - - 15,231 Repurchase of shares -11 -242 - - - -253 Share options cost - - - 6,916 - 6,916 Converted warrants - - - 744 - 744 Total transactions with owners
586
14,392
-
7,659
-
-22,637
Equity at 31 December 2018 1,229 93,392 11,861 -22,194 -67,781 16,507 Equity at 1 January 2019 1,229 93,392 11,861 -22,194 -67,781 16,507
Loss for the period - - - -5,609 -2,208 -7,817 Other comprehensive income
-
-
-125
-
- 86
Total comprehensive income
-
-
-125
-5,609
-2,208
-7,942
Capital increase 1,923 1,030 - 350 - 3,304 Repurchase of shares -18 -59 - - - -77 Share options cost - - - 182 - 182
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Converted warrants - - - 330 - 330 Total transactions with owners
1,905 971 - 862 -
3,739 Equity at 30 September 2019 3,134 94,363 11,736 -26,941 -69,989
12,304
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10 FINANCIAL INFORMATION
10.1 Capitalisation and indebtedness
10.1.1 Introduction
The information presented below should be read in conjunction with the other parts of this Prospectus, in particular the Financial Statements and related notes, incorporated by reference herein. This Section provides information of the Group's unaudited consolidated capitalisation and net financial indebtedness on an actual basis as at 30 September 2019 and, in the "As Adjusted" columns, the Group's unaudited consolidated capitalisation and net financial indebtedness as 30 September 2019, on an adjusted basis given the effect of the following transactions as of the date of this Prospectus:
(i) On 7 October 2019, EHGOSF converted NOK 2,300,000 of the Convertible Note Facility at a conversion price of NOK 2.7 per Conversion Share, see Section 5.2 "The Note Conversion". As a consequence of the conversion, the Company's share capital was increased by NOK 1,362,961.60 through issuance of 851,851 Conversion Shares, each with a par value of NOK 1.60.
(ii) On 14 October 2019, the Company carried out a Private Placement of 463,333 Private Placement Shares at a subscription price of NOK 4.50 per Private Placement Share, see Section 5.3 "The Private Placement". As a consequence of the Private Placement, the Company's share capital was increased by NOK 741,332.80.
(iii) On 25 October 2019, the Company entered into an agreememt to sell all of its fund units in the OSEAD Fund. See Section 7.2 "Sale of OSEAD Fund Units" for further information.
(iv) On 10 December 2019, the Company entered into the Settlement and Termination Agreement, whereby the Company, inter alia, paid a termination fee of NOK 2,600,000. See Section 7.1 "Convertible Note Facility and its termination" for further information.
(v) On 20 December 2019, the Company entered into an agreement for the divestment of its holdings in AMI. See Section 7.3 "Divestment of holdings in AMI" for further information.
Other than as set out above, there has been no material change to the Group's unaudited consolidated capitalisation and net financial indebtedness since 30 September 2019.
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10.1.2 Capitalisation
As of 30 September 2019
(unaudited)
Adjustment amount
(unaudited)
Note
As adjusted
(unaudited)
(In USD 000)
Indebtedness Total current debt:
Guaranteed - - - Secured - - - Unguaranteed/unsecured 1,163 - 1,163
Total non-current debt: Guaranteed - - -
Secured - - -
Unguaranteed/unsecured 2,190 - 2,190
Total indebtedness 3,353 - 3,353
Shareholders' equity Share capital 3,134 285 1 3,419
Share premium account 94,363 202 2 94,565 Retained earnings -96,930 -1,404 3 -98,334 Other reserves 11,736 - 11,736
Total shareholders' equity 12,304 -917 11,387
Total capitalisation 15,657 -902 14,740
Notes:
1. The share capital of the Company has been increased by USD 151 thousand through the Note Conversion and with USD 134 thousand through the Private Placement, implying a total increase of USD 285 thousand.
2. The Note Conversion implied a share premium of USD 104 thousand, while the Private Placement implied a share premium of USD 98 thousand, corresponding to a total increase of USD 202 thousand.
3. The Company recorded an earning of USD 400 thousand in relation to its sale of fund units in the OSEAD Fund, and recorded losses of USD 289 thousand in relation to the Settlement and Termination Agreement, and losses of USD 1,500 thousand in relation to the divestment of holdings in AMI, and finally recorded losses of USD 15 thousand in relation to the costs for the Private Placement and the Note Conversion.
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10.1.3 Indebtedness
As of 30 September 2019
(unaudited)
Adjustment amount
(unaudited)
Notes
As adjusted
(unaudited) (In USD 000) A. Cash 679 3,258 1 3,937 B. Cash equivalents - - C. Trading securities - - D. Liquidity (A)+(B)+(C) 679 3,258 3,937 E. Current financial receivables - - F. Current bank debt - - G. Current portion of non-current debt - - H. Other current financial debt 264 -264 2 0 I. Current financial debt (F)+(G)+(H) 264 -264 0 J. Net current financial indebtedness (I)-(E)-(D) -415 -3,522 -3,937 K. Non-current bank loans - - L. Bonds issued - - M. Other non-current loans - - N. Non-current financial indebtedness (K)+(L)+(M) - - O. Net financial indebtedness (J)+(N) -415 -3,522 -3,937
Notes:
1. The Company's cash position has been; (i) increased by USD 1,430 thousand due to the sale of fund units in the OSEAD Fund, (ii) increased by USD 232 thousand through the Private Placement, (iii) decreased by USD 289 thousand through the Settlement and Termination Agreement, (iv) increased by USD 2,000 thousand through the divestment of the Company's holdings in AMI, (v) decreased by USD 15 for cost related to the Private Placement and the Note Conversion and (vi) decreased by USD 100 thousand through the investment in GlobeXUS Holdings Corp
2. The Company's current financial debt was reduced with USD 256 thousand through the Note Conversion and with USD 8 thousand through the Settlement and Termination Agreement.
10.2 Working capital statement
The Company is of the opinion that the working capital available to the Group is sufficient for the Group's present requirements, for the period covering at least 12 months from the date of this Prospectus. The Company estimates that the Group will run out of working capital in June 2021. If the Company incurs new obligations or liabilities (for example in relation to new investments), the working capital may run out at an earlier time. The Company plans to cover the abovementioned working capital shortfall through divestment of all or parts of its claims on AMI and possibly the Mindoro Nickel Project, or launch a subsequent offering or other kind of equity transaction. The Company considers it likely that the completion of the subsequent offering will prove successful in partly rectifying the working capital shortfall prior to June 2021.
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If the asset sales and subsequent offering/ other equity transaction, and any other measures subsequently initiated by the Company do not rectify the working capital shortfall by June 2021, the Company may become insolvent and, if no other alternatives exist, enter into administration.
10.3 Summary of investments
10.3.1 Historical investments
On 14 August 2019, the Company entered into and consummated an agreement to acquire all shares in PALCapital from PAL (a company controlled by James Haft, who is also engaged as a consultant of the Company). The acquisition was settled through issuance of 2,650,000 Consideration Shares to Hope For More AS (a company controlled by James Haft). For further information about the acquisition of PALCapital, please refer to Section 5.1 "The PALCapital Transaction". In January 2020, the Company acquired 0.46% of the common equity in GlobexUS Holding Corp for a total consideration of USD 100,000. For further information about this investment, please refer to Section 6.4 "The investment in PALCapital Ventures, Inc. (PALCapital)". Apart from the above, the Group has not had any significant investments in the period from 31 December 2018 to the date of this Prospectus.
10.3.2 Ongoing investments
The Group does not have any ongoing investments.
10.3.3 Future investments
The Company has no firm commitments to make future investments. If the Company decides to make significant investments in the future, funding for such investments would most likely have to come from a subsequent offering or other kind of equity transaction.
10.4 Trend information
The Company is not engaged in production or sales activity and hence is not subject to trends in production, sales or inventory. There is no significant change in financial performance of the Company since the end of the last financial period for which financial information has been published, to the date of this Prospectus. There are no known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material affect on the issuer’s prospects for at least the current financial year.
10.5 Significant changes
On 14 October 2019, the Company completed the Private Placement of 463,333 Private Placement Shares at a subscription price of NOK 4.50 per Private Placement Share, thereby raising gross proceeds of NOK 2,085,000. On 25 October 2019, the Company entered into and consummated an agreement to sell its units in OSEAD Fund for a total consideration of EUR 1,300,000. For further information, please refer to Section 7.2 "Sale of OSEAD Fund Units".
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On 10 December 2019, the Company entered into a termination agreement for the Convertible Note Facility with EHGOSF and ABO, and paid a termination fee of NOK 2.6 million. For further information, please refer to Section 7.1 "Convertible Note Facility and its termination". On 20 December 2019, the Company entered into agreements to divest its holdings in AMI. For further information, please refer to Section 7.3 "Divestment of holdings in AMI". Apart from the above, there have not been any significant change in the financial or trading position of the Group which has occurred since 30 September 2019.
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11 BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE
11.1 Board of Directors
11.1.1 Members of the Board of Directors
The Articles of Association provide that the Board of Directors shall consist of a minimum of three and a maximum of eight members of the Board of Directors elected by the Company's shareholders. The names and positions and current term of office of the Board Members as at the date of this Prospectus are set out in the table below.
Name Position Served since Expiry Thomas Christensen Chairman January 2019 AGM 2020 Kari Mette Toverud Board member AGM 2018 AGM 2020 Nils Kristoffer Gram Board member AGM 2019 AGM 2021
The Company's registered business address, Karenslyst allé 53, 0279 Oslo, serves as c/o address for the members of the Board of Directors in relation to their directorship of the Company. Set out below are brief biographies of the Board Members of the Company, along with disclosures about the companies and partnerships of which each director has been member of the administrative, management and supervisory bodies in the previous five years.
Thomas Christensen
Thomas is a graduate in mechanical engineering from the University of Gothenburg's institute, with a Master of Business Administration from BI Norwegian Business School. He mainly works experience is with technology and venture capital. He has more than 20 years of experience from key positions in Norwegian and international businesses, as well as extensive experience in investment and consultancy businesses. He has extensive experience within corporate finance and has conducted over 40 M&A transactions, stock listings, debt and equity financing within shipping and technology, both as chief financial officer and external adviser. He has also experience from challenging turnarounds through board positions in global businesses. He is chairman in companies like Grieg Shipbrokers, Didac AS, Nordic Light Norway AS.
Current directorships and senior management positions: Grieg Shipbrokers (chairman of the board), Didac AS (chairman of the board), Nordic Light Norway AS (chairman of the board), Induct AS (board member), iDteg AS (board member), Easy2Connect AS (chairman of the board), Aass Trading AS (chairman of the board), ProCorp AS (Managing Partner and board member), Strandgata 23 restauranthus AS (chairman of the board), Storepale Systems AS (chairman of the board), Marketing Maven LLC (board member).
Previous directorships and senior management positions last five years:
See You AS (chairman of the board), Ipeer AB (board member).
Kari Mette Toverud
Kari Mette Toverud is Director of Communications (marketing, communication and HR) at Norkart AS. Mrs. Toverud has worked in the telecom and datacom sectors for the past 25 years: Communication and Marketing Director at Broadnet and Ventelo from 2011 to 2014 and held the same position at Network Norway from 2006 to 2011. She was COO at Cloudberry Mobile from 2014 to 2015 and has held top management positions at Telenor Media, Telenor Mobil and Telenor Nordic Mobile (1995–2006). She has also served on a number of boards, notably Telenor Eiendom, Telenor Norge and Telenor Key Partner, and currently sits on the boards of NextGenTel Holding AS,
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Totalctrl AS, KatrinUri AS, Systek AS and Norsk Golf AS. Mrs. Toverud has a Master of Business and Marketing/Handeløkonom from BI Norwegian Business School/ Handelsakademiet (1987–1991).
Current directorships and senior management positions: Norkart AS (Director of Communications), NextGenTel Holding AS (board member), Totalctrl AS (board member), KatrinUri AS (board member), Systek AS (board member), Norsk Golf AS (board member).
Previous directorships and senior management positions last five years:
Broadnet / Ventelo (Communication and Marketing Director), Cloudberry Mobile (COO), Norwegian Golf Federation (board member).
Nils Kristoffer Gram
Nils Kristoffer Gram is from 1 January 2020 employed as Chief Operating Officer of ProCorp AS. Prior to this, he has worked more than 4 years in a family investment company, 10 years investment banking experience from Pareto Securities, where he was partner and responsible for the mining industry, as well as 5 years as strategy consultant for Capgemini. He has extensive working experience from equity and debt capital markets as well as M&A.. Mr. Gram is a graduate from University of St. Andrews, Scotland.
Current directorships and senior management positions: ProCorp AS (COO), Kiruna Iron AB (chairman of the board), Critical Metals Ltd (board member).
Previous directorships and senior management positions last five years:
Gram Shipping AS (CEO), P.D. Gram & Co AS (CEO), Jool Markets AS (Board Member), Pareto Securities AS (partner).
11.2 Management
11.2.1 Members of the senior management
The Company's Management comprises the CEO and COO:
Name Position Employed with the Group since
Geir Johansen CEO November 2018 Hans Ola Haavelsrud COO September 2018
The Company's registered business address, Karenslyst allé 53, 0279 Oslo, serves as c/o address for the Company's Management. Set out below are brief biographies of the members of the Management, along with disclosures about the companies and partnerships of which each member of the Management has been member of the administrative, management and supervisory bodies in the previous five years.
Geir Johansen, CEO
Johansen holds a master's degree in international business from the Norwegian Business School BI, and has completed an Executive development program at IMD. Johansen has broad financial experience from publicly traded companies and has in the past 12 years worked as Group CFO for Axactor AB, S.D. Standard Drilling and DOF Subsea
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ASA. Johansen has extensive international experience and has over the last 20 years lived and worked in Japan, USA, Singapore, Romania and London. Johansen joined Element in November 2018 and lives in Oslo, Norway.
Current directorships and senior management positions: Kybalion Group Holding AS (chairman of the board & CEO), Kybalion Seafood AS (chairman of the board & CEO) Kybalion Invest I AS (chairman of the board & CEO) Finance Resources GJ AS (chairman of the Board) DASH AS (board member)
Previous directorships and senior management positions last five years:
Axactor AB (CFO) Board member in multiple internal group companies of the Axactor AB group of companies.
Hans Ola Haavelsrud, COO
Haavelsrud holds a master’s degree in Philosophy from the London School of Economics and an Executive MBA in Finance from the Norwegian School of Economics (NHH). He has broad financial and industrial experience from seven years as a transactions advisor at PwC, and five years as a director at an international Engineering, Procurement and Construction company within power generation and transmission with operations in Norway, Asia and Africa. Haavelsrud joined Element in September 2018 and lives in Oslo, Norway.
Current directorships and senior management positions: N/A
Previous directorships and senior management positions last five years:
N/A
11.3 Share based incentive programs
The Company currently two option programs in force, as further described below.
11.3.1 2018 Option Program
In an extraordinary general meeting held on 6 June 2018, an option program for members of the Board and employees and consultants of the Company limited up to 180,000 Shares (the "2018 Option Program") was approved. The 2018 Option Program has the following main terms:
• each option entitles the holder to subscribe for a Share; • options granted to board members are vested 1/12 per month over 12 months, and vested options may be
exercised at any time by the holder; • options granted to board members will automatically expire after three years after vesting; • options granted to employees and consultants are vested in three equal tranches over a period of three
years; • options granted to employees and consultants expire automatically two years after vesting. If the employee is
dismissed without notice, all vested options will expire at the same time as the occurrence of the basis for summary dismissal;
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• options that are not vested at the time of the option holder's engagement with the Company terminates (regardless of cause) will expire without compensation;
• if a shareholder becomes owner of more than 90% of the shares in the Company, the option holder has the right to exercise all of the options within a period of 3 months, regardless of whether they are vested or not.
• the strike price shall be the volume weighted average of the price of the Company's shares during the 10 trading days prior to the option grant;
• the Board may set as a condition for allocation and vesting of options that the option holder continues to provide the services / work for the Company for a certain period in the future;
• The Company has the right to settle the option either partially or in full in cash based on the volume weighted average of the price of the Company's shares during the 10 trading days prior to exercise of the options; and
• The Board will also be able to offer shares to persons or companies that are not shareholders in the Company. Existing shareholders' pre-emptive rights can thus be waived.
Please see Section 12.5.3 "Options issued under the 2018 Option Program (adjusted for 20:1 reverse split in April 2019)" for an overview of the option holders.
11.3.2 2019 Option Program
In the annual general meeting held on 28 June 2019, an option program for members of the Board and employees and consultants of the Company limited up to 237,100 Shares (the "2019 Option Program") was approved. The 2019 Option Program has the following main terms:
• options granted to Board members and consultants are vested 1/12 per month over 12 months; • options granted to employees are vested with 1/36 per month over a period of three years, and vested
options may be exercised at any time by the holder; • options granted will automatically expire after four years after the grant date; • options that are not vested at the time of the option holder's engagement with the Company terminates
(regardless of cause) will expire without compensation; • if a shareholder becomes owner of more than 90% of the Shares in the Company, the option holder has the
right to exercise all of the options within a period of 3 months, regardless of whether they are vested or not; • the strike price shall generally be the volume weighted average of the price of the Company's Shares during
the 10 trading days prior to the option grant; • the Board may set as a condition for allocation and vesting of options that the option holder continues to
provide the services / work for the Company for a certain period in the future; and • The Company has the right to settle the option either partially or in full in cash based on the volume weighted
average of the price of the Company's Shares during the 10 trading days prior to exercise of the options. Each option issued under the 2019 Option Program entitles the holder to subscribe for one (1) new Share in the Company. The Company has issued a total of 100,000 share options under the 2019 Option Program, all of which are currently outstanding. The strike price of these options is NOK 2.6259 per option. Please also see Section 12.5.4 "Options issued under the 2019 Option Program".
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11.4 Conflicts of interests etc.
Except for the agreements between the Company and ProCorp AS, and between the Company and Nils Kristoffer Gram (see Section 8 "Related party transactions" for further information on both agreements), there are no actual or potential conflicts of interest between the Company and the private interests or other duties of any of the members of the Management and the Board of Directors, including any family relationships between such persons. Further, none of the Board Members or a member of Management has, or had, as applicable during the last five years preceding the date of this Prospectus:
• any convictions in relation to fraudulent offences; • received any official public incrimination and/or sanctions by any statutory or regulatory authorities
(including designated professional bodies) or was disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company, or
• been declared bankrupt or been associated with any bankruptcy, receivership or liquidation in his or her capacity as a founder, director or senior manager of a company.
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12 CORPORATE INFORMATION; SHARES AND SHARE CAPITAL; SHAREHOLDERS
The following is a summary of certain corporate information and other information relating to the Group, the Shares and share capital of the Company, summaries of certain provisions of the Company's Articles of Association and applicable Norwegian law in effect as of the date of this Prospectus, including the Norwegian Public Limited Liability Companies Act (Nw: Allmennaksjeloven). This summary does not purport to be complete
12.1 Incorporation; registration number; registered office and other Company information
The Company's legal and commercial name is Element ASA. The Company is a Norwegian public limited liability company (Nw: allmennaksjeselskap), incorporated under the laws of Norway and in accordance with the Norwegian Public Limited Liability Companies Act. The Company's business registration number in the Norwegian Register of Business Enterprises is 976 094 875. The Company was incorporated on 12 February 1996. The head office and registered address of the Company is Karenslyst álle 53 2, 0279 Oslo, Norway, its telephone number +47 23 08 23 08 and its website is http://www.elementasa.com. The information included on www.elementasa.com does not form part of the Prospectus.
12.2 The Shares
The share capital of the Company is NOK 30,038,843.20, divided into 18,774,277 ordinary shares each with a nominal value of NOK 1.60. All the Shares have been created under the Norwegian Public Limited Companies Act, and are validly issued and fully paid. The Company's Shares are freely transferable. The Shares of the Company are admitted to trading on the Oslo Stock Exchange and trade under the ticker symbol "ELE". The Shares are registered in book-entry form with the VPS under ISIN NO 0003055808. The Company's register of shareholders with the VPS is administrated by Nordea Bank ABP, Filial i Norge, Essendrops gate 7, 0368 Oslo, Norway. The LEI number of the Company is 5967007LIEEXZXHW3S18.
12.3 Shareholder rights
The Company has one class of Shares in issue, and in accordance with the Norwegian Public Limited Companies Act, all Shares in that class provide equal rights in the Company. Each of the Shares carries one vote. The rights attaching to the Shares are described in section 12.10 "Certain aspects of Norwegian law".
12.4 Major shareholders
The table below shows the Company's 20 largest shareholders as recorded in the shareholders' register of the Company with the VPS as of 3 February 2020, the last practical date prior to the date of this Prospectus. The overview includes shareholdings of both the Shares issued on the Company's ordinary ISIN (NO 0003055808) and the Consideration Shares, the Conversion Shares and the Private Placement Shares (all of which have been issued on a separate ISIN, being ISIN NO 0010860943).
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# Shareholder name No. of Shares % of total Shares
1 Hope For More AS 2,650,000 14.12 2 Alpha Blue Ocean Inc. 2,608,551 13.89 3 Rikard Arne Storvestre 634,720 3.38 4 Element ASA 486,126 2.59 5 Erik Bjønness 379,600 2.02 6 Auplata SA 375,000 2.00 7 Simba AS 374,171 1.99 8 Nordnet Bank AB1 372,385 1.98 9 Pro AS 371,764 1.98 10 Kim Jarle Haugstad 311,123 1.66 11 Sørinvest AS 258,334 1.38 12 WIPS AS 200,000 1.07 13 Dedekam Holding AS 170,050 0.91 14 Bjørnar Fløystad 155,555 0.83 15 Arild Westmoen 151,500 0.81 16 Silvercoin Industries AS 132,205 0.70 17 Nordnet Livsforsikring AS 131,082 0.70 18 Arild Bettum 128,199 0.68 19 Gunnar Dagfinn Kjærvik 125,000 0.67 20 Joachim Stålsett Holm 116,305 0.62 Top 20 holders of Shares 10,131,670 53.97 Other 8,642,607 46.03 Total 18,774,277 100.00
Shareholders with ownership of 5% or more must comply with disclosure obligations according to the Norwegian Securities Trading Act section 4-3. The following shareholders hold an amount of Shares that exceeds the thresholds set out in the Norwegian Securities Trading Act section 4-3 per 3 February 2020:
• Alpha Blue Ocean Inc., holding 2,608,551 Shares, corresponding to 13.89% of the outstanding votes and Shares; and
• Hope For More AS, holding 2,650,000 Shares, corresponding to 14.12% of the outstanding votes and Shares.
All Shares have equal voting rights, with each Share holding one vote. Hence all major shareholders have the same voting rights relative to the number of Shares held. The Company is not aware of any shareholders who through ownership or other arrangements control the Company. The Company is not aware of any arrangements, including in the Articles of Association, which at a later date may result in a change of control of the Company.
12.5 Financial instruments – warrants and convertible securities
As of the date of this Prospectus, the Company has Notes and warrants issued under the Convertible Note Facility, and has also issued options and warrants to leading employees and members of the Board. An overview of the outstanding notes, warrants and options issued by the Company as of the date of this Prospectus is set out below.
1 Nominee account
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Other than as set out below, there are no convertible securities, exchangeable securities or securities with warrants issued by the Company that are outstanding as of the date of this Prospectus.
12.5.1 Warrants issued under the Convertible Note Facility
To the knowledge of the Company, all warrants under the Convertible Note Facility are held by EHGOSF or ABO. The number of warrants and their strike price has been adjusted for the 20:1 reverse split in April 2019).
Issue date No. Of warrants
Strike price (NOK)
Expiry date Comment
6 June 2018 555,556 90 6 June 2022 Upfront Warrants issued in connection with the first tranche of the Convertible Note Facility.
6 June 2018 111,111 90 6 June 2022 Tranche Warrants issued in connection with the first tranche of the Convertible Note Facility.
1 October 2018 217,391 46 6 June 2022 Tranche Warrants issued in connection with the second tranche of the Convertible Note Facility.
18 March 2019 500,000 8 6 June 2022 Tranche Warrants issued in connection with the first sub-tranche of the third tranche of the Convertible Note Facility.
3 July 2019 322,580 3.10 6 June 2022 Tranche Warrants issued in connection with the second sub-tranche of the third tranche of the Convertible Note Facility.
12.5.2 Warrants issued under the Old Convertible Note Facility
To the knowledge of the Company, all warrants under the Old Convertible Note Facility are held by EHGOSF or ABO. The number of warrants and their strike price has been adjusted for the 20:1 reverse split in April 2019).s
Issue date No. Of warrants
Strike price (NOK)
Expiry date Comment
7 November 2017
37,500 26 7 November 2020
Issued in connection with the first tranche of the Old Convertible Note Facility.
11 December 2017
69,444 48 11 December 2020
Issued in connection with the fourth tranche of the Old Convertible Note Facility
11 December 2017
69,444 48 11 December 2020
Issued in connection with the fifth tranche of the Old Convertible Note Facility
27 March 2018 26,596 110 27 March 2021 Issued in connection with the sixth tranche of the Old Convertible Note Facility
27 March 2018 26,596 110 27 March 2021 Issued in connection with the seventh tranche of the Old Convertible Note Facility
27 March 2018 26,596 110 27 March 2021 Issued in connection with the eight tranche of the Old Convertible Note Facility
27 March 2018 26,596 110 27 March 2021 Issued in connection with the ninth tranche of the Old Convertible Note Facility
27 March 2018 26,596 110 27 March 2021 Issued in connection with the tenth tranche of the Old Convertible Note Facility
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12.5.3 Options issued under the 2018 Option Program (adjusted for 20:1 reverse split in April 2019)
Issue date No. Of options
Strike price (NOK)
Expiry date Holder
Comment
06 June 2018 11,666 76.20 6 June 2024 Cecilie Grue Former CEO
06 June 2018 10,440 81,00 6 June 2022 Lars Christian Beitnes Former Director
06 June 2018 18,000 81,00 6 June 2022 Frode Aschim Former Director
06 June 2018 18,000 81,00 6 June 2022 Mona Lynne Eitzen Former Director
27 January 2019
50,000 15.00 27 January 2023
Thomas Christensen Chairman
27 January 2019
18,000 15.00 27 January 2023
Kari Mette Toverud Director
27 January 2019
25,000 15.00 27 January 2024
Hans Ola Haavelsrud COO
12.5.4 Options issued under the 2019 Option Program
Issue date No. Of options
Strike price (NOK)
Expiry date Holder
Comment
28 June 2019 100,000 2.6259 28 June 2023 Thomas Christensen
28 June 2019 100,000 2.6259 28 June 2023 Kari-Mette Toverud
28 June 2019 25,000 2.6259 28 June 2023 Nils Kristoffer Gram
28 June 2019 50,000 2.6259 28 June 2023 Geir Johansen
28 June 2019 50,000 2.6259 28 June 2023 James Haft
28 June 2019 25,000 2.6259 28 June 2023 Hans Ola Haavelsrud
12.6 Authorisation to increase the share capital and to issue Shares
As of the date of this Prospectus, the Board of Directors holds the following authorisation to increase the Company's share capital:
Date granted Purpose Possible increase of share capital (NOK)
Amount utilized (NOK) Valid until
28 June 2019
The authorisation may be used to increase the share capital in connection with the share based incentive schemes as described in Section 11.3.
663,360
0
30 June 2020
28 June 2019 The authorisation may be used to issue new Shares in order to strengthen the Company's financial position, in connection with mergers or acquisitions, or other strategic transactions.
5,970,254.40 4,981,332.80 30 June 2020
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12.7 Authorisation to acquire treasury Shares
As of the date of this Prospectus, the Board of Directors holds the following authorisation to acquire treasury Shares:
Date granted Purpose Range of authorisation
Amount utilized Valid until
28 June 2019 The authorisation may be used inter alia if the equity and liquidity of the Company are considerably strengthened.
1,326,723.04 0 30 June 2020
As of the date of this Prospectus, the Company holds 197,992 treasury Shares.
12.8 Dividend policy and general information on dividends
12.8.1 Dividend policy
In deciding whether to propose a dividend and in determining the dividend amount, the Board will take into account legal restrictions, as set out in the Norwegian Public Limited Companies Act (see Section 12.8.2 "Legal constraints on the distribution of dividends"), the Company's capital requirements, including capital expenditure requirements, its financial condition, general business conditions and any restrictions that its contractual arrangements in place at the time of the dividend may place on its ability to pay dividends and the maintaining of appropriate financial flexibility. Except in certain specific and limited circumstances set out in the Norwegian Public Limited Companies Act, the amount of dividends paid may not exceed the amount recommended by the Board. It is the Company's goal to give shareholders a competitive return on invested capital over time. This return will be achieved primarily through increase in share price and dividends. To date the Company has not paid out any dividends. Considering the Company's liquidity situation and cash flow situation, it is unlikely that the Company will pay dividends in the short term.
12.8.2 Legal constraints on the distribution of dividends
Dividends may be paid in cash or in some instances in kind. The Norwegian Public Limited Companies Act provides the following constraints on the distribution of dividends applicable to the Company: Section 8-1 of the Norwegian Public Limited Companies Act provides that the Company may distribute dividends to the extent that the Company's net assets following the distribution cover (i) the share capital, (ii) the reserve for valuation variances and (iii) the reserve for unrealised gains. The amount of any receivable held by the Company which is secured by a pledge over Shares in the Company, as well as the aggregate amount of credit and security which, pursuant to section 8–7 to 8-10 of the Norwegian Public Limited Companies Act fall within the limits of distributable equity, shall be deducted from the distributable amount. The calculation of the distributable equity shall be made on the basis of the balance sheet included in the approved annual accounts for the last financial year, provided, however, that the registered share capital as of the date of the resolution to distribute dividends shall be applied. Following the approval of the annual accounts for the last financial year, the General Meeting may also authorise the Board of Directors to declare dividends on the basis of the Company's annual accounts. Dividends may also be resolved by the General Meeting based on an interim balance
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sheet which has been prepared and audited in accordance with the provisions applying to the annual accounts and with a balance sheet date not further into the past than six months before the date of the General Meeting's resolution. Dividends can only be distributed to the extent that the Company's equity and liquidity following the distribution is considered sound. The Norwegian Public Limited Companies Act does not provide for any time limit after which entitlement to dividends lapses. Subject to various exceptions, Norwegian law provides a limitation period of three years from the date on which an obligation is due. There are no dividend restrictions for non-Norwegian resident shareholders to claim dividends. For a description of withholding tax on dividends applicable to non-Norwegian residents, see Section 13 "Taxation".
12.8.3 Manner of dividend payments
Any future payments of dividends on the Shares will be denominated in NOK, and will be paid to the shareholders through the VPS. Investors registered in the VPS whose address is outside Norway and who have not supplied the VPS with details of any NOK account, will, however, receive dividends by check in their local currency, as exchanged from the NOK amount distributed through the VPS. If it is not practical or possible, at the sole discretion of the Company's VPS Registrar, to issue a check in a local currency of the relevant shareholder, a check will be issued in USD. The issuing and mailing of checks will be executed in accordance with the standard procedures of the VPS Registrar. The exchange rate(s) applied will be the VPS Registrar's rate on the date of issuance. Dividends will be credited automatically to the VPS registered shareholders' NOK accounts, or in lieu of such registered NOK account, by check, without the need for shareholders to present documentation proving their ownership of the Shares.
12.9 The Articles of Association
The Company's Articles of Association are set out in Appendix A to this Prospectus. Please find below an in-house translation of the Articles of Association. The Articles of Association was last amended on 14 October 2019. §1 The name of the company is Element ASA. The company is a public limited liability company.
§2 The Company's registered office is in the municipality of Oslo.
§3 The objective of the company is to engage in exploration, production, transportation, refining and marketing of minerals and related products, as well as other business, including the delivery of services to subsidiaries or related companies. The business may also be carried out through participation in or in cooperation with other companies. §4 The Company's share capital is NOK 30,038,843.20, divided into 18,774,277 Shares each with a nominal value of NOK 1.60. The Shares are registered with the Norwegian Central Securities Depository (VPS). §5 The Board of Directors of the Company shall consist of minimum three, maximum eight board members, subject to resolution of the General Meeting. Power of signature for the company is exercised by the chairman and the chief executive officer jointly, or by two directors jointly.
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§6 At the Ordinary General Meetings the following matters shall be discussed and decided upon:
• Approval of the annual accounts and balance sheet, including the use of the annual profit or settlement of loss in accordance with the approved balance sheet, and the distribution of dividends.
• Other matters which according to law or the Articles of Association come under the responsibilities of the General Meeting.
§7 The company shall have a nomination committee. The nomination committee shall consist of three members elected by the general meeting, for a period of up to two years. The nomination committee shall be composed to ensure that broad shareholders interests are ensured. The nomination committee shall prepare the election of new board members and shall give recommendations to the general meeting regarding the remuneration of the board members. §8 Documents related to matters that shall be dealt with by the general meeting shall be made available for the shareholders on the company's website. The same applies for documents that by law shall be included in or attached to notices of general meetings. If the documents are made available to the company's shareholders at the company's websites, the requirements by law that documents shall be sent to the shareholders does not apply. A shareholder may nevertheless request that documents relating to matters to be dealt with by the general meeting are forwarded to him or her. §9 Shareholders may cast votes in writing, including through use of electronic communication, in an period prior the general meeting. The board may establish more specific guidelines for such advance voting. The notice of the general meeting shall specify the guidelines applicable. §10 The Company may in a notice for general meetings state a time limit for registration of participation at the general meeting, such time limit not to be shorter than five (5) days prior to the general meeting. The board of directors decides for each general meeting whether a time limit shall be set and if this shall be shorter than five (5) days prior to the general meeting. The Articles of Association does not set out conditions that are more significant than what is required by the Norwegian Public Limited Liability Companies Act when it comes to actions necessary to change the rights of holders of the Shares.
12.10 Certain aspects of Norwegian law
12.10.1 General meetings
Through the general meeting, shareholders exercise supreme authority in a Norwegian company. In accordance with Norwegian law, the annual general meeting of shareholders is required to be held each year on or prior to 30 June. Norwegian law requires that written notice of annual general meetings setting forth the time of, the venue for and the agenda of the meeting be sent to all shareholders with a known address no later than 21 days before the annual general meeting of a Norwegian public limited liability company listed on a stock exchange or a regulated market
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shall be held, unless the articles of association stipulate a longer deadline, which is not currently the case for the Company. A shareholder may vote at the general meeting either in person or by proxy appointed at their own discretion. In accordance with the requirements of the Norwegian Securities Trading Act, the Company will include a proxy form with notices of general meetings. All of the Company's shareholders who are registered in the register of shareholders maintained with the VPS as of the date of the general meeting, or who have otherwise reported and documented ownership to Shares, are entitled to participate at general meetings, without any requirement of pre-registration. The Articles of Association do, however, include a provision that allows the Board of Directors to set a time limit (such time limit not to be shorter than five days), for each general meeting, for registration of participation in the general meeting Apart from the annual general meeting, extraordinary general meetings of shareholders may be held if the Board of Directors considers it necessary. An extraordinary general meeting of shareholders must also be convened if, in order to discuss a specified matter, the auditor or shareholders representing at least 5% of the share capital demands this in writing. The requirements for notice and admission to the annual general meeting also apply to extraordinary general meetings. However, the annual general meeting of a Norwegian public limited company may with a majority of at least two-thirds of the aggregate number of votes cast as well as at least two-thirds of the share capital represented at a general meeting resolve that extraordinary general meetings may be convened with a fourteen days' notice period until the next annual general meeting provided the Company has procedures in place allowing shareholders to vote electronically.
12.10.2 Voting rights – amendments to the Articles of Association
Each of the Company's Shares carries one vote. In general, decisions that shareholders are entitled to make under Norwegian law or the Articles of Association may be made by a simple majority of the votes cast. In the case of elections or appointments, the person(s) who receive(s) the greatest number of votes cast are elected. However, as required under Norwegian law, certain decisions, including resolutions to waive preferential rights to subscribe in connection with any share issue in the Company, to approve a merger or demerger of the Company, to amend the Articles of Association, to authorise an increase or reduction in the share capital, to authorise an issuance of convertible loans or warrants by the Company or to authorise the Board of Directors to purchase Shares and hold them as treasury shares or to dissolve the Company, must receive the approval of at least two-thirds of the aggregate number of votes cast as well as at least two-thirds of the share capital represented at a general meeting. Norwegian law further requires that certain decisions, which have the effect of substantially altering the rights and preferences of any shares or class of shares, receive the approval by the holders of such shares or class of shares as well as the majority required for amending the Articles of Association. Decisions that (i) would reduce the rights of some or all of the Company's shareholders in respect of dividend payments or other rights to assets or (ii) restrict the transferability of the Shares, require that at least 90% of the share capital represented at the general meeting in question vote in favour of the resolution, as well as the majority required for amending the Articles of Association. In general, only a shareholder registered in the VPS is entitled to vote for such Shares. Beneficial owners of the Shares that are registered in the name of a nominee are generally not entitled to vote under Norwegian law, nor is any person who is designated in the VPS register as the holder of such Shares as nominees. Investors should note that there are varying opinions as to the interpretation of the right to vote on nominee registered shares. In the Company's view, a nominee may not meet or vote for Shares registered on a nominee account (NOM-account). A shareholder must, in order to be eligible to register, meet and vote for such Shares at the general meeting, transfer
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the Shares from such NOM-account to an account in the shareholder's name. Such registration must appear from a transcript from the VPS at the latest at the date of the general meeting. There are no quorum requirements that apply to the general meetings.
12.10.3 Additional issuances and preferential rights
If the Company issues any new Shares, including bonus share issues, the Articles of Association must be amended, which requires the same vote as other amendments to the Articles of Association. In addition, under Norwegian law, the Company's shareholders have a preferential right to subscribe for new Shares issued by the Company. Preferential rights may be derogated from by resolution in a general meeting passed by the same vote required to amend the Articles of Association. A derogation of the shareholders' preferential rights in respect of bonus issues requires the approval of all outstanding Shares. The general meeting may, by the same vote as is required for amending the Articles of Association, authorise the Board of Directors to issue new Shares, and to derogate from the preferential rights of shareholders in connection with such issuances. Such authorisation may be effective for a maximum of two years, and the nominal value of the Shares to be issued may not exceed 50% of the registered nominal share capital when the authorisation is registered with the Norwegian Register of Business Enterprises. Under Norwegian law, the Company may increase its share capital by a bonus share issue, subject to approval by the Company's shareholders, by transfer from the Company's distributable equity and thus the share capital increase does not require any payment of a subscription price by the shareholders. Any bonus issues may be affected either by issuing new shares to the Company's existing shareholders or by increasing the nominal value of the Company's outstanding Shares. Issuance of new Shares to shareholders who are citizens or residents of the United States upon the exercise of preferential rights may require the Company to file a registration statement in the United States under United States securities laws. Should the Company in such a situation decide not to file a registration statement, the Company's U.S. shareholders may not be able to exercise their preferential rights. If a U.S. shareholder is ineligible to participate in a rights offering, such shareholder would not receive the rights at all and the Company would seek to sell such rights on the shareholder's behalf.
12.10.4 Minority rights
Norwegian law sets forth a number of protections for minority shareholders of the Company, including but not limited to those described in this paragraph and the description of general meetings as set out above. Any of the Company's shareholders may petition Norwegian courts to have a decision of the Board of Directors or the Company's shareholders made at the general meeting declared invalid on the grounds that it unreasonably favours certain shareholders or third parties to the detriment of other shareholders or the Company itself. The Company's shareholders may also petition the courts to dissolve the Company as a result of such decisions to the extent particularly strong reasons are considered by the court to make necessary dissolution of the Company. Minority shareholders holding 5% or more of the Company's share capital have a right to demand in writing that the Board of Directors convene an extraordinary general meeting to discuss or resolve specific matters. In addition, any of the Company's shareholders may in writing demand that the Company place an item on the agenda for any general meeting as long as the Board of Directors is notified within seven days before the deadline for convening the general meeting and the demand is accompanied with a proposed resolution or a reason for why the item shall be on
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the agenda. If the notice has been issued when such a written demand is presented, a renewed notice must be issued if the deadline for issuing notice of the general meeting has not expired.
12.10.5 Rights of redemption and repurchase of Shares
The share capital of the Company may be reduced by reducing the nominal value of the Shares or by cancelling Shares. Such a decision requires the approval of at least two-thirds of the aggregate number of votes cast and at least two-thirds of the share capital represented at a general meeting. Redemption of individual Shares requires the consent of the holders of the Shares to be redeemed. The Company may purchase its own Shares provided that the Board of Directors has been granted an authorisation to do so by a general meeting with the approval of at least two-thirds of the aggregate number of votes cast and at least two-thirds of the share capital represented at the meeting. The aggregate nominal value of treasury shares so acquired, and held by the Company must not exceed 10% of the Company's share capital, and treasury shares may only be acquired if the Company's distributable equity, according to the latest adopted balance sheet, exceeds the consideration to be paid for the shares. The authorisation by the General Meeting of the Company's shareholders cannot be granted for a period exceeding 24 months.
12.10.6 Shareholder vote on certain reorganisations
A decision of the Company's shareholders to merge with another company or to demerge requires a resolution by the general meeting of the shareholders passed by at least two-thirds of the aggregate votes cast and at least two-thirds of the share capital represented at the general meeting. A merger plan, or demerger plan signed by the Board of Directors along with certain other required documentation, would have to be sent to all the Company's shareholders, or if the Articles of Association stipulate that, made available to the shareholders on the company's website, at least one month prior to the general meeting to pass upon the matter.
12.10.7 Liability of board members
Members of the Board of Directors owe a fiduciary duty to the Company and its shareholders. Such fiduciary duty requires that the Board Members act in the best interests of the Company when exercising their functions and exercise a general duty of loyalty and care towards the Company. Their principal task is to safeguard the interests of the Company. Members of the Board of Directors may each be held liable for any damage they negligently or wilfully cause the Company. Norwegian law permits the general meeting to discharge any such person from liability, but such discharge is not binding on the Company if substantially correct and complete information was not provided at the general meeting of the Company's shareholders passing upon the matter. If a resolution to discharge the Company's board members from liability or not to pursue claims against such a person has been passed by a general meeting with a smaller majority than that required to amend the Articles of Association, shareholders representing more than 10% of the share capital or, if there are more than 100 shareholders, more than 10% of the shareholders may pursue the claim on the Company's behalf and in its name. The cost of any such action is not the Company's responsibility but can be recovered from any proceeds the Company receives as a result of the action. If the decision to discharge any of the Company's board members from liability or not to pursue claims against the Company's board members is made by such a majority as is necessary to amend the Articles of Association, the minority shareholders of the Company cannot pursue such claim in the Company's name.
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12.10.8 Claims against the Company under Norwegian law.
The Company is a public limited liability company incorporated under the laws of Norway. The rights of holders of Shares are governed by Norwegian law and by the articles of association. In particular, Norwegian law limits the circumstances under which shareholders of Norwegian companies may bring derivative actions. For instance, under Norwegian law, any action brought by the Company in respect of wrongful acts committed against the Company takes precedent over actions brought by shareholders in respect of such acts. In addition, it may be difficult to prevail in a claim against the Company under, or to enforce liabilities predicated upon, securities laws in other jurisdictions.
12.10.9 Indemnification of board members
Neither Norwegian law nor the Articles of Association contains any provision concerning indemnification by the Company of the Board of Directors. The Company is permitted to purchase insurance for the board members against certain liabilities that they may incur in their capacity as such.
12.10.10 Distribution of assets on liquidation
Under Norwegian law, the Company may be wound-up by a resolution of the Company's shareholders at the general meeting passed by at least two-thirds of the aggregate votes cast and at least two-thirds of the share capital represented at the meeting. In the event of liquidation, the Shares rank equally in the event of a return on capital.
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13 TAXATION
13.1 Norwegian taxation
Set out below is a summary of certain Norwegian tax matters related to an investment in the Company. The summary regarding Norwegian taxation is based on the laws in force in Norway as of the date of the Prospectus, which may be subject to any changes in law occurring after such date. Such changes could possibly be made on a retrospective basis. The following summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the Shares in the Company. Shareholders who wish to clarify their own tax situation should consult with and rely upon their own tax advisors. Shareholders resident in jurisdictions other than Norway and shareholders who cease to be resident in Norway for tax purposes (due to domestic tax law or tax treaty) should specifically consult with and rely upon their own tax advisors with respect to the tax position in their country of residence and the tax consequences related to ceasing to be resident in Norway for tax purposes. Please note that for the purpose of the summary below, a reference to a Norwegian or non-Norwegian shareholder refers to the tax residency rather than the nationality of the shareholder. Please be warned that the tax legislation of an investor's tax jurisdiction and of the Company's country of incorporation may have an impact on the income received from the securities.
13.1.1 Taxation of dividends
Norwegian Personal Shareholders
Dividends from the Company received by shareholders who are individuals resident in Norway for tax purposes ("Norwegian Personal Shareholders") are currently taxable as ordinary income in Norway for such shareholders at an effective tax rate of 31.68% to the extent the dividend exceeds a tax-free allowance (i.e. dividends received, less the tax free allowance, shall be multiplied by 1.44 which is then taxable at a flat rate of 22%, increasing the effective tax rate on dividends to 31.68%). The allowance is calculated on a share-by-share basis. The allowance for each share is equal to the cost price of the share multiplied by a risk free interest rate based on the effective rate after tax of interest on treasury bills (Norwegian: "statskasseveksler") with 3 months maturity. The allowance is calculated for each calendar year, and is allocated solely to Norwegian Personal Shareholders holding shares at the expiration of the relevant calendar year. Norwegian Personal Shareholders who transfer shares will thus not be entitled to deduct any calculated allowance related to the year of transfer. Any part of the calculated allowance one year exceeding the dividend distributed on the share ("excess allowance") may be carried forward and set off against future dividends received on, or gains upon realization, of the same share.
Norwegian Corporate Shareholders
Dividends distributed from the Company to shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes ("Norwegian Corporate Shareholders") are effectively taxed at a rate of 0.66% (3% of dividend income from such shares is included in the calculation of ordinary income for Norwegian Corporate Shareholders and ordinary income is currently subject to tax at a flat rate of 22%).
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Non-Norwegian Personal Shareholders
Dividends distributed to shareholders who are individuals not resident in Norway for tax purposes ("Non-Norwegian Personal Shareholders") are as a general rule subject to Norwegian withholding tax at a rate of 25%. The withholding tax rate of 25% is normally reduced through tax treaties between Norway and the country in which the shareholder is resident. The withholding obligation lies with the company distributing the dividend and the Company assumes this obligation. Non-Norwegian Personal Shareholders resident within the EEA for tax purposes may apply individually to Norwegian tax authorities for a refund of an amount corresponding to the calculated tax-free allowance on each individual share. However, the deduction for the tax-free allowance does not apply in the event that the withholding tax rate, pursuant to an applicable tax treaty, leads to a lower taxation on the dividends than the withholding tax rate of 25% less the tax-free allowance. If a Non-Norwegian Personal Shareholder is carrying on business activities in Norway and the shares are effectively connected with such activities, the shareholder will be subject to the same taxation of dividends as a Norwegian Personal Shareholder, as described above. Non-Norwegian Personal Shareholders who have suffered a higher withholding tax than set out in an applicable tax treaty may apply to the Norwegian tax authorities for a refund of the excess withholding tax deducted.
Non-Norwegian Corporate Shareholders
Dividends distributed to shareholders who are limited liability companies (and certain other entities) not resident in Norway for tax purposes ("Non-Norwegian Corporate Shareholders") are as a general rule subject to withholding tax at a rate of 25%. The withholding tax rate of 25% is normally reduced through tax treaties between Norway and the country in which the shareholder is resident. Dividends distributed to Non-Norwegian Corporate Shareholders resident within the EEA for tax purposes are exempt from Norwegian withholding tax provided that the shareholder is the beneficial owner of the shares and that the shareholder is genuinely established and performs genuine economic business activities within the relevant EEA jurisdiction. If a Non-Norwegian Corporate Shareholder is carrying on business activities in Norway and the shares are effectively connected with such activities, the shareholder will be subject to the same taxation of dividends as a Norwegian Corporate Shareholder, as described above. Non-Norwegian Corporate Shareholders who have suffered a higher withholding tax than set out in an applicable tax treaty may apply to the Norwegian tax authorities for a refund of the excess withholding tax deducted. Nominee registered shares will be subject to withholding tax at a rate of 25% unless the nominee has obtained approval from the Norwegian Tax Directorate for the dividend to be subject to a lower withholding tax rate. To obtain such approval the nominee is required to file a summary to the tax authorities including all beneficial owners that are subject to withholding tax at a reduced rate. The withholding obligation in respect of dividends distributed to Non-Norwegian Corporate Shareholders and on nominee registered shares lies with the company distributing the dividends and the Company assumes this obligation.
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13.1.2 Taxation of capital gains on realization of Shares
Norwegian Personal Shareholders
Sale, redemption or other disposal of shares is considered a realization for Norwegian tax purposes. A capital gain or loss generated by a Norwegian Personal Shareholder through a disposal of shares is taxable or tax deductible in Norway. Such capital gain or loss is included in or deducted from the Norwegian Personal Shareholder's ordinary income in the year of disposal, with an effective tax rate of 31.68% (i.e. capital gains (less the tax free allowance) and losses shall be multiplied by 1.44 which is then taxable at a flat rate of 22%, increasing the effective tax rate on gains/losses to 31.68%). The gain is subject to tax and the loss is tax deductible irrespective of the duration of the ownership and the number of shares disposed of. The taxable gain/deductible loss is calculated per share as the difference between the consideration for the share and the Norwegian Personal Shareholder's cost price of the share, including costs incurred in relation to the acquisition or realization of the share. From this capital gain, Norwegian Personal Shareholders are entitled to deduct a calculated allowance provided that such allowance has not already been used to reduce taxable dividend income. Please refer to Section 13.1.1 "Taxation of dividends", "Norwegian Personal Shareholders", above for a description of the calculation of the allowance. The allowance may only be deducted in order to reduce a taxable gain, and cannot increase or produce a deductible loss. Any unused allowance exceeding the capital gain upon the realization of a share will be annulled. If the Norwegian Personal Shareholder owns shares acquired at different points in time, the shares that were acquired first will be regarded as the first to be disposed of, on a first-in first-out basis.
Norwegian Corporate Shareholders
Norwegian Corporate Shareholders are exempt from tax on capital gains derived from the realization of shares qualifying for the participation exemption, including shares in the Company. Losses upon the realization and costs incurred in connection with the purchase and realization of such shares are not deductible for tax purposes.
Non-Norwegian Personal Shareholders
Gains from the sale or other disposal of shares by a Non-Norwegian Personal Shareholder will not be subject to taxation in Norway unless the Non-Norwegian Personal Shareholder holds the shares in connection with business activities carried out or managed from Norway.
Non-Norwegian Corporate Shareholders
Capital gains derived by the sale or other realization of shares by Non-Norwegian Corporate Shareholders are not subject to taxation in Norway.
13.1.3 Net Wealth Tax
Norwegian Personal Shareholders
The value of shares held on 1 January in the year of assessment is included in the basis for the computation of net wealth tax imposed on Norwegian Personal Shareholders. Currently, the marginal net wealth tax rate is 0.85% of the value assessed. Listed shares are valued at 75% of their quoted value on 1 January in the assessment year, which is the year following the relevant fiscal year.
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Norwegian Corporate Shareholders
Norwegian Corporate Shareholders are not subject to net wealth tax.
Non-Norwegian Personal Shareholders and Non-Norwegian Corporate Shareholders
Shareholders not resident in Norway for tax purposes are not subject to Norwegian net wealth tax. Non-Norwegian Personal Shareholders can, however, be taxable if the shareholding is effectively connected to the conduct of trade or business in Norway.
13.1.4 VAT and Transfer Taxes
No VAT, stamp or similar duties are currently imposed in Norway on the transfer or issuance of shares.
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14 SECURITIES TRADING IN NORWAY
14.1 Introduction
The Oslo Stock Exchange was established in 1819 and is the principal market in which shares, bonds and other financial instruments are traded in Norway. The Oslo Stock Exchange has entered into a strategic cooperation with the London Stock Exchange group with regards to, inter alia, trading systems for equities, fixed income and derivatives.
14.2 Trading and settlement
Trading of equities on the Oslo Stock Exchange is carried out in the electronic trading system Millennium Exchange. This trading system is in use by all markets operated by the London Stock Exchange, including the Borsa Italiana, as well as by the Johannesburg Stock Exchange. Official trading on the Oslo Stock Exchange takes place between 09:00 hours (CET) and 16.20 hours (CET) each trading day, with pre-trade period between 08:15 hours (CET) and 09:00 hours (CET), closing auction from 16:20 hours (CET) to 16:25 hours (CET) and a post trade period from 16:25 hours (CET) to 17:30 hours (CET). Reporting of after exchange trades can be done until 17:30 hours (CET). The settlement period for trading on the Oslo Stock Exchange is two trading days (T+2). This means that securities will be settled on the investor's account in VPS two days after the transaction, and that the seller will receive payment after two days. Oslo Clearing ASA, a wholly-owned subsidiary of SIX x-clear AG, a company in the SIX group, has a license from the Norwegian FSA to act as a central clearing service, and has from 18 June 2010 offered clearing and counterparty services for equity trading on the Oslo Stock Exchange. Investment services in Norway may only be provided by Norwegian investment firms holding a license under the Norwegian Securities Trading Act, branches of investment firms from an EEA member state or investment firms from outside the EEA that have been licensed to operate in Norway. Investment firms in an EEA member state may also provide cross-border investment services into Norway. It is possible for investment firms to undertake market-making activities in shares listed in Norway if they have a license to this effect under the Norwegian Securities Trading Act, or in the case of investment firms in an EEA member state, a license to carry out market-making activities in their home jurisdiction. Such market-making activities will be governed by the regulations of the Norwegian Securities Trading Act relating to brokers' trading for their own account. However, such market-making activities do not as such require notification to the Norwegian FSA or the Oslo Stock Exchange except for the general obligation of investment firms that are members of the Oslo Stock Exchange to report all trades in stock exchange listed securities.
14.3 Information, control and surveillance
Under Norwegian law, the Oslo Stock Exchange is required to perform a number of surveillance and control functions. The Surveillance and Corporate Control unit of the Oslo Stock Exchange monitors all market activity on a continuous basis. Market surveillance systems are largely automated, promptly warning department personnel of abnormal market developments.
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The Norwegian FSA controls the issuance of securities in both the equity and bond markets in Norway and evaluates whether the issuance documentation contains the required information and whether it would otherwise be unlawful to carry out the issuance. Under Norwegian law, a company that is listed on a Norwegian regulated market, or has applied for listing on such market, must promptly release any inside information directly concerning the company (i.e., precise information about financial instruments, the issuer thereof or other matters which are likely to have a significant effect on the price of the relevant financial instruments or related financial instruments, and which are not publicly available or commonly known in the market). A company may, however, delay the release of such information in order not to prejudice its legitimate interests, provided that it is able to ensure the confidentiality of the information and that the delayed release would not be likely to mislead the public. The Oslo Stock Exchange may levy fines on companies violating these requirements.
14.4 The VPS and transfer of shares
The Company's principal share register is operated through the VPS. The VPS is the Norwegian paperless centralised securities register. It is a computerised book-keeping system in which the ownership of, and all transactions relating to, Norwegian listed shares must be recorded. The VPS and the Oslo Stock Exchange are both wholly-owned by Oslo Børs VPS Holding ASA. All transactions relating to securities registered with the VPS are made through computerised book entries. No physical share certificates are, or may be, issued. The VPS confirms each entry by sending a transcript to the registered shareholder irrespective of any beneficial ownership. To give effect to such entries, the individual shareholder must establish a share account with a Norwegian account agent. Norwegian banks, Norges Bank (being, Norway's central bank), authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA are allowed to act as account agents. As a matter of Norwegian law, the entry of a transaction in the VPS is prima facie evidence in determining the legal rights of parties as against the issuing company or any third party claiming an interest in the given security. A transferee or assignee of shares may not exercise the rights of a shareholder with respect to such shares unless such transferee or assignee has registered such shareholding or has reported and shown evidence of such share acquisition, and the acquisition is not prevented by law, the relevant company's articles of association or otherwise. The VPS is liable for any loss suffered as a result of faulty registration or an amendment to, or deletion of, rights in respect of registered securities unless the error is caused by matters outside the VPS' control which the VPS could not reasonably be expected to avoid or overcome the consequences of. Damages payable by the VPS may, however, be reduced in the event of contributory negligence by the aggrieved party. The VPS must provide information to the Norwegian FSA on an ongoing basis, as well as any information that the Norwegian FSA requests. Further, Norwegian tax authorities may require certain information from the VPS regarding any individual's holdings of securities, including information about dividends and interest payments.
14.5 Shareholder register – Norwegian law
Under Norwegian law, shares are registered in the name of the beneficial owner of the shares. As a general rule, there are no arrangements for nominee registration and Norwegian shareholders are not allowed to register their shares in VPS through a nominee. However, foreign shareholders may register their shares in the VPS in the name of a nominee (bank or other nominee) approved by the Norwegian FSA. An approved and registered nominee has a duty to provide information on demand about beneficial shareholders to the company and to the Norwegian
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authorities. In case of registration by nominees, the registration in the VPS must show that the registered owner is a nominee. A registered nominee has the right to receive dividends and other distributions, but cannot vote in general meetings on behalf of the beneficial owners.
14.6 Foreign investment in shares listed in Norway
Foreign investors may trade shares listed on the Oslo Stock Exchange through any broker that is a member of the Oslo Stock Exchange, whether Norwegian or foreign.
14.7 Disclosure obligations
If a person's, entity's or consolidated group's proportion of the total issued shares and/or rights to shares in a company listed on a regulated market in Norway (with Norway as its home state, which will be the case for the Company) reaches, exceeds or falls below the respective thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 90% of the share capital or the voting rights of that company, the person, entity or group in question has an obligation under the Norwegian Securities Trading Act to notify the Oslo Stock Exchange and the issuer immediately. The same applies if the disclosure thresholds are passed due to other circumstances, such as a change in the company's share capital.
14.8 Insider trading
According to Norwegian law, subscription for, purchase, sale or exchange of financial instruments that are listed, or subject to the application for listing, on a Norwegian regulated market, or incitement to such dispositions, must not be undertaken by anyone who has inside information, as defined in Section 3-2 of the Norwegian Securities Trading Act. The same applies to the entry into, purchase, sale or exchange of options or futures/forward contracts or equivalent rights whose value is connected to such financial instruments or incitement to such dispositions.
14.9 Mandatory offer requirement
The Norwegian Securities Trading Act requires any person, entity or consolidated group that becomes the owner of shares representing more than one-third of the voting rights of a company listed on a Norwegian regulated market (with the exception of certain foreign companies not including the Company) to, within four weeks, make an unconditional general offer for the purchase of the remaining shares in that company. A mandatory offer obligation may also be triggered where a party acquires the right to become the owner of shares that, together with the party's own shareholding, represent more than one-third of the voting rights in the company and the Oslo Stock Exchange decides that this is regarded as an effective acquisition of the shares in question. The mandatory offer obligation ceases to apply if the person, entity or consolidated group sells the portion of the shares that exceeds the relevant threshold within four weeks of the date on which the mandatory offer obligation was triggered. When a mandatory offer obligation is triggered, the person subject to the obligation is required to immediately notify the Oslo Stock Exchange and the company in question accordingly. The notification is required to state whether an offer will be made to acquire the remaining shares in the company or whether a sale will take place. As a rule, a notification to the effect that an offer will be made cannot be retracted. The offer and the offer document required are subject to approval by the Oslo Stock Exchange before the offer is submitted to the shareholders or made public.
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The offer price per share must be at least as high as the highest price paid or agreed by the offeror for the shares in the six-month period prior to the date the threshold was exceeded. If the acquirer acquires or agrees to acquire additional shares at a higher price prior to the expiration of the mandatory offer period, the acquirer is obliged to restate its offer at such higher price. A mandatory offer must be in cash or contain a cash alternative at least equivalent to any other consideration offered. In case of failure to make a mandatory offer or to sell the portion of the shares that exceeds the relevant threshold within four weeks, the Oslo Stock Exchange may force the acquirer to sell the shares exceeding the threshold by public auction. Moreover, a shareholder who fails to make an offer may not, as long as the mandatory offer obligation remains in force, exercise rights in the company, such as voting in a general meeting, without the consent of a majority of the remaining shareholders. The shareholder may, however, exercise his/her/its rights to dividends and pre-emption rights in the event of a share capital increase. If the shareholder neglects his/her/its duty to make a mandatory offer, the Oslo Stock Exchange may impose a cumulative daily fine that runs until the circumstance has been rectified. Any person, entity or consolidated group that owns shares representing more than one-third of the votes in a company listed on a Norwegian regulated market (with the exception of certain foreign companies not including the Company) is obliged to make an offer to purchase the remaining shares of the company (repeated offer obligation) if the person, entity or consolidated group through acquisition becomes the owner of shares representing 40%, or more of the votes in the company. The same applies correspondingly if the person, entity or consolidated group through acquisition becomes the owner of shares representing 50% or more of the votes in the company. The mandatory offer obligation ceases to apply if the person, entity or consolidated group sells the portion of the shares which exceeds the relevant threshold within four weeks of the date on which the mandatory offer obligation was triggered. Any person, entity or consolidated group that has passed any of the above mentioned thresholds in such a way as not to trigger the mandatory bid obligation, and has therefore not previously made an offer for the remaining shares in the company in accordance with the mandatory offer rules is, as a main rule, obliged to make a mandatory offer in the event of a subsequent acquisition of shares in the company.
14.10 Compulsory acquisition
Pursuant to the Norwegian Public Limited Companies Act and the Norwegian Securities Trading Act, a shareholder who, directly or through subsidiaries, acquires shares representing 90% or more of the total number of issued shares in a Norwegian public limited liability company, as well as 90% or more of the total voting rights, has a right, and each remaining minority shareholder of the company has a right to require such majority shareholder, to effect a compulsory acquisition for cash of the shares not already owned by such majority shareholder. Through such compulsory acquisition the majority shareholder becomes the owner of the remaining shares with immediate effect. If a shareholder acquires shares representing more than 90% of the total number of issued shares, as well as more than 90% of the total voting rights, through a voluntary offer in accordance with the Securities Trading Act, a compulsory acquisition can, subject to the following conditions, be carried out without such shareholder being obliged to make a mandatory offer: (i) the compulsory acquisition is commenced no later than four weeks after the acquisition of shares through the voluntary offer, (ii) the price offered per share is equal to or higher than what the offer price would have been in a mandatory offer, and (iii) the settlement is guaranteed by a financial institution authorised to provide such guarantees in Norway. A majority shareholder who effects a compulsory acquisition is required to offer the minority shareholders a specific price per share, the determination of which is at the discretion of the majority shareholder. However, where the
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offeror, after making a mandatory or voluntary offer, has acquired more than 90% of the voting shares of a company and a corresponding proportion of the votes that can be cast at the general meeting, and the offeror pursuant to Section 4-25 of the Norwegian Public Limited Companies Act completes a compulsory acquisition of the remaining shares within three months after the expiry of the offer period, it follows from the Norwegian Securities Trading Act that the redemption price shall be determined on the basis of the offer price for the mandatory/voluntary offer unless specific reasons indicate another price. Should any minority shareholder not accept the offered price, such minority shareholder may, within a specified deadline of not less than two months, request that the price be set by a Norwegian court. The cost of such court procedure will, as a general rule, be the responsibility of the majority shareholder, and the relevant court will have full discretion in determining the consideration to be paid to the minority shareholder as a result of the compulsory acquisition. Absent a request for a Norwegian court to set the price or any other objection to the price being offered, the minority shareholders would be deemed to have accepted the offered price after the expiry of the specified deadline.
14.11 Foreign exchange controls
There are currently no foreign exchange control restrictions in Norway that would potentially restrict the payment of dividends to a shareholder outside Norway, and there are currently no restrictions that would affect the right of shareholders of a company that has its shares registered with the VPS who are not residents in Norway to dispose of their shares and receive the proceeds from a disposal outside Norway. There is no maximum transferable amount either to or from Norway, although transferring banks are required to submit reports on foreign currency exchange transactions into and out of Norway into a central data register maintained by the Norwegian customs and excise authorities. The Norwegian police, tax authorities, customs and excise authorities, the National Insurance Administration and the Norwegian FSA have electronic access to the data in this register.
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15 SELLING AND TRANSFER RESTRICTIONS
15.1 General
No actions have been taken, and no actions are intended to be taken, to register the Prospectus or the Shares in any other jurisdiction than in Norway. The transfer and resale of these securities in or into various jurisdictions may be restricted or affected by law in such jurisdictions. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. No securities of the Company are being offered by means of this Prospectus. This Prospectus does not constitute an invitation to purchase any of the securities of the Company in any jurisdiction in which such offer or sale would be unlawful. No one has taken any action that would permit an offering of the securities of the Company to occur outside of Norway. Accordingly, neither this Prospectus nor any advertisement or any other material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. The Company requires persons in possession of this Prospectus to inform themselves about and to observe any such restrictions. The securities of the Company may be subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under applicable securities laws and regulations. Any failure to comply with such restrictions may constitute a violation of the securities laws of any such jurisdiction. The following is a summary of certain transfer restrictions that may apply to the securities of the Company pursuant to legislation in certain jurisdictions. The contents do not constitute an exhaustive description of all transfer restrictions that may apply in such jurisdictions, and similar or other restrictions may also follow from applicable laws and regulations in other jurisdictions.
15.2 United States
The Shares of the Company have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction in the United States, and may not be offered or sold except: (i) within the United States only to QIBs in reliance on Rule 144A or pursuant to another exemption from the registration requirements of the U.S. Securities Act; and (ii) outside the United States in compliance with Regulation S, and in each case in accordance with any applicable securities laws of any state or territory of the United States or any other jurisdiction. Terms defined in Rule 144A or Regulation S shall have the same meaning when used in this section. Each purchaser of the Shares of the Company outside the United States pursuant to Regulation S will be deemed to have acknowledged, represented and agreed that it has received a copy of this Prospectus and such other information as it deems necessary to make an informed investment decision and that:
• The purchaser is authorised to consummate the purchase of the Shares in compliance with all applicable laws and regulations.
• The purchaser acknowledges that the Shares have not been and will not be registered under the U.S. Securities Act, or with any securities regulatory authority or any state of the United States, and are subject to significant restrictions on transfer.
• The purchaser is, and the person, if any, for whose account or benefit the purchaser is acquiring the Shares was located outside the United States at the time the buy order for the Shares was originated and continues to be located outside the United States and has not purchased the Shares for the benefit of any person in the United States or entered into any arrangement for the transfer of the Shares to any person in the United States.
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• The purchaser is not an affiliate of the Company or a person acting on behalf of such affiliate, and is not in the business of buying and selling securities or, if it is in such business, it did not acquire the Shares from the Company or an affiliate thereof in the initial distribution of such Shares.
• The purchaser is aware of the restrictions on the offer and sale of the Shares pursuant to Regulation S described in this Prospectus.
• The Shares have not been offered to it by means of any "directed selling efforts" as defined in Regulation S. • The Company shall not recognise any offer, sale, pledge or other transfer of the Shares made other than in
compliance with the above restrictions. • The purchaser acknowledges that these representations and undertakings are required in connection with
the securities laws of the United States and that the Company and its advisers will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.
Each purchaser of the Shares within the United States pursuant to Rule 144A will be deemed to have acknowledged, represented and agreed that it has received a copy of this Prospectus and such other information as it deems necessary to make an informed investment decision and that:
• The purchaser is authorised to consummate the purchase of the Shares in compliance with all applicable laws and regulations.
• The purchaser acknowledges that the Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions to transfer.
• The purchaser (i) is a QIB (as defined in Rule 144A), (ii) is aware that the sale to it is being made in reliance on Rule 144A and (iii) is acquiring such Shares for its own account or for the account of a QIB, in each case for investment and not with a view to any resale or distribution to the Shares, as the case may be.
• The purchaser is aware that the Shares are being offered in the United States in a transaction not involving any public offering in the United States within the meaning of the U.S. Securities Act.
• The purchaser understands and acknowledges that if, in the future, the purchaser or any such other QIBs for which it is acting, or any other fiduciary or agent representing such purchaser decides to offer, resell, pledge or otherwise transfer such Shares, as the case may be, such Shares may be offered, sold, pledged or otherwise transferred only (i) to a person whom the beneficial owner and/or any person acting on its behalf reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) outside the United States in a transaction meeting the requirements of Regulation S, (iii) in accordance with Rule 144 under the U.S. Securities Act (if available), (iv) pursuant to any other exemption from the registration requirements of the U.S. Securities Act, subject to the receipt by the Company of an opinion of counsel or such other evidence that the Company may reasonably require that such sale or transfer is in compliance with the U.S. Securities Act or (v) pursuant to an effective registration statement under the U.S. Securities Act, in each case in accordance with any applicable securities laws of any state or territory of the United States or any other jurisdiction.
• The purchaser is not an affiliate of the Company or a person acting on behalf of such affiliate, and is not in the business of buying and selling securities or, if it is in such business, it did not acquire the Shares from the Company or an affiliate thereof in the initial distribution of such Shares.
• The purchaser understands that Shares are "restricted securities" within the meaning of Rule 144(a)(3) and that no representation is made as to the availability of the exemption provided by Rule 144 under the U.S. Securities Act for resales of any Shares, as the case may be.
• The Company shall not recognise any offer, sale pledge or other transfer of the Shares made other than in compliance with the above-stated restrictions.
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The purchaser acknowledges that these representations and undertakings are required in connection with the securities laws of the United States and that the Company and its advisers will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements.
15.3 Other jurisdictions
Similar or other restrictions may also exist for investors in other jurisdictions in respect of the securities of the Company.
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16 REGULATORY DISCLOSURES
16.1 Legal requirements to disclose certain information
Public limited liability companies listed on the Oslo Stock Exchange are subject to disclosure requirements pursuant to the Norwegian Securities Trading Act and the Continuing Obligations of the Oslo Stock Exchange. Section 16.2 "Overview and summary of information disclosed to the market" below provides an overview of the disclosures published by Element on its profile on www.newsweb.no during the last 12 months prior to the date of this Prospectus.
16.2 Overview and summary of information disclosed to the market
INSIDE INFORMATION
Date Title Description Cross references in this Prospectus
24 January 2019 Proposes Plus Revisjon as new auditor
Information that Plus Revisjon AS will be proposed to be elected as the new auditor of the Company by the general meeting.
18.1.1
22 February 2019
Element and ABO agree to amend the Convertible Note Facility
Information that the Company and ABO had agree to amend the third tranche of the Convertible Note Facility.
7.1.1
31 March 2019 Element strategy update: Will not exercise CMT option
Information that the Company will not exercise a call option to acquire 46.03% of the fund units in the OSEAD Fund.
N/A
25 April 2019 Update on Mindoro Sampling process
Information that the Company had received a cease and desist order related to a test sampling process for the Mindoro Nickel Project.
6.5.4
30 April 2019 Cecilie Grue to step down as CEO
Information that former CEO Cecilie Grue had informed the Board that she will step down from her position as CEO.
N/A
15 July 2019 Update regarding Ambershaw and AdEX
Updated information regarding AMI, including that the Company are now considering its strategic alternatives regarding AMI.
N/A
14 August 2019 Element ASA acquires PALCapital Ventures, Inc. – strengthening its position within the digital and blockchain sectors.
Information regarding the Company's acquisition of PALCapital
5.1
15 August 2019 Notice of breach of convertible loan
Information that Element had received a notice of breach of the Convertible Note Facility from ABO.
N/A
16 August 2019 Conversion of Notes Information that the Company had accepted a conversion of Notes from ABO, cf. the stock exchange notice dated 15 August 2019.
N/A
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14 October 2019
Private Placement successfully completed
Information that the Private Placement had been successfully completed.
5.3
25 October 2019
Element ASA sells all OSEAD funds/ CMT units for EUR 1.300.000 in cash
Information that the Company had entered into and consummated an agreement to sell its 396 fund units in OSEAD Fund.
7.2
10 December 2019
Termination of ABO Facility
Information that the Company had entered into an agreement to terminate the Convertible Note Facility
7.1
20 December 2019
Divestment of holdings in Ambershaw Metallics (AMI)
Information that the Company had entered into agreements to divest its holdings in AMI.
7.3
ADDITIONAL REGULATORY INFORMATION REQUIRED TO BE DISCLOSED
Date Title Description Cross references in this Prospectus
18 March 2019 Draw-down of MNOK 20 under the Convertible Note Facility
Information that the Company had requested a draw-down of the first sub-tranche of the third tranche of the Convertible Note Facility, in the amount of NOK 20 million.
N/A
5 June 2019 Geir Johansen appointed CEO
Information that the Company had appointed Geir Johansen as its new CEO.
N/A
3 July 2019 Draw-down of minimum MNOK 5 and maximum 15 under the Convertible Note Facility
Information that Element had requested to draw down the second sub-tranche of tranche 3 of the Convertible Note Facility, with a minimum amount of NOK 5 million and a maximum amount of NOK 15 million.
N/A
10 July 2019 Insurance of MNOK 5 in Convertible Notes2
Information that ABO had decided that the second sub-tranche of tranche 3 of the Convertible Note Facility should be NOK 5 million.
N/A
15 July 2019 ABO requests for summons to an extraordinary general meeting
Disclosure that ABO had requested an extraordinary general meeting in the Company to be held to discuss election of new Board members.
N/A
ACQUISITION OR DISPOSAL OF THE ISSUER'S OWN SHARES
Date Title Description Cross references in this Prospectus
26 April 2019 Purchase of own shares Information that Element had purchased 21,150 Shares under a share buy-back programme announced on 26 July 2018. Following the transaction, the Company holds 197,992 Shares.
N/A
192 The correct title should be "Issuance of MNOK 5 in Convertible Notes".
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Several other transactions had been carried out in connection with the buy-back programme, but these will not be referenced in this overview.
FINANCIAL REPORTS
Date Title Description Cross references in this Prospectus
28 February 2019
Fourth quarter 2018 results
Publication of Q4 2018 financial report. N/A
29 April 2019 Annual Report 2018 Publication of the Annual Financial Statements for 2018.
9
23 June 2019 First quarter 2019 report
Publication of Q1 2019 financial report. N/A
30 August 2019 Second quarter 2019 report
Publication of Q2 2019 financial report N/A
29 November 2019
Third quarter 2019 report
Publication of Q3 2019 financial report 9
GENERAL MEETINGS
Date Title Description Cross references in this Prospectus
25 January 2019 Minutes from Extraordinary General Meeting
Disclosure of the minutes from the extraordinary general meeting held on 25 January 2019, whereby Plus Revisjon AS was elected as the new auditor of the Company.
18.1.1
18 March 2019 Minutes from Extraordinary General Meeting
Disclosure of the minutes from the extraordinary general meeting held on 18 March 2019
N/A
23 April 2019 Minutes from Extraordinary General Meeting
Disclosure of the minutes from the extraordinary general meeting held on 23 April 2019.
N/A
28 June 2019 Minutes from Annual General Meeting in Element ASA
Disclosure of the minutes from the annual general meeting held on 28 June 2019.
N/A
20 August 2019 Minutes from the extraordinary general meeting
Disclosure of the minutes from an extraordinary general meeting held on 19 August 2019.
N/A
MAJOR SHAREHOLDING NOTIFICATIONS
Date Title Description Cross references in this Prospectus
15 August 2019 Disclosure of large shareholding
Information that Hope For More AS had surpassed a mandatory notification threshold.
12.4
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11 December 2019
Disclosure of shares and rights to shares in Element ASA ("Element") (flagging)
Information that EHGOSF had surpassed a mandatory notification threshold.
12.4
MANDATORY NOTIFICATIONS OF TRADING BY PRIMARY INSIDERS
Date Title Description Cross references in this Prospectus
28 January 2019 Issuance of options to certain members of the Board and management in Element ASA
Disclosure regarding issuance of a total of 93,0003 share options to Board members and senior management.
N/A
5 June 2019 Issuance of options Disclosure regarding issuance of a total of 100,000 share options to Geir Johansen and consultant James Haft.
12.5
25 June 2019 Mandatory notification of trade
Disclosure that Thomas Christensen had purchased 400,000 Shares at an average price of NOK 2.8318 per Share.
N/A
1 July 2019 Issuance of options to members of the Board and senior management in Element ASA
Disclosure regarding issuance of a total of 125,000 share options to Board members and senior management.
12.5
NON-REGULATORY PRESS-RELEASES
Date Title Description Cross references in this Prospectus
5 June 2019 Partners with James Haft digital ventures
Information that the Company had entered into a service agreement with James Haft and a company controlled by him.
8.3
6 June 2019 Presentation to be used at Capital markets day 6 June 2019
Attached to the notice is the presentation used at the Company's capital markets day on 6 June 2019.
N/A
26 August 2019 Regarding letter from EHGOSF
A response from Element from an inquiry from ABO.
N/A
29 October 2019
Share lending arrangement
Information that Thomas Christensen (chairman of Element) through his wholly owned company Easy2Connect AS lent out 400,00 Shares to the Company in order to redeliver shares borrowed by the Company under certain share lending agreements and to deliver tradable shares to certain investors in the Private Placement.
TOTAL NUMBER OF VOTING RIGHTS AND CAPITAL
3 Amount of share options adjusted for a reverse split of the Shares completed on 25 April 2019
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Date Title Description Cross references in this Prospectus
22 October 2019
New share capital registered
Disclosure that the share capital of the Company had been increased to NOK 30,038,843.20.
N/A
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17 INCORPORATION BY REFERENCE AND DOCUMENTS
The Norwegian Securities Trading Act and the Norwegian Securities Trading Regulations, implementing Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017, allow the Company to incorporate by reference information into this Prospectus that has been previously filed with the Oslo Stock Exchange or the Norwegian Financial Supervisory Authority in other documents. The information which has been incorporated into this Prospectus by reference is set out in Section 17.1 "Cross Reference Table", and this Prospectus should be read in conjunction with the documents set out therein.
17.1 Cross Reference Table
The information incorporated by reference in this Prospectus should be read in connection with the following cross reference table. References in the table to "Annex" and "Items" are references to the disclosure requirements as set forth in the Norwegian Securities Trading Act cf. the Norwegian Securities Trading Regulations by reference to such Annex (and Item therein) of the Commission delegated Regulation (EU) 2017/1129.
Section in the Prospectus
Disclosure requirement
Reference document and link Page (P) in reference document
9 Annual financial statements (Annex 3, Item 11.1)
Annual Report 2018 https://www.elementasa.com/assets/uploads/pdf/ELEMENT-ASA-Annual-Report-2018-1.pdf
10
18 Audit report (of annual financial statements) (Annex 3, Item 11.2.1)
Annual Report 2018 https://www.elementasa.com/assets/uploads/pdf/ELEMENT-ASA-Annual-Report-2018-1.pdf
67 72
9 Interim financial information (Annex 3, Item 11.1)
Third Quarter Report 2019 https://www.elementasa.com/assets/uploads/pdf/Element_Q3-published.pdf
6
N/A Interim financial information (Annex 3, item 11.1)
Second Quarter Report 2019 https://www.elementasa.com/assets/uploads/pdf/Element_Q2-2019.pdf
N/A
17.2 Documents on display
For twelve months from the date of this Prospectus, copies of the following documents will be available for inspection at the Company's registered office during normal business hours from Monday through Friday each week (except public holidays) and on www.elementasa.com:
• The Articles of Association of the Company. • All reports, letters, and other documents, historical financial information, valuations and statements
prepared by any expert at the Company's request any part of which is included or referred to in the Prospectus.
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18 ADDITIONAL INFORMATION
18.1 Independent Auditors
18.1.1 Current auditor of the Company
The Company's independent auditors are Plus Revisjon AS, which has registration no. 990 422 052 and registered address at Rosenkrantz' gate 20, 0160 Oslo, Norway. Plus Revisjon AS was elected as the Company's independent auditor in January 2019. The partners of Plus Revisjon AS are members of The Norwegian Institute of Public Accountants (Nw: Den Norske Revisorforening). Plus Revisjon AS has audited the Company's financial statements for 2018, incorporated by reference in this Prospectus. The audit report of Plus Revisjon AS contain the following emphasis of matter: Material uncertainty related to going concern According to note 14 Liquidity risk to the financial statements and the Board of Directors' report, the Company has not sufficient funds to cover the Group's operating expenses, liabilities and planned investment schedule for the 12 months following the end of the year. The company entered into a convertible bond facility with Alpha Blue Ocean, as their current main source of funds. Such facility will ensure, sufficient funding the 12 months following the end of year. However, the company is dependent on drawing further on the facility or securing financing through other sources. This indicates that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
18.1.2 Former auditor of the Company
Ernst & Young AS (EY) was the auditor of the Company up until 11 December 2018 when EY resigned from the assignment of auditor of the Company, as further described below. On 22 November 2018, the Company summoned an extraordinary general meeting to be held in order to elect PwC as the Company's new auditor due to difficulties in the cooperation with EY. The prior circumstances for the change of auditor was a management letter (Nw: nummerert brev) from EY on 9 January 2018 whereby EY addressed a number of matters and an ongoing concern from EY regarding cooperation between EY and the management of the Company. On 15 November 2018, EY contacted the Company to inform that it wished to resign from the assignment as auditor. In the period between 15 November 2018 and up until the notice of the general meeting, the Company had continuous dialogue with EY regarding possible continuation of the assignment and with other audit firms regarding their possibility to take on the assignment. On 21 November 2018, the Company received an offer for auditing services from PwC. On the same day, the Company received a new management letter from EY where it was informed that EY would formally resign from their assignment. As mentioned above, the Company, on 22 November 2018, gave notice of an extraordinary general meeting to be held on 14 December 2018. However, on 23 November 2018 PwC notified Element of the withdrawal of their
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candidacy as new auditor for the Company due to a media report regarding Lars Beitnes (chairman of the Board at that time). This information was announced in a stock exchange notice on 26 November 2018. On 11 December 2018, the Company announced that the extraordinary general meeting would be postponed and that the assignment of EY formally expired on that day. Consequently, the Company did not have an auditor in the period from 11 December 2018 until Plus Revisjon AS was elected as new auditor of the Company on 25 January 2019. The Company received an administrative penalty from the Oslo Stock Exchange for non-compliance with the rules on ongoing disclosure of inside information, as the information that EY had decided to withdraw from their assignment had not been disclosed in due time and that the information that was given was sufficiently precise.
18.2 Legal Advisors
Advokatfirmaet CLP is acting as legal adviser (as to Norwegian law) to the Company in connection with the the listing of the Consideration Shares, the Conversion Shares and the Private Placement.
18.3 Confirmation regarding sources
The Company confirms that when information in this Prospectus has been sourced from a third party it has been accurately reproduced and as far as the Company is aware and is able to ascertain from the information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.
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19 DEFINITIONS
Defined term Meaning 2018 Option Program The option program approved by the extraordinary general meeting of the
Company on 6 June 2018.
2019 Option Program The option program approved by the annual general meeting of the Company on 28 June 2019.
ABO Alpha Blue Ocean Inc.
Alagag Alagag Mining, Inc.
AMC Aglubang Mining Corporation
AMI Ambershaw Metallics Inc.
Annual Financial Statements The Group's audited consolidated financial statements as of, and for the year ended, 31 December 2018, which includes comparative figures for 2017.
ATML Atmospheric Leach.
Call Option Agreement The call option agreement entered into between Element and Manco on 13 August 2018.
Call Option A right under the Call Option Agreement to acquire up to 50% of the units in the OSEAD Fund.
CET Central European Time.
CMT Compagnie Miniere de Touissit SA.
Company Means Element ASA, reg.no. 976 094 875.
Convertible Bond Convertible debt owed by AMI with a principal of USD 4,850,000 and USD 509,715 in incurred interest as of 19 December 2019.
Convertible Note Facility The NOK 500 million convertible note facility previously held by Element and supplied by EHGOSF.
Consideration Shares The 2,650,000 new Shares issued to Hope For More AS as transaction consideration under the PALCapital Transaction.
Conversion Shares The 2,789,351 new Shares issued in the Note Conversion.
DFS Definitive feasibility study.
Eardley Eardley Settlement Ltd.
EEA The European Economic Area.
EHGOSF European High Growth Opportunities Securitization Fund.
Element Means the Company.
EU European Union.
EU Prospectus Regulation Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2014/71/EC.
EUR The lawful common currency of the EU member states who have adopted the Euro as their sole national currency.
Group The Company together with its consolidated subsidiaries.
Historical Financial Information The Annual Financial Statements and the Interim Financial Statements together.
HPAL High Pressure Acid Leach
Horizon-Globex The trading name of GlobexUS Holdings, Corp.
JORC Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.
IFRS International Financial Reporting Standards as adopted by the EU.
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Interim Financial Statements The Group's unaudited interim financial statements for the nine months ended 30 September 2019, which includes comparative figures for the corresponding interim period in 2018.
Investment and Shareholders' Agreement
The investment and shareholders agreement for AMI, dated 5 February 2018.
ISIN International Securities Identification Number.
Issuance Agreement The agreement governing the Convertible Note Facility.
LGU Local Government Unit.
LHR Legacy Hill Resources Ltd.
Manco Manco Groupe Osead S.A.
MGB The Mines and Geosciences Bureau of the Philippines.
Mindoro Nickel Project A large nickel-laterite deposit located on the island of Mindoro in the Philippines.
MOA Memoranda of Agreement
MPSA Mineral Production Sharing Agreement
Narra Decision The decision of the Supreme Court of the Phillippines in the case "Narra Nickel Mining and Development Corp., et al. v. Redmont Consolidated Mines Corp."
NFSA The Financial Supervisory Authority of Norway.
NOK Norwegian Kroner, the lawful currency of Norway.
Non-Norwegian Corporate Shareholder
Shareholders who are limited liability companies (and certain other entities) not resident in Norway for tax purposes.
Non-Norwegian Personal Shareholder
Shareholders who are individuals not resident in Norway for tax purposes.
Norwegian Corporate Shareholder Shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes.
Norwegian Personal Shareholder Shareholders who are individuals resident in Norway for tax purposes.
Norwegian Public Limited Companies Act
The Norwegian Public Limited Companies Act of 13 June 1997 no. 45 (Nw.: allmennaksjeloven).
Norwegian Securities Trading Act The Norwegian Securities Trading Act of 28 June 2007 no. 75 (Nw.: verdipapirhandelloven).
Note Conversion The conversion of 31 Notes carried out on 16 August 2019.
Notes Convertible loan notes issued by the Company under the Convertible Note Facility, each with a nominal value of NOK 100,000.
Old Convertible Note Facility A NOK 50 million convertible note facility entered into with ABO, under which all loan tranches has been drawn.
Order The UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended.
OSEAD Fund A securitization fund incorporated and existing under the laws of Luxembourg, which indirectly hold approx. 37% of the shares in CMT.
Oslo Stock Exchange Oslo Børs ASA.
PAL Pacific Alliance Limited, LLC.
PALCapital PALCapital Ventures, Inc.
PALCapital Transaction The acquisition by the Company of all shares in PALCapital.
Private Placement The private placement completed on 14 October 2019 in which 463,333 new Shares, each with a nominal value of NOK 1.60, were subscribed for by investors in such private placement.
Private Placement Shares The 463,333 new shares issued in the Private Placement.
Prospectus This prospectus dated 6 February 2020.
QIBs Qualified institutional buyers as defined in Rule 144A.
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Regulation S Regulation S under the U.S. Securities Act.
Relevant Member State Each member state of the EEA which has implemented the EU Prospectus Regulation.
Relevant Persons Persons in the UK that are (i) investment professionals falling within Article 19(5) of the Order or (ii) high net worth entities, and other persons to whom the Prospectus may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order.
Rule 144A Rule 144A under the U.S. Securities Act.
Settlement and Termination Agreement
The settlement and termination agreement entered into between the Company, EHGOSF and ABO on 10 December 2019.
Share(s) The existing common shares in the Companyincluding the Consideration Shares, the Conversion Shares and the Private Placement Shares.
Term Loan 1 A loan of USD 500,000 owed by AMI to Element, regulated by a loan agreement dated 20 December 2019 and maturing on 31 July 2020.
Term Loan 2 A loan of USD 2,842,042.51 owed by AMI to Element, regulated by a loan agreement dated 20 December 2019 and maturing on 27 December 2024.
Tranche Warrants Warrants which shall be issued in connection with each loan tranche of the Convertible Note Facility, including the first tranche.
Upfront Warrants Warrants issued only in connection with the issuance of the first tranche of the Convertible Note Facility.
U.S. Securities Act The United States Securities Act of 1933, as amended.
USD United States Dollars, the lawful currency in the United States.
VPS The Norwegian Central Securities Depository (Nw: Verdipapirsentralen).
VWAP Volume Weighted Average Price.
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APPENDIX A – ARTICLES OF ASSOCIATION
VEDTEKTER FOR ELEMENT ASA
Per 14. oktober 2019
§1
Selskapets navn er Element ASA. Selskapet er et allmennaksjeselskap.
§2
Selskapets forretningsadresse er i Oslo kommune.
§3
Selskapets virksomhet er å drive undersøkelse etter og utvinning, transport, foredling og markedsføring av mineraler og avledede produkter, samt annen virksomhet, herunder å levere tjenester til datterselskaper eller tilknyttede selskaper. Virksomheten kan også drives gjennom deltakelse i eller i samarbeid med andre selskaper.
§4
Selskapets aksjekapital er på NOK 30 038 843,20 fordelt på 18 774 277 aksjer, hver pålydende NOK 1,60.
§5
Selskapets styre består av minst 3, høyst 8 medlemmer, etter generalforsamlingens beslutning. Selskapets firma kan tegnes av styreleder og daglig leder i felleskap, eller to styremedlemmer i fellesskap.
§6
På den ordinære generalforsamling skal følgende spørsmål behandles og avgjøres:
- Fastsettelse av resultatregnskap og balanse, herunder anvendelse av årets overskudd eller dekning av underskudd i følge den fastsatte balanse, samt utdeling av utbytte.
- Andre saker som etter lov eller vedtekter hører inn under generalforsamlingen.
§7
Selskapet skal ha en valgkomité. Valgkomiteen skal bestå av tre medlemmer valgt av generalforsamlingen, som velges for en periode på opptil to år. Valgkomiteen skal sammensettes slik at brede aksjonærinteresser blir representert. Valgkomiteen foreslår kandidater til styret og honorar for styrets medlemmer.
§8
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Dokumenter som gjelder saker som skal behandles på generalforsamlingen kan publiseres på selskapets internettside. Det samme gjelder dokumenter som etter lov skal inntas i eller vedlegges innkallingen til generalforsamlingen. Dersom dokumentene er gjort tilgjengelige for aksjeeierne på selskapets internettsider, gjelder ikke lovens krav om at dokumentene skal sendes aksjeeierne. En aksjeeier kan likevel kreve å få tilsendt dokumenter som gjelder saker som skal behandles på generalforsamlingen.
§ 9
Aksjeeiere kan avgi sin stemme skriftlig, herunder ved bruk av elektronisk kommunikasjon, i en periode før generalforsamlingen. Styret kan fastsette nærmere retningslinjer for slik forhåndsstemming. Det skal fremgå av generalforsamlingsinnkallingen hvilke retningslinjer som er fastsatt.
§ 10
Selskapet kan ved innkalling til generalforsamling angi en frist for påmelding som ikke må utløpe tidligere enn fem (5) dager før generalforsamlingen. Styret avgjør for den enkelte generalforsamling om det skal fastsettes en slik frist og om denne skal være kortere enn fem (5) dager før generalforsamlingen.
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REGISTERED OFFICE
Element ASA Karenslyst allé 53
N-0279 Oslo NORWAY
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