Element to acquire Harmonychain AS for commercialization of blockchain microchip mining system

Highlights • Element ASA (Element) enters into a Letter of Intent (LOI) to acquire ("the Acquisition") Harmonychain AS (Harmonychain), the developer of a disruptive and commercialization ready Scrypt microchip for blockchain mining computers • Subsidiaries of Harmonoychain has secured pre-production LOIs for over 40.000 mining units, representing potential revenues of USD 80 to 100 million. • Consideration to be paid for 100% of Harmonychain is 51 million Element shares and 10 million warrants (Oslo, 3 November 2020) Element ASA (OSE: ELE) has entered into a Letter of Intent to acquire Harmonychain for the commercialization of the Scrypt microchip mining system, designed to increase blockchain mining microchip efficiency more than 300 percent. “Harmonychain has recently acquired Lokotech AS, which has developed a disruptive and commercialization-ready microchip that is setting a new standard in the scrypt mining market. The microchip is theoretically proven to be up to three times more efficient than current chips, and reducing computer energy consumption by up 70 percent. The company has secured strong pre-production interest for the initial complete blockchain mining systems., which will be manufactured by Samsung and Keytouch, providing operational leverage and short runway to profitability and expansion, “ says Thomas Christensen, Chairman of the Board of Directors of Element. Lokotech, a company 100% owned by Harmonychain, is headed by CEO Ola Stene-Johansen and the technology team is led by Chief Technology Officer Christian Rustad. The Board of Directors of Harmonychain consists of Bjørn Zachrisson, professor Thore Johnsen, Tore Sviland, Christian Rustad and Ben Miklozek ”Blockchain mining consumes a lot of energy and our Scrypt system is designed to outperform all current products on the market. The Scrypt microchip is poised to be the most profitable blockchain hardware with an addressable market of over nine million units. We expect to reach profitability within twelve-months after product launch in 2021, based on our current pre-commitments from customers, “ says Bjørn Zachrisson, Chairman of the Board of Directors of Harmonychain. The market for cryptocurrency mining hardware is estimated to USD 6.8 billion in 2020 with a compounded annual growth of 7.4 percent until 2024, following Technavia’s market analysis*. Harmonychain subsidiary Lokotech has secured pre-production LOIs for 40.000 mining units for the scrypt market, representing potential revenues of USD 80 to 100 million. The Scrypt ASIC is planned to enter production in the first half of 2021 with partners Samsung and Keytouch, in addition to the core technology being verified by Inventas. Based on a successful market breakthrough of the Scrypt microchip, we will leverage our market position to address the significantly larger bitcoin mining market with the SHA-256 microchip after complete design, efficiency analysis and simulation completion,” Zachrisson concludes. Assuming all shares in Harmonychain is acquired by Element pursuant to the terms of the LoI, such shares will be acquired in exchange for (i) 51,000,000 new consideration shares and (ii) 10,000,000 warrants both to be issued by Element to the sellers of Harmonychain. Upon completion of the Acquisition, the Harmonychain Group will not have any external interest bearing debt. The Warrants will have a strike price of NOK 10,0 per Warrant and are subject to fulfilment of the following milestones: (i) 5 million Warrants may be exercised when manufacturing has commenced by Harmonychain, (ii) 5 million Warrants may be exercised when Harmonychain has received payment from the first customer, but not in any event after 31.12.2022. Signing of a legal binding share exchange agreement ("SEA") is conditional upon, among other things, (i) completion of a due diligence of Harmonychain with outcome to the satisfaction of Element, (ii) successful negotiation and signing of the SEA, and (iii) approval of the SEA by the Harmonychain Shareholders representing at least 95% of the Harmonychain shares and the Board of Directors of Element. Completion of the SEA will be subject to certain terms and conditions, including, but not limited to, (i) approval of the Acquisition, including the issuance of the consideration shares and warrants to be issued to the sellers by an extraordinary general meeting in Element, (ii) and Element receiving applications for minimum 8,750,000 new shares in Element, raising gross proceeds of minimum NOK 35 million ("Offering"). The LoI further states that Element shall carry out a dividend in kind to its shareholders following the Acquisition and the Offering of all or some of its securities and/or rights related to its investments in the digital and block-chain sector. The LoI further provides certain other customary terms and conditions including, exclusivity undertaking on Element and Harmonychain until 31 December, the SEA shall include customary terms and conditions, including conditions to closing, pre- and post-closing covenants and representations and warranties, and that 95% of the Consideration Shares held by the executives of Harmonychain and Økonomringen AS shall be subject to lock up undertaking (1/3 of such shares will be released after 6 months, 1/3 will released after 9 months and the last 1/3 after 12 months after closing. Procorp AS is acting as financial advisor to the Company in connection with the transaction. Advokatfirmaet CLP DA is acting as legal advisor to the Company in connection with the transaction. The parties expect to enter into the SEA in December 2020.