PROSPECTUS. Hofseth BioCare ASA

Transcription

1 PROSPECTUS Hofseth BioCare ASA (A public limited liability company organised under the Norwegian Public Limited Liability Companies Act) Business registration number Listing of 12,923,496 new shares in Hofseth BioCare ASA on Oslo Axess, issued in connection with the Private Placement announced on 28 February 2013 at a subscription price of NOK This Prospectus does not constitute an offer to buy, subscribe for or sell the securities described herein. The Prospectus serves as a listing prospectus,and no shares or other securities are being offered or sold in any jurisdiction pursuant to this Prospectus. 3 April 2013 Managed by:

2 IMPORTANT INFORMATION This Prospectus has been prepared in connection with the listing on Oslo Axess of 12,923,496 new shares in Hofseth BioCare ASA. This Prospectus has been prepared solely in the English language. The Prospectus has been reviewed and approved by Finanstilsynet pursuant to Section 7-7 of the Norwegian Securities Trading Act. Finanstilsynet has neither controlled nor approved the accuracy nor completeness of the information given in this Prospectus. Finanstilsynet s supervision and approval relates solely to the Company having included descriptions according to a pre-defined list of content requirements. Finanstilsynet has neither undertaken any form of control nor approval of matters pursuant to company law described in or otherwise covered by this Prospectus. Any new material information and any material inaccuracy that might have an effect on the assessment of the shares arising after the date of publication of this Prospectus and prior to the listing will be published and announced as a supplement to this Prospectus in accordance with section 7-15 of the Securities Trading Act. Without limiting the manner in which the Company may choose to make public announcements, and subject to the Company s obligations under applicable law, announcements in relation to the matters described in this Prospectus will be considered to have been made once they have been received by Oslo Børs and distributed through its information system. The distribution of this Prospectus may be restricted by law in certain jurisdictions. The Company requires persons in possession of this Prospectus to inform themselves about and to observe any such restrictions. This Prospectus does not constitute an offer to subscribe for shares in the Company. The content of this Prospectus are not to be construed as legal, business, financial or tax advice. Each prospective investor should consult its own legal advisor, business advisor, financial advisor or tax advisor as to legal, business, financial and tax advice. Any dispute regarding the Prospectus shall be governed by Norwegian law and Norwegian courts alone shall have jurisdiction in matters relevant hereto. Investing in shares involve risks. Please refer to section 2 of the Prospectus for a description of certain risk factors. An investment in the Company should only be made by investors able to sustain a total loss of their investment. Investors are strongly recommended to consult an investment advisor who specialises in investments of this nature before making any decision to invest in the Company. 1

3 TABLE OF CONTENTS 1 SUMMARY RISK FACTORS RESPONSIBILITY STATEMENT GENERAL INFORMATION BACKGROUND FOR THE PRIVATE PLACEMENT THE PRIVATE PLACEMENT PRESENTATION OF HOFSETH BIOCARE HOFSETH BIOCARE S MARKET OVERVIEW BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES OPERATING AND FINANCIAL INFORMATION SHARES, SHAREHOLDER MATTERS AND OWNERSHIP STRUCTURE SECURITIES TRADING IN NORWAY TAXATION IN NORWAY SELLING AND TRANSFER RESTRICTIONS ADDITIONAL INFORMATION DEFINITIONS AND GLOSSARY OF TERMS APPENDIX APPENDIX 1: ARTICLES OF ASSOCIATION HOFSETH BIOCARE ASA 2

4 1 SUMMARY This summary should be read as an introduction to the Prospectus, and is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus and in the appendices to this Prospectus. Any decision to invest in Hofseth BioCare should be based on a consideration of the Prospectus as a whole by the investor. 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 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. For the definitions of terms used throughout this Prospectus, see Section 16 (Definitions and glossary of terms). 1.1 Information about the Company General Hofseth BioCare ASA ( Hofseth BioCare, HBC or the Company ) is a Norwegian public limited liability company incorporated on 5 August 2009 under the laws of Norway and is registered with the Norwegian Register of Business Enterprises with registration number The Company s registered office is c/o ØkonimiConsult AS, 6140 Syvde, Norway. The Company s telephone number is: The Company s web site is: History and development of the Company Hofseth BioCare AS was incorporated on 5 August 2009 by Roger Hofseth AS. However, the business has its roots back to year Today, proteins from off cuts from the fish farming industry are mainly used to feed animals, because the marine industry has not been able to produce a high quality protein that can be consumed directly by humans. As far back as the 1990 s, many companies tried to make better quality protein from fish using hydrolization, but none succeeded in achieving the quality needed. The right technology was not available, and the raw material control was insufficient. This was the starting point for heavy investments in research and new technology by Green Earth Industries LLC in early The work done by Green Earth Industries LLC comprises the building blocks of Hofseth BioCare. Paperboy Ventures established Green Earth Industries LLC and had significant investments in technology, development, testing and documentation from 2000 to In 2007, Paperboy Ventures started the initial construction of the Midsund plant, established under the name Real Estate Midsund AS. Paperboy Ventures was hit by the global financial crisis in 2009, and Green Earth Industries LLC went bankrupt after Landsbanki had to withdraw its bank facility. Certain assets of Green Earth Industries LLC, like the Midsund plant and intellectual property rights, were acquired by Roger Hofseth AS in 2009, and Hofseth BioCare was established. The plant was approximately 60% finished when Hofseth BioCare was incorporated. In 2011, Hofseth BioCare merged with Cromi AS and completed the Midsund plant. The first commercial production commenced primo October Cromi AS was a consultant group operating in the neutraceutical human market and has brought important assets to HBC, such as, an international market competence, a network of professionals within product and business development, and a new management with Sjur Jenssen as CEO and Lucas Altepost as VP for Sales and Marketing. 3

5 On 12 October 2011, Hofseth BioCare entered into an agreement with Sinkaberg-Hansen AS regarding the establishment of a new and larger production plant, and on 14 November 2011, Hofseth BioCare Rørvik AS was incorporated by Hofseth BioCare (51%) and Sinkaberg-Hansen AS (49%). On 30 March 2012, the Company announced that it had acquired Tine s spray drying facility at Berkåk. On 18 September 2012, HBC Berkåk AS was incorporated by Hofseth BioCare (100%). On 8 January 2013, the contract with Tine was transferred to HBC Berkåk AS and the takeover of the Berkåk plant was completed. On 14 January 2013, the Company participated in a private placement in HBC Berkåk AS, which reduced Hofseth BioCare s stake from 100% to 92%. Hofseth BioCare now has full control over its entire protein value chain from sourcing of raw material to final product Vision Hofseth BioCare s vision is to be the leading company in the production and development of premium bioactive marine ingredients from off-cuts to the high-end markets. Sustainability is the core value in HBC s activities Objective Hofseth BioCare s key objective is to provide high value added biomarine ingredients for human applications. Through innovative production technology and logistics, HBC preserves the quality of protein, calcium and oil extracted from fish. The technology is proprietary to the Company, and the Company has submitted patent applications related to the technology that are in process, although none of these have yet been granted at the date of this Prospectus. Products that previously could only be used for animal feed can now be made suitable for human consumption and pharmaceuticals. Thereby, HBC contributes to efficient use of marine resources. 1.2 Purpose of the Private Placement The Private Placement of NOK 45.2 million was completed on 1 March 2013, and resolved on the Extraordinary General Meeting held 22 March The purpose of the Private Placement was to strengthen the Company s financial position and liquidity. The net proceeds from the Private Placement will be used (in prioritised order): 1. to repay short term debt, NOK 12 million will be used for this purpose, 2. to potentially acquire the remaining outstanding shares in HBC Berkåk AS (put/call agreement), NOK 3 million will be used for this purpose, 3. to repay short term shareholder loans, NOK 5 million will be used for this purpose, and 4. the remaining net proceeds will be used for general corporate purposes. 1.3 Description of the already completed Private Placement On 1 March 2013, the Company completed the Private Placement of 12.9 million Offer Shares to Norwegian and other international investors. The Order Price per share, being NOK 3.50, was determined by the Board, in its absolute discretion and based on advice from the Managers, the aggregate Order Price thereby amounting to NOK 45,232,236. 4

6 The Private Placement has increased the share capital of the Company from NOK 57,163,858 to NOK 70,087,354. The Order Price has been paid in full, and the share capital increase was registered in the Norwegian Register for Business Enterprises on 3 April The Offer Shares will be registered in VPS under the ISIN NO , and will be listed on Oslo Axess. The per share dilution of ownership as a result of the Private Placement is 22.61%. The expenses of the Private Placement are estimated to NOK 3 million, providing the Company with net proceeds of approximately NOK 42.2 million. 1.4 Key financial information (NOK 1,000) Q4 12 (unaudited) Q4 11 (unaudited) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Revenue... 6, ,015 1, EBITDA ,594-5,795-49,007-21,594-12, EBIT ,682-7,343-56,720-24,319-12, Net financial items... -1, ,076-1, Earnings per share (NOK) Net cash flow from operation activities... -4,189-3,267-37,564-19,470-12,521-4,058 Total assets (period end) , , , ,366 94,557 29,921 Total liabilities (period end) ,519 37, ,519 37,480 18,591 30,172 Total equity (period end)... 76, ,526 76, ,526 75, Equity ratio Trend Information and significant changes After the end of the last financial year, the following changes have occurred, which affect the Company s financial and trading position, see Section 10.7 (Significant changes in financial and trading position after 31 December 2012 and trend information) for further information. On 28 February 2012, the Company raised NOK 45.2 million in the Private Placement. Take-over of the spray dryer facilities at Berkåk, improving competence, process- and quality-control by including spray drying as part of the in house value chain. Production improvement process finalised, including replacement of critical process equipment. Production was put on hold in January 2013 due to the replacement. First full-scale production series indicate potential for significant SPH-yield increase. Jon Olav Ødegård started as CEO 1 March Sjur Jenssen, his predecessor, continues as Business Development Manager. Øystein Omvik was appointed new CFO, with effect from 1 March Except for the changes listed above, there has not been any significant change in the financial or trading position of the Group which has occurred after end of 31 December 2012 and through the date of this Prospectus. As the date of this Prospectus, the Group is not aware of any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the Group s operations. See also Section 2 (Risk factors) and Section 8 (Hofeth BioCare s market overview). 5

7 1.6 Capitalisation and indebtedness Working capital statement The Board of Directors is of the opinion that the working capital of the Company is sufficient for the Group s present requirements in a twelve months perspective as from the Prospectus date Capitalisation The table below gives an overview of the Company s capitalisation and indebtedness at 31 December 2012 and 1 March The table includes the Private Placement completed 1 March The Company does not have any indirect or contingent indebtedness. (NOK 1,000) 31 December 2012 Change Adjusted as 1 March 2013 Note Share capital 57,164 12,923 70,087 Legal reserve 19,176 16,321 35,497 Other reserves Shareholder equity (A) 76,340 29, ,584 Current debt Guaranteed Secured 14,655-1,363 13,292 1 Unguaranteed/unsecured 49,295-1,502 47,793 Total current debt 63,950-2,865 61,085 Non-current debt Guaranteed Secured 24, ,714 2 Unguaranteed/unsecured 19,560 4,869 24,429 Total non-current debt 43,988 5,155 49,143 Total indebtedness 107,938 2, ,228 Total capitalisation 184,278 31, ,812 Notes: 1 The secured current debt is secured by inventories and trade receivables. 2 The secured non-current debt is secured by the Company s fixed assets, which include all real estate properties and equipment, machinery, plant, production facilities or other tangible assets owned by the Group which relates to the Hofseth BioCare. See Section 10.5 (Property, plant and equipment) for the complete overview of the values of the fixed assets. The table below gives an overview of the Company s net financial indebtedness at 31 December 2012 and 1 March The Company does not have any indirect or contingent indebtedness. 6

8 (NOK 1,000) 31 December 2012 Change Adjusted as 1 March 2013 Note A. Cash 2, ,043 B. Cash equivalents C. Trading securities D. Liquidity (A+B+C) 2, ,043 E. Current financial receivables F. Current bank debt 14,655-1,363 13,292 G. Current position of non-current debt 10, ,000 H. Other current financial debt 39,294-1,501 37,793 1 I. Current financial debt (F+G+H) 63,949-2,854 61,095 J. Net current financial indebtedness (I-E-D) 61,891-2,839 59,052 K. Non-current bank debt 24, ,714 L. Bonds issued M. Other non-current loans 19,560 4,869 24,429 N. Non-current financial debt (K+L+M) 43,988 5,155 49,143 Net Financial indebtedness 105,879 2, ,195 Notes: 1 Trade payables amounted to NOK 31,267 thousand at 31 December 2012 and NOK 32,050 thousand at 1 March 2013, and other current financial debt amounted to NOK 8,027 thousand at 31 December 2012 and NOK 5,743 thousand at 1 March Research and development HBC has developed expertise in marine bi-product refinement through many years of process development, production and clinical studies. HBC has optimised the process to make sure that the right parameters are adopted to obtain the right quality and yields. HBC has a highly experienced production staff, which is supported by the R&D department led by Dr. Bomi Framroze. Hofseth BioCare has during the last few years developed a marine waste treatment industry into a nutraceutical and functional food business. This is a result of three distinct R&D steps. The first is the introduction of food grade quality systems and equipment at its new facility at Midsund, Norway. The equipment at this facility, the process control systems and the Clean In Place (CIP) solutions and the quality system defines a high food grade standard for fish fractionation. Together with its strict tracking and logging of raw material sourcing, the Midsund facility for the first time produces consistent series of high quality fractions from the salmon off-cuts. The second is the accurate characterisation of the four fractions done through analysis. Hofseth BioCare's salmon protein hydrolysate (SPH) powder is the only protein powder that is certified 'prion free' and 'hypoallergenic' on the basis of the most rigorous testing, such as MALDI-TOF analysis (matrix assisted laser desorption/ionization). The Company s partially hydrolyzed protein is characterized by its peptide size to give feed formulators much greater confidence on its performance in finished feeds. Hofseth BioCare s salmon oil is specified below GOED standards for toxic dioxins and POC's (persistent organic chemicals) which is required in 7

9 Japan and the US. And finally, the Company s marine calcium product is characterized by its presence of not just calcium, like all other products, but also phosphorous and oligosaccharides that have been shown to impact calcium absorption and bone. The third is creating a portfolio of clinical trials and patent protection that exploits the role these highly characterized products can play in improving nutrition and improving chronic health issues in both animals and humans. The Company will continue with its R&D efforts to improve the production process and to lower its cost position against current and future competitors. At the same time, Hofseth BioCare will continue to characterise and fractionate its products to (a) improve the quality of its products such as concentrating the PUFA's in the salmon oil without disrupting the virgin quality of the oil, (b) more closely identify the mechanism of action of the biological activity of the products, (c) continue to search for and develop the technology required to isolate more high value products from the fish off-cuts such as gelatin and collagen and (d) look for more biological efficacies based on the high quality and reproducible consistent product fractions. 1.8 Intellectual property rights License agreements with third parties Hofseth Biocare is a licensee of patents relating to certain enzymes from Novozymes, and has an exclusive license from Recon Oil for use of certain patent applications relating to virgin salmon oil. Other than this, Hofseth BioCare s business is, to the best knowledge of Hofseth BioCare, not dependent on any licences from third parties for the production and marketing of its value-added fish protein hydrolysates, non-soluble fish proteins, marine lipids (oil) and marine calcium. Recon Oil has granted the Company an exclusive worldwide use license to exploit and develop products based on the patent applications exclusively for the human nutraceutical and pharmaceutical market. Furthermore, the Company may grant non-exclusive sublicenses to third parties. The licence granted the Company continues until the expiration of the patent or 10 years from 17 August 2011, whichever is longer. The Company is obligated to pay a royalty fee to Recon Oil calculated as six percent of the Company s gross sales of products sold by the Company into the human nutraceutical and pharmaceutical market, which are based on the patent applications. The Company is committed to achieve a minimum sales volume of USD 100,000 in 2012, USD 350,000 in 2013, USD 1,000,000 in 2014, USD 2,000,000 in 2015 and USD 3,000,000 in The minimum sales volume for 2012 was not reached, and will therefore be carried over to 2013, as agreed among the parties. Recon Oil has the right to terminate the agreement with a 90 days prior notice upon non performance of the projected annual sales volumes. The Company uses the licensed patent applications as part of its sales material, such as in sales presentations for salmon oil, and may continue to produce and market its salmon oil with the same quality but using a different sales pitch than licensed from Recon Oil in the event the license agreement with Recon Oil should be terminated Intellectual property rights of HBC HBC has created a new process technology for a semi-continuous process. This is based on enzymatic hydrolysis. The combined technology knowledge enables HBC to produce large quantities of value-added fish protein hydrolysates, non-soluble fish proteins, marine lipids (oil) and marine calcium. In 2011, the Company was approached by another company where the Company was asked to clarify a possible infringement by the Company of existing patents or patent applications owned by such company. The Company obtained a patent infringement opinion from a recognised patent attorney firm which concluded that the Company does not infringe such company s patents or patent applications, and the Company has informed the other company as such. No further actions have been taken by the other company. 8

10 HBC has filed several patent applications that are relevant for its Soluble Protein Hydrolysate powder ( SPH ), marine protein hydrolysate, virgin salmon oil and PUFA salmon oil, and are in the process of filing further applications. In general, these applications are processed at a regional level (EPO) or national level in various states in America, Asia and Europe following international PCT-applications. In addition, HBC possesses proprietary know how and trade secrets with regard to the production and marketing of its products. See Section 7.11 (Research and development) with regard to the Company s R&D. 1.9 Board of Directors, management and employees Board of Directors As the date of this Prospectus, the Board of Directors consists of the following: Kjetil Olsen (Chairman), Roger Hofseth, Bjørn Tunheim, Bobbi Walters and Anne Kristin Holmeide Management As the date of this Prospectus, the executive management of the Company consists of the following individuals: Jon Olav Ødegård (Chief Executive Officer), Øystein Omvik (Chief Financial Officer), Sjur Jenssen (Business Development Manager), Lucas Altepost (Vice President Sales and Marketing), Roald Rogne (Plant Manager) and Dr. Bomi Framroze (Chief Scientific Officer) Employees As of 31 December 2012, the Company had 24 employees Major Shareholders and related party transactions Major shareholders As the date of this Prospectus, the following Shareholders currently own more than 5% of the issued share capital of the Company: Roger Hofseth (personally and through wholly owned companies) 26.83%, Jan Håkan Ingemar Petteresson (personally and through wholly owned companies) 12.86%, Holberg 9.19%, DNB 6.50% and Hofseth AS 5.73% Related party transactions The Group has carried out a number of transactions with associate companies. All transactions were carried out as part of the Company s ordinary activities and at arm s length prices (including the Company s transaction with Roger Hofseth AS on 17 December 2009). A complete and detailed overview of the Companies related party transaction is described in Section 9.8 (Related party transactions) Auditor and advisors KPMG AS, registration number , is the Company s auditor since it was incorporation in The registered business address of KPMG AS is Sørkedalsveien 6, N-0369 Oslo, Norway, and KPMG AS is a member of the Norwegian Institute of Public Accountants (Nw. Den Norske Revisorforeningen ). Swedbank First Securities, Filipstad Brygge 1, P.O. Box 1441 Vika, N-0115 Oslo, Norway, and Norne Securities AS, Parkveien 61, P.O. Box 2507 Solli, 0202 Oslo, Norway, are acting as Managers in the Private Placement. Advokatfirmet CLP DA is acting as the Company s legal adviser in relation to the Private Placement. 9

11 1.12 Additional information Share capital The Company s issued share capital prior to the Private Placement was NOK 57,163,858 (after the registration of issuance of 400,000 Shares pursuant to exercise of options) divided into 57,163,858 Shares each with a nominal value of NOK 1, all fully paid and issued in accordance with Norwegian law. All Shares of the Company are of the same class and equal in all respects. Each Share carries the right to one vote in general meetings. The Company s Articles of Association do not provide for limitations on the transferability or ownership of Shares. The Company s Shares, with the International Securities Identification Number ( ISIN ) NO , are registered in book-entry form in the VPS. The Registrar of the Company is SEB Merchant Banking, Custody Service, P.O. Box 1843 Vika, N-0123 Oslo, Norway, telephone Articles of Association The Articles of Association of Hofseth BioCare are included in Appendix 1 to this Prospectus. A summary of the Articles of Association is set forth in Section (Summary of the Company s Articles of Association) and provided for general background information purposes, and shall not be construed as legal advice. Each investor is responsible for seeking separate legal advice to the extent it deems necessary Documents on display For the life of the Prospectus, the following documents (or copies thereof) will be available for inspection at the Company s offices at: Smuget 1, 1384 Asker, Norway, telephone: or , or at (a) the memorandum and articles of association of the Company; (b) 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 this Prospectus; (c) the historical financial information of the Company or, in the case of a group, the historical financial information for the Company and its subsidiary undertakings for each of the two financial years preceding the publication of this Prospectus Summary of risk factors Below is a summary of some of the most relevant risk factors described in Section 2 (Risk factors). Furthermore, the risks described in Section 2 (Risk factors) are not the only ones facing Hofseth BioCare. Additional risks not presently known to Hofseth BioCare or risk factors that Hofseth BioCare currently deems immaterial may also significantly impair Hofseth BioCare s business operations and adversely affect the price of the Company s Shares: Regulatory and environmental regulations Perceived health concerns and food safety issues Retention of key personnel Entering the human health and nutrition market Ability to obtain elevated pricing Sale of products from third parties to the end-users Hofseth BioCare may have difficulties in managing the expected growth 10

12 Additional capital needs Foreign exchange risk Covenant compliance Hofseth BioCare s second production facility Limited historical financial information Hofseth BioCare s operation is currently concentrated in one location and is not set up for production at full capacity and if it takes longer than projected to reach full capacity or the manufacturing facilities are damaged or closed for any reason, the Company may lose substantial revenues Sourcing of raw materials is subject to a number of variables Patents Hofseth BioCare is dependent on third parties for certain stages of the production and manufacturing cycle Disruptions of Hofseth BioCare s business operations due to strikes or labour union problems could adversely affect the business The market value of Shares may fluctuate Lack of liquidity in the Shares Investment and trading risks in general Hofseth BioCare s ability to pay dividends is dependent on the availability of distributable reserves Future share issues may have a material adverse effect on the market price of the Shares Shareholders will be diluted if they are unable or unwilling to participate in future share issues Exercise of voting rights for nominee shareholders Certain transfer and selling restrictions may limit shareholders ability to sell or otherwise transfer their Shares Enforceability of civil liabilities Norwegian law may limit the shareholders ability to bring an action against the Company The Shares may not be suitable for all investors Ability to complete the Private Placement Significant shareholder 11

13 2 RISK FACTORS Before investing in the Company, investors should carefully consider all of the information contained in this Prospectus, and in particular the following risk factors, which may affect some or all of the Company s activities, the industry in which it operates and the Company s securities. If any of the following risks materialise, the Company s business, financial position and operating results could be materially adversely affected, which may cause a decline in the value and trading price of the Shares that could result in a loss of all or part of any investment in the Shares. Although the Company has taken all reasonable care to ensure that the Company is aware of the specific risk factors currently relevant to the Company, additional risks and uncertainties that the Company currently is not aware of or which it currently deems immaterial based on the facts known to the Company on the date of this Prospectus, may also impair the Company s business, financial position and operation results and adversely affect the price of the Shares. An investment in the Company is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of their investment; prospective investors should consult their own expert advisors as to the suitability of an investment in the Shares. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance. 2.1 Risks relating to the Company and the industry in which it operates Regulatory and environmental regulations The Company s operations and products are subject to environmental and health laws, regulations, treaties and conventions ( Regulations ). The sale and marketing of the Company s products will in certain of the Company s markets be subject to approvals as set forth in applicable Regulations. As a producer of aquaculture products for pet or human consumption, Hofseth BioCare may be subject to significant fines and penalties in the event of non-compliance with such Regulations, which in turn could have a material adverse effect on the Company s business, operating results or financial condition. Regulations relating to the aquaculture industry and human consumption have become more stringent in recent years, and in some cases such Regulations may impose strict liability. These Regulations may also expose the Company to liability for the conduct of or conditions caused by others, or for acts that were in compliance with all applicable Regulations at the time such actions were taken. The application of these Regulations or the adoption of new Regulations could have a material adverse effect on Hofseth BioCare s business, operating results or financial condition Health concerns and food safety issues Fish diseases have been a recurring problem for the aquaculture industry. Diseases, perceived health concerns and food safety issues may negatively impact the reputation of the aquaculture industry, and may, consequently, have a negative impact on the demand for Hofseth BioCare s marine ingredient products for the human market. Outbreaks of diseases may cause direct loss of assets, loss of quality, death or culling of the fish, and result in media attention and public concern, which may in turn reduce the demand for Hofseth BioCare s marine ingredient products even if there is no direct risk to human health. Hofseth BioCare sells marine oil, marine calcium and soluable protein hydrolysate used as raw material in products for human consumption. Although the products sold by Hofseth BioCare are approved by regulatory authorities and are considered safe for human consumption, it is an inherent risk in such business that the products may be consumed by persons with special health conditions or that the products may in other ways 12

14 cause harm to persons and lead to product liability claims, negative media attention and public concern. This could have a material adverse effect on the demand for Hofseth BioCare products, which in turn could have a material adverse effect on the Company s business, operating results and financial condition Retention of key personnel Hofseth BioCare s business and prospects depend, to a significant extent, on the continued services of its key personnel. Hofseth Biocare may, due to financial difficulties or other factors, fail to retain or attract skilled personnel to operate and provide services for its business. The loss of any of the members of its senior management or other key personnel or the inability to attract a sufficient number of qualified employees could have a material adverse effect the Company s business, results of operations and financial condition Entering the human health and nutrition market The human health and nutrition market is highly competitive. The Company may not be able to compete successfully for its products in the competitive human health and nutrition market. The competition in the market where the Company operates may lead to reduced profitability and/or expansion opportunities. Further, the Company may not be successful in entering new markets, as there may be participants with greater experience or financial strength than the Company. The Company is exposed to several markets and any changes to any of these markets will have a significant impact on the Company as a whole. If the Company is not competitive, the Company s business, results of operations and financial condition may be materially adversely affected Ability to obtain elevated pricing The Company plans to sell its marine ingredient products at prices that are higher than the prices obtained from traditional products made from fish off-cuts. There is no guarantee that the Company will be able to obtain the expected prices, and if it fails to obtain such expected pricing, such failure will have a material adverse effect on the Company s business, financial condition and operating results. Further, market conditions could lead to changes of what is perceived as obtainable prices in the market. A change in the market conditions could lead to lower sales prices or volumes, which would have a material adverse effect on the Company s business, financial condition and operating results Sale of products from third parties to the end-users Hofseth BioCare s commercialisation strategy involves the granting of licenses and entering into distribution, marketing and sales agreements with third parties, often on an exclusive basis, in each of the Company s principal markets, for the purpose of obtaining regulatory approval for marketing and selling Hofseth BioCare s marine ingredient products. Hofseth BioCare s strategy thus involves several exclusive out-licensing and distribution agreements with third parties. The Company s revenues will depend on its ability to enter into such agreements, as well as the terms of these licensing, distribution, marketing and sales arrangements and the efforts of the third parties thereto, which Hofseth BioCare does not control. Currently, the Company has entered into two distribution agreements and one cooperation agreement and if the Company fails to enter into additional distribution agreements in line with its strategy, this will have a material adverse effect on the Company s business, financial condition and results of operations. The exclusive nature of the agreements, and the various restrictions on Hofseth BioCare s ability to terminate these contracts, also may make it difficult to find replacement partners should the chosen third parties fail to generate market demand and distribute Hofseth BioCare s marine ingredient products. The commercial success of Hofseth BioCare s sales strategy depends on the cooperation of its partners and the level of resources they commit to the marketing and selling of Hofseth BioCare s marine ingredient products in each respective jurisdiction and, in part, on Hofseth BioCare s ability to establish, maintain and productively manage these relationships, both in terms of sales and distribution. Chosen partners may not perform their 13

15 obligations as expected, and disagreements may arise between Hofseth BioCare and such partners, leading to supply or production delays or lower sales revenues. Litigation or arbitration may also result from such disagreements, which could be time consuming and result in expensive settlements or damages payable to Hofseth BioCare s partners. Any of these events could have a material adverse effect on Hofseth BioCare s business, financial condition and results of operations. Furthermore, where Hofseth BioCare does not have exclusivity agreements with existing partners, Hofseth BioCare may seek to develop relationships with new partners. No assurance can be given that Hofseth BioCare will be able to do so successfully, and a failure to do so may limit Hofseth BioCare s ability to further commercialise the Company s current or future marine ingredient products, which could in turn have a material adverse effect on the Company s business, financial condition and results of operations Hofseth BioCare may have difficulties in managing the expected growth Hofseth BioCare expects that the Company s future growth plans, such as the planned growth through its new facility established together with Sinkaberg-Hansen AS on Rørvik through Hofseth BioCare Rørvik AS, will continue to place significant demand on the Company s management and other resources. This will require Hofseth BioCare to improve its operational, financial and internal controls across the organisation, to work to maintain its business culture, and to adopt best practices. The costs involved in expanding the Company s manufacturing operations may be higher than Hofseth BioCare expects, and the Company may not be able to avoid certain duplicative costs and delays. Hofseth BioCare s growth strategy also includes the establishment of new facilities in other places in Norway, and the Company may, in the future, decide to extend this strategy to other markets. The development of new facilities is an expensive and time-consuming venture and could potentially delay the launch and/or distribution of additional products. Hofseth BioCare may also undertake acquisitions in the future, some or all of which may require significant management time and attention in an effort to properly integrate any such business into the Company. Any inability to manage the Company s future growth could have a material adverse effect on Hofseth BioCare s business, operating result and financial condition. 2.2 Financial risks Additional capital needs The Company may require additional capital in the future pursuant to its business plan, due to unforeseen liabilities or in order for it to take advantage of opportunities that may be presented to it. Further, negative developments in sales or production cost may lead to a strained liquidity position and the potential need for additional funding through equity funding, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders. There can be no assurance that the Company will be able to obtain necessary funding in a timely manner and on acceptable terms Foreign exchange risk Fluctuations in currency exchange rates may impact the Company s operational income. The Company expects that a large part of its operating income will be denominated in other currencies than NOK, including USD, EUR and JPY. Currency fluctuations and depreciation of foreign currencies may have a material adverse effect on the Company s business, operating results and financial condition Covenant compliance The Company s borrowing facilities contain certain restrictions and financial covenants. There can be no assurance that Hofseth BioCare will be able to comply with all such restrictions and financial covenants or that 14

16 the Company s lenders will extend waivers or amend terms to avoid any actual or anticipated breaches of such restrictions or financial covenants. This could lead to acceleration of loans, including acceleration based on cross-default provisions in the borrowing facilities, which may in turn cause the Company to become insolvent and/or to file for bankruptcy Hofseth BioCare s second production facility Hofseth BioCare s agreement with Sinkaberg-Hansen AS regarding the establishment of Hofseth BioCare Rørvik AS and the new production facilities on Rørvik is conditional on the parties ability to obtain necessary financing for the plant s production equipment. If such financing is delayed or the parties fail to obtain the necessary financing, the establishment of the production facility can be delayed or cancelled, which may have a material adverse effect on the Company s business, operating results and financial condition Limited historical financial information As the Company was incorporated in 2009 and its first production facility only recently opened, the Company lacks useful financial information for the estimation of its future financial results. 2.3 Risks relating to production and manufacturing Hofseth BioCare s production is currently concentrated in one location, and is not set up for production at full capacity. If it takes longer than projected to reach full capacity or the manufacturing facilities are damaged or closed for any reason, the Company may lose substantial revenues. The production of the Company s products is an industrial process requiring advanced equipment that may be subject to break-downs and other problems. Further, the Company s production facility is not expected to reach full production capacity before mid-april The Company is dependent on materials and products from suppliers that could be prone to faults. The Company currently has one production facility at Midsund, any delays in the time schedule to reach full production capacity at Midsund or critical damage or impairment to this facility could severely reduce or suspend the Company s production capacity for an extended time period. Moreover, the inability to fully and timely utilise the Company s facility could result in increased costs or significant delays and could also result in breaches of the Company s license and distribution agreements and have an impact on the Company s products and reputation. Any disruption in production equipment, capacity, or deliveries from suppliers could have a material adverse effect on the Company s business, financial condition and operating results Sourcing of raw materials is subject to a number of variables The Company produces marine ingredients products and the Company needs sufficient access to raw material of a consistent and high quality. For the time being, such access is partly secured through agreements with two fish processers and the Company believes that the remaining quantity of raw material needed for its production can be obtained from third parties at the expected prices and quality. However, no guarantees can be made regarding the future quality of the raw material or the continued access to raw material from the expected sources, any of which could have a material adverse effect on the Company s business, financial condition and operating results. The supply and quality of this material is dependent on a variety of factors, including: local seasonal variations in temperature; levels of nutrients, impurities and salt content of the fish; environmental conditions such as pollution, both endemic and unforeseen; toxicity or pathenogenicity of the fish in any given period of time; extinction or reduction of the relevant fish stocks; actions of sole suppliers; 15

17 demand levels from the fish feed industry; and regulatory decisions by the relevant governments or international organisations. Hofseth BioCare pays a fixed price per kilo for salmon off-cuts, which will be negotiable on a regular basis based on the various contracts the Company has with its suppliers. Although the Company will seek to pass price increases on to purchasers through increases in the price of its products, any increase in the prices for the raw materials could raise the Company s costs of production. Any change in the availability or quality of salmon offcuts or other materials the Company requires may impact its ability to produce its products at optimal levels or raise production costs, which could have a material adverse effect on its business, operating result and financial condition Patents and intellectual property rights The use of technology in a competitive business where patents and other intellectual property rights exist involves a general risk of alleged infringement of third party rights. Any of the above mentioned events could have a material adverse effect on Hofseth BioCare s business, financial condition and results of operations. Hofseth BioCare relies upon certain proprietary confidential information, trademarks, unpatented know-how, unpatented trade secrets and improvements and continuing technological innovation to develop and maintain its competitive position. On the date of this Prospectus, the Company has filed five patent applications. There can be no assurance that any of the patents applied for by the Company will be granted. Patent protection will, in any event, not prevent competitors from developing alternative technological solutions. If Hofseth BioCare is unable to adequately protect its intellectual property, technology, trade secrets or proprietary knowhow, or enforce its existing or future patents, this might have a material adverse effect on its business, results of operations and financial condition. The business of Hofseth BioCare may also be dependent on utilisation of patented or otherwise proprietary technology of third parties, to which Hofseth BioCare will have or seek right of use as further regulated in license agreements and arrangements. No assurances can be given that such license rights will be renewed and upheld in the future, or that a renewal can be made on the same terms as for the existing rights. The use of technology in a competitive business where patents and other intellectual property rights exist involves a general risk of alleged infringement of third party rights. Although freedom to operate analysis have been performed by Hofseth BioCare, there can be no assurance that such analysis is complete or has considered relevant future scenarios. Competitors may claim that one or more of Hofseth BioCares products or various processes infringe upon their patents or other intellectual property rights. Resolving a patent or other intellectual property infringement claim can be costly and time consuming and may require Hofseth BioCare to enter into royalty or licence agreements. If this should become necessary, there is no assurance to obtain royalty or licence agreements on commercially acceptable terms. A successful claim of patent or other intellectual property infringement could Hofseth BioCare to significant damages or an injunction preventing manufacture, sale or use of the Company s affected products or otherwise limits its freedom to operate. Any of the above events could result in the value of the intellectual property of the Company being lower than expected, or that the Company may not be able to carry out its business as expected, which could have a material adverse effect on the Company s business, financial condition and operating results Hofseth BioCare is dependent on third parties for certain stages of the production and manufacturing cycle Hofseth BioCare outsources certain aspects of its production, including encapsulation processes pursuant to agreements entered into with third parties. Under the terms of these agreements, the respective production is 16

18 undertaken according to technical specifications that the Company prescribe; however, the related manufacturing procedures are entirely within the control of such third parties. Outsourcing requires inspection and auditing of external suppliers and validation of their technologies and procedures. If these suppliers were unable to perform their services adequately for any period, or at all, the Company may incur substantial loss of revenue and may breach its supply and license agreements with its partners. If Hofseth BioCare is forced to find alternative supply chain service providers for such processes, in addition to loss of revenue, Hofseth BioCare may incur additional costs in establishing such new arrangements. Any of these events could have a material adverse effect on the Company s business, financial condition and results of operations Disruptions of Hofseth BioCare s business operations due to strikes or labor union problems could adversely affect the business Hofseth BioCare s production plant in Midsund, Norway, seeks to be operational 24 hours a day, 6 days a week, with the aim of being operational 24 hours a day, 7 days a week. Failure to reach agreement in future disputes with the employees or their unions could lead to work stoppages or delays in production. Any industrial action is likely to have an immediate adverse effect on the Company s daily operations and production capacity. Industrial actions could obstruct the Company s manufacturing operations for an extended period and could have a materially adverse effect on Hofseth BioCare s business, financial condition and results of operations. 2.4 Risks relating to the Shares The market value of Shares may fluctuate The trading price for the Shares may fluctuate significantly and may not always reflect the underlying asset value of the Company. A number of factors outside Hofseth BioCare s control may impact its performance and the price of the Shares, including, but not limited to, quarterly variations in operating results, adverse business developments, changes in market sentiment regarding the Shares, the operating and share price performance of other companies in the industry and markets in which Hofseth BioCare operates, changes in financial estimates and investment recommendations or ratings. Changes in market sentiment may be due to speculation about Hofseth BioCare s business in the media or investment community, changes to Hofseth BioCare s profit estimates, the publication of research reports by analysts and changes in general market conditions. If any of these factors actually occurs, this may have a material adverse effect on the pricing of the Shares. The market price of the Shares could decline due to sales of a large number of the Shares in the market or the perception that such sales could occur. Such sales could also make it more difficult for the Company to offer equity securities in the future at a time and at a price that are deemed appropriate. In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in the same industry as the Company. Those changes may occur without regard to the operating performance of these companies. The price of the Shares may therefore fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations may materially affect the price of the Shares Lack of liquidity in the Shares The Company s Shares are currently listed on Oslo Axess. This, however, does not imply that there will always be a liquid market for the Shares. An investment in the Shares may thus be difficult to realise. Investors should be aware that the value of the Shares may be volatile and may go down as well as up. In the case of low liquidity of the Shares, or limited liquidity among the Company s shareholders, the share price can be negatively affected and may not reflect the underlying asset value of the Company. Investors may, on disposing of the Shares, realise less than their original investment or lose their entire investment. 17

19 The Company will request that the Offer Shares are admitted to listing on Oslo Axess. Except for unanticipated circumstances, the Company believes that the Offer Shares will be admitted to such trading. A delay in the commencement of the listing of the Offer Shares on Oslo Axess would affect the liquidity of the Offer Shares and prevent the sale of these shares until they are allowed for listing Investment and trading risks in general All securities investments involve the risk of loss of capital. Investment in the Company involves significant economic risks. Although the Company s investment and management strategy is expected to provide some protection from the risk of loss inherent in the ownership of assets, there can be no assurance that these strategies will completely protect against this risk or that the Company s investment objectives will be met Hofseth BioCare s ability to pay dividends is dependent on the availability of distributable reserves Norwegian law provides that any declaration of dividends must be adopted by Hofseth BioCare s general meeting of shareholders. Dividends may only be declared to the extent that Hofseth BioCare has distributable funds and Hofseth BioCare s Board of Directors finds such a declaration to be prudent in consideration of the size, nature, scope and risks associated with Hofseth BioCare s operations and the need to strengthen its liquidity and financial position. As a general rule, the Company s general meeting of shareholders may not declare higher dividends than the Board of Directors has proposed or approved. If, for any reason, the general meeting of shareholders does not declare dividends in accordance with the above, a shareholder will, as a general rule, have no claim in respect of such non-payment, and Hofseth BioCare will, as a general rule, have no obligation to pay any dividend in respect of the relevant period Future share issues may have a material adverse effect on the market price of the Shares Hofseth BioCare has no current plans for an offering of new Shares other than the Private Placement. However, it is possible that Hofseth BioCare may decide to offer additional Shares or securities in the future in order to strengthen its capital base or for other reasons. Any additional offering of Shares may be made at a significant discount to the prevailing market price and could have a material adverse effect on the market price of the outstanding Shares Shareholders will be diluted if they are unable or unwilling to participate in future share issues Unless otherwise resolved by the general meeting, shareholders in Norwegian public limited companies, such as Hofseth BioCare, have pre-emptive rights proportionate to the aggregate number of Shares they hold with respect to any new Shares issued against consideration in cash. Due to regulatory requirements under foreign securities laws or other factors, foreign investors may be unable to participate in a new issuance of Shares or other securities. Any investor that is unable or unwilling to participate in Hofseth BioCare s future share issues will have its percentage shareholding diluted Exercise of voting rights for nominee shareholders Beneficial owners of Shares that are registered in a nominee account (e.g. through brokers, dealers or other third parties) may not be able to vote for such shares unless their ownership is re-registered in their names with the Norwegian Central Securities Depository (VPS) prior to the Company s general meetings. There can be no assurance that beneficial owners of the Company s Shares will receive the notice of a general meeting in time to instruct their nominees to either effect a re-registration of their Shares, or otherwise vote for their Shares in the manner desired by such beneficial owners. 18

20 2.4.8 Certain transfer and selling restrictions may limit shareholders ability to sell or otherwise transfer their Shares The Shares have been admitted to trading in Norway, but Hofseth BioCare has not registered the Shares under the U.S. Securities Act or securities laws of other jurisdictions, including Canada, Australia and Japan, and it does not expect to do so in the future. The Shares may not be offered or sold in the United States, Canada, Australia, Japan or in any other jurisdiction in which the registration or qualification of the Shares is required but has not taken place, unless an exemption from the applicable registration or qualification requirement is available or the offer or sale of the Shares occurs in connection with a transaction that is not subject to such provisions. In addition, there can be no assurances that shareholders residing or domiciled in the United States or other jurisdictions will be able to participate in future capital increases or subscription rights Enforceability of civil liabilities The Company is a public limited liability company organised under the laws of Norway. The majority of the members of the Company s Board of Directors and the members of the Company s management reside in Norway. As a result, it may not be possible for investors to effect service of process in other jurisdictions upon such persons or the Company, to enforce on such persons or the Company judgments obtained in non-norwegian courts, or to enforce judgments on such persons or the Company in other jurisdictions Norwegian law may limit the shareholders ability to bring an action against the Company The rights of holders of Shares are governed by Norwegian law and by the Articles of Association. These rights may differ from the rights of shareholders in other jurisdictions. In particular, Norwegian law limits the circumstances under which the shareholders of Norwegian companies may bring derivative actions. For instance, under Norwegian law, any action brought by Hofseth BioCare in respect of wrongful acts committed against Hofseth BioCare will be prioritised over actions brought by shareholders claiming compensation 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. 19

21 3 RESPONSIBILITY STATEMENT The Board of Directors of Hofseth BioCare ASA hereby declares that, after having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. 3 April 2013 The Board of Directors of Hofseth BioCare ASA Kjetil Olsen Chairman Roger Hofseth Board Member Bjørn Tunheim Board Member Bobbi Walters Board Member Anne Kristin Holmeide Board Member 20

22 4 GENERAL INFORMATION 4.1 Third party information In certain Sections of this Prospectus information sourced from third parties has been reproduced. In such cases, the source of the information is identified. Such third party information has been accurately reproduced, and as far as the Company is aware and is able to ascertain from information published by that relevant third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. 4.2 Forward looking statements This Prospectus contains forward-looking statements relating to the Company s business and the sectors in which it operates. Forward-looking statements include all statements that are not historical facts, and can be identified by words such as anticipates, believes, expects, intends, may, projects, should, or the negatives of these terms or similar expressions. These statements appear in a number of places in this Prospectus, in particular in Section 2 (Risk factors), Section 8 (Hofseth BioCare s market overview) and Section 10 (Operating and financial information), and include statements regarding the Company s management s intent, belief or current expectations with respect to, among other things: strategies for the Company s services, segments and business; global and regional economic conditions; sales volumes, price levels, costs and margins; competition and actions by competitors and others affecting the global or regional market of the Company: the Company s planned capacity and utilisation rates; fluctuations in foreign exchange rates, interest rates, earnings, cash flows, dividends and other expected financial results and conditions; cash requirements and use of available cash; financing plans; anticipated capital spending; growth opportunities; development, production, commercialisation and acceptance of new services and technologies; environmental and other regulatory matters; legal proceedings; and intellectual property No forward-looking statements contained in this Prospectus should be relied upon as predictions of future events. No assurance can be given that the expectations expressed in these forward-looking statements will prove to be correct. Actual results could differ materially from expectations expressed in the forward-looking statements if one or more of the underlying assumptions or expectations proves to be inaccurate or is unrealised. Some important factors that could cause actual results to differ materially from those in the forward-looking statements are, in certain instances, included with such forward-looking statements and in Section 2 (Risk factors). 21

23 5 BACKGROUND FOR THE PRIVATE PLACEMENT Hofseth BioCare has recently implemented several actions that significantly improve operational performance and cash flow. A combination of a strengthened balance sheet and operational improvements offer a higher degree of flexibility and facilitates further growth. The Company resolved to carry out the Private Placement in order to improve financial flexibility and strengthen its general financial position. The net proceeds from the Private Placement will be used (in prioritised order): 1. to repay short term debt, NOK 12 million will be used for this purpose, 2. to potentially acquire the remaining outstanding shares in HBC Berkåk AS (put/call agreement), NOK 3 million will be used for this purpose, 3. to repay short term shareholder loans, NOK 5 million will be used for this purpose, and 4. the remaining net proceeds will be used for general corporate purposes. 22

24 6 THE PRIVATE PLACEMENT 6.1 Overview of the Private Placement On 28 February 2013, after close of trade on Oslo Axess, the Company publicly announced that it had engaged the Managers to advise on, and effect, the Private Placement through an over-night offering of Offer Shares directed towards (i) Norwegian and International investor (pursuant to exemptions from prospectus requirements), (ii) US QIB s (144A) and major US institutional investors under SEC rule 15a-6 to the US Exchange Act, raising gross proceeds of NOK 45.2 million. The Application Period was set to commence on 28 February 2013 at 17:00 hours CET and close on 1 March at 08:00 hours CET. The Private Placement was documented by a stock exchange notice, an investor presentation, a term sheet and terms of application. The minimum order and allocation of Offer Shares in the Private Placement was set to the NOK equivalent of EUR 100,000. However, up to 149 of the Company s existing shareholders were allowed to subscribe for an amount corresponding to less than EUR 100,000. The Order Price was fixed to NOK Completion of the Private Placement was made conditional upon the following conditions being satisfied: (i) all necessary corporate resolutions being validly made, including without limitation approval by an extraordinary general meeting of the Company expected to be held on 22 March 2013 (the EGM ), (ii) payment being received for the shares to be issued in the Private Placement, (iii) registration of the share capital increase in the Company pursuant to the Private Placement in the Norwegian Register of Business Enterprises, (iv) the repayment date for all outstanding shareholder loans is set to 1 May 2014, and (v) minimum NOK 20 million in cash proceeds from the Private Placement for general corporate purposes. All conditions have been fulfilled. An EGM resolved on 22 March 2013 to increase the share capital as described in section 6.2 (Extraordinary General Meeting) below. The new share capital was registered in the Norwegian Register of Business Enterprises on 3 April Extraordinary General Meeting On 28 February 2013, the Board of Directors decided to conduct the Private Placement. At the EGM 22 March 2013, the Private Placement was resolved on the following terms (in Norwegian): (i) Aksjekapitalen i Selskapet økes med NOK ved utstedelse av nye aksjer. (ii) Pålydende pr. aksje som utstedes skal være NOK 1. (iii) Aksjene tegnes til kurs NOK 3.50 per aksje. Minste tegnings- og tildelingsbeløp er et beløp tilsvarende EUR 100,000, dog slik at inntil 149 av Selskapets eksisterende aksjonærer kan tegne seg for et beløp tilsvarende mindre enn EUR 100,000. (iv) Aksjene tildeles investorene som har bestilt aksjer ved å inngå tegningsavtale med tegningsfullmakt hos Swedbank First Securities og Norne Securities AS. Investorenes navn og antall aksjer som er tildelt er nærmere angitt i Vedlegg 1 til protokollen. Aksjonærenes fortrinnsrett etter allmennaksjeloven 10-4 fravikses således. (v) Tegningen av de nye aksjene skal finne sted på særskilt tegningsdokument innen 22. mars (vi) Oppgjør for de nye aksjene skal gjøres opp i penger eller ved motregning som nærmere angitt for den enkelte investor i Vedlegg 1 til protokollen. Innbetaling av tildelte aksjer skal skje til en separat bankkonto innen 25. mars 2013 for de av investorene som skal gjøre tegningsbeløpet i penger. For de nye aksjene som skal gjøres opp ved motregning skal beløpene som nærmere angitt for den enkelte investor i Vedlegg 1 til protokollen benyttes som aksjeinnskudd i sin helhet. Beløpene som nyttes til motregning utgjør til sammen NOK ,00. Slik motregning skal anses å ha funnet sted fra det tidspunkt da de nye aksjene er tegnet. 23

25 (vii) (viii) De nye aksjene vil være likestilte i ethvert henseende med de eksisterende aksjene og gi fulle aksjeeierrettigheter i Selskapet, inkludert rett til utbytte, fra datoen for registrering av kapitalforhøyelsen i Foretaksregisteret. Vedtektenes 4 endres i samsvar med overstående. The following is a translation into English of the said EGM resolution: (i) The share capital is increased by 12,923,496 through the issue of 12,923,496 new shares. (ii) The par value for the new shares shall be NOK 1. (iii) The price to be paid for each new share is NOK The minimum subscription and allocation amount is an amount equal to EUR 100,000, however, up to 149 of the Company s existing shareholders is allowed to subscribe for an amount corresponding to less than EUR 100,000. (iv) The shares are allotted to the investors which have applied for shares by entering into a subscription agreement and authorised Swedbank First Securities and Norne Securities AS to subscribe for shares on their behalf. The names of the investors and the number of shares allotted to them are specified in Appendix 2 attached to the minutes from this general meeting. Existing shareholders preferential rights to subscribe for new shares are set aside. (v) The subscription of the new shares will take place in a separate subscription form within 22 March (vi) The subscription amount for new shares shall be settled in cash or by offsetting as specified for the individual investor in Annex 1. Cash payments shall be made to a separate bank account within March 2013 for those investors who shall settle the subscription amount in cash. For the investors who shall settle the subscription amount by offsetting the amounts specified in Appendix 1 is used to settle subscription amount in its entirety. The outstanding amounts that will be used to offsetting constitutes to a total of NOK 13,162, Such set off shall be deemed to have taken place from the time the new shares are subscribed. (vii) The new shares shall rank pari passu with the existing shares and carry full shareholder rights in the Company, including the right to dividends, from the date of registration of the capital increase in the Norwegian Business Enterprise Register. (viii) 4 of the Company s Articles of Association is amended accordingly. 6.3 Participation of major existing shareholders The following major existing shareholders in the Company participated in the Private Placement: Hofseth AS Holberg DNB Seafood Farmers of Norway AS LCF AS Jan Håkan Ingemar Pettersson Sinkaberg-Hansen AS MP Pensjon PK Tor Erik Solevåg Andersen Paso AS Gøy Invest AS Håberg AS Terra Entra Invest AS Odd Arne Hofseth 24

26 Forenede Forvaltning AS Torfinn Fossum Bjørn Sigurd Stahel Thomas Henning Farstad Ola Holen, through related company Paso AS The following members of the Board of Directors and the Management participated in the Private Placement: Kjetil Olsen, through related company Trols AS Roger Hofseth, directly and through related company Roger Hofseth AS Sjur Jenssen, through related company Smart Invest AS Jon Olav Ødegård, through related company Ødegård Prosjekt AS Øystein Omvik, through related company Prisma Consult AS Lucas Altepost, through related company Altepost AS Roald Rogne Bomi Framrose The Company is not aware of any conflicting interest of any subscribers in the Private Placement that is material to the Private Placement. 6.4 The Offer Shares The Offer Shares were issued as ordinary shares in the accordance with Norwegian law. The Offer Shares will rank pari passu in all respects with the existing Shares and carry full shareholder rights in the Company from the time of issuance. The Offer Shares are eligible for any dividends which the Company may declare after said date. For a description of rights attached to the Shares, see Section 11 (Shares, shareholder matters and Ownership structure). 6.5 Share capital after the completion of the Private Placement The Company s share capital after the Private Placement is NOK 70,087,354 divided into 70,087,354 Shares, each with a par value of NOK 1. It is anticipated that the Offer Shares will be issued to the subscribers respective VPS accounts on or about 3 April The Offer Shares are issued in accordance with the Norwegian Public Limited Liabilities Companies Act. 6.6 Dilution Shareholders who did not participate in the Private Placement were diluted with approximately 22.61% subsequent the Private Placement. Prior to the Private Placement Subsequent to the Private Placement Number of Shares with a nominal value of NOK 1 57,163,858 70,087,354 % dilution 0.00% 22.61% 6.7 Subscription price The Order Price, set to a fixed price by the Board of Directors in consultation with the Managers, was NOK 3.50, with the aggregate Order Price thereby amounting to NOK 45,232,236 before share issue expenses. 25

27 The Subscription Price was 0.57% higher than the average closing price for the Company's Shares in the most recent 10 trading days on Oslo Axess. The Order Price was determined on the basis of an overall evaluation, including the Company s historical and expected earnings, and future market prospects, and a comparison of these factors with the market valuation of comparable companies, the expected liquidity of the Offer Shares as well as a wider assessment of the stock market in general. 6.8 Allocation, payment for and delivery of the Offer Shares The Order Price has been determined by the Board, in its absolute discretion and based on advice from the Managers. The Board allocated the Offer Shares under the Private Placement towards certain Norwegian investors, including certain members of the Company s Board and management and certain of the Company s creditors and towards certain institutional investors outside the United States, in such other jurisdiction as permitted or catered for by exemption rules under applicable securities laws, on its sole discretion. However, an important aspect of the allocation principles is the desire to create an appropriate long-term shareholder structure for the Company. The allocation principles, in accordance with normal practice for institutional placements, included factors such as, but not necessarily limited to, existing shareholding, perceived investor quality, size, timeliness of application and quality of order may impact the Board s allocation. The Board of Directors decided to set aside the shareholders preferential right to subscribe for shares. The Board of Directors viewed the proposal in line with market practice, advantageous for the transaction, the share price and the Order Price, an expeditious placement, participation of external investors, and reduced the risk of trading based on assumptions regarding the share price development. Setting aside the shareholders preferential rights benefitted certain investors who were able to subscribe for a higher share of the Private Placement than their shareholding prior to Private Placement. Table 4.1 lists the five shareholders with the largest allotment in the Private Placement relative to ownership prior to the Private Placement. Investor name Allotment in the Private Placement (%) Shareholding prior to Private placement (%) Anseco Invest 7.19% 0.00% Entrans Invest AS 6.61% 0.13% Sparebanken Vest 2.43% 0.00% CLP Advokatfirma 1.11% 0.00% Roald Rogne 0.66% 0.00% Reference is made to section 11.9 (Shareholder structure) for details of major shareholders as per 2 April 2013, being prior to the registration of the Private Placement. 6.9 Listing of the Offer Shares Finanstilsynet approved this Prospectus on 3 April The Offer Shares are expected to be listed on Oslo Axess on 5 April 2013, where the existing shares are already listed Transferability of the Offer Shares A subscriber for the Offer Shares will not under any circumstances be entitled to sell or transfer the Offer Shares issued in the Private Placement until these shares have been credited on the subscriber s VPS account. 26

28 6.11 Gross proceeds from the Private Placement The gross proceeds from the Private Placement to Hofseth BioCare will be approximately NOK 45.2 million. The net proceeds from the Private Placement, following a deduction of transaction costs, will be approximately NOK 42,232,236 million VPS registration The Offer Shares will, together with the existing Shares, be registered in book-entry form with the VPS and have ISIN NO The Company s register of shareholders with the VPS is administrated by SEB Merchant Banking, Custody Service, P.O. Box 1843 Vika, NO-0123 Oslo, Norway, telephone Underwriting The Private Placement is not underwritten Selling and transfer restrictions For a description of selling restrictions applicable to the Private Placement see Section 14 (Selling and transfer restrictions) Proceeds and expenses related to the Private Placement The gross proceeds of the Private Placement were NOK 45.2 million. The Company will bear the fees and expenses related to the Private Placement and the Listing, which are estimated to amount to up to approximately NOK 3,000,000. No expenses or taxes will be charged by the Company or the Managers to the subscribers in the Private Placement. The net proceeds from the Private Placement will be approximately NOK 42,232, Governing law and jurisdiction This Prospectus, the Application Agreement and the terms and conditions of the Private Placement shall be governed by and construed in accordance with, and the Offer Shares will be issued pursuant to, Norwegian law. Any dispute arising out of, or in connection with, this Prospectus or the Private Placement shall be subject to the exclusive jurisdiction of the courts of Norway, with Oslo as legal venue Advisors Swedbank First Securities (Swedbank Norge), Filipstad Brygge 1, P.O. Box 1441 Vika, N-0115 Oslo, Norway, and Nordne Securities AS, Parkveien 61, P.O. Box 2507 Solli, 0202 Oslo, Norway, are acting as Managers. Advokatfirmet CLP DA is acting as the Company s legal adviser in relation to the Private Placement Interests of natural and legal persons involved in the Private Placement The Mangers (and/or their affiliates) may have interests in the Private Placement as they have provided from time to time, and may in the future provide, investments and commercial services to the Company and its affiliates in the ordinary course of their respective businesses, for which they have received and may continue to receive customary fees and commissions. The Managers, their employees and any affiliates may currently own existing Shares in the Company. The Managers have received a commission in connection with the Private Placement and, as such, have an interest in the Private Placement. Reference is made to section 6.15 (Proceeds and expenses related to the Private Placement). 27

29 7 PRESENTATION OF HOFSETH BIOCARE 7.1 Overview The Company is a Norwegian public limited liability company organised under the Norwegian Public Limited Liability Companies Act, with business registration number The Company s registered office is c/o ØkonomiConsult AS, 6140 Syvde, Norway, and its telephone number is The legal and commercial name of the Company is Hofseth BioCare ASA. The Company was incorporated under the Norwegian laws on 5 August 2009 and registered in the Norwegian Register of Business Enterprises 29 August 2009, subsequently the Company was listed on Oslo Axess 2 December The Company s shares are registered in the VPS. 7.2 Business concept Hofseth BioCare is a Norwegian biomarine company with the key objective to provide high value added biomarine ingredients for human applications. The Company is founded on the core value of sustainability and optimal use of natural resources. Through innovative production technology and logistics, HBC is able to preserve the quality of protein, calcium and oil extracted from fish off-cuts. Products that previously could only be used as animal feed can now be produced in a manner suitable for human consumption and pharmaceuticals. HBC is thus contributing to efficient use of marine resources and entering the higher profit market of quality ingredients for human applications. 7.3 History and development Hofseth BioCare AS was incorporated 5 August 2009 by Roger Hofseth AS. However, the business has its roots back to year Today, protein products derived from seafood are mainly used to feed animals, because the marine industry has not been able to produce a high quality protein that can be used directly by humans. As far back as the 1990 s, many companies tried to make better quality protein from fish using hydrolization, but none succeeded in achieving the quality needed. The right technology was not available, and the raw material control was insufficient. This was the starting point for heavy investments in research and new technology by Green Earth Industries LLC in early The work done by Green Earth Industries LLC comprises the building blocks of Hofseth BioCare. Paperboy Ventures established Green Earth Industries LLC and had significant investments in technology, development, testing and documentation from 2000 to In 2007, Paperboy Ventures started the initial construction of the Midsund plant, established under the name Real Estate Midsund AS. Paperboy Ventures was hit by the global financial crises in 2009 and Green Earth Industries LLC went bankrupt after Landsbanki had to withdraw its bank facility. Certain assets of Green Earth Industries LLC, like the Midsund plant and immaterial property rights were acquired by Roger Hofseth AS in 2009, and Hofseth BioCare was established. The plant was approximately 60% finished when Hofseth BioCare was incorporated. In 2011, Hofseth BioCare merged with Cromi AS and completed the Midsund plant. The first commercial production commenced primo October Cromi AS was a consultant group operating in the neutraceutical human market and has brought important assets to HBC, such as, an international market competence, a network of professionals within product and business development, and a new management with Sjur Jenssen as CEO and Lucas Altepost as VP for Sales and Marketing. 28

30 On 12 October 2011, Hofseth BioCare entered into an agreement with Sinkaberg-Hansen AS regarding the establishment of a new and larger production plant and on 14 November 2011, Hofseth BioCare Rørvik AS was incorporated by Hofseth BioCare (51%) and Sinkaberg-Hansen AS (49%). On 30 March 2012, the Company announced that it had acquired Tine s spray drying facility at Berkåk. On 18 September 2012, HBC Berkåk AS was incorporated by Hofseth BioCare (100%). On 8 January 2013, the contract with Tine was transferred to HBC Berkåk AS and the takeover of the Berkåk plant was completed. On 14 January 2013, the Company participated in a private placement in HBC Berkåk AS, which reduced Hofseth BioCare s stake from 100% to 92%. Hofseth BioCare now has full control over its entire protein value chain from sourcing of raw material through to its final product. 7.4 Legal structure Hofseth Biocare is a holding company. Hofseth BioCare owns 51% of the shares in the Norwegian company Hofseth BioCare Rørvik AS. Hofseth BioCare Rørvik AS is a new production company established together with Sinkaberg-Hansen AS (49%) and will be situated next to Sinkaberg-Hansen AS production facilities on Rørvik in Norway. In 2012 Sinkaberg-Hansen AS began the construction of the production plant for Hofseth BioCare Rørvik AS, and the building site development was completed the same year. However, installation of production equipment is set on hold until stable full scale production with expected output for the human nutrition market is obtained in the Midsund plant. After the production facilities are completed, Hofseth Biocare Rørvik AS will carry out the same business as the Company, but Hofseth Biocare Rørvik AS will require certain services from the Company as set out in Section 9.8 (Related party transactions). Hofseth BioCare owns 92% of the shares in the Norwegian company HBC Berkåk AS, which is a spray drying facility that will handle drying of protein products for the Company. Hofseth BioCare acquired the spray drying facility from Tine. In addition, the Company continued the working relationship with the workforce at Berkåk. Hofseth BioCare ASA Hofseth BioCare Rørvik AS (51%) HBC Berkåk AS (92%) 7.5 Hofseth BioCare s vision and objective Vision Hofseth BioCare s vision is to be the leading company in the production and development of premium bioactive marine ingredients from the off-cuts to the high-end markets. Sustainability is the core value in all the Company s activities Objective Hofseth BioCare s key objective is to provide high value added biomarine ingredients for human applications. Through innovative production technology and logistics, HBC preserves the quality of protein, calcium and oil extracted from fish. The technology is proprietary to the Company. The Company has submitted patent applications related to the technology, which are in process, although none of these have yet been granted at the date of this Prospectus. 29

31 Products that previously could only be used for animal feed can now be made suitable for human consumption and pharmaceuticals. HBC is thus contributing to efficient use of marine resources. 7.6 Products The core business of HBC is to produce high value ingredients from salmon off-cuts. This means that the Company is neither a refiner nor a distributer, it is a production company. Hofseth BioCare produces the following four primary product fractions from the enzymatic hydrolysis: marine lipids, solvable protein hyrdrolysate, marine calcium and minerals and partially hydrolyzed protein Marine Lipids (Oil) Product characteristics Low in free fatty acid HBC s salmon oil is transparent with a reddish/pink colour, low in free fatty acid ( FFA ) values in the range of % and with very low rancidity values. High in DPA This is a natural oil containing adequate amounts of EPA and DHA, and higher in DPA than most other omega-3 oils. LDL Scientific studies indicate that extra virgin salmon oil has the effect of lowering oxidized LDL. Oxidized LDL has been shown in dozens of journal articles to be a very good predictor molecule for identifying CVD. Antioxidant This salmon virgin oil also contains the strong antioxidant asthaxanthine, and retains other bioactive components that are normally removed during the production of refined omega-3 oils. Marine lipids play an important role in both human and animal health and nutrition Applications Human health and nutrition - Dietary supplements Hofseth BioCare s marine oil represents a new approach to how the oil is sourced, and purified. HBC s production is dedicated for human consumption from the sourcing of the raw material to its new enzymatic production technology. The enzymatic processing solves many of the issues that the traditional crude fish oil industry is facing, such as sustainability, fishy taste, lack of freshness of the raw material and lack of quality control of the value chain. The typically Western diet does not supply enough EPA and DHA, which may contribute to increased risk of chronic diseases and hundreds of thousands of preventable deaths. First and foremost, omega-3 fatty acids must be consumed in the daily diets; they are essential because the body cannot synthesize them from other types of fat in the diet. The marine oil supplements in the market today are omega-3 in natural or concentrated form. Animal and pet food Salmon oil is largely used in feed and pet food. The traceability of HBC s salmon oil, the controlled enzymatic processing, the freshness and good palatability of the product are distinctive quality characteristics that play an important role for the animal and pet nutrition market. A recent study 1 showed that fresh Norwegian salmon oil 1 Presented at RUBIN-Conference, Feb. 7 th,

32 has equal or better palatability than poultry fat for dry feed to dogs (pet food). These findings open up new possibilities for HBC s fresh salmon oil, both in the feed and the pet food segments Soluble Protein Hydrolysate (SPH) Product characteristics Low on fat The SPH is generated from the water-soluble protein fraction of the enzymatic process. The final free-flowing spray-dried powder is now currently sprayed out at HBC s facilities at Berkåk. The final product contains 90% + protein and less than 1% fat. Specification SPH consists of oligopeptides and smaller peptides with a maximum molecular weight well under 10,000 Daltons, as measured by MALDI-TOF analysis (matrix assisted laser desorbtion/ironization) Applications Human health and nutrition - Healthy and functional food Studies clearly show that fish protein hydrolysate ( FPH ) can be an important part in reducing the development of obesity. Preliminary studies in an animal model indicate that FPH might increase fat oxidation, which can reduce the development of obesity. Compared to composition of proteins frequently utilised in the food industry, such as soy and milk, the FPH are particularly rich in the water soluble B-vitamins. B-vitamins are essential in energy consuming processes such as fat oxidation, both in animals and humans. Furthermore, FPH have a different amino acid ( AA ) composition than both soy and milk, which might be favourable with respect to fat metabolism. The nutritional qualities of Hofseth BioCare s FPH, along with its functional and technical properties make it very suitable for applications in healthy and functional foods. Animal health and nutrition Pet food Feeding studies carried out using fish hydrolysates on dogs and cats show that SPH may also have an immune stimulating effect on pets in addition to a nutritional value. This may solve specific gut infections in young animals and compromise immune systems in geriatric pets. Based on the studies done, it is assumed that Hofseth BioCare s SPH bioactive properties will distinguish itself from ordinary protein. HBC do also have strong indication that their SPH has hypoallergenic effects on animals due to the unique AA profile and low Dalton Weight of the product. HBC s results on iron uptake, research and good documentation on palatability and good digestibility are important competitive advantages. Animal health and nutrition Feed Studies on SPH clearly showed that SPH increased iron uptake as compared to other digested protein sources tested. SPH improved iron uptake over casein and was even more than 40%, higher than hydrolyzed meat protein. The iron uptake indication has several important applications in animal feed. One important application is the piglet feed, where the ability of the piglet gut to digest and absorb iron is a rate-limiting function for rapid growth and feed efficiency. A positive impact on iron absorption could also lead to the physiological benefits of reducing anaemia and improving the respiratory function. 31

33 Fermentation In microbiological and fermentation media, HBC s SPH represents a good alternative of peptones of animal sources. Soluble proteins key properties for fermentation media: Highly soluble Molecular size below 3000 Daltons Easily convertible/useable nitrogen Prion free Low ash content Test results show that fish peptones are good alternatives to peptones derived from animal sources. There is no crossover between salmon and human diseases, addressing consumers concerns regarding animal diseases (like mad cow disease / BSE) Marine Calcium & Minerals Product characteristics Many uses Fish bones are an excellent natural source for calcium and essential minerals. HBC s marine calcium & mineral fraction is a dry powder that can be further formulated into products as desired by HBC s customers. Salmon calcium seems to exhibit excellent absorption and high bio-availability. Natural balance The calcium to phosphorous ratio in the fraction is approximately 2:1. This is similar to the naturally occurring amounts in human skeletons, making the product particularly useful in feed and nutraceutical markets Applications Human health and nutrition - Dietary supplements Calcium is essential for the bone metabolism, but daily calcium requirements are not met in a significant proportion of the population. Fortunately, oral calcium supplementation can help to meet these needs; however, the calcium bioavailability depends on the calcium sources. A recent study 2 shows that salmon bones (equal to the HBC calcium process), because of their high calcium content, can conveniently be utilised as a high quality food ingredient or supplement in human nutrition. In the mentioned study, the calcium in enzymatically rinsed bones from Atlantic salmon was demonstrated to be a well absorbed source of calcium in young, healthy men. A second trial 3 conducted by the Service de Nutrition de I Institut Pateur assessed that enzymatically treated fish bone powder (similar to the HBC calcium process) constitutes an excellent source of calcium. These results indicate that HBC s marine calcium may enhance growth of bone structure in humans. HBC has a detailed R&D plan and first positive results of a Caco-2 in line cell study are currently being followed by an animal trial on overectomised rats that simulate osteoporosis in older women. If the OVX rat trial shows positive 2 Calcium from salmon and cod bone is well absorbed in young healthy men: a double-blinded randomised crossover design Marian K Malde1*, Susanne Bügel2, Mette Kristensen2, Ketil Malde3, Ingvild E Graff1, Jan I Pedersen4, 20th Jul ( 3 Effects of two marine dietary supplements with high calcium content on calcium metabolism and biochemical marker of bone resorption Institut Pasteur de Lille, France., European Journal of Clinical Nutrition. Jul

34 results, HBC intends to do a whole body bone scan follow-up study in humans suffering from osteoporosis. The draft protocol is being prepared. Animal health and pet nutrition Feed Studies show that marine calcium made from enzyme-treated salmon bones (equal to the Hofseth BioCare process) has a better absorption rate in pigs than commercial calcium. In addition the calcium source made from enzyme-treated salmon bone has a higher absorption rate compared to calcium from codfish and white fish. With more and more pets living to a ripe old age, nutritional supplements for pets have become a fast growing business, as pet owners seek out health products for their beloved friends. The Company believes that its marine calcium, with its proven bioavailability, is perfectly suited for the premium pet market and as an additive for animal health nutrition Partially Hydrolyzed Protein (PHP) Product characteristics Superior content The PHP fraction, produced as a dry granular powder, has a complementary AA profile when compared to other animal protein sources, with significantly higher levels of phospholipids, good digestibility (92 94%), and a high ratio of essential AA. Many uses Its elevated and well-balanced essential AA profile, combined with high digestibility due to partial hydrolysis, makes it an ideal complement to vegetable proteins such as rice protein, wheat protein, and maize protein. Cost-effective In order to reach the full potential of the PHP fraction, the Company has developed a cost-effective method for concentrating and drying this fraction without a loss of nutritive value Applications Animal health and nutrition Feed Due to low margins within pig production, low price proteins of poor nutritional value are used to lower costs. To reduce the risk of problems and diseases due to the poor quality, the feed is added with antibiotics, high levels of zinc etc. Fishmeal is already recognised in the industry as an excellent source of AAs. Animal health and nutrition Pet food Hofseth BioCare s PHP`s well balanced essential AA profile, combined with high digestibility, makes it an ideal complement to vegetable proteins such as rice protein, wheat protein, and maize protein. Consequently, the PHP is a very good choice as a protein fortifier in pet feed, especially when the feed has high levels of vegetable proteins low in tryptophane and methionine. 7.7 Production technology and process Hofseth BioCare processes its raw material through an enzymatic hydrolysis process that gradually digests the protein in the raw material, breaking down the long chain proteins into shorter peptides chains and peptones. This process requires careful management of the hydrolyzing time, supply of enzymes, temperature and moisture. The hydrolyzed raw material is separated and concentrated in several steps ending up with the four product fractions; oil, protein concentrate, dried bone/calcium and dried protein. The entire process is controlled and monitored by the PLC-system. 33

35 The marine calcium and protein are dried internally, while the liquid soluble fraction is dried at the Berkåk facility, performed by a conventional spray dryer. Spray drying is a process where products are pumped at high pressure over injectors on the top of a drying chamber. The products atomize, resulting in a large surface. Later the products fall into the drying chamber, where hot air dries the products. Eventually the dried products are collected in the tank, packed/labelled and placed in stock ready for dispatch to customers. Figure: Simplified illustration of the production process Enzymes Marine Oil Raw Material Hydrolysis process Separation Concentration Calcium & partly hydrolysed protein Berkåk Internal dryer Dry soluable protein Dry marine calcium Dry protein The crucial factors The two most important factors in the hydrolisation are the input of first class raw materials and a very high degree of control over the different production processes leading to the end product output. The first factor is addressed by quality control together with guarantees from the suppliers, whilst HBC s proprietary technology and advanced production facility management address the second key factor. A new method The platform technology of the Company is based upon a new method for full production controlled by-product refinement up to high-end protein products intended to substitute animal and soy products currently dominating the marketplace. Enzymes are specific, meaning that one certain type of enzyme under certain conditions can cut (hydrolyze) different types of protein at a certain place in the protein chain. To produce the optimal mix between proteins, peptides and AAs, HBC uses a Bacillus protease complex (enzymes). The mix of enzymes consists of Neutrease and Alcalase (a proteolytic enzyme developed for the hydrolysis of all types of protein). When combining both, endo protease and exo peptidase activity, HBC can control the breakdown of the protein and achieve the desired result. Controlling the main hydrolysis in the reactors in terms of enzyme ratio and enzyme concentration together with optimal conditions such as ph level, time and temperature, is essential to obtain the desired quality. A proprietary mixture of readily available enzymes is combined with water and the raw material. This gradually digests the long chain proteins by breaking them down into shorter peptides and AAs. To produce consistent, high-quality end products, HBC precisely controls key process parameters such as reaction time, temperature, and moisture content. 7.8 Production capacity and facilities Production capacities The existing processing plant in Midsund commenced production in June Until the end of 2012, the factory managed to process 5,800 tons of raw materials. The designed production capacity was estimated to 34

36 12,500 tons of raw material for a full year. Based on the actual production in 2012, the capacity proved to be higher. Hofseth BioCare estimates to process close to 19,000 tons of raw material with 7,100 tons of finished products in First production facility - Midsund Hofseth BioCare s first processing plant is situated in Midsund, Norway and is built with state of the art hardware and technology. The plant, the production facilities and the Company s fixed assets are not affected by environmental conditions. A dedicated, skilled and trained staff with wide experience from the food processing industry secures the customer s full attention during the production process. New products are developed together with the customers and in-house R&D and S&M crew. On demand, customers can be given online access to analysis results and certificates for their own products. However, the Midsund plant underwent substantial new process developments and managed at the same time producing products for sale during It has proven more challenging for Hofseth BioCare to obtain the designed yield and product quality for soluble protein (SPH) than previously expected. In addition, it has been difficult to separate the mix of PHP/calcium into two distinct products. In general, the challenges have mainly been related to the separation of the raw material into fractions in the early stages of production. As a result, the average yields in 2012 were 4% of SPH (finished powder), 18% of oil and 3% of mix PHP/calcium. During the second and the third quarter, initiatives including changes in production-process and equipment were initiated without delivering desired effects. Consequently, the production team at Midsund realised that more severe actions were required. During the fourth quarter of 2012 and until February 2013, the preparation and installation of total new equipment in the first phase of the production were made. The first batches of production showed a substantial increase in yields of SPH in accordance with earlier lab tests, increasing from 4% to 8%. Out of one ton of raw material, the production facility in Midsund has the following budgeted yields for 2013: (i) approximately 70 kg dry PHP (7%), (ii) approximately 50 kg dry calcium/bones (5%), (iii) approximately 180 kg of oil (18%), and (iv) approximately 124 kg of liquid soluble protein 60% (12.4%). The liquid soluble protein is dried in the spray dryer, as explained in Section 7.7 (Production technology and process), where the dried end products 95% powder (SPH) account for approximately 70 kg (7%). 100% 5.0% 7.0% 7.0% PHP Calcium SPH Oil 18.0% Raw material Output 35

37 Optimal conditions The plant s control system, programmable logic controller ( PLC ) is programmed to operate according to fixed settings, to secure the most optimal and stable production conditions. The PLC system controls every single valve, pump, machinery and production step. Operators have full control over the process, and also over technical systems such as steam boilers and air compressors. Power consumption status is shown on the system. The PLC system operates online and can be connected from outside the plant for engineering service and support. In addition, key staff is given access directly to the system in order to be able to adjustments of parameters, fine tuning, trouble-shooting etc. Unstable processes, approved and not approved operations, and limit values will be recorded in the system for reports and documentation. Quality standards Hofseth BioCare's advanced and modern production facilities in Midsund and Berkåk are built and maintained to fulfill today's high requirements regarding product safety, sustainability and quality from the pharmaceutical, food and feed industry. No production plant is however better than the attitude and work habits of the people involved and therefore Hofseth Biocare have also invested time and energy to establish a culture to promote those values from the personnel involved in the everyday production up to the company s top management and they will continue to do so. Hofseth Biocare s Management System is based on the fundamentals of product safety and quality for this type of manufacturing which includes Mangement Commitment, Personnel involvement, applicable legal requirements, customer specifications, Good Manufacturing Practices (GMP) or Pre-Requisite Programs (PRP s) as they are more commonly referred to today within the food industry and a HACCP system according to Codex Alimentarius, From an environmental and sustainability point of view Hofseth Biocare is at the very forefront. The basic idea of using parts of the fish that otherwise would go to waste and instead handle and use it as a resource for the benefit of human and animal health is in line with the very core of sustainability. Still consideration to minimise the impact on the local environment has to be made so therefore both plants are of the highest standard constructed to fulfil the very strict Norwegian environmental legislation. Hofseth Biocare is also in regular dialogue with the local community and environmental authorities to minimise any potential impact on the local environment such as odour. In Berkåk Hofseth Biocare have invested in a new system unique for Norway which remarkably reduce any odour to the surrounding environment. This system is also being evaluated for the plant in Midsund. In order to show commitment to product safety, sustainability and accountability as a trustworthy business partner Hofseth Biocare is constantly monitoring the opinion of current and future clients to identify and act upon their needs and considerations regarding legislative issues, industry standards and best practices. Consistent high quality products are a significant advantage, as competitors focus principally on bulk delivery of products from poorly controlled processes. Hofesth BioCare uses substantial resources in order to meet the different quality standards demanded from the customers in order to enter new markets and segments. Close cooperation with world leading enzymes vendors, offering their own R&D and laboratory facilities for close follow up and troubleshooting with any type of product and production issues, secures the best quality standards. 36

38 Not only are raw material and products monitored and tracked. The plant s hardware such as tanks, pumps, valves, instruments etc, are tagged, monitored and maintained to prevent production stops and costly equipment breakdown. Instruments are calibrated according to international standards and methods, making sure that the values measured are correct at any time. In June 2012, the Midsund factory became certified according to the product safety and quality standard GMP+ (Good Manufacturing Practice for animal feed) and was also evaluated and approved by the organisation Trustfeed at their highest level which is very unusual to achieve at the first time audit. Due to the importance of having high quality into the first level of the food chain, the requirements for reaching the GMP+ standard are very high. More importantly, the standard is an important basis acquiring the GMP standard for Dietary Supplements. During 2013 the factory at Berkåk will go through the same process. In October 2012, Hofseth BioCare completed its first Generally Recognised as Safe (GRAS) self-affirmation approval for its salmon-based Soluble Protein Hydrolysate (SPH) ProGo designed for human nutrition in the US market. A committee of independent experts critically reviewed efficacy and toxicity data for ProGo, and found the product to match the highest quality standard for a protein isolate and concluded that its use should be generally recognised as safe. In November 2012, Hofseth Biocare became certified according to the sustainability standard by Friends of the Sea. Friend of the Sea is a non-profit non-governative organisation (NGO), whose mission is to preserve the marine habitat. Hofseth BioCare follows environmental regulations standard in compliance and under the supervision of local county and national authorities. Hofseth BioCare fulfil environmental requirement for all its waste water for both current production sites in Midsund and Berkåk Second production facility - Rørvik Hofseth BioCare entered into an agreement with Sinkaberg-Hansen on 12 October 2011 to establish Hofseth BioCare Rørvik AS and build a new production facility situated next to Sinkaberg-Hansen AS production facilities in Rørvik in Norway. Hofseth BioCare and Sinkaberg-Hansen decided in late 2012 to postpone the building of the factory, due to high building costs and sourcing of raw material Acquisition of spray dryer facility - Berkåk Hofseth BioCare entered into an agreement to acquire Tine s spray drying facilities at Berkåk on confidential terms. Through the transaction in January 2013, Hofseth BioCare gained full control over the critical phase of the SPH production-process and important human competence. In the future, all drying of SPH will be handled at Berkåk. The Berkåk facility will use approximately 50% of its full capacity for drying SPH from Midsund, and be able to dry SPH from future new factories and potential external clients. The facility at Berkåk has an annual capacity to handle 4,000 tons of soluble protein-concentrate, giving 2,500 tons of finished dried products. Since the take-over in January 2013, the first batches of production show a significant quality improvement of the SPH powder, both in solubility and odour Future production facilities Hofseth BioCare aims to enter into contracts similar to the contract with Sinkaberg-Hansen, with fish farming producer/processor and with the Norwegian pelagic fish industries. Hofseth BioCare is currently in discussions with several important players in the Norwegian fish processing industry. There is an estimated volume of 850,000 metric tons of bi-products available along the Norwegian coast, that today are sold at very low value 37

39 (sealage), and HBC s technology represents an important opportunity for this industry to increase the value of their off-cuts. Options are currently being explored by HBC concerning how to employ the available space at Berkåk. An ambition is to make Berkåk the Company s third production facility in order to expand the Company s production, with an enzymatic line for pelagic processing. Although options are currently being explored, no firm commitments have been made. 7.9 Sourcing of raw material Midsund The plant at Midsund will process approximately 19,000 tons of raw material each year. HBC has secured long term supply agreements for raw materials from Hofseth International AS two subsidiaries Seafood Farmers AS and Hofseth AS. A contract for the supply of 24,000 tons of raw material (8,000 tons per year) was signed in Hofseth BioCare is currently negotiating with several salmon producers for the remaining tons of raw material needed for full production at the Midsund plant. Accessible volume of raw material from those producers exceeds the capacity at Midsund plant. Rørvik Sinkaberg-Hansen AS and Hofseth BioCare s new plant at Rørvik is expected to have the capacity to process around 18,000 tons of raw materials each year when operating at full capacity. Hofseth BioCare Rørvik AS has secured an exclusive right to all available raw material from the Sinkaberg-Hansen group that can be used in the production at the Rørvik plant. It is estimated that Sinkaberg-Hansen AS will process approximately 24,000 tons of salmon in their plants in Such production will provide around 7,500 tons of bi-products. Hofseth Biocare Rørvik will in the near future start negotiating with other salmon producers for the remaining raw material needed for full production at the Rørvik plant Market strategy A new quality standard Bi-products The fishing industry traditionally has been sourcing its raw material bi-products to animal feed. Today, this market is dominated by producers (mainly feed fish) that have a dedicated supply chain and are mainly selling their products as animal feed. In the last 20 years, the technology used in the upstream sector of this industry has seen little innovation. Hofseth BioCare intends to set a new standard of quality for the fish protein and fish oil industry, an industry that has mainly focused on volumes and feed quality standards. Opportunities In the opinion of the Company, there are great opportunities to further improve the upstream sector of this industry in the way bio-marine ingredients are handled, sourced and produced with improved technology and more controlled processing. HBC with its enzymatic production and usage of fresh off-cuts from aquaculture represents a concrete step in delivering higher quality in the bio-marine ingredients marketplace. 38

40 Higher value HBC sold most of the volume to the animal nutrition market in order to secure full off-take for all its production in the starting phase. The animal nutrition market is characterised by high volumes and low prices. Gradually, as contracts are signed for the higher-end pet and nutrition markets, more volumes will go into these markets where total market volumes are lower, but prices are considerably higher. HBC s key target market is the human nutrition market and the first contract for products to this market has already been signed. Market pyramid Market entry strategy Hofseth BioCare is entering three distinct markets with four products. HBC is working to establish a distributors network that will streamline logistics and maximise coverage in each geographical and market segment. A distributor should be able to handle one or more of HBC s target markets Distribution strategy Hofseth BioCare has implemented a network of distributors. The distributors cover different geographical areas. The most important markets in human nutrition are the US and Europe. Asia has experienced an important growth in the last years and HBC has also established distribution in this area. HBC has established several important agreements to implement its distribution network: Exclusive Distribution Agreement for its salmon oil in the Human Nutrition Market with TSI Health Science LTD for the following markets: North America, Australia, Japan and New Zealand. Exclusive Distribution Agreement for its Soluble Protein Hydrolisates in the Human Nutrition Market with Roxlor Ltd. for USA and Canada. Exclusive Distribution Agreement for Salmon Oil, Soluble Protein Hydrolisates and Calcium with Novosana for China. For the Animal and Pet Food market, Hofseth BioCare has appointed Chr. Olesen as its Agent. Contract was signed on 28 September Chr. Olesen will buy all the remaining volume of protein and oil not sold to the human nutrition market. LoI with potential user and marketers of HBC products are in progress. 39

41 These distributors are medium to very large sized. HBC is selecting distributors that have the best market knowledge for the relevant products and that are able to achieve attractive prices. Most of the distributers are large enough to buy the entire production from Midsund for the segment in which they are operating. Distributors are committed to minimum sales objectives to reach for each year during the duration of the agreement. If the minimum sales are not reached, the distribution agreement can be terminated. All distributors play an important role in terms of logistics and marketing in each geographical area. Hofseth BioCare s employees have extensive experience and knowledge in all market segments, and have already worked together with the above distributors, and currently actively participate in introducing all product fractions directly to marketers Research and development HBC has developed expertise in marine bi-product refinement through many years of process development, production and clinical studies. HBC has optimised the process to make sure that the right parameters are adopted to obtain the right quality and yields. HBC has a highly experienced production staff, which is supported by the R&D department led by Dr. Bomi Framroze. Hofseth BioCare has during the last few years developed a marine waste treatment industry into a nutraceutical and functional food business. This is a result of three distinct R&D steps. The first is the introduction of food grade quality systems and equipment at its new facility at Midsund, Norway. The equipment at this facility, the process control systems and the CIP solutions and the quality system defines a high food grade standard for fish fractionation. Together with its strict tracking and logging of raw material sourcing, the Midsund facility for the first time produces consistent series of high quality fractions from the salmon off-cuts. The second is the accurate characterisation of the four fractions done through analysis. Hofseth BioCare's salmon protein hydrolysate (SPH) powder is the only protein powder that is certified 'prion free' and 'hypoallergenic' on the basis of the most rigorous testing, such as MALDI-TOF analysis (matrix assisted laser desorption/ionization). The Company s partially hydrolyzed protein is characterized by its peptide size to give feed formulators much greater confidence on its performance in finished feeds. Hofseth BioCare s salmon oil is specified below GOED standards for toxic dioxins and POC's (persistent organic chemicals) which is required in Japan and the US. And finally, the Company s marine calcium product is characterized by its presence of not just calcium, like all other products, but also phosphorous and oligosaccharides that have been shown to impact calcium absorption and bone growth. The third is creating a portfolio of clinical trials and patent protection that exploits the role these highly characterized products can play in improving nutrition and improving chronic health issues in both animals and humans. HBC s Soluble Protein Hydrolysate has now shown actual increased haemoglobin (RBC) in animals fed SPH versus control. A PCT worldwide patent has been filed. HBC has recently received the human ethics committee approval to now test SPH in anaemic women to increase their haemoglobin (RBC) levels with a normal unmodified diet. Iron supplements is a very large market that is increasingly under pressure due to liver toxicity issues, and a natural supplement that increases RBC without adding extra iron would be a first in dietary supplements. 40

42 Finally for SPH, since the Company s animal models showed a very high digestibility, HBC compared SPH in the industry standard, TIM-1 human digestion model at INAF, University Laval, Canada against the best whey protein hydrolysates for the rate of absorption. This bio property is critical to muscle regeneration and fatigue control in sports medicine which is one of HBC s initial target markets. SPH outperformed all the standards and in some cases with more than 2x the absorption rate. The Company s Salmon Oil continues to show dramatic results on its patent applied CVD biomarker oxidised low density lipoprotein beta-2-glycoprotein-1(oxldl-gp). New animal trials show that HBC s salmon oil was at least 3 times better at reducing this marker as compared to krill oil while processed fish oils and concentrates did not reduce serum levels at all. In February, the Company completed a baseline study on 188 patients that shows the significant relevance of serum levels of oxldl-gp in predicting CVD. HBC s paper has been submitted (in an Elsevier Journal) for publication. HBC has also completed its draft protocol for a new study on 120 normal patients to confirm the efficacy of its salmon oil at 1000 mg/day/12 weeks and its superiority over other fish oils. HBC s Calcium powder has almost completed its first animal trial on overectomised rats that simulate osteoporosis in older women. This study will actually measure bone incorporation of the calcium besides uptake. The Company will be filing a worldwide PCT patent application as soon as these results are available. HBC intends to do a whole body bone scan follow up study in humans suffering from osteoporosis if the OVX rat trial shows positive results. The Company will continue with its R&D efforts to improve the production process to lower its cost position against current and future competitors. At the same time, Hofseth BioCare will continue to characterise and fractionate its products to (a) improve the quality of its products such as concentrating the PUFA's in the salmon oil without disrupting the virgin quality of the oil, (b) more closely identify the mechanism of action of the biological activity of the products, (c) continue to search for and develop the technology required to isolate more high value products from the fish off-cuts such as gelatin and collagen and (d) look for more biological efficacies based on the high quality and reproducible consistent product fractions Government approvals Hofseth BioCare completed the first Generally Recognized as Safe (GRAS) self-affirmation approval for its salmon-based Soluble Protein Hydrolysate (SPH) ProGo designed for human nutrition in the US market on 8 October A committee of independent experts critically reviewed efficacy and toxicity data for SPH and ProGo. The committee found ProGo to match the highest quality standard for a protein isolate and concluded that its use should be generally recognized as safe. On 2 November 2012, the Company received a written confirmation from the Danish Ministry of Food, Agriculture and Fisheries, giving its SPH non-novel food status in the European Union as food supplement. The Dansih Authorities further confirms similar approvals from French and Beligan authorities. The approval implies that Hofseth BioCare is excused from applying for additional novel food certifications for SPH. Such application-processes normally take a minimum of two years, in addition to involving significant financial information for the Company Intellectual property rights License agreements with third parties Hofseth Biocare is a licensee of patents relating to certain enzymes from Novozymes, and has an exclusive license from Recon Oil for use of certain patent applications relating to virgin salmon oil. Other than this, Hofseth BioCare s business is, to the best knowledge of Hofseth BioCare, not dependent on any licences from 41

43 third parties for the production and marketing of its value-added fish protein hydrolysates, non-soluble fish proteins, marine lipids (oil) and marine calcium. Recon Oil has granted the Company an exclusive worldwide use license to exploit and develop products based on the patent applications exclusively for the human nutraceutical and pharmaceutical market. Furthermore, the Company may grant non-exclusive sublicenses to third parties. The licence granted the Company continues until the expiration of the patent or 10 years from 17 August 2011, whichever is longer. The Company is obligated to pay a royalty fee to Recon Oil calculated as six percent of the Company s gross sales of products sold by the Company into the human nutraceutical and pharmaceutical market, which are based on the patent applications. The Company is committed to achieve a minimum sales volume of USD 100,000 in 2012, USD 350,000 in 2013, USD 1,000,000 in 2014, USD 2,000,000 in 2015 and USD 3,000,000 in The minimum sales volume for 2012 was not reached, and will therefore be carried over to 2013, as agreed among the parties. Recon Oil has the right to terminate the agreement with a 90 days prior notice upon non performance of the projected annual sales volumes. The Company uses the licensed patent applications as part of its sales material, such as in sales presentations for salmon oil, and may continue to produce and market its salmon oil with the same quality but using a different sales pitch than licensed from Recon Oil in the event the license agreement with Recon Oil should be terminated Intellectual property right of HBC HBC has created a new process technology for a semi-continuous process. This is based on enzymatic hydrolysis, and the combined technology knowledge enables HBC to produce large quantities of value-added fish protein hydrolysates, non-soluble fish proteins, marine lipids (oil) and marine calcium. HBC has filed several patent applications that are relevant for its Soluble Protein Hydrolysate powder (SPH), marine protein hydrolysate, virgin salmon oil and PUFA salmon oil, and are in the process of filing further applications. In general, these applications are now processed at a regional level (EPO) or national level in various states in America, Asia and Europe following international PCT-applications. The Company is not dependent on a single patent. By being granted a patent, the Company will be able to obtain premium pricing. However, a rejection of a patent application will not put any limits to the production of HBC. In addition, HBC possesses proprietary know how and trade secrets with regard to the production and marketing of its products. See Section 7.11 (Research and development) with regard to Company s R&D Significant commercial and financial contracts Based on the Company's business model and financial position, commercial contracts and financial contracts are material to its business and profitability. Below is a point by point summary of significant commercial contracts: HBC has entered long term agreements with the seven suppliers of raw material the Company currently employs. The price, the quality and the frequency of delivery are specified in the contracts. The agreements are to be renegotiated on a yearly basis, and will be valid until one of the parties decides to terminate the agreement. Given that an agreement is terminated, there is a mutual term of notification of three months which will give HBC time to find a substitution if that it is necessary. The Company is dependent on entering into this type of agreements to generate and increase revenue. Exclusive Distribution Agreement for its salmon oil in the Human Nutrition Market with TSI Health Science LTD for the following markets: North America, Australia, Japan and New Zealand. HBC signed a contract with US distributor Roxlor for distribution of Soluble Protein Hydrolisates to the Human Nutrition Market in the US and Canada during the second quarter of Under this contract, Roxlor is committed to purchase a volume of minimum 40 tons per month. The Company is 42

44 dependent on entering into this type of agreement to generate and increase revenue. 21 March 2013, the Company announced that it had signed an extended contract with Roxlor for sales of HBC s soluble protein product ProGo to the US market. The contract is valued around NOK 40 million, including an exclusivity payment at contract signing of up to NOK 8.5 million. The contract runs to the fourth quarter of On 29 February 2012, the Company announced it had entered into a distribution agreements with Novosana for distribution of HBC s products to the dietary supplement and human nutrition market in China. The Company is dependent on entering into this type of agreement to generate and increase revenue. Hofseth BioCare has appointed Chr. Olesen as its Agent for the Animal and Pet Food market. Contract was signed on 28 September Chr. Olesen will buy all the remaining volume of protein and oil not sold to the human nutrition market. The Company is dependent on entering into this type of agreement to generate and increase revenue. Exclusive license from Recon Oil for use of certain patent applications relating to virgin salmon oil, please see Section (License agreements with third parties). The Company is dependent on entering into this type of agreement to generate and increase revenue. Below is a point by point summary of significant financial contracts: Please see Section 9.8 (Related party transactions) for an overview of financial contracts entered between HBC and selected shareholders. The Company is dependent on entering into this type of agreements to obtain the necessary funding for continued operations. 27 February 2013, the Company announced that it had entered into an agreement with CMA Asset Management AS (CMA), giving CMA the mandate to assist HBC in establishing funding and refinancing of the Company s assets through an operational lease. The agreement is based upon a total sales value of the assets above NOK 100 mill. A refinancing will substantially reduce capital need for fixed assets. An operational lease will further contribute to a significant strengthening of HBC s liquidity and improve the Company s financial flexibility with regards to follow defined growth strategies within selected market segments. 43

45 8 HOFSETH BIOCARE S MARKET OVERVIEW HBC sells marine oils, proteins and calcium, with marine oils representing the largest quantity. HBC s product fractions are sold in the following markets: 1 Human health and nutrition; 2 Pet health and nutrition; and 3 Animal health and nutrition. Within all product groups, the main focus is the human health and nutrition market, where it is possible to obtain the highest prices. However, HBC will also focus on the pet nutrition market, because the high-end segment of this market represents attractive prices. The global human nutrition industry is a USD 300 billion market 4, and is projected to grow further, driven by four major factors/megatrends 5 : 1 Globalisation and changing economics (emerging markets); 2 Health and wellness; 3 Food safety and sustainability; and 4 Demographics. The North American, EU and Japanese markets have increased steadily over the last decades, and the emerging markets such as China, India and Latin America, among others, hold the potential for further growth with an increasing middle-class. Consumer awareness of the relationship between diet and health has increased considerably in recent years, based on emerging evidence that a healthy diet can contribute to reduce risk of chronic diseases such as coronary heart disease, diabetes and cancer. Demographics such as the increasing share of elderly people in the western world drives the demand for health preventing products. The pet nutrition market is experiencing growth as marketers continue to convert pet owners to better quality and premium price customers. Premium pet foods cover all bases, natural/organic, fortified/functional, weight control, life stage, breed-/size-specific, gourmet etc. and are increasingly being positioned not just as human style, but as human grade. Europe, Asia and North America are the largest geographic regions for animal feed. Pork and poultry farmers are the largest consumers of animal feed. The following descriptions of the marine oil, protein and calcium market are mainly based on market reports provided by Frost & Sullivan and UBIC. These reports are not publicly available, but are stored at Hofseth BioCare s office. All publicly available information is traceable. 8.2 Marine oil The global revenue for omega-3s at the raw material level was USD 1.81 billion in , equalling 103,284 metric tons. This is an increase of approximately 10% from The growth is forecasted to be around 12% 4 Nutrition Business Journal Nutrition Business Journal Defining the Global Market: Omega-3 On-track for Expansion & Diversification ( Jan

46 through China and the rest of the Asia-Pacific region is experiencing rapid growth, however, North America remains the largest market. Percentage of global omega-3 revenue in % 2 % Market value of EPA/DPA omega-3 packed products by region in % 5 % 14 % 46 % 26 % 43 % 20 % 26 % Dietary supplements Pharmaceuticals Infant formula Food/beverage Animal Feed Clinical nutrtition North America Europe Asia-Pacific Rest of the World Source: Frost & Sullivan and Packaged Facts Dietary supplements account for the majority of the market in terms of revenue. Pharmaceuticals however are anticipated to take a greater share of the market as new products are expected to be introduced. The food and beverage category are augment due to the strong Chinese market. 18/12 fish oils have been the primary product category from a historical point of view. It accounts for 70% of the market in terms of unit shipment, but only 34% in terms of revenue. High-concentrate products account for 22% of the market revenue, although only 2% in unit shipments. Global consumer spending on EPA/DHA products in 2011 was USD 25.4 billion. Packaged Facts predicts that the market of EPA/DPA products will be USD 34.5 billion by 2016, which equals a compound annual growth rate of 6% 7. Marine oils consist of EPA/DHA omega-3 which is essential in human, pet and animal nutrition. The total production of marine oils was 865,000 tons in year The market revenue is estimated to reach USD million in In 2009, 90% 9 of the tonnage went to animal nutrition. The largest customer group for the end products is the fish farmers, dependent on the marine oil as an omega-3 source for its fish production. Marine oils are more frequently used in human nutrition, and the market has developed several end-applications such as omega-3 capsules, cod liver oil, functional food, and pharmaceutical. The common denominator for the products within human nutrition is its alleged preventative effect on cardiovascular disease ( CVD ). CVD is a collection of heart and blood vessel disorders that includes high blood pressure, coronary heart disease (heart attacks), strokes and heart failure. Measured in tons, the human nutrition market is still small and there is a great potential of selling oils to human nutrition, instead of selling oils to animal feed; an ethical stance that is gaining increased momentum 10. The high-end pet nutrition market accounted for 20,400 tons (approximately 2.4%) in There are two segments within pet nutrition. One high-end supplied/served with equal products as the lower end of human nutrition and one segment with products equal to animal nutrition. 7 Defining the Global Market: Omega-3 On-track for Expansion & Diversification html 9 IFFO and Copeinca Enaca: Use of fish in animal feeds

47 Marine oil end application in 2009 (MT) 8% 2% 90% Aquaculture Human nutrition Pet nutrition Source: IFFO and Frost & Sullivan The global supply of marine oils is concentrated in a few producing countries, including Peru, Chile, China, Thailand, the US, Japan, Denmark, Norway, Iceland and South Africa. These top ten countries account for 80% of the global production. The production of marine oil has declined over the past 2-3 years, due to over-fishing, natural disasters and environmental changes, which have weakened the harvest stock. Production of marine oil is expected to return to 2008 levels by Limited further growth is expected in the next 4-5 years and thereafter, as the resources of the world's oceans are already exploited to the maximum 11. The combination of (i) growing fish farming industry demanding higher volumes of marine oils, (ii) increased demand for omega-3 oils in human nutrition and (iii) limited supply growth are the factors driving the prices Industry structure / value chain The largest suppliers of crude oil are the Peruvian based fisheries, such as Tecnologica de Alimentos (TASA), Copeinca ASA and Pesquera Diamante. In the human nutrition market, omega-3 grade crude oil is sold directly to a refiner (or indirectly through traders), which refines the products in line with the requirements demanded for the end-application, e.g. concentrates for omega-3 capsules. The value-added-resellers ( VAR ) buy the products from the refiner, encapsulate (or indirectly through an encapsulator) and sell the end product to supermarkets, drugstores, health stores etc. In the animal nutrition market, crude oil is shipped directly to feed producer, which blends the oil with other ingredients in order to produce animal feed. The products within this market are typically of low quality. In the pet nutrition market crude oil is either shipped directly to a pet food producer, or to a refiner, depending on whether it is the low-end or high-end of the pet nutrition market. Pronova Biopharma ASA is the largest refiner of marine oils, in terms of revenue (19.7%), but a small player in terms of tons. Pronova Biopharma ASA obtains higher prices due to patent protected high-concentrated products for pharmaceutical applications. Other large refiners in terms of revenue are Nissui (16.6%), Ocean Nutrition Canada (8.7%), Martek (8.1), GC Rieber (3.9%) and EPAX (3.5%). Nissui and Ocean Nutrition Canada are also selling high-concentrates to the pharmaceutical segment obtaining higher prices. 11 IFFO, FAO

48 The market for VAR is highly fragmented. The largest VARs in North America include Puritan Pride, Nordic Naturals, Nutrilite and Pharmavite. Other VAR are Axellus (Nordic region) and Ferrosan (Europe). Figure: Marine oil supply chain Crude oil suppliers Traders and brokers Fish and marine oil refiners including captive production of powders and emulsions Algae oil fermentation and refining Encapsulator Animal nutrition Human nutrition Animal nutrition Pet nutrition Dietary supplements Food and beverage Pharmaceuti cals Infant nutrition Clinical nutrition End consumers SELLER or SUPPLIER VALUE-ADDED RESELLERS OTHER KEY INDUSTRY PARTICIPANTS Source: Frost & Sullivan Human nutrition The global market for human EPA/DHA marine omega-3 ingredients is valued at approximately USD 1,500 million, and accounted for 85,673 metric tons (including high-end pet nutrition) in EPA/DHA marine omega-3 ingredients for humans can be found in several products and forms, and the market is divided into five segments by end-applications: 1 Dietary supplements: all non-prescription health-ingredient supplements, where omega-3 ingredients are added directly into product formulations, such as omega-3 capsules and cod liver oil. 2 Functional food: omega-3 ingredients for all processed food and beverage applications where omega-3 ingredients are added directly into product formulations, such as milk consisting omega-3. 3 Infant nutrition: omega-3 ingredients for all infant formula products. 4 Pharmaceutical: omega-3 ingredients for all products that need a prescription. 5 Clinical nutrition: omega-3 ingredients applied for therapeutic foods in medical practices. 12 Frost & Sullivan, Omega-3 market report - Not available for general public, only for subscribers. 47

49 Marine oils end-application in % 7 % 5 % 13 % 31 % 40 % Dietary supplements Food/beverage Instant formula Pharmaceutical Pet food & supplements Clinical nutrition Source: Packaged Facts There are many sources of marine oils, such as Peruvian anchovies, menhaden, halibut liver, krill, algae, tuna, salmon, sardines, etc. Some of these, such as algae oils, have through patents and marketing successfully entered premium segments within human nutrition, within infant nutrition and pharmaceuticals. The source, the extraction and the distillation process are all playing a role in the pricing of marine oils. Marine oil source in 2009 (MT) 4% 3% 1% 6% 7% 10% 69% 18:12 oil All concentrates Cod liver oils Tuna Oils Salmon oils Algae oils Krill oil Source: Frost & Sullivan Target segments The largest segment, both measured in tons and revenues is the dietary supplements, representing USD 547 million (approximately 35%) in revenues and 51,148 tons (approximately 60%) in The relatively higher portion of global tonnage than global revenue is because the market is dominated by typically low concentrate marine oils, such as the ones within the 30% natural fish oil category. Product sources that fall within this category include sardines, anchovies, menhaden, halibut liver, hoki, seal, squail, etc, all commonly termed lowvalue fish The most applied type of oil within 30% fish oil is the 18/12 due to its ratio of EPA/DHA. In recent years the raw material composition of the fish harvests has challenged the production of 18/12 oils and especially the fatty acid composition of the catch has changed dramatically. Salmon oil is regarded as a high quality source compared to the others within dietary supplements. 13 Frost & Sullivan, Omega-3 market report - Not available for general public, only for subscribers. 48

50 Pharmaceutical is the second largest segment measured in revenues, and accounted for USD 357 million (approximately 25%), but only 1,391 tons in The segment is dominated by high valued 80%-95% concentrates, which are believed to be optimal for pharmaceutical applications. This view is being challenged, as other substances are excreted in the concentration process. The second largest segment measured in tons is functional food, accounting for 20,400 tons in year There have been great expectations for this segment within marine oil, but there are only a few success stories, such as marine oil in milk in Spain and in butter in the US. Companies such as Tine, Norway s largest dairy producer, have invested heavily in the possibility to add marine oil in milk, without success. The largest problem has been to stabilise omega-3 and to avoid a fishy taste Geographic split & growth The global market for human EPA/DHA increased in volumes by 20%, and in terms of revenue with 13%, from 2008 to The market is still in the growth stage of its product lifecycle and global revenues are expected to grow at a compound annual growth rate ( CAGR ) of 12% from 2010 until Global unit shipments are likely to grow at a CAGR of 11.5% from 2010 to Within the relevant segments for HBC, the largest geographic region is North America, both measured in revenues and metric tons. The expected revenue CAGR is 11.8% for the region from 2011 until Europe is the second largest, measured in revenue, while Asia Pacific ( APAC ) is the second largest region measured in metric tons. Expected revenue CAGR is 9.9% in Europe and 14.1% the APAC region. Geographic split by value in % 25% 39% 33% North America Europe Asia Pacific Rest of the world Source: Frost & Sullivan In addition to the factors that will affect the overall human nutrition industry, there are four key elements that will drive the continued growth within marine oil human nutrition: 1 Product factors; 2 Price factors; 3 Regulatory factors; and 4 Promotional factors. The WHO states that CVD is the number one cause of death globally, accounting for 29% of all deaths worldwide in By 2030, the WHO projects that CVD will continue to be the leading cause of death globally. 14 Frost & Sullivan, Omega-3 market report - Not available for general public, only for subscribers. 49

51 Scientific studies concluded that extra virgin salmon oil has the effect of lowering oxidized LDL. Oxidized LDL has been shown in several of journal articles to be a very good predictor molecule for identifying CVD. Scientific research is the backbone of all the growth factors. It increases awareness among consumers, which in turn drives the demand for omega-3. Innovation, and new product attributes have also increased the consumers willingness to pay for omega-3 and have convinced governments around the world that this is important for their populations long-term health and wellness Pet nutrition The market is dominated by low concentrate EPA/DHA marine oils, and is comparable with the low-end human nutrition market. The largest producers of pet food include Hills, Mars, Nestlé-Purina and Procter & Gamble (Eukanuba). Geographically, North America is the largest region within pet nutrition accounting for 52% of global tonnage. Europe and APAC are the second and third largest regions, accounting for 20% and 15%, respectively. Research performed by Marine Harvest Ingredients/Nutreco 15 concluded that fresh Norwegian salmon oil has equal or better palatability than poultry fat for dry feed to dogs. This indicates a growing demand for salmon oil within pet nutrition, as marketers continue to convert pet owners to better quality customers Animal nutrition The animal nutrition market is the largest by volume, accounting for 779,000 tons in With an average traded price at the Hamburg commodity exchange of 1.1 USD/kg in 2010, the total market is valued at USD 857 million 16. The main source of marine oils for animal nutrition is pelagic fish. The key value to measure the freshness of the oil in this segment is the level of FFA. The highest qualities that are produced for this market segment have an average level below 5 FFA. The general supply of seafood in the world is turning more to farmed seafood as the supply from wild catch is stagnating in several regions and for many important species. Global farmed seafood is expected to grow over the upcoming years. There are few substitutes for the fish farmers as they are dependent on fish feed consisting of omega-3. Prices and profitability for the crude oil suppliers are therefore expected to grow over the coming years. The production of pork is expected to increase a CAGR of 2% in the next two years and driving the demand for animal feed Rubin, Rapport nr. 4625/139, 16 Kontali Research - Not available for the general public, only for subscribers. 17 United States Department of Agriculture, Foregin Agriculture service October

52 '000 tons Hofseth BioCare Production of animal marine oil Peru Chile Scandinavia USA Japan Other Aquaculture end-application 3% 1% 3% 6% 19% 68% Salmon & trout Marine fish Crustaceans Tilapias Eels Other Source: IFFO & Copeinca The largest producers of animal feed are Provimi, Cargile, Nutreco and ADM. EWOS, Skretting and Biomar are the largest producers of fish feed, with a total market share of approximately 90% Protein market Industry structure / value chain The global protein ingredient market is significant. The human nutrition market alone is worth in excess of USD 57 billion and accounted for approximately 20 million metric tons 19. Protein ingredients serve both a functional application and a nutritional market. The functional application (binder), accounts for the majority of the market and is dominated by low concentrate proteins. Proteins are essential for building muscles, and the nutritional market is dominated by high concentrate proteins. There are several protein sources within animal and pet nutrition, such as vegetable and soy proteins, these are low protein concentrates, compared to products within human nutrition. Fishmeal accounted for 4.3 billion tons in year Figure: Marine proteins supply chain Raw material producer Meat protein Vegetables protein Milk protein Fish protein Concentrator / hydrolysator Animal feed Pet feed Human nutrition 18 IFFO UBIC Protein Ingredients Market - Not available for the general public, only for subscribers. 20 IFFO and Copeinca

53 In the human nutrition market protein is concentrated and sold to VARs. Within pet nutrition, protein is either sold as low concentrates or as concentrates more equal to the protein in the human nutrition. Protein in animal nutrition is low concentrates, produced by Peruvian fisheries. The largest suppliers of proteins include Fonterra, Arla, Starch, National Starch, Gelita and Rousselot. Largest VAR of protein are Abbot, Glanbia, Nestlé nutrition, Unilever and ADM Human nutrition In the nutritional market, proteins are sold as 80-90% concentrates. Main sources applied in concentration are milk (including casein), whey, soy and wheat. The aggregated market for these sources is approximately 385,000 tons (including hydrolysates) in Prices of these sources vary, depending on customer and concentration. The total market is estimated at USD 2.3 billion 22. Protein concentrates are specifically used in sports nutrition, due to the high nutritive value. Furthermore, high concentrates are used in bakery, infant formula, clinical nutrition, confectionary, functional foods and other dairy products. There is a growing market for hydrolysates 23. Hydrolysates (80-90% concentrates) are a mixture of AAs prepared by splitting a protein with acid, alkali or enzyme. This is a premium protein ingredient compared to other protein concentrates due to its bioavailability, pre-digested and hypoallergenic applications. The global hydrolysates market is small in size, with the main ingredients being whey protein hydrolysates and casein hydrolysates. The total market (accessible and captive) is estimated at approximately 45,000 tons in , the accessible market accounted for 15,000 tons, and the captive market for 15,000-30,000 tons. The accessible market is valued at USD 185 million in Suppliers within the captive market are large corporations such as Nestlé, Abbot (whey hydrolysates) with in-house production of hydrolysates. The largest end-applications for hydrolysates are infant formula (hypoallergenic infant formula) and clinical nutrition, each accounting for 35-40% of protein hydrolysate ingredient market. Sports nutrition accounted for 2,600 (approximately 18%) tons in year Source high concentrate proteins in 2010 (MT) 7% 3% 41% 49% Hydrolysates segment split in 2010 (MT) 1% 11% 18% 35% 35% Whey Milk Soy Wheat Hypoallergenic Infant Body building Nutraceuticals Clinical nutrition Microbiological culture media Source: UBIC Protein ingredient market & UBIC Protein hydrolysate ingredient market 21 UBIC Protein ingredient market - Not available for the general public, only for subscribers. 22 UBIC Protein ingredient market - Not available for the general public, only for subscribers. 23 RUBIN UBIC Protein hydrolysate ingredient market - Not available for the general public, only for subscribers. 52

54 Geographic split & growth The US represents the largest geographic region, with approximately 57% of the high concentrate market, measured in tons, in Second largest region is the European Union, accounting for 22% in The nutritional market for whey protein concentrates (excluding hydrolysates) has experienced a CAGR of 8.6% over the last 6 years. In addition to the three megatrends/factors that affect the overall human nutrition industry, the global obesity problem is a key driver for the protein ingredient market. In 2008, 1.5 billion adults were overweight, and the worldwide obesity has more than doubled since million adults die each year as a result of being overweight or obese 26. In the US, 17% of medical expenditures go towards the treatment of obesity. A study by NIFES 27 clearly showed that FPH can be an important part in reducing the development of obesity. Compared to composition of proteins frequently utilised in the food industry, such as soy and milk, the FPH are particularly rich in the water soluble B-vitamins. B-vitamins are essential in energy consuming processes such as fat oxidation, both in animals and humans. Furthermore, FPH have a different AA composition than both soy and milk, which might be favourable with respect to fat metabolism. RUBIN, a Norwegian foundation working for increased and more profitable utilisation of bi-products within fisheries, has also highligthed the potential for high concentrated fish proteins, within the sports nutrition markets. A critical success factor is the taste of the fish protein. In sports nutrition the fish hydrolysates are complementary to whey protein. Whey protein is ideal for building muscles, while fish hydrolysates are ideal for fat metabolism 28. There is still a great potential for hydrolysates in hypoallergenic formulas 29. Protein allergy is a tolerance problem. It means that the infant s immune system has responded in an abnormal way to the protein in human diet. This can happen with both milk-based and soy-based formulas, and it tends to run in families. Hypoallergenic formulas (hydrolysates) are increasing in many countries, and in more and more Western countries regarded as standard formulas 30. Geographic split high concentrate proteins in 2010 (MT) 18% 25% 57% USA EU Oceania Source: UBIC Protein ingredients market 25 UBIC Protein ingredient market - Not available for the general public, only for subscribers. 26 WHO National institute of nutrition and seafood research (NIFES) scientific advisor to the Norwegian government 28 RUBIN UBIC Protein hydrolysate market - Not available for the general public, only for subscribers. 30 UBIC Protein hydrolysate ingredient market - Not available for the general public, only for subscribers. 53

55 8.3.3 Pet nutrition Hydrolysates are applied in pet food due to the hypoallergenic applications. Feeding studies have been carried out using fish hydrolysates on dogs and cats. Indications show that products made of SPH may have an immune-stimulating effect in pets in addition to a nutritional value Animal nutrition Fishmeal accounted for 4.3 million tons in The average traded price at the Hamburg commodity exchange was 1.7 USD/kg, valuing the total market at USD 7.3 billion 31. Within this source of proteins, the aquaculture is the largest customer group, accounting for 63% of the market in year Salmon and trout, other marine fish and crustacean farmers accounted for approximately 80% of the aquaculture s consumption, each with an equal share. The second largest customer group is pig farmers, accounting for 25% of the market in Generally there are more substitutes within protein, such as soy, and other vegetable sources, because the buyers are not dependent on one specific ingredient that only can be found in marine sources. But fishmeal is also selling to a broader range of customers, where the important factor for the buyers is the protein concentration. Fishmeal is, to some extent, exposed to the same story as marine oil, declining harvest stocks and growing demand, which drive prices. Source: IFFO The largest producers of animal feed are Provimi, Cargile, Nutreco and ADM. 8.4 Calcium Industry structure / value chain Calcium is essential for the bone metabolism, and is therefore applied in human, pet and animal nutrition. Human nutrition accounted for approximately 146,000 tons and calcium is applied within dietary supplements, sports food and in dairy products 32. In the human nutrition market, calcium is granulated, encapsulated and sold to VARs. 31 Kontali Research - Not available for the general public, only for subscribers 32 UBIC World mineral salt ingredient - Not available for the general public, only for subscribers. 54

56 Nutritional calcium Calcium phosphate Calcium carbonate Calcium lactate Calcium citrate Calcium gluconate Milk calcium Granulation / Encapsulator Animal feed Pet feed Human nutrition The largest suppliers of calcium are Budenheim, Innophos, Seppic, Omya, CalCitech, Procter & Gamble, DMV, Friesland Foods, Glanbia, Snow brand milk, Morinaga, Fonterra, Danone and Lactalis. The VARs are the same as within marine oil. The largest VARs in North America is Puritan Pride, Nordic Naturals, Nutrilite and Pharmavite. Other VAR are Axellus (Nordic region) and Ferrosan (Europe) Human nutrition The total calcium human nutrition market accounted for 146,000 tons in Calcium for humans can be found in several products and forms, and the market is divided into four segments by end-applications: 1 Dietary supplements: calcium ingredients applied in tablets, powder, etc. 2 Dairy: calcium ingredients applied in dairy products 3 Sports nutrition: calcium used in sports powder, calcium bars, etc. 4 Other foods: all other food that include calcium ingredients The largest end-application is dietary supplements, accounting for 68,000 metric tons (approximately 47%) of the total market in The calcium human nutrition market is commoditised and dominated by non-organic sources. The largest source is calcium carbonate, which accounts for 69% of total consumption 35. This is a common substance found in rocks in all parts of the world, with limited bioavailability (absorption). Organic sources, such as milk calcium and calcium citrate, sell at premium prices due to the higher bioavailability. A study by NIFES compared the absorption rate of marine calcium with that of commercial calcium in both pigs and humans. The study shows that marine calcium made from enzyme treated salmon bones (HBC-quality) has an equal or better absorption rate than commercial calcium in both target groups 36. In addition, the calcium source made from enzyme-treated salmon bone has a higher absorption rate compared to calcium from cod-fish and white fish. Due to these results, there are indications that marine calcium could enhance growth of bone structure in humans. 33 UBIC World mineral salt ingredient - Not available for the general public, only for subscribers. 34 UBIC World mineral salt ingredient - Not available for the general public, only for subscribers. 35 UBIC World mineral salt ingredient - Not available for the general public, only for subscribers. 36 DOCMAR

57 Calcium split by end-application in 2010 (MT) Calcium split by source in 2010 (MT) 4% 3% 1% 18% 15% 47% 9% 14% 69% 20% Calcium carbonate Calcium lactate Dietary supplements Sport food Calcium phosphate Calcium gluconate Dairy Other foods Milk calcium Calcium citrate Source: UBIC World mineral salt ingredient Geographic split & growth The calcium ingredient market has experienced CAGR of 4.8% since The US is currently the largest geographic region, measured in tons, accounting for 38,500 tons (approximately 27%) of world consumption. The second largest region is the EU, which accounted for 37,000 tons (approximately 25%) in Total calcium geographic split in 2010 (MT) Calcium citrate geographic split in 2010 (MT) 15% 11% 27% 17% 33% 25% 22% 25% 25% USA EU ROW China Japan Source: UBIC World mineral salt ingredient USA EU ROW China In addition to the megatrends/factors influencing the global human nutrition market within all ingredients, it is especially important to underline the potential in the Scandinavian market. Scandinavia, United States and New Zealand are the geographic regions with the largest portion of osteoporosis, especially for women. Medication includes among other items, calcium Pet and animal nutrition Pet and animal nutrition markets for calcium ingredients are small in size, and dominated by commoditised products. There are expectations that these markets will experience the same development as the protein and marine oil market, a shift towards a more diversified market where customers are willing to pay premium prices for high-end products. 37 UBIC World mineral salt ingredient Not available for the general public, only for subscribers. 38 International Osteoporosis Organization

58 8.5 Hofseth BioCare s market penetration status and competitive overview HBC business model is based on a progressive penetration of the human nutrition market for its three main products: Soluble Protein Hydrolisates (SPH), Salmon Oil and Calcium. This penetration has been delayed because HBC has not been able to comply with the products specifications that are required when selling products in the human nutrition market. The separation of the three fractions has been more challenging than expected. As a result of critical improvements in the production process during January and February 2013, HBC is now complying with the requirements set out for human nutrition. Salmon oil: Salmon oil is the product which HBC has been able to partially start selling as human nutrition in late The Company s main competitors are producers of 18/12. This oil is derived mainly from Peruvian fisheries extracting oil from anchovies and sardines. Other sources of fish oil are also gradually entering the market as krill and Alaskan salmon oil. In the human nutrition market, the marine oil from the Peruvian fisheries needs to be refined before it is encapsulated and sold as dietary supplements. The largest refiners selling products to dietary supplements are Ocean Nutrition, EPAX, GC Rieber, DSM, BASF, Aker Biomarine, Neptun Olympic and Alaskan Salmon Oil. Due to the short time period the Company has been present in the market, it has not been able to reach a measurable market share in the human nutrition market. SPH: For the protein HBC has been selling, the majority of the 2012 production went into the animal nutrition market. Within animal nutrition the largest suppliers of fish meal (proteins) are the Peruvian fisheries. This is mainly a commodity market. However, the Company obtained a premium price of up to 15-20% of SPH in 2012 in the animal nutrition market due to the high quality of the SPH and higher concentration of protein. For the human nutrition market, the Berkåk facility and the integration of the spray dryer process have contributed to an important organoleptic improvement. HBC is planning to start the first delivery to Roxlor, its distributor for the US human nutrition market during the first quarter of 2013.Within the high concentrated protein ingredients market the largest suppliers in the EU are DMV Nutritionals, Arla Food Ingredients, Glanbia, Armor Proteins and Kerry. In the US the largest suppliers are Davisco, Proliant and Glanbia. These companies are large dairy producers, where whey protein is produced as part of their ordinary dairy production and added to end-products. Calcium: The production of calcium scheduled to commence during the first quarter of Based on production samples, the Company has already established a Distribution Agreement. A key customer is awaiting the first production. In the calcium ingredient market, the main competitors are suppliers of calcium citrate, milk calcium and other calcium ingredients derived from organic sources. The only supplier of calcium citrate is Procter and Gamble. The largest producers of milk calcium are DMV, Glanbia, Fonterra, Kerry and Lactalis. There are also other companies using a to some extent similar enzymatic hydrolysis process as HBC based on marine bi-products. These companies primarily focus on the animal and pet nutrition segments where the quality standard and documentation for bioactive properties are less stringent. Hence, these companies are not viewed as key competitors in the human nutrition segment, but can be seen as competitors within the animal and pet 57

59 nutrition segments. Such companies include Marine Bioproducts AS (Norway), Nutrimar AS (Norway) and Copalis (France). 58

60 9 BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES 9.1 Board of Directors General The Board of Directors of Hofseth BioCare is responsible for the supervision and administration of the Company s affairs and for ensuring that the Company s operations are organised in a satisfactory manner. The members of the Board of Directors of Hofseth BioCare are, in accordance with the Norwegian Public Limited Liability Companies Act and Section 5 of the Articles of Association, elected by the general meeting for service periods of up to two years. Members of the Board of Directors may be re-elected and there is no limit on the number of terms any one member of the Board of Directors may serve. The Board of Directors shall consist of three to 10 members, whereof a minimum of three and a maximum of 10 shall have been elected by the general meeting. As of the date of this Prospectus, the Board of Directors consists of five members and an alternate member Overview of the Board of Directors The table below sets out the name, position, current term of office, shareholding and annual remuneration (excluding committee work) for each member of the Board of Directors as of the date of this Prospectus. None of the members of the Board hold any options or warrants in the Company. Name Member since Term expires Shares owned Remuneration paid in 2012 (NOK) Business address Kjetil Olsen* , ,000 Korpeliveien 26, 3928 Porsgrunn, Norway Roger Hofseth* ,948,977 0 Moloveien 6, 6004 Ålesund, Norway Bjørn Tunheim ,000 Moloveien 6, 6004 Ålesund, Norway Bobbi Walters St. Johns Avenue, Highland Park, IL 60035, USA Anne Kristin Holmeide ,000 Moloveien 6, 6004 Ålesund, Norway *personally and through related companies both remuneration as Chairman and work carried out as a consultant Brief Biographies of the Members of the Board of Directors Set out below are brief biographies of the members of the Board of Directors of Hofseth BioCare as of the date of this Prospectus. Kjetil Olsen, (born 1960), Chairman Mr. Olsen has served as chairman of the Board of Directors of Hofseth BioCare since June Mr. Olsen has previously held the position as Senior Vice President Supply Chain in Pronova BioPharma ASA and Managing Director of Pronova BioPharma Danmark A/S. Before joining Pronova BioPharma in 2001, Mr. Olsen held several manager positions within Norsk Hydro s Engineering Division, Magnesium Division and Fertilizer Division. Mr. Olsen currently serves as Chief Operating Officer of Kebony ASA. 59

61 Mr. Olsen holds a Master of Science in process engineering from the Norwegian University of Science and Technology (NTNU). Mr. Olsen currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Kebony COO SINTEF Alternate Director of the Board Trols AS CEO and Chairman Furthermore, Mr. Olsen has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Pronova BioPharma ASA SVP Supply Chain Pronova BioPharma Danmark A/S Managing Director Roger Hofseth (born 1974), Board member Mr. Hofseth incorporated Hofseth BioCare in 2009 and has served as a Member of the Board of Directors from incorporation until June 2010 and since October In 2001, Mr. Hofseth incorporated Hofseth Invest AS, which represented the beginning for the Hofseth group, which had developed from having one employee in 2001 to 130 in Mr. Hofseth has 20 years of experience in the fishery and food industry. This experience includes the founding of several companies and holding the position as member of the board and/or management position in several companies within the fishery, fish farming and ecological food industry. Mr. Hofseth currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Norsk Fisketerminal AS Chairman Roger Hofseth AS Chairman Lero AS Chairman Syvde Eiendom AS Board Member Hofseth AS Board Member Hofseth International AS CEO Hofseth International AS Board Member Seafood Farmers of Norway AS Board Member Seafood Farmers Holding AS Board Member GHC Fishing AS Chairman Hofseth Logistics AS Board Member Zenseware AS Board Member Ellingsøy og Engesetdal Eiendomskonsortium AS Board Member Villa Organic AS Board Member Furthermore, Mr. Hofseth has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Vanylven Vekst HF Board Member Bjørn Tunheim (born 1946), Board member Mr. Tunheim was elected as a member of the Board of Directors in Hofseth BioCare in May After about 40 years in business development service, Mr. Tunheim retired in May He has held positions in 60

62 Innovasjon Norge and Statens Nærings- og Distriktsutvikling (SDN) Møre og Romsdal. Mr. Tunheim has a business degree from the BI Norwegian Business School. In addition he has 18 months in the NVF s Leadership in transition. Mr. Tunheim currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Olga Godø AS Chairman Kristian Tun LTD Chairman Furthermore, Mr. Tunheim has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Innovasjon Norge (Møre og Romsdal) Director Geiranger Skysslag AS Chairman Geiranger Fjordservice AS Chairman Mr. Tunheim has a very good knowledge of the maritime, marine and furniture industries. Credit assessment has been a primary concern and the main work area. Thus, the requirement for financial balance and growth challenges are well known. Mr. Tunheim has worked closely with most regional bank managers. He has a good knowledge through his own management experience and since he has worked with changes, both internally and within the business, he thinks he can help with advises and expertise to companies in the growth phase. Bobbi Walters (born 1960), Board member Bobbi Walters was elected as a member of the Board of Directors in Hofseth BioCare in October Ms. Walters has been with the Mazzetta Company, LLC since Mazzetta is a leading importer and distributor of frozen fish and shellfish products for the North American market. Prior to joining the Mazzetta Company, LLC, Bobbi Walters was the Controller of Colbert Packaging ( ), CPA at Kupferberg, Goldberg & Neimark ( ) and CPA at John R. Waters & Co. ( ). Ms. Walters has a BA in accountancy from Loyola University and is a Certified Public Accountant. Ms. Walters currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Mazzetta Company Controller Ms. Walters has not, during the last five years, held any other directorships, supervisory or leading management positions during the last five years. Anne Kristin Holmeide (born 1968), Board member Dr. Holmeide was elected as a member of the Board of Directors in Hofseth BioCare in May Dr. Holmeide is the founder and Managing Director of Biozep AS, a privately owned contract R&D labratory with focus on natural ingredients. Previously, Dr. Holmeide has been the Vice President Chemistry Manufacturing and Control at EPAX AS and Director of Research and Development in Pronova Biopharma. Before she joined Pronova Biopharma she worked in Lipogen AS, a privately owned drug discovery company, designing novel bioactive compounds from Omega-3 fatty acids. Dr. Holmeide began her professional career at Borregaard Fine Chemicals as a Research Chemist ( ). Dr. Holmeide holds a Master of Science in Engineering from the Norwegian University of Science and Technology (1993) and a Doctor Scientiarum from the University of Oslo (2002). 61

63 Dr. Holmeid currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Biozep AS Managing Director Furthermore, Dr. Holmeid has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): EPAX AS Vice President Chemistry Manufacturing and Control Pronova Biopharma Director of R&D Remuneration and Benefits An overview of the benefits received from the Company by the embers of the Board of Directors is described in Section (Overview of the Board of Directors) above. None of the members of the Board of Directors have received any other benefits from the Company. The remuneration of the members of the Board of Directors for the financial year 2012 will be decided by the General Meeting. No member of the Board of Directors has any service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment Loans and Guarantees Other than as mentioned below, the Company has no outstanding loans or guarantees to any member of the Board of Directors. Roger Hofseth, member of the Board of Directors, has furnished guarantee as follows: NOK 2.5 million for the Company s fulfilment loan Swedbank. Roger Hofseth AS, a company wholly owned by Board member Roger Hofseth, has furnished guarantees as follows: NOK 2.5 million for the Company s fulfilment loan to Innovasjon Norge. NOK 3.5 million for the Company s fulfilment loan to SG Finans AS. Repurchase agreement of NOK 21 million related to the Midsund plant for fulfilment of loans to Innovasjon Norge and Swedbank. Roger Hofseth AS has pr. 22 March 2013 outstanding trade credits of NOK 885,558. Hofseth AS, a company owned by Hofseth International AS, where Board member Roger Hofseth has indirect ownership, has as pr outstanding loans to the Company of NOK 3,800,000 and trade credits of NOK 2,800,000. As of the date of this Prospectus the numbers are 5,400,000 (loans) and 5,500,000 (trade credits). The loans are partly being converted in the Private Placement and the remaining loans and interests fall due 1 May 2014, and bear an interest rate of 3 month NIBOR + 6%. 9.2 Nomination-, audit- and remuneration committee Nomination committee The Company has not considered it necessary to establish a nomination committee at this point in time. 62

64 9.2.2 Audit committee The Company s Articles of Association states that the Company shall have an audit committee whose members (at least two) shall be appointed by and from the Board of Directors. The majority of the members of the Audit Committee shall be independent of the management and the Company, as such term is defined by applicable laws and regulations, including, the Norwegian Code for Corporate Governance. All audit committee members shall be financially literate and at least one of the independent members shall have qualifications within accounting or auditing. Audit committee members shall not simultaneously serve on the audit committees of more than three other listed public limited liability companies. The audit committee consist of the following members: Bjørn Tunheim (Chairman), Roger Hofseth, Anne Kristin Holmeide. Each member of the audit committee will receive NOK 7,500 for the period until the General Meeting in Remuneration committee The Company is not required to have a remuneration committee and the Board of Directors has not considered it necessary to establish a remuneration committee at this point in time. Upon expansion of the number of employees in the Company, the Company will assess the necessity for such committee. 9.3 Management Overview of the executive management The executive management of Hofseth BioCare comprises five executives with good domain knowledge within their job functions and with senior management experience from across the industry. The executive management of Hofseth BioCare currently includes the following persons: Name Position Business address Jon Olav Ødegård Chief Executive Officer Smuget 1, 1383 Asker, Norway Øystein Omvik Chief Financial Officer Smuget 1, 1383 Asker, Norway Sjur Jenssen Business Development Manager Smuget 1, 1383 Asker, Norway Lucas Altepost Vice President Sales and Marketing Smuget 1, 1383 Asker, Norway Roald Rogne Plant Manager Midsund Smuget 1, 1383 Asker, Norway Dr. Bomi Framroze Chief Scientific Officer 4 Jenkins House, Henry Road, Mumbai 40001, India Brief Biographies of the Members of the Executive Management Set out below are brief biographies of the members of the executive management of Hofseth BioCare as of the date of this Prospectus. Jon Olav Ødegård (born 1973), new CEO Jon Olav Ødegård has been CEO of Hofseth BioCare since 1 March Mr. Ødegård comes from the position as manager of the area Factoring in the Sparebank 1 Group, where he was responsible for strategy and business development, compliance and risk management among other things. Further, Ødegård has worked as an adviser specialized in process and efficiency improvement in a number of industries. 63

65 Mr. Ødegård currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Ødegård Lakk AS Chairman Ødegård Prosjekt AS Chairman Mr. Ødegård has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Scarp AS Development Manager SpareBank 1 Factoring Business Development Manager SpareBank 1 Factoring AS CEO SpareBank 1 Gruppen Director Factoring Øystein Omvik (born 1965), Chief Financial Officer Mr. Omvik has been CFO of Hofseth BioCare since 1 March Previous to joining Hofseth BioCare, Mr. Omvik held the position as Senior Consultant in Gagn Consulting where he mainly focused on strategy- and financial management development. Mr. Omvik has held positions as Finance Manager in Pon Power, djuice, Netcome, Vice President in Rolls Royce Offshore and CFO of Hjellegjerde ASA. Mr. Omvik currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Digital Kvalitet AS Board Member Prisma Consult AS - Chairman Mr. Omvik has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Gagn Consulting Senior Consultant Hjellegjerde AS CFO Sjur Jenssen (born 1965), Business Development Manager Mr. Jenssen has been CEO of Hofseth BioCare from 2010 until early He has been the Business Development Manager of Hofseth BioCare since 1 March Previously, Sjur Jenssen was Vice President Sales and Marketing in Pronova Biocare, a large producer of Omega-3 for food, nutrition supplements and pharmacy, where he was responsible both for Scandinavian sales and marketing, and for worldwide sales since 2001.In 2005, Sjur Jenssen was co-founder of Cromi AS, a consultancy company in the marine ingredients market, with associates in the USA and in several other countries in, Asia and Europe Mr. Jenssen currently holds the following directorships, supervisory or leading management positions other than positions in the Company and/or its subsidiaries: Smart Investments AS Chairman Mr. Jenssen has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Cromi AS Chairman Pronova Biocare Vice President Sales and Marketing 64

66 Lucas Altepost (born 1967), Vice President Sales and Marketing Mr. Altepost has been Vice President Sales and Marketing of Hofseth BioCare since Prior to joining Hofseth BioCare, Mr. Altepost held the position of Managing Director at Cromi for which he was a co-founder. He has also been Sales Director at Pronova Biocare where he was responsible for Pronova international sales, introducing Pronova consumer brands in the US market and in several European countries. Mr. Altepost is a Swiss citizen and holds a bachelor degree in Business and Administration with major in marketing from the University of Lausanne. Mr. Altepost currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): CPS-Drive AS Board member Altepost AS Chairman Furthermore, Mr. Altepost has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Cromi AS Managing Director Cromi AS Board Member Roald Rogne (born 1970), Plant Manager Midsund Mr. Rogne has been Plant Manager at Hofseth BioCare since January Roald Rogne has more than 20 years of experience from the fishing gear production (MøreNot AS) and the fishing production industry. He has held positions as Quality Manager, Project Manager and Production Planner. Mr. Rogne does not hold any other directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Furthermore, Roald Rogne has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Firmenich Bjørge Biomarine HS&E Manager Dr. Bomi Framroze (Born 1961), Chief Scientific Officer Dr. Framroze has been Chief Scientific Officer of Hofseth BioCare since Dr. Framroze is a discovery scientist with over 35 worldwide patents and publications in life sciences and software research. He was Associate Director of Chemical Discovery at America Cyanamid, and since 2004 he has been CEO of Opus Organics, carrying out discovery research in peptides and bio-scaffold technology. Dr. Framroze was a part of Green Earth Industries LLC, as a Research and Development Director. Dr. Framoroze has 25 years of research experience in the discovery of new active ingredients and biochemical development. He was the founder and CSO of Row2Technologies Inc. and previously served as Executive Director and Board member of Gharda Chemicals Pvt. Ltd and Associate Director of Chemical Discovery of American Cyanamid, Princeton, USA. Dr. Framoroze currently holds the following directorships, supervisory or leading management positions (other than positions in the Company and/or its subsidiaries): Tagros Pvt. Ltd Member of the Scientific Advisory Council 65

67 Tytan Organics Pvt. Ltd Member of the Scientific Advisory Council Crop Health Pvt. Ltd Member of the Scientific Advisory Council Alchem Synton Pvt. Ltd Member of the Executive Board Furthermore, Dr. Framroze has previously held the following directorships, supervisory or leading management positions during the last five years (other than positions in the Company and/or its subsidiaries): Green Earth Industries LLC Research and Development Director Gharda Consultancy Ltd. Member of the Board of Directors Bulkdrugs.com Board Director Ormazd Inc. Board Director & Chief Scientific Officer Shareholdings of the members of the executive management The table below sets out the shareholding and number of options held for each of the members of the executive management of Hofseth BioCare, as of the date of the Prospectus. None of the members of management holds any warrants. Name Shares Options Date of option grant Strike price options (NOK) Option period Sjur Jenssen* 2,458,978 0 N/A N/A N/A Jon Olav Ødegård* 81, , Øystein Omvik* 71, , Lucas Altepost* 2,4300,824 0 N/A N/A N/A Roald Rogne 85, , Dr. Bomi Framroze *personally and through related companies 232,114 19,977 Furthermore, Mr. Framroze has the right to convert USD 6,000 of the future monthly remuneration into shares No member of the management has paid anything for the options Remuneration and benefits to the executive management The salaries and other benefits paid to members of the executive management for the financial year ended 31 December 2012 are set out in the table below. 66

68 (in NOK) Salary Bonus Pension Other allowances Total Sjur Jenssen 1,432, ,500 1,559,500 Øystein Omvik* 368, ,000 Lucas Altepost 1,025, ,000 43,000 1,084,000 Roald Rogne 824, ,000 71, ,000 Dr. Bomi Framroze 3,368, ,368,000 Total 7,017, , ,500 7,306,500 *Through related company Gagn Consulting AS as a temporary resource. Dr. Bomi Framroze is hired as a consultant to the Company, and is entitled to a salary of USD 1,500 per full working-day. Dr. Bomi Framroze s consultancy agreement expires 31 March 2013, however, the Company has the right to terminate the consultancy agreement with 90 days prior written notice. Furthermore, Dr. Framroze has the right to subscribe for 100,000 common shares in the Company at a strike price of NOK 1 per share upon the first commercial sale of any product based on gelatine research. If, during the term of Dr. Framoroze s consultancy agreement, Hofseth BioCare determines that the annual worldwide sale of its iron uptake products exceeds 500 metric tons at a market price of USD 8 per kg. Hofseth BioCare will pay Dr. Framoze USD 250,000. If it is determined that demand for products in iron uptake is less than the above mentioned quantity or price, Hofseth BioCare will pay Dr. Framroze USD 50,000 within 30 working-days of the first approval of claim in US patent application 61/ Hofseth BioCare has not paid any bonuses to its employees in 2009, 2010, 2011 or In the event Hofseth BioCare elects to terminate Mr. Jenssen s employment agreement, Mr. Jenssen has the right to full salary for a period of 6 months. Furthermore, Mr. Ødegård s, Mr. Omvik s, Mr. Jenssen s, Mr. Altepost s and Mr. Rogne s employment agreements contain non-compete clauses that restrict them from being involved in competing businesses for one year from termination of their employment agreements. In the event of termination, Hofseth BioCare is obligated to pay the foregoing individuals full salary for a period of one year, unless Hofseth BioCare chooses to waive the restrictions for parts of or the full one year period. No other members of the management have agreements providing for benefits upon termination of employment. The pensions listed in the table are the pension expenses for the Company, the pensions are not paid to the members of the executive management. Members of the executive management have pension schemes in line with the statutory and obligatory company pension scheme. The health care agreement for management staff has a yearly cost of NOK 2,461 per person Service contracts No members of the Company s administrative management or supervisory bodies have any service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment, except for the normal term of notice of 6 months Loans and guarantees As of the date of the Prospectus, the Company has no outstanding loans or guarantees to any member of the executive management. 67

69 9.4 Employees General The number of employees at year end 2010 was 3 and 15 in As of 31 December 2012, the Company had 23 employees. The number of employees at year end 2010, 2011 and 2012, and at 1 March 2013 is depicted in the table below: Midsund Asker Ålesund Administration Production Administration Administration Sum The number of employees has gradually increased since the Company was founded. As a result of the initiation of production, the Company has found it necessary to retain more workers. The increase in employees is a result of HBC growing from its incorporation without any commercial production, to penetration of the human nutrition market where the Company finds itself today Employee incentive schemes For a description of management incentive schemes, reference is made to Section (Shareholdings of the members of the executive management) and (Remuneration and benefits to the executive management). The Company currently has no incentive schemes for employees and does not plan to introduce such schemes. The pension costs were NOK 28,533 in 2010, NOK 113,925 in 2011 and NOK 186,143 in Pension scheme The Norwegian employees have a pension scheme according to the law on obligatory service pension. Contributions make up 2% of the employee s salary between 1 G and 12 G. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. 9.5 Founders Hofseth BioCare was founded by Roger Hofseth, through his wholly owned company Roger Hofseth AS, in August Corporate governance With the exceptions set out below, the Company complies with the Norwegian corporate governance regime, as detailed in the Norwegian Code of Practice for Corporate Governance Board (the Corporate Governance Code ) published in the Norwegian Code of Practice for Corporate Governance of 23 October The Board of Directors has adopted a corporate governance policy for the Company. The Board of Directors will continuously develop and monitor its corporate governance commitments based on future experience, input from shareholders and the market in general. 68

70 Deviations from the recommendations of the Norwegian Code of Practice for Corporate Governance are described below: HBC is not in compliance with the Corporate Governance Code section 3 due to that the Board of HBC is granted an authorisation to increase the Company s share capital which is valid for a period of two years. The deviation from the Corporate Governance Code relating to the authorisation is due to the Company s compliance with its obligations towards key employees and consultants under the above mentioned option agreements. According to the Norwegian Public Limited Companies Act section 6-41 (2) and the Stock Exchange Regulations, the Company is exempted from the requirement of having an audit committee. However, the Company has implemented in its articles that the Company shall have an Audit Committee whose members shall be appointed by and from the Board of Directors. The Audit Committee shall comprise at least two directors, where the majority of members shall be independent of management and the Company, as that term is defined by applicable laws and regulations, including the Norwegian Code for Corporate Governance. The Board of Directors should also designate one committee member as chairperson. The members of the Audit Committee may not be a member of the management of the Company. The Board of Directors will ensure that the audit committee as a whole at all times has the level of competence in the context of the Company s organisation and activities that is sufficient to carry out the duties of the audit committee. The Company has not established a nomination and remuneration committee, as this is not seen as necessary at this point of time. The Board of Directors will regularly assess whether a nomination and remuneration committee should be established. Please refer to Section 9.2 (Nomination-, audit- and remuneration committee) and for further details. 9.7 Conflicts of interest etc. The Company has entered into agreements with Hofseth AS 39 and Seafood Farmers of Norway AS, whereby the Company is granted the exclusive right to deliveries of bi-products from Roger Hofseth AS and Seafood Farmers of Norway AS. For further description of the agreements, reference is made to Section 9.8 (Related party agreements). Roger Hofseth and Roger Hofseth AS has have furnished guarantees and repurchase agreement of total NOK 34,750,000. For further description of the loan reference is made to Section (Loans and guarantees) and 9.8 (Related party transactions). The Company has an outstanding loan of NOK 5.4 million and trade credits of NOK 5.5 million to Hofseth AS 40. For further description of the loan agreement see Section 9.8 (Related party transactions). Furthermore, several of the Company s leasing agreements are arranged through Handelsbanken Finans AS and Hofseth AS. Reference to Section 9.8 (Related party transactions) is made for further details. To the knowledge of management and the Board of Directors, there are no other potential conflicts of interest between the members of the Board of Directors or the members of the executive management s duties to Hofseth BioCare and their private interests and/or other duties. 39 Hofseth AS is wholly owned by Hofseth International AS. Roger Hofseth, a member of the Board of Directors is CEO in Hofseth International AS, and has indirect ownership of 48% of the shares in the company. 40 Each of Roger Hofseth, a member of the Board of Directors and, Ola Holen, former deputy member of the Board of Directors has an indirect ownership interest in Hofseth AS. Furthermore Roger Hofseth is the CEO and a Board Member of Hofseth AS and Ola Holen is a deputy Board member of Hofseth AS. 69

71 During the last five years preceding the date of this Prospectus, no member of the Board of Directors or the executive management has: had any convictions in relation to fraudulent offences; been officially publicly incriminated and/or sanctioned by any statutory or regulatory authorities (including designated professional bodies) or been 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 the affairs of a company; or been associated with any bankruptcy, receivership or liquidation. There is no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any member of the Board of Directors and the executive management has been selected. There are no family relationships between any members of the Board of Directors and the members of the executive management. 9.8 Related party transactions The Group has carried out a number of transactions with associate companies. All transactions were carried out as part of its ordinary activities, same for the Company s transaction with Roger Hofseth AS on 17 December 2009, and at arm s length prices. Hofseth BioCare has had the following related party transactions since 2009: Transactions with former related parties: On 20 November 2009, Hofseth AS and the Company entered into an agreement whereby the Company was granted the right to receive deliveries of a quantity of up to 16,000 tons of bi-products from Hofseth AS in the period , with an option to extend the right until the entire quantity is taken out. The option has been exercised. The total value of the right of the agreement is NOK 24 million. On 20 November 2009, Seafood Farmers of Norway AS and the Company entered into an agreement whereby the Company was granted the right to receive deliveries of up to 8,000 tons of bi-products from Seafood Farmers of Norway AS in the period , with an option for extension of the until the entire quantity is taken out. The option has been exercised. The total value of the right of the agreement is NOK 12 million. The remuneration for the rights to receive bi-products from Seafood Farmers of Norway AS and Hofseth AS was settled by way of conversion to shares in the Company in Se Section (Development in 2010) for further description. The right to receive deliveries of bi-products as described above implies a price of NOK 1.50 per. kg, which corresponds to the expected market price at the conclusion of the contract. Both agreements have been approved by the General Meeting of the Company. Hofseth AS and Seafood Farmers of Norway used the remuneration under the above mentioned contracts to subscribe for shares in the Company in November On 17 December 2009, Roger Hofseth AS and the Company entered into an agreement whereby the Company purchased property with appurtenant equipment, patents and certain fixtures and fittings from Roger Hofseth AS. The Company paid a total purchase price of NOK 20 million for the purchased assets. The agreement has been approved by the General Meeting of the Company. 70

72 On 28 June 2010, the Company entered into an agreement with Roger Hofseth regarding a Volvo XC 90. The purchase price paid by the Company was NOK 600,000 and the purpose of the purchase was to provide Hofseth BioCare s Plant Manager, Mr. Brauten, with a company car, which he was entitled to according to his employment agreement. In 2010, Roger Hofseth AS and Paso AS 41 invoiced Hofseth BioCare NOK 500,000 (including VAT), and NOK 750,500 (including VAT), respectively. Hofseth BioCare did not have a management in 2010 and Roger Hofseth AS and Paso AS provided the necessary management service. The Company has entered into loan agreement with shareholders as follows: Shareholder Loan Exp. Date Interest rate Hofseth AS (five loans) 8,183, month NIBOR + 6% Hofseth International AS 1,000, month NIBOR + 6% Lennart F Clausen 1,000, month NIBOR + 6% Tor Erik Solevåg* 500, % Entrans Invest AS* 2,000, % Swelandia International AB (three loans) 6,250, month NIBOR + 10% Björknäs Trä AB (SEK 2,000,000) 1,709, month NIBOR + 10% Kullhagsbacken AB (two loans) 1,750, month NIBOR + 10% Uberlandia AB 500, month NIBOR + 10% Initia AB 1,125, month NIBOR + 10% * Converted in relation with the Private Placement completed 1 March Several of the loan agreements were renegotiated in March The renegotiation includes a partial repayment to Jan Pettersson (controls Swelandia International AB, Björknäs Trä AB, Kullhagsbacken AB and Initia AB) of NOK 3 million. Roger and Lennart will receive a partial repayment of NOK 2 million, which is to be allocated according to further agreement between the two parties. The Company and Sinkaberg-Hansen AS ( SBH ) have entered into a main agreement (the Main Agreement ) regarding the establishment of Hofseth BioCare Rørvik AS. Hofseth BioCare Rørvik AS is a new production company that will refine fish off-cuts from SBH and the surrounding fishing industry to omega-3 oils, protein- and calcium products. The agreement was approved by the General Meeting in October According to the Main Agreement, each of Hofseth BioCare (51%) and Sinkaberg-Hansen AS (49%) shall contribute its proportionate share of the equity that appears necessary to finance the acquisition and installation of production equipment to Hofseth BioCare Rørvik AS (the Funding Commitment ). On the basis of the 41 Paso AS is wholly owned by Ola Holen, a former deputy member of the Board of Directors. 71

73 parties' agreed distribution of stock ownership in HBC Rørvik HBC's proportionate share of the Funding Commitment represents 51%. The parties have estimated that the above-mentioned investment in the necessary equipment to HBC Rørøvik will amount to a total of approximately NOK 65 million. The parties expect that the main portion of the Funding Commitment will be in the form of third party debt financing or leasing. Purstuant to the Main Agreement, Hofseth Biocare Rørvik AS activities shall take place in a new production facility in Rørvik. The parties have agreed that Sinkaberg-Hansen AS shall finance the production premises and that Hofseth BioCare Rørvik AS will enter into a lease agreement with Sinkaberg-Hansen AS for the use of such premises. In addition, the parties have agreed that Hofseth BioCare Rørvik AS will enter into a supply agreement with Sinkaberg-Hansen AS where Hofseth BioCare Rørvik AS is granted an exclusive right and obligation to buy all the fish off-cuts Hofseth BioCare Rørvik AS needs for its production from Sinkaberg-Hansen AS and its group companies. Sinkaberg-Hansen shall secure that all fish off-cuts it has access to from the Trondheim region and the region of north Norway is delivered to the Hofseth BioCare Rørvik AS as long as Hofseth BioCare Rørvik AS has available capacity to receive such fish off-cuts. The starting price for the fish off-cuts is NOK 1.80 per kg for the first 12 months from the start of normal production. The price for fish off-cuts for the next 12 months is adjusted according to the consumer price index calculated from the time of establishment of normal production at the Rørvik factory. Furthermore, it follows from the Main Agreement that Hofseth BioCare Rørvik AS will enter into an agreement with the Company regarding purchases of selected management functions and services and the right to use of intellectual property rights. In return, the Company will receive 25% of Hofseth BioCare Rørvik AS gross turnover. In the event that Hofseth BioCare Rørvik AS net result is negative, the payment for the above mentioned services will be postponed until Hofseth BioCare Rørvik AS obtain a positive net result. The balance sheet includes the following amounts resulting from related party transactions: Land, buildings and other real estate - 3,500 Machines and equipment 3,666 17,740 Patents, licences, etc - 1,764 Rights relating to raw materials, non-current - 26,250 Rights relating to raw materials, current - 9,750 Share capital - -36,000 Non-current liabilities 6,700 - Leasing liabilities 6,245 2,638 Total current liabilities 160-1,347 Cost of sales Financial expenses Total 17,458 24,295 Roger Hofseth AS, controlled by Board member Roger Hofseth, has in 2011, 2012 and 2013 invoiced the Company for consultancy and operational services provided, amounting to a total of NOK 937,000. The following members of the management and the Board of Directors have bought and sold shares in Hofseth BioCare the 12 months prior to the date of this Prospectus: 72

74 Name/Position Type of transaction Date Number of Shares Price per share (NOK) Roger Hofseth / Member of the Board Roger Hofseth / Member of the Board Roger Hofseth AS sold shares to Sinkaberg-Hansen As , Roger Hofseth AS purchased shares , Sjur Jenssen / CEO Sjur Jenssen purchased shares , Kjetil Olsen / Chairman Kjetil Olsen / Chairman Roger Hofseth / Member of the Board Roger Hofseth / Member of the Board Jon Olav Ødegård / new CEO Sjur Jenssen / CEO Kjetil Olsen / Chairman Roger Hofseth / Member of the Board Ola Holen / Deputy Member of the Board Sjur Jenssen / CEO Jon Olav Ødegård / new CEO Øystein Omvik /CFO Lucas Altepost / Sales Director Roald Rogne / Production Manager Midsund Bomi Framrose / R&D Manager Trols AS (company owned by Kjetil Olsen) purchased shares Trols AS (company owned by Kjetil Olsen) purchased shares Roger Hofseth AS (company wholly owned by Roger Hofseth) purchased shares Dr. Bomi Framroze and Roger Hofseth agreed that Dr. Bomi Framroze would receive 200,000 shares from Roger Hofseth in exchange for the 200,000 share Dr. Bomi Framroze will receive when the share issue has been registered with the Register of Business Enterprises Ødegård Prosjekt AS (company owned by Jon Olav Ødegård) purchased shares Sjur Jenssen transferred shares to Smart Investments AS (company wholly owned by Sjur Jenssen) Kjetil Olsen subscribed for and were allocated shares in the Private Placement through related company Trols AS Roger Hofseth subscribed for and were allocated shares in the Private Placement directly and through related company Roger Hofseth AS Ola Holden subscribed for and were allocated shares in the Private Placement directly and through related company Paso AS Sjur Jenssen subscribed for and were allocated shares in the Private Placement through related company Smart Investments AS Jon Olav Ødegård subscribed for and were allocated shares in the Private Placement through related company Ødegård Prosjekter AS Øystein Omvik subscribed for and were allocated shares in the Private Placement through related company Prisma Consult AS Lucas Altepost subscribed for and were allocated shares in the Private Placement through related company Altepost AS Roald Rogne subscribed for and were allocated shares in the Private Placement Bomi Framrose subscribed for and were allocated shares in the Private Placement , , , ,000 N/A , , , ,769, , , , , , , ,

75 10 OPERATING AND FINANCIAL INFORMATION The following section presents selected financial information derived from the Group s audited consolidated financial statements (including the notes thereto) as of, and for the years ended, 31 December 2009, 2010 and 2011 (the Financial Statements), as well as the unaudited interim consolidated financial information as of, for 12 months ended, 31 December 2011 and 2012, and the fourth quarter results from 2011 and The financial statements are made in Norwegian and English. The financial statements for 2009, 2010 and 2011 were audited by Hofseth BioCare s auditor, KPMG, independent accountants. The Financial Statements have been prepared in accordance with IFRS as adopted by the EU. The Interim Financial Information, combined with relevant information in the financial review, has been prepared in accordance with IAS 34. A summary of the key financial information is shown below. (NOK 1,000) Q4 12 (unaudited) Q4 11 (unaudited) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Revenue... 6, ,015 1, EBITDA ,594-5,795-49,007-21,594-12, EBIT ,682-7,343-56,720-24,319-12, Net financial items... -1, ,076-1, Earnings per share (NOK) Net cash flow from operation activities... -4,189-3,267-37,564-19,470-12,521-4,058 Total assets (period end) , , , ,366 94,557 29,921 Total liabilities (period end) ,519 37, ,519 37,480 18,591 30,172 Total equity (period end)... 76, ,526 76, ,526 75, Equity ratio Summary of significant accounting policies The Group s significant accounting and measurement policies may be viewed by visiting the Company s website. Please see note 1 in the Annual Report 2011 for a comprehensive version of Hofseth BioCare s significant accounting principles, pages 28-32, by using the following link: The Company reports in accordance with IFRS, as adopted by the EU Historical financial information The following section presents a summary of the consolidated audited historical financial information for Hofseth BioCare for the accounting years 2009, 2010 and 2011, the unaudited interim consolidated financial information for the 12 months ended 31 December 2012 and the comparable period for 2011, as well as the unaudited results from the fourth quarter of 2012 and

76 Income statement (NOK 1,000) Q4 12 (unaudited) Q4 11 (unaudited) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Operating revenues Sales revenue... 6, ,015 1, Cost of goods sold... 10, , Payroll expenses... 4,145 2,773 16,308 8,325 6, Other operating expenses... 10,308 3,141 33,505 13,990 6, EBITDA ,594-5,795-49,007-21,594-12, Depreciation /Write-down... 2,088 1,549 7,713 2, Operating results (EBIT) ,682-7,343-56,720-24,319-12, Net financial items... -1, ,076-1, Profit/Loss before taxes ,286-7,823-61,796-25,714-13, Estimated taxes... -6,173-1,456-17,222-6,680-3, Total comprehensive income ,113-6,368-44,574-19,034-9,

77 Balance sheet (NOK 1,000) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Intangible assets... 40,706 38,955 28,048 1,906 Deferred tax assets... 28,696 11,528 3,794 - Property, plant and equipment... 71,431 67,103 47,584 19,300 Financial fixed assets Total non-current assets , ,122 80,004 21,206 Inventories... 6, Receivables... 16,495 4,773 2,290 7,888 Other current assets... 17,315 16,500 9,750 - Cash and cash equivalents... 2,165 18,548 2, Total current assets... 42,077 40,245 14,553 8,714 Total assets , ,366 94,557 29,920 Share capital... 57,164 57,164 38, Share premium account and other equity deposits... 19,061 63,251 46,958 - Uncovered losses , Non-controlling interest Total equity... 76, ,526 75, Non-current liabilities interest bearing... 34,721 16, Provisions ,500 - Finance leasing liabilities ,499 2,932 - Total non-current liabilities... 34,721 22,413 4,432 - Interest-bearing loans, leasing and borrowings... 33,868 1,159 5,500 - Other current liabilities... 38,930 14,268 8,658 30,172 Total current liabilities... 72,798 15,427 14, Total equity and liabilities , ,366 94,557 29,920 76

78 Cash flow statement (NOK 1,000) Q4 12 (unaudited) Q4 11 (unaudited) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Cash flow from operational activities Profit before taxes ,286-7,823-61,796-25,714-13, Depreciation... 2,088 1,549 7, Write down fixed assets , Change in inventory... -3, , Changes in trade receivables... -1, , Changes in trade payables... 9,718 2,238 19, Changes in other current items... 11, ,212 1, ,168 Net cash flow from operational activities... -4,189-3,267-37,564-19,470-12,521-4,058 Cash flow from investing activities Investments in tangible fixed assets ,157-7,930-28,013-24,170-21,064 Changes in trade creditors ,000-5,649 1,244 Investments in financial fixed assets Investments in intangible fixed assets ,126-1, Other investments ,229-1 Net cash flow from investing activities... -5,808-12,157-18,863-30,125-19,784-19,821 Cash flow from financing activities Issuance of share capital... 36,388-55,911 28,416 24,295 Payment of premium... -6, , Borrowings... 1,361 33,506 14,111 5,500 - Other financing activities , Net cash flow from financing activities... Net change in cash and cash equivalents... Cash and cash equiv. at the beg of the period... Cash and cash equiv. at the end of the period... 6,540 31,669 40,045 65,631 33,916 24,705-3,457 16,246-16,382 16,036 1, ,623 2,303 18,548 2, ,166 18,549 2,166 18,549 2,

79 Statement of changes in equity (NOK 1,000) Q4 12 (unaudited) Q4 11 (unaudited) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Equity at start of period... 92,339 94, ,526 75,968 24, Employee share option scheme , Acquisition of Cromi , Acquisition of subsidiary with noncontrolling interest Issue ,266-49, Issue ,001 - Paid in from minority interest Comprehensive Income for the period ,113-6,371-44,574-19,034-9, Equity at end of period... 76, ,526 76, ,526 75, Segment information The factory in Midsund commenced commercial production in Q Hofseth BioCare produces Soluble Protein (SPH), Insoluble Protein (PHP), Omega-3 oil and Calcium at the plant in Midsund. The products are based on fresh cut-offs from the Norwegian salmon fish farming and pelagic processing industries. The futures target markets will be Human health and nutrition, Animal health and nutrition and Fermentation. The main target products are: 1. Salmon oil Salmon oil is higher in DPA than most other omega-3 oils and ideal for human consumption. It is free of contaminants, with practically no taste and odour and will also be available with high EPA/DHA concentrations. 2. Soluble protein hydrolysate (SPH) SPH is highly concentrated and digestible, free of contaminants and high in essential AA. The SPH has indications on increased iron uptakes (tested on animals) and weight management as some of the applications areas. 3. Marine calcium Marine calcium has a calcium-to-phosphorous ratio similar to the human skeleton, and is therefore useful in nutraceutical products. There are indications that this marine calcium has better bioviability than currently available calcium supplement. 4. Partly hydrolysed protein (PHP) PHP has a good AA profile, significant phospholipids levels. Powder is particularly suited as a protein fortifier in foods and feeds Further, the management expects to primarily issue reports for geographical operation segments, secondary segments will finally be at the product level. 78

80 (NOK 1,000) Q4 12 (unaudited) Q4 11 (unaudited) 2012 (unaudited) 2011 (audited) 2010 (audited) 2009 (audited) Per product Commission sales Salmon oil... 3, , Protein... 2, , By-product Total... 6, , , Geographical distribution Norway Europe ex. Norway... 6, USA , Total... 6, , , Operating and financial review Development quarter ended 31 December 2012 (corresponding period 2011) Operating results Hofseth BioCare had operating revenues of NOK 6,394 thousand (NOK 233 thousand) in the fourth quarter of There was limited commercial production in fourth quarter of It was a reduction from the third quarter 2012 where the operating sales amounted to NOK 11,495 thousand. The main reason for the reduction was a destruction of approximately 50% of the volumes of SPH produced in October. The destruction was due to measurements indicating bacterial levels above defined maximum levels. The destruction was estimated to affect the revenues in the fourth quarter with negatively by approximately NOK 3,000 thousand. Total operating expenses amounted to NOK 24,987 thousand in the period, compared to NOK 6,208 thousand in the fourth quarter of The expenses were influenced by one-off expenses by approximately NOK 2,500 thousand. Operating profit (EBIT) for the fourth quarter of 2012 was NOK -20,682 thousand (NOK -7,343 thousand). Depreciation amounted to NOK 2,088 thousand in the quarter. Ordinary depreciation for the corresponding period last year was NOK 1,549 thousand. Net financial items in the fourth quarter were NOK -1,604 thousand (NOK -480 thousand). Results before tax ended at NOK -22,286 thousand in the period, compared to NOK - 7,823 thousand during the fourth quarter of 2011.The low margin was due to generally low sales volumes and a relative high share of actual sales going to animal food markets. Penetration into the human consumption markets is time consuming. However, HBC experienced a positive development with a continuous increase in sales volumes into these markets the first six months. There are challenges in the production processes, including variation in EPA/DPA levels in the raw material which has been a challenge throughout the entire year. Balance sheet Total assets for the Company were NOK 183,744 thousand at the end of 2012 (NOK 158,366 thousand). The Company has bought the right to all by-products from the production taking place at Seafood Farmers of Norway AS and Hofseth AS. This exclusive right was in 2010 converted to share capital and defined as an intangible asset. Further investments in property, plant and equipment have increased the book value of the assets. Total equity amounted to NOK 76,225 thousand (NOK 120,526 thousand), giving an equity ratio of 42% (76%). As of 31 December 2012, the Company had cash and cash equivalents of NOK 2,165 thousand (NOK 18,548 thousand). At year end 2012, the Company had NOK 34,721 thousand (NOK 22,413 thousand) in long-term 79

81 interest-bearing debt and NOK 33,868 thousand (NOK 14,268 thousand) in current interest-bearing loans, leasing and borrowings. Total assets for the Company were NOK 139,436 thousand at the end of third quarter of 2012 (NOK 104,204 thousand). Further investments in property, plant and equipment have increased the book value of the assets by NOK 8,200 thousand. Total equity amounted to NOK 92,339 thousand (NOK 94,648 thousand), giving an equity ratio of 52% (75%). To strengthen the liquidity and to further invest in improving the production processes, loans were issued by Swedbank amounting to NOK 10,000 thousand and Innovasjon Norge amounting to NOK 5,000 thousand. Further shareholders loans amounted to NOK 21,000 thousand. Cash flow Cash flow from operations during the fourth quarter was NOK -4,189 thousand, compared to NOK -3,276 thousand in the same quarter the previous year. Net cash flow from investment activities was NOK -5,808 thousand in the fourth quarter of 2012, compared to NOK -12,157 thousand for the same period the previous year. Cash flow from financing activities amounted to NOK 6,540 thousand in the fourth quarter of 2012, compared to NOK 31,669 thousand in the fourth quarter of Development 2012 (2011) Operating results The Company s main products are SPH and Salmon oil. It has been proven more challenging for the Company to obtain the designed yield and product quality for SPH than previously expected. The challenges are mainly related to the separation of raw material into different production fractions. During the second and the third quarter, initiatives, including changes in production process and equipment, were implemented without delivering desired effects. Consequently the production team realised that more severe actions were required. Therefore during the fourth quarter and until mid February 2012, preparation and installation of new equipment were in place. The results are promising resulting in higher yield for SPH. The low operating revenues is not a satisfying level. The Company has not been able to address the human consumption market as planned as a result of the quality issues. The investments taken during second half and running into 2013, combined with investments in a quality organisation, are actions taken in order to increase the sales to the nutrition market with significant higher prices. These challenges have made penetration of the market relatively time consuming for the Company. During 2012, Hofseth BioCare had total operating revenues of NOK 26,015 thousand (NOK 1,183 thousand). HBC started commercial production in the fourth quarter of Operating expenses as per 2012 amounted to NOK 75,022 thousand (NOK 22,077 thousand), leaving EBITDA for the period at NOK -49,007 thousand (NOK -24,319 thousand). Net financial items ended at NOK -5,076 thousand (NOK -1,395 thousand), leaving profits before tax at NOK -61,796 thousand (NOK -25,714 thousand). Total loss after estimated taxes as per end of 2012 was NOK 44,574 thousand, compared to a loss of NOK 19,035 thousand for the corresponding period of Balance sheet Total assets for the Company were NOK 183,744 thousand at the end of 2012 (NOK 158,366 thousand). The Company has bought the right to all by-products from the production taking place at Seafood Farmers of Norway AS and Hofseth AS. This exclusive right were in 2010 converted to share capital and defined as an intangible asset. Further investments in property, plant and equipment have increased the book value of the assets. Total equity amounted to NOK 76,225 thousand (NOK 120,526 thousand) giving an equity ratio of 42% (76%). As of 80

82 31 December 2012, the Company had cash and cash equivalents of NOK 2,165 thousand (NOK 18,548 thousand). At year end 2012, the Company had NOK 34,721 thousand (NOK 22,413 thousand) in long-term interest-bearing debt and NOK 33,868 thousand (NOK 14,268 thousand) in current interest-bearing loans, leasing and borrowings. Cash flow statement During the year, cash flow from operations was NOK -37,564 thousand (NOK -19,471 thousand). Full year 2012 cash flow from investments was NOK -18,863 thousand, compared to NOK -30,125 thousand during During the year, the Company had a net cash flow from financing activities of NOK 40,045 thousand (NOK 65,631 thousand). Cash and cash equivalents decreased by NOK 3,457 thousand during the quarter, leaving total holding of cash and cash equivalents at NOK 2,166 thousand by the end of the period. From year end 2011, holdings of cash and cash equivalents were reduced by NOK 16,382 thousand. To improve logistics and liquidity, parts of Hofseth BioCare s deliveries to the US market are sold via warehouse companies before final delivery to distributors Development quarter ended 31 December 2011 (corresponding period 2010) Operating results The Company had operating income of NOK 233 thousand (NOK 88 thousand) in the fourth quarter Sales in 2010 represents commission sales from related parties Hofseth AS and Seafood Farmers of Norway AS. Total operating expenses amounted to NOK 6,028 thousand (NOK 7,778 thousand) in the fourth quarter There was no commercial production in Operating profit (EBIT) for the fourth quarter 2011 was NOK -7,343 thousand (NOK -7,765 thousand). Depreciations amounted to NOK 1,549 thousand in the quarter (NOK 76 thousand). Net financial items in the fourth quarter were NOK 480 thousand (NOK 120 thousand). The difference is mainly due to leasing of production equipment and build up of the factory. Profit before tax in the fourth quarter of 2011 ended at NOK -7,823 thousand (NOK 7,886 thousand). Balance sheet As at 31 December 2011, Hofseth BioCare s total balance stood at NOK million (NOK million). The increase is partly due to investments related to the completion of the Midsund production facility, in addition to the Cromi merger. The investments are largely financed by means of bank loans, leasing agreements and new equity. Equity totalled NOK million (NOK million) at the close of 2011, which corresponds to an equity ratio of 76% (80%). As at 31 December 2011, the Group had cash and cash equivalents of NOK million (NOK 2.51 million). At the close of 2011, the Group had NOK million (NOK 2.93 million) in long-term interest-bearing debt and NOK 1.16 million (NOK 5.50 million) in short-term interestbearing debt. Cash flow Operating activities for the fourth quarter 2011 generated a cash flow of NOK -3,267 thousand. Investing activities for the fourth quarter 2011 generated a cash flow of NOK -12,157 thousand. Financing activities generated NOK 31,669 thousand in the fourth quarter of Cash and cash flow at the end of the fourth quarter 2011 were NOK 18,549 thousand. The cash flow statement showed a positive cash flow due to the issuing of new share capital during 2011, in addition to borrowings and loans from existing shareholders Development in 2011 (2010) Operating results The Group generated gross operating revenues of NOK 1.18 million in 2011 (NOK 0.17 million). The Company started commercial production of salmon oil in the fourth quarter of Operating expenses totalled NOK 25.5 million (NOK 13.1 million) in The expenses are largely related to consultancy fees and travelling, in 81

83 addition to costs relating to the leasing of production equipment at its plant. The Group made an operating loss of NOK million (NOK million) in Net financial items totalled NOK million (NOK ) in The Group made a loss before tax of NOK 25.7 million (NOK million). The Company had tax income of NOK 6.68 million (NOK 3.65) in 2011, such that the Company s net loss for the year totalled NOK million (NOK -9.39). Balance sheet As at 31 December 2011, Hofseth BioCare s total balance stood at NOK million (NOK million). The increase is partly due to investments related to the completion of the Midsund production facility, in addition to the Cromi merger. The investments are largely financed by means of bank loans, leasing agreements and new equity. Equity totalled NOK million (NOK 75.95) at the close of 2011, which corresponds to an equity ratio of 76% (80%). As at 31 December 2011, the Group had cash and cash equivalents of NOK million (NOK 2.51 million). At the close of 2011, the Group had NOK million (NOK 2.93 million) in long-term interest-bearing debt and NOK 1.16 million (NOK 5.50 million) in short-term interest-bearing debt. Cash flow statement The Group s cash flow from operating activities totalled NOK million in 2011 (NOK million the year before). The change in net cash flow is attributable to higher operating expenses in the income statement. Net cash flow from investing activities totalled NOK million (NOK million). The higher level of investments relates to the completion of the production facilities at Midsund. Net cash flow from financing activities totalled NOK million (NOK 33.92) in The change is primarily related to capital increases, which came to NOK million during the year Development in 2010 Operating results As in 2009, the factory was under construction. Compared to 2009, the Company had operating revenue of NOK 171 thousand in 2010, due to commission sales from related parties Hofseth AS and Seafood Farmers of Norway. Consolidated profit after tax showed a deficit of NOK thousand, compared with a deficit of NOK 748 thousand in The negative result in 2010 is mainly due to payroll expenses and leasing costs from equipment installed in the production building. Balance sheet Total assets for the Company were NOK 94,557 thousand as at 31 of December The Company has bought the right to have all bi-products from the production taking place at Seafood Farmers of Norway AS and Hofseth AS. The exclusive right for deliveries of bi-products, from Roger Hofseth AS and Seafood Farmers of Norway AS, has been converted to share capital and defined as an intangible asset. Further investments in property, plant and equipment have increased the book value of to NOK 47,584 thousand in 2010, up from NOK 19,300 thousand in Equity capital is NOK 75,968 thousand which gives an equity ratio of approx 80%. Interestbearing debt of NOK 5,500 thousand is a loan from Innovation Norge. Cash flow statement As in 2009, the cash flow statements of 2010 show a negative cash flow from both operational activities and investing activities, NOK 12,445 thousand and NOK 19,784 thousand respectively. Negative cash flow was mainly financed by issuance of share capital and external borrowing and leasing from banks. The investing activity was related to the build-up of the factory and production equipment 82

84 Development in 2009 Operating results The Company was founded in August There was no operating revenue in 2009 due to the setup of the factory. Consolidated profit after tax showed a deficit of NOK 748 thousand. The negative result is mainly due to payroll expenses. Balance sheet Total assets for the Company were NOK 29,920 thousand as at December The assets are mainly explained by the acquisition of property, plant and production equipment from the bankruptcy estate of Green Earth Industries LLC, which was acquired from Roger Hofseth AS. Equity was negative NOK 252 thousand which gave an equity ratio of approx 0%. There was no interest-bearing debt. Other current liabilities apply to purchase of rights for bi-products from Seafood Farmers of Norway AS and Hofseth AS. The purchase value is not recognised in The right is capitalised and cost of it will be accrued during the contract period. As a calculation of the distribution of cost, the outlet of kg bi-products will be used as a distribution formula. Cash flow statement The cash flow statements show a negative cash flow from both operational activities and investing activities of NOK 4,058 thousand and NOK 19,821 thousand respectively. The investment activity is mainly relating to the acquisition of the production facility on Midsund, further described in Section 9.8 (Related party transactions). Negative cash flow is mainly financed by issuance of share capital and external debt financing from bank. The investing activity is related to the build-up of the factory and production equipment Property, plant and equipment The table below sets forth the net book value of the Company s tangible fixed assets as per the past four financial years. (NOK 1,000) Plant and equipment Machines and equipment* Fixtures and fittings Total Closing balance at ,393 14, ,300 Closing balance at ,487 31, ,584 Closing balance at ,610 47,787 2,706 67,103 Closing balance at ,044 51,096 3,291 71,431 *Machines and equipment include leased production equipment. See Section (Historical investments ) for further details, See Section 10.6 (Investments) for more details of the Company s investments in property, plant and equipment. In connection with the investments in plant and equipment, machine and equipment, the Company has pledged assets (property mortgages) on NOK 26 million, which corresponds to the Company s long-term debt to Innovasjon Norge and Swedbank. The long term debt is secured by the Company s fixed assets, which include all real estate properties, including fixtures, and any equipment, machinery, plant, production facilities or other tangible asset owned by the Group which relates to the Company s activities. The work carried out to perform adjustments in the production process in order to further improve yield and quality in 2012 is the reason for the enhanced value of the Company s tangible assets. It was mainly investments in machines and equipment that increased in value from year 2011 until December

85 Tons Hofseth BioCare The total capacity is expected to be at a level of 400 tons per week as maximum or between 19,200 and 20,800 tons per year. Total capacity here is for the whole production capacity at Midsund. The installed centrifuge can process the 400 tons per week. Below is a graph depicting tons of raw materials processed in Tons of raw-material processed Week Source: Company data 10.6 Investments Historical investments The table below shows the Company s investments fixed assets such as property, plant and equipment for the period from the Company was incorporated in August 2009 to 31 December Plant and equipment are mainly related to the purchase of the Midsund factory and the spray dryer at Berkåk. Main investment in machines and equipment is operation- and production related machines, such as mills, tanks, pipes, decants, HW and SW. 84

86 (NOK 1,000) Plant and equipment Machines and equipment Fixtures and fittings Total Balance at Additions... 4,393 14, ,300 Impairment loss Depreciation Balance at ,393 14, ,300 Balance at ,393 14, ,300 Additions... 11,095 16, ,360 Impairment loss Depreciation Balance at ,487 31, ,584 Additions... 2,999 18,724 2,199 23,922 Government grants... 1, ,000 Impairment loss Depreciation , ,403 Balance at ,610 47,787 2,706 67,103 Additions ,464 1,271 11,710 Impairment loss Depreciation , ,023 Balance at ,044 51,096 3,291 71,431 Additions , ,193 Impairment loss Balance at ,903 55,801 3,389 76,101 Economic life years 10 years 3-10 years Method of depreciation... straight line straight line straight line Leased equipment is part of machines and equipment. The total carrying amount of leased production equipment was NOK 0 thousand at 31 December 2009, NOK 4,190 thousand at 31 December 2010, NOK 7,529 thousand at 31 December 2011 and NOK 11,410 thousand at 31 December After , the leased production equipment looks as follows: 85

87 (in NOK) Cost Number of years Implemented Depr 2011 Book value Depr 2012 Book value Washer 900, , , , ,000 HW sattline 600, , , , ,000 Decant 2,689, ,741 2,605, ,218 2,268,782 RCA analysis equipment 814, , , , ,200 Refrigerated container 1,252, ,000 1,189, , ,600 Processor 534, , , , ,200 Compressor 263, , ,000-87, ,333 Blood water facility 803, , , , , ,855, ,741 7,529, ,484 6,124,516 Hydrolysate tank no , , ,325 Processor for fish 262, , ,285 Drying 4,700, ,289 4,417, ,587,591-1,850,670 11,410,180 Centrifugation 3,500, Total cost 24,943,332 The investments made in 2010 are related to the purchase of and the development of the factory at Midsund and related production equipment. There were significant investments in plant and equipment, and machines and equipment in 2011 due to the finalising of the Midsund plant. The Company received an investment grant of NOK 3 million in The grant was recognised in the profit and loss account in accordance with the depreciation cost of the project investment. Investments in 2012 relates mainly to completion of the Midsund plant. In January 2013, the acquisition of Tine s spray dryer at Berkåk was completed in the related company HBC Berkåk AS. Through this acquisition, HBC has secured drying capacity for its entire production at Midsund. HBC entered into an agreement to acquire Tine s spray drying facility at Berkåk in March 2012, and the takeover took place 7 January The acquisition amounted to NOK 15 million. The Berkåk transaction was financed through a loan of NOK 6 million from Sparebank 1 SMN Rennebu maturing in 12 years (3 month NIBOR %) and equity of NOK 3.2 million. Approximately 9% of Berkåk is currently owned by external investors. HBC has the right to buy the outstanding shares in Berkåk by 31 December 2014, whereas the investors have the right to sell the shares for NOK 3.3 million either the 31 December 2014 or in relation to the Private Placement recently completed. The facility at Berkåk is conveniently located for good logistics and low production costs. Dryer for protein, storage and a packaging area are already in place. Berkåk is currently utilised for the sole purpose of spray drying the SPH production from Midsund. Berkåk has an estimated operating cost of NOK 12 million per year, and will receive revenues from the drying of the protein from Midsund. The batches of SPH already handled at 86

88 Berkåk show a significant quality improvement to the SPH products compared to when the drying process was handled externally. However, the factory area is vast and the building premises contain a significant area off free space. Options are currently being explored by HBC concerning how to employ the available space, although no firm commitments have been made. An ambition is to make Berkåk the Company s third production facility in order to expand the Company s production. An alternative is to base production on off-cuts from pelagic fish. This production will be founded on the existing technology which can be found at Midsund, but use pelagic fish as input instead. Pilot tests with pelagic raw material have been completed, and show promising results. The category machine and equipment has increased relatively higher than the other groups. This is due to the challenge of finetuning the production process. Therefore additional equipment has been invested in order to improve the process. Some of the equipment is leased via a leasing company. The terms are in general like 60 month lease period, nom 5.85% p.a. See table above for information. The table below shows the Company s investments in intangible assets, such as patents, market database, rights to raw material, other, and goodwill for the period from the Company was incorporated in 2009 to 31 December

89 (NOK 1,000) R&D Trade- marks Patents Market database Other Goodwill Rights to raw materials Total Balance at Acquisitions , ,000 37,764 Amortisation and impairment Balance at , ,000 37,764 Balance at , ,000 37,764 Acquisitions Amortisation and impairment Balance at , ,000 37,798 Balance at , ,000 37,798 Acquisitions ,632 3,500 1,068 7, ,658 Proprietary R&D... 6, ,346 Disposals ,025 1,025 Amortisation and impairment , ,322 Balance at , ,264 3, ,458 34,975 55,455 Balance at , ,264 3, ,458 34,975 55,588 Acquisitions... 6, ,297 Disposals Amortisation and impairment ,235 8,879 Balance at , ,970 3, ,458 26,740 53,006 Acquisitions Disposals Amortisation and impairment ,145 Balance at , ,909 3, ,458 25,916 52,260 Economic life years 10 years 10 years 10 years ½ year *) straight Method of depreciation... line straight line straight line straight line straight line *) Rights to raw material and corresponding liabilities are presented in the net financial statements. Deliveries expected delivered the next twelve months is classified as current assets in the financial statements. On 9 February 2011 the Board of Directors of Hofseth BioCare ASA and Cromi AS confirmed an agreed merger by signing a merger plan. The merger plan was approved by the Board of Directors of Hofseth BioCare ASA and 88

90 an extraordinary general meeting of shareholders of Cromi AS on 24 February The owners of Cromi received a total of 4,629,256 shares in Hofseth BioCare AS, each valued at Cromi AS owners received a total consideration equivalent to NOK 12 million. The main reason behind the acquisition was to gain access to the company s highly skilled employees, and its assets. Cromi offered consultancy services with respect to market intelligence, market development and production development within the health food and dietary supplement sector. Cromi was building up an international business network, which has resulted in a market database containing information about more than 600 companies operating in this sector. In addition, Cromi was working on its own development projects. At the time of the merger, Cromi had spent 8 months preparing the documentation for a patent application relating to a method (technology) for increasing the concentration of omega-3 in salmon oil. Goodwill relates to the acquisition of Cromi AS. Goodwill comprises the difference between nominal and discounted amounts in terms of deferred tax, synergy effects, organisational value and key personnel and their expertise. Goodwill is not depreciated, but HBC performs an annual impairment test to determine whether there is any write down requirement. Regarding the merger with Cromi AS, there was performed a valuation of certain intangible assets (e.g. market database, customer relationship, technology). The residual of the purchase price was defined as goodwill, including assembled workforce, trade name and buyer specific synergies. The key objective of R&D is to develop new methods for full production controlled salmon bi-product refinement up to high-end ingredients for human application, divided into the following steps: 1. Develop methods for enzymatic hydrolysis of salmon off-cuts at low temperatures. 2. Develop procedures to prevent oxidative and microbial deterioration of the salmon products throughout the entire value chain. 3. Optimise the process and technology to produce high-quality product fractions of protein, calcium and fish oil. 4. Identify new bioactivity of salmon hydrolysis products. 5. Document biosafety, bioavailability and biological affect through in vitro and in vivo studies Ongoing investments HBC completed a NOK 4.7 million investment in February 2013, which led to the instalment equipment for metal detection in raw material and a new decant at Midsund. The test results show significantly improved yield. NOK 3.5 million of the investment is settled as a lease agreement Planned investments HBC investment plans amount to NOK 4-6 million for the next months. The investments include steaming, energiser, a new dryer and storage tanks for bunkers. These investments are expected to reduce cost by NOK 1-2 million per year due to lower energy costs and lower water consumption. However, the management bodies have not made any firm commitments concerning future investments. Below is a table illustrating the Company s investment plan. (NOK 1,000) Equipment Task Implement Estimated cost NOK Booked 29 Februar 2013 Funding Decant Replacement of decant to increase yield from 4% to 7%, and for better extract of the Calcium fraction to gain required quality for human Week 6 3,500 3,500 3,500,000 SG Finans Lease agreement 89

91 Decant consumption Extra costs on decant because of essential changes on equipment through the manufacturing process to achieve optimal Functionality + electrical work Week 7 1,275 1,259 Storage tanks for finished goods 2 x 100 m³ storage tanks for storage of Salomon Oil before shipment to the customer. The investment will significantly reduce logistic and analysis costs Week 16 Storage tanks Foundation 160 Cooler and piping 70 Economizer Reduce energy costs (oil) with 25% -030% by installing a boiler economizer Transport containers Transport containers (1,000 L) for transport of raw material from suppliers to Midsund Week 2 Week 9 Week Metal detector Air Purification of exhaust air Cold Storage Steam Boiler Decant Equipment for metal detection in raw material Following orders from the county office, HBC needs to reduce odor from air emissions, which means that the Company is in need of a system for purification of exhaust air, and is currently working with several alternatives Budget Price Produced quantity is now twice as large as originally planned and the existing cold storage is too small for today's production capacity. Planning additional cold storage Awaiting Budget Price Backup for existing Steam Boiler Water service module Chimney Backup for existing decant and to increase efficiency Piping Week ASAP 2,500 Q , month delivery 2,

92 10.7 Significant changes in financial and trading position after 31 December 2012 and trend information After the fourth quarter of 2012, the following changes have occurred, which affect the Group s financial and trading position up to the date of the Prospectus: On 28 February 2012, the Company raised NOK 45.2 million in the Private Placement. Take-over of the spray dryer facilities at Berkåk, improving competence, process- and quality-control by including spray drying as part of the in house value chain. Production improvement process finalised, including replacement of critical processing equipment. Production ramp-up early March. Production was put on hold in January 2013 due to the replacement. First full-scale production series indicate potential for significant SPH-yield increase. Jon Olav Ødegård started as CEO 1 March Sjur Jenssen, his predecessor, continues as Business Development Manager. Øystein Omvik was appointed new CFO, with effect from 1 March Except for the changes listed above, there has not been any significant change in the financial or trading position of the Group which has occurred after end of 31 December 2012 and through the date of this Prospectus. As the date of this Prospectus, the Group is not aware of any governmental, economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, directly or indirectly, the Group s operations. See also Section 2 (Risk factors) and Section 8 (Hofeth BioCare s market overview) Research and development strategy and expenses since 2009 The Company s R&D expenses are mainly driven by Dr Bomi Framoze, who is running different projects and studies on behalf of the Company. Dr. Framoze s responsibilities are divided between three areas: (A) assistance to Midsund plant completion in terms of process controls and optimisation, followed by product specification (i) to discover ideal enzyme mix needed and (ii) to carry out experimentation of whole cell hydrolysis; (B) develop the R&D plan and carry out trials for new Rx and human nutrition products especially in the four thrust areas of iron uptake, salmon oil concentration, oxidized LDL reduction and calcium bioavailability. Dr. Framoze has carried out lab experiments for salmon oil concentration and is currently developing a crystallisation process to concentrate PUFA by 2X without molecular distillation; (C) full R&D support in terms of coordinating external studies and trials, doing parallel trials in lab and carrying out the research needed to prepare sales and statutory dossiers as needed. R&D expenses also included preparing protocols and the approvals for veterinarian-based palatability, digestibility studies and preparing supporting documents for REACH and GRAS dossiers. There were no such expenses in In 2010, external R&D costs were NOK thousand. External R&D costs were NOK 2,500 thousand in both 2011 and 2012 for the work and studies carried out by Dr. Bomi Framrose Capital resources and indebtedness Cash flow As a general overview, HBC completed its investment project (the Company s factory at Midsund) in early February The preceding 8 months, the Company has been in an operating phase simultaneously finetuning the production processes. Due to the combination of low sales and high expenses, the EBIT was NOK -56,720 thousand (NOK -24,319 thousand). In 2012 there have been operational challenges. To achieve expected product quality some of the production equipment needed to be replaced. This has caused lack of income, unexpected investments and operational costs and negative cash flow. The cash flow impact in 2012 results from cash flow from operations of NOK -37,564 and from investing activities of NOK -18,863. Due to the loan uptake from banks and shareholders the cash flow from financing activities was NOK 40,045 thousand. Equity and loan uptakes have provided positive cash flow until The Private Placement completed 1 March 2013 combined 91

93 with new loan uptakes will provide sufficient cash to run the Company through Positive cash flow from operational activities is expected to be generated from the second quarter of There will be an emphasised focus on profitable production and a controlled ramp-up after the halt in production due to the instalment. In 2012, most of the operating revenues consisted of received operating income from deliveries of Omega-3 oil and SPH. There was limited commercial production during the fourth quarter of Consequently HBC only began to receive revenues from the production of SPH and Omega-3 during The revenues are expected to increase as HBC delivers its products to its customers, and get closer to the target production level and target yield. Improved quality will lead to higher sales to the human market where the sales prices are significantly higher. During the period from January 2009 to 31 December 2011, investments mainly included work in progress related to factory investments. The Company s cash and cash equivalents at the end of year 2009 amounted to NOK 826 thousand, at the end of year 2010 to NOK 2.5 million, at the end of 2011 to NOK 18.5 million and at the end of December 2012 to NOK 2.2 million. Throughout 2012, cash flows from the operational and financing activities were NOK -4.2 million and NOK 6.5 million respectively. The Company s audited and unaudited historical cash flow can be found in Section above Capitalisation and indebtedness The table below gives an overview of the Company s capitalisation and indebtedness at 31 December 2012 and 1 March The table includes the Private Placement completed 1 March The Company does not have any indirect or contingent indebtedness. (NOK 1,000) 31 December 2012 Change Adjusted as 1 March 2013 Share capital 57,164 12,923 70,087 Legal reserve 19,176 16,321 35,497 Other reserves Shareholder equity (A) 76,340 29, ,584 Current debt Guaranteed Secured 14,655-1,363 13,292 1 Unguaranteed/unsecured 49,295-1,502 47,793 Total current debt 63,950-2,865 61,085 Non-current debt Guaranteed Secured 24, ,714 2 Unguaranteed/unsecured 19,560 4,869 24,429 Total non-current debt 43,988 5,155 49,143 Total indebtedness 107,938 2, ,228 Total capitalisation 184,278 31, ,812 Notes: 1 The secured current debt is secured by iinventories and trade receivables. Note 92

94 2 The secured non-current debt is secured by the Company s fixed assets, which include all real estate properties and equipment, machinery, plant, production facilities or other tangible assets owned by the Group which relates to the Hofseth BioCare. See Section 10.5 (Property, plant and equipment) for the complete overview of the values of the fixed assets. The table below gives an overview of the Company s net financial indebtedness at 31 December 2012 and 1 March The Company does not have any indirect or contingent indebtedness. (NOK 1,000) 31 December 2012 Change Adjusted as 1 March 2013 Note A. Cash 2, ,043 B. Cash equivalents C. Trading securities D. Liquidity (A+B+C) 2, ,043 E. Current financial receivables F. Current bank debt 14,655-1,363 13,292 G. Current position of non-current debt 10, ,000 H. Other current financial debt 39,294-1,501 37,793 1 I. Current financial debt (F+G+H) 63,949-2,854 61,095 J. Net current financial indebtedness (I-E-D) 61,891-2,839 59,052 K. Non-current bank debt 24, ,714 L. Bonds issued M. Other non-current loans 19,560 4,869 24,429 N. Non-current financial debt (K+L+M) 43,988 5,155 49,143 Net Financial indebtedness 105,879 2, ,195 Notes: 1 Trade payables amounted to NOK 31,267 thousand at 31 December 2012 and NOK 32,050 thousand at 1 March 2013, and other current financial debt amounted to NOK 8,027 thousand at 31 December 2012 and NOK 5,743 thousand at 1 March NOK 17 million of the net proceeds in the Private Placement will be used to repay short term debt. The current bank debt of NOK 13 million is related to SG Finans. HBC has NOK 32 million in trade payables. The Company is currently working on an alternative way to structure the trade payables, after which the Company s trade payables will solely relate to production. The Company is currently reducing the number of supplier it employs, repaying the small suppliers. Strategic alliances with large suppliers will be formed, and long term agreement will be entered. The Company is negotiating repayment periods between 2 to 6, compared to between 14 and 30 days in which it had to repay debt within previously. See Section 7.14 (Significant commercial and financial contracts) for further information regarding the agreements with suppliers of raw material. The table below illustrate the repayment schedule of the current financial debt. 93

95 (NOK 1,000) Q Q Q Q Q Current debt repayment 21,000 12,000 10,000 5,000 3,900 The repayments in the first quarter of 2013 are partly the conversion of the short term debt to share capital (NOK 10 million), partly redefined short term shareholder loans (NOK 5 million) and partly cash payments (NOK 6 million). Repayments in the second and third quarter of 2013 are partly based on the new loan uptake (NOK 15 million) and partly cash from operation activities. Positive cash flow from operation activities are expected from the second quarter of 2013 and onwards. The repayments in the fourth quarter of 2013 and the first quarter of 2014 will be financed by operational activities. The Company has agreed to repayment deals with the debt creditors with the largest debt items. The following can be said about the short term debt which is related to the shareholder loans: i) the shareholder loans outstanding per 1 March 2013 has either a) been converted in relation to the Private Placement or b) renegotiated (the amounts to be repaid, new interest rates and new repayment dates are given in the table Section 9.8 (Related party transactions) which gives an overview of all shareholder loans), ii) one of the conditions of the Private Placement was that the repayment date for all outstanding shareholder loans were formalised to 1 May 2014, which has been meet, and iii) NOK 5 million of the net proceeds in the Private Placement will immediately be used to repay short term shareholder loans Sources of funding As of 31 December, HBC had NOK 2.2 million in cash. The Company started commercial production of products during the fourth quarter of Due to delays in achieving the targeted yield and quality and new instalments of a decant the revenues are not yet at a target level. The Company is not expected to generate cash flow from operations until the second quarter of In 2012, the Company successfully completed combined loan uptakes, increasing non-current debt to NOK 44 million per 31December 2012, NOK 26 million pledged against plant and equipment. The NOK 10 million loan with Swedbank runs for three years, and the nominal interest rate is 3 months NIBOR %. The loan has final maturity in The loan from Innovasjon Norge of NOK 11 million and NOK 5 million run for 10 years. The nominal interest rate is 6.00% p.a. The interest is paid semi-annually, on 10 January and 10 July. The loan has final maturity in July The terms of the loan requires HBC to maintain a minimum liquidity position NOK 5 million at all times. This requirement restricts the Company s use of its cash. The minimum liquidity requirement will be accounted for in the Company s liquidity and forecasts. The Company has received a waiver from Innovasjon Norge to postpone the payment from 10 January to 1 May See Section 9.8 (Related party transactions) for an overview of the shareholder loans. Below is a table depicting the estimated aggregated loan repayment profile of the NOK 44 million loan updates made in (NOK 1,000) Loan repayment 1,500 24,000 11,000 2,500 2,500 13,000 94

96 The loan repayment schedule above is only an estimate amounts to be repaid. The schedule disregards any refinancing of the loans, which in reality is likely to be the case. As of 31 December 2012, HBC s equity ratio was 42% of the total balance. As of 1 March 2013, the equity ratio was 49%. On 1 March 2013 HBC completed the Private Placement of NOK 45.2 million, which enhanced the Company s financial position. See Section 5 (Background for the Private Placement) to read more about the use of proceeds. The Company has a credit limit at NOK 20 million for its factory facilities. The limits are expected to be increased as the sales increase Liquidity On 31 December 2012, the Company had a cash position of NOK 2.2 million, but also a limit at SG Finans of NOK 20 million where NOK 15 million was used. The remaining planned investments for amounts to NOK 7.0 million. The remaining investments are assumed to be leased via SG Finans. However, cash flows from operations are expected to be negative until the second quarter of 2013, when they expects to turn positive. The cash position of the Group is shown in Section During the third quarter of 2012 a revenue short-fall of NOK 3 million materialised. The need for external funding appeared due to the slower than expected ramp-up. The current cash position together with the proceeds from the Private Placement will be sufficient liquidity for the Company until production rates have increased sufficiently and the expectation that the cash flow from operations turn positive, and will provide a capital reserve for the Company. The cash position is held in NOK, EUR and USD. Below is a table depicting the cash position as of 31 December 2012 and 28 February 2013: (in 1,000) 31 December February 2013 NOK 1,736 1,236 EUR 42 0 USD 0 0 The Company has recently announced two important agreements, one with CMA Asset Management AS and the other with Roxlor, which will enhance the Company s liquidity and financial position. See Section 7.14 (Significant commercial and financial contracts) for further information. The planning and control of liquidity for the whole group is managed by the HBC Finance department. There is a restriction to transfer funds between the Parent Company and the subsidiaries without having an approval from the bank lenders. This restriction relates to the transfer of any potential surplus from the subsidiaries to the Parent Company, which cannot be done without an approval beforehand. A tool for liquidity control for improved weekly cash flow forecasts showing the group s cash position for the nearest 12 months is sunder development. The weekly cash flow forecasts will allow HBC to test the company s liquidity sensitivities to different assumptions. The revenue forecasts are based on the actual sales contracts of HBC, at the agreed upon prices relative to benchmark prices. The current benchmark pricing expectations of the Company is in line with market expectations Working capital statement The Board of Directors is of the opinion that the working capital of the Company is sufficient for the Group s present requirements in a twelve months perspective as from Prospectus date. 95

97 Treasury and funding policy The Company will establish treasury and funding principles during the spring This will include principles for hedging instruments. Until the date of this prospectus no such instruments have been used Auditor The Company s historical financial information since 2009 has been audited by KPMG AS, registration number , with registered business address at Sørkedalsveien 6, 0369 Oslo, Norway. KPMG AS is member of Den Norske Revisorforening (the Norwegian Institute of Public Accountants). KPMG AS has audited the 2009, 2010 and 2011 financial statements of Hofseth BioCare ASA. The audits were conducted in accordance with laws, regulations and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. The audit reports did not include any qualifications. KPMG has not audited, reviewed or produced any report on any other information provided in this Prospectus Holding information Hofseth BioCare owns 51% of the shares in Hofseth BioCare Rørvik AS and 92% of the shares in Hofseth BioCare Berkåk AS. Please refer to Section 7.3 (History and development), Section (Second production facility Rørvik) and Section (Acquisition of spray dryer facility - Berkåk) for further details about Hofseth BioCare Rørvik AS and Hofseth BioCare Berkåk AS. 96

98 11 SHARES, SHAREHOLDER MATTERS AND OWNERSHIP STRUCTURE 11.1 General The following is a summary of certain information relating to the Shares and certain shareholder matters, including summaries of certain provisions of the Company s Articles of Association and applicable Norwegian law in effect as of the date of this Prospectus. The summary does not purport to be complete and is qualified in its entirety by the Company s Articles of Association and Norwegian law Share capital As of the date of this Prospectus, the Company s registered share capital is NOK 70,087,354 divided into 70,087,354 Shares, each with a nominal value of NOK 1. All the shares are authorised, issued and fully paid in compliance with the Norwegian Public Limited Liability Companies Act. The Shares are registered in the VPS under ISIN NO Share capital development The Company was incorporated on 5 August 2009 with a share capital of NOK 100,000 divided into 100 Shares, each with a nominal value NOK 1,000. A summary of the share capital development is presented in the table below: 97

99 Date Type of change in share Capital Changes in issued share capital (NOK) Change in number of Shares Issue price (NOK) No of Shares following change Nominal or par value per Share (NOK) Share Capital following increase (NOK) Accumulated paid in capital 2009 Incorporation 100, , , , Share split (1000/1) 0 99, , , Converting of debt 21,455,000 21,455, ,555, ,555,000 21,570, Private Placement 1,100,000 1,100, ,655, ,655,000 22,670, Private Placement 1,640,000 1,640,000 1,25 24,295, ,295,000 24,720, Private Placement 3,120,760 3,120,760 2,59 27,415, ,415,760 32,802, Private Placement 800, ,000 2,59 28,215, ,215,760 34,874, Private Placement 5,732,129 5,732, ,947, ,947,880 49,720, Converting of receivables to equity 4,800,000 4,800, ,747, ,747,880 85,720, Private Placement 5,125,000 5,125, ,872, ,872, ,220, Merger 4,629,256 4,629, ,502, ,502, ,210, Exercise of share options 200, , ,702, ,702, ,410, Exercise of warrants 1,281,250 1,281, ,983, ,983, ,098, IPO 7,180,472 7,180, ,163, ,163, ,820, Private Placement 12,923,496 12,923, ,087, ,087, ,052, Exercise of share options* * Resolved by the Board, but not registered Authorisation to increase the share capital 400, , ,487, ,487, ,452,380 The Board of Directors has authorisation to increase the Company s share capital in connection with exercise of options granted to key employees and consultants as set forth below: Manager/employee/consultant Changes in issued share capital Change in number of shares Nominal or par value per share (NOK) General authorisation... 2,500,000 2,500,000 1 Bomi Framroze , ,000 1 Tim Avila , ,000 1 The authorisation was registered 2 November Mr. Framroze has exercised 200,000 of the options, which were included in the figure of 350,000 in the table above. In case of such capital increase, the Board of Directors shall decide on the time for, and the terms and conditions of, the share capital increase and shall be entitled to decide that the pre-emption right of the existing shareholders shall be waived. The authorisation is valid for two years. For further description of the conditions for exercise of the above mentioned options reference is made to Sections (Shareholdings of the members of the executive management) and (Option scheme). 98

100 Furthermore, the Board of Directors has authorisation to increase the Company s share capital with up to NOK 23,000,000 to finance further growth, raise capital quickly to carry out acquisitions or investments or share issues towards new investors or existing shareholders. The authorisation is valid until the date of the Annual General Meeting in Authorisation to acquire treasury shares As of the date of this Prospectus, the Company has not authorised acquisition of treasury shares Convertible loans, options and warrants Convertible loans As of the date of this Prospectus, the Company does not have any convertible loans, and the Board of Directors is not authorised to issue convertible loans Warrants As of the date of this Prospectus, the Company has no any outstanding warrants Option Scheme The Company currently has no incentive schemes for employees and does not plan to introduce such a scheme. However, the Company has issued the following options to members of the management and consultants: Name/position Options Date of grant Sjur Jenssen/Business Development Manager... 0 N/A Jon Olav Ødegård/CEO , Øystein Omvik/CFO , Magne Aarsnes/former CFO , Lucas Altepost/VP S & M... 0 N/A Roald Rogne/Plant Manager , Magne Brauten/former Plant Manager... Roy Håberg/Technical Manager... Dr. Bomi Framroze/CSO , , ,000. Furthermore, Mr. Framroze has the right to convert USD 6,000 of monthly remuneration into shares Tim Avila/Consultant , The 150,000 options granted by the Company to Tim Avila are conditioned on the Company entering into sales agreements with companies selling human nutrition to end-buyers in North America regarding salmon oil (50,000 options), calcium (50,000 options) and proteins (50,000 options). The strike price per share is NOK 1. The options can be exercised when the above mentioned conditions are fulfilled and until 31 December Tim Avila did not exercise any of the options by 31 December 2012, and therefore he lost the rights and they lapsed without compensation 100,000 of the options granted Dr. Framroze are conditional on the Company s commercial sale of products based on Dr. Framroze s gelatine research. The strike price for these options is NOK 1 per share. 99

101 Magne Aarsnes has the right to exercise 150,000 options from 1 August 2013, and the remaining 150,000 options can be exercised from 1 August Options which are not exercised by 1 November 2014 will lapse without compensation. Magne Brauten may exercise his options until 10 December Options which are not exercised by 10 December 2014 will lapse without compensation. Neither members of the management nor consultants have paid anything for the options. For further description of the granted options reference is made to Section (Shareholdings of the members of the executive management) Share discount program The Company has no share discount program for the employees Treasury shares As of the date of this Prospectus, Hofseth BioCare own 5,294 Shares. 5,294 shares in HBC were transferred to the Company to its own accounts on 22 June The shares were withheld bonus shares from the IPO in December In the IPO 37,046 shares were withheld by lead manager for allocation to subscribers in the retail tranche fulfilling the non-sale -clause. Subscriptions qualifying for 31,752 bonus shares fulfilled the criterions Shareholder structure As of 2 April 2013 (before the increase in the share capital was registered), the Company had 196 shareholders. Below is an overview of the Company s 20 largest shareholders as of the date of this Prospectus: 100

102 Investor Holding (shares) % of capital ROGER HOFSETH AS* 17,059, % INITIA AB 3,929, % HOFSETH AS* 3,415, % HOLBERG NORDEN VERDIPAPIRFONDET 2,973, % VERDIPAPIRFONDET DNB SMB 2,483, % SWELANDIA INTERNATIONAL AB 2,441, % ALTEPOST LUCAS* 2,314, % SMART INVESTMENTS AS* 2,199, % SEAFOOD FARMERS OF NORWAY AS* 1,925, % HOLBERG NORGE VERDIPAPIRFONDET 1,669, % LFC AS 1,644, % PETTERSSON JAN HÅKON INGEMAR 1,553, % SINKABERG-HANSEN AS 1,300, % ALSCO AS 970, % MP PENSJON PK 925, % ANDERSEN TOR ERIK SOLEVÅG 800, % PASO AS 647, % PURE SALMON TRADING AS 540, % GØY INVEST AS 514, % LIPARI THOMAS 463, % TOP 20 SHAREHOLDERS 49,771, % OTHER 7,392, % TOTAL SHAREHOLDERS 57,163, % * Primary insiders As the date of this Prospectus, the following Shareholders currently own more than 5% of the issued share capital of the Company: Roger Hofseth (personally and through wholly owned companies) 26.83%, Jan Håkan Ingemar Petteresson (personally and through wholly owned companies) 12.86%, Holberg 9.19%, DNB 6.50% and Hofseth AS 5.73%. All Shares have equal voting rights. Thus, all major shareholders have the same voting rights relative to the number of Shares held. The Company is not aware that the Company is controlled or owned, directly or indirectly, by any shareholder or related shareholders Shareholder agreement To the Company s knowledge, there are no shareholder agreements regarding the Shares of the Company. 101

103 11.11 Registrar The Company s registrar in the VPS is: SEB Merchant Banking, Custody Service, P.O. Box 1843 Vika, N-0123 Oslo, Norway, telephone Dividend policy Hofseth BioCare s objective is to provide its shareholders with a competitive return over time based on its earnings. Any dividend will be considered in conjunction with Hofseth BioCare s financial position, debt covenants and capital requirements for existing and new projects. Hofseth BioCare intends to pay out between 50% and 100% of its net profits over time. The Company has not paid any dividends since its incorporation Summary of the Company s Articles of Association The following is a summary of certain provisions of the Company s Articles of Association, some of which have not been addressed in the preceding Sections. The Company s Articles of Association are included in Appendix 1 to this Prospectus. - According to Article 3 of the Articles of Association, the Company s purpose is to develop, refine, market and sell marine ingredients such as marine oils, protein- and calcium products, as well as cooperation with and participation and ownership in entities with related business. - The business shall pursuant to Article 2 of the Articles of Association have its offices in the municipality of Vanylven. Pursuant to Article 8, the Company s general meetings shall be held in the municipality of Ålesund. - The Board of Directors shall pursuant to Article 5 consist of at least 3, and no more than 10, members. The board members are elected directly by the general meeting. Any board member shall be elected by the annual general meeting for service periods of up to two years. The rights and obligations of the Board of Directors are listed in the Norwegian company legislation, the Norwegian Accounting Act, the Norwegian Stock Exchange Act, Oslo Stock Exchange s continuing obligations (upon Listing), the decisions of the annual general meeting, and the adopted rules of procedure for the Board of Directors and corporate governance policy. - According to Article 6 of the Articles of Association, the Company shall have an audit committee. Please refer to Section (Audit committee) for further details. - Articles of Association do not contain provisions regarding a nomination committee. The Company has not considered it necessary to establish a nomination committee at this point in time. - The Articles of Association do not contain provisions regarding the Company s management. - The rights and obligations of the General meeting are listed in the Norwegian company legislation and the approved corporate governance policy. Please refer to Sections (Convertible loans, options and warrants), (Voting rights) and (Additional issuances and preferential rights) for further details Shareholder rights All Shares carry equal and full shareholder rights in all respects and no Shares have different rights. The Company has only one class of Shares. 102

104 11.15 Limitation on the right to own and transfer Shares The Shares are freely transferable. The Company s Articles of Association do not contain any provisions imposing limitations on the ownership of the Shares and there are no limitations under Norwegian law on the rights of non-residents or foreign owners to hold or vote for the Shares General meetings The general meeting of shareholders is the highest authority of a Norwegian public limited company for all matters. The Company must arrange for the annual general meeting to be held before the end of June every year. The annual general meeting shall, inter alia, approve the annual accounts, the Board of Directors report and any payable, consider the Board of Director s declaration concerning determination of salaries and other remuneration to the executive management and consider the Board of Directors report on the Company s corporate governance. An extraordinary general meeting shall be called if the Board of Directors so resolves or the auditor or shareholders holding in the aggregate at least 5% of the Company s share capital require it. The general meeting shall be convened by a written notice to all shareholders with a known address 21 days prior to a general meeting at the latest. A shareholder is entitled to submit proposals to be discussed in a general meeting, provided that such proposals are submitted in writing to the Board of Directors at least seven days prior to the deadline for the notice to the general meeting. Such proposals shall be accompanied by a proposed resolution or the reasons why the matter should be included on the agenda. Further, a shareholder is entitled to table draft resolutions for items included on the agenda for the general meeting. All shareholders in the Company are entitled to attend and vote in general meetings, either in person or by proxy. The Company will distribute proxy forms to its shareholders together with the notice of any general meeting. The deadline to register for the general meeting is two days before the date of the general meeting Voting rights Each Share carries one vote in a general meeting. As a general rule, shareholders resolutions are entitled to be made pursuant to Norwegian law or the Company s Articles of Association with the approval of a simple majority of the votes cast. However, certain decisions, including resolutions to (i) waive pre-emptive rights in connection with any issue of shares, convertible bonds, warrants, etc., (ii) approve a merger or demerger, (iii) amend the Articles of Association, (iv) authorise an increase or decrease in the share capital, (v) authorise an issuance of convertible loans or warrants, (vi) authorise the Board of Directors to purchase treasury shares or (vii) dissolve the Company, must receive the approval of at least two-thirds of the votes cast and two-thirds of the share capital represented in a general meeting. Decisions that would (i) reduce any existing shareholder s right with respect to dividend payments or other rights to the assets of the Company or (ii) restrict the transferability of the Shares through introduction of a consent requirement, a right of first refusal upon transfers or a requirement that shareholders must have certain qualifications, require a majority vote of at least 90% of the share capital represented in the general meeting in question as well as the majority required for changes to the Articles of Association. Certain other decisions involving fundamental changes in the status of already issued shares, including but not limited to increased obligations of the shareholders, other transfer restrictions than those mentioned above and introduction of forced redemption, require the consent of all shareholders affected thereby as well as the majority required for amendments to the Company s Articles of Association. 103

105 The Company s Articles of Association do not contain provisions deviating from the Norwegian Public Limited Companies Act in this respect. In order to be entitled to vote in a general meeting, a shareholder must, as a general rule, be registered as owner of the Shares in the Company s shareholder register kept by the VPS. Beneficial owners of Shares that are registered in the name of a nominee are generally not entitled to vote under Norwegian law, nor are any persons who are designated in the shareholder register as holding such Shares as nominees. The Company has applied this principle consistently. It should, however, be noted that there are different opinions as to the interpretation of Norwegian law with respect to the right to vote for nominee-registered shares. For example, Oslo Børs has in a statement of 21 November 2003 held that in its opinion beneficial owners of Shares that are registered in the name of a nominee may vote in general meetings if they prove their actual shareholding prior to the general meeting Additional issuances and preferential rights If the Company issues any new Shares, including bonus Shares (i.e. new Shares issued through a transfer from the Company s share premium reserve or distributable equity to the share capital), the Company s Articles of Association must be amended, which requires support by at least two-thirds of the votes cast and share capital represented in a general meeting. The Articles of Association do not contain provisions which regulate the procedure of adopting changes in the shareholder s rights. For further description of the regulation under the Norwegian Public Limited Companies Act reference is made to Section (Voting rights). Pursuant to the Norwegian Public Limited Liability Companies Act, the Company s shareholders have a preferential right to subscribe for new Shares issued against contribution in cash on a pro rata basis in accordance with their shareholdings in the Company. Said preferential right may be waived by a resolution in a general meeting passed by two-thirds of the votes cast and share capital represented. A waiver of the shareholders preferential right in respect of bonus issues requires the approval of all outstanding shares, irrespective of class. The general meeting may, in a resolution supported by at least two-thirds of the votes cast and share capital represented, authorise the Board of Directors to issue new Shares. Such authorisation may remain in force for a maximum of two years, and the nominal value of the shares to be issued may not exceed 50% of the nominal share capital of the Company at the time the authorisation is registered. The Board of Directors may only waive the shareholders preferential right to subscribe for new shares issued against contribution in cash if permitted according to the authority. Under Norwegian law, bonus Shares may be issued through a transfer from the Company s distributable equity or share premium reserve to the share capital. Such bonus issues may be carried out either through the issue of Shares or through an increase of the nominal value of the shares outstanding. In order to issue Shares in the Company to holders who are citizens or residents of the United States upon the exercise of preferential rights, the Company may be required to file a registration statement in the United States under United States securities law. If the Company decides not to file a registration statement, such holders may not be able to exercise their preferential rights. The same applies to other jurisdictions which, according to the Company s considerations, have similar restrictive legislation. The Articles of Association do not contain provisions regarding disclosure obligations. Reference is made to Section 12.7 (Disclosure obligations) for description of disclosure obligations under the Norwegian Security Trading Act. 104

106 11.19 Dividends Dividends may be paid in cash or in some instances in kind. The Norwegian Public Limited Liability Companies Act provides several constraints on the distribution of dividends applicable to the Company: (i) (ii) (iii) Dividends are payable only out of distributable reserves. Section 8 1 of the Norwegian Public Limited Liability Companies Act provides that distributable reserves consist of the profit for the prior financial year (as reflected in the income statement approved by the annual general meeting of shareholders) and the retained profit from previous years (adjusted for any reclassification of equity), less (i) uncovered losses, (ii) the book value of research and development, goodwill and net deferred tax assets (as recorded in the balance sheet as of the end of the prior financial year approved by the annual general meeting), (iii) the total nominal value of treasury shares which the Company has acquired for ownership or as security in previous financial years, as well as credit and security which, pursuant to Sections 8 7 to 8 9 of the Norwegian Public Limited Liability Companies Act, fall within the limits of distributable equity, and (iv) the part of the profit for the prior financial year which, by law or pursuant to the Company s Articles of Association, must be allocated to the undistributable reserve or cannot be distributed as a dividends. Dividends can only be distributed to the extent compatible with good and careful business practice, with due regard to any losses which the Company may have incurred since the balance sheet date (i.e. the end of the prior financial year) or which the Company may expect to incur. The amount of dividends the Company can distribute is calculated on the basis of the Company s annual financial statements, not the Group s consolidated financial statements. Distribution of dividends is resolved by the general meeting on the basis of a proposal from the Board of Directors. The general meeting cannot resolve a larger dividend than proposed or accepted by the Board of Directors. The shareholders have, through the entitlement to dividends, a right to share in the Company s profits. Shareholders holding in aggregate 5% or more of the Company s share capital have a right to request that the courts set a higher dividend than decided by the general meeting. The courts may set a higher dividend to the extent the resolved dividend is considered to be unreasonably low. There is no time limit after which entitlement to dividends lapses under the Norwegian Public Limited Liability Companies Act or the Company s Articles of Association. Further, there are no dividend restrictions or specific procedures for non-norwegian resident shareholders in the Norwegian Public Limited Liability Companies Act or the Company s Articles of Association Minority rights Norwegian law contains a number of protections for minority shareholders against oppression by the majority, including, but not limited to, those described in this and preceding Sections. Any shareholder may petition the courts to have a decision of the Company s Board of Directors or 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. In certain grave circumstances, shareholders may require the courts to dissolve the Company as a result of such decisions Provisions preventing change of control There are no provisions that prevent a change of control in Hofseth BioCare. 105

107 11.22 Distribution of assets on liquidation Pursuant to the Norwegian Public Limited Liability Companies Act, a company may be liquidated by a resolution of the Company s shareholders in a general meeting passed by the same vote as required with respect to amendments to the Articles of Association. The Shares rank equally in the event of a return on capital by the Company upon liquidation or otherwise. In the event that a resolution to liquidate the Company has been passed, the Company s assets shall be transformed into cash in order to cover the Company s obligations and for distribution to the shareholders to the extent not all shareholders have voted for distributions in kind Rights of redemption and repurchase of Shares The Company s share capital may be decreased by redemption of Shares or by reducing the nominal value of the Shares. Such a decision requires the approval of at least two-thirds of the aggregate number of votes cast and share capital represented in the general meeting. The Company has not issued redeemable shares (i.e. shares in the Company redeemable without the shareholder s consent). Redemption of individual Shares, apart from treasury shares held by the Company, requires the consent of the shareholders affected by such redemption. The Company may purchase its own Shares if an authorisation to the Board of Directors to this effect has been given by the shareholders in a general meeting with the support of at least two-thirds of the votes cast and share capital represented. The aggregate nominal value of treasury shares so acquired and held by the Company may 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 treasury shares. The authorisation from to the Board of Directors cannot be given for a period exceeding 18 months. 106

108 12 SECURITIES TRADING IN NORWAY 12.1 Introduction Oslo Børs was established in 1819 and is the principal market in which shares, bonds and other financial instruments are traded in Norway. Oslo Børs 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. Oslo Børs VPS Holding ASA owns and operates the two regulated markets for equities in Norway; Oslo Børs and Oslo Axess Trading of equities and settlement Trading of equities on Oslo Børs is carried out in the electronic trading system TradElect. This trading system is in use by all markets operated by the London Stock Exchange as well as by the Borsa Italiana and the Johannesburg Stock Exchange. Official trading on Oslo Børs takes place between 09:00 hours (CET) and 16:30 hours (CET) each trading day, with pre-trade session between 08:15 hours (CET) and 09:00 hours (CET), a 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). The settlement period for trading on Oslo Børs is three trading days (T+3). Oslo Clearing ASA, a wholly owned subsidiary of Oslo Børs VPS Holding ASA, has a license from the NFSA to act as a central clearing service, and has since 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 brokerage houses holding a license under the Norwegian Securities Trading Act, branches of brokerage houses from an EEA member state or brokerage houses from outside the EEA that have been licensed to operate in Norway. Brokerage houses in an EEA member state may also provide cross-border investment services in Norway. It is possible for brokerage houses 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 brokerage houses 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 NFSA or Oslo Børs except for the general obligation on brokerage houses that are members of Oslo Børs to report all trades in stock exchange listed securities Information, control and surveillance Under Norwegian law, Oslo Børs is required to perform a number of surveillance and control functions. The Surveillance and Corporate Control unit of Oslo Børs monitors all market activity on a continuous basis. Market surveillance systems are largely automated, promptly warning department personnel of abnormal market developments. The NFSA 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 which is listed, or has applied for listing, on a Norwegian regulated market, must promptly release any inside information (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 107

109 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. Oslo Børs may levy fines on companies violating these requirements The VPS and transfer of Shares The VPS is the Norwegian paperless centralised securities register. It is a computerised bookkeeping system in which the ownership of, and all transactions relating to, Norwegian listed shares must be recorded. The Company s shareholder register is operated through the VPS. The VPS and Oslo Børs are both wholly owned by Oslo Børs VPS Holding ASA. All transactions relating to securities registered in 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 (i.e. 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. 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 NFSA on an on-going basis, as well as any information that the NFSA 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 Shareholder register Under Norwegian law, shares are registered in the name of the owner of the shares. As a general rule, there are no arrangements for nominee registration. However, shares may be registered in the VPS by a fund manager (bank or other nominee) approved by the Norwegian Ministry of Finance, as the nominee of foreign shareholders. An approved and registered nominee has a duty to provide information on demand about beneficial shareholders to the company and to the Norwegian 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 (see section above) Foreign investment in Norwegian shares Foreign investors may trade shares listed on Oslo Børs through any broker that is a member of Oslo Børs, whether Norwegian or foreign. 108

110 12.7 Disclosure obligations If a person s, entity s or consolidated group s proportion of shares and/or rights to shares in a company listed on a regulated market with Norway as its home state (e.g., 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 the company, the person, entity or group in question has an obligation under the Norwegian Securities Trading Act to notify Oslo Børs immediately. The same applies if the disclosure thresholds are passed due to other circumstances, such as a change in the company s share capital 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. 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 Mandatory offer requirement The Norwegian Securities Trading Act requires any person, entity or consolidated group who becomes the owner of shares representing more than 1/3 of the voting rights of a Norwegian company listed on a Norwegian regulated market to, within four weeks, make an unconditional general offer for the purchase of the remaining shares in such company. A mandatory offer obligation may also be triggered where a party acquires the right to become the owner of shares which together with the party s own shareholding represent more than 1/3 of the voting rights in the company and Oslo Børs decides that this must be 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 shall immediately notify Oslo Børs and the company accordingly. The notification shall state whether an offer will be made to acquire the remaining shares in the company or whether a sale will take place. As a main 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 Oslo Børs before the offer is submitted to the shareholders or made public. 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. However, if it is clear that the market price was higher when the mandatory offer obligation was triggered, the offer price shall be at least as high as the market price. 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, Oslo Børs 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 of shareholders, without the consent of a majority of the remaining shareholders. The shareholder may, however, exercise the right to dividend and his/her/its pre-emption rights in the event of a share capital increase. If the shareholder neglects his/her/its duties 109

111 to make a mandatory offer, Oslo Børs may impose a cumulative daily fine which runs until the circumstance has been rectified. A shareholder or consolidated group who has passed the relevant threshold for a mandatory offer obligation without triggering such an obligation, and who consequently has 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 (subsequent offer obligation). A shareholder who represents more than 1/3 of the votes in a Norwegian company listed on a Norwegian regulated market is obliged to make an offer to purchase the remaining shares of the company (repeated offer obligation) where the shareholder through acquisition becomes the owner of shares representing 40% or more of the votes in the company. The same applies correspondingly where the shareholder 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 shareholder 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. Pursuant to the Norwegian Securities Trading Act and the Norwegian Securities Regulation of 29 June 2007 No. 876, the above mentioned rules also apply in part or in whole to acquisitions of shares in certain non-norwegian companies whose shares are listed on a Norwegian regulated market Compulsory acquisition Pursuant to the Norwegian Public Limited Liability Companies Act and the Norwegian Securities Trading Act, a shareholder who, directly or through subsidiaries, acquires shares representing more than 90% of the total number of issued shares in a Norwegian public limited company, as well as more than 90% 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 90% or more of the total number of issued shares, as well as a corresponding amount of the voting rights, through a voluntary offer in accordance with the Norwegian 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 offeror, after making a mandatory or voluntary offer, has acquired 90% or more of the shares of the offeree company and a corresponding proportion of the votes that can be cast in the general meeting, and the offeror pursuant to Section 4 25 of the Norwegian Public Limited Liability Companies Act completes a compulsory acquisition of the remaining shares within three months after the expiration 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, absent specific reasons indicating 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 110

112 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 expiration of the specified deadline Foreign exchange controls There are currently no foreign exchange control restrictions in Norway, other than in certain extreme macroeconomic conditions, 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 Norwegian company 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 NFSA have electronic access to the data in this register. 111

113 13 TAXATION IN NORWAY Set out below is a summary of certain Norwegian tax matters related to investments in the Company. The summary is based on Norwegian laws, rules and regulations applicable as of the date of this Prospectus, which may be subject to any changes in law occurring after such date. Such changes could possibly be made on a retroactive basis. The summary does not address foreign tax laws. The summary is of a general nature and does not purport to be a comprehensive description of all the Norwegian tax considerations that may be relevant for a decision to acquire, own or dispose of shares. 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 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 foreign shareholder refers to the tax residency rather than the nationality of the shareholder Norwegian shareholders Taxation of dividends Norwegian Personal Shareholders Dividends received by shareholders who are individuals resident in Norway for tax purposes ( Norwegian Personal Shareholders ) from a limited liability company tax-resident in Norway are taxable as ordinary income for such shareholders at a flat rate of 28% to the extent the dividend exceeds a tax-free allowance. 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 determined risk-free interest rate based on the effective rate after tax of interest on treasury bills (Norwegian: statskasseveksler ) with three 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 realisation, of the same share. Any excess allowance will also be included in the basis for calculating the allowance on the same share the following years. Norwegian Corporate Shareholders Dividends received by shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes ( Norwegian Corporate Shareholders ) are included in the calculation of the shareholders net income from shares qualifying for participation exemption, including dividends received from the Company. Only 3% of net income from shares qualifying for participation exemption shall be included in the calculation of ordinary income. Ordinary income is subject to tax at a flat rate of 28%, implying that net income from shares is effectively taxed at a rate of 0.84% Capital Gains Tax on realisation of Shares Norwegian Personal Shareholders Sale, redemption or other disposal of shares is considered a realisation for Norwegian tax purposes. A capital gain or loss generated by a Norwegian Personal Shareholder through a realisation of shares is taxable or tax deductible in Norway. Such capital gain or loss is included in or deducted from the shareholder s ordinary 112

114 income in the year of disposal. Ordinary income is taxable at a rate of 28%. 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 any costs incurred in relation to the acquisition or realisation of the share. From a possible 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. See Section (Taxation of dividends) 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, i.e. any unused allowance exceeding the capital gain upon the realisation 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 Capital gains derived from the realisation of shares qualifying for the participation exemption method are exempted from taxation, i.e. capital gains on such shares will be fully exempt from Norwegian taxation. Losses incurred upon realisation of such shares are not deductible Net wealth tax The value of shares is included in the basis for the computation of wealth tax imposed on Norwegian Personal Shareholders. Currently, the marginal wealth tax rate is 1.1% of the value assessed. The value for assessment purposes for shares listed on Oslo Børs is the listed value as of 1 January in the year of assessment. Norwegian Corporate Shareholders are not subject to wealth tax Foreign shareholders This section summarises certain Norwegian tax rules relevant to shareholders that are not resident in Norway for Norwegian tax purposes ( Foreign Shareholders ). The potential tax liabilities for foreign shareholders in the jurisdiction where they are resident for tax purposes or other jurisdictions will depend on tax rules applicable in the relevant jurisdictions Taxation of dividends Foreign Personal Shareholders Dividends distributed to shareholders who are individuals not resident in Norway for tax purposes ( Foreign Personal 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. The withholding obligation lies with the company distributing the dividends and the Company assumes this obligation. Foreign 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 (see above). If a Foreign 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. 113

115 Foreign 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. Foreign Shareholders should consult their own advisers regarding the availability of treaty benefits in respect of dividend payments, including the ability to effectively claim refunds of withholding tax. Foreign Corporate Shareholders Dividends distributed to shareholders who are limited liability companies (and certain other entities) not resident in Norway for tax purposes ( Foreign 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 Foreign 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. Foreign 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 Foreign Corporate Shareholders and on nominee registered shares lies with the company distributing the dividends and the Company assumes this obligation Capital gains tax As a general rule, capital gains generated by Foreign Shareholders are not taxable in Norway. If a Foreign Shareholder is engaged in business activities in Norway, and the shares are effectively connected with such business activities, capital gains realised by such shareholder will generally be subject to the same taxation as that of Norwegian Shareholders, cf. the description of tax issues related to Norwegian Shareholders above Net wealth tax Shareholders not resident in Norway for tax purposes are as a general rule not subject to Norwegian net wealth tax, unless the shareholder is an individual who is engaged in business activities Duties on the transfer of shares No stamp or similar duties are currently imposed in Norway on the transfer or issuance of shares in Norwegian companies Inheritance tax When shares are transferred by way of inheritance or gift, such transfer may give rise to inheritance or gift tax in Norway if the decedent, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway, or if the shares are effectively connected with a business carried out through a permanent establishment 114

116 in Norway. However, in the case of inheritance tax, if the decedent was a citizen but not a resident of Norway, Norwegian inheritance tax will not be levied if inheritance tax or a similar tax is levied by the decedent s country of residence. The basis for the computation of inheritance tax is the market value at the time the transfer takes place. The rate is progressive from 0 to 15%. For inheritance and gifts from parents to children, the maximum rate is 10%. 115

117 14 SELLING AND TRANSFER RESTRICTIONS 14.1 General As a consequence of the following restrictions, prospective investors are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Offer Shares offered hereby. The Company is not taking any action to register the Offer Shares in any jurisdiction other than Norway. Receipt of this Prospectus will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this Prospectus is for information purposes only and should not be copied or redistributed. Except as otherwise disclosed in this Prospectus, if an investor receives a copy of this Prospectus in any jurisdiction other than Norway, the investor may not treat this Prospectus as constituting an invitation or offer to it, nor should the investor in any event deal in the Shares, unless, in the relevant jurisdiction, such an invitation or offer could lawfully be made to that investor, or the Shares could lawfully be dealt in without contravention of any unfulfilled registration or other legal requirements. Accordingly, if an investor receives a copy of this Prospectus, the investor should not distribute or send the same, or transfer Shares, to any person or in or into any jurisdiction where to do so would or might contravene local securities laws or regulations United States shareholders The Offer Shares 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 are being offered and sold under an exemption from registration under the U.S. Securities Act. The Offer Shares cannot be subscribed by U.S. persons except, under certain circumstances, by U.S. persons that are QIBs as defined under Rule 144A under the U.S. Securities Act and major US institutional investors under SEC rule 15a-6 to the US Exchange Act. The Offer Shares are being offered to non U.S. persons under Regulation S under the U.S. Securities Act. The Offer Shares acquired by existing U.S. shareholders will be restricted securities within the meaning of Rule 144 (a) (3) under the U.S. Securities Act. Restricted securities may not be offered, sold, pledged or otherwise transferred, directly or indirectly, except as permitted below under Investor representation and restriction on resale in the United States. The foregoing discussion is only a general overview of certain requirements of the U.S. Securities Act that are applicable to the Offer Shares. All shareholders who receive such securities are urged to consult with counsel to ensure that the subscription of their Offer Shares complies with applicable United States securities laws. The Company will provide the information required by Rule 144A (d) (4) under the U.S. Securities Act to holders and prospective purchasers, as applicable, for as long as the Offer Shares remain outstanding. Investor Representations and Restrictions on Resale in the U.S.: Each Subscriber, by subscribing for Offer Shares, will be deemed to have represented and agreed as follows: 1. it is acquiring the Offer Shares for its own account or for an account with respect to which it exercises sole investment discretion, and that it or such account, as the case may be, (a) is a QIB as defined under Rule 144A, and is aware that the sale to it is being made in reliance on an exemption from registration under the U.S. Securities Act, or (b) is a major US institutional investor under SEC rule 15a-6 to the US Exchange Act, or (c) is not a U.S. Person and is acquiring the Offer shares in an offshore transaction, pursuant to Regulation S under the U.S. Securities Act; 2. it acknowledges that the Offer Shares have not been registered under the U.S. Securities Act and may not be sold except as permitted below; 116

118 3. it understands and agrees that such Subscription Rights and Offer Shares are being offered only in a transaction not involving any public offering in the U.S. within the meaning of the U.S. Securities Act, and that (a) if in the future it decides to resell, pledge or otherwise transfer the such Offer Shares on which the legend set forth below is deemed to appear, such Offer Shares issued pursuant to the Private Placement may be resold, pledged or transferred only (i) to the Company, (ii) in a transaction entitled to an exemption from registration provided by Rule 144 under the U.S. Securities Act, (iii) so long as such security is eligible for resale pursuant to Rule 144A, to a person whom the seller reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is give that the resale, pledge or transfer is being made in reliance on Rule 144A, (iv) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S under the U.S. Securities Act, (v) in accordance with another applicable exemption from the registration requirements of the U.S. Securities Act (and based upon an opinion of counsel acceptable to us), or (vi) pursuant to an effective registration statement under the U.S. Securities Act and, in each case, in accordance with any applicable securities laws of any state of the United States. The purchaser of the restricted Offer Shares will, and each subsequent holder is required to, notify any purchaser of Offer Shares from it of the resale restrictions referred to in (a) above, if then applicable; 4. it understands that the Offer Shares issued to U.S. persons pursuant to an exemption from registration under the U.S. Securities Act shall be deemed to include the following legend: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ) OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF ITS COUNSEL, IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY AND REASONABLY CONCURRED IN BY THE COMPANY S COUNSEL, THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. 5. it has received a copy of this prospectus and: (a) has been afforded an opportunity to ask questions of and to request information from the Company, and has received all additional information it considers necessary in connection with its decision to purchase any of the Offer Shares and to verify the accuracy and completeness of the information contained or incorporated by reference herein; (b) is relying on the information contained or incorporated by reference in this prospectus or on display in making its investment decision with respect to the Offer Shares and has not relied on any other person in connection with investigating the accuracy of such information or its investment decision; (c) the Company nor any person representing or affiliated with the Company has made any representation to you with respect to the company or the Private Placement, other than the representations of the Company contained in this prospectus; and (d) has read and agreed to the matters set forth in this section of the prospectus; 6. it (i) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Offer Shares, (ii) has the ability to bear the economic risks of its prospective investment and can afford the complete loss of such investment, and (iii) may be required to bear the financial risks of this investment for an indefinite period of time; and 117

119 7. it understands that the Company and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that if any of the acknowledgements, representations and agreements deemed to have been made by it by its purchase of the Offer Shares are no longer accurate, it shall promptly notify the Company in writing. If it is acquiring the Offer Shares as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgements, representations and agreements on behalf of such account United Kingdom This Prospectus and any other material in relation to the securities described herein is only being distributed to and is only directed at persons in the United Kingdom that are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (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 (all such persons together being referred to as Relevant Persons ). This communication must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this communication relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. Persons distributing this communication must satisfy themselves that it is lawful to do so European Economic Area The Prospectus has been prepared on the basis that all offers of Shares (other than the offer contemplated in this Prospectus in Norway, once this Prospectus has been approved by the Financial Supervisory Authority of Norway and published in accordance with the Prospectus Directive as implemented in Norway) will be made pursuant to an exemption under the Prospectus Directive, as implemented in member states of the European Economic Area ( EEA ), from the requirement to produce a prospectus for offer of Shares. Accordingly, any person making or intending to make any offer within the EEA of Shares which are the subject of the Private Placement should only do so in circumstances in which no obligation arises for the Company or any of the Managers to produce a prospectus under the Prospectus Directive for such offer. Neither the Company nor the Managers have authorised, nor do they authorise, the making of any offer of Shares through any financial intermediary, other than offers made by Managers which constitute the final placement of Shares contemplated in this Prospectus. In relation to each member state of the EEA, which has implemented the Prospectus Directive (each, a Relevant Member State ), an offer to the public of any Shares which are the subject of the Private Placement may not be made in that Relevant Member State (other than the offers contemplated in the Prospectus in Norway once the Prospectus has been approved by the Financial Supervisory Authority of Norway and published in accordance with the Prospectus Directive as implemented in Norway, except that an offer to the public in that Relevant Member State of any of the Shares may be made at any time under the following exemptions from the Prospectus Directive, if they have been implemented in that Relevant Member State: a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; 118

120 c) by the Managers to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the Joint Global Co-ordinators and Bookrunners for any such offer; or d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of the Shares shall result in a requirement for the publication by the Company or any Manager of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer to the public in relation to any of the Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any of the Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. 119

121 15 ADDITIONAL INFORMATION 15.1 Name, incorporation and registered office Hofseth BioCare is a Norwegian public limited liability company incorporated on 5 August 2009 under the laws of Norway and is registered with the Norwegian Register of Business Enterprises with registration number The Company s registered business and corporate head office is c/o ØkonimiConsult AS, 6140 Syvde, Norway. The Company s telephone number is: The Company s web site is: Significant contracts Summary of significant contracts that Hofseth BioCare has entered into outside the ordinary course of business during the last two years: On 12 October 2011, Hofseth BioCare entered into an agreement with Sinkaberg-Hansen AS regarding the establishment of a new and larger production plant and on 14 November 2011 Hofseth BioCare Rørvik AS was incorporated by Hofseth BioCare (51%) and Sinkaberg-Hansen AS (49%). On 27 February 2013, Hofseth BioCare entered into an agreement with CMA Asset Management AS, granting CMA Asset Management AS a mandate to assist Hofseth BioCare in establishing funding and refinancing of the Hofseth BioCare's operational assets through an operational lease Legal and arbitration proceedings The Company, and its subsidiaries, have not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware), during the last twelve months, which may have, or have had in the recent past, significant effects on the Company s financial position or profitability Auditor and advisors The Company s auditor since year 2009 has been KPMG AS. The address of the auditor is Sørkedalsveien 6, 0369 Oslo, Norway. Swedbank First Securities (Swedbank Norge), Filipstad Brygge 1, P.O. Box 1441 Vika, N-0115 Oslo, Norway, and Norne Securities AS, Parkveien 61, P.O. Box 2507 Solli, 0202 Oslo, Norway, are acting as Managers. Advokatfirmaet CLP DA is acting as the Company s legal adviser in relation to the Private Placement Documents on display For the life of the Prospectus, the following documents (or copies thereof) will be available for inspection at the Company s offices at: Smuget 1, 1384 Asker, Norway, telephone: or , or at (a) the memorandum and articles of association of the Company; (b) 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 this Prospectus; 120

122 (c) the historical financial information of the Company or, in the case of a group, the historical financial information for the Company and its subsidiary undertakings for each of the two financial years preceding the publication of this Prospectus. 121

123 16 DEFINITIONS AND GLOSSARY OF TERMS In the Prospectus, the following defined terms have the following meanings: 18/12:...In 18/12, there is approximately 18% EPA and 12% DHA. Together there is a total of 30% Omega-3. AA:...Amino Acid. Anti-Money Laundering Legislation:...The Norwegian Money Laundering Act No. 11 of 6 March 2009 and the Norwegian Money Laundering Regulations No. 302 of 13 March 2009, collectively. APAC:...Asia Pacific. Application Agreement:...The agreement for application for Offer Shares. Application Period:...The application period in the Private Placement commenced 17:00 hours (CET) on 28 February 2013 to 08:00 hours (CET) on 1 March Articles of Association:...Hofseth BioCare s articles of association. Board of Directors or Board:...The board of directors of the Company. BRC certificate:...british Retail Consortium, global safety and quality certification programme. Caco-2 or Caco-2 cell line:...continuous line of heterogeneous human epithelial colorectal adenocarcinoma cells. CAGR:...Compound Annual Growth Rate. CEO:...Chief Executive Officer. CET:...Central European Time. CFO:...Chief Financial Officer. Chr Olesen:...Danish distributor and sales company within ingredients and additives for feed, food and pharmaceutical industries. CIP solutions:...clean in Place Company:...Hofseth BioCare ASA. COO:...Chief Operating Officer. CVD...Cardio-vascular disease. Dalton Weight:...Unit used for indicating mass on an atomic or molecular scale. DHA:...Dehydroascorbic acid, an oxidized form of ascorbic acid. EEA:...The European Economic Area. EGM:...Extraordinary General Meeting EPA...Eicosapentaenoic acid, an omega-3 fatty acid. EPO:...European Patent Office. EU:...The European Union. 122

124 EUR:...Euro, the lawful common currency of the EU member states who have adopted the Euro as their sole national currency. FDA:...Food and Drug Administration, an agency of the United States Department of Health and Human Services. FFA:...Free fatty acid. Foreign Corporate Shareholders:...Shareholders who are limited liability companies (and other similar entities) not resident in Norway for tax purposes. Foreign Personal Shareholders:...Shareholders who are individuals not resident in Norway for tax purposes. FPH:...Fish protein hydrolysate. Funding Commitment:...Agreement related to the funding of Hofseth Biocare Rørvik AS, between Hofseth BioCare (51%) and SBH (49%). GMP certificate:...good Manufacturing Practice, European certificate that ensures that products are safe, pure and effective. GRAS:...Generally Recognized As Safe, an American Food and Drug Administration, designation that a chemical or substance added to food is considered safe by experts. Group:...The Company and its consolidated subsidiaries. HACCP:...Hazard Analysis and Critical Control Point certificate, system of safety in food production and pharmaceuticals used by the Food and Drug Administration and the Department of Agriculture to ensure safe procedures and products. Hofseth BioCare or HBC:...Hofseth BioCare ASA. IAS:...International Accounting Standard. IFRS:...International Financial Reporting Standards. ISIN:...International Securities Identification Number. JPY:...Japanese Yen, the lawful currency of Japan. Listing:...The listing of the Offer Shares on Oslo Axess. Main Agreement:...Agreement related to establishment of Hofseth Biocare Rørvik AS. Managers:...Joint Lead Managers and Bookrunners, Swedbank First Securities (Swedbank Norge) and Norne Securities AS. Midsund / Midsund plant...hbc s production facility at Midsund. NFSA:...Financial Supervisory Authority of Norway. NGAAP:...Norwegian Generally Accepted Accounting Principles. NIFES:...National Institute of Nutrition and Seafood. NOK:...Norwegian kroner, the lawful currency of Norway. Norwegian Corporate Shareholders:...Shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes. 123

125 Norwegian Personal Shareholders:...Shareholders who are individuals resident in Norway for tax purposes. Norwegian Public Limited Liability The Norwegian Public Limited Liability Companies Act of 13 June Companies Act: no. 45 (Nw. Allmenaksjeloven). Norwegian Register of Business The Norwegian Register of Business Enterprises Enterprises:...(Nw. Foretaksregisteret). Norwegian Securities Trading Act:...The Norwegian Securities Trading Act of 29 June 2007 no. 75 (Norwegian: Verdipapirhandelloven ). Novozymes:...Novozymes AS, a Danish listed biotech company that produces enzymes. Offer Shares:...The 12,923,496 ordinary shares issued in the Private Placement by the Company. Oslo Børs:...Oslo Børs ASA. Order Price:...The price to be paid for the Offer Shares in the Private Placement. Oxidized LDL:...Oxidized low density lipoprotein beta-2-gylcoprotein-1 complex, a CVD marker. Payment Date: The date on which payment for the Offer Shares falls due. PCT:... Patent Corporation Treaty, an international patent law treaty concluded in PHP:... Partly Hydrolysed Protein. PLC:... Programmable Logic Controller. POC:... Persistent Organic Chemicals. Private Placement:...The Private Placement of Offer Shares announced on 28 February Prospectus:... This prospectus dated 3 April Prospectus Directive:...Directive 2003/71/EC of the European Parliament and of the Council of 4 November PUFA:... Polyunsaturated fatty acid. QIBs:... Qualified institutional buyers, as defined in Rule 144A of the U.S. Securities Act. REACH:... European Community Regulation on chemicals and their safe use. Regulation S:...Regulation S under the U.S. Securities Act. Restricted Period:...A period of 6 months from the Listing Date. Retail Offering:...Offering of Offer shares to the public in Norway. RUBIN:...Norwegian foundation, financed by Ministry of Fisheries and Coastal Affairs, working for increased and more profitable utilization of fish bi-products. Rule 144A:...Rule 144A under the U.S. Securities Act. 124

126 R&D:...Research and Development. SBH:...Sinkaberg-Hansen AS. Share(s):...The shares in the capital of Hofseth BioCare, each having a nominal value of NOK 1 and a Share means any one of them. SPH:...Soluble Protein Hydrolysate. TSI or TSI Healt Science Ltd...Global manufacturer of functional ingredients and pharmaceuticals. USD:...United States Dollar, the lawful currency of the United States of America. U.S. Securities Act:...United States Securities Act of 1933, as amended. VAR:...Value added resellers. VPS:...Norwegian Central Securities Depository. 125

127 Appendix 1: Articles of Association Hofseth BioCare ASA The original version is in Norwegian and will prevail in case of discrepancies. Articles of Association Hofseth BioCare ASA - as amended on 22 March The Company s business name The Company s business name is Hofseth BioCare ASA and the Company is a public limited liability company. 2 Business office The Company s business office is in the municipality of Vanylven. 3 The company s business The Company s business is to develop, refine, market and sell marine ingredients such as marine oils, protein and calcium products, as well as cooperation with and participation and ownership in entities with related business. 4 The company s share capital The Company s share capital is NOK 70,087,354 divided into 70,087,354 shares each share with a par value of NOK 1. 5 The company s board of directors The Company s board of directors shall have from 3 to 10 members according to the resolution of the General Meeting. 6 Audit Committee The company shall have an audit committee. The Board decides which members the audit committee shall consist of. 7 General Meeting The Annual General Meeting shall consider and adopt: 1. Approval of the annual financial statements, including payment of dividends. 2. Other matters which according to law or the Articles of Association is within the General Meeting s competence. The Company s general meetings shall be held in the municipality of Ålesund. 8 Electronic communication The Company may use electronic means to communicate messages, notices, information, documents and similar notifications. 9 Documents posted on the company s website Documents related to matters on the agenda at a General Meeting which are posted on the Company s website, will not be sent to the shareholders. 126

128 ASA Sales office: Smuget Asker Norway Tel: or Swedbank First Securities Filipstad Brygge 1 P.O. Box 1441 Vika N Oslo Norway Norne Securities AS Parkveien 61 P.O. Box 2507 Solli N Oslo Norway