Indicative technical specification for conducting market consultations in connection with a Technology Transfer Fund financial instrument, funded

Transcription

1 Indicative technical specification for conducting market consultations in connection with a Technology Transfer Fund financial instrument, funded under Operational Program "Innovation and Competitiveness"

2 Abbreviations used AIF Alternative Investment Fund DA Delegated Act TIPC Tax-Insurance Procedure Code PLC Public Limited Company ESPD European Single Procurement Document UIC Unified Identification Code EC European Community EU European Union ESIF European Structural and Investment Funds ERDF European Regional Development Fund LMML Law on Measures against Money Laundering PPL Public Procurement Law IT Investment Team AIFM Alternative Investment Fund Managers Operational Program "Innovation and Competitiveness" RAPPA Regulations for Application of the Public Procurement Act SAR State Aid Regime RGAP Regulation for General Applicable Provisions MA Managing Authority FMFIB "Fund Manager of Financial Instruments in Bulgaria" EAD FoF Fund of Funds VCF Venture Capital Fund 2018, FMFIB 2

3 Definitions Delegated act (DA) Acceptable instruments Early stage Replacement capital Commission delegated Regulation (EU) No 480/2014 of 3 March 2014 supplementing Regulation (EU) No 1303/2013 of the European Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund (OJ L 138, ). The Fund could only invest in the following instruments: Shares, other securities or equivalent rights or instruments entitling them to participate in the capital of an eligible End-User; Issued by an eligible Final Beneficiary instrument that permits the acquisition, through related rights or by conversion of instruments within the meaning of the above paragraph. Funding, in the form of an Acceptable Instrument provided to an End-User, for: Pre-seed: Funding provided before the Start-up phase, as defined in the following sentence, for the purpose of exploring, evaluating and developing a business start-up concept Seed & Start-up: Regardless of the sequence and number of stages, the funding provided to the enterprise from the time of finalizing the business start-up concept to launching mass production and / or distribution before or in the initial stages of commercial activity Purchase by the Fund of existing units, shares, other securities, equivalent rights or instruments that entitle an existing investor or shareholder to participate in the capital of a company. Investor FMFIB Fund manager for his / her minimum obligatory engagement; Co-investors, as defined in this Documentation. Innovation 1 A new or improved product or business process (or a combination thereof) that is significantly different from the company's existing products or business processes Keyholder Co-investment Individuals who participate in the Fund's management and controlling bodies and who are the majority owners of its capital. Each Keyholder holds not less than 10% of the Fund Manager's capital. Funding granted to a Final Beneficiary, in conjunction with the TFTP, by an Independent Private Investor, subject to the applicable State aid regime. 1 According to the definition in OSLO MANUAL 2018 OECD/EUROPEAN UNION 2018: 2018, FMFIB 3

4 Hurdle rate SMEs Place of business Directions Research organization Independent private investor Irregularity Carried interest GBER Eligibility period Subsequent investment Preliminary evaluation Companies operating in Bulgaria Effective annual rate of minimum required return for Investors, calculated on the utilized but non-repayable capital. Micro, small or medium-sized enterprises as defined in the Commission Recommendation 2003/361 / ЕО 2 of EC. It holds the meaning given in 1, item 5 of the Additional Provisions of the Tax and Insurance Procedure Code. Guidelines on State aid to promote investment in risk financing (OJ C19, , pp. 4-34). An entity, irrespective of its legal status or type of funding, the purpose of which is to conduct fundamental or applied research or to disseminate the results of such research (for example, through teaching, publication or knowledge transfer). A private investor who is not directly or through a related party a shareholder in the relevant End Recipient in which he invests, including business angels and financial institutions, regardless of their ownership, to the extent that they bear the full risk of their investment. When establishing a new company, it is considered that all private investors, including founders, are independent of it. Any infringement of Union or national law related to its application resulting from an action or lack of action by an economic operator involved in the implementation of ESI funds which has, or would have, the effect of causing damage to the Union budget by accrual of undue expenditure in the Union budget. The portion of the Fund's revenue earned by the Fund Manager, once the requirements of the Distribution Cascade section are met. Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid, compatible with the internal market, pursuant to Articles 107 and 108 of the Treaty; OJ L 187, The period up to 31 December 2023 or any later date specified in ROPA Additional investment in an enterprise after one or several previous venture capital investments made by the TTF. It is a preliminary assessment, as explained in more detail in Article 37 (2) of the ROP and on which is based the aid through financial instruments. For the purpose of this document, these are enterprises that: 2018, FMFIB 4

5 have a Place of Business or a registered office in the Republic of Bulgaria and meet at least one of the following alternative criteria: A minimum of 50% of their sales revenue is generated in Bulgaria; or at least 50% of their long-term tangible and / or intangible assets are permanently established or otherwise registered in Bulgaria; or the majority of the staff contributing to the creation of added value for their business (including, but not limited to, engineering and / or technical staff, researchers, and executives involved in the development and / or implementation of the business strategy and (or their products or services) are in Bulgaria or a substantial part of the activity related to the development of the products or services are located in Bulgaria; Applicable standards Best practice and professional standards of Invest Europe 3 or other equivalent organization publishing similar good practices and professional standards in the area of risk financing. ERDF Regulation Regulation (EU) No 1301/2013 of the European Parliament and of the Council of 17 December 2013 on the European Regional Development Fund and the specific provisions for the purpose of Investment for growth and job openings and repealing Regulation (EC) No Regulation (EC) No 1080/2006 (OJ L 347, ). Regulation (EU) No 1407/2013 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid (OJ L 352, , p. 1-8) RGAP Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down the general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Fund for Rural Development maritime affairs and fisheries and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347/320, ). Co-investor Transfer of technologies Independent private investors (excluding the Fund Manager) who have provided a Fund equity commitment and who have been accepted as Participants in the Fund in the manner described in the Operations Agreement. The technology transfer may include activities carried out by companies related to: examining the viability of converting research, development, skills, knowledge, technology or innovation into commercial applications, products, processes or services; and / or transfer of products, processes or services existing on a geographic market to another geographic market where such activities have not yet been researched, tested, adapted or entered into commercial turnover. 3 Current version of the Manual is available at , FMFIB 5

6 These activities may take the following forms: Economic demonstration and commercialization (including, but not limited to: development, demonstration, prototyping, market development, market expansion and support for less well-developed technology transfer infrastructures); Providing or acquiring Intellectual Property Licenses or their optimization, cross licensing activities (including through project finance), sale of patents; Creation of new companies, including through spin outs; Supporting business planning, setting up spin offs or joint ventures as well as building strategic alliances with other organizations; Collaboration between universities, research organizations and businesses, in particular through research / consultation contracts. Financial Instrument, TTF Fund Manager Financial Instrument "". A participant selected by FMFIB to manage the VCF in accordance with the requirements of the Operational Agreement. 2018, FMFIB 6

7 Limitation of Liability This document has been prepared for information purposes only (the Document). It briefly presents the most basic indicative features of the Financial Instrument "", financed by the Operational Program "Innovation and Competitiveness" (), and will be subject to substantial changes and additions. The document was prepared with the purpose of conducting a market test for the Financial Instrument. The final content of this document is subject to review and approval by the Financial Instrument Manager in Bulgaria (FMFIB) and the relevant Managing Authority. Nothing in this Document should be considered as an offer or recommendation to any person to make or not to make any decisions (including those related to investments) and to take or not to take any action. Introduction This document includes sample conditions for TTF and outlines the most basic sample conditions to serve as a basis for discussion with the market participants during the Market Test. Justification of the Financial Instrument The financial instrument will be implemented under the Operational Program "Innovation and Competitiveness" (). is structured in five priority axes, each contributing to one of the three complementary types of growth (i.e. smart, sustainable and inclusive growth) under the Europe 2020 Strategy. This financial instrument is funded under Priority Axis 1 "Technological Development and Innovation" of the OP, which is directly related to achieving smart growth through investment in the development of a knowledge-based economy and innovation. The specific objective of the funding under the priority axis is to increase the innovation activity of the companies. According to the, the direct support for the technology transfer, active commercialization of intellectual property and its management as a major tool for transfer of knowledge and revenue generation are particularly important in this respect. As stated in the preliminary evaluation of the implementation of the Financial Instruments carried out in 2014, it is necessary to establish a to promote innovation activity and increase the added value of innovation by establishing a link between innovative enterprises and carriers of innovative potential, to support the creation of new innovative potential through share and quasi-equity investments, in synergy with the established innovation environment, by enabling technological Item transfer can be provided in various forms for scientific developments into marketable products, processes and technologies. Investments can be in patents, licenses, intellectual property, launch of new products and market ideas, etc. Based on the above, Priority Axis 1 provides a financial instrument for share and / or quasi-equity investments in the transfer of technology, the commercialization of research results, intellectual property rights, new ideas and products. According to, the expected contribution of the instrument to the specific objective of the investment priority is related to the reduction of the gap between science and business, the commercial application of research results, the development of an environment suitable for innovation, the attraction of foreign investment and know-how, the penetration of Bulgarian companies and innovators in the international market. The role of FMFIB In order to solve the problem of the established inefficient functioning of the market and of the non-optimal investment situations, designated FMFIB as manager of the Fund of Funds ("FF"), by agreement between 2018, FMFIB 7

8 the two parties. In accordance with the agreement, the FMFIB manages funds to be invested as financial instruments on behalf of the Program. In this respect, the responsibilities of FMFIB include: Determining, assessing and selecting Financial Intermediaries for the implementation of the Financial Instrument, consisting of: - Analyze and prepare a technical specification for TTF; - Consultation of market participants and assessment of the market environment; - Preparation and implementation of the Fund Manager Selection Procedure; Negotiating, concluding and, if necessary, modifying arrangements with the Fund Manager; Management and monitoring; and Risk management, operational and financial reporting. The selection procedure by which FMFIB will determine the Fund Manager and the current execution shall be conducted in an open, transparent, proportionate and non-discriminatory manner in accordance with the applicable law and regulations, including Article 38 (5) of the ROPA and Article 6 and Article 7 of DA. 2018, FMFIB 8

9 Financial Instrument Legal structure Applicable State aid regimes Objectives of the Fund Design and application The Fund will be set up in accordance with the investment strategy of the Financial Instrument and the applicable legal acts. The TTF will be set up as an alternative closed-end investment fund within the meaning of Directive 2011/61 / EC and the relevant national legislation, which will introduce it according to the jurisdiction selected by the Fund Manager. The structure will be tailored to the prevailing market practices and professional standards, consisting of an Unlimited Liability Partner / Investment Manager / Fund Manager, Investment Consultant and Related Entities as well as Limited Liability Partners (Investors). Following a discussion with the market participants and an analysis of the current market environment during the Market Test, one or more AIFs may be established. Following the market participants' discussion during the Market Test, taking into account future investment strategies and in compliance with applicable regulations, several types of State Aid regime (SAR) may be implemented: SAR I: applicable in all cases, regardless of the specifics of the enterprise or the investment. The Fund Manager attracts a minimum of 30% of resources from Independent Private Investors, applying the pari passu 4 principle. FMFIB is considering applying SAR I to (Sub) Fund "Commercialization" and/or SAR II: is applicable to undertakings located in early stages of development, that is, in principle to (early) fund "Early Stage". When investing in this phase, two approaches are possible, SAR II (a) and (b), as follows: SAR II (a) 5 : For investments, incl. subsequent investments which, for the same company, together with the other minimum aid received, do not exceed EUR over a three-year period, no private investment is required outside the Fund's minimum contribution. or SAR II (b) 6 : The fund manager should attract a minimum of 10% of resources from Independent Private Investors. In this case, only SMEs that do not operate in any market are eligible. To invest in a diversified portfolio of enterprises aimed at providing support for Technology Transfer and Innovation in Bulgaria. Two options are considered: Design I: Structuring an investment fund managed by a fund manager that will be divided into two sub-funds as follows: 4 Subject to the applicable restrictions set out in the State Aid Guidelines for the Promotion of Investments in Venture Funding 5 In such cases, investments should be in line with the de minimis rules under Regulation (EU) No 1407/ In such cases, investments should be in line with the GBER 2018, FMFIB 9

10 Early Stage Sub-Fund, with a budget of up to EUR 10 million to provide support to start-ups, primarily for proof of concept, acceleration stage and initial stage Commercialization Sub-Fund with a budget of up to EUR 20 million to provide support to companies investing in mass-market and in the development of new product sales Design II: Structuring two investment funds managed by two separate fund managers as follows: TTF Early Stage Fund with a budget of up to EUR 10 million to provide support to start-ups, mainly for proof of concept, acceleration stage and initial stage TTF Commercialization Fund with a budget of up to EUR 20 million to provide support to companies that invest in mass-market and in the development of new product sales Types of investment Approach to attracting private funds Target group of enterprises for investments Eligible investees Fund / Funds investments may be made in the form of Eligible Instruments. The approach to attracting private funds, with a view to ensuring the leverage effect on FMFIB's assets, will be specified as a result of the market test. FMFIB considers providing an opportunity to raise funds in the following ways: At Fund level; Through a co-investment scheme at the Final Beneficiary level A combination of both Within the selection process of the Fund Manager, FMFIB will encourage the provision of private funds at Fund level. The target group of enterprises for investments may include: enterprises located in Bulgaria cooperating with other Bulgarian or European enterprises and / or universities or other higher education institutions and / or research organizations; scientific and innovation organizations and bodies; innovation and technology intermediaries; R&Dbased organizations and spin-off companies; innovative and high-tech enterprises; companies engaged in research; knowledge-based enterprises and / or other players involved in the innovation ecosystem. Eligible investees include enterprises that at the time of the initial investment: Are not traded on a stock exchange Enterprises operating in Bulgaria; In case SAR II (b) is applied, the following additional requirements apply: which are SMEs that do not operate in any market7; are not "firms in difficulty" within the meaning of Article 2 (18) of Regulation (EU) No 651/2014; are not the subject of an outstanding recovery order resulting from a previous Commission decision declaring an aid illegal and incompatible with the internal 7 Beforethefirstsalebythecompanyofproductsorservices on the market, exceptforlimitedsalesformarkettesting. 2018, FMFIB 10

11 market, with the exception of aid schemes for the remedying of damage caused by certain natural disasters; In the case of application of SAR I and SAR II (a), the companies to be invested in should not be firms in difficulty within the meaning of points 20 and 24 of the Guidelines on State aid for rescuing and restructuring of non-financial corporations in difficulty (OJ C 249, ); Eligible investments Areas of investment The eligible investments are as follows: Investments in Technology Transfer and Innovation; Investments that can be realized outside the program area but within the European Union and where the benefit of the investment is for Bulgaria, provided that all the conditions and thresholds under Article 70 of the CPR are met; Investments that are not physically completed or fully realized at the date of the investment decision; Support investments that are in line with Article 4 (1) of DA; Investments intended to finance objectives and expenditures that are in accordance with Article 37 (4) of the RGAP, in order to finance the acquisition of business property rights, the acquisition must be between independent investors; For which the conditions of Article 37 (7), (8) and (9) of RGAP have been met. Investments where the total amount of the investment does not exceed 5 million Euros. Investment for replacement capita, only if it is combined with new capital representing at least 50% of each investment circle in the eligible businesses; In case SAR II (b) is applied, the following additional requirements apply: Investments are based on a strong business plan that contains product details, sales and profits prospects and which establishes financial viability in advance; Investments that have a clear and realistic exit strategy provided for each capital and quasi-equity investment; Investments that provision subsequent investments are eligible under the following conditions: the possibility of subsequent investments was foreseen in the initial business plan; the business receiving subsequent investments has not become a related business within the meaning of Article 3 (3) of Annex I to the GBER with another undertaking which is not the financial intermediary or the independent private investor providing risk financing under the measure, unless the new entity fulfills the terms of the SME definition; the subsequent investment takes place with the participation of private investors in the subsequent funding round in accordance with Article 21 (10) of the GBER; the total amount of risk financing is in accordance with Art. 21, (9) of the GBER. Fund / Funds investments can be made in companies, operating in all sectors of the economy, with the exception of those explicitly mentioned in this document, i.e. under 2018, FMFIB 11

12 sections Eligible investees, Eligible investments, Ineligible investments and Excluded industries. However, the projects supported by the investees should be related to any of the four thematic areas of the intelligent specialization in the Innovation Strategy of Intelligent Specialization of the Republic of Bulgaria ("ISIS") namely: Mechatronics and clean technologies; Informatics and Information and Communication Technologies; Industry for Healthy Living and Biotechnology; New technologies in creative and recreational industries; Ineligible investments The Fund / Funds will not carry out investments, finalize / complete investments or otherwise provide / provide support for the following activities: the decommissioning or construction of nuclear power plants; investments to reduce greenhouse gas emissions from activities listed in Annex I to Directive 2003/87 / EC; manufacturing, processing and selling of tobacco and tobacco products; investments in airport infrastructure unless they are related to environmental protection or are accompanied by investments necessary to mitigate or reduce its negative impact on the environment. refinancing or restructuring of existing loans or leasing contracts; pre-financing of grants; any investment affected by an irregularity or fraud; investments that are linked to the obligation of thecompanies to be invested in to use nationally produced goods and services; In case SAR II is applied: an investment that is directly related to the quantities exported, the establishment and operation of a distribution network or other current export expenditure; an investment linked to the condition of using local goods at the expense of imported goods; In case SAR II (a) is applied: in the fisheries and aquaculture sector covered by Council Regulation (EC) No 104/2000; in the primary production of agricultural products; In case SAR II (b) is applied: an investment aimed at facilitating the closure of uncompetitive coal mines, which falls within the scope of Council Decision No 2010/787; investments that restrict the ability of the businesses to be invested in to benefit from R&D and innovation in other Member States. 2018, FMFIB 12

13 Excluded industries Currency of the Fund Amount of the Fund and Fund Closures In addition to the limitations on Eligible end recipients as well as Eligible and Ineligible investments, the following activities are excluded: Manufacturing or trading in any products or activities considered illegal by virtue of laws or regulations of the host state or international conventions and agreements; Any economic activity related to pornography or prostitution; The following activities, when forming a substantial part of the main operations of the Final Beneficiary or its investment: Production or trade of arms and ammunition; Production of distilled alcoholic beverages; Gambling, casinos and equivalents. Research and development or technical applications related to electronic data programs or solutions aimed, in particular, at supporting: All activities included in the excluded sectors mentioned above; Creating an opportunity for illegal penetration of electronic data networks; or Creating the ability to illegally download electronic data. Research and development or technical applications related to: Cloning people for scientific or therapeutic purposes; or Genetically modified organisms (GMOs). Clean financial activities8 or real estate development when performed by Endbeneficiaries on a professional basis. Under real estate development is meant activity for capital gains, including renting, unless the property is used in the core business of the enterprise; In case of doubt about the eligibility of potential investments related to these sectors, the Fund Manager must obtain explicit permission from the Advisory Board, taken by a simple majority. The Fund's capital may be in EUR or in BGN. The amount of the Fund will depend on the Fund's proposed terms and investment strategy and will consist of the total committed resource, gathered by the investors in it. The Fund's target amount and the minimum amount of the first closure will be determined after discussion with the market participants during the market test. The Fund / Funds will aim to raise the investment capital in stages (Fund Closures), where two or more investors will unconditionally commit to investing in the Fund / Funds. 8 Excluding financial technologies (fintech) meeting the definition given by the EC in note 1 of COM (2018) 109 final. For more information, please see: , FMFIB 13

14 FMFIB will participate in the first closure of the Fund / Funds. After the final closure, funds will not be accepted in the Fund / Funds. The final closing date will be negotiated with the Fund Manager / Fund Managers. Investment period Indicative committed resource of FMFIB Maximum share of FMFIB in the Fund Commitment of the Fund Manager Diversification of the portfolio Unless otherwise agreed, the Fund's Investment Period will commence on the date of the first closure of the Fund / Funds. The maximum committed FMFIB resource under the Financial Instrument will amount to a total of ~ 28.8 million, including the management fee. FMFIB considers the following two options for implementing the tool: Formation of an AIF managed by an AIFM but divided into two sub-funds, a sub-fund aimed at financing an investment at an initial phase and a sub-fund aimed at financing projects of mature companies, including large enterprises; or The formation of two separate AIFs managed by separate, unrelated AIFMs as follows: a fund aimed at financing an investment phase a fund aimed at funding mature business projects, including large enterprises. FMFIB considers splitting the financial instrument's budget by up to ten million for initial investments and up to 20 million for investments in mature businesses. The FMFIB will be determined in accordance with the SAR and may be as follows: In case of SAR I the financing provided by FMFIB cannot exceed 70% (seventy percent) of the total amount of funds provided to each of the final beneficiaries under the financial instrument. In case of SAR II: SAR II (a): The financing provided by the FMFIB cannot exceed 98% (ninety-eight per cent) of the total amount of funds allocated to each of the final beneficiaries of the financial instrument; SAR II (b): The financing provided by FMFIB cannot exceed 90% of the total amount of funds allocated to each of the final beneficiaries of the financial instrument, which should be enterprises that are SMEs and do not operate on any market as foreseen in Article 21 (5) (a) and 10 (a) of the GBER. The Fund Manager should make a financial commitment to the Fund of no less than 2% (two per cent) and no more than 7% (seven per cent) of the Fund's total committed resources. The Fund Manager's commitment will be considered as a commitment from an independent private investor and will be provided at the Fund level. Each keyholder should provide a certain minimum amount of funds into a Fund Manager's financial commitment. TTF cannot invest more than BGN 9.7 million in one enterprise, including subsequent investments, and in case of SAR II (a), the thresholds under Regulation 1407/2013 should be complied with. Additional restrictions may be imposed in the final technical specification. 2018, FMFIB 14

15 The Fund Manager should ensure an appropriate risk diversification policy aimed at achieving economic viability and an effective scale in terms of the size and territorial range of the relevant investment portfolio. Term of the Fund Investment period Subsequent investments Absorption Risk-sharing mechanism between investors Cascade of distribution years From the date of First Closure and will end on the earliest of the following dates: the end of the fifth year of the First Closure Date; December 31, 2023; The possibility of implementing Subsequent Investments will be discussed during the Market Test The fund's committed resources will be paid proportionally when necessary to complete investments or to provide funds to cover the Fund's / Funds' Management Fee. Investors will receive an absorption request at least 30 business days prior to the investment Pari passu or asymmetric distribution (depending on the state aid regime applied). Upon payment of the Management Fee of the Fund / Funds, the allocations will be made as follows: First, 100% of the Investors, while the Investors (in proportion to the amount of their respective committed resources) receive distributions equal to their aggregate drawings; Secondly, 100% of the Investors (in proportion to the amount of their respective committed resource) until they receive a Minimum Return on Hurdle Rate; Thirdly, 100% of the Fund Manager while receiving an amount equal to 25% of the Hurdle Rate ("Catch-up"), if any; Fourth, distribution to the Investors (in proportion to the amount of their respective Committed Fund Reserve) and the Fund Manager ("Carried Interest") In cases under SAR II (b) an asymmetric distribution between FMFIB and the Independent private investors may be discussed. Management fee Applicable for the Investment Period 9 Base management fee: up to 2.5% per annum for the first 24 months, then up to 1% per annum, on the amount of the Fund; and Performance Fee: Up to 2.5% per annum of invested and non-repaid funds, calculated in proportion to the elapsed time from the date of payment to the Final Beneficiary to the earliest of the following dates: the date of payment of the investment, the depreciation of the investment by more than 90%, the end of the recovery procedure in case of write-off of assets, the end of the Investment Period. 9 Pursuant to Article 13 (6) of the TA, the thresholds under and may be exceeded where, in the context of a tendering procedure, the need for a higher management fee is demonstrated. In the event that the Participant's offer exceeds these thresholds, it should justify the need for a higher fee. The rationale containing a cost model is presented as an Attachment to the Price Proposal upon submission of the tender. 2018, FMFIB 15

16 Applicable after the Investment Period 10 Management fee after the Investment Period: up to 1.5% per annum of invested and non-invested funds, calculated in proportion to the time elapsed from the date of payment to the Final Beneficiary, respectively the end of the Investment Period (whicheveroccurs later), until the earliest of the following dates: the date of the payment of the investment, the devaluation of the investment by more than 90%, the termination of the recovery procedure, the liquidation of the TFF, 31 December 2029 or any other later date that may be determined by regulations ESIS. Remuneration due from the date of signing of the Operational Agreement will be paid after successful completion of the First Closure of the Fund. Fund Manager / Fund Managers Corporate Governance of the Fund / Funds The Fund Manager is selected as a result of a selection procedure and should act independently. The Fund Manager is required to ensure compliance with the relevant standards and applicable legislation on non-laundering, counter-terrorism and tax fraud. The Fund Manager should fulfill the obligations and minimum requirements provided in Article 6 and Article 7 (1) of the DA: Perform their duties in accordance with the applicable law and act with professional diligence, efficiency, transparency and due diligence to the extent expected by a specialized organization, experienced in the application of financial instruments. They shall ensure that: (a) the firms invested in are chosen with due regard to the nature of the financial instrument and the potential economic viability of the investment projects to be funded. The selection must be transparent and objectively justified and should not give rise to conflicts of interest; (b) the companies to be invested in are informed that funding is provided under programs co-financed by the ESIS in accordance with the requirements of Article 115 of Regulation (EC) No 1303/2013; Have the right or guarantee that the Fund will have the right to perform the relevant tasks of implementing the instrument under Union law and National law; Have or ensure that the Fund has an appropriate economic and financial viability; Have or ensure that the Fund has adequate capacity to implement the Financial Instrument, including an organizational structure and governance framework; Have or ensure that the Fund has an effective and efficient internal control system and an accounting system providing timely accurate, complete and reliable information; Agree to be audited by FMFIB, the Managing Authority, the Certifying Authority, the Audit Authority, the National Audit Office, the Commission and the European Court of Auditors; The requirements for the corporate governance structure of the Fund will be in line with the applicable legislation, Invest Europe professional standards, and the Fund 10 Outside the threshold under paragraph FMFIB may pay a Management Fee only in case the funds are returned to FMFIB in relation to realized Investment Outcomes. 2018, FMFIB 16

17 Manager's proposal. As a minimum, the final technical specification will include requirements regarding: Composition and powers of the Fund manager The need to form an Investment Committee with certain powers. The scope of the Investment Committee's powers will include exclusive decision-making rights in relation to the implementation and management of investments, as well as the management of conflicts of interest, regardless of the nominal corporate fund structure of the Fund Manager. The need to form a Consultative Council of the investors with the largest participation in the Fund's capital. This body would have primary supervisory and advisory functions without the right to influence the investment decisions of the Fund. In its capacity as a major investor in the TFF, FMFIB will take measures to limit its powers in the Advisory Committee to enable private investors to make real decisions. Investor protection clauses Accountability Audit The operational agreements of the Fund will include investor protection clauses in line with the market practice, including but not limited to: Clause for events related to Key Individuals Clause for termination / suspension of the investment period Termination clause with / without defaults of the Fund Manager Investor protection clauses will be applied in line with the market practices, following a discussion with the market participants during the Market Test. The requirements related to the accountability will be in line with the Invest Europe Guidelines, with the specifics of the Financial Instrument and applicable EU regulations, including ESIF and State aid rules, which will be explicitly stated in the Operational Agreement. Accountability will be performed on a quarterly basis and on an annual basis in predefined forms. All TFF financial statements will be prepared in accordance with International Financial Reporting Standards. The Fund Manager shall agree on behalf of the Fund to keep all supporting documents necessary to provide an adequate audit trail in accordance with Article 9 and Article 25 of the DA. The Company will provide access to its premises and its TTF related documentation and will be subject to regular monitoring, control and auditing by: FMFIB, the European Court of Auditors, the European Commission, the European Anti-Fraud Office,, and other bodies with the respective powers up to the level of the enterprises in which the Fund invests. The Fund Manager is responsible for keeping the documentation available to the European Commission, the European Court of Auditors and other EU bodies and national authorities on request, within the time limits set in Article 140 of the CPR. 2018, FMFIB 17

18 Depending on the State aid regime applied, the Fund Manager keeps the documents necessary to verify compliance with all the conditions laid down in the relevant European regulation. Conflicts of interest Management of irregularities Technical support Public Relations / Communication Indicators of The Fund will enter into all transactions based on the principle of the transaction between unrelated parties. For the Investment Period, the Fund Manager and Key Individuals or IE members respectively are not allowed to manage or work in another investment fund with a similar investment strategy and investing in similar instruments that are in the investing period. The Fund Manager and Key Individuals respectively IE members are not entitled to manage or work in another investment fund in which a resource directly or indirectly invested by FMFIB or the MA is invested and this Fund is in a period of investment. The Fund Manager shall submit to the Advisory Committee all cases that could create actual or potential conflicts of interest. The Advisory Committee shall advise the Fund Manager on the approach to their resolution. The Fund Manager should ensure that Irregularities are not committed and take all necessary actions in accordance with the procedure set out in the Financial Instruments Rules. FMFIB is assessing the opportunity to combine the financial instrument with technical assistance for the investees. The assistance could be implemented by the Fund manager or by a third party. The scope of the assistance could potentially include: evaluating potential investments before applying for funding from the Fund in purely engineering or technical terms; mentoring and services in the field of intellectual property rights, market analysis and assessment of the potential for introduction of new products and / or services into production and sales Technical support may only be provided for the purpose of the technical preparation of the future investment and for the benefit of the respective final beneficiary. The Fund Manager must ensure that the TTF and the companies to be invested in comply with the applicable EU and national legislation, as well as (as amended) with regard to publicity, information and public communications, including as provided for in Annex XII to the CPR. The Fund Manager is expected to achieve the contribution of the Financial Instrument to the following product indicators: Number of enterprises cooperating with research institutions - 11 Number of enterprises aided to introduce new products for the company - 9 Number of enterprises aided to introduce new market products , FMFIB 18

19 Number of enterprises receiving support (the above indicators are part of this indicator) , FMFIB 19