RULEBOOK On the Support Instrument Co-financed Grants and Conditional Loans for Commercialization of Innovations 1

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1 Based on article 25 paragraph 20 of the Law on Innovation Activity (Official Gazette of the Republic of Macedonia no. 79/13, 137/13, 41/14 and 44/15), the Managing Board of the Fund for Innovations and Technology Development, on its session held on , has enacted the RULEBOOK On the Support Instrument Co-financed Grants and Conditional Loans for Commercialization of Innovations 1 Article 1 This Rulebook shall regulate the basic characteristics of the Support Instrument Co-financed Grants and Conditional Loans for Commercialization of Innovations 2 (hereinafter: the Instrument), the criteria and procedures for applying for co-financing and the criteria and procedures for awarding of the co-financing grant or conditional loan. I BASIC CHARACTERISTICS Goal of the Instrument Article 2 The goal of this instrument is to incentivize increase in private sector R&D (research and development) and encourage different forms of collaboration for commercialization of innovations. Description of the Instrument Article 3 The instrument is open to micro, small and medium enterprises that wish to develop an innovative product, service or process either on their own or in collaboration with another enterprise or an institution that performs high educational or scientific-research activity. The instrument is intended for financing enterprises registered in the Republic of Macedonia in order to develop and implement innovative solutions in enterprises, including support for enterprises that have high potential for growth. The support through this instrument shall be granted to projects with clear commercialization objective that are in the phase of prototype (or appropriate depending on the type of innovation product, service, process) up to close-to-market phase. General Terms of Co-financing Article 4 Through this instrument the Fund for innovations and technology development (herein under: the Fund) shall provide financing of up to 70% of the total budget of the project, in a maximum amount of 100,000 (one hundred thousand) euro. The remaining amount of the total project budget shall be provided by the applicant. Funds received from the Fund on any other grounds or any other form of state aid is not acceptable as cofinancing by the applicant. 1 Commercialization Matching Grants and Loans 2 Commercialization Matching Grants and Loans

2 Forms of financing Article 5 The financing from this instrument can be in a form of co-financing grant or in a form of conditional loan, depending on the size of the applicant. The following conditions apply: - Financing for enterprises with annual revenues up to (five hundred thousand) euro in the previous two years is realized through co-financing grant, - Financing for enterprises with annual revenues over (five hundred thousand) euro in the previous 2 years, is realized through conditional loan. Financing in a form of conditional loan means initial awarding of funds to the beneficiaries in a form of loan with a possibility, if the beneficiary meets specific conditions pre-defined by the Fund, a portion or the entire amount of the loan to be converted into a grant. The maximum amount which can be awarded in a form of a loan cannot exceed 30% of the total capital of the beneficiary. The conditional loan shall be repaid within 5 (five) years of the project end date. The beneficiaries that use conditional loans shall pay a fixed interest rate of 2% (two percent). Conversion conditions Article 6 A conditional loan can be partially converted into a co-financing grant, upon completion of the following conditions: Approved final report by the Fund The beneficiary of the conditional loan retains the current number of employees at least two years after the end of the project, The beneficiary employs at least 5 (five) additional employees (with at least BSc degree, except when justified) which will be each engaged in the company for at least 2 (two) years; All due liabilities for principal and interest are paid to the Fund by the beneficiary. The Beneficiary should submit a Request for approval of the conversion to the Fund including the proof for fulfillment of the conditions for conversion listed in paragraph 1 of this Article. The Director of the Fund decides on the conversion of the loan into a co-financing grant. The conditional loan converted into grant is a subject of the conditions applying for the grant and shall be regulated by a Contract for awarding funds for co-financed grant (Annex 1). If converted into grant, the following applies: - the principal and interest rate already paid to the Fund by the beneficiary until the date of the approval of the Request for conversion shall not be returned to the beneficiary. - After the date of approval of the Request for conversion the Beneficiary shall not have liabilities for principal and interest to the Fund, - After the date of approval of the Request for conversion the Beneficiary shall have liabilities for royalty. Royalty payments will be made at a rate of 5% (five percent) of annual revenue generated from sales of product or service derived from the project, up to 120% of the amount that is residue after deduction of the already paid principal and interest by the Beneficiary to the Fund from the total financing received from the Fund or for a period of up to 5 (five) years after project completion, whichever condition is achieved first. The payment of the royalty will be calculated annually by the Fund in the

3 current year for the previous year, and should be paid by the Beneficiary to the Fund until March 31st in the current year for the previous year. The details for repayment/conversion of the conditional loan and the amount of financial costs will be presented in the Contract for awarding of funds for conditional loan (Annex 2). Royalty payment for co-financed grants Article 7 Upon successful commercialization, the revenue (not only the profits) derived from the sales of the product/service and any subsequent products/service based on the technology developed during/within the project financed by the Fund, will become the basis for the royalty payments towards the Fund. Royalty payments will be made at a rate of 5% (five percent) of annual revenue generated from sales of product or service derived from the project, up to 120% of the financing received from the Fund or for a period of up to 5 (five) years after project completion, whichever condition is achieved first. The payment of the royalty will be calculated annually by the Fund in the current year for the previous year, and should be paid by the Beneficiary to the Fund until March 31st in the current year for the previous year. Duration of the project Article 8 The duration of the projects financed under this instrument may not exceed 24 (twenty-four) months. In well justified cases, the projects may be extended for additional 12 (twelve) months upon prior approval by the Fund. The Director of the Fund may approve minor extensions of the project (up to two months) based on justified circumstances. Any longer extension shall be approved only upon a decision taken by the Committee for Approval of Investments. In case of an extension, the amount of the awarded grant may not be increased. Eligibility criteria of Applicant and partners Article 9 Applications from single applicants (SMEs) and consortia led by SMEs are eligible to apply for financing under this instrument. SMEs from all industries and sectors are eligible to apply for this instrument. Single Applicant Article 10 The eligibility criteria that the applicant has to fulfill are: - Be a trade company established according to the Trade Company Law and registered in the Central Registry of the Republic of Macedonia, - Be a micro, small or medium sized enterprise (up to 250 employees), - Is an enterprise with Macedonian ownership structure of 50,1% or more 3, - is in ownership of a person/s and/or SMEs (with Macedonian ownership structure of 50,1% or more) and/or an institution that performs high educational and/or scientific-research activity (up to 20% ownership) 3 Applicant is majority owned (greater than 50,1%) by a Macedonian citizen

4 - Not have revenues exceeding (one million) euro, according to the financial reports for the previous two years - Not have gathered funds for the project activities which are subject of the application from other sources, - Not have capital connection (according to the Company Law) to another enterprise where, the total revenues of both enterprises exceed (one million) euro in one of the previous two years except for enterprises with dominant ownership structure by universities, higher educational institutions and research institutions. - Not have accumulated over EUR national or international aid in the last three years including the requested amount of the Fund, according to the Law on State aid - Not have accumulated over EUR national or international aid in the last three years including the requested amount of the Fund, if active in the road transport sector, according to the Law on State aid - Not to be in difficulty. (Enterprise in difficulty is an enterprise that is unable to meet its obligations from its own resources or funds that can be obtained from its owner/shareholders or creditors, to end losses which without outside intervention of providers of aid, will certainly lead to short-term and long-term cessation of operations of the enterprise, and - Not to be engaged in coal production. Consortia of Applicant and partners Article 11 In case of applications submitted by consortia, the Lead applicant should be an SME/trade company that fulfills the eligibility criteria listed in Article 10 of this Rulebook. Members in the consortia can be: SMEs, institutions that perform high educational and/or scientificresearch activity from the country and from abroad. The consortia members (partners) should fulfill the following eligibility criteria: - Have not accumulated over EUR national or international aid per entity in the last three years including the requested amount of the Fund, according to the Law on state aid - Have not accumulated over EUR national or international aid per entity in the last three years including the requested amount of the Fund, if they are active in the road transport sector, according to the Law on state aid - Not to be in difficulty. (Enterprise in difficulty is an enterprise that is unable to meet its obligations from its own resources or funds that can be obtained from it owner/shareholders or creditors, to end losses which without outside intervention of providers of aid, will certainly lead to short-term and long-term cessation of operations of the enterprise. - Not to be engaged in coal production. The rights and obligations of the consortia members should be regulated in consortia agreement. In case of successful application, the applicant - SME submitting the application will become the beneficiary of and contracting party of the Fund and will be in charge of reporting to the Fund and distributing the awarded funds to the other partners, as planned in the Project Application and Project Budget. The maximum amount of the Project Budget that the beneficiary can distribute to the consortium partners is 30% of the total project budget.

5 Collaborative R&D contract (Subcontracting R&D services) between Applicant and partners/sub-contractors Article 12 In case of applications submitted by a single applicant proposing a collaborative R&D project contract with third parties, the applicant should fulfill the eligibility criteria listed in Article 10 of this Rulebook. Sub-contracting parties can be: other SMEs, institutions that perform high educational or scientificresearch activity from the country and from abroad. The partners/r&d sub-contractors should fulfill the following eligibility criteria: - Not have accumulated over EUR national or international aids per entity in the last three years including the requested amount of the Fund. Not have accumulated over EUR national or international aids per entity in the last three years including the requested amount of the Fund, if they are active in the road transport sector. - Not to be in difficulty. (Enterprise in difficulty is an enterprise that is unable to meet its obligations from its own resources or funds that can be obtained from its owner / shareholders or creditors, to end losses which without outside intervention of providers of aid, will certainly lead to short-term and long-term cessation of operations of the enterprise. - Not to be engaged in coal production. In case of successful application, the applicant will become the beneficiary of and contracting party with the Fund and will be in charge of reporting to the Fund and distributing the awarded funds to the other partners/sub-contractors, as planned in the Project Application and Project Budget. The maximum amount of the Project Budget that the beneficiary can distribute for R&D services subcontracting is 30% of the total project budget. Eligible Activities for financing Article 13 Activities eligible for financing under the granted project are the following: - R&D activities; - Testing activities; - IP related services (preparation for filing a patent and the actual patent filing); - Design activities; - Development of pilot lines; - Marketing and sales activities (aimed at bringing innovation to investment readiness and maturity for market take-up). The above is a non-exhaustive list. Eligible and ineligible costs for financing Article 14 Costs eligible for financing under this instrument are: - Gross Salaries (only employees of the applicant/partners/consortia members); - Purchase or rent of R&D equipment and R&D supplies (justification should be submitted); - R&D services (e.g. testing, laboratory services etc.), maximum 30% of the total project budget; - R&D experts/advisors, maximum 10% of the total project budget;

6 - Consultants (including management consultants, expertise in financial management, fund raising, business development, marketing, legal and IP issues and other areas of expertise) maximum of 5% of the total project budget; - Preparation and submission of patent (only patent registration, annual maintenance fees not covered) maximum 10% of the total budget; - Office and business support - maximum 5% of the total project budget - Marketing costs - maximum 10% of the total project budget; - Contingency reserves -maximum 5% of the total project budget (ex. Audit costs if audit is requested from the Fund). The contingency may be used upon approval of the Fund). Taking into account the uniqueness of every application, the percentages indicated above may be adjusted to reflect the project proposal goals and should be clearly justified in accordance with project proposal objectives. Only expenditures accrued during the project duration, in accordance with the approved project budget are eligible for financing. Costs ineligible for financing under this instrument are: - Interest or debt owed to any party; - Expenditures and provisions for past and possible future losses or debts; - Currency exchange losses, fees and penalties; - Entertainment and hospitality expenses; - Recruitment expenditures and relocation costs; - Purchase of land or buildings, including any renovation; - Cash payments from the dedicated project account; - Export activities (costs directly linked to export activities or establishment and operation of a distribution network or to other current costs linked to the company's export activities); - Procurement of freight transport vehicles by undertakings performing freight transport by road for hire or compensation. The above is a non-exhaustive list of ineligible costs. Protection of Intellectual Property Rights Article 15 For background IP applies the following: If applicable, the Applicant is required to show a proof of existing background IP rights including but not limited to licensing agreements, in-kind contribution agreements, options or commitments. Any other agreements confirming that the Applicant owns or has rights to the technology being developed and the finished product or service should also be provided. The licensing agreement should cover the project duration and additional 5 years after the project end date. The licensee should not breach the conditions in the license agreement. For foreground IP applies the following: Any new- IP and know-how, which may be created during the implementation of the project and/or as a result of the implantation of the project (foreground IP), belongs to the beneficiary. The Applicant/Beneficiary has to secure these IP- and know-how- rights in agreement with any third party, including project partners and sub-contractors. In case of a partnership project, the ownership rights and access rights must be regulated in the partnership/consortium agreement, in a way that guarantees that

7 ownership of IP rights will rest with the Beneficiary, and the partners, consortia members and subcontractors can have only access rights for further research purposes. The ownership rights may be transferred to the partners, consortia members and sub-contractors only in case of bankruptcy or liquidation of the Beneficiary. The Fund is not responsible for any disputes related to IP rights between the Beneficiary and third parties. II APPLICATION PROCESS Publishing of the Public Call Article 16 The Fund shall publish an Open Call for awarding of funds under this Instrument. The Open Call shall be published in at least two public media and on the website of the Fund. The deadline for submission of applications shall be set between 30 (thirty) and 60 (sixty) days from the announcement of the Open Call. The content of the Open Call is regulated under the Innovation Grants Operational Manual. The total budget allocated to each public call is determined by the Fund s Annual Working Programme and the Fund s Annual Financial Plan. In order to submit an application for the public call, Applicants need to fill in the Project Application (Annex 3) and Project Budget (Annex 4), along with other documentation as stated in the Innovation Grants Operational Manual. III EVALUATION Evaluation process Article 17 The rules and procedures for administrative check of projects are regulated in the Innovation Grants Operational Manual in detail. During administrative check, the Committee for administrative check uses the template Document for administrative check (Annex 5). The final decision of awarding funds under this instrument is under a sole jurisdiction of the Committee for Approval of Investments (herein after: CAI) The detailed rules and procedures for awarding funds are regulated under the Innovation Grants Operational Manual. Evaluation criteria for projects Article 18 The main criteria for evaluation of projects and awarding funds under this instrument are: - Degree of innovation - Market potential - Capacity of the project team - Project quality - Impact The table for pre-selection of projects (Annex 6) and the evaluation grid (Annex 7) with the sub-criteria for evaluation of the projects is used for evaluation by the Committee.

8 IV IMPLEMENTATION AND SUPERVISION Project implementation Article 19 The beneficiary shall implement the project in accordance with the good technical, economic, financial, management, environmental and social practices and standards. The Fund aims to foster innovation and risk-taking. Innovative projects often develop in a nature not initially anticipated. The Fund and the Committee for Approval of Investments would be acutely cognizant of this and factor it in their decision making. The Fund would permit modifications in the Project Application and the Project Budget as the project progresses so long as the initial spirit and essence of the project are kept intact. The beneficiary shall implement the project effectively and efficiently, in accordance to the submitted Project Application and Project Budget. Any significant modifications to the Project Application and the Project Budget (e.g. changes in the activity plan, the key personnel, budget allocations, etc.) must be approved ex-ante by the Fund. The Beneficiary will submit to the Fund quarterly progress report (Annex 8) and Final report (Annex 9), with financial reports, within the deadlines set out in the Innovation Grants Operational Manual. During implementation the beneficiary shall abide with the provisions given in the Contract for awarding funds, this Rulebook and the Innovation Grants Operational Manual. The detailed rules and procedures for project implementation, including procurement, supervision, monitoring, reporting, field visits, suspension, and termination of contracts for awarding funds are regulated under the Innovation Grants Operational Manual. V. MISCELLANEOUS Article 20 If not regulated by this Rulebook, the provisions under Innovation Grants Operational Manual apply. Article 21 On the day this Rulebook enter into force, the Rulebook for the support instrument Co-financing Grants and Conditional Loans for Commercialization of Innovations of the Fund for innovations and technology development n /1 dated shall be repealed. Article 22 This Rulebook shall enter into force on the day following the publication on the notice board of the Fund, and will be published after prior approval by the Government of the Republic of Macedonia. Num. Skopje, 2015 President of the Managing Board