CROWDFUNDING GUIDELINES

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NASD CROWDFUNDING GUIDELINES AND RULES Page 1 of 12

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CROWDFUNDING GUIDELINES

1. ISSUER GUIDELINES

a) PROFILE:

The Issuer profile should show the following:

i. The Issuer must be a registered company in Nigeria according to the provisions of the Companies and Allied Matters Act 2004

ii. The promoter(s) must be aged 18 and above iii. The Issuer must be a Nigerian company iv. The startups must be run by the promoters

v. The purpose for which the Issuer requires funding should NOT be illegal or charitable

b) MARKETING:

i. The Issuer cannot use general solicitation or advertising to market the securities; ii. The Issuer may sell its securities to an unlimited number of "accredited investors"

all of whom must have sufficient knowledge and experience in financial and business matters to make them capable of reasonably assessing the risk and return on the potential investment opportunity;

iii. Companies must decide what information to give to accredited investors, so long as it does not violate the antifraud prohibitions of the federal securities laws.

iv. The Issuer must be available to answer questions by prospective purchasers and provide all required financial and other information

v. The Issuing house must take reasonable steps to confirm that investors are accredited investors. NASD is fully indemnified from any loss on the instruments issued.

vi. Issuers must file the result of their capital raising with the Securities and Exchange Commission. The filing should include information such as names and addresses of the issuer’s promoters, executive officers and directors, and some details about the offering.

c) CAPITAL RAISED

vii. Crowdfunding must be done through a Crowdfunding agent [“CFA”] registered to operate on the NASD Crowdfunding site. Such CFA have the responsibility of packaging the project and preparing it for funding.

viii. An Issuer may engage as one CFA per capital raising and may not engage more than 1 CFA for each project or capital raising.

ix. Such CFA also bear the responsibility and liability to shareholders for the information memorandum, placement documents and due diligence on the claims of the project issuer.

x. The issuer may project a minimum target of ₦15,000,000 and maximum amount of ₦100,000,000 net of professional fees in each calendar year.

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xii. Fundraisings that meet a 60% success level will be released to the Issuer. Where the amount raised falls short of the 60% threshold, the monies collected into the CFA escrow account will be returned to investors.

xiii. Issuers who successfully raise an excess of ₦100 million are required to file annual returns with SEC and NASD.

d) DISCLOSURE REQUIREMENTS

Issuers will file the following details on an eXtensible Markup Language (XML) form xiv. name, legal status, physical address and website address of the Issuer;

xv. names of the directors, executive officers or persons holding more than 5% of the shares of the Issuer;

xvi. principal occupation of directors and other promoters over the last three years xvii. a description of the business of the Issuer and the business plan of the Issuer; xviii. a description of the financial condition of the Issuer;

xix. A statement of financial condition no older than 180 days

xx. any debt obligations of the companies and any contingent liabilities

xxi. a description of the stated purpose and intended use of the proceeds of the offering sought by the issuer with respect to the target offering amount;

xxii. the target offering amount, the deadline to reach the target offering amount and regular updates regarding the progress of the Issuer in meeting the target offering amount;

xxiii. Disclosure as to whether the Issuer can accept oversubscriptions

xxiv. Statement on investors right to cancel subscription – usually 48 hour cancelation window

xxv. Statement on Issuer right to cancel – usually a 48 hour cancellation window xxvi. Circumstance(s) under which the offering may be closed early

xxvii. the price to the public of the securities or the method for determining the price; xxviii. a description of the ownership and capital structure of the Issuer.

xxix. a disclosure of the material factors that make an investment in the Issuer speculative or risky

xxx. Record of the CFA in previous issuances (if any)

xxxi. Financial disclosure requirements will vary in line with the amount to be raised. E.g. Audited accounts are required where amount to be raised exceeds ₦ 35million The Issuer is also required to file all advertising material with NASD before publishing them. This is to ensure there is accountability and that no unwarranted representations are made.

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2. ACCREDITED INVESTOR GUIDELINES

a) PROFILE:

xxxii. Only accredited investors are allowed access into the Crowdfunding market.

xxxiii. Accredited investors must show evidence that supports a statement that they earn an annual income of ₦10 million or more or owning investment assets in excess ₦100 million for High Net worth Individuals and investment assets in excess N10 million for Institutional Investors

xxxiv. Accredited investors may invest up to 10% of their annual income in crowdfunding products investment over a 12 month period if they qualify as High net worth Individuals and a minimum of 5% of their investment assets over a 12 month period if they qualify as Institutional Investors. The table below will apply in the calculation of crowdfunding investment capacity.

% Annual Income ₦ ⁿ

Investment Assets ₦ ⁿ

Maximum available for crowdfunding

HNI’s 10% 10,000,000.00 100,000,000.00 1,000,000.00

Institutional Investors

5% 10,000,000.00 500,000.00

10% 10,000,000.00 –

50,000,000.00

Between 1,000,000.00 and 5,000,000.00 12.5

%

≥50,000,000.00 12,500,000.00

ⁿ - These thresholds may be reviewed annually in line with inflation and other key parameters xxxv. Rewards for Investors will be in the form of Equity stake in the business / dividends xxxvi. Funded projects will include Arts, Film and Dance, Music, Design, Crafts, Fashion,

Sports, Photography and the NASD industry classification.

xxxvii. Exit plan for investments: NASD CF Portal will provide an option for accredited investors and Issuers to exit investments after five years.

b) MODE OF PAYMENT:

xxxviii. Payments will be made to CFAs who will run an escrow account on behalf of their clients. Monies will only be disbursed when the project has been successfully funded to 60% of the total amount required and after deduction of all outstanding fees. xxxix. Fees: NASD CF Portal will have a standard administration fee of ₦ 50,000 and a 7%

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3. DISCLAIMER AND RISK WARNING

Investing in equity on NASD CF does not guarantee a regular return on your investment unlike mini-bonds which offer interest paid regularly. Please bear in mind the following particular risks for equity investments:

a) LOSS OF INVESTMENT

The majority of start-up businesses fail or do not scale as planned and therefore investing in these businesses may involve significant risk. It is likely that you may lose all, or part, of your investment and you are advised to build a diversified portfolio in order to spread risk and increase the chance of an overall return on your investment capital. If a business you invest in fails, neither the Issuer nor NASD will pay back your investment.

b) FORWARD LOOKING STATEMENTS:

The Issuers’ proposal may contain assumptions or positive assertions that forecast the growth, development and success of a business. Such statements may include but are not limited to “could”, “believe”, “may”, “imagine”, “expect”, “estimate”, “intend” and “plan” as well as the negative forms of these expressions. If provided, Investors should be aware that they do not represent a final and accurate indication of the Issuers’ performance. These statements may qualify the proposal at the initial time it was produced but may not solely represent the reality of current trends. Investors must make a personal valuation of all available information prior to investing.

c) ILLIQUIDITY:

Liquidity is the ease with which an investor can sell their shares after purchase. Shares purchased in businesses pitching through NASD cannot be sold easily and they are unlikely to be listed on a secondary trading market other than NASD. Investments in small companies via the NASD CF Portal may therefore be highly illiquid until the equities of the Issuers’ company have been introduced to trade on the OTC market.

d) LOSS OF CAPITAL:

Investors should invest at their own risk and be advised that many small Companies may fail. e) RARITY OF DIVIDENDS:

The investor should be aware that start-ups rarely pay dividends in the years before break-even is realised. Dividends are payments made by a business to its shareholders from the Issuer’s profits. As a majority of the companies inviting for equity on the NASD Portal are start-ups or early stage companies, these companies will rarely pay dividends to their investors. This means that you are unlikely to see a return on your investment until you are able to sell your shares. Profits are typically re-invested into the business to fuel growth and build shareholder value. Businesses have no obligation to pay shareholder dividends.

f) DILUTION:

Investments made on the NASD CF Portal are subject to dilution, as the Issuers’ can call for additional investments in the future. The percentage of the Issuers’ business that Investors possess will decline. Dilution affects every existing shareholder who does not buy any of the new shares being issued.

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g) PRE-EMPTIVE RIGHTS

Some businesses who pitch for equity investment through NASD offer Preference Shares, which may include pre-emption rights that protect an investor from dilution. In this situation the business must give shareholders with Preference Shares the opportunity to buy additional shares during a subsequent fundraising round so that they can maintain or preserve their shareholding. Please check a pitch, and the Articles of the Issuer to see if the shares you are buying will have these pre-emption rights. Most companies do not offer pre-emption rights for Ordinary Shares.

h) DIVERSIFICATION:

Diversification involves spreading your money across multiple investments to reduce risk. However, it will not lessen all types of risk. Diversification is an essential part of investing. Investors should only invest a proportion of their available investment funds via NASD and should balance this with safer, more liquid investments. Investors are notified that investing in the securities of small companies should only be done as part of a diversified portfolio.

i) LACK OF OPERATING HISTORY:

Issuers’ start-ups are new in operation, a result of which investors have no operating history to base investment decisions on.

j) DEPENDENCE ON DIRECTORS:

Issuers on the NASD CF Portal will be successful depending on the directors’ ability to attain a comprehensive company strategy being a success indicator.

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4. RISKS WHEN INVESTING IN MINI-BONDS

Mini-bonds are a very different kind of investment to equity and you do not own a stake in the business issuing the mini-bond. Instead you receive regular interest payments from the Issuer and then your initial investment back at the end of the mini-bonds term. Before investing, you must read and agree to the Invitation Document for each mini-bond as these contain the exact terms and conditions, including the interest payments and final repayment time. It is important to understand that companies issuing mini-bonds (‘the Issuers’) are solely responsible for their financial status and consequently their ability to pay interest and return investors’ capital when the mini-bonds mature. NASD does not issue the mini-bonds listed on the NASD platform and is not responsible for their performance.

a) LOSS OF INVESTMENT AND INTEREST PAYMENTS

Companies issuing mini-bonds, like all businesses, are vulnerable to financial difficultly and investing in mini-bonds may involve significant risk. In the event of an Issuer failing it is likely that you may lose all, or part, of your initial investment and receive no outstanding or future interest payments.

If a business you invest in fails, neither the Issuer you invest in – nor NASD – will pay you back you investment. You should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk.

b) LACK OF LIQUIDITY

Liquidity is the ease with which you can sell your investments after you have purchased them. Mini-bonds purchased from businesses pitching through NASD cannot be sold as they are generally non-transferrable and will not be listed on a secondary trading market such as the London Stock Exchange’s Order book for Retail Bonds (LSE ORB). Please refer to the individual mini-bond documentation for full details of transferability. Investments in mini-bonds through NASD should be viewed as a long term and illiquid investment.

c) RESTRICTED REDEMPTION RIGHTS

Companies issuing mini-bonds through NASD set the terms for redeeming their investor’s capital. Investors should be aware that they will not be able to redeem their initial investment under any circumstances other than those set out in the terms and conditions of the documentation of an individual mini-bond, meaning their capital will typically be locked up for 3-5 years and should therefore be viewed as a long term and illiquid investment.

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d) UNSECURED INVESTMENT

Mini-bonds are typically an unsecured investment, meaning there is no security over property or assets supporting the purchase of bonds. For example, when a bank lends you money to buy a house its security on the property is a mortgage, entitling the bank to repossess your house if you don’t make the required payments.

Investors in unsecured mini-bonds have no such mortgage or security over the assets of companies they lend to. This means that if an Issuer fails, it is unlikely that an investor will have their initial investment or outstanding interest payments returned to them because there is no security over any remaining assets.

e) LOWER IN THE PECKING ORDER ON WINDING UP

If an Issuer falls into financial difficulty and goes out of business, other creditors and debt holders with seniority – including fixed charge holders, administrators, employees who are owed wages, banks, and secured debtors - will be compensated first. This means it is unlikely mini-bond investors, who sit below all of the previously mentioned in the pecking order, will have their initial investment or outstanding interest payments returned to them after higher ranked creditors are compensated.

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CROWDFUNDING RULES DEFINITIONS

Except as otherwise defined, the following terms used in these Rules shall have the meaning ascribed to them below:

“Accredited Investor” means a High Net worth Individual or Institutional investor that possesses the capacity, expertise and sophistication to undertake high risk investment activities or has access to specialized investment advisory service for high risk investment activities with an:

a) Annual income of at least ₦10 million or investment assets of at least ₦100 million for the High Net worth individuals and

b) Investment assets of at least ₦10 million for Institutional investors.

“Allowable investment amount” means the maximum threshold for investment annually by an Accredited Investor through the Crowdfunding Portal as set out below:

a) 10% of their annual income for High Net worth Individuals.

b) 5% of the value of their investment assets for Institutions with investment assets of at least ₦10 million.

c) 10% of the value of their investment assets for Institutions with investment assets ₦10 million and N50 million.

d) 12.5% of the value of their investment assets for Institutions with investment assets above N50 million.

“Crowdfunding” means the practice of funding a project or venture by raising small amounts of money from Accredited Investors via the Internet.

“Crowdfunding Agent” means an Issuing House registered with NASD and permitted to operate as a Crowdfunding Agent

“Crowdfunding Portal” means the online portal created by NASD for Crowdfunding

“Issue proceeds” means the monies raised from Accredited Investors through the Crowdfunding Portal

“Issuer” means any startup incorporated as a company in Nigeria under the CAMA whose promoters are of Nigerian origin.

“Promoter” means any person who undertakes to take part in forming a company and who takes the necessary steps to accomplish that purpose.

“Startups” means any company which has been in existence for a period less than four years from the date of incorporation.

1. REGISTRATION OF ISSUERS

An Issuer desirous of raising funds through Crowdfunding on NASD Crowdfunding Portal shall satisfy the following requirements:

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(a) The Issuer must be a registered company in Nigeria according to the provisions of the Companies and Allied Matters Act 2004

(b) The promoter(s) must be aged 18 and above (c) The Issuer must be a Nigerian company (d) The startups must be run by the promoters

(e) The purpose for which the Issuer requires funding should NOT be illegal or charitable

2. ISSUERS’ DISCLOSURE REQUIREMENTS

Every Issuer shall make available to NASD the following preliminary information prior to their admittance on NASD’s Crowdfunding Portal:

(a) name, legal status, physical address and website address of the Issuer;

(b) names of the directors, executive officers or persons holding more than 5% of the shares of the Issuer;

(c) principal occupation of directors and other promoters over the last three years; (d) a description of the business of the Issuer and the business plan of the Issuer; (e) a description of the financial condition of the Issuer in the prescribed format; (f) A statement of its financial condition no older than 180 days

(g) any debt obligations of the companies and any contingent liabilities

(h) a description of the stated purpose and intended use of the proceeds of the offering sought by the issuer with respect to the target offering amount;

(i) the target offering amount, the deadline to reach the target offering amount and regular updates regarding the progress of the Issuer in meeting the target offering amount; (j) Disclosure as to whether the Issuer can accept oversubscriptions;

(k) Statement on investors right to cancel subscription; (l) A statement on the Issuer’s right to cancel;

(m) Circumstance(s) under which the offering may be closed early;

(n) the price to the public of the securities or the method for determining the price; (o) a description of the ownership and capital structure of the Issuer;

(p) a discussion of the material factors that make an investment in the Issuer speculative or risky;

(q) Record of the Crowdfunding Agent in previous issuances;

(r) Audited accounts where amount to be raised by the Issuer exceeds ₦ 35million;

(s) The price to the public of the securities and the method(s) used in determining the price; (t) Any other information as may be prescribed by NASD from time to time in the interest

of the public and for the protection of investors.

3. APPOINTMENT OF CROWDFUNDING AGENT

3.1 Every Issuer shall appoint Crowdfunding Agent(s) who shall advise on and package the offering of the Issuer’s securities on the Crowdfunding Portal.

3.2 It shall be the responsibility of the Crowdfunding Agent appointed to advise the Issuer, make available all documentation required and liaise with NASD in order to ensure a successful exercise.

3.3 The Crowdfunding Agent so appointed must be registered to operate as a Broker/Dealer with NASD and be in good standing.

3.4 The Crowdfunding Agent shall be required to disclose fully any interest by its directors and principal officers in any Issuer(s) which it represents.

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3.5 Provided that every Crowdfunding Agents appointed who invests in an Issuer shall not exit such investment until the expiration of a period of at least one from the date of investment.

4. LIMITATION OF INVESTMENT

4.1 No Accredited Investor shall be allowed to make investments through the Crowdfunding Portal which exceed the allowable investment amount.

4.2 Any investment made in excess of the allowable investment amount shall be returned to the Accredited Investor within 4 days of report of the breach of this requirement.

5. WITHDRAWAL OF SUBSCRIPTION

5.1 An Accredited Investor shall be permitted to withdraw its subscription in respect of an Issuer’s securities provided that the intention to withdrawal its subscription is communicated to the Issuer through the Crowdfunding Agent within 2 days from the time of subscription.

5.2 The Issuer shall be required to refund any investment made in 5.1 within 3 days of its receipt of the Accredited Investor’s withdrawal.

6. CANCELLATION OF SUBSCRIPTION

6.1 The Issuer may cancel any subscription by an Accredited Investor in respect of its securities provided that the intention to cancel a subscription is communicated to the Accredited Investor within 2 days from the date of receipt of the subscription.

6.2 The Issuer shall be required to refund any investment made in 6.1 within 3 days of its notification of cancellation to the Accredited Investor.

7. CUSTODY AND DISBURSEMENT OF ISSUE PROCEEDS

7.1 NASD shall ensure that no issue proceeds are disbursed to the Issuer until the attainment at least 60% of the target offering.

7.2 Prior to disbursement, the issue proceeds shall be kept in an interest yielding escrow account managed by the appointed Crowdfunding Agent on behalf of the Issuer.

8. UNDER-SUBSCRIPTION

Where the funds raised from any Crowdfunding exercise is less than 60% of the total issue, the exercise will be terminated and funds in the escrow account returned to the Accredited Investors within 5 days of termination.

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9. CLOSURE OF CROWDFUNDING PORTAL AND ALLOTMENT OF SECURITIES

NASD shall close the Crowdfunding portal upon expiration of the deadline indicated for the exercise and the Issuer securities shall allot securities to the Accredited Investors.

10. LIABILITY/INDEMNITY

The Issuer shall be solely liable to investors for any untrue statements of material facts or omissions of material facts in respect of the Company or the securities on the Crowdfunding Portal.

11. PROGRESS UPDATE

An issuer shall prepare and make available to investors and potential investors through NASD’s CF Portal regular updates on its progress in meeting the target offering.

12. CONTINUOUS OBLIGATION

12.1 As part of the Issuer’s continuing obligations to NASD, it shall be required to provide the following information:

(a) interim financial statements including quarterly and half-yearly;

(b) Material changes in any of the information provided at the time of registration.

12.2 Provided that where the Issuer successfully raises funds in excess of ₦100 million through the Crowdfunding Portal it shall be required to file annual returns with NASD and the Securities and Exchange Commission.

13. DISQUALIFICATION OF ISSUER

The NASD Crowdfunding Portal shall not be open to Issuers whose promoters are/have:

(a) Been convicted by a Court of any offence in connection with the promotion, formation or management of a company;

(b) been convicted of any offence involving fraud, theft, false accounting or other dishonesty or an offence relating to companies, building societies, industrial and provident societies, credit unions, friendly societies, insurance, banking or other financial services, insolvency, consumer credit or consumer protection, money laundering, market manipulations or insider dealing

(c) been found guilty of conducting any unauthorised regulated activities or been investigated for possible conduct of unauthorised regulated activities

(d) Been a promoter of any registered entity that was put into liquidation, wound up, ceased trading, had a receiver or administrator appointed or entered into any voluntary arrangement with its creditors;

(e) Been barred from engaging in the business of securities, insurance or banking, savings associations or credit unions;

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14. DISPUTE RESOLUTION

Disputes involving NASD, the Issuer and Accredited Investors shall be brought before a Disciplinary Committee and shall have the right to appeal in line with the Disciplinary measures and Dispute Resolution provisions contained in Clause 6 to 9 of the Rules and Regulations of the NASD OTC Market.