Equity Acquisition in Technology Licensing Arrangements

I. Introduction

The University occasionally has the opportunity to acquire equity in companies on behalf of the University and with the approval of appropriate academic and business officers as consideration for a license agreement. Inclusion of equity in such agreements may be in the best interest of technology transfer. Young companies often do not have the requisite cash reserves to compete with an established company for rights to University technology. An offering of equity is a means of enabling otherwise qualified small companies to license University technology. However, the acceptance of equity presents two potential problems: risk and the generation of conflicts of interest and conflicts of commitment.

Risk is an issue because equity generally has no value at the time it is given. Whether or not equity will acquire value will depend on the overall success of the company, which is a function of many factors that may not relate to the technology being licensed. Therefore, the University will require some cash as part of the consideration for the license agreement to minimize risk, except in exceptional cases approved by the Provost and the Vice Chancellor for Business Affairs.

Equity has considerable potential for creating conflicts of interest for inventors and the University because equity holders are part owners of the company. Owners stand to gain considerably if the company does well, and therefore there may be incentive to take actions and make decisions that favor the interests of the company over the academic missions of the University.

This Policy reduces the potential for real or perceived conflicts of interest by removing inventors, departments, colleges, and campus administrative offices from the management and sale of University equity. The equity is owned by The Foundation of the University of North Carolina at Charlotte, Inc., and all decisions regarding the stock, including whether and when to convert the equity into cash, are made in the sole judgment of The Foundation of the University of North Carolina at Charlotte, Inc.

II. Policy

In the course of technology licensing, the appropriate campus administrative unit occasionally has the opportunity to propose that The University of North Carolina at Charlotte acquire equity. This Policy enables the University to receive a benefit from acquiring equity while addressing potential inventor and institutional conflicts of interest issues.

A. The University may accept equity in a company as partial consideration for technology licensing-related transactions in appropriate circumstances pursuant to this Policy, with the approval of the Provost and the Vice Chancellor for Business Affairs on recommendation of the dean of the college where the technology was invented. Under exceptional circumstances approved by the Provost and the Vice Chancellor for Business Affairs, it may be appropriate for the University to accept equity as full consideration for such a transaction according to the process specified in Section II. E.

B. University acceptance of equity in consideration of licensing a University technology shall be based upon the principles of openness, objectivity and fairness in decision-making and the preeminence of the education, research, and public service missions of the University over financial or individual personal gain. Such licensing activity shall be conducted in accordance with the policy "Research Relations with Private Enterprise and Publication of Research Findings," the policy "Conflicts of Interest and Commitment," the policy "Ethical Conduct in Research, Scholarship, and Educational Activities," the policy "External Professional Activities of Faculty and Other Professional Staff Exempt from the State Personnel Act," and other related University policies and guidelines.

C. The University (and The Foundation of the University of North Carolina at Charlotte, Inc., which holds such equity on behalf of the University) shall neither seek nor accept representation on the board of directors of a licensee in which it holds equity, nor exercise any voting rights on board actions, regardless of the level of its equity interest. Exceptions to this provision require approval of the Provost and the Vice Chancellor for Business Affairs. University employees who may accept appointment to boards of directors and scientific advisory boards of licensees do so in their individual capacities and not as University representatives, but are nevertheless subject to all applicable University policies in so doing, as detailed in Section II.H.

D. The terms of any technology licensing transaction, other than those related to the acceptance of equity in the company by the University, shall be consistent with University transactions for comparable technologies.

E. The University generally shall not accept more than a twenty percent (20%) ownership share in any licensee. Exceptions to this provision require the approval of the Provost and the Vice Chancellor for Business Affairs.

F. Where there is a proposal for the University to accept equity in a company as consideration for a technology licensing-related transaction, the Provost, taking into account any legal restrictions and after considering the wishes of each inventor involved, shall either:

1. Arrange for the inventor(s) to receive their share of equity directly from the company upon execution of an appropriate agreement, which shall include, without limitation

• provisions relating to restrictions, if any, on transfer or disposition of inventor(s) equity, and
• in appropriate circumstances, provisions modifying the share to be received by each inventor pursuant to the "Patent Policy"; or

2. Take all equity, including the inventor(s) share, in the name of The Foundation of the University of North Carolina at Charlotte, Inc., on behalf of The University of North Carolina at Charlotte, in which case the Foundation will make decisions regarding equity disposition based upon sound business judgment and publicly available information, and will coordinate with the appropriate Business Affairs officials if necessary. The sole right of the inventor(s) under these circumstances is the receipt of the appropriate share, as indicated in Section G., below, of such equity or its cash equivalent at such time and in such form as the Foundation shall deem appropriate.

3. Under no circumstances shall the University, the University Endowment, or The Foundation of the University of North Carolina at Charlotte, Inc., make any direct investment in any licensee in which the University has accepted equity as consideration for a license pursuant to this Policy unless and until the equity is publicly traded and the Foundation has disposed of its interest acquired in the licensing transaction.

G. The University shall determine the share of each inventor according to the "Patent Policy" and other relevant policies, including a deduction for any out of pocket expenses.

The University shall distribute equity or cash proceeds, upon conversion of equity to cash, in accordance with the schedules and formulas established in the "Patent Policy" and other relevant policies, taking into account the equity distribution to inventor(s), if any, already made pursuant to Section F.1. or F.2., above.

H. There shall be no negotiation independent of the University by any inventor regarding any license with a licensee. Exceptions to this provision may be approved under exceptional circumstances by the Provost and by the Vice Chancellor for Business Affairs. Independent negotiations by an inventor regarding consulting contracts are permissible, provided the inventor complies with the University policies on external professional activities for pay, conflicts of interest and commitment, the patent and copyright policies, and other applicable policies.

 I. This Policy is effective on and after May 21, 1997.