Equity Participation Guidelines
Equity Participation Guidelines

Background

Historically, technology transfer is accomplished through the granting of a license to an established company. These licenses contain royalty terms such as up-front payments, minimum payments, running royalties based on a percentage of net sales, and termination payments. These royalty terms are the preferred method of payment.  However, it is recognized that with some companies an equity position in lieu of, or in some combination with, royalty may be appropriate in exchange for a license to the technology.  This arrangement would benefit companies by not impacting early stage cash flow and would benefit the Research Foundation (RF) because available company cash could then be applied to the development of the technology at a critical point in the commercialization process.

Policy

The Research Foundation of State University of New York (RF) will consider holding an equity position in companies that are specifically created to commercially exploit RF/SUNY owned inventions if the operations manager (OM) and the inventor(s) concur.  While the RF will not participate directly in the management or operation of corporations created to advance SUNY or RF technology, the RF is willing to cooperate in the transfer of technology by and/or through equity participation in such corporations.

If a company is owned or controlled by the inventor(s), after the total equity participation is determined the 40% inventor(s) share will be immediately distributed to the inventor(s), limiting the RF’s equity holding to only the campus portion.  If RF campus funds are used to increase participation in connection with a licensing agreement, the purchase of equity must meet the RF Board of Directors’ investment guidelines.

Extent of Equity Participation in a Corporation

It is anticipated that the RF will not hold equity positions that constitute more than a nominal percentage of the outstanding stock in a corporation. Except in unusual situations, the RF will not hold equity in excess of forty-nine percent or hold a controlling interest in a corporation.

Form of Equity Participation 

The RF will determine, on a case-by-case basis, the form of equity participation best suited to its interests. The preferred form of equity participation will be stock equity in a corporation. This equity participation may take the form of stock shares or of a debt instrument, such as a bond or note that is convertible into equity or that grants the right to acquire equity at a future date. However, the equity position must be provided at no cost to the RF.

Anti-Dilution of Equity Participation

The RF will generally require adequate anti-dilution provisions for any stock or warrants for stock received in connection with initial equity participation.  If the equity holding represents a minor percentage of the outstanding stock of the corporation, the RF may insist upon an undiluted equity interest up to a reasonable level of capitalization or for a specified period of time.  If the equity holding is a substantial percentage of outstanding stock of the corporation (but not more than forty-nine percent), then a floor percentage for the diluted equity will be established.  As a general rule, equity holdings of less than ten percent will not be considered substantial.  In the event the RF accepts a debt instrument that is convertible into equity, or is granted the right to acquire equity in the future, the anti-dilution provisions shall protect the RF for a specified period of time.

Stock Distribution

As a general policy all shares acquired under this equity participation will be immediately divided and the inventor(s) portion will be distributed to the inventor(s) in accordance with the 40:60 split required by the Patent and Inventions Policy of the State University of New York, as adopted by the Research Foundation (Patent Policy).  Provided there are compelling business reasons, and with the prior approval of the OM and the RF Treasurer, the RF may receive and hold all issued shares.

Equity Administration

  1. The RF Finance Office should receive a copy of all licenses containing equity positions.  All stock transactions require an RF corporate officer’s signature.
     
  2. The Research Foundation’s five technology transfer offices will be responsible for correspondence with licensees regarding actions affecting the RF’s capital stock interests, and will consult with the RF Office of General Counsel and Secretary, RF Finance Office and the OM, as required.
     
  3. The RF Finance Office will maintain all original stock certificates issued to the RF under licenses, and the RF Treasurer will be the Office of Record for the financial data relating to such stock certificates, unless the campus has obtained a safety deposit box.
     
  4. Annually, the RF Finance Office will determine the market value of all RF equity holdings which will be reported to the Finance Committee of the RF’s Board of Directors and to the OM.

Stock Liquidation

In consultation with the campus, equity holdings will be liquidated as soon as practical once the stock is salable under the terms of any agreement.  If a campus requests that a stock not be liquidated, the RF portion of the campus equity may be transferred to the campus based foundation or the RF Treasurer will continue to hold the stock and report the asset to the Finance Committee of the RF’s Board of Directors.

Proceeds from Equity Holding Situations

The proceeds from liquidation of a corporation in which the Research Foundation holds an equity interest, or the proceeds from the liquidation of the Foundation's equity interest in a corporation, shall be deposited in the campus royalty account for disposition in accordance with the Patent Policy and the campus royalty distribution policy.

 



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