Provision Language
ARTICLE 3 – CONSIDERATION
3.1 LICENSEE shall pay the following to MICHIGAN.
(a) LICENSEE shall pay to MICHIGAN a license issue fee equal to $______ within fourteen days after the complete execution of this Agreement.
(b) LICENSEE shall pay to MICHIGAN a royalty on SALES equal to _______ percent (___%) of NET SALES (“RUNNING ROYALTIES”). With respect to any LICENSED PRODUCT(S) defined only under subsection (b) of the definition thereof, royalty rates specified above shall be discounted by 50%.
(c) LICENSEE shall pay to MICHIGAN _______ percent (___%) of any consideration that LICENSEE or SUBLICENSEES (or a designee) is due from or receives from SUBLICENSEES or assignees in consideration for rights under the PATENT RIGHTS (for example, license issue fees, maintenance fees, milestone payments, other royalties), and which is not a running royalty paid as a percent of sales of products (“NON-SALES BASED SUBLICENSING FEES”).
(d) LICENSEE shall pay to MICHIGAN the following fees due on January 31 of the indicated year (each an “ANNUAL FEE”). MICHIGAN shall credit each ANNUAL FEE against RUNNING ROYALTIES otherwise due on NET SALES made during the calendar year for which the ANNUAL FEE applies. For clarity, any ANNUAL FEE in excess of RUNNING
ROYALTIES shall not be creditable to amounts due for future years. The ANNUAL FEES are:
(1) For : $ ;
(2) For : $ ;
(3) For : $ ; and
(4) For and in each year thereafter during the term of this Agreement: $_______________.
(e) Without limiting any other payment required under this Agreement LICENSEE shall pay to MICHIGAN the following Milestone Payments:
(1) _____________________
(2) _____________________
(3) _____________________
(4) _____________________
(5) ______________________
Milestone payments are non-refundable and non-creditable.
(f) LICENSEE shall reimburse MICHIGAN for patent expenses incurred prior to the EFFECTIVE DATE, according to the following schedule: _______. LICENSEE has had an opportunity to investigate and inquire as to such prior patent expenses prior to the execution of this agreement. Patent expenses incurred after the EFFECTIVE DATE are addressed in Article 7 below.
(g) Without limiting any other payment required under this Agreement by not noting it in this Section 3.1 for convenience, LICENSEE shall make any milestone or other payments required under Article 5.
3.2 With respect to RUNNING ROYALTIES, the following shall apply: (a) LICENSEE is not obligated to pay multiple royalties if any LICENSED PRODUCT is covered by more than one claim of PATENT RIGHTS or the same LICENSED PRODUCT is covered by claims in two or more countries; (b) LICENSEE shall pay RUNNING ROYALTIES to MICHIGAN during the entire ROYALTY TERM, as determined on a LICENSED PRODUCT-by- LICENSED PRODUCT and country-by-country basis, and this provision shall survive any termination of this Agreement; and (c) if LICENSEE makes any SALES to any party affiliated with LICENSEE, or in any way directly or indirectly related to or under the common control with LICENSEE, at a price less than the average price paid by other parties in the ROYALTY TERM, the RUNNING ROYALTIES due to MICHIGAN shall be computed on the basis of the fair market price to be agreed upon in good faith by LICENSEE and MICHIGAN. With respect to LICENSED PRODUCTS made, used, imported, or offered for sale before end of the ROYALTY TERM, but are then SOLD after the end of the ROYALTY TERM, NET SALES shall include amount for the SALE of those LICENSED PRODUCTS. Within sixty (60) days after the end of the ROYALTY TERM, LICENSEE shall provide to MICHIGAN a verified inventory identifying all LICENSED PRODUCTS on hand or not SOLD that were manufactured prior to end of the ROYALTY TERM.
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3.6.1 Upon the issuance by LICENSEE of equity interest in LICENSEE (whether in the form of capital stock or otherwise) resulting in proceeds to LICENSEE since its incorporation of not less than a total of $[______________] (the “THRESHOLD”) in new money only (exclusive of conversion of indebtedness) to one or more third party venture capital funds or institutional investors in one or more rounds of equity financing (the “REQUIRED FUNDING EVENT”), LICENSEE shall transfer to MICHIGAN that number of shares of capital stock or other equity interest of the same type and class of equity security issued in the ROUND that results in LICENSEE reaching the THRESHOLD equal to [__________]% of the FULLY DILUTED equity of LICENSEE (the “APPLICABLE PERCENTAGE”), taking into account all of the equity or rights to acquire equity issued in such ROUND (including all such equity or rights issued in one or more tranches of such ROUND). LICENSEE shall make such transfer pursuant to a stock transfer agreement to be negotiated in good faith by the parties (the “STOCK TRANSFER AGREEMENT”) after LICENSEE has reached the THRESHOLD.
3.6.2 Notwithstanding the foregoing, in the event either (a) no REQUIRED FUNDING EVENT shall have occurred by the date forty eight (48) months after the date of this Agreement (the “EQUITY DEADLINE”), or (b) LICENSEE shall have entered into any agreement or other arrangement prior to such date that will result in a CHANGE OF CONTROL that does not constitute a REQUIRED FUNDING EVENT, LICENSEE shall promptly notify MICHIGAN, and at any time thereafter requested by MICHIGAN, LICENSEE shall instead transfer to MICHIGAN the APPLICABLE PERCENTAGE (as of the date of MICHIGAN’s notice) of the then fully-diluted equity of LICENSEE in the form of the then authorized type and class of capital stock or other equity interest with the most senior rights, determined on the basis of the following order of priority: liquidation preference, conversion rights, anti-dilution protection, dividend or profits preference, redemption and voting. LICENSEE shall make such transfer pursuant to, and subject to the terms of, the STOCK TRANSFER AGREEMENT as of (1) in the case of the foregoing clause (a), the EQUITY DEADLINE, or (2) in the case of the foregoing clause (b), the date immediately prior to the date of closing of the transaction giving rise to the operation thereof.
3.6.3 Within thirty (30) days after the final closing of any ROUND, LICENSEE shall give MICHIGAN written notice of the consummation of such ROUND that includes a report setting forth the basic terms of such ROUND, including, without limitation, the amount of new money raised, the nature of the equity issued (including, without limitation, liquidation preference, conversion rights, anti-dilution protection, dividend or profits preference, redemption and voting
rights), the identity of the investors and a summary of the post-financing capitalization of LICENSEE. The obligation of LICENSEE to give such notice shall terminate upon the first to occur of (a) the sale of LICENSEE’S capital stock to the public in a firmly underwritten offering registered under the Securities Act of 1933, as amended, and (b) a CHANGE OF CONTROL.
3.6.4 If LICENSEE proposes to offer, issue, sell or exchange (“OFFER”) any equity securities of LICENSEE, or any securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities (collectively, “NEW SECURITIES”), then LICENSEE shall first deliver to MICHIGAN a written notice of its intent to OFFER such NEW SECURITIES, by email to both: innovationpartnerships@umich.edu and notices@oup.vc. Such notice should specify in reasonable detail the NEW SECURITIES to be OFFERED, including the total number of securities, the applicable rights and preferences associated therewith, the purchase price, the purchaser, and the number of securities eligible for purchase by MICHIGAN under this provision. For thirty days after receipt of the written notice, MICHIGAN or its designee shall have the right to purchase up to 10% of the securities issued in said OFFERING on the same terms and conditions as are OFFERED to the other purchasers in each such financing. MICHIGAN shall be entitled to apportion this right among itself and its INVESTMENT AFFILIATES in such proportions as it deems appropriate. This right shall expire immediately prior to LICENSEE’s firm commitment bona fide initial public offering, and shall not be applicable to securities (a) that are issued to employees, officers or directors of, or consultants or advisors to, LICENSEE pursuant to equity compensation plans or arrangements approved by the Board of Directors of LICENSEE, (b) that are issued upon the conversion, exercise or exchange of other securities outstanding on the date of this Agreement, or (c) that are issued in a stock split or stock split in the nature of dividend by LICENSEE that is paid on a proportionate non-cash basis to all holders of LICENSEE’s capital stock.
3.6.5 For purposes of this Section 3.6, (a) “FULLY DILUTED” means the sum of (i) the number of all shares of capital stock or other equity interest of LICENSEE issued and outstanding, including the equity to be transferred to MICHIGAN, (ii) the number of shares of capital stock or other equity interest subject to, or reserved in respect of, any outstanding right to acquire capital stock or other equity interest in LICENSEE, and (iii) all shares of capital stock or other equity or profits interest reserved in respect of any plan or other arrangement for the issuance of capital stock or other equity or profits interest or rights to acquire the same, including, without limitation, any stock option, restricted stock or profits interest plan in place as of the date of the REQUIRED FUNDING EVENT; (ii) “ROUND(S)” means means the sale of capital stock or other equity interest issued in one or more tranches at the same per share or unit price and with identical rights with respect to liquidation preference, conversion, anti-dilution protection, dividend or profits preference, redemption and voting, as applicable; (c) “CHANGE OF CONTROL” means any of (i) the acquisition of LICENSEE by another person or entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of 50% or more of the outstanding voting power of LICENSEE, or (ii) a sale of all or substantially all of the assets of LICENSEE; and (d) “INVESTMENT AFFILIATES” means (i) any entity controlled by MICHIGAN, or (ii) any affiliate of MICHIGAN or any other entity in which MICHIGAN has a financial interest or investment, provided that such affiliate or entity is an “accredited investor” within the meaning of Regulation D under the Securities Act of 1933, as amended, which may include OUP Osage University Partners. The entirety of this Section 3.6 shall survive termination of this Agreement.