Start Up Security Company

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					                     Policy on Ownership of Equity in Start-Up Companies


As set forth below, the Institute has adopted a new policy regarding the implementation of the
5% rule as it applies to start-up companies. This policy is effective as of August 1, 2001. It does
not apply to consulting arrangements approved by the Institute prior to the effective date.

Ownership Limits
For a period of one year from the date an HHMI investigator first acquires ownership of any
securities of a start-up company for which he or she consults, the investigator may own up to
20% of any class of the company’s equity securities; however, in no event may HHMI
investigators as a group own more than 40% of a start-up company’s equity. By the end of the
one year period (or before any “significant event” takes place during the year), an HHMI
investigator’s equity ownership must be reduced to not more than 5% of any class of the equity
securities of the start-up company. For purposes of this policy, a “significant event” includes
any disposition for profit of company securities by the investigator, an initial public offering of
the company’s stock, a sale of all or substantially all of the assets of the company, a merger or
consolidation of the company involving a change of control, and any other corporate transaction
involving a change of control unless the primary purpose of the transaction is to raise capital for
the company’s operations. If, as a result of dilutive events, an investigator’s equity ownership in
a company drops below the 5% level, the investigator may acquire additional shares to offset the
impact of the dilution so long as his or her holdings at no point exceed 5%. As used herein,
“consulting” includes nearly any service on behalf of a company, including service as a founder
or on the SAB.

Calculation of Equity Interest
In general, an HHMI investigator owns an equity security if he or she or a member of his or her
family, directly or indirectly, has or shares the ability to vote, dispose of or profit from the
security or to direct such vote, disposition or profit, or has the right to acquire any such interest at
any time. The Institute has prepared Instructions for Calculating Equity Ownership in
Companies (which can be accessed at: http://inside.hhmi.org/science/archives under
“Investigator Related Issues”) that investigators can provide to the company or its counsel
detailing the ownership calculation. Before acquiring securities (e.g. stock or options) in a
company, an investigator should obtain a current copy of these Instructions by accessing the
archive section (“Investigator Related Issues”) of the Biomedical Research & Science
Development web site at: http://inside.hhmi.org/science/archives or requesting a copy from the
HHMI attorney responsible for his or her host institution. Please note that the determination of
ownership under the securities laws may result in including shares held by family members or
others. In addition, options and convertible securities and, in most cases, shares held in escrow
or trust, will be included in the calculation.

Disposition of Excess Holdings
If dilutive events do not reduce the ownership of an investigator to the 5% level by the date that
is one year after the investigator first acquires ownership of any equity security of the company
(or before the occurrence of a significant event, if the significant event takes place prior to the
end of the one year period), the investigator will need to dispose of his or her excess holdings.
An HHMI investigator may not profit from any disposition of shares to satisfy this requirement.
An investigator must transfer all excess shares to the issuer so that, after giving effect to the
transfer, the investigator owns no more than 5% of any class of equity securities. The price per
share, if any, paid to the investigator for the excess shares should be no more than that paid by
the HHMI investigator initially.

Reporting to HHMI
An HHMI investigator who owns more than 5% of any class of the equity securities of a start-up
company must provide the Institute with a statement of his or her ownership at the end of the
first year following ownership of any shares by the investigator or members of his or her
immediate family. Each such statement must be signed by the HHMI investigator as well as by a
representative of the company. HHMI will endeavor to notify the investigator when the report is
coming due.




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