Thursday, March 7, 2013

[i am motorious][tm:= ' trademark symbol ']


I am motorious™
   
By way of formal introduction, for the purposes of the proposal to BMW's Innovation Agency, my name is Wole M. Fayemi, and I am the founder of both Motorious Motors, LLC, a California Limited Liability Corporation (nee:  Integrated Concept Vehicles, LLC in 1997) and Motorious, Inc. (nee: Accelerated Sciences Corporation in 1999).  Prior to the founding of these companies, I spent almost 10 years on Wall Street as one of the top ranked sell side equity analysts, my area of expertise being healthcare and technology, particularly, biotechnology and orthopedics/medical products.  In particular, I developed an expertise in the analysis of patents and intellectual property, and the role they played in those industries, having evaluated and published on several hundred companies (both public and private) after having done thorough due diligence on their product development strategies.  Moreover, and probably more relevant to the proposal at hand, I developed an expertise in very long range comprehensive industry analyses, and it is some of the experiences I have had with various companies, technologies, business models, and models for corporate finance, and management of R&D, heretofore utilized in other industries, which I believe could be successfully transferred and employed in the automotive industry.  It was purely and simply my love for cars and engineering, an almost “rabid” consumption of car magazines and trade journals, not any particular experience within the industry, which led me down the path I am currently on.

I have a bachelor's degree from Harvard University in Engineering Sciences and Applied Mathematics, both relevant to the genesis of the company and the evolution of the idea over the past decade.  Specifically, while at my last firm in 1997, I structured and held the first investor conference on the "industry" or "process" of outsourcing, as it then pertained to the healthcare industry and research and development, and quickly saw the transferability or applicability of some of those management concepts to other R&D intensive industries, particularly the automotive industry.  As I began to research the concept seeing great potential, I quickly founded these corporations, and began to research the potential, and develop business plans protected by these entities.
 
Despite its relatively advanced age, the company can still be viewed as a "start up", as there are currently no active employees (shell holding corporation for intellectual property purposes), and historically, the company has hired consultants and temporary workers on a "project" basis.   In the past, the company has paid and retained experts and firms from the automotive industry, as well as commissioned industry research, to both counter my lack of knowledge, and operating experience in the industry.
  
The company has developed and accrued what I believe could be valuable "trade secrets" in the form of business plan, business process and management process and strategy, intellectual capital and brand equity, which, in the right hands, and under the proper leadership and management, could prove to be very valuable to a much larger and focused enterprise, such as BMW A.G.   It is important to note, that the exit strategy of the company was always to become incorporated into a larger entity, and was never intended to stand alone in perpetuity.  As with many start up businesses, the initial direction and purpose has evolved over time.
   
The reason for this proposal at this junction in time, was the confluence of several publications in recent weeks concerning BMW and its strategy, specifically on two recent occasions in the Wall Street Journal: Friday, August 31, 2007, "BMW Opens Door To Tech Alliances Sharing Costs May Help Independent Car Maker Rev Up Profit Growth", Page A6, by Joseph E. White, and Friday, September 28, 2007, "BMW Undergoes a Tune Up Auto Maker Overhauls Management Rules, Outlines Sales Objectives", Page A11, by April Boehm, as well as the September 2007 Car and Driver article, "M Is For Magnificent: The BMW M3", page 46, by Michael Austin, where my company, MOTORIOUS, is "mentioned" on page 50 of that same article.
 
Specifically, I was intrigued by the interview of Norbert Reithofer on August 30, 2007 in the Wall Street Journal, as he opens with a refreshingly frank discourse of the current challenge which confronts BMW from an operating standpoint: GROWING PROFITS AT A RATE COMMENSURATE TO, OR PREFERABLY, FASTER THAN REVENUE SALES GROWTH, and his, and the board's evolving stance on reviewing "outside ventures" or "new strategies" which may be able to overcome this challenge, or solve that problem.  It is a very top level management and business development strategy issue, to which I believe I can propose some potential SOLUTIONS, using some of the INTELLECUTAL CAPITAL which I have developed over the course of my career.
 
I ask your indulgence in the length of the proposal, because to review the work I have done in the 10 years since I left Wall Street, and the potential relevance to BMW'S strategy, will take just a few more pages than the proposal form on the BMW Innovation Agency web site will permit.  If I didn't believe that this venture could add significant value to BMW and its shareholders over time, I would not waste your time exceeding the length of your form.  I thank you in advance, as I hope we can both find it profitable long term.
   
 In 1999, after having several of the top firms on Wall Street sign “non disclosure/non compete” agreements, similar to the one signed by Henrik Fisker on behalf of BMW), I met with, and pitched the broad concept to approximately 10 of the top automotive equity analysts on Wall Street (Deutsche Bank, UBS, Citigroup, Goldman Sachs and several others), some of whom gave me access to their investment banking or private equity groups, in order to “test drive” the idea, and see if there was interest.  Although the concept appealed to many people, the fact that the company was just a “start up” and not yet connected to any major auto company gave most reason to pause.  I was given introductions to several companies, including BMW, Nissan, Ford, Visteon, Delphi and Toyota, among others.  Most of the details to be revealed in this proposal never went to any of those companies and is being divulged for the first time.  Having been a sell side analyst before, I understood the importance of beginning to sow the seeds of the idea with those firms who covered many of these companies, because, if successful, and my initial “back of the napkin” analyses were correct, the implications could be significant, or material to the operations of those who embraced it.  I also realized, that, no longer being connected to an investment banking operation, I would need to access one (or several) firms to help execute the transactions over time, and more importantly, would need the understanding, and the coverage of influential analysts, to communicate the idea to investors on Wall Street.
   
This business model and financing structure was specifically adapted for the development of my company, which I envisioned would become a business unit of a larger automotive enterprise. It came from specific financing vehicles I had become intimately familiar with while working with other companies in the healthcare industry early on in my career. I think aspects of it can be applied to some of the other research and development initiatives at BMW (in particular, BMW’s Car IT project and initiatives in “green” or “hybrid and alternative fuel technologies”), and may have some utility in helping with some of the challenges as outlined by the chairman in the Wall Street Journal. 
   
Before continuing with the proposal, it is important that one reads the PATENT APPLICATION: 09/854,347 entitled “System and Method for Creating Mass Customized Multi-Component Articles” filed on May 11, 2001 at the U.S. PTO under “Motorious, Inc” and “Wole Fayemi” or by following the following link:

 http://portal.uspto.gov/external/portal/ut/p/kcxml/04_Sj9SPykssy0x
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EvNEZHZ2RZbktKMEZSb1hmckNIZGgvN18wXzE4TC84Ni9zYS5nZXRCaW
IselectedTab=ifwtab&isSubmitted=isSubmitted&dosnum=09854347&
public_selectedSearchOption=
   
A MS Word copy of the filing is also being attached via your “submission form” using the link for the Virtual Innovation Agency on the www.bmwgroup.com website.

In the ensuing time, I have been focusing on the intellectual capital and strategy, which though temporarily abandoned at the US PTO, can be revived with a simple application.  I don't want to place too much emphasis on the US Patent application (to be detailed later in this proposal) because, though it may afford some level of "protection" or "barrier to entry" for BMW, it is not, by any means necessary in order to pursue commercialization, though in the long run, if successfully prosecuted, could add considerable value to the business. 

For strategic reasons, as was recommended by patent counsel, the FIRST DRAFT of the patent application was written extremely broadly, beyond the claims which would be of value to the business proposition, as a "fishing expedition", to see what claims could be successfully argued.  One always walks a tightrope with a "method" patent application such as this one, because once published, it does give the whole world a window into how to execute the process, which may not always be the most ideal strategy.  I was cautioned and advised to submit the first draft, allow the patent office to argue the claims, and then to respond with a modified patent application once I was convinced that there was no "prior art", and that the most relevant claims could likely issue. 

That process is still forthcoming, and I am willing to do that, under the auspices of a larger entity, such as BMW, who would then own the intellectual property.  It is important here, to note, that even all the consultants and industry executives who agreed to work with the company were financing were to be consummated, were never privy to the details of the intellectual property, and much of those details are only now being revealed, for the first time, to anyone, in this proposal to your INNOVATION AGENCY.

   
U.S. Patent Application Explained: GAME THEORY and HYBRID GAMES
   
Game theory is a branch of applied mathematics that is often used in the context of economics. It studies strategic interactions between agents. In strategic games, agents choose strategies which will maximize their return, given the strategies the other agents choose. The essential feature is that it provides a formal modeling approach to social situations in which decision makers interact with other agents. Game theory extends the simpler optimization approach developed in neoclassical economics.  For the purposes of this discussion, and as it pertains to the patent application, the “players” in the “game” will be considered to be the various role players along the supply chain in the development, sales, service and retail of an automobile, looking at different market segments, consumer types and importantly, distribution models.
   
To be continued....(30 more pages).  Special thanks to Steven Cobb, who bought me a copy of the Wall Street Journal the day the Norbert's article was published in the paper. This otherwise never would have happened. (*Gezundheit:= ' god bless you *)


Convertible Securities: Risk Arbitrage
   
A convertible bond is a bond that an investor can return to the issuing company in exchange for a predetermined number of shares in the company, which be thought of as a corporate bond with a stock call option attached to it. The price of a convertible bond is sensitive to three major factors:

  • Interest rate: When rates move higher, the bond part of a convertible bond tends to move lower, but the call option part of a convertible bond moves higher (and the aggregate tends to move lower).   In this instance, a zero coupon bond may be the best structure, which functions like convertible equity security. 

  • Stock price: When the price of the stock the bond is convertible into moves higher, the price of the bond tends to rise.  

  • Credit spread: If the creditworthiness of the issuer deteriorates (e.g. rating downgrade) and its credit spread widens, the bond price tends to move lower, but, in many cases, the call option part of the convertible bond moves higher (since credit spread correlates with volatility).  In the case of research & development partnerships, unless a true debt instrument is used, this factor is negligible or irrelevant.
   
Given the complexity of the calculations involved and the convoluted structure that a convertible bond can have, an arbitrageur often relies on sophisticated quantitative models in order to identify bonds that are trading cheap versus their theoretical value. Convertible arbitrage consists of buying a convertible bond and hedging two of the three factors in order to gain exposure to the third factor at a very attractive price.  For instance an arbitrageur would first buy a convertible bond, then sell fixed income securities or interest rate futures (to hedge the interest rate exposure) and buy some credit protection (to hedge the risk of credit deterioration). Eventually what he'd be left with is something similar to a call option on the underlying stock, acquired at a very low price. He could then make money either selling some of the more expensive options that are openly traded in the market or delta hedging his exposure to the underlying shares.
   
Off Balance Sheet R&D Partnerships: Hybrid Models of SPV, SPE, VIE
   
Case Study: Tocor, Inc. and Tocor II, Inc.
Ticker: OTC|TOCR, OTC|TOCRZ
Parent Company: OTC|CNTO

In the 1990s, while a securities analyst at what is now J.P. Morgan Chase H&Q, I had my first exposure to structuring and covering a Special Purpose Vehicle or Variable Interest Entity, called Tocor II.  This was a pure equity instrument, with an integrated derivative security (detachable warrants) which was listed on NASDAQ.  Though the specific reasons at the time for using such a structure were slightly different, they have applicability to both the proposal at hand, and BMW’s current situation as outlined by the chairman earlier this year.

The entity was used to fund future R&D projects, which were critical to the long term success of the company, as they represented the future pipeline of research products, which were perhaps 5-7 years from final development.  The capital raised was used to finance the operations of the corporation which, though a separate legal unit, still maintained its operations within the four walls of the company, utilizing a separate management team, maintaining separate books.  There was a strict budget which was adhered to, which at the then current cash burn rate of the entity, could last for well over 10 years, in the event that the entity was never subsumed into the company, was formally spun out as another business, or was licensed or acquired by another corporation. 

Strict covenants were put in place with an independent board of overseers ensuring that operation remained separate (as this unit had technology licensing arrangements) with other entities, though the parent company was given first right of refusal to acquire the entity using an equity swap as currency to acquire and reintegrate the unit over the course of the first  5 years, at escalating buy back prices which represented a scaled 15% to 25% ROI (return on investment) to the investors who funded the project.  The first tranche was so successful, that it was similarly restructured and a second issue was released.  This structure was not uncommon earlier in the decade for other development stage corporations or operating subsidiaries of companies as they neared commercialization of their product pipelines, or a point of operating profitably, where they could successfully contribute revenues and profits to the bottom line of the parent entity.  It was a win-win for all:

  • New (or strategic) Investors: The new investors received what amounted to approximately 22% ROI for the R&D entity over 3-4 years, at which point the entity was repurchased, which represented a higher return than the parent stock over the same time period, and then were rewarded with ownership in the parent company, which was a less speculative investment to own.

  • R&D Subsidiary:   The future projects were funded, and remained unencumbered, were able to enjoy close physical proximity to the parent, and were staffed (mostly) with employees and representatives of the R&D group within the parent company.

  • Parent Company (Anchor): The parent company was the biggest winner, as they were able to maintain control over the project, fund a portion of their R&D from a source other than cash flows of the company, cash in the bank, or profits from then current operations, and then use equity to regain control, with nearly negligible dilution to their shareholders, as their stock price (generally) continued to rise during that period.  In addition, it served as a form of corporate finance, as the excess cash which remained in the SPV, was placed into their coffers.

Potential Impact on BMW AG: In the case of BMW’s operations, such a structure can be used to ameliorate the hit to current operating cash flows and earnings caused by the push in new directions with R&D initiatives, increasing operating margins (and hence multiple on the stock, translating to increase in trading range for the stock), all the while allowing the company to maintain control over the projects.  Projects such as this are most effective if there are potentially several other potential buyers in the event that the parent opts out (such as VW or other OEMS), as the research would be transferable to competing entities.  There also exists the opportunities to license the technology (for example, completed hybrid engine configurations or telematics technology developed from Car IT) to other companies (e.g. to some less sophisticated car companies such as the Chinese car companies).   

More selfishly, my interest would extend to using variations of this schema to finance the proposal at hand, which would represent an opportunity for BMW to expand into business areas which are more profitable than current operations, in a risk adjusted fashion, which offers the opportunity for long term growth and further expansion of operating margins driven by growth in new areas, as opposed to financial engineering or sophisticated cost reduction measures.

Consortia and Game Theory In Practice: Lowering Supplier Pricing and Raw Material Costs.  The potential also exists for BMW and other OEMS to band together in a consortium, a structure which allows collaboration without formal collusion or triggering anti-trust concerns, in which the companies involved, which could be, for example, the various members of the company’s supply chain (such as Bosch, or other publicly traded companies), which would share in the buy back of research being developed, and could restructure current supply agreements by lowering prices for components (or even raw materials, if taken far enough back along the supply chain).  Another option would be for the German manufacturers (BMW, VW, Daimler) to band together in a consortium in the aftermarket (read further in the proposal) to counter inherent disadvantages in the market which exist due to the strength of the euro and currency fluctuations which currently makes the playing field against the Japanese and Koreans (in particular), and to a lesser degree, the American car companies.  Given the strength and long term viability of the equity in these entities, a bundle of securities could be created, with the express purpose of buying back R&D operations of an SPV, and can even be structured such that future revenues are split in a pre-determined fashion, not unlike other consortia which exist, such as SEMATECH, which is one of the most famous consortia (the one which developed the personal computer, or PC, and the strategic relationship which exist between Intel, the core supplier, and OEMs which manufacture computers).  This level of detail can be flushed out in future discussions, if the Innovation Agency takes interest in this proposal.

Some Accounting and Tax Considerations: Variable Interest Entities (VIE)
   
Under International Financial Reporting Standards (IFRS), the relevant standard is SIC12 (Consolidation—Special Purpose Entities).  Not necessarily relevant to the purposes of this discussion, as the distinction between Special Purpose Vehicles and Entities and Variable Interest Entities depends on the percent share of ownership of the “parent” or “anchor” company, and the specific terms of the structure.  For the purpose of elucidating the entire range of entities which could be applicable to some type of transaction between our two companies (or, between BMW and other companies with which you have R&D interests), I will enumerate a range of options which I think may be relevant to future discussions.
   
FIN 46, revised and replaced in its entirety by FIN 46R, is a statement for the purposes of US GAAP published by the US Financial Accounting Standards Board (Also known as FASB).  FIN 46 is an interpretation to GAAP relating to consolidation. The normal consolidation rule is consolidation based on majority of voting interests. However, in case of specially incorporated purpose entities such as those used for securitization and structured products (known as Variable Interest Entities (or "VIEs") under this interpretation), determination as to who (if anyone) should consolidate the entity will be based on an analysis of the variable interests held by various parties in the entity, and not simply on voting interests. Under FIN46R the holder of the majority of the risks and rewards in the assets (known as the Primary Beneficiary) in a VIE will be required to consolidate it.
   
Note that where, as in a securitization, a party selling assets to a VIE and maintaining an ongoing involvement with those assets (for example as a swap counterparty to the VIE with respect to asset cash flows) then Financial Accounting Standard 140 (FAS140), which deals with the recognition of assets upon transfer to a special purpose entity) will also be relevant.
 
The primary variable interest in any entity is its equity: equity is defined as residual economic interest. Residual interest is a variable interest by its very nature. The idea of capturing variable interest other than equity assumes that there are certain entities where the legal equity is insignificant and irrelevant from the viewpoint of risk/rewards. In such cases, consolidation based on equity does not serve the purpose of effective reporting.  Though ideologically, this principle should be applicable to all entities, the current FIN 46 applies this rule to variable interest entities, which is largely the same as the commercial notion of special purpose entities.  With this long set up, both meant to answer some of the issues raised by the Chairman, but also meant to set up the backdrop for the proposal which I am presenting. 

It is one thing to have methodologies in place which can assuage the impact of growing costs to improve operating results and manage risk, however, it is even more important to have strategies in place which can bring GROWTH, both of revenues, and EXPANSION OF MARGINS, driven by higher quality profits, which I what I believe my proposal will offer.
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The Shifting Fundamentals of the Premium Segment
Market Dynamics: Top Down Analysis
                                                    
To properly set up the "Nash game", it is important to go back to the 1990s, to document the evolution of the premium segment in the United States, as that is BMW's core market, and of which BMW is the global leader.  At that time, the premium segment was largely dominated by Mercedes and BMW, with Audi showing rapid growth in market share.  The domestic manufacturers' premium brands: Cadillac, Lincoln and Chrysler were built on aging platforms, and had a customer base and demographic which was, quite frankly, near death.  Then, two things occurred which began to shift the market:


Filename: WorthlessPaper(tm)

CONSULTANT’S (* “Doctor of the Church” *) CERTIFICATE
AND ASSIGNMENT, via VW A.G.


I hereby certify that for good and valuable consideration, receipt of which is hereby acknowledged, all Innovations (as defined below) created by me (either working alone or as part of a group) that are used, useful or useable in connection with the present or future business and operations (the “Business”) of Accelerated Sciences Corporation, or any of its subsidiaries or affiliates, (the “Company”) which (a) were made using equipment, supplies, facilities or trade secret information of the Company, or (b) were developed at least in part on the Company’s time, or (c) relate at the time of conception or reduction to practice thereof either to the Business or to the Company’s or its affiliate’s actual or demonstrably anticipated research or development, or (d) result from any work that I perform or performed for the Company, were created at the request of the Company pursuant to a Consulting Agreement or other arrangement (written or unwritten) between Company and me (“Agreement”).  The term “Innovations” shall include all of the results and proceeds of my services under the Agreement, including without limitation, all right, title and interest in any inventions, know-how, discoveries, improvements, original works of authorship, designs, software, source code, object code, programs, formulas, processes, developments, trade secrets, trademarks, copyrights, service marks, logos and related proprietary information and materials, whether patentable, copyrightable, subject to trademark registration, or not, and all drafts, proposals, sketches, revisions and demonstration and “beta” versions thereof, written, created, developed or produced or to be written, created, developed or produced, by me (either working alone or as part of a group) in connection therewith.

I hereby acknowledge that the Innovations were specifically ordered or commissioned by Company for the Business.  I hereby permanently, irrevocably, exclusively and absolutely assign to the Company all right, title and interest in and to all Innovations and all right, title and interest in and to all patents, domain names, trade secrets, trademarks and other intellectual property derived therefrom, such assignment to be effective when first capable of being so assigned, transferred or vested.  All Innovations shall be delivered to the Company as required herein or on termination or completion of the Agreement, whichever is earlier, unless Company requests otherwise.  To the extent that any Innovation is or shall be a copyrightable work , I agree that such Innovation constitutes and shall constitute a work-made-for-hire as defined in the United States Copyright Act of 1976; that Company is and shall be the author of said work-made-for hire and the owner of all rights in and to such Innovation throughout the universe, in perpetuity  and in all languages, for all now known or hereafter existing uses, media and forms, including, without limitation, the copyrights therein and thereto throughout the universe for the initial term and any and all extensions and renewals thereof; and that Company shall have the right to make such changes therein and such uses thereof as it may deem necessary or desirable.  To the extent that such copyrightable Innovation is not recognized as a work-made-for-hire, I hereby permanently, irrevocably, exclusively and absolutely assign, transfer and convey to Company, without reservation, all of my right, title and interest throughout the universe in perpetuity in such Innovation, including, without limitation, all rights of copyright and copyright renewal in such Innovation or any part thereof.

I hereby waive all rights of “droit moral” or “moral rights of authors” or any similar rights or principles of law which I may now or later have in the Innovations.  I warrant and represent that I have the right to execute this certificate, that each Innovation is and shall be new and original with me and not an imitation or copy of any other material, and that each of the Innovations does not and shall not violate or infringe upon any common law or statutory right of any party including, without limitation, contractual rights, copyrights, trademarks, patents, service marks and rights of privacy, publicity, or any other right of any person or entity and is not the subject of any litigation or claim that might give rise to litigation.

I agree to indemnify and hold harmless Company, its successors, licensees, and assigns against any breach of any of the representations, warranties, covenants and agreements contained herein.  I agree to execute such further documents and do such other act as may be required by the Company or its successors, licensees, or assignees to evidence or effectuate Company’s rights hereunder. Company’s rights in the Innovations may be assigned, licensed, or otherwise transferred, and this Consultant’s Certificate and Assignment shall inure to the benefit of Company’s successors, licensees and assignees.

By execution hereof, I hereby irrevocably constitute and appoint the Company with full power of substitution, to be my true and lawful attorney to execute, acknowledge, swear and file all instruments and documents, and to take any action which shall be deemed necessary, appropriate or desirable to effectuate the terms hereof.  The powers of attorney granted herein shall be deemed to be coupled with an interest and shall be irrevocable and survive the occurrence of my death, disability or bankruptcy. (*the church is my wife*)


By: _____________________
       Name:



Agreed and Accepted:  “THE VATICAN”



By: _________Josef Ratzinger____________
      Name:
      Title:

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