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
PLMnMz0vM0Y_QjzKLN4gPMATJgFieAfqRqCLGpugijnABX4_83FT9IKBE
pDlQxNDCRz8qJzU9MblSP1jfWz9AvyA3NDSi3NsRAHxEBJg!/delta/base
64xml/L0lJSk03dWlDU1lKSi9vQXd3QUFNWWdBQ0VJUWhDRUVJaEZLQS
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.
--
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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