Taskforce Summit

1

• Taskforce Summit
• on
• IP Value Extraction Corporate Valuation
• (Part 1)
•  
• Highlights
• from the
• Taskforce Work Session
• to Develop the Standards Protocols
• for the
• IP Secondary Market
• Ford Global Technologies, Inc.
• May 22-23,2003

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CONTENTS

• This is a four part tutorial. The executive
  summary is repeated on the first 3 slides in each
  presentation. You may want to skip to page 6 to
  begin the new part.
• PART 1 IP Corporate Valuation Defines how
  IP and other intangibles affect corporate value.
• PART 2 The IP Secondary Market Initiative
  Defines how the Taskforce is developing the means
  to bring IP into Americas Capital Markets
• PART 3 Taskforce Accelerated Licensing Program
  Describes How to get Cash for IP with two
  corporate analyses
• PART 4 Overcoming the Obstacles Defines Ways
  to Overcome Objections by Your Corporate
  Colleagues

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Executive Summary

• The Taskforce Accelerated Licensing Transactions
  provide a reliable vehicle to generate IP based
  revenues, profits and cash.
• The IP Secondary Market will create ready demand
  for IP and stimulate improvements in the
  innovation process.
• The IP Secondary Market will establish
  stabilize the valuation process for IP.
• The obstacles to corporate use of IP backed
  transactions is the internal capabilities and
  functioning among the various disciplines within
  the enterprise. And the apprehensions regarding
  the post Sarbanes Oxley environment ..
  Something this Summit expressly addressed and
  converted to meet anticipated IRS concerns.

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Executive Summary p2

• The ability to develop a set of commonly
  acceptable standards for the valuation of IP and
  other intangible assets becomes the foundation
  for defining corporate and shareholder value.
• The SEC and FASB are looking to the Taskforce for
  help with identifying key measures and metrics
  that link intangible assets with performance.
• America and its companies must address the
  reporting implications of the transition to a
  knowledge economy.

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The Linkages Among IP Backed Transactions, Demand
for IP and a Secondary Market

• 1) The sale of selected portions of the IP
  Portfolio creates a supply of new product for
  Wall Street investors who recognize the growing
  importance of value extraction in the knowledge
  economy
• 2) The ability to repackage and resell these
  packets of IP based on risk and reward creates a
  more specialized capability to manage and extract
  value from the IP.
• 3) The reliability of value standards and ratings
  of IP quality and credit worthiness provide a
  framework for continuing demand for IP that can
  be openly traded in Americas Capital Markets
• Hence the need to begin trading IP in a safe
  arena-the Taskforce arena.

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PART 1- IP Affects on Corporate Value

• The Taskforce Approach to
• Building, Reporting and Realizing IP and
  Intangible Value
• in the
• Competitive Enterprise

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IP Affects on Corporate Value

• The Affects of IP
• On Intangible Value
• of the
• Enterprise
• in
• Capital Markets
• Dr. Steve Henning
• Partner
• Marks Paneth Shrone

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IP Affects on Corporate Value, p2

• a) The SEC recognizes the growing importance of
  global technical issues such as valuation of IP
  and intangible assets, not only so that the
  regulatory community can be smart about keeping
  integrity in Americas capital markets, but also
  because it is a fundamental issue with internal
  management.
•  
• b)  We (including FASB the SEC) have to figure
  out the valuation process and methodologies we
  are going to use here in the USA.
•  
• c)   Only 45 of our capital markets value was in
  the form of hard assets by the end of 2000.
•  
• d) Europe is more progressive in valuing
  intangibles and this is undoubtedly the way of
  the future.
•  
• e)  America and its companies must address the
  reporting implications of the transition to a
  knowledge economy. That is one of the focal
  points of the Taskforce.

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IP Affects on Corporate Value, p3

• f)   For example, some firms listed on the
  London Stock Exchange (LSE) are already
  recognizing some previously unrecorded intangible
  assets. Listing rules of the LSE require the
  following percentage ratios (of the target to the
  acquirer) be used to determine if acquisitions
  and dispositions are sufficiently large, thus
  requiring shareholder approval
• (1)     Assets
• (2) Profits
• (3) Consideration to assets
• (4) Consideration to market capitalization
• (5) Gross Capital
•  
• g) Transactions where any percentage ratio is
  25 or more require shareholder approval. This
  is why some firms have an incentive to
  voluntarily recognize previously unrecorded
  intangible assets.

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IP Affects on Corporate Value, p4

• h) America and its companies must also
  convey to investors the value that intellectual
  property and other intangible assets possess.
  The Taskforce is intent on assisting in this
  process.
• FASB has the role of defining what should be
  recognized and how.
• j) The SEC has the responsibility of defining
  what should be disclosed and how.
• k) The Taskforce search is the same as that
  of SEC FASB what are the key measures and
  metrics that link intangible assets with
  performance. In fact, the SEC and FASB are
  looking to the Taskforce for help with
  identifying those factors.

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IP Affects on Corporate Value, p5

•  The SEC already has specific indicators it seeks
  for RD. They include
•    (1) Business done
•      (2) Business expected to be done
• (3) Status of RD and relationship to new
  products
• (4) New capital investment plans uses
• (5) NO requirement to disclose information that
  would compromise competitive position

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IP Affects on Corporate Value, p6

• m) The government is asking What do you value
  and why? Currently there is a big difference in
  view between the financial view (reporting) and
  the operational data used to support day to day
  management. The impetus is growing to develop the
  framework so that companies, shareholders,
  investors and the regulatory community can
  document, analyze and better understand how the
  growing contribution of intangible assets to
  corporate value.
•  
•    n) The establishment of a secondary market
  backed by IP or intangible assets would eliminate
  this confusion and conflict about intangible
  value, because there would be a market that
  could (and would) define those variables daily.
•  

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IP Affects on Corporate Value, p7

• o) There has been a halt to foreign registrations
  in the wake of the Sarbanes - Oxley Act and the
  requirement in Europe to shift to International
  Accounting Standards by the end of 2005 means
  America must deal with these issues because they
  do affect our competitive capabilities.

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IP Affects on Corporate Value, p7

• In Summary
• The ability to develop a set of commonly
  acceptable standards for the valuation of IP and
  other intangible assets becomes the foundation
  for defining corporate and shareholder value.
• Americas capital markets need these
  definitions, measures and metrics in order to
  realize the potential economic growth from the
  knowledge economy.
• This process begins with the Taskforce
  leadership in shaping the future economic model.

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Contact Information

• For more information, Please contact the Center
  for Advanced Technologies 214/800-8810 or e-mail
  bshearer_at_km-iptask.og
• The Center for Advanced Technologies is a
  non-profit corporation committed to economic
  growth and
• innovation through improved management
  processes, technological innovation, executive
  education and organization development.
• The Center established the Taskforce in 1998 and
  serves as its managing partner.