IPOverview

Intellectual Property Merchant
Banking
Leveraging Intellectual Property
January 2004
I|C|M|B OCEAN TOMO

Overview Intellectual Capital Equity TM
Ideas
Strategy
Execution
Team
2 I|C|M|B OCEAN TOMO

Intellectual Capital Equity TM
Ideas
Public Market Voice

Private Market
Repositioning
Asset Class View
External Control
Merchant Banking
Revisited

Ideas Intellectual Capital Equity TM
Intangible Assets as a % of S&P 500 Market

Capitalization
Public Market
Voice
Private Market
13%
Repositioning
Asset Class 38%
View Tangible 62%
External Control Assets
Merchant Intangible
Banking 87%
Assets
Revisited
62%
38%
1982 1992 2002
Source: Brookings Institute

Public Market Impact

Public Market
Voice
 87% of the public market value of the
Private Market
S&P 500 is represented by intangible
Repositioning assets
Asset Class
View
 Over $100 Billion annually collected in IP
External Control
licensing income
Merchant  Over $200 Billion annually written-off
Banking
Revisited from IP impairments
 Over $300 Billion annually in unpaid
infringements (mostly innocent)

Impact of Growing IP Based Shareholder

Value
Public Market
Voice
What We Know
Private Market  The market is recognizing intangible
Repositioning
assets
Asset Class
View  This recognition is valued by Trillions of
External Control dollars
Merchant
Banking
 The change has been rapid
Revisited

Impact of Growing IP Based Shareholder

Value
Public Market
Voice
What We Predict
Private Market  This trend will not be reversed
Repositioning
Asset Class
 Progressive companies will seek to
View understand and manage IP as an asset
External Control
 The accounting and reporting for
Merchant
Banking intangibles will soon catch up
Revisited
 Shareholders will hold management
accountable for IP based activities
 The financial services community will
respond broadly with new products and
services

Traditional Finance
Public Market
Voice
Private
Market Private Venture
Repositioning
Asset Class Equity Capital
View
External Control
Merchant
Banking
Revisited
Debt

Traditional Finance
Public Market
Voice
Private
Private Venture
Market
Repositioning
Equity Capital
Asset Class
View Growth
External Control
Merchant Intangible
Banking
Revisited
Cash Flow Assets
Tangible
Debt
Traditional Finance
Public Market
Voice
Private
Equity Capital
Repositioning
Asset Class
View
External Control
IP IP
Merchant
Banking
Revisited
Debt
IP

IP Finance
Public Market
Voice
Private
Equity Capital
Repositioning
Asset Class TOC
View
SLB
External Control IP
Merchant
Banking
Revisited Securitiza
tion
Debt

Asset Class
Public Market
Voice
 Assembly of “like” assets for
Private Market
management, financial reporting or
Repositioning investment purposes
Asset Class
View
 Value basis is transparent/objective
External Control  Validity tests
Merchant 
Reporting index accepted by the market
Banking
Revisited 
Empirically useful
 Synthetic notion central to modern
portfolio theory/corporate finance

Pooling
Public Market
Voice AAA
Private Market
Repositioning
A
Asset Class
View Portfolio
Effect
External Control
BBB
Merchant
Banking Credit Worthiness
Revisited
BB
C
(_ ) (+)
Commercialization Potential

Licensor Pooling Benefits

Public Market
Voice
 Cross industry research base
Private Market  Package of application as well as primary
Repositioning
technology
Asset Class
View  Strategic enforcement advantages
External Control
 Ability to create hybrid or bridging
Merchant
Banking patents
Revisited
 Ability to create sub-pools for assignment
to specific licensing agents with relevant
expertise

Asset Class View
Pooling Synergy
PATENT
PATENT
Business
Idea or Marketplace
Strategy PATENT
PATENT
Bridge to Market

Licensee Pooling Benefits

Public Market
Voice
 Increased interoperability for end
Private Market
customers when using products from
Repositioning multiple suppliers
Asset Class
View
 Increased number of technically qualified
External Control
suppliers, favorably impacting customer
Merchant
pricing
Banking
Revisited
 Further allocation of research and
development towards corollary innovation
 Reduction of actual and perceived risk to
manufacturers when making capital
investments
 Expansion of the customer market for any
given supplier
Future Expectations
Public Market
Voice High
Private Market External Changes to Acct.

Repositioning Drivers Ð Value Recognition Standards
Public by Public Markets
Asset Class Markets
View Potentially most significant
External
Control Licensing Predominantly tax -based Shareholder
and driven Litigation
Merchant Revenues
Financial Impact IAM
Banking Consulting Risk Mgt
Revisited Internal Strategies Strategies
Drivers Ð
Management
Infringement
Litigation
Low
Historical Present Future
IRS Review
Timing

History
Public Market The modern day reference to a “merchant bank”
Voice
stems from leading merchants of the early 1800’s,
Private Market whether trading in grain, paper or steel, who
Repositioning
transitioned from merchanting to banking when they
Asset Class had built up a sufficient reputation for soundness,
View
reliability and wealth which warranted their
External Control colleagues’ trust.
Merchant
Early examples of merchant banking revolved
Banking
Revisited around international trade due to the shear period of
time required to contract, ship and receive goods.
The merchant banker’s role evolved in the 1920’s
when leading firms became heavily involved in both
advising and financing their clients.
Today, the new asset class is IP - the new
opportunity is for IP owners and their advisors to
transition to IP merchant bankers.

Positioning
Public Market
Voice
 Bridge between finance, technical and
Private Market
legal teams
Repositioning  Complement to existing corporate-
Asset Class
View
banking relationships
External Control  Unique insight into transaction origination
Merchant opportunities
Banking
Revisited  Co-advisor on most larger transactions;
lead advisor on small / IP based
transactions

Strategy
Third Party Asset

Management
Mergers and
Acquisitions
Risk Management
Valuation
Expert Services

Strategy Intellectual Capital Equity TM
Third Party Asset Management

3rd Party Asset
Management
 Value added by third party aggregator
M&A  Historical focus on copyrights (e.g. BMI,
Risk ASCAP, etc.)
Management
Valuation
 Current and future focus on patents (e.g.
Expert Services MPEG-LA, Reuters Digital Patent Pool,
etc.)
 Benefits of pooling
 Resolution of antitrust concerns
 Removal of retaliatory threat
 Increasing level of activity – here to stay

Te IP
ch Ve
no nt
l ur
og
y e
Early
O
Stage
pt
io
n
Ca
Co pi
lla t al
te
ra
l iz
R ed
oy D
al eb
Sa ty t
le Se
/Li cu
ce ri
ns t iz
at
Investment Strategy
e-
B ion
ac
k
M
on
e
22
D ti
za
(S ist ti
ol res on
e
or sed
Pa P
PI rt urc
ne h
PE rs as
&
Pooling/Consolidation Opportunities
hi e
G p)
oi
ng
-P
ri
va
te
H
ed
ge
Fu
M nd
ut
ua
lF
un
d
IP Investment Continuum
Stage
Late
I|C|M|B OCEAN TOMO

Third Party Asset Management

3rd Party Asset
Management Existing
NO YES
M&A License $
Risk
Management
Valuation
TOC Collateralized S/LB License
Expert Services Equity Acquisition
(Early Stage) Debt (Late Stage) Securitization
Technology and Patent

Pooling and Packaging
Marketplace

Mergers & Acquisitions

3rd Party Asset
Management
M&A
Business ¥ Strategic buyer I.D. ¥ IP due diligence
Risk ¥ IP value assessment ¥ Pool acquisitions
Management Unit ¥ IP risk management
¥ MBE mandates
Valuation ¥ Going private
Expert Services Service Based Service Based
Asset Specific Proprietary Strategy
IP
TransactionTrademarks
Type Enhanced
IP IP Buyouts
Income Minority
Streams Exec
Other Buyout
Sell Side Buy Side

Pre-transaction M&A Assessment

3rd Party Asset
Management
 Valuation of IP not otherwise shown on
M&A
the balance sheet
Risk  Multiple analysis specific to IP income
Management
streams and related structuring
Valuation
Expert Services
 Assessment of incremental IP
commercialization options
 Identification of strategic partners
(collateral technology or patents)
 Risk management

M&A Transaction Facilitation

3rd Party Asset
Management
 IP based equity and financial leverage
M&A  IP based tax planning
Risk
Management
 IP valuation
Valuation  Bankruptcy value recovery
Expert Services
 Fairness opinions
 IP based transaction strategy (deal
protection, poison pill, etc.)

Post-transaction M&A Activity

3rd Party Asset
Management
 SEC Compliance (FAS 141 & 142)
M&A  Non-strategic commercialization
Risk
Management
 Pooled acquisitions
Valuation  IP defense and risk management
Expert Services

Risk Management
3rd Party Asset
Management
 New IP Concerns Facing Companies
M&A
Today
Risk

New impairment accounting rules (FAS 141,
Management 142)
Valuation 
Rise in shareholder actions
Expert Services 
Director and Officer accountability

Lack of capacity for broad IP insurance
coverage
 Specific Examples Seen in the Market

Disallowance of charitable donations

Ongoing and potentially increased action
against holding companies

Uncertainty of large IP litigation damage
awards

of new product I|C|M|B
Uncertainty28 OCEAN TOMO
infringement
Risk Management
3rd Party Asset
Management
M&A
Risk
Management
Valuation
Expert Services

Risk Management Solutions

3rd Party Asset
Management
 Standard products
M&A

Charitable Donation
Risk 
Investment Holding Company / Transfer
Management Pricing
Valuation 
Litigation Recovery
Expert Services
 Named perils (customized products)

Trademark impairment

D&O IP riders

Other

Common Risk Management Parameters

3rd Party Asset
Management
 Typical policy requirements
M&A

Definition of risk
Risk 
Limits and deductibles
Management

Premiums and underwriting fees
Valuation
Expert Services  Straight underwriting available
 Captive insurance vehicles available

Size

Timing

Frictional cost
 Leverages existing Asset Management
Strategies (see next section)

Premise of Value
3rd Party Asset
Management
 Buy / Sell (Due Diligence Reviews)
M&A  License Compliance (Unreported
Risk Royalties)
Management
Valuation
 Tax (Donations, IP Holding Companies)
Expert Services  SEC Compliance (FAS 141 & 142)
 Risk Management (Sarbanes-Oxley)
 Litigation (Pre-Filing Valuations)
 Investment (Purchase Price Allocation)

Valuation Approach
3rd Party Asset
Management
Assess Facts
(Context & Purpose)
M&A
Risk
Management
Select
Methods
Valuation
Expert Services
Analyze Data
(Quantitative and Qualatiative)
Test
Conclusions
Communicate
Results

Valuation Methodologies (1/2)

3rd Party Asset
Management
 Cost Approach –based on the cost to
M&A
develop or replace an existing IP assets
Risk  Market Approach –based on comparable
Management
marketplace transactions
Valuation
Expert Services
 Income Approach –based on discounted
net cash flows produced by IP assets over
their useful life

Valuation Methodologies (2/2)

3rd Party Asset
Management
 Relief from Royalty Approach – based on
M&A
not having to license the intellectual
Risk
property from a third party, thus avoiding
Management royalty payments.
Valuation  Asset Class Indexing – based on a patent-
Expert Services
pending capital asset pricing model, TOC-
M, to indicate IP fair market value from
data derived from the public markets
 Expected Cost of Infringement – based on
an expected cost analysis given various
probabilities for the outcomes of an
infringement lawsuit

Valuation Cross Utilization

3rd Party Asset
Management Valuation
M&A Opinion
Risk
Management
Valuation Means and Shareholder
Reconciliation
Expert Services (Internal & External) Process Update Value Creation
IHC Royalties Tax Structures
Other Transfer Pricing Financing
Litigation and Contracts GAP Analysis
M&A / Licensing

Expert Services
3rd Party Asset
Management
 Greater integration with core business
M&A
activities and records
Risk  Reconciliation to historical activities
Management
Valuation
 The accounting / economic continuum
Expert
Services

Execution
License Securitization
Sale/License-Back
Private Equity
Technology Option
Capital

Execution Intellectual Capital Equity TM
License  Type of asset-based financing backed by
Securitization
contractual payment flows
Sale/License-
Back
 Requires sale of underlying assets to bankruptcy
remote entity
Private Equity
Technology

Transfer of assets must be arm’s length
Option Capital 
Usually wholly-owned

Legally separate entity (independent director(s),
covenants, reps & warranties, corporate
procedures)
 Relies only on the cash flows from the securitized
assets for repayment

Collections segregated into lockbox

Non-recourse for credit losses

Uses structure to offset the increased risk
associated with the lack of a general recourse claim

Parent
Company
Wholly Owned Loan License
Subsidiary Proceed Fee $
s$ SPE
Lockbox
IP Holding Third Party
Company Licenses Licensees
License Fees, Loan Proceeds
Patents, & Service Licenses,
& License Fee License
Agreements Fees,
IP Funding & Patents Lender(s)/ Operating
(SPE) Purchaser(s) Agent
Loan
Proceeds •Underwrites & Monitors
Guarantee of
P&I on Loan Collateral
Insurance Premium $ •Manages Debt
Credit •Provides Administration
Enhancement •Provides Marketing
Support
Provider
Source: GE Capital Technology Group

License Securitization - Traunching

License
Securitization 90
Sale/License- 80
Back AAA
70 AA
Private Equity A
Technology 60
BBB
Option Capital Junk
50
40
30
20
10
0
Expected
NPV Traunches
Royalty

Sale/License-Back
License  Investors seek to purchase fragmented
Securitization
collections of technology-based patent assets
Sale/License-
Back
primarily from industry diversified,
creditworthy companies.
Private Equity
Technology  On a field-of-use basis for a fixed term and
Option Capital fixed amount, the manager will license-back
those rights needed by the original patent
owner to continue to operate.
Once sufficient patents assets have been

acquired, the manager will out-license the
portfolio to third parties on a non-
discriminatory basis, sharing a portion of any
S/LB investments transform underutilized patents into
royalties collected with contributing patent
working financial assets to build shareholder value.
owners.

Sale/License-Back
Cash or License
Equity Sale/
Payment Out-licensing
License-back
Pool
Fund Market
$ Royalties
IP
IP Assignment 3rd Party
Licensees
Restricted
License
Cash & Equity

Independent Patent $ Royalties Payment
Contributors
Company
(Target)
Patent Pending Business Method

IP Enhanced Private Equity

License
Securitization
 Structure
Sale/License-

Cash flow based leverage transaction (90% of
Back committed capital)
Private Equity 
EBITDA improving IP (10% of committed
Technology capital)
Option Capital

Patent security / donation hedge

Proprietary strategy
 Benefits

Technical due diligence

Access to executive talent


License
Securitization
Sale/License- • Technology company Customer
Back A
• Strong IP
Private Equity
• Technical CEO
Technology
Option Capital • Seeking $5 million investment
Customer
B
Customer
C


License
Securitization New Holding Company CEO
Sale/License- Acquisition
Back • Technology Department Customer
A
Private Equity Company Enhanced
Margins
Technology • CEO CTO
Option Capital
• $5 Million Investment Acquisition
Customer
B
$200 Million Enhanced
Margins
Investment
Potential Patent Acquisition

501c(3) Customer
Securitization
Donee C
Enhanced
Margins

Technology Option Capital

License
Securitization
 Aggregation of competitive R&D
Sale/License-
programs
Back  Generally two or more platform players
Private Equity
Technology
 Multiple early stage participants
Option Capital
 Platform company option to repurchase
 Additional outside capital including
insured public obligations
 “Survivor” vote dispatching less
interesting technology
 All participants share in the equity of the
commercialization
 Proprietary strategy
Technology Option Capital

License IPR Supplier
Securitization IPR I|C|M|B Cash
Client
Sale/License- IPR Supplier Ocean Tomo
Back
Private Equity IPR Supplier Cash & Residual Value
IPR
& Charge
Technology Cash
Option Capital
Residual Value Control Option
Credit Support Patent R&D Tax Credits Tax Crediting

Credit Enhancer Investment Authority
Entity
Charge
Cash on Investment
Cash Investment
Trustee
R&D Financing
Liquidity Bank
Trust & Security
Funding Market

Team

Team Intellectual Capital Equity TM
I|C|M|B Ocean Tomo
Expert Services Valuation Asset Mgt Risk Management M&A Advisory
IP Tax S/LB IP Asset IP
IP Class Action SEC Compliance TOC IP Tax IP Bankruptcy
Diversity Class Action Insurance High Yield Named Peril / Captives Diversity M&A
Transactions Hedge Fund EPL
MWE Fund

Team Intellectual Capital Equity TM
James E. Malackowski – President & CEO

Mr. Malackowski is an internationally recognized leader in the field of
intellectual capital equity management as well as a noted authority
in business valuation and intellectual property strategy. Prior to
founding I|C|M|B Ocean Tomo, he was President and Chief Executive
Officer of Duff & Phelps Capital Partners having spent two years
working with one of Chicago’s leading private equity firms (with over
$4.5 billion under management) following fifteen years as a
management consultant and forensic accountant focused on
asked to participate as aassets.
intangible member Mr.ofMalackowski
the Board of has
Directors for leading
consulted technology
with clients and
corporations or firms with
counsel critical brand
on business management
valuation issues.
issues as well Mr.phases
as all Malackowski’s
of the
experience extends to intangible
technology licensingasset portfolios
process. as well as business segments
He is frequently
and complete entities.
Mr. Malackowski is a current and prior Director of numerous corporate entities,
both public and private. He is also Immediate Past-President and Chairman of the
Past-Presidents Council of the Licensing Executives Society (USA and Canada,
Inc.), a Trustee for the National Inventors Hall of Fame, a Director of the
International Intellectual Property Institute and a former Resident Advisor for the
U.S. Department of Commerce and U.S. Information Agency on matters relating
to intellectual capital.
In 1988, Mr. Malackowski co-founded IPC Group, Inc. (now InteCap, Inc.), the
nation’s largest consulting firm focused on intellectual capital valuation and
strategy. On more than fifty occasions, Mr. Malackowski has served as an expert
in Federal Court on questions relating to intellectual property economics,
including the subject of business valuation. Mr. Malackowski is a Summa Cum
Laude graduate from the University of Notre Dame with majors in accountancy
and philosophy. He is also an inventor of several patents and pending patents
51
including patents related to intellectual property investment. He I|C|M|B
is a licensed OCEAN TOMO
Contact Information Intellectual Capital Equity TM
I|C|M|B OCEAN TOMO
James E. Malackowski
President and CEO
20 N. Wacker Dr., 27th Floor
Chicago, IL 60606
(312) 327-4410
jmalackowski@oceantomo.com
San Francisco Louisville Chicago Pittsburgh Tokyo

460 Bush Street 455 South Fourth Civic Opera Building 200 South Linden Taiyo-Ginza Building
Street Avenue
Suite 200 20 North Wacker Drive, 27 th
7-14-16 Ginza
Suite 1071 Floor Suite 300
San Francisco, CA Chuo-ku Tokyo 104-
94108 Louisville, KY 40202 Chicago, IL 60606 Pittsburgh, PA 0061
(415) 362-9895 Ph (502) 238-8000 Ph (312) 327-4400 Ph 15208 81-3-3542-9742 Ph
(412) 661-7076 Ph
(415) 627-9079 Fx (502) 238-8001 Fx (312) 327-4401 Fx 81-3-3542-9199 Fx
(412) 291-3155 Fx

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Intellectual Property Merchant

I|C|M|B OCEAN TOMO

2 I|C|M|B OCEAN TOMO

Public Market Voice

3 I|C|M|B OCEAN TOMO

Intangible Assets as a % of S&P 500 Market

1982 1992 2002

Source: Brookings Institute

4 I|C|M|B OCEAN TOMO

Public Market Impact

5 I|C|M|B OCEAN TOMO

Impact of Growing IP Based Shareholder

6 I|C|M|B OCEAN TOMO

Impact of Growing IP Based Shareholder

7 I|C|M|B OCEAN TOMO

8 I|C|M|B OCEAN TOMO

10 I|C|M|B OCEAN TOMO

11 I|C|M|B OCEAN TOMO

12 I|C|M|B OCEAN TOMO

13 I|C|M|B OCEAN TOMO

Licensor Pooling Benefits

14 I|C|M|B OCEAN TOMO

15 I|C|M|B OCEAN TOMO

Licensee Pooling Benefits

Private Market External Changes to Acct.

View Potentially most significant

17 I|C|M|B OCEAN TOMO

18 I|C|M|B OCEAN TOMO

19 I|C|M|B OCEAN TOMO

Third Party Asset

20 I|C|M|B OCEAN TOMO

Third Party Asset Management

21 I|C|M|B OCEAN TOMO

I|C|M|B OCEAN TOMO

Third Party Asset Management

Technology and Patent

23 I|C|M|B OCEAN TOMO

Mergers & Acquisitions

Asset Specific Proprietary Strategy

Sell Side Buy Side

24 I|C|M|B OCEAN TOMO

Pre-transaction M&A Assessment

25 I|C|M|B OCEAN TOMO

M&A Transaction Facilitation

26 I|C|M|B OCEAN TOMO

Post-transaction M&A Activity

27 I|C|M|B OCEAN TOMO

29 I|C|M|B OCEAN TOMO

Risk Management Solutions

30 I|C|M|B OCEAN TOMO

Common Risk Management Parameters

31 I|C|M|B OCEAN TOMO

32 I|C|M|B OCEAN TOMO

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Valuation Methodologies (1/2)

34 I|C|M|B OCEAN TOMO

Valuation Methodologies (2/2)

35 I|C|M|B OCEAN TOMO

Valuation Cross Utilization

IHC Royalties Tax Structures

Other Transfer Pricing Financing

Litigation and Contracts GAP Analysis

36 I|C|M|B OCEAN TOMO