Oracle Corporation et al v. SAP AG et al

Filing 738

Declaration of Thomas S. Hixson in Support of 737 MOTION in Limine Plaintiffs' Motions In Limine filed byOracle EMEA Limited, Oracle International Corporation, Oracle USA Inc., Siebel Systems, Inc.. (Attachments: # 1 Exhibit Exhibit A, # 2 Exhibit Exhibit B, # 3 Exhibit Exhibit C, # 4 Exhibit Exhibit D, # 5 Exhibit Exhibit E, # 6 Exhibit Exhibit F, # 7 Exhibit Exhibit G, # 8 Exhibit Exhibit H, # 9 Exhibit Exhibit I, # 10 Exhibit Exhibit J, # 11 Exhibit Exhibit K, # 12 Exhibit Exhibit L, # 13 Exhibit Exhibit M, # 14 Exhibit Exhibit N, # 15 Exhibit Exhibit O, # 16 Exhibit Exhibit P, # 17 Exhibit Exhibit Q, # 18 Exhibit Exhibit R, # 19 Exhibit Exhibit S, # 20 Exhibit Exhibit T, # 21 Exhibit Exhibit U, # 22 Exhibit Exhibit V, # 23 Exhibit Exhibit W, # 24 Exhibit Exhibit X, # 25 Exhibit Exhibit Y, # 26 Exhibit Exhibit Z, # 27 Exhibit Exhibit AA, # 28 Exhibit Exhibit BB, # 29 Exhibit Exhibit CC, # 30 Exhibit Exhibit DD, # 31 Exhibit Exhibit EE, # 32 Exhibit Exhibit FF, # 33 Exhibit Exhibit GG, # 34 Exhibit Exhibit HH, # 35 Exhibit Exhibit II, # 36 Exhibit Exhibit JJ, # 37 Exhibit Exhibit KK)(Related document(s) 737 ) (Howard, Geoffrey) (Filed on 8/5/2010)

Oracle Corporation et al v. SAP AG et al

Doc. 738 Att. 1

EXHIBIT A
Dockets.Justia.com

Business Case

January 7, 2005

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SAP-OR 00186993 FROM NATIVE

Executive Summary
Actions Taken
Corporate Finance was directed by the Executive Board to contact TomorrowNow, Inc. a third party maintenance provider of PeopleSoft and JDE maintenance and support. We met with the CEO, President and CFO of TomorrowNow last week to gain an understanding of the TomorrowNow operations. We have held preliminary negotiations with the Company and believe an offer of $8 - $10 million would be accepted.

Conclusions
Our market research shows that TomorrowNow is the only meaningful North American provider of third party

PeopleSoft maintenance services
A TomorrowNow acquisition brings a short time to market advantage and a public relations win. TomorrowNow is a leader in a very small and new field. The TomorrowNow management team is not sophisticated and we do not recommend they operate a

full service PSFT/JDE service organization. In the near term, the TomorrowNow model and organization should be utilized to create a 2nd tier level service PSFT/JDE support organization.
An acquisition by SAP would create a good level of market disruption and may force a reaction by Oracle (including likely legal action). It is unclear how support fits into SAP's overall plan to drive Peoplesoft customers to SAP applications,

(we have made recommendations on Slide 8 as to how the TomorrowNow skill sets, support model and customer base may fit into a full service SAP maintenance, support and migration organization).

© SAP AG 2002, Title of Presentation, Speaker Name 2

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SAP-OR 00186994 FROM NATIVE

TomorrowNow, Inc. : Company Overview
Company Facts Business Description

Headquarters: Status: Website: Chairman:

Bryan, Texas Private www.tomorrownow.com Andrew Nelson

TomorrowNow, Inc. is a professional services firm that provides critical support services to organizations using PeopleSoft Enterprise application software for Human Capital Management, Financials and Supply Chain Management, and Student Administration. TomorrowNow Support Services provides tax and regulatory updates, 24x7 around-the-clock product support, and product fixes to organizations using PeopleSoft Inc.'s products. TomorrowNow serves the support needs of 54 organizations operating in the United States and Canada. Founded in 1999.

Number of Employees: 33 2004 Revenue: Operating Income: $2.65 million $95,400

2004 Operating Margin: 3.5%

Customers

© SAP AG 2002, Title of Presentation, Speaker Name 3

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SAP-OR 00186995 FROM NATIVE

Operations
Support Model

TomorrowNow offers a limited support policy covering legislative/regulatory updates and "critical issue" fixes to small end user bases in less complex environments Support fees are 50% of the PeopleSoft support price (9 to 10% of license fees) TomorrowNow's sales model focuses on identifying customers with mature and stable systems, primarily PSFT 7.x customers, with a very limited history with PSFT 8.x customers (a much more complex solution) Pitched as "insurance policy" support - provide the basic support to keep existing systems current, low level of interaction, depth of knowledge of customers when engagement occurs (which is not frequent) Leading edge customers (i.e. Schwab) are not the type of customer TomorrowNow can service, average deal sizes are $50,000, (reflecting initial customer license fees of approximately $1 million)
Method of Delivery

Access to Peoplesoft system is based on a DEMO system non-production copy (install with environment

characteristics like customer) which works for stable environments (will not work for newer version or recently implemented modules)
TomorrowNow functions as an independent contractor under the customer license agreement, the liability of

providing system access is pushed onto the Peoplesoft customer

© SAP AG 2002, Title of Presentation, Speaker Name 4

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SAP-OR 00186996 FROM NATIVE

Valuation Overview
Negotiation Status
TomorrowNow initially requested $24

Valuation Summary

million
After ongoing negotiation, we believe

Market Value of Equity of TomorrowNow in kUSD Market Value of Equity of TomorrowNow in kEUR

9,417.2 7,080.6

an offer of $8 - $10 million will be accepted by the Company

TomorrowNow, Inc. DCF-Valuation Profit and Loss-Statement Consulting Revenue Total Revenue Direct Wages and related Costs Indirect Costs Total Cost of Services Gross Profit Sales and Marketing Depreciation and Amortization Other operating Expenses Operating Expenses Operating Income Interest Income Interest Expense Income before Income Tax Income Taxes Net Income

Actuals 2002 kUSD

Actuals 2003 kUSD

Actuals 2004 kUSD

Forecast 2005 kUSD

Forecast 2006 kUSD

Forecast 2007 kUSD

Forecast 2008 kUSD

Forecast 2009 kUSD

Forecast 2010 kUSD

Forecast 2011 kUSD

Forecast 2012 kUSD

461.5 461.5 -272.6 -58.1 -330.8 130.7 -214.6 -4.4 -70.7 -289.7 -159.0 0.5 -2.1 -160.7 0.0 -160.7

1,513.0 1,513.0 -917.6 -105.8 -1,023.4 489.5 -496.2 -13.5 -136.3 -646.0 -156.4 0.0 -18.0 -174.4 0.0 -174.4

2,647.1 2,647.1 -1,250.4 -1,250.4 1,396.7 -838.1 -65.2 -398.0 -1,301.3 95.4 15.7 -23.4 87.7 -35.1 52.6

5,029.5 5,029.5

8,550.1 8,550.1

12,825.2 12,825.2

15,390.2 15,390.2

18,468.3 18,468.3

20,315.1 20,315.1

22,346.6 22,346.6

23,240.5 23,240.5

-2,514.7 2,514.7 -1,609.4 -165.0 -754.4 -2,528.9 -14.1 10.1 -4.1 1.6 -2.4

-4,275.1 4,275.1 -2,736.0 -355.7 -1,282.5 -4,374.2 -99.2 17.0 -82.1 32.9 -49.3

-6,412.6 6,412.6 -3,975.8 -611.7 -1,795.5 -6,383.1 29.5 23.9 53.5 -21.4 32.1

-7,387.3 8,002.9 -4,617.1 -790.9 -2,000.7 -7,408.7 594.2 32.5 626.7 -250.7 376.0

-8,680.1 9,788.2 -5,540.5 -793.9 -2,216.2 -8,550.6 1,237.6 44.9 1,282.6 -513.0 769.5

-9,345.0 10,970.2 -6,094.5 -714.1 -2,437.8 -9,246.5 1,723.7 59.1 1,782.8 -713.1 1,069.7

-10,056.0 12,290.6 -6,704.0 -657.0 -2,458.1 -9,819.1 2,471.5 74.2 2,545.7 -1,018.3 1,527.4

-10,458.2 12,782.3 -4,648.1 -620.8 -2,324.0 -7,593.0 5,189.3 63.9 5,253.2 -2,101.3 3,151.9

Financial Information Provided by TomorrowNow Management © SAP AG 2002, Title of Presentation, Speaker Name 5

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SAP-OR 00186997 FROM NATIVE

SWOT Acquisition Analysis
Strengths
Very short time to market for offering and announcing

Weaknesses
Management is not sophisticated Customers have been offered 10 year support terms,

service offering "No frills" model makes sense for a segment of customers This company has two years of experience building a maintenance and support model Targeting stable and mature PSFT releases and limiting the complexity of the service, appears to be a successful model

S

discouraging upgrade Solely focused on U.S./Canada market JD Edwards support practice is just starting TomorrowNow has limited experience supporting PSFT 8.x customers The bulk of TomorrowNow personnel are outside Austin, Texas The TomorrowNow model is not unique - a similar model could be replicated by another company

W T

Opportunities
Oracle's deal assumptions are challenged by this

Threats
The access rights to the Peoplesoft software is very

support model - losing support revenue stream forces actions or reactions and is a distraction Oracle's legal challenges to TomorrowNow's ability to provide derivative works/support will require Oracle to also sue its customers - a difficult situation for Oracle There is a level of critical mass with expertise delivering a no frill support model, but scaling is heavily reliant of adding new headcount

© SAP AG 2002, Title of Presentation, Speaker Name 6

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O

likely to be challenged by Oracle and past operating issues may be a serious liability if Oracle challenges (i.e., offsite production copies and the form of delivery of regulatory updates may be subject to Oracle challenge) The "no frills"/lower cost model is at odds with SAP's maintenance model - this conflict will create issues among PSFT and SAP customers Its unclear if a "no frills" model is appealing to the broad PSFT customer base or the PSFT customer base that are most successfully converted to SAP

SAP-OR 00186998 FROM NATIVE

Acquisition Structure, Due Diligence and Indemnities
Acquisition Structure

SAP AG
100% of Stock $8 -10 MM Cash

SAP AG, or a wholly-owned affiliate, acquires 100% of the stock of TomorrowNow, Inc., for cash, subject to representations and warranties of the stockholders and appropriate indemnities SAP will leave Texas corporation in existence as a liability shield for any potential claims

TomorrowNow, Inc., a Texas corporation

Due Diligence

All offers would be non-binding and subject to complete due diligence, areas of primary concern and focus include: Legal A full and complete assessment of the legality of the service model and the method of delivery by internal and external counsel.
© SAP AG 2002, Title of Presentation, Speaker Name 7

Financial A full assessment of the financial results, accounting practices and internal controls, including an financial integration assessment and Sarbanes-Oxley internal control and reporting issues.

HR A full assessment of the skills, salaries and benefits offered by the Company.

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Potential Operational Structure
Operational Model

Build upon TomorrowNow framework by enhancing service offerings

New Offering providing same level of service as SAP at SAP standard rates
Likely need someone from

New Offering to assist in migration to SAP solutions
Likely need someone from

outside TomorrowNow

PSFT and JDE Service Offerings

outside TomorrowNow

Platin um Maintenance and Support

Gold Maintenance and Support

Migration Services

Continue offering same level of support and maintenance TomorrowNow offers to its customer base with same pricing model (9-10%) of license fee
TomorrowNow Management Operates Offer 2-year employment agreements (containing non-

competition and non-solicitation restrictions) to Andrew Nelson, CEO and Seth Ravin, President
© SAP AG 2002, Title of Presentation, Speaker Name 8

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SAP-OR 00187000 FROM NATIVE

Conclusions
TomorrowNow is a leader in a very new and small field TomorrowNow brings a short time to market advantage and a PR win The TomorrowNow management team is not sophisticated and we do not recommend they operate a full service PSFT/JDE service organization. In the near term the TomorrowNow model and organization should be utilized to create a 2nd tier level service PSFT/JDE support organization. An acquisition by SAP would create a good level of market disruption and force a reaction by Oracle Should further consider: issues of legal liability, the public relations impact of any litigation, and the likely cost around defending the right to provide PeopleSoft support.
The

Authorization Request a Non-Binding Offer, subject to complete due diligence, to acquire TomorrowNow, Inc. for between USD$8 - $10 million
Extend

external legal and financial advisors to begin due diligence process
Engage

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SAP-OR 00187001 FROM NATIVE