Sample Business Plan Symtec

Symtec, Inc. "Business Information Strategy Using ElectronicCommerce and the Internet " Confidential, Aug, 1999 Page 1 Symtec, Inc. CONFIDENTIALITY STATEMENT The information contained herein is confidential and proprietary in nature and is not to be distributed or used for purposes other than for evaluating Symtec, Inc. as an investment. This memorandum is submitted to qualified institutional investors for their exclusive use on the express understanding that the contents will be regarded as, and treated as strictly confidential and not made available to anyone not directly concerned with the decision by such institutions regarding participation in this financing. This information may not be reproduced or used, in whole or in part, for any purpose other than that for which it is intended. The information contained herein relates to, and has been provided by, Symtec, Inc., which is therefore solely responsible for its accuracy and presentation. Certain estimates contained herein have been prepared by the management of Symtec, Inc. and involve elements of subjective judgment and analysis. No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained herein, and nothing contained is, or shall be relied upon as, a promise or representation, whether as to the past or the future. This memorandum does not purport to contain all the information that may be required to evaluate Symtec, Inc. Confidential, Aug, 1999 Page 2 Symtec, Inc. TABLE OF CONTENTS TRANSACTION TRANSACTION EXECUTIVE PRODUCT MARKETING GROWTH FINANCIAL CONTACTS DESCRIPTION SUMMARY STRATEGY .................................................................................................................................. ............................................................................................................................ STRATEGY .................................................................................... 4 $ 6 8 10 12 14 14 14 15 15 17 19 20 21 21 21 22 24 24 25 25 27 27 28 30 30 30 31 32 32 32 32 AND BUSINESS ............................................................................................................................................ .................................................................................................................................... STRATEGY STRATEGY RESULTS ........................................................................................................................................... ........................................................................................................................................... REVENUE ASSUMPTIONS ......................................................................................................................................... DIRECT COST ASSUMPTIONS .................................................................................................................................. OPERATING EXPENSE ASSUMPTIONS ...................................................................................................................... CAPITAL EXPENDITURES ........................................................................................................................................ PROJECTED INCOME STATEMENT ............................................................................................................................ PROJECTED BALANCE SHEET .................................................................................................................................. CASH FLOW PROJECTIONS ...................................................................................................................................... INDUSTRY OVERVIEW ........................................................................................................................................ APPLICATION SERVICE PROVIDER DEFINITION ....................................................................................................... INDUSTRY DRIVERS ................................................................................................................................................ COMPETITION ......................................................................................................................................................... MARKET OVERVIEW ........................................................................................................................................... WHAT DOES THE MARKET NEED? ............................................................................................................................ HOW MUCH MONEY WILL BE SPENT? ....................................................................................................................... WHO IS THE INITIAL TARGET CUSTOMER? ............................................................................................................... SENIOR MANAGEMENT STRUCTURE ............................................................................................................ ORGANIZATION CHART ........................................................................................................................................... RESUMES ................................................................................................................................................................ INDUSTRY AND STRATEGY RISKS .................................................................................................................. ACCEPTANCE OF THE ASP MODEL ......................................................................................................................... SOFTWARE VENDORS ............................................................................................................................................. HUMAN RESOURCES ............................................................................................................................................... INVESTOR ECONOMICS ...................................................................................................................................... INVESTMENT SCHEDULE ......................................................................................................................................... EXIT STRATEGIES ................................................................................................................................................... POTENTIAL INVESTMENT RETURN .......................................................................................................................... Confidential, Aug, 1999 Page 3 Symtec, Inc. TRANSACTION CONTACTS Rita Carter 315 West Wesley Street Wheaton, Illinois 60187 (630) 871-3616 (O) (630) 510-9742 (H) (630) 871-3613 Fax Paul Smedinghoff 315 West Wesley Street Wheaton, Illinois 60187 (630) 871-3610 (O) (630) 462-0803 (H) (630) 871-3613 Fax Confidemial, Aug, 1999 Page 4 Symtec, Inc. TRANSACTION DESCRIPTION The Internet is all about communicating, connecting and transacting with the outside world. With electronic business, the benefits come not just from automating a company's own internal processes and making the internal processes more effective, but from its ability to spread the efficiency gains to the business systems of its suppliers and customers. Symtec, Inc. (the "Company") believes there is a huge demand on the part of manufacturing companies for Application Service Providers (ASPs) as part of a recent trend toward synergy between customers and suppliers. The Company's goal is to be the leading ASP, delivering critical, relationship enhancing software applications via the Internet. The Company has formulated a business plan that will utilize the Internet along with new and existing technology to create a Central Information Organization (CIO). This CIO will host various enterprise resource planning applications such as MFG/PRO, Baan and J. D. Edwards that will be made available through the Internet to client organizations for a monthly subscription fee. The Company is seeking funding of $20 million. This will represent a 55% ownership. The remaining 45% will be held by the current shareholder and senior management. The initial funding will be used to build the infrastructure of hardware, software and human resources ($10 million), sales and marketing organizations ($3 million) and cover initial operating expenses ($7 million). Significant revenue is expected in year two, positive net income in year three and a positive retained earnings in year five. The plan makes no provision for the payment of dividends. All earnings will be invested in growth. The Company anticipates an IPO or merger will provide the equity investors with liquidity. Within a five-year time frame the company plans to serve over 30,000 users and generate revenue in excess of $600 million. The Company expects that this revenue will produce net income of approximately $30 million. Based on the scheduled equity investment and an exit multiple of 47 times forecasted eamings, the proposed investment would yield investors an internal rate of return of approximately 140%. It is anticipated that the participating funding organizations will also be valuable assets to senior management. Assistance is desired in retaining individuals for remaining management positions. Positions on the board are also expected to be filled by members of the funding organizations. Confidential, Aug, 1999 Page 5 Symtec, Inc. TARGET CLIENTS t ( irtualPrivate Network "_ / ) Information CenterII // Redundant k ... DataStorage "" ) / Information Center HOSTEDAPPLICATIONS 1 _,; :_, CIOT, ams e !_!ii'/ J I Technical Ill I Implement III IImprOvement Admin I-I_.1I Train& ,customize I I]..i [ Process _-I.]llntegrate& I"1_ III Support Application EXECUTIVE SUMMARY AND BUSINESS STRATEGY Symtec will offer, on a subscription basis, software applications over the Intemet hosted in various Information Centers. Information Centers will provide the hardware and connectivity to access the subscription applications. The Information Centers will have sophisticated monitoring and back-up systems to ensure that a client's data is always secure. Along with access to software and data, Symtec will provide enhancement services that will enable clients to develop electronic commerce capabilities, and integrate off the shelf software that best fits each individual client's needs. By providing this outsourcing of software, hardware and talent, Symtec clients are able to effectively reduce their information costs making a much more competitive organization. Since the client has no risk in implementing new technology (relative to purchase, installation and maintenance), Symtec's clients are encouraged to be technology innovators rather than merely early adopters. This allows Symtec to capture and retain a Confidential, Aug, 1999 Page 6 Symtec, Inc. larger market share earlier in the technology cycle. As many emerging business models will attest, gaining control of market share is critical to the success of any technology company today. The marketing strategy will emphasize the tight relationship between customer and supplier that technology and the Internet can provide. We will stress the importance of a reliable system maintained by highly qualified and talented individuals that can help clients grow by providing critical technology and reliable computer systems that are always functional. Our initial marketing strategy focuses on the automotive market, as the OEMs in this industry are leaders in understanding the benefits of electronic commerce, and have the ability to force change in their suppliers. Growth strategy involves creating a reputation in the automotive market for using the ASP model to enhance the supply chain competitive advantage. The lower risk associated with the cost advantages of using the Symtec solution and success in the automotive market allow for an natural transition into other markets - even those that might have resisted the implementation of technology. 1 Symtec's plan is built on a model that is just as interested in profit as it is in market share. We believe that our strategy to make technology innovators of those companies that might otherwise opt of a safer route, will produce significant revenue and profits. Significant spending is planned to capture the majority of the ASP market, however, positive retained earnings are projected in year five. Hosting applications over the Internet is a new industry with no real leaders. It is based on the consolidation of information technology. Symtec believes that it is our ability to be accountable for the critical pieces of technology that differentiates us from other solutions. Every manufacturing company that sees a need to reduce and control information costs will see the value in dealing with an ASP. The incredible cost and effort that accompanies maintaining an internal information systems department is daunting to many companies. All application implementation cycles must be short and low cost in order to provide adequate return on investment. However the resources required for rapid implementation are extremely expensive. Symtec will make the entire up front investments in software, hardware, security, and speed and in finding, training, and retaining talented individuals. The client pays a monthly fee, thus avoiding all up front costs and on-going maintenance and upgrade expenses. Confidential, Aug, 1999 Page 7 Symtec, Inc. PRODUCT STRATEGY Information Centers over the CIO Teams Implementation Process Provide System Provide Administration Support Software Integration Customization and and Training Projects Host Software Accessed Internet Improvement Symtec is an on-line Application Service Provider (ASP). By utilizing the Intemet our clients will have access to critical applications such as enterprise resource planning (ERP), electronic data interchange (EDI), customer relationship management (CRM) and sales force automation, in our Information Centers. Data will be kept secure through the use of a virtual private network that encrypts data being sent over the Internet. Symtec will also provide electronic commerce capabilities to manufacturers who are continually pressured to reduce costs and improve quality and to spread technology efficiencies to their suppliers and customers. Unlike an in-house information technology department, Symtec operates 24 hours a day 7 days a week, requires no up-front capital investment, no on-going maintenance and labor costs, has a great breadth of knowledge and many years of experience. This gives manufacturers of any size access to operational improvement technologies and crucial cost reduction that have become standard requirements among large manufacturers. Symtec will use the Internet to provide leading application software to manufacturing companies. Client companies will access applications over the Intemet for a monthly subscription fee rather than having to purchase hardware and software, implement and integrate software independently. These applications will provide functionality to run today's manufacturing organization - enterprise software, web sites and e-commerce. A Central Information Organization Team (CIO Team) will be assigned to each customer. Symtec will operate Information Centers. Software is run on computers at these Information Centers and accessed by clients securely over the Intemet. Applications will be available 24 hours per day seven days per week with a guaranteed up time. The Information Center personnel are responsible for all administrative tasks such as user maintenance, database and system backups, software patches, application and system upgrades, and maintenance of the wide area network. The Information Centers will also be home to a call center that will provide user support, answering questions and resolving software use issues. Confidential, Aug, 1999 Page 8 Symtec, Inc. Symtec will offer implementation and training services. Template implementation plans will allow client companies to realize benefit from complex software quickly. These templates will include an implementation plan and appropriate documentation of procedures and policies. Standard training classes will be offered as well as customized training services in any area. Ongoing training in any area, perhaps to facilitate change or orient new employees, will also be provided. Symtec will assist clients with process improvement projects. Clients planning to implement such improvement strategies as Customer Relationship Management or Supply Chain Management will be able to take advantage ofthe CIO team expertise on a time and materials basis. Symtec will offer software integration services. The integration of core software with those programs that provide the latest capabilities, make the use of an ASP a successful, cost saving, technology advantage. This synergy keeps customers and suppliers in constant contact and their relationships strong and mutually beneficial. Integration services keep the functionality of each individual software as the software vendor intended yet allows flexibility in how it will be used. If individual modules of software can be integrated with out changing their functionality, the client receives a custom solution that exactly fits his business model. Integration services will be provided on a time and materials basis. Feedback from our clients will indicate a research and development direction. Focus will be on technology that will drive information cost down and create a competitive advantage within our clients that strengthens their relationship with their customers. Confidential, Aug, 1999 Page 9 Symtee, Inc. MARKETING STRATEGY Symtec Target Client (Automotive Manufacturing Supplier/Customer) "By sharing information electronically with their suppliers, ... auto makers know when to expect the parts needed to assemble a particular car, and they can schedule assembly accordingly. And suppliers can tap into the auto makers' order systems to find out what's needed by the manufacturer even before the parts order comes through, so they have the part ready to ship as soon as the order is placed. Tie the dealer -- or even the buyer -- into the same network through the Internet, and presto: The mystery of the delivery date is solved. That porthole into their customers' factories helps the suppliers in other ways as well. At Dana Corp., a $12.5 billion-in-revenue maker of axles, drive shafts, gaskets and metal frames, managers use an Internet-based network called Pass and Spin to look into DaimlerChrysler AG's systems and obtain up-to-the minute data about parts quality and service. 'At the end of the day; customers are making decisions on the way they see you,' says Tim Sheppard, Dana's director of quality. With the Web, 'the borders between companies are becoming very porous. We're looking at ourselves in a mirror.'" - John Dodge, Wall Street Journal, July 12, 1999 The automotive market is the leader in business to business information technology. The automotive OEMs have successfully driven down costs and improved quality through a Confidential, Aug, 1999 Page 10 Symtec, Inc. number of programs that transfer information electronically about orders, receipts, production schedules, forecasts and payments. All of these programs involve the implementation of technology all through the supply chain. Each of the tier one auto suppliers was forced to implement; they in turn are trying to force their supplier to implement who in turn will try to force their suppliers to implement. The Automotive Industry Action Group, a nonprofit organization supporting the automotive industry, reports that pilot evaluations have conclusively proven that suppliers who proactively implement supply chain EDI in conjunction with business process improvements will realize the following cost-savings benefits: reduced lead time, premium-freight costs, change-over costs, obsolete-material costs and increased inventory turns. By focusing on solidifying the client's relationship with it's customers and suppliers, and making that relationship more profitable, Symtec emphasizes that we understand the automotive manufacturing marketplace and what role technology has in continuing to be competitive. Automakers are forcing technological change and lower tier suppliers must comply to remain in the automotive industry. The initial focus will be on maintaining existing relationships with those large automotive suppliers that understand the immense value in conducting business electronically with its customers and suppliers. Many of these large suppliers are interested in programs that will allow their smaller suppliers to deal with them electronically. The Symtec solution allows that relationship. We will leverage the influence these large organizations have within the Supply Chain. We will be offering a solution to every company involved by making the implementation of technology feasible for even the smallest of suppliers. As new customers are implemented Symtec intends to create client loyalty by anticipating needs and creating enhancements that help our clients solidify relationships with their customers and provide cost advantages. The CIO Team will provide services and suggest technology innovations that will have a positive impact on net income by increasing revenue or cutting costs. Symtec will market as a complete solution with respect to the issue of managing information technology. The Information Centers will provide hardware and software while the CIO Teams will provide implementation, training, process improvement and customization services. In this way the client is loyal to Symtec, understanding that Symtec will address all of its information technology needs including electronic commerce and the Internet. By offering a complete information technology solution Symtec also provides one point of contact. Symtec is accountable for all information technology and there can be no shifting of responsibility to hardware vendors, software vendors or outside consultants. Confidential, Aug, 1999 Page 11 Symtec, Inc. GROWTH STRATEGY All companies, and our clients in particular, are looking for ways to make information more valuable while at the same time reduce information cost. This will be a growth driver within the automotive market. Information becomes more valuable if it is complete, available anytime, and can be accessed from anywhere by all those who need it. Complete information is achieved through the integration of software. No one package has all of the functionality required for all manufacturers. We intend to integrate those packages that are currently on the market and those that will be on the market to create a complete solution for our clients. Data recorded in a real-time manner and available in a usable format just as quickly provides useful information. An example would be the ability of a vendor to look into a customer's inventory and at any point in time see the on-hand quantity of the items it supplies. If a company has knowledge of its customer's needs at the same time as (or even before) the customer much of the cost associated with purchasing is eliminated. If the vendor in the previous example must physically be present in the customer's facility to get the visibility into the customer's inventory, the cost advantages are lost. The Internet can securely make that information available to the supplier anytime from anywhere. Implementation of a vendor managed inventory program that integrates with an ERP system accomplishes all of the cost reduction, valued added goals. It is development of this type of integration that will be a tremendous growth driver for Symtec. The focus on the supply chain and the need to exchange information over the Internet makes the suppliers and customers of our clients our next target clients. Taking advantage of the Internet, automation, and economies of scale will decrease costs. As the Internet become more ubiquitous its use will become commonplace. Those applications and services that can be accessed over the Intemet will have the greatest advantage. All of the applications that we will offer will be accessible over the Internet. If a process is repetitive and simple - automate it. Automation of processes can be a tremendous cost saving. We intend to invest a considerable amount into identifying those processes that should be automated and finding solutions that will allow that automation. Shifting of responsibility through automation can also provide cost savings. An example is Federal Express's use of the Internet to make available package tracking information. Rather than having a customer make a phone call to check the status of a package, FedEx customers can now go on-line instead of calling a customer service representative. Identifying areas for this type of improvement in our clients and developing those solutions will provide significant growth. Confidential, Aug, 1999 Page 12 Symtec, Inc. Since Symtec will be offering its high powered Information Centers to many companies there will be efficiencies of scale that clients would not be able to achieve individually. This will help to bring information costs down considerably. Research and development efforts will continually search for ways to drive the cost of information down for our clients and at the same time make that information more valuable. Our ability to integrate new products including electronic commerce technology will make our clients more competitive in their own marketplaces. The vast majority of the companies that make up the potential market for an ASP are not interested in being technology leaders. These companies associate technology implementation with risk - the tremendous cost of making an uninformed choice and having that choice prove to be a bad one. By removing the risk factors associated with the tremendous cost of software and hardware choices we have expanded our market to include those companies that would otherwise have waited for a 'tried-and-true' solution to emerge. Information Centers will be added as the number of users increases. A critical mass of users indicates the need for a new Information Center. This will allow Symtec to provide even greater security and up time. The location of Information Centers will be determined as a result of market studies. Symtec will offer implementation and training services. The addition of software offerings will generate new implementation and training templates. The integration of the CIO team with each client organization will produce additional implementation and training revenue as the client grows and has greater technology needs. Symtec will assist clients with process improvement projects. The CIO team is charged with discovering ways that each client can achieve economies and growth through the use of technology and manufacturing theory innovations. Process improvement projects will be the result of the CIO team client efforts. Symtec will offer software customizations. Symtec anticipates that as a result of its research into the needs of its clients it will develop new technology products. We expect these to be integration solutions that allow more cost-effective use of all software. These developments will be marketed to other Symtec clients and used as a marketing tool to attract new clients. Confidential, Aug, 1999 Page 13 Symtec, Inc. FINANCIAL RESULTS Revenue assumptions Market Growth rate We believe that the industry will be explosively successful in 2000. We expect the continued growth of the industry to be excellent for several years. Our projections assume a 100% revenue growth rate by year five. The growth rates used are based on information gathered from various research firms such as AMR, Forrester and IDC. Currently the automakers are mandating technology to help them reduce their costs. Only 15 to 25% of all auto suppliers have implemented the technology currently being demanded. The automotive plan is to force all suppliers to implement systems and then require that suppliers reduce costs in line with their savings due to technology. Subscription Revenue We have projected that the average subscription fee will be $1000 per month per user. This average is based on research into those companies that are currently providing applications over the Intemet. Basic charges for software Of the caliber that we will be delivering are approximately $850 per user per month. We are expecting additional subscription revenue of at least $150 per user per month for software that will enhance the basic offering. Though we expect this average to grow as more software is offered, that increase is not reflected in our projections. Services Revenue Service revenue is projected to be a function of subscription revenue. Usually associated with the implementation of core enterprise software are considerable process improvement projects and integration. We expect to bill separately on a time and materials basis relative to those additional services. We estimate that billed services will be at least 50% of subscription revenue. Direct Cost Assumptions Cost of Subscriptions We expect that the cost of subscriptions will be about 62% of subscription revenue for the first year and steadily declining for the next five years to 47%. Cost of subscriptions is made up of three major factors, software license costs, salaries and depreciation. The projected increase in gross margin is due to increased economies of scale on the part of Symtec. Additional cost decreases Confidential, Aug, 1999 Page 14 Symtec, Inc. will come from Symtec's ability to negotiate more beneficial agreements with its suppliers as the ASP market becomes stronger and Symtec becomes a dominant player. These negotiated decreases in cost of goods sold are not reflected in the projections. Cost of Services Cost of Services relates primarily to human resource costs. We expect to be able to price our services such that we will be able to maintain a constant cost of sales that will not exceed 50%. This is consistent with averages found in the information services industry. Operating Expense Assumptions SG&A The selling and marketing of our products will be the most crucial expenses incurred in year one. These expenses are expected to decline as a percentage of sales over time to roughly 30% of sales by year five. These expenses do not include Research and Development. Research and Development Over time, Research and development costs are projected to be at a level consistent with revenue. We project these expenses will be 10% of revenue. Research and development costs will be vital to our ability to increase our market share and may require increased spending. Capital Expenditures Human Resources Continued efforts must be made to retain a staff of exceptional professionals. These individuals must play an active role in developing the framework that will define our operations. While we believe that we will be able to attract a portion of the professional staff needed based on the leadership we are assembling, we expect that professional recruiters will be used in the initial recruiting efforts. Formal recruiting and training programs will be designed and implemented while first round hiring is taking place. Expenditures in this area we expect to be approximately $1.6 million in the first year and increase significantly in the following years. Human resources expenses are a function of the number of employees we expect to have. Retaining those individuals will require creative programs such as a stock option plan. Confidential, Aug, 1999 Page 15 Symtec, Inc. Infrastructure Information Centers - initial infrastructure requires at least two 'Information' Centers. The initial Information Center will be in Wheaton, Illinois. This area is ideal because it is centrally located and is in an area of high technology development where talented individuals as well as suitable technology are more accessible. The location of the second Information Center remains to be strategically determined based on market research. Information Centers will include sophisticated computers capable of running complex applications and handling large volumes of transactions. Also included will be monitoring, redundancy and back-up systems that will ensure reliable performance 24 hours a day, seven days a week. Network systems will be installed that will allow our clients and staff to access production and test systems within the Information Centers and remotely. Call center systems and software control systems implemented to document client issues and resolution. will also need to be The protection of the equipment, programs and data is a critical factor in the success of Symtec Information Centers. Leasehold improvements are anticipated for each of the Information Centers to ensure adequate power supply, climate control and security. Initial infrastructure expenditures are expected to be approximately $7 million. This amount consists of approximately $5 million for Information Center monitoring, security and redundancy costs and client computers. The remaining $2 million will be leasehold improvements. Confidential, Aug, 1999 Page 16 Symtec, Inc. Projected Income Statement @ntec,/_ _ Projecti_s (ha ) YEARI YEAR2 YEAR3 YEAR4 YEAR5 Sutr, iptionRevenue o ServicesRevenue TOad Revenue $ - 19,500 $ 10,050 29,550 58,500 $ 29,900 88,400 160,875 $ 402,188 81,413 201,094 242,288 603,281 Software c.x_ Payroll ndrelatedct_ a Othersulr_laion cc_s of Sulzscriptions Costof Services TotalDirectCx_ Ocr,s Margin 1Vhrketing E.xtzerr, e Selling Costs AdminisWative Cc_ TrainingandReciting costs andDevel_ TotalO_rmir_ _ EBITIDA Incometaxctmge/(bemfit) Depreciationxpmse e Iraerest _xpense F Net_ $ $ 1,587 3,367 1,000 5,954 5,954 (5,954) 2,000 9(/) 1,500 1,669 600 6,669 (12,622) (5,891) $ 1,836 270 (3,785) (8,837) $ 5,157 6,084 1,0130 12,241 5,025 17,266 12,284 2,000 4,433 1,678 3237 2,955 14,302 (2,018) (1,929) $ 2,201 604 876 (2,894) $ 15,470 13,442 1,000 29,912 14,950 44,862 43,538 4,095 13,260 2,235 8,085 8,840 36,515 7,023 1,019 $ 3,249 1,226 5,494 1,529 $ 42,543 33,144 1,(130 76,686 40,706 117,392 124,895 11,261 36,343 3,707 21,048 24,229 96,589 28,306 7,124 $ 7,303 3,194 17,621 10,686 $ 106,356 81,656 1,000 189,013 100,547 289,559 313,722 28,153 90,492 7,247 51,351 60,328 237,571 76,151 22,427 12,910 7,172 42,510 33,641 Confidential, Aug, 1999 Page 17 Symtec, Inc. "OUl'aa,_u_,¢S 81 O_rd 6661 '_nv 'I_!luopguo::) s,eeA :i_'_ : .;_F_,_ _ _._:, :!_,::'!';_r_; _i.T_ i !_!l_I _i_#_i;_ ' I_I , i:_ " _' : "_"_ ;"_ .:_' :: :. qF; _;_ "_ ":' " -i _: 0 '_:: _" ......_: .... _" " "' 000'01_$ euJooul ,eN Jee A :i _1_1_i_ .Jl_l_, I1_1_'_!_;_,!i_!i_ii_;. _:._: _.. _:_ _ ........ ,__'_:_ . _:. l::_i|l_.,? :. :_ii,,::_:®. : ::_ ._:,_:_:_,-._::000'017 ,, sJesn MeN [] eseB jesn pe,oedx3 Projected Balance Sheet S_tec, Inc. BalanceSheet (in thousands) YEAR I ASSEIS C_'rent assets: Cashand cash equivalents Tradeaccountsreceivable Deferredincometax benefit Totalcurrentassets Property_l equipment,a cost." Computerequipmentand sottware Leaseholdimprovonents Less accumulated Net propertyand equipment Totalassas $ 4,609 1,500 (1,836) 4,273 $ YEAR2 YEAR3 YEAR4 YEAR5 3,203 $ 500 5,891 9,595 49 $ 3,277 7,821 11,146 2,401 $ 18,033 $ 69,272 9,790 26,789 66,572 6,801 18,992 44,822 135,844 5,703 1,500 (4,037) 3,166 8,847 1,500 (7,286) 3,061 21,010 1,500 (14,589) 7,921 36,929 3,000 (27,499) 12,430 13,867 $ 14,313 $ 22,054 $ 52,743 $ 148,275 LIABII ,trIES AND S'IOCKHOLDERS' EQUITY C_rrentliabilities: Shortterrn debt $ 2,704 $ 6,044 $ Incometaxes payable Totalcurrentliabilities 2,704 6,044 Totalliabilities 2,704 6,044 Stodd_lders' equity." AdditionalPaid in Capital Retainedearnings Currentyearseaming0oss) Tad stockholders'equ/ty Total liabililies and equity $ 12,256 $ 12,256 12,256 31,936 $ 71,722 323 22,427 32,259 94,150 32,259 94,150 20,000 (8,837) 11,163 13,867 $ 20,000 (8,837) (2,894) 8,269 20,000 (11,731) 1,529 9,798 20,000 (10,202) 10,686 20,484 20,000 484 33,641 54,125 14,313 $ 22,054 $ 52,743 $ 148,275 Confidential, Aug, 1999 Page 19 Symtec, Inc. Cash Flow Projections b3,rntec; In_ Stmm_ of(3_shFl_s (in trm:ls) tt YEARI Cash floHsfrom opm_ingaeti_"ies; t Net _ A_z_'urentsto _von:ile net income net to _on _md m-_mS:_on lnx_ taxeslx_al_e Tra_e_x_smcei_uble, net Df::flal_d _ taxes Netcashtrcnqd_byoperainga:_'ties Ca_h flo_sfrom investing a:avUies: _ of_ _:1 equil:_mt YEAR2 YEAR3 YEAR4 YEAR5 $ (8,837) $ (2,894)$ 1,529 $ 10,686 $ 33,641 1,836 (500) (5,891) 03,393) 2,201 (2,777) (1,929) (5,399) 3,249 7,303 12,910 323 22,105 (6,513) (16,999) 09,783) 1,019 6,801 (716) 8,114 28,873 6,109 1,095 3,144 12,163 17,419 ot aseofocr g rns Netcashusedin inu_ingact/v/t_ Ca_hflo_fr_n_/ng a_'t_.. _crt tarn_ _:x:eedsfruJJw_ue capital Netcashprovid_lbyfinarcingat_'ties Net _ (d_aease) in cashand 6,109 1,095 3,144 12,163 17,419 2,704 20,000 22,704 3,203 3,339 6,212 19,681 39,786 3,339 (3,154) 3_203 6,212 2,352 49 19,681 15,632 2,401 39,786 51,240 18,033 C_,hat begimingofye_ Qr:daatendofye_ $ 3203 $ 49 $ 2,401 $ 18,033 $ 69,272 Confidential, Aug, 1999 Page 20 Symtec, Inc. INDUSTRY OVERVIEW Application Service Provider Definition The ASP Industry Consortium defined an Application Service Provider (ASP) as an organization that "...manages and delivers application capabilities to multiple entities from a data center over a wide area network. Application service providers offer a simple and cost-effective alternative to managing technology inhouse and help customers precisely control the total cost of technology ownership." The Application Service Provider industry is currently emerging based on a 'consolidator' model. ASPs are consolidating software, hardware and technical expertise for delivery to the customer through a single channel - the Internet. Customers login to remote servers to access various applications. Customer data is stored and secured at the data center. The customer does not purchase expensive hardware, software or expertise outright but instead uses the resources and software of the ASP and pays a monthly subscription fee for that right. Industry Drivers Many companies are continually being pressured by their customers to reduce costs. Technology is an effective vehicle for this reduction. The savings realized by one company by investing in technology can extend to its customers and its suppliers in addition to generating internal cost savings. For example, a company that invests in electronic data interchange technology will be able to electronically send purchase orders to its suppliers. This eliminates many errors, omissions and miscommunications internally. Where the supplier can also receive those same purchase orders and turn them into sales orders electronically, additional savings are achieved. The relationship defined by this electronic connection is referred to as the Supply Chain. Middle market manufacturers are motivated to install enterprise systems by their larger customers who are requiring them to comply with technology driven initiatives under threat of losing business. Automotive supply chain manufacturers require electronic data interchange purchasing, advance shipping notices communicated electronically, and electronic billing. Many retailers require bar coding and point of sale billing. The lack of qualified professionals will also be a major contributor to the growth of the ASP industry. There are approximately 350,000 information technology positions currently unfilled. The forecast of technical talent for the next ten years indicates that there will continue to be a substantial shortage. Rather than face the Confidential, Aug, 1999 Page 21 Symtec, Inc. constant and expensive challenge of finding, training and retaining talent, many companies will choose to contract with an ASP and avoid the issue all together. Ongoing training is expensive and attrition rates make maintaining an internal information technology department a losing proposition. The various areas of expertise required also make an in-house information technology department unattractive. Personnel must be experts in several layers of technology from hardware and operating systems to the end user applications and the Internet. The result is a staff that knows a little about many things but not enough about any one area to be effective. Lengthy downtime is often experienced because of inexperienced staff. ASPs are likely to be more successful in recruiting because the career opportunities offered by an ASP will be more attractive than those offered by manufacturers. The desire to implement technology is motivated by cost savings, however it is often expensive to implement. The ASP model spreads the purchase cost of hardware, software and expertise over several companies thus reducing the cost to each individual company and makes implementation much more palatable. Analysis of the decision to develop in house information technology departments compared to utilizing the services of an Application Service Provider show cost savings of at least 30%. Cost savings escalate depending on the level of software to be provided and the required support. Competition The ASP industry is barely one year old, as such the major competition at this point is an internal information technology department. There is tremendous security in having an information organization in-house for many CEOs. The ability to 'touch and feel' systems gives a comfort that is as valuable as it is intangible. Symtec believes this mindset to be the number one hurdle to be overcome in the sales cycle. We believe that as the ASP industry is able to show that an entire information technology organization can be run off-site and deliver accurate information with acceptable speed and security, at a low cost, resistance will diminish. A large number of software providers understand that the ASP model is a powerful avenue for revenue. Many are now in the process of forming relationships with ASPs. Some however, are trying to create internal ASP organizations. Symtec believes that this strategy will isolate the software vendor. One of the advantages of an ASP is the choice of software available to each client and the ability to integrate several software solutions at a reasonable cost. In today's very flexible, one-on-one market, limiting choices will be a strategic mistake. Confidential, Aug, 1999 Page 22 Symtec, Inc. Some service providers are trying to create alliances that would allow each of the alliance partners to remain separate while as a whole they can offer the advantages of an ASP. We believe this model will ultimately fail because no one player takes responsibility for the functioning of the whole. The client must still manage several vendors. ASPs take on three forms. Specialist providers that only provide niche software (payroll or human resources), vertical providers that satisfy the needs of a narrow market such as engineering firms, and the enterprise ASP who has a host of products that meet the demands of a larger community. Symtec fits into the enterprise ASP category. More and more companies are entering the ASP industry every week. The industry did not exist only one year ago but it now is growing at an incredible rate. Those companies that are able to shape the market will be the most successful. We feel that accountability is the underlying key to success. In the past hardware vendors, software vendors and consultants have not been fully accountable for the services they provide, each pointing to one of the others as the cause of failure while no one provider has the control required to provide a complete solution. By packaging all the products and services together, we are accountable and in control. Specialist providers will ultimately not have the breadth required to attract a large client base. If a client has to manage several ASP vendors, the cost savings associated with using an ASP are reduced. Vertical providers are generalists in their area. This model can be powerful if the vertical definition is broad enough to include a big enough market. The ASP model creates economies of scale and the scale must be big enough to be profitable. Based on current research there are 15-25 companies calling themselves enterprise ASPs. Many of these are still in the development stage and others have just come to market within the last two months. There are three companies that appear to be well funded and have strong management teams - Corio, Digex and USIntemetworking. There are not however, any strong success stories to indicate the viability of any of these companies. All companies in this industry are just too new. Confidential, Aug, 1999 Page 23 Symtec, Inc. MARKET OVERVIEW • • • • Presently 54% of the world's automotive production is held by 40EM's, by the year 2000, this group will hold 70%. Supplier strategy, cost reduction, and consolidation is driven by the 4 large OEM's. They are forcing the changes. Supplier development & Supply chain management - Suppliers can expect the pushing / forcing to continue. System Integration is giving suppliers more power than ever before. - International Business Development Corporation What does the market need? • Sophisticated but affordable software that will support all activities of a manufacturing business and enable new technology such as e-commerce and the Internet. Software that exactly fits the specific specialized needs of each company and takes advantage of its uniqueness. Hardware that runs reliably and that has the capacity to handle a large volume of transactions. Technical expertise that can maintain the hardware and software at a technical level. Minimal computer down time. Application experts that understand specific software use and functionality in and can help to create the policies and procedures that insure a positive impact of implementing technology. Industry experts that are abreast of the advances in manufacturing methodologies and how technology can be implemented to take full advantage of the advances. Industry experts that understand how to make technology a competitive differentiator. • • • • • • A primary factor in determining where the most spending will occur is the ability to utilize the Internet, according to Donald Bellamy, a senior consultant at Aberdeen. "Probably the most significant issue today is the extent to which business can be transacted, rather than merely supported, via digital forms, including the Internet," Bellamy says. - Eileen Colkin, Information Week Confidential, Aug, 1999 Page 24 Symtec, Inc. How much money will be spent? Current information technology budgets are between 2 and 10% of revenue. Our expectation is that these amounts will not decrease in the short term. As the year 2000 approaches funds that were being held for year 2000 remediation are being released. As an emerging industry there are no reliable figures on the size of this market, however, Forrester Research is projecting that the ASP market will reach $21 billion by the year 2001. AMR Research believes that approximately $18 billion dollars will be spent in linking business customers with their suppliers in the year 2003. It also predicts that mid-market companies alone will spend $15 to 20 billion on application software. What are the decision drivers? • Cost avoidance (down time, recruiting costs, training costs, underutilized functionality). The tremendous up front costs of implementing technology can be so great as to be crippling for a large number of companies. Adding to this is the fact that many of the costs are hidden and not identified to those with little technical experience. Avoidance of the up front and hidden costs is a primary decision driver. Short implementation cycle. As with most projects in today's world. Technology was needed yesterday. It is only when the impact of not having it is felt that most companies act. The quicker it can be implemented the sooner the positive impact. Return on investment. Technology will not be implemented just for technology's sake. Return on investment is a common indicator used to test the reasonableness of any project. Technology projects are no different. Low cost of ownership. Whatever the initial investment, the cost of maintaining a system cannot be prohibitive and must be well understood up front. Many companies are demanding service guarantees in many areas in order to control the cost of ownership. Trust. Probably the most heavily weighted decision driver is trust. Is the CEO or CFO willing to trust an outside company with what they believe to be ultimate control over their most valuable asset - their information? • • • • Who is the initial target customer? Our target customer is an automotive manufacturer that has under $1 billion in sales and is getting considerable pressure from its customers to implement Confidential, Aug, 1999 Page 25 Symtec, Inc. complex technology in order for its customers to realize cost savings. These target customers will be lead by decision-makers that understand the complexity of technology and the immense cost, both in dollars and people, required to implement and sustain it. These decision makers also need to understand that there is an increasing need to implement technology just to remain competitive and an even greater need to implement technology cost effectively to gain a competitive advantage. There are approximately 350,000 manufacturing companies in the United States with under $1 billion in sales. Confidential, Aug, 1999 Page 26 Symtec, Inc. SENIOR MANAGEMENT STRUCTURE Organization Chart Rita Carter President/CEO I_ ]i '°?°""" N vm_a,es ' _ b VP Finance I_ CFO Iiii!] to be filled J?l VP Human Resources to be filled "°'_m_°'no"°" I_ vm'°°"°°'°_' I!!1 I_ J!_ Ii'i_ Confidential, Aug, 1999 Page 27 Symtec, Inc. Resumes Rita Carter, PresidentMs. Carter is a consulting executive with over 15 years of experience in management, sales and information technology roles. Her experience includes significant information delivery projects with Fortune 500 companies such and Eaton Corporation, Caterpillar, Johnson Controls Automotive, IBM Corporation and Lucent Technologies. Projects she has been involved in have resulted in major cost savings to the client due to increased efficiencies that result from implementing technology solutions. She has worked almost exclusively with those companies that have embraced the supply chain concept, particularly with automotive suppliers. She maintains relationships with many information technology executives in these organizations. In August 1993, she joined Symtec, Inc. a software systems integrator to develop the implementation and training practice and was appointed president in January of 1998. Since Ms. Carter joined, Symtec has become a full service Enterprise Resource Planning implementation company offering all of the services necessary for a complete ERP solution. From 1988 to 1993 Ms. Carter was a partner in the firm Carter Costigan Associates, a certified public accounting firm specializing in the software implementation and consulting. Prior to that she was with Touche Ross & Co. holding management positions relative to the emergence of their information systems consulting division. Ms. Carter holds a Bachelors of Science degree in Accountancy from Arizona State University. She is a certified public accountant and holds various software certifications. Paul R. Smedinghoff, Vice President of Technology A computer science executive with considerable experience in the development of custom solutions in a market where technology does not exist or is not sufficient. Mr. Smedinghoff founded Symtec, Inc. in 1979. Mr. Smedinghoff built Symtec to be a leading Enterprise Resource Planning system integrator creating unique, leading edge solutions to issues facing any supply chain. Mr. Smedinghoff and Symtec Inc. are known for their creative approach to systems that does not consider the boundaries of conventional technology wisdom. Mr. Smedinghoff's talent for developing specialized solutions ahead of the market has earned him the very long-term loyalty of many clients. Relationships spanning many years have been developed with such companies such as U.S. Robotics, Carrier, the Chicago Board of Trade, M&M Mars, Johnson Controls, Information Services International and Motorola. Mr. Smedinghoff also was instrumental in creating functionality included in one of the original Confidential, Aug, 1999 Page 28 Symtec, Inc. ERP software, ASK's MANMAN. Prior to founding Symtec, Inc. Mr. Smedinghoff was as a technology consultant to Argonne National Laboratories. Mr. Smedinghoff holds a Bachelors of Science degree in Computer Science from the University of Illinois at Urbana/Champaign. Vice President of Sales To be disclosedIt is planned that a Vice President of Sales with extensive experience in selling application software and building a flexible sales strategy will be hired. Symtec is in preliminary discussions with an individual who currently holds a vice president position with a major application software vendor. Vice President of Finance (CFO) Symtec plans to seek the services of a finance professional with experience with fast paced growth. This individual will also have experience with management of investors and raising growth funds. Vice President of Human Resources As Human Resources are a critical factor in the success of this venture, Symtec plans to search extensively for an individual with considerable experience in building a human resources infrastructure that will minimize turnover and maximize employee knowledge and productivity. Confidential, Aug, 1999 Page 29 Symtec, Inc. INDUSTRY AND STRATEGY RISKS Acceptance of the ASP Model CEOs and CFOs may not become as comfortable with the ASP concept as is being projected. There may be complete resistance as these decision makers forge ahead assuming they can do-it-themselves better and for less. The amount of time until corporate America accepts this concept may be so long that many ASPs won't survive and the perception of the industry will be negative. We believe that the market is already showing positive signs of acceptance of the ASP concept. The risk to the CEO or CFO in choosing to use an ASP is relatively low when compared to purchasing and implementing software. The lead-time and expense are considerable when using an internal information technology department. Because purchasing technology is such an expensive alternative, companies are often locked into bad choices when choosing to develop and internal information technology development. The opposite is true of an ASP. In an economy where technology choices can be the difference between success and failure we feel that a low risk / low cost way to venture into the world of electronic commerce will be well received. Software Vendors Software vendors may resist the move toward the ASP market _md insist on holding their software closely. While software vendors may not be willing to create agreements with ASPs they are not likely to refuse to sell licenses where the software would not reside on the customers own machine. Software vendor's unwillingness to enter into ASP agreements will provide an opportunity for creative client agreements that circumvent the software vendor's reluctance. Software vendors may also host applications for free in order to encourage customers to buy a software license instead of paying an ongoing subscription fee. We feel that the independent evaluation of software that Symtec can offer along with the considerable ease of integration will cause companies that are considering an ASP alternative, not to choose a software vendor to host its applications. Confidential, Aug, 1999 Page 30 Symtec, Inc. Human Resources Qualified human resources are scarce. There is a risk that the desired resources will not be available to Symtec. We feel that the career path and challenges offered at Symtec are much more attractive to the most desirable individuals. As a growing company in a new industry, Symtec will be an attractive alternative to those professionals that are seeking advancement and the opportunity to work with new and emerging technologies. Confidential, Aug, 1999 Page 31 Symtec, Inc. INVESTOR ECONOMICS Investment schedule Funding for this venture will consist of an initial cash inflow of $20 million. Exit Strategies Symtec anticipates that the exit mechanism for investors will come in the form of an initial public offering or merger. A profitable technology model is likely to be well received by the equity markets and is equally as attractive as a possible acquisition target. Media General Financial Services currently reports the average price earning ratio for the Information Technology Services industry to be approximately 47. The price earnings ratio for the Application Software Industry is currently quoted at approximately 93. For purposes of this plan we chose to use the more conservative P/E ratio of 47. Media General Financial Services is not reporting a P/E ratio specific to the Internet Software and Services industry. Potential Investment Return Using a five-year investment time frame, a 20% cost of capital, a 55% ownership interest, and a P/E ratio of 47 on projected earnings, the net present value of the initial investment is approximately $500 million with an internal rate of return of 140%. Confidential, Aug, 1999 Page 32 Symtec, Inc.