Leasing & Financing of Software Stephan van Beek

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1 <Insert Picture Here> Leasing & Financing of Software Stephan van Beek 03 APRIL 2009

2 Agenda Background: Oracle and Oracle Financing Myths and Misconceptions in Software Leasing Global Marketplace for Software Leasing Software Leasing Fundamentals Know Your Assets Structuring Transactions Seizing the Opportunity

3 Oracle Corporation World s Largest Enterprise Software Vendor $22 Billion Revenue, FY08 300,000+ Global Customers 80,000 Employees 20,000 Partners 9,000 Independent Software Vendors 145 Countries

4 Oracle Financing 18 Years of Experience $1.5 Billion Annual Volume $10 Billion Cumulative Volume 50+ Countries Customers 61% 26% Customer Profile: 50% Investment Grade, 26% Upper Mid-Market, 24% SMB 5% 7% Growth Opportunity: BRIC, Eastern Europe, MEA, ASEAN

5 Myths and Misconceptions Software is Air Software has to be anchored with Equipment Leased assets must be goods Cannot lease software Need remarketing rights to lease

6 <Insert Picture Here> Software Leasing Marketplace

7 Software Leasing Marketplace: Market Evolution Hardware Leasing System Leasing Software Leasing Hardware Service Software Hardware with Embedded Software Hardware, Software and Services Software and Services

8 Software Leasing Marketplace: Opportunity IT Spending IDC $1 Trillion Mix Growth % IT Leasing & Financing CAGR 8% by 2010 Software - 50% of growth Services 25% growth Growth Globalization Services 5.5% Packaged Software 7.6% Hardware 4.8%

9 <Insert Picture Here> Software Leasing Fundamentals: Know Your Asset

10 Know Your Asset: IP and License Rights License owns Intellectual Property Licensor owns IP code Licensor owns IP distribution rights Licensor can sue for license infringement Licensee owns right to use Licensee acquires right to use under license agreement License usually requires licensor consent for transfers Asset is Contract Right to Use IP Non-Exclusive License Rights

11 Know Your Asset: License and Distribution Types of Delivered Software Packaged - Off-the-Shelf Custom Finish-on-Site Types of Licensing Perpetual License Software as a Service (SaaS) Term License (1 5 Years) Types of Distribution Direct or Distributor Sale Independent Software Vendor Generic or Application Hosting

12 Know Your Asset: In-Place Value Economic Life Technical Support OnSite Services Consulting Training Desktop and Web Applications CAD/CAM and Tools Custom Applications Packaged Applications Middleware Database Operating and Network Systems

13 Know Your Asset: Software as Collateral Risk Mitigation Credit Collateral Hardware Ability Financial Condition Willingness Pay History Asset Re-sell Value Software Ability Financial Condition Willingness Pay History Essential Use In-Place Value Unsecured Loan Ability Financial Condition Willingness Pay History Covenants Terms Enforce Repossess Terminate Legal

14 Know Your Asset: Re-sell vs. In- Place Value Hardware Re-sell Value Software In-Place Value Product Updates Product Updates Depreciating Appreciating

15 Know Your Asset: Termination Rights Customer provides contractual right to terminate Software or Support Software Termination Funder termination Funder notifies licensee that license is terminated Licensor has agreed to observe funder s termination Exception: remote termination with access code (after due process) IP owner retains right under license to sue for infringement Support Termination Termination Right: Effective Non-Judicial Remedy

16 <Insert Picture Here> Software Leasing Fundamentals: Structuring Transactions

17 Structuring Transactions: Vendor Assignments Market Trends Assignment of Receivables Assignment of Contract Rights Oracle Order Extended Payments Customer Oracle Order Payment Agreement Customer Funder Funding does not make Revenue Funder Separate the Commercial and Payment Risks

18 Structuring Transactions: Loan vs. IPA Loan or Credit Agreement Installment Payment Agreement Order Order Oracle Customer Oracle Customer Loan IPA Unsecured Loan Funder Commercial IPA and Termination Funder

19 Structuring Transactions: Software Leases Lessor must be in license chain to provide lease Lessor obtains contract right to grant right to use Lessor may capitalize software as an asset Lessor may benefit from tax advantaged pricing Lessor may offer residual based leases

20 Structuring Transactions: Software Leases Customer Arranged Lease Order Vendor Sub-License Lease Order Oracle Customer Oracle Customer Licensor Consent Lease Sell Rights Lessor Right to Use Lease Lessor Customer

21 <Insert Picture Here> Seizing the Opportunity

22 Seizing the Opportunity: Equivalent Licensing Model Exists Leasing Hosting/Outsourcing Oracle Grant Right to Use to End-User Oracle Lessor Right to Use Capitalize Right VAT Over Time Hoster Right to Use Customer Customer

23 Seizing the Opportunity: Emerging Market Customers need to acquire the most current software to leapfrog to modern technology Customers need financing and leasing to make capital investments Funders can leverage existing knowledge and structures

24 Questions