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Filed by 724 Solutions Inc. and TANTAU Software, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: TANTAU Software, Inc.
Exchange Act File Number of 724 Solutions Inc.: 1-15641
EXPLANATORY NOTE: THIS FILING AMENDS THE FORM 425 FILED ON DECEMBER 4, 2000
TO SET FORTH TWO STATEMENTS THAT WERE PREVIOUSLY MARKED "UNINTELLIGIBLE".
[The following is a transcript of an investor conference call that was by
724 Solutions and Tantau Software on Wednesday, November 29, 2000, and made
available for replay thereafter.]
Operator: Ladies and gentlemen, thank you for standing by.
Welcome to the 724 Solutions analysts conference call.
At this time all participants are in a listen only
mode. Later we will conduct a question-and-answer
session. At that time if you have a question you will
need to press the one followed by the four on your
pushbutton telephone. As a reminder this conference is
being recorded Wednesday, November 29, 2000. I would
now like to turn the conference over to Mr. Ray
McManus, Director of Public Relations for 724
Solutions. Please go ahead sir.
Ray McManus: Thank you Operator. Good afternoon everyone, and thank
you for joining us. This is our conference call to
discuss the acquisition of TANTAU Software. Before we
proceed I'd like to read you a Safe Harbor statement.
The statements in this call are statements of a
forward-looking nature. These statements are made
under the Safe Harbor provisions of the U.S. Private
Securities Litigation Reform Act of 1995. These
statements include the statements herein about the
business and affairs of 724 Solutions and TANTAU
Software after the completion of the merger, including
the companies' combined competitive positions, product
offerings and customer base, the companies' improved
revenues, operating performance and margins, the
companies' planned integration of their product
offerings, the growth in the number of subscribers for
wireless services, the growth in mobile transactions,
and demand by financial institutions and consumers for
mobile commerce, banking and brokerage services. These
statements are based upon current expectations and are
subject to risks and uncertainties that could cause
actual results to differ materially from those
described in the forward-looking statements.
In particular, the following factors among others
could cause actual results to differ materially from
those described in the forward-looking statements. Any
inability to satisfy the conditions for the closing of
the merger, any inability to obtain the required
governmental approvals for the merger and registration
of the shares, the risk that 724 Solutions and TANTAU
Software businesses will not be integrated efficiently
and successfully, or in the manner described herein,
costs related to the merger, any delay, inability or
difficulty encountered in increasing 724 Solutions'
and TANTAU's combined revenues from their existing and
new contracts, competitive products and pricing, any
inability of 724 Solutions and TANTAU to offer
enhanced product offerings, or to offer these to
customers in new industries, any inability that 724
Solutions and TANTAU may have to manage and grow their
expanding international operations and other factors.
These and other risks are set forth in more detail in
724 Solutions' SEC filings and filings with the
Canadian Securities Administrators, including but not
limited to its material change reports, Annual
Information Form, Form 20-F, Management Information
Circular or documents furnished under cover on Form
6-K and, when filed by 724 Solutions, its Registration
Statement on Form F-4. 724 Solutions does not
undertake any obligation to update this
forward-looking information except as required under
applicable law.
Thank you. I'd now like to hand over to Greg Wolfond,
Chairman.
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Greg Wolfond: Is there any time left? Sorry. Thank you Ray. With me
today I have John Sims and Karen Basian and I want to
thank everyone for joining us here today. John, Karen
and I are here to discuss our plan to combine 724
Solutions and TANTAU Software and to introduce you to
the company that's the leading provider of
infrastructure and application software, enabling
secure transactions through mobile devices worldwide.
I expect you've all seen the press release issued
earlier and I'd like to take a minute to explain the
transaction itself before going into the strategic
rationale.
Under the terms of the agreement we have with TANTAU
which both our Boards have unanimously approved, 724
will issue 19 million shares and options to acquire all
of TANTAU's outstanding shares, options and warrants.
Upon completion, 724 shareholders will own
approximately 68 percent of the combined company and
TANTAU shareholders will own approximately 32 percent
on a fully diluted basis. Upon completion John will
become CEO of the combined company and I will become a
very active Chairman focusing on the strategic
interests of the company. We're accounting for the
acquisition as a purchase transaction and we expect
closing in the first quarter of 2001.
So why TANTAU and why now? I think those of you on the
call understand 724's mandate fairly well. We create
secure infrastructure and applications that allow
financial institutions to provide value to their
customers. It's the breadth and depth of these
applications where 724 really excels. In places like
banking where you can look at your bank account
balance, you can transfer funds between accounts, you
can order checks, you can pay your bills, in brokerage
looking at your account, getting alerts from your
watch list, getting research, and in m-commerce where
you want to be able to, for example, look at books in
Indigo and be able to make a purchase right on the
Internet on your phone, right through all of the
alerts, the "tell-me-when" features, and the actual
alerts where I get an alert on my device and am able to
buy goods and services in return.
The 724 story is well known. Let me tell you a little
bit about TANTAU though. The core team at TANTAU came
from the high performance research center at Tandem.
In fact this is the group that actually founded that
center and Jimmy Treybig, the founder of Tandem,
actually is one of the founders of TANTAU. These are
the guys that work with customers like the Nasdaq
Stock Exchange, the New York Stock Exchange, and the
London Stock Exchange to architect systems that today
support hundreds of millions and billions of
transactions on a daily basis. It's a real scale. So
TANTAU has as its scalable wireless infrastructure,
that's proven. Most of TANTAU's employees are in
Europe with leading clients like MeritaNordbanken,
Rabobank, Credit Suisse, and others. It's a true
compliment to our customer base which to date has done
well in North America and Asia. TANTAU has blue chip
investors which include Hewlett Packard, Compaq,
Nokia, General Motors, Austin Ventures, and Chase
Capital Partners, and the TANTAU platform is
distributable worldwide by world class partners
including Hewlett Packard, Compaq and Nokia. So what's
really the strategic rationale behind the deal?
The first one's pretty clear. This creates 724 as the
leading provider in mobile financial services. We now
have reach through our customers to 270 million
consumers worldwide. This expands our addressable
markets, clearly with the customers that I've
mentioned, more of which John will talk about in a
minute, but are also wider geography and it has a
great organizational compliment as you'll hear about
again a little later on. We accelerate our technology
roadmap as well. The combination of TANTAU's great
technology with the great work we're already doing on
PKI portal, personal m-commerce, and the great 724
applications will allow us to get product to market
much more quickly than we could
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have without this acquisition.
We also achieve unparalleled strategic partnerships.
The ability to get our product to market quickly is
what's going to be important in this race and having
the partners that we have on the technology front, the
security front, and also the distribution side, the
likes of Hewlett Packard, Compaq and Nokia, has been
mentioned as a huge plus to the combined company. This
completes our global reach with 724's strong base in
North America, TANTAU's base in Europe, and a combined
base in Asia Pacific, and finally it accelerates our
path to profitability, moving profitability in from
mid 02 consensus estimates to our target now of Q1 of
02.
And we talk at 724 a lot about monetizing the mobile
Internet. By the latest numbers there will be 742
million wireless Internet subscribers, not just phone
users, but wireless Internet subscribers by 2004, and
mobile transactions will exceed $20 billion dollars in
the United States alone in the same time period
according to IDC. At 724 we start with financial
institutions because that's where people will continue
to trust and will continue to keep their money and we
build out from there in commercial relationships,
m-commerce, and we take this core competency up the
curve of value from content to messaging to features
like the "tell me when", alert me when my bank account
gets down to this balance, or tell me when my credit
card gets up to $5,000 or tell me when I can get a
ticket for less than its price, and the ability to
transact, so ultimately our core competency is the
secure scalable transactions, and that's really the
ultimate value point.
So there's five things we think you've got to do to
win the market. A few more points before I turn over
to John, and these are the five things.
First, you've got to have to win in this space rich
applications. You've got to be able to deliver the
banking, the brokers, the "tell me when", the alert
notification service, all the rich applications which
help our financial institutions add value to their
customers.
The second point is you've got to have a highly
scalable platform. There is no doubt now we are the
world leader in this kind of platform.
Financial institutions are the next key. You've got to
be able to have the leading institutions in the world,
and the combination, the kind of customers that 724
has already, and the customers that TANTAU brings to
the table, we are the leader in that space.
You've got to have strategic partners and I've talked
about some of those. John will talk a little bit more.
And global presence, this truly makes this the global
step that we had to take.
So with that I'm going to turn it over to John.
John Sims: Thanks Greg and hello everyone. I'm very excited to
talk to you today about the strategic combination of
our two companies which we believe will provide
significant value to our customers, our partners, and
of course our shareholders. Additionally we believe
the combination also provides significant opportunity
of growth for our employees. Both companies have been
very active in this, enabling secure transactions in
the mobile Internet space, and have effectively come
to the same conclusions about what it was going to
take to win. The kinds of things that Greg just
mentioned, the rich applications, the highly scalable
platforms, the robustness, the partners, and so on. In
fact, as both companies stepped back and took a look
at this we saw that we were each investing in strands
of the other company, and so as we looked at it and
understanding that winning is all about speed, we came
to the conclusion that our combination made all the
sense in the world and our craft to create value for
our shareholders.
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As for the combined solution offering, TANTAU brings
our highly scalable robust platform that supports the
integrity of transactions where money is changing
hands, an absolutely essential foundation to this
monetizing of the mobile Internet. We will add to this
rich, scalable, robust infrastructure that TANTAU
brings, the 724 application services, including
alerts, aggregations, PKI portal, and the other sets
of things in the application services, and in
addition, on top of this whole framework, we'll have
the rich set of applications that 724 brings in
banking and brokerage and commerce, and probably most
importantly this framework will allow us an
opportunity to be able to create a framework that
allows us to move into new vertical application areas
as they become available in this monetizing of the
mobile Internet, and will allow us to move there in a
logical fashion and quickly.
As for our customers, as far as our customers are
concerned, as many of you know 724 has a great set of
customers in North America, including Citigroup, Wells
Fargo, Bank of America, Bank of Montreal, and so on.
As we add the TANTAU relationship with Chase, the
combined company will now have four of the top five
financial institutions in North America, and
additionally as you may have seen recently, 724
announced its relationship with Hanvit Bank in Korea,
the second fastest growing wireless Internet market in
the world. And to that set of customers we now add all
of TANTAU's great customer base, which is particularly
based in Europe, including many leading instant
financial institutions there, the Credit Suisse group
in Switzerland, Rabobank International, Barclays,
MeritaNordbanken, SE Banken, Commerzbank and many
others. And you can see then that this combined
company will have an unparalleled set of relationships
with customers throughout the financial services
industry across the world on a global scale.
Now, in addition to having great technology, great
people and great customers set, I believe strongly
that winners in an industry have to be leaders in
partnering as well, and this combined organization
will have a compelling array of relationships with
leadership companies. In the technology and channel
partners arena 724 has developed terrific
relationships with companies like Ericsson, Openwave,
Mastercard and others, and now we're adding Entrust,
Certicom, deep channel relationships with companies
such as Compaq, Hewlett Packard and Nokia.
Additionally, the combined company covers the
landscape in terms of relationships with security
vendors and device manufacturers, very important to
the whole equation.
From a partnering perspective I think there is no
question that we are in a leadership position within
this space. In terms of our organization the combined
companies will have over 650 people. Of course you
know that 724 has great strength in North America, and
adding TANTAU's presence there we'll have over 500
people in this market. 724 has of course been
investing and expanding their presence
internationally. With this combination and TANTAU's
strength in Europe we'll now have close to 100 people
in Europe, and we will now have a more meaningful
critical mass in the Asian market where we've each
been building our teams.
Monetizing the mobile Internet is truly a worldwide
phenomenon, so having a strong global organization is
an essential element to realizing the value in this
market opportunity. It's not just about the numbers of
people, but it's also about the depth and the quality
of the people, and this combination brings together
from a technology and business perspective some of the
best minds in the industry in this segment. In
addition to Greg and Karen and I, we have a very deep
management team that will be essential to our global
execution which we see as very very important.
Additionally, I think it's important, particularly in
these combinations, to say this and that's that as
we've gone through the discussion of how we
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would combine our companies and if it made sense, the
chemistry between our respective people has been
terrific throughout our discussions and throughout the
work that we've done together to this point.
In addition to our motivations to create this
combination we've also been encouraged by our
respective customers to combine TANTAU's highly
scalable robust platform with rich applications such
as the applications that 724 has, and 724 similarly
has been encouraged by its customers to look for the
kinds of capabilities that TANTAU can bring to the
table.
Finally, I think this combination creates the absolute
leader in the secure mobile Internet transaction
space, and those transactions where money is changing
hands. I'm personally delighted to have the
opportunity to work with Greg, with Karen, and the
entire team of the combined company in making sure
that we realize the value for our shareholders in this
exciting market opportunity.
Now let me turn it over to Karen who's going to talk to
you about some of the financial highlights of the
transaction.
Karen Basian: Thank you, John. We expect the acquisition of TANTAU
to be additive to 724's revenues. Historically TANTAU
has had significant revenue generating relationships
and has shown similar momentum to 724 with a strong
backlog. Additional details will be provided when the
F-4 is filed early next month, but as a combined
company we expect our '01 target revenues to increase
by 50 percent over current stand alone consensus
estimates of $50 million for a new revenue target for
'01 of $75 million dollars. Given TANTAU's software
license model and the significant complementarity, we
expect this deal to have a positive impact on our
operating results. We expect our gross margin to
increase from current analysts' consensus of 43
percent to 46 to 48 percent, and we expect the
transaction to be neutral to our forecast operating
loss for the calendar year '01.
Also, we are accelerating 724's operating
profitability timetable on an income before
amortization of deferred stock-based compensation
charges, from consensus estimates of mid '02 to Q1, '02.
Additionally, the combined company will have cash and
equivalents in excess of U.S.$200 million dollars. With
this kind of funding we expect to be fully funded
through break even, and this allows us to continue to
pursue very aggressive growth ambitions. 724 and
TANTAU have complementary business models. A typical
724 Solutions contract has, as you know, the license fee
payable on a per user per month basis and as we move
to m-commerce we're seeing demand for a per
transaction basis, both very scalable and recurring
type models.
TANTAU's contracts are the typical perpetual software
license, based on number of seats. Typically 724 would
recognize its revenue as a customer goes live and its
adoption scales, whereas TANTAU's revenue will be
recognized when a contract is signed. As a function of
this may result in some chunky revenue spikes as a
large contract is signed on the infrastructure side,
but over time we would expect that the combination of
the perpetual model and our recurring model will
result in a fairly stable scalable revenue pattern.
724 also receives revenues from application hosting
services to our customers on a per user per month
basis. TANTAU has begun to offer the same kind of
offering and so will be incorporated into our hosting
offering quite naturally. Maintenance fees for both
companies are in the order of 18 percent of license
fees and this is very typical, and both of us provide
professional services. These services, as they have
always been for 724, will continue to be a leading
indicator of future license growth. Going forward we
believe in metrics for
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success are the growth of our licenses and hosting
businesses as well as services to continue to fuel the
pipeline. We're focused on securing new customers,
rolling out customer services and penetrating new
industry verticals to help accelerate adoption in this
exiting space.
We expect to close the transaction as Greg mentioned
before in the first quarter of 01 and we don't
anticipate this transaction will have any effect on
Q-4. With the close of the transaction, the
transaction will be subject to customer and closing
conditions, including Hart Scott Rodino filing in the
U.S., and registration of the new shares and options
we'll issue.
Greg will now close.
G. Wolfond: So to summarize I'd just like to reiterate the great
step forward we're taking here today. We are the
leader in mobile financial services with reach now to
over 270 million consumers who are customers. We have
increased our addressable market and our global
presence. We've accelerated our technology road map.
We have unparalleled strategic partnerships and at the
same time we have accelerated our path to
profitability. Thank you all for joining us today. I'd
like to turn it over to the operator for any questions.
Operator: Ladies and gentlemen, we will now begin the question
and answer session. If you have a question please
press the one followed by the four on your pushbutton
telephone. You will hear a three tone prompt
acknowledging your request. If your question has been
answered and you wish to withdraw your polling request
you may do so by pressing the one followed by the
three. If you are on a speaker phone please pick up
your handset before entering your request. One moment
please for our first question.
Our first question comes from Marianne Wolk with
Robertson Stephens. Please go ahead with your question.
Marianne Wolk: Yes. I have a couple of quick questions. First of all
the integration of the two products and where they
overlap, and in particular I would love to hear how
out of 724 implementations say for Citigroup you might
add TANTAU technology or convert say a Chase
implementation of TANTAU how you might benefit from
the addition of the 724 technology.
G. Wolfond: Thanks Marianne. We spent a ton of time in this
getting not all of the organizations together but
trying to figure out the technology map of how you
bring these technologies together. We've done
benchmarks together of how we put our great
applications on top of the TANTAU platform. For places
like Chase for example, where Chase has already
announced that they'll be using TANTAU platform
globally as their infrastructure for wireless, we had
in parallel conversations there where they would say
to us--you've got great applications. We'd love to
have your applications, and again there's no
guarantees here, but we'd love to see those
applications on the platform vendor that we've chosen.
That's an opportunity that we intend to pursue and
hope we can get some traction there.
In the case of banks like Citibank we've got the
opportunity to turn Citibank on on a global basis, and
some of the challenge we have with Citibank is in 26
countries around the world. So we have to have a presence
moving to all these parts and as you know we're busy in
Singapore, we're busy in different parts of the world,
turning Citibank on here, having the great resource
base in the organizational map already in place. Just
accelerate that and makes our solution so much stronger
and so much better for customers like that.
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M. Wolk: Well you know Greg, I guess I was trying to get a
little bit more specific because I know that TANTAU
was hoping to do the account transfer and the stock
trading and is actually doing that for some of their
customers, so again I'm just wondering what your
technology brings to that platform that they weren't
doing already.
J. Sims: This is John. I think as we've worked with our
customers we've heard from them that they want to have
more and more innovative application choices, and so
the breadth of the applications that 724 brings to the
table is much broader than what TANTAU has done so far
with its customers, so this allows our customers a lot
of, a much deeper set of choices about the things they
can do on our platforms, and we expect that that would
allow our integrated sales force, which is one of the
things we'll be doing, to be able to cross-sell and
up-sell in the accounts that TANTAU has been in to the
rich set of applications that 724 brings to the table.
G. Wolfond: And that's really the core of the deal. We have a team
that can focus on core competency. These guys came
from Tandem. They can focus on some of the
transactions and low level issues. Where we're very
strong, Marianne, is the applications. The applications
and TANTAU's platform provides a great marriage between
the two.
M. Wolk: OK. And another question was out of 30 some odd
customers that you have John, how many are actually in
deployment?
J. Sims: We have- I don't know the exact number off the top of
my head. We could get that for you Marianne as a
follow-up, but a significant number of our customers
in Europe- you know, people like Credit Suisse Group,
are in production, SE Banken, MeritaNordbanken, many
of the European customers have already moved through
sort of the pilot phase and are in the early stages of
their production.
M. Wolk: Right. Thanks a lot.
Operator: Our next question comes from Ray Sharma, Credit Suisse
First Boston. Please go ahead with your question.
Ray Sharma: Thank you. First of all, congratulations guys on the
transaction. Secondly, two questions for Karen and then
maybe a question for Greg or John, and the first
question is just from a financial perspective, what's
the visibility that you have Karen on your revenues, and
like in other words how comfortable are you with the
numbers into '01 from a visibility perspective? And
secondly, I know you guys touched on this but could you
give us a little bit more color, and anyone can answer
this question on the pipeline of customers and whether
or not the pipeline of the respective organizations,
whether there's overlap there, significant overlap, or
there's synergy in terms of new customers in the
pipeline for the respective companies. And then the last
question is that when you look at the industry now, if
you look at the infrastructure industry for mobile
commerce who's your competition now that this
transaction brings you two together and what are you
seeing out there. Will there just be point solutions or
does anyone have the all encompassing infrastructure the
combined company will have?
K. Basian: Ray, let me just take the first two questions and I'll
do them in reverse order. With respect to the
pipeline, I think one of the things we were very
encouraged by was the complementarity of it, because
in fact we see very little overlap but rather in fact
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complementarity in terms of how different banks with
their different strategies are approaching this market
place, and it was definitely one of the reasons we
felt that the fit between the two companies was so
strong, because definitely some start from an
applications solution, others start from an
infrastructure, and so we definitely see the power of
having both offerings and being able to address our
banks specifically that way.
With respect to visibility, TANTAU has a slightly
different model but we continue to see very strong
visibility as we had indicated in our Q-3 call into
'01, so we're very comfortable with increasing our
numbers to such an extent.
On the infrastructure question I think I'll leave it to
John or Greg.
J. Sims: In terms of the question of positioning relative to
other players, you know I think the key thing here is
that 724 by its positioning was focused on
transactions and transactions where money is changing
hands. TANTAU as an infrastructure provider was really
focused on transactions where money is changing hands
as opposed to content infrastructure for the wireless
Internet, and so really when you look at the
combination of what we each bring to the table and
that complete set of things, I think it clearly sets
us apart from a lot of the other people who are really
more focused on pure content sort of plays as opposed
to these secure scalable transactions where money is
changing hands.
G. Wolfond: Ray, to follow that up, I mean when we did some of the
benchmarks or looked at some of the benchmarks that
for example TANTAU had done with Hewlett Packard, they
benchmarked the system to a user base of 10 million
users with 100,000 concurrent. That's pretty much the
user base that DoCoMo is running right now and the
system stood up and performed well, so that's the kind
of volume. We know the mobile Internet is coming.
That's the kind of volume and the transactions that we
see coming and we want to be ready in position with
the infrastructure for a client to turn that on.
R. Sharma: OK. Thank you.
Operator: Our next question comes from Valentine Lee with HSBC
Securities. Please go ahead with your question.
Valentine Lee: Thank you very much. It looks like a very interesting
acquisition. I've got a few things I'd like to get
around my head as obviously the customer mix for
TANTAU is quite diverse. John, if you could give me a
little bit of an idea as to what you're doing with the
wireless carrier such as BTN or Deutsche Telecom in
Europe, and in terms of your corporate business with
Daimler Chrysler and the likes, what are you giving
them on terms of wireless connectivity?
J. Sims: Most of the focus of our wireless business as we've
developed and grown the wireless business after
effectively the purchase out of Tandem and Compaq, has
really been focused around financial institutions, so
while we have customer relationships with some of
those other people it was sort of in the stage of the
company's development before we brought our wireless
products to the market in the late part of 1999. So
some of those relationships are long standing
relationships but for some of those specifics, Daimler
Chrysler for example, we really helped them in their
Internet implementation as opposed to specifically
their mobile Internet implementation.
V. Lee: OK. Would you then characterize the core revenue stream
coming from the financial side of the business but more
transaction sort of a platform base?
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J. Sims: The core revenue stream is absolutely from the platform
infrastructure and the core revenue stream is absolutely
at this stage in the company's development this year
coming from the mobile Internet transactions
infrastructure space.
V. Lee: OK. In terms of forward-looking with the scalability of
your platform FSP, Greg mentioned the TANTAU WIP as
sort of the scale that they're running at and they
found that advantageous to your system. Where do you
see the combination of 724 and TANTAU taking you in
Europe?
J. Sims: Well I think absolutely in Europe with the incredible
relationships that we've got with a number of the
leading financial institutions. You know they are
challenged with bringing new application offerings to
their customers to the market as quickly as they can.
You know, they're under the same time to market issues
as the rest of us have to deal with and this combination
allows us to give them a lot broader set of choices
about what kinds of things we can do for them at the
application level, and so I think this is something that
they will receive very warmly because they want to be
able to increase the number of relationship things they
can do with their customers because for them that's all
about you know customer retention and customer growth.
V. Lee: OK. Any number of questions was asked on the product
integration side of it. Honestly, on the surface there's
some similar functionalities but outside of the other
aggregation and the "tell me when" type of features, how
do you see the two products moving going forward? Are
they going to maintain two separate product lines or do
you see some integration down the road?
J. Sims: We have a whole integration plan. It's the most
important part of this is to make sure that people work
together and the organizations are focused together.
We're going to rely to a large extent on the TANTAU
low-level infrastructure, the base stuff that handles
the hundreds of millions of transaction kind of level
infrastructure. A lot of the components that 724 has,
the PKI portal, the numbers of different devices which
are available in North America, and a lot of those
components can rest on top of that. We've already done
some of that testing and that works. There's a slide
show presentation that we have that we have that we can
take you through where the different components fit and
where they go, so there is a rationalization of some of
that and clearly there always will be, but the most
important part of all the application space, the
banking, the brokers, the m-commerce, all those
applications, we've tested that stuff and that works
very well with the architecture that we've defined for a
combined offering, and roughly within six months we'll
have the products integrated and be in markets with a
combined offering.
V. Lee: OK. I know as 724 you've moved from an NT to Solaris
just recently. What would TANTAU be running on as sort
of an operating system platform?
J. Sims: TANTAU runs on NT and runs on various Unix platforms
particularly the Solaris platform from Sun, the Hewlett
Packard HPUX platform, the 364 Unix platform from
Compaq, and also based on some of our history that Greg
was talking about, we also run on the Tandem, Compaq
Tandem non-stop systems as well.
V. Lee: OK. So it's a little bit broader in terms of the
platform based. All right, and finally one question in
terms of the shares that would be issued. How would that
look in terms of freely tradable escrow? Is there any
voting blocks?
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K. Basian: Effectively there is a registration we will be filing in
F-4 to register the shares. Of the 19 million there is a
combination there of shares and options so at a minimum
you'll see 17 million of those in shares outstanding
when the deal closes, and then we've got liquidity
provisions on a three month time basis of 15 percent for
the first four three-month sections, so up to 12 months,
and then 20 percent thereafter for the remaining two
three-month intervals.
V. Lee: So basically about 60 percent to be freely tradeable
in the first year?
K. Basian: "Approximately" would be the way to say it, yes.
V. Lee: OK. And there's no sort of voting block in place?
K. Basian: No. None whatsoever.
V. Lee: OK. Thank you.
Operator: Our next question comes from Cherilyn Radbourne with RBC
Dominion Securities. Please go ahead with your question.
David Beck: Hi, it's David Beck. Just a very ambitious acquisition
here guys. Congratulations. I'm wondering about the
employee count. Can you just give us the details again
for TANTAU in terms of how many employees there are in
various areas and how does that correlate to 724?
K. Basian: In combination we'll have over 500 employees in North
America. 80 percent of those employees would be coming
from 724. TANTAU has over 70 employees in Europe
already, and with the complement of the two teams we'll
have more than 100 employees on the ground in Europe.
And then in combination in Asia we actually had very
similar bases, and when you put the two together we
actually get some scalability and some true framework
that we can leverage off of and start to really concert
our effort on.
D. Beck: How many employees is that Karen in total?
K. Basian: It's 652 altogether, and as you know with our
business, that changes weekly.
D. Beck: And just back a little bit on the product overlap. Am I
to understand there's minimal product overlap here?
Maybe you're- can you help us to see how they're going
to fit together. Maybe you can say what is the overlap?
G. Wolfond: Well, there's some parts of it that have to overlap
because we're both running in world leading customers
today. At the low level some of the 724 stuff we use
tools like Imprise, a low level application server type
part. Some of that TANTAU fills in. A lot of the low
level infrastructure things or some of the low level
infrastructure things that 724 was doing, we can turn
over and not do any more, and the things that we excel
at, things like PKI Portal and aggregation, the other
parts will focus more on, so there will be a little bit
of a change.
D. Beck: So for example, something like your gateway that you
purchased recently, is that relevant any more or can you
scrub that?
G. Wolfond: Yes, it's absolutely relevant. I mean that's again a
wireless gateway. It's the
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YRLess company that you're talking about which is
absolutely relevant as we get SMS messages and do
all the "tell me when" services and actual alerts.
That's core to that strategy and it's a piece
we plug in. Additionally some of the channel server
work we do for the strong base we have in North
America to deliver to cellphones and Palm and
RIMS, different types of RIM devices, that's a
valuable piece as well. The nice thing is the
architects on both sides have built these systems in
such a way that- you know nothing's ever perfect, but
you have from the hard end of complexity to integrate
to the easy end, using that scale, this is much closer
to the easy end of complexity to get done than the
hardest.
J. Sims: I think also as you look at it sort of the front end
of our architectures, we each had strength in dealing
with different device types and when you put them
together we cover the complete spectrum of the device
types that are relevant, and then also because TANTAU
had a very large presence in the European market of
course we had a very heavy emphasis on the GSM network
device types and so on and so I think that's also when
we bring those together we complement each other very
nicely.
D. Beck: And the device types that you would do that 724 does not
do?
Man: I mean that I think it's the types of devices
that we've handled already in Europe, built the
templates for and so on, that would be ones that 724
would have to be investing and handling for presentation
of the applications on those different device types.
D. Beck: OK. Not just WAP enabled phones. We're talking
specialized mobile phones.
Man: A complete array of different- not just WAP but a
complete array of different device types.
D. Beck: How much cash is in TANTAU at this time?
K. Basian: On a net net basis U.S.$32 million dollars.
D. Beck: OK. And you did a fund raising back in the spring. Can
you tell us what valuation that was done at?
K. Basian: That was not sort of publicly filed so no, that's
private information.
D. Beck: OK. And goodwill that will be put on- expected to be
put on the balance sheet of 724, do you have a figure
for us at this time, or not yet?
K. Basian: Well, it's going to be subject to- you'll see all of
the details of that in the F-4, because we're working
through the actual calculations as we go, depending on
the close that will impact goodwill.
D. Beck: OK. Thank you.
Operator: Our next question comes from David Wright with
BMO/Nesbitt Burns. Please go ahead with your question.
David Wright: Thanks very much and good afternoon, congratulations,
sounds like a great acquisition. You've covered an awful
lot here. One thing you haven't talked about though are
management changes. Do you see aside from the two top
positions are there any other changes that will be put
in place and specifically would you expect to see any
changes
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Karen as a result of changes in employment?
K. Basian: Clearly we don't see any changes. We were really
fortunate to have the kind of bandwidth and the kind
of investment we had each made from different
organizations had required different types of
leadership to get us in that position, and so we see
very strong teams that will complement each other and
fit incredibly nicely together.
D. Wright: So a COO would become what, Division Head or something
like that and heads of R&D become heads of certain types
of R&D, or how does that work.
G. Wolfond: You'll end up seeing us having a product group for the
applications group that builds the applications. A lot
of that strength will come from the 724 side. It's the
low level platform piece where it's already in place in
Europe. A lot of that stuff is developed. You'll see
some of that stuff coming the TANTAU side. We have
General Managers of the business units but we'll also
have a General Manager structure for each of the
different regions that we have where there's
organizations already in place and people working
together and offices open and things running. It
accelerates our time line to market, so we're using the
best folks on both sides of the equation.
J. Sims: Our view here was that we needed to create breadth and
depth, and so by bringing these management teams
together and taking advantage of the combination, this
is a good opportunity for us to position the
management structure of the combined company for the
next stage of growth. And so as we look at the
regional structure that we need to have in Asia, in
Europe, and also in North America, this is an ideal
time for us to be able to put that in place when we
have the choice of such great management, quality of
management to be able to do that, so that will be one
of the things that you'll see us do as we go through
our integration plan.
D. Wright: Karen, would you have numbers on employees by function?
Marketing versus R&D and general and administrative?
K. Basian: I have some of those numbers, but honestly they are
not necessarily as comparable with what you would be
used to seeing in 724 given the structures of our
business, so at the risk of not being misleading, but
the proportion would be not unlike you would be used
to with 724 with a slightly heavier weight to
engineering given the strong channel in distribution
partnerships that have allowed them to really leverage
on the sales side.
D. Wright: OK, great. And speaking of the channel, what percent of
revenues would come through channel partners for TANTAU?
K. Basian: I think that-
J. Sims: So I think that if you look at it historically as we've
developed these channel relationships we probably are in
the sort of 30 percent range of our revenue, but this
clearly would be an area that we would want to focus on
continuing to develop in the future.
D. Wright: Great. Thanks very much.
Operator: The next question comes from Farhan Syed with Yorkton
Securities. Please go ahead with your question.
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Farhan Syed: Hi. Good evening. Just a couple questions. In terms of
the product it sounds like it's going to be combined
within six months, but in terms of the operating model
of the companies going forward will you be migrating
to more of the one dollar per month, the 724, or
offering both solutions in terms of revenue models, or
how will it work?
K. Basian: Particularly in the early stages we have the benefit of
having a more modular approach. Where we have the
benefit of a bank that chooses to approach from the
infrastructure point of view, they will have the luxury
of both software license models which allows us to
really set the foundation and then leverage this
traditional 724 model, which is the per user per month,
to add that rich functionality as the bank penetrates
and builds its capability. So I think you'll see the
complementarity of the two rather than a trade-off.
F. Syed: I'm wondering if there are any conflicts or synergies in
terms of partner relationships between the two of you
today that you may be able to talk about.
G. Wolfond: It was just remarkable when we started going through
the map. Organizationally, regionally, I mean you
could see the customer base that we have with
Commerzbank and with Chase and us having the
Citibank and the Wells Fargo and the B of A's. The
same thing is true on the partner map. A lot of the
partners that they have are different partners. They
started at a different point. They started in Europe
more than we did. It's more of a complementary map.
There's no real hard contrast there. We have a great
relationship with MasterCard. TANTAU has a
relationship with Visa, and we're doing things in that
sense- there isn't any strong overlap there that would
cause any challenge.
F. Syed: OK. Great. Thank you very much and congratulations.
K. Basian: Thanks.
Operator: The next question is a follow-up question from Ray
Sharma with C.S. First Boston. Please go ahead.
R. Sharma: Yeah, thanks. Karen, another question for you just on
the cost synergy side. When we do the thinking with the
50 percent boost in revenues from guidance for next
year, I'm assuming that TANTAU as an independent company
was losing money, at least because of the start-up phase
and nature of the company, therefore there's obviously
some cost rationalization or cost savings. Can
you give us a little bit more color as to how that's
occurring and any specific kind of data points that you
can provide?
K. Basian: Sure. As we look forward to the- our focus obviously was
on '01 given that it will close in '01 or we hope it's
closed in '01. What we really focused on was when you
took- and this was the great thing about sitting down
and doing the organizational map- when we looked at the
organizational map we had you know in the 10s of
millions of dollars for investment in Europe. They had
significant monies for North America and Asia, and so
when you actually put the two budgets if you like
together you had well in the order of $30 to $40 million
dollars of savings without losing any heads, but rather
letting people stay in the places that they are and
adding to that and fueling that growth with the
additional head count that we see. So really you got the
benefit of the synergies on the top line with the same
infrastructure without having to invest in the same
arenas. As John said to you before, we were both
investing heavily in the strengths of the other, and so
really that's the benefit we get of bringing them
together is that synergy.
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R. Sharma: OK, thanks.
Operator: Our next question comes from Ray Archibold with J. P.
Morgan. Please go ahead with your question.
Ray Archibold: Good afternoon. This is just sort of to make it
simple for me because I have a simple mind. What it
sounds like is that the TANTAU WIP is going to be
effectively a gateway, a payment gateway solution that
you'll be licensing to financial institutions and
that's where the software life as a model probably has
the greatest traction, and then you'll be providing a
layer of application services, content aggregation,
banking services, etc. which would be on a per user
basis. Is that fair in terms of looking at when the
deal closes how you will look?
K. Basian: I think that's a great and much simpler way of looking
at it, so yes.
R. Archibold: I mean the only thing I would say is that you should
think about the TANTAU platform as being much broader
than a payments gateway, because its very likely that
customers would take the TANTAU platform combined with
the 724 sort of rich applications set, and then other
applications they may develop themselves or they may-
other existing applications which may have to interact,
and so the TANTAU platform would provide them-- much as
Chase has decided- the TANTAU platform would provide
them that rich infrastructure that they'd be able to use
as the integration for those various different wireless
focused applications.
And then the second thing I guess Karen, and this is
just following up on the revenue model questions that
you've had before. As you get through closing and start
integrating the platforms of businesses, is there a
sense of a migration path for the existing TANTAU basic
customers to move to more of a per user model, or is
that something that is not even being considered at this
time?
K. Basian: What you'll see is that we'll continue to use the
model that we've been using for those customers that
implement the application and services that we offer, so
I don't think you'll see any move away from that kind of
model for our applications set, and that's whether it be
initially a TANTAU customer or not. So we'll continue to
see that recurring scalability and as we move more and
more into the m-commerce space I think you'll see more
on a transaction based, but as the value's increased.
R. Archibold: OK. And the last thing is with the licensing, the
TANTAU licensing model, is there a significant
deferred revenue component that comes with that?
K. Basian: No. In fact what you will see is what you tend to have
is just recognition of the time that the contract is
signed, but very limited sort of deferred revenues, so
you won't see that on the balance sheet and we'll try to
give you some visibility on it as we talked about
before in our visibility.
R. Archibold: OK. And the last question is did I hear correctly that
30 percent of the TANTAU revenue base is through the
channel? Did I hear that correctly?
J. Sims: I think that's a reasonable estimate of where we've been
historically, and as we were saying, channels continues
to be a very important area for us to develop so we
would expect to see for the platform infrastructure
piece that potentially increases in the future.
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R. Archibold: OK. Very good. Thank you.
R. McManus: We'll take one final question. As everyone will
appreciate, Greg and John have many audiences to talk to
this evening and they have to jump on a call to our
employees in a few minutes.
Operator: In that case our final question comes from Edel Ebbs
with UBS Warburg. Please go ahead with your question.
Edel Ebbs: On just a quick question. Now that you have TANTAU which
is more of a traditional license model, will you be
giving install base numbers over time? I know you've
talked about breaking out sort of users you know in
quarters throughout next year. How do you expect to see
that play out? And the other thing is what are you doing
in terms of retaining employees and making sure you
don't lose a lot of people in the process of this
merger?
K. Basian: First of all on the user front or on the sort of
metrics, I think you'll continue to see as we always
have said that as we start to see adoption in this
market place we will talk about the adoption rate, and I
think particularly as this market evolves what we will
see are probably different- or we anticipate different
penetration rates in places like Europe and Asia where
we've seen the rate of mobile usage be much more
dramatic than that initially in North America. So what
we will try to do is give some color on that as we see
the adoption rate happen in each of those different
geographies. But TANTAU will continue to be on a per
seat basis and to make sense of the installed base as a
meaningful metric, we will share that with you.
From the retention of employees, what we have done is A,
nobody is looking at any kind of detriment to their
current situation. In either case what we really see is
the growth opportunity and the ability to really
leverage people's strength from the kind of
leadership that we have in both companies, and that we
will continue to see compensation and benefits
consistent with what they've experienced in the past,
with even greater opportunities on an international
scale, so we'll be working very closely. The integration
team lead by David Pasieka and John Reece from the
TANTAU side will be important in terms of making sure
that we stay close to our employees and stay
in communication with them as we roll out this very
exciting opportunity.
E. Ebbs: Great. Thank you.
R. McManus: Thank you everyone. Thank you for your support this
evening. We'd now like to close this call.
Various: Thank you all. Thanks very much. Thanks.
Operator: Ladies and gentlemen, that does conclude our conference
for today. You may all disconnect and thank you for
participating.
THIS PRESENTATION DOES NOT CONSTITUTE AN OFFER OR SALE OF SECURITIES.
INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE REGISTRATION STATEMENT
REGARDING THE BUSINESS COMBINATION TRANSACTION REFERENCED HEREIN, WHEN IT IS
FILED BY 724 SOLUTIONS AND BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION. INVESTORS AND SECURITY HOLDERS WILL BE ABLE TO OBTAIN
A FREE COPY OF THE REGISTRATION STATEMENT AND OTHER DOCUMENTS FILED BY 724
SOLUTIONS AND TANTAU SOFTWARE WHEN THEY BECOME AVAILABLE WITH THE SECURITIES
EXCHANGE COMMISSION AT THE COMMISSION'S WEBSITE AT WWW.SEC.GOV. THE
REGISTRATION STATEMENT AND SUCH OTHER DOCUMENTS MAY ALSO BE OBTAINED WITHOUT
CHARGE FROM 724 SOLUTIONS BY DIRECTING YOUR REQUEST TO: MONICA ZAIED AT
[email protected].
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