Exhibit 10.44
LETTER OF INTENT
This binding Letter of Intent ("LOI"), dated July 25, 1996 ("EFFECTIVE DATE"),
among Candle Corporation ("CANDLE"), Across Data Systems Inc. ("ACROSS") and
Level 8 Systems Inc. ("LEVEL 8") refers to the following facts:
RECITALS:
a. Candle develops and licenses software products and provides services to
third parties;
b. Xxxxx 0, a wholly owned subsidiary of Across, develops and licenses
software products and provides services and currently develops Falcon
External Gateway ("FEG"), an interface between the Microsoft message
queuing product and IBM's MQSeries and/or CICS. Field test for FEG may
begin in the third quarter of 1996, with general availability expected in
the first quarter of 1997. Candle wishes to receive distribution rights
and a technology license to FEG from Level 8;
c. Level 8 developed and owns MQ Secure ("MQ SECURE"), a security product
for IBM MQSeries environments, currently in field test, with general
availability expected in the fourth quarter of 1996. Candle wishes to
acquire any and all title, interests and rights to MQ Secure from Level 8;
d. The parties, Xxxxx 0 and Candle, wish to enter into the following
agreements: (1) an agency agreement for certain Candle products, (2) a
distribution agreement and a technology license for FEG; (3) an technology
license (sufficient to facilitate incorporation into the Candle product
set) for the Level 8 product DOT/XM ("DOT/XM"); and (4) a purchase
agreement for MQ Secure;
e. Candle wishes to purchase stock from Across pursuant to a investment
agreement and receive a seat on Across' board of directors;
NOW, THEREFORE, the parties agree to the following terms;
1. DISTRIBUTION AGREEMENT BETWEEN LEVEL 8 AND CANDLE FOR FEG
1.1 Candle will distribute FEG non-exclusively, worldwide (except in
Israel) for a period of three years to third parties. For a period of one
year Level 8 will refer any Microsoft customer leads for the FEG outside
North America to Candle. Microsoft customer leads for the FEG will be shared
for at least one year by both Candle and Level 8 in North America. Candle
will market, price and distribute the FEG in its sole discretion. Candle
shall pay Level 8 a royalty of 50% for each license sold up to $5 million of
total sales per year, 40% for each license sold over $5 million of total
sales per year and 50% on each maintenance agreement entered into by Candle.
The royalty is based on Level 8's suggested retail price, except for large
enterprise opportunities for which the parties will negotiate a volume
purchase price. Candle will recruit and will make every effort to negotiate
with Microsoft
distributors/partners to distribute FEG and selected Candle solutions
worldwide. Level 8 may recommend specific Microsoft Alliance Partners to
Candle distributors which Candle will seek to recruit. Level 8 shall not
enter into any distribution, agency or similar agreements for FEG with any
Candle competitors as listed in Attachment 1 of this LOI, for a period of
three years, after which the companies will renegotiate this term in good
faith.
1.2 Outside of North America and Israel, Level 8 may sell FEG as a
dealer through Candle only. Xxxxx 0 will pay Candle the same 50% royalty
described in Section 1.1 above, less Candle's applicable dealer discount. In
Israel, Level 8 will have exclusive marketing rights as a dealer and will pay
to Candle a 50% royalty on FEG less Candle applicable dealer discount and
maintenance revenue received by Xxxxx 0 for licenses and maintenance
contracts with third parties.
1.3 Candle will provide Level 1 and Level 2 support for FEG licenses
and Level 8 will provide level 3 support. Annual maintenance fees charged to
customers shall be 15% of the then current FEG list price.
1.4 In addition, Level 8 shall pay Candle a (xx/12 x 7.5%) royalty on
any FEG Products licensed to cover Candle's support services costs during the
warranty period (initial xx months).
2. AGENCY AGREEMENT BETWEEN LEVEL 8 AND CANDLE FOR CANDLE PRODUCTS
2.1 Level 8 may act as Candle's agent for certain products ("CANDLE
PRODUCT(S)") non-exclusively in North America only and receive an agency fee
of 15% of the net revenue for each Candle Product sold. For
additional/support functions the parties will negotiate higher percentages.
Level 8 shall not enter into any agency agreements with any Candle
competitors, for products that compete with Candle Products, for a period of
two years, after which the companies will renegotiate this term in good
faith. Level 8 may consult and recommend any product on the market.
3. PURCHASE AGREEMENT BETWEEN LEVEL 8 AND CANDLE FOR MQ SECURE
3.1 No later than August 2, 1996, Candle shall acquire from Level 8
any and all rights, title and interest to MQ Secure. For each copy of MQ
Secure or a major portion thereof, licensed either as a stand alone or
integrated together with Candle Products to third parties, Candle agrees to
pay to Level 8 a 20% royalty of MQ Secure list price up to a total royalty of
three million U.S. dollars or a three year period, whichever comes first.
Candle will pre-pay two hundred and fifty thousand U.S. dollars in royalties
payable within ten (10) days of the execution of the purchase agreement or
August 12, 1996 whichever occurs first. Candle shall owe no other fees to
Level 8, Across, or third parties. Candle understands there is an RSA
licensed component of MQ Secure which will require a usage agreement to be
negotiated for Candle.
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4. TECHNOLOGY LICENSE AGREEMENT BETWEEN LEVEL 8 AND CANDLE FOR FEG AND
DOT/XM
4.1 Candle may obtain from Level 8 a technology license to FEG and DOT/XM
(sufficient to enable Candle to facilitate incorporation into the Candle
Products), to create in its sole discretion derivative works ("DERIVATIVE
WORKS"). In Candle's sole discretion and at its option, to be exercised
within 180 days from the Effective Date, Candle may obtain a technology
license for DOT/XM. In the event Candle exercises its option to obtain a
technology license for DOT/XM, the parties will negotiate in good faith a
non-competition clause. Candle shall own all rights, title and interest to
the Derivative Works. Candle may incorporate the FEG and DOT/XM, if
licensed, or any portion thereof, into other products for distribution to
third parties.
4.2 The parties will negotiate in good faith any support and/or other
requirements.
4.3 Candle shall pay to Level 8 a royalty of 9.5% of the sales price
of the Derivative Works with a cap of two million dollars and will acquire
from Across and not its shareholders 246,800 common shares of Across for a
price of $11 per share for a total price of $2,714,800, and Candle will
receive a seat on Across' board of directors, subject to a mutually
satisfactory investment agreement executed by Candle and Across no later than
July 26, 1996.
5. SERVICES FOR FEG AND DOT/XM BETWEEN CANDLE AND LEVEL 8
5.1 Upon mutual agreement, Candle will perform system testing and
installation process testing/verification ("SERVICES") on FEG and DOT/XM
("PRODUCTS") or any other Level 8 products (including new releases) prior to
any marketing/distribution activities. In addition, Xxxxx 0 shall pay Candle
a 5% royalty on all Xxxxx 0 products licensed for which Services were
provided.
5.2 Candle and Level 8 will each provide specifically defined
installation, configuration and consulting services ("QUICK START SERVICES")
for FEG to their respective customers, at approximately $10,000 per customer.
Candle and/or Level 8 will receive a referral fee of at least 15% of the
Quick Start Services service revenue for any Quick Start Service opportunity
identified, qualified, sold and referred to each other.
5.3 Candle will provide fulfillment functions, such as worldwide sales for
FEG, manufacturing, packaging, shipping, ordering, error and exception
handling for a fee of 8% of the sales price up to a cap of $100 per product
shipped.
6. GENERAL
6.1 CHANNEL CONFLICT. The parties will manage channel conflict
issues arising out of any distribution arrangements in good faith. Each
company will name a contact person, responsible for channel conflict
management and any other issues between the companies.
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6.2 CONFIDENTIALITY. Except to the extent required by law or
mutually, expressly authorized by Candle and Level 8 beforehand and in
writing, neither Candle, Across, Level 8 nor their shareholders shall,
between the Effective Date of this LOI, and the execution of the agreements
referred to in this LOI, discuss the terms of this LOI. Level 8 and Across,
their officers and shareholders, shall use their best efforts to preserve the
goodwill between Level 8, Across and their customers, agents, and employees.
Each company shall keep confidential and not disclose to any third
party any oral or written information, received from the other company and
marked "Confidential" or "Proprietary". The parties will execute a separate
confidentiality agreement which will supersede this Section 6.2.
6.3 COSTS. Each company shall pay its own costs incurred during the
term of this LOI, unless otherwise agreed in writing. Each company retains
its trademarks and servicemarks and will grant the other appropriate
trademark licenses to distribute the products of the other party.
6.4 DUE DILIGENCE. The execution of the investment agreement shall
be subject to the approval of the board of directors of both companies, and
the execution of the distribution, agency, purchase, services, and technology
license agreements shall be subject to the satisfactory outcome of any due
diligence review by Candle's staff, to be completed by August 24, 1996, and
the execution of a software escrow agreement for FEG and potentially DOT/XM.
6.5 NON-COMPETITION. Candle will not develop a product competing
with FEG for the duration of the distribution agreement plus two years.
Notwithstanding the above, Candle may incorporate FEG or any portion thereof
into other products subject to compensation as set forth in the
technology/license agreements.
Level 8 will not develop or distribute a product competing with Candle
System Management Solutions, as defined in Attachment 2, for the duration of
the distribution and agency agreements.
In cases where Level 8 identifies customers, including Microsoft, with
unique systems management requirements, Candle and Level 8 agree to negotiate
at project initiation a strategy for development of solutions to address the
requirements. In these cases, Candle and Level 8 agree to discuss the
following issues: who should develop the solution, technology to be utilized,
mutual licensing and distribution arrangements. For any of these Level 8
customer solutions which become products Candle will automatically retain
distribution rights and technology license rights and the option to purchase
these products at the same royalty rates as FEG as specified in this LOI,
subject to mutually satisfactory negotiated agreements and subject to caps to
be negotiated.
6.6 PARTNERSHIP ALLIANCES. The parties may explore other cooperative
development partnerships that may result in products that could be
distributed by either party.
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As Candle formulates its distribution alliances, Level 8 and Across agree to
participate in appropriate announcements.
Subject to mutually satisfactory license and other agreements, Level 8
will utilize existing Candle products or components in service engagements
wherever practical and feasible. Where this use of existing Candle products
or components is not feasible, Level 8 will build custom components that will
integrate with Candle Technology, Candle Command Center products or other
Candle products, where feasible and practical.
Level 8 agrees to support Candle's development of Falcon and FEG systems
management and monitoring products.
6.7 TRAINING. The parties shall negotiate in good faith the amount
of training each party will provide to certain employees of the other party
for its respective software products, in no event later than December 1996,
unless otherwise agreed in writing.
6.8 WARRANTIES. The parties agree that mutually satisfactory
warranties will be negotiated in good faith.
6.9 TERMINATION. Pursuant to Section 6.4, Candle may terminate this
LOI in the event the due diligence is unsatisfactory to Candle. In the event
of such termination, or expiration, the non-disclosure obligations of this
LOI shall survive. Except as set forth herein, upon the expiration or
termination of this LOI, neither party shall have any continuing obligation
to the other.
6.10 INTEGRATION CLAUSE. This LOI constitutes the entire agreement
among Across, Xxxxx 0 and Candle regarding the subject matter and supersedes
all prior discussions, negotiations and communications with respect thereto.
This LOI may be amended only in writing, and signed by both parties. Any
attempted oral amendment shall be null and void. This LOI may not be
assigned by either party without the prior, written consent of the other
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party. Any attempted assignment in derogation of the foregoing shall be null
and void. In the event of a dispute, the prevailing party shall be entitled
to attorneys' fees as awarded by a court having jurisdiction.
Candle Corporation Across Data Systems
By: --------------------------- By: -------------------------
Name: ------------------------- Name: ------------------------
Date: ------------------------- Date: -------------------------
Xxxxx 0 Systems, Inc.
By: --------------------------
Name: ------------------------
Date: ------------------------
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ATTACHMENT 1
LIST OF COMPETITORS:
Apertus
Xxxxx and Xxxxxxx
BMC Corporation
Computer Associates International
Compuware
Landmark
MAXM
Platinum
Tivoli Systems
Technology Investment Inc.
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ATTACHMENT 2
Candle System Management Solutions includes, but is not limited to the
following:
Performance Management
Systems Automation
Security
Software Distribution
Command and Control
Backup Restore
Event Manager
Configuration
Inventory
Alert Management
Response Time Monitoring
Problem Management
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