EXHIBIT 10.11
MEMORANDUM OF UNDERSTANDING BETWEEN
TEK DIGITEL CORPORATION AND ARELNET LTD.,
DATED MARCH 23, 2001
EXHIBIT 10.11
[Registrant has omitted proprietary and confidential information, as indicated
by an asterisk "*", pursuant to Registrant's request for confidential treatment,
filed with the Securities and Exchange Commission. Registrant has filed the
confidential portion separately with the SEC in connection with the request for
confidential treatment.]
MEMORANDUM OF UNDERSTANDING
Summary of Discussion in Germantown between Arelnet and TEK DigiTel on
February 3 and February 4, 2001.
1. Scope of this Agreement
1.1. Arelnet's price to its customer must ensure a reasonable
profit, based on equal gross profit, to both companies. The
gross profit shall be equal for both companies (typically
*% GP to Arelnet, and *% GP to TEK).
The following formula has been agreed upon and added in order
to clarify any future confusion.
Arelnet transfer price = *
price = *
Therefore:
Sales price = *
and,
* = *
For example:
* = *
* = *
Gross Profit = * = *
TEK sale price = * = *
Arelnet sales price = * = *
Gross profit to TEK = * = *
Gross profit to Arelnet = * = *
1.2. Since the gross margin calculation is based on TEK's cost and Arelnet's
selling price, costs need to be clarified as follows:
TEK Cost = manufacturing cost of a turnkey iGATE unit.
TEK's overhead in managing the production and the packaging for
shipping will not be included.
Arelnet sales price = net price to Arelnet, after Arelnet has
disbursed all third party payments including commissions and fees to
distributors, agents, partners, integrators, and assorted other
bodies.
TEK understands that the $* per unit end-user net price, being sold
by Arelnet to certain customers may appear higher in the customer
contract due to fees and commissions being paid.
If units are manufactured in US and the shipping destination is Miami,
TEK will pay for the shipping cost. If units are manufactured
elsewhere other than the US, Arelnet will pay the shipping cost and
necessary insurance.
If units are manufactured by Arelnet appointed manufacturer, the
shipping and insurance cost will be paid by Arelnet. If units are
manufactured by Arelnet, the shipping and insurance cost will be
Arelnet's responsibility.
1.3. Based on the equal gross profit formula, and since Arelnet has
provided quotes to customers for $* per unit end-user sales price,
TEK will sell to Arelnet the 4-port 2-LAN iGATE at a price of $*.
Arelnet will attempt to sell the units at a higher price (but not
below this price), in accordance to the formula in Section 1.1 above.
In the event TEK reduces its manufacturing cost, the cost saving
reduced down to $* will be retained by TEK. Any further cost savings
will be shared by both companies.
1.4. Present prices are only for the "iGATE" product line produced by TEK
DigiTel Corporation, as soon as Xxxx of Materials (BOM), overhead,
cost, etc. have been defined for the other TEK products, they shall be
added to the Agreement with the same basic terms as specified herein.
Besides those "iGATE" products identified in Appendix A, the "iGATE"
product line does not include any other hardware or software program
offered by TEK as a product, such as DDA server. These products'
pricing will be provided by TEK to Arelnet.
The above items will be pre-programmed with the firmware version that
is mutually agreed upon. Software updates will be provided on an
as-needed basis. If Arelnet's customer pays for software upgrades, the
profit will be shared by both companies.
1.5. TEK will have the right to review Arelnet's selling prices to its
customers, and Arelnet will have the right to review TEK's BOM and
costs, both in order to ensure the fair distribution of the Gross
Profit as in Section 1.1 above.
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2. Marketing and Sales Territory
2.1. Arelnet will sell all over the world under the same terms.
There is no exclusive sales' right being offered to Arelnet.
There is also no exclusive sales' right being offered to TEK
by Arelnet.
2.2. TEK will be selling in Japan, Korea, Taiwan, China, Hong Kong
and India. In these countries, Arelnet and TEK will attempt to
minimize the possibility of both companies and/or their agents
trying to sell to the same customer, and will try to maintain
the highest possible price. Initial guideline price for
end-user sales is $* per unit for the 4-port iGATE product
and $* for the 2-port iGATE product. In the event that this
price is not realistic in one or more countries, the companies
will reassess this target price.
2.3. Both Arelnet and TEK shall exchange the list of their major
target customers from time to time in order to minimize the
unnecessary conflict in the case when both companies are
selling to the same customer, based on the Non-Compete clause
in this Agreement. Appendix B is the customer list provided by
Arelnet.
Chimood to provide TEK's List
2.4. Arelnet agrees to provide it's pricing of outstanding bid
proposals to TEK per TEK request as reference for TEK's
attempt to setting up a world wide pricing guidance. It is
understood that that information is given to TEKI under NDA
and Non-compete agreements.
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3. Warrant Grant Plan
The following defines the terms and conditions for the warrant grant.
3.1 Arelnet will be given 7 Warrants to purchase TEK common stock
pursuant to the following table and terms:
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Number of Units in P.O. TEK Equity Warrant Price Grant Date Effective Vesting Terms
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
First 5,000 units 1.6 Million shares $0.70 On day of PO that Upon the earlier of:
cumulatively exceeds 1. Payment of PO by
the unit number Arelnet
indicated in column 1. 2. Non-delivery by TEK
90 days after scheduled
delivery date
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Next 10,000 units 1.6 Million shares $0.90 Same Same
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Next 15,000 units 1.6 Million shares $1.10 Same Same
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Next 20,000 units 2.0 Million shares $1.20 Same Same
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Next 25,000 units 1.6 Million shares $1.30 Same Same
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Next 25,000 units 1.6 Million shares $1.40 Same Same
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
Next 50,000 units 2.0 Million shares $1.50 Same Same
-------------------------- ----------------------- --------------- ----------------------- ------------------------------
3.1. Each warrant has an exercise period of 3 years starting from the date
the warrant was vested.
3.2. In the event that TEK is acquired or receives a controlling investment
by an outside investor or company, Arelnet can exercise all its
non-vested Warrants .
Notes:
o P.O., in the context of the granting of stock options, means a firm
P.O. which has been paid by Arelnet upon delivery of the units, in
accordance with the Terms and Conditions in Section 4 - Payment Terms.
o Arelnet is granted on-demand registration right for a one time
registration for all warrants after the first warrant is vested.
o If the registration process, requested by Arelnet, occurs within two
years starting from the first warrant vesting date; Arelnet will share
with TEK 50% of the total registration
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expenses incurred. If the registration occurs after the above mentioned
two years period, TEKI will pay all such expenses.
In case that Arelnet intends to sell its vested and exercised shares, it should
inform TEK, in writing. TEK needs to respond within 14 days whether it will
purchase shares from Arelnet or not.
o TEK equity is based on the current approximately 40M outstanding shares
of common stock fully diluted (1% is around 400,000 common shares). TEK
will provide the exact number of the total diluted shares before the
final agreement is finished.
4. Payment Terms
4.1 Arelnet will issue a transferable Letter of Credit for
$760,000 to cover * units as part of the initial order and
begin manufacturing. The detail of the LC is to be determined
by both companies together.
4.2 The payment terms will be Net 30 days for the first * units
(after deducting the LC for the first * units as described in
Section 4.1 above) after receiving the shipment and acceptance
test approved by Arelnet. The payment term for the next *
units shipped shall be a Net 60 days term. Payment term for
any other additional orders shall be defined later by both
companies, but in no event shall they be shorter than the
terms Arelnet had to give its customers.
5. Right to Manufacture
5.1. Due to the great importance of the success of this project,
Arelnet needs to find a second manufacturing source for the
products, therefore Arelnet will look for additional
alternative manufacturers for TEK's products. These additional
alternative manufacturers will have to meet TEK requirements
as to certification, capabilities, and price. TEK will
immediately start the process of appointing another
manufacturer that meets with Arelnet's requirement and
approval (such as Motorola, Arad or Flextronics, for example).
Arelnet can have TEK manufacture at least part of its
requirements at these alternative manufacturing facilities. If
so, TEK can supervise this manufacturing operation at any
time, and may request to check any and all records to ensure
that all quantities are as ordered and agreed upon.
5.2. Arelnet has an option to purchase the iGATE manufacturing
license, which includes the object code and hardware design,
BOM and production files. In order to exercise this
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option, Arelnet will pay TEK a one-time fee of $200,000 and an
additional per unit of royalty fee of $40 per each iGATE unit
manufactured by Arelnet under this license. In case that TEK
has not yet completed its royalty payments for 40,000 ports to
Telogy, Arelnet will pay these royalties through TEK.
5.3. Upon any of the following conditions this option will be
automatically granted for a period of 18 months to allow
Arelnet to do its own manufacturing under the manufacturing
license.
(i) TEK merger and/or acquisition and/or investment by an Arelnet
competitor,
(ii) TEK default, bankruptcy, or any other financial condition that
would trigger the escrow release.
TEK will make sure that Arelnet will receive the manufacturing right
during the negotiation of a merger, buy-out or investment by Arelnet's
competitor; otherwise, TEK will not pursue the said actions.
6. Escrow
6.1. ESCROWED MATERIALS VALIDATION: In order to ensure the accuracy of the
Escrow while maintaining full protection for TEK's intellectual
property, Arelnet will appoint a 3rd party examiner to review the
contents and accuracy of the escrow. This outside examiner will sign
independent Non-Disclosure Agreements with both Arelnet and TEK, and
shall provide written certification that the contents of the escrow are
complete and accurate. If the examiner finds one or more items to be
missing or incomplete, TEK will provide the required changes and submit
them to the examiner for review and final certification.
Arelnet and TEK had appointed Xx.Xxxxx Xxxxxx to review the files. A
report and notes were submitted to both parties. TEK will correct the
"needed to improve" items.
6.2. TRAINING: In addition to the escrow (source and object code, hardware
BOM, manufacturing files, engineering files in soft and hard copies,
and final testing procedures), and the terms written in the proposed
agreement, TEK will provide Arelnet with two months detailed training
in its code, materials, and manufacturing as part of its Escrow
commitment.
6.3. KEY PEOPLE: In case of liquidation or bankruptcy of TEK, Chimood, Ke-Ou
and Xxxxxx agree to be employed by Arelnet for at least 12 months to
support iGATE product for the software support, hardware support and
production support. For the purposes of this section, "liquidation"
shall not mean a merger, acquisition or buy-out by a non-competing
third-party.
6.4. DELIVERY CONTINUATION BY ARELNET: In case this escrow is triggered, all
the manufacturing of TEK products to Arelnet will continue as before
under Arelnet
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responsibility. Arelnet will pay TEK, or its survivors, royalties as
specified in Section 5, above. TEK will facilitate access to all tools
and software to enable fixes, service and enhancements to Arelnet's
clients.
6.5. RIGHT TO USE ESCROWED MATERIAL: The escrow will be triggered by TEK's
insolvency, liquidation, bankruptcy, or any other major financial
problem or by any of the following: TEK's inability to deliver ordered
products 30 days beyond the TEK agreed upon delivery dates.
6.6. The right for Arelnet to use the Escrowed properties is Non-exclusive
right.
6.7. DELIVERY DATES
--------- ---------------- ----------------- --------------------- -----------
TYPE QTY DATE Notes
--------- ---------------- ----------------- --------------------- -----------
1 4RJ11+2LAN * March 9, 2001
--------- ---------------- ----------------- --------------------- -----------
3 4RJ11+2LAN * March 16, 2001
--------- ---------------- ----------------- --------------------- -----------
4 4RJ11+2LAN * March 20, 2001
--------- ---------------- ----------------- --------------------- -----------
5 4RJ11+2LAN * March 23, 2001
--------- ---------------- ----------------- --------------------- -----------
6 4RJ11+2LAN * March 23, 2001
--------- ---------------- ----------------- --------------------- -----------
7. Support and Bug Fixes
7.1. TEK will solve or fix critical bugs within 7 working days of
being made aware of such critical bugs by Arelnet or Arelnet's
clients. In the event that the bug is not fixed within this
specified period, Arelnet can appoint its own or third-party
persons to fix the problem, and TEK will make any and all
source codes available for this purpose. TEK agrees to abide
by the same escalation and punitive schedule as that given to
Arelnet by its customer upon TEK's confirmation of the
performance specifications of the network.
8. Treatment of Order Forecast and Additional Orders
8.1. Arelnet will issue TEK with a rolling 90-day forecast each
month, prior to issuing any firm PO. Prior to each calendar
quarter Arelnet and TEK will discuss production plans for the
upcoming quarter. Arelnet will make a best effort to inform
TEK of any changes in production plans at least 90 days in
advance. Both Parties realize that in many cases this will not
be possible due to market pressure, in which case they will
make an effort to supply the changed quantities.
8.2. Following the LC issued in March 2001 to cover the first
scheduled delivery of * units in March 2001, Arelnet shall
issue a rolling LC prior to the next delivery for the
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amount of $300,000 each month to TEK for delivery of * units
per year with * units per month delivery schedule.
Arelnet can order additional units as required, without regard
to the * units mentioned here for 90 days delivery. Also,
until the first * 4-port units are delivered in March, TEK
will continue supplying * 2-port units per week as until
now.
9. Logistic Support
Final inspection, packing and shipping will be done by TEK,
Arelnet may send inspection and/or supervision to ensure
proper procedure.
Equipment returned for repair (RMAs) will be sent directly to
TEK's facilities, as a "Arelnet warehouse".
TEK must provide a full repair facility with turn-around time
of less than 10 working days per returned iGATE.
Any maintenance work performed after the initial 1-year
warranty period shall follow the guidance of the maintenance
contract or procedure which is to be determined at a later
date by both companies.
TEK will set-up an integration lab which will include, at
least, Arelnet and Cisco equipment to simulate real customer
environments.
10. Integration and Development Support
TEK must perform all the required changes and development as
sent by Xxxxx Xxxxxx on December 2000, by the dates specified
by Yaron.
TEK must send Arelnet 6 4-port units this week for preliminary
testing and integration with Arelnet GW and GK.
11. Non-Compete Agreement
TEK and/or its agents agrees not to compete with Arelnet
and/or its agents in trying to sell product to those customers
who have enabled Arelnet to extend the purchase order (or
orders) to TEK. Both parties disclose to each other the list
of active sales accounts. On a bi-weekly basis this list will
be updated.
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12. MGCP Development
12.1. Arelnet will negotiate with Telogy and purchase a MGCP license
and/or SDK from TI/Telogy. Arelnet will then allow TEK use of
this license and/or SDK (as an "affiliated company") to
develop MGCP support as defined in Yaron's document in Section
11, for Arelnet to provide to its customers.
12.2. In the event that TEK wants to sell MGCP products to other
customers, the Parties agree to negotiate terms for TEK's
repayment to Arelnet for the use of its licenses and/or
rights.
13. No Limitation
There will be no limitation on either TEK or Arelnet for
either development, sales, marketing, additional business
partnerships or arrangements (within the limitations of mutual
NDA that the two companies have signed).
14. Termination of the OEM Agreement
14.1. The Agreement will be valid for a period of 3 years starting
from the date the initial MOU was signed (01/05/2001). It is
renewable automatically each year, unless a written
termination notice is issued by one of the parties 30 days
prior to the termination date.
14.2. Termination terms, such as the treatment of the warrant
granting, to be determined by the legal entities.
14.3. NO-CAUSE termination This MOU Agreement and the resulting OEM
Agreement can be terminated by any one of the parties with 120
days advance notice.
14.4. FOR-CAUSE termination. If termination is for cause (this means
non-payment, cheating, stealing, or any such thing) then it is
done with only 30 days advance notice.
Let the LEGALS define it better.
15. Expiration of This MOU
This MOU expires within 60 days after signing this MOU by a
final signed copy of the resulting Agreement from both
companies. If a final agreement is not reached on or before
the specified deadline, this MOU expires automatically after
the aforementioned Period, unless both parties mutually agree
to extend the date.
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16. Authorizations
16.1. TEK certifies to Arelnet that it is the owner of its
technologies (except for the licensed items from Telogy and
RadVision) and it is authorized to sell, license and market
these products.
16.2. TEK and Arelnet certify that the signatories to this Agreement
are duly authorized to sign this and enter into this MOU.
17. Examination of the Agreement
This MOU is subject to the approval of each party's board of
directors. The parties will need to sign a definitive
agreement within 60 days after signing this MOU.
18. Supercedes Previous Agreements
This MOU supersedes and replaces all previous MOUs, and
Agreements whether written or oral, except for the Mutual
Non-Disclosure Agreement signed on July 2000, which shall
survive this MOU and any following OEM Agreement.
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For TEK DigiTel
/s/ Enghe Chimood /s/ Xxxxxx Xxxx 3/23/01
------------------ -----------------
Enghe Chimood Xxxxxx Xxxx
CEO and Founder COO and Founder
For Arelnet
/s/ Xxxxxxx Xxxxx /s/ Xxxxx Xxxxx
------------------- -------------------
Xxxxxxx Xxxxx Xxxxx Xxxxx
CEO, Arelnet Chairman of the Board
Date: March 23, 2001
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