One entity, which will remain Covalent, will continue to focus on the Apache Web server and the Tomcat support business. Covalent VP of field operations Mark Brewer is now its CEO.

The new entity is called Hyperic LLC and will formally launch soon, focused on Covalent's unsuccessful Application Manager. Mark Douglas, senior VP of engineering under the old regime, is president of Hyperic.

Covalent posted a loss last year although the Apache business was reportedly profitable.

Senior Covalent and Hyperic executives say that the impetus for the break came mostly from senior management and had the blessings of investors, which include Sequoia, Menlo Ventures and Granite Ventures.

Apparently, the two Covalent businesses - Apache support and the Covalent Application Manager - weren't a good fit. "They didn't necessarily mesh very well," Brewer said.

According to him, the Covalent Application Manager was absorbing more money than it was generating in revenues.

Released in June 2003, the Application Manager is a Web application management product designed specifically for IT operations. It's supposed to present one integrated application view by automatically discovering and correlating a Web app's multiple components.

Douglas denies that the product was dragging the company down. "I don't think it'd be fair to say that," he said. "The whole model of any business is you invest for growth." Brewer said the combined company couldn't have continued operating without more funding. More funding would have meant more dilution or recapitalization.

Both Brewer and Douglas say they are not seeking VC funding.

Besides finances, the combined company, particularly the sales team, found it difficult to stay focused. "The company itself was very divided with two different foci - products and support," Douglas admits. "There is more focus in doing it this way."

Brewer claimed the Apache business was profitable and that "Covalent can survive on its own."

Douglas said that last year the bulk of Covalent's revenues came from the Apache side but that last quarter revenues were about evenly distributed between Application Manager sales and Apache support.

Citing corporate interest in Covalent Application Manager, Douglas said 21 customers including Deutsche Bank, Ogilvy & Mather, National Semiconductor, La Quinta Inns and Fiserv were using it.

Pricing for a Covalent Application Manager license previously started at $15,000 per application. However, with the split, the sales model has been changed to a subscription model with prices starting at $65 a month per application.

Douglas believes the new price structure will make the software more attractive and "low risk" for potential customers. He expects the business to turn profitable or be close to profitability by the end of this quarter.

The split provided an opportunity for addressing the outfit's high cost structure through layoffs. Hyperic now has about 20 people and Covalent under 20. The combined outfit had 50 people plus some contract workers.

Founded in 1998, the old Covalent got $36 million across three rounds. It's not clear how much of that money is left but Douglas said Hyperic got some capital from Covalent. Besides Jack, other senior executives of Covalent who aren't around anymore include VP of marketing Jim Zemlin, VP of business development Scott Albro and VP of product management Iqbal Yusaf.

Besides Apache, Covalent also addresses the Tomcat market. Tomcat is a Java Servlet container with a JavaServer Pages environment that can be used as either a standalone container or an add-on to an existing Apache server.

Developed in an open style, Tomcat is offered on the same terms as Apache.