January 31, 2008
Exhibit
10.12
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January
31, 2008
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Xxx
Xxxxxx Xxxx
Chief
Executive Officer
Intelligent
Digital Systems, LLC
000
Xxxxxxxx
Xxxxxxxxxx,
Xxx Xxxx 00000
Sent
Via Electronic and Regular Mail
Dear
Xx. Xxxx:
This Letter of Intent (“LOI”) sets forth the binding agreement by and
among Visual Management Systems, Inc., a Nevada Corporation (“VMS”), and
Intelligent Digital Systems, LLC (“IDS”), a Delaware Limited Liability
Company, (hereinafter collectively referred to as the “Parties” and
individually as a “Party”) relating to the purchase of substantially all
the assets of IDS, on the following terms and conditions. It is
agreed
that this letter constitutes an agreement and is legally binding
on the
Parties.
The Parties agree that IDS shall sell substantially all of its
assets to
VMS, including all of its inventory, equipment, proprietary digital
video
recording technology including software source code and information
as to
compatible hardware, and good will and other intangible assets
including
trademarks. VMS shall also assume all ordinary course payables
and other
ordinary course liabilities of IDS, including product warranty
obligations
(hereinafter the “Transaction”). IDS and its sole member agree that all
IDS assets conveyed as part of the Transaction will be free and
clear of
any encumbrances upon them. The assets of IDS not to be sold to
VMS shall
consist of cash, accounts receivable, choses in action, and certain
pending patent applications and any patents issued in respect thereof.
All
of these items except for the cash will be separately contributed
to a
newly organized Delaware LLC (the “Xxxx LLC”);
The Parties further agree that after the transaction VMS shall
be the sole
owner of all IDS inventory, product source code for the IDS TechEye
digital video software package, goodwill, and any and all assets
of any
kind belonging to IDS, except as to cash on hand at closing, and
the
accounts receivable, choses in action, and patent rights transferred
to
Xxxx LLC. The patent rights transferred to Xxxx LLC shall consist
of the
pending patent applications, any patents issued in respect thereof
and
ownership of the right to recover from third parties for infringement
of
existing and pending IDS patent rights. As part of the Transaction,
VMS
will be issued 50% of the LLC interests in Xxxx LLC, as non-managing
member and will be granted an exclusive perpetual license to use
the
technology and know how covered by such patents contributed to
Xxxx LLC;
provided, however, that, in connection with the settlement of patent
infringement claims against third parties with respect to any such
patents
contributed to Xxxx LLC, Xxxx LLC will have the right to grant
to such
third parties licenses to use the technology and know how covered
by such
patents except where use of any such license would compete in any
material
respect with the then current business of VMS.
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Page
1
of 4
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PART
ONE: CONSIDERATION
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1.1 As
consideration, IDS will receive an unsecured convertible promissory
note
issued by VMS in the amount of $1.5 million (the “Note”). After May
31, 2010, or upon the approval of a majority in interest of the
Specified
Holders, the Note will be convertible at any time and from time
to time at
the discretion of IDS,into VMS common stock at a price of $1.15
per share
of VMS common stock, and will contain customary anti-dilution provisions.
For purposes of this Agreement, the term “Specified Holders” shall mean
the persons that, as of the date hereof, own more than 5% of the
outstanding 5% Senior Secured Original Issue Discount Convertible
Debentures (the “Debentures”) issued by VMS, and who continue to own 51%
or more of the then outstanding Debentures or any securities issued
on
conversion thereof. Notwithstanding the foregoing, in the event
any of the
following is agreed to or publicly announced (i) the sale of all
or
substantially all of the assets of VMS, (ii) the purchase by any
party of
more than 25% of the outstanding common stock of VMS, (iii) a tender
offer
with respect to 25% or more of the outstanding common stock of
VMS, (iv) a
merger transaction which results in the shareholders of VMS immediately
before the transaction owning less than 50% of the outstanding
common
stock of the surviving entity after the trasanction or (v) a secondary
registered offering by one or more holders of more than 5% of the
outstanding common stock of VMS, other than pursuant to the Form
SB-2
Registration Statement filed by VMS on December 21, 2007 (any such
transaction, a “VMS Sale Transaction”), IDS shall have the right, but not
the obligation, to immediately convert all or any portion of the
Note. The
Note will be payable in full on the maturity date, which shall
be the
third anniversary of the final closing of the Transaction. The
Note may
not be prepaid, in whole or in part, prior to its maturity date
except
with the prior consent of IDS. If not converted, or paid within
30 days of
maturity, then from and after the maturity date the Note shall
bear
interest at 12% per annum. Any final agreements necessary to effect
the
Transaction will include a separate registration rights agreement,
which
will contain customary demand and piggyback registration rights
with
respect to the shares of VMS common stock issuable upon conversion
of the
Note. The management of VMS shall present Xxx Xxxxxx Xxxx to the
Nominating Committee of the Board of Directors of VMS with the
full
endorsement of the management for selection as a new member of
such
Board.
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Page 2
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1.2 The
consideration of $1.5 million shall be allocated among the assets
of IDS
as the Parties shall agree.
PART
TWO: TAXES
If requested by IDS, the Parties will reasonably co-operate with
each
other to modify the structure of the Transaction to a merger
or sale of
stock if such is deemed advantageous to IDS and not objectionable
to VMS.
Any such modification would be effected in a manner that is mutually
satisfactory to the Parties. VMS shall cooperate reasonably with
IDS and
its shareholders on all tax matters.
PART
THREE: AGREED TO ACTIONS
3.1 Following
execution of this LOI by IDS, the Parties will promptly negotiate
in good
faith the terms of the LLC agreement for Xxxx LLC, the form of
Note, a
consulting agreement pursuant to which Xxx Xxxxxx Xxxx would
be engaged as
a consultant of VMS, the registration rights agreement and any
other
agreements that the Parties may mutually agree are necessary
to effect the
Transaction, each in form and substance mutually satisfactory
to the
Parties,and in accordance with the terms set forth in this LOI
(collectively, the “Definitive Agreements”):
3.2 Following
execution of this LOI, VMS shall make the terms of this LOI public
in the
format it so chooses, for the purpose of obtaining novation,
modification,
waiver, or release of or from the terms of any and all outstanding
agreements to which VMS is a party, which would in any way, shape
or form,
substantially interfere with its ability to perform under the
terms of
this LOI. Thereafter, VMS shall use commercially reasonable efforts
to
obtain all such novations, modifications, waivers, releases or
consents.
If these novations, modifications, waivers, releases or consents
cannot be
obtained and such failure is not attributable to the breach by
VMS of its
obligations hereunder, this LOI shall be void.
3.3 The
closing of the Transaction (the “Closing”) will be held at 10:00 A.M. on
March 1, 2008 (the “Closing Date”) at the offices of VMS. All parties to
this LOI will supply their commercially reasonable efforts under
the
circumstances towards the goal of final execution of all Definitive
Agreements governing the Transaction by the Closing Date. If
the Closing
has not occurred by March 1, 2008, any Party that is not in breach
of the
terms of this agreement may immediately terminate this agreement
and all
of its respective obligations hereunder.
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Page 3
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3.4 IDS
agrees that neither it nor any of its affiliates or related individuals
will pursue, solicit or discuss any opportunities for any party
other than
VMS to acquire the assets governed by this Transaction prior to
March 1,
2008.
If you determine that the foregoing is acceptable, please execute
this
letter and deliver to us a copy by facsimile or electronic
transmission.
Respectfully,
/s/
Xxxxx Xxxxxxxx
Xxxxx
Xxxxxxxx
Chief
Executive Officer
The
foregoing is agreed to and accepted.
Intelligent
Digital Systems, LLC
By:
/s/ Xxx Xxxxxx
Xxxx
Xxx
Xxxxxx Xxxx, Chief Executive Officer
Intelligent
Digital Systems, LLC
The
foregoing is agreed to and accepted in an individual capacity solely
with
respect to Section 3.4 (Exclusivity) hereof:
By:
/s/ Xxx Xxxxxx
Xxxx
Xxx
Xxxxxx Xxxx
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