Exhibit 99.1
Memorandum of Understanding
between
Hyundai Syscomm Corp.
and
Electronic Control Security, Inc.
November 28, 2006
MEMORANDUM OF UNDERSTANDING
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Parties: HYUNDAI SYSCOMM CORP. ("HYUNDAI"), a California corporation
with its principal place of business located at ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇; and
ELECRONIC CONTROL SECURITY, INC. ("ECSI"), a New Jersey
corporation with its principal place of business located at
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇.
MOU: This Memorandum of Understanding (this "MOU).
Dated: November 28, 2006.
Effective Date: November 28, 2006.
Term: The period between the date of this MOU and the date or
dates of the Closing at which the Transactions are
documented by Definitive Agreements.
Transactions: 1. A sub-contract from HYUNDAI or a HYUNDAI Affiliate (the
"Systems Sub-Contract") to provide up to two million dollars
($2,000,000) of video surveillance systems (the "Systems")
specified and integrated according to the specifications to
be provided in the sub-contract. It is reasonable to assume
that ECSI will have a gross profit margin on this
sub-contract of at least thirty-five percent (35%) if ECSI
is efficient in purchasing and integrating the Systems.
HYUNDAI shall have the right to substitute other equipment
for the Systems under the sub-contract on terms which
provide the comparable mutual benefit to HYUNDAI and ECSI.
2. A sub-contract from HYUNDAI or a HYUNDAI Affiliate to
ECSI to provide security worthy assets in Asia (the "Asian
Sub-Contract") on terms beneficial to HYUNDAI as well as
ECSI. HYUNDAI will guaranty gross revenues on or prior to
June 30, 2008 of at least twenty three million dollars
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($23,000,000) from the Asia Sub-Contract, provided that ECSI
performs its Asia Sub-Contract obligations in a timely and
efficient manner. It is reasonable to assume that ECSI will
have a gross profit margin on the Asia Sub-Contract of at
least thirty-five percent (35%) provided that ECSI is
efficient in discharging its duties under the Asia
Sub-Contract.
3. As hereinafter used in this MOU, the term "Sub-Contracts"
means the Systems Sub-Contract, the Asia Sub-Contract and
any other sub-contracts entered into between HYUNDAI or a
HYUNDAI Affiliate and ECSI.
4. In order to facilitate HYUNDAI's ability to provide work
to ECSI under Sub-Contracts, HYUNDAI shall be permitted to
set up new entities in each Asian country using the name
HYUNDAI ECSI or a name incorporating both such names.
HYUNDAI or a HYUNDAI Affiliate shall be the sole owner of
each such entity and HYUNDAI's only obligation to ECSI for
incorporating ECSI's name into any such entity is to award
work from such entity to ECSI under a Sub-Contract when and
if such entity receives a contract in that country which
involves work that ECSI can perform.
5. As used in this MOU, "gross profit" with respect to a
particular Transaction means the excess of the gross
revenues received by ECSI in connection with such
Transaction over the cost of goods sold in such Transaction,
and "cost of goods sold" means the sum of the direct cost of
good sold plus such other related manufacturing costs as may
be mutually agreed by the Parties.
Closing: The closing or closings at which Definitive Agreements are
executed delivered between the Parties and/or their
Affiliates.
Definitive
Agreements: The agreements that reflect the agreement of the Parties
with respect to the Transactions. These include, without
limitation, the Escrow Agreement, the Registration Rights
Agreement, a stock purchase agreement, the Systems
Sub-Contract and the Asia Sub-Contract.
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Affiliates: An "Affiliate" of a Party means an entity that controls such
Party, is controlled by such Party or is under common
control with such Party, including, without limitation, all
executive officers and directors of such Party. In the case
of HYUNDAI, Affiliate includes any company that uses Hyundai
as part of its name (a "Hyundai Company"), any other company
in which any one or more Hyundai Companies have an
investment of at least 5% and any sub-contractor of any such
Affiliate of Hyundai.
Objectives: 1. To provide ECSI with substantial revenues and profits
from the Sub-Contracts.
2. To permit HYUNDAI to become and remain a fifty percent
(50%) holder of ECSI Common Stock by compensating HYUNDAI
for revenues recognized by ECSI from the Sub-Contracts on a
basis designed to share the benefit between ECSI and
HYUNDAI. Unless otherwise agreed by the Parties in the
Definitive Agreements, ECSI shall be credited with seventy
percent (70%) of such gross profits and HYUNDAI shall be
credited with will thirty percent (30%) of such gross
profits. HYUNDAI may at its election take its thirty percent
(30%) of Gross Profits in the form of cash or in the form of
ECSI Common Stock valued at fifty eight cents ($.58) per
share ("Sub-Contract Shares"). By way of example, if the
Sub-Contracts provided to ECSI by HYUNDAI and or one or more
HYUNDAI Affiliates produce a gross profit to ECSI of thirty
five percent (35%) on aggregate gross revenues of Twenty
Three Million Dollars ($23,000,000) and HYUNDAI elects to
take its share of the Gross Profit in the form of
Sub-Contract Shares, HYUNDAI would be credited with four
million one hundred sixty three thousand seven hundred
ninety three (4,163,793) Sub-Contract Shares calculated as
follows: ($23,000,000 x .35 x .30)/$.58 = 4,163,793;
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provided, however, that Sub-Contract Shares credited to
HYUNDAI shall only be issued to HYUNDAI if, after giving
effect to their issuance and the Escrow Shares, HYUNDAI
would own fifty percent (50%) or less of the outstanding
shares of ECSI Common Stock. Any Sub-Contract Shares
credited to HYUNDAI but not issued because of the fifty
percent (50%) limitation set forth in the preceding proviso,
shall be promptly issued to HYUNDAI as ECSI's outstanding
shares of Common Stock increase so that, to the extent
credited to HYUNDAI, HYUNDAI shall retain its fifty percent
(50%) ownership interest of ECSI Common Stock.
3. To neutralize the anti-dilution rights of the existing
holders of ECSI Warrants and 8% Convertible Debentures (the
"Debentures") to permit HYUNDAI to achieve a fifty percent
(50%) ownership interest in ECSI at an average cost per
share of forty cents ($0.40) per share without giving the
holders of the Debentures and the Warrants an adjustment of
their instruments' conversion or exercise price. In order to
achieve this neutralization with respect to the outstanding
warrants (the "Preferred Stock Warrants") associated with
the outstanding shares of ECSI Preferred Stock, ECSI shall
obtain written waivers ("Waivers") from the holders of all
Preferred Stock Warrants. The Waivers shall be in form and
substance acceptable to HYUNDAI and shall effectively waive
any exercise price adjustment to Preferred Stock Warrants as
the result of HYUNDAI acquiring up to fifty percent (50%) of
the outstanding shares of ECSI Common Stock. In order to
achieve this neutralization with respect to the Debentures
and the warrants associated with the Debentures (the
"Debenture Warrants") ECSI shall take the actions set forth
in the following paragraph 5.
4. To enable ECSI to unencumber its assets by buying out the
Debentures for up to one million two hundred thousand
dollars ($1,200,000) (the "Debentures Buy Out Price"),
HYUNDAI will provide ECSI with funding (the "Funding") in an
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amount up to the Debentures Buy Out Price to purchase all
Debentures. ECSI shall obtain Waivers from the holders of
all of the Debenture Warrants. The Waivers shall be in form
and substance acceptable to HYUNDAI and shall effectively
waive any exercise price adjustment to Debenture Warrants as
the result of HYUNDAI acquiring up to fifty percent (50%) of
the outstanding shares of ECSI Common Stock.
5. As soon as reasonably practicable but in no case later
than December 22, 2006: (a) HYUNDAI, ECSI and ▇▇▇▇▇▇▇▇▇▇
Law, as Escrow Agent (the "Escrow Agent"), shall enter into
an Escrow Agreement substantially in the form annexed hereto
as Annex 1 (the "Escrow Agreement"); and (b) ECSI shall
deliver to the Escrow Agent four million eight hundred
thousand (4,800,000) shares of ECSI Common Stock registered
in the name of HYUNDAI (the "Escrow Shares"). The Escrow
Shares shall be evidenced by ten (10) stock certificates,
nine of which shall be for five hundred thousand (500,000)
and one of which shall be for three hundred thousand
(300,000) of the Escrow Shares. Each of these stock
certificates shall bear a legend that the Escrow Shares have
not been registered under the Securities Act of 1933 (the
"Securities Act"). (the "Escrow Shares"). HYUNDAI's
obligation to provide the Funding to the Escrow Agent shall
be conditioned on: (i) all holders of Preferred Stock
Warrants executing and delivering the Waivers described in
paragraph 3 above in this Objectives section; (ii) all
holders of the Debentures irrevocably agreeing to release
their lien on the assets of ECSI and accept up to One
Million Two Hundred Thousand Dollars ($1,200,000) in full
payment of the Debentures; and (iii) all holders of the
Debenture Warrants executing and delivering the Waivers
described in paragraph 4 of this Objective section. Based on
the number of shares of ECSI Common Stock outstanding on the
date of this MOU, the Escrow Shares will represent more than
thirty five percent (35%) of the shares of ECSI Common Stock
to be outstanding once the Escrow Shares are issued.
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6. The Escrow Agent shall concurrently wire transfer the
Funding it has received from HYUNDAI to or upon the
direction of ECSI and deliver the Escrow Shares to or upon
the direction of HYUNDAI.
7. ECSI shall register the resale of the Escrow Shares under
the Securities Act as promptly as reasonably practicable and
shall also enter into a Registration Rights Agreement
between HYUNDAI and ECSI substantially in the form annexed
hereto as Annex 2.
8. To enable ECSI to list its Common Stock on Nasdaq as soon
as HYUNDAI has acquired fifty percent (50%) of the
outstanding shares of ECSI Common Stock and as soon as ECSI
meets all of the listing criteria. At present, ECSI is
missing the following Nasdaq listing criteria: Stockholders'
equity of Five Million Dollars ($5,000,000), market value of
publicly held shares of Five Million Dollars ($5,000,000)
and a minimum bid price of Four Dollars ($4) per share. ECSI
believes that when its stock hits a minimum bid price of
Four Dollars ($4), it will meet all of the Nasdaq listing
requirements.
Operative
Provisions: 1. During the Term neither HYUNDAI nor ECSI shall make any
public or private disclosure of the existence of this MOU,
the Transactions or the other terms or provisions of this
MOU. The Parties agree that any such disclosure prior to the
Closing shall have a disruptive effect on the market, and
that the negotiation and execution of the Definitive
Agreements are best accomplished in the absence of such
disclosure. Notwithstanding the foregoing, if the Definitive
Agreements shall be executed at different times, there may
be public disclosure of each Definitive Agreement promptly
after it has been executed and the disclosure has been
mutually agreed by the Parties.
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2. The Parties shall act in good faith and use their
commercially reasonably best efforts to enter into the
Definitive Agreements as soon as commercially reasonable.
3. This MOU shall be governed by the internal laws of the
State of California. Should any provision or part of this
MOU be determined to be void, invalid, or otherwise
unenforceable by any court or tribunal of competent
jurisdiction, such determination shall not affect the
remaining provisions of this MOU which shall remain in full
force and effect.
4. This MOU contains the full and final, complete and
exclusive terms of the Parties relating to the subject from
which this MOU was created. This MOU shall supersede any
prior agreement, whether oral or written, relating to the
subject from which this MOU was created. This MOU may not be
changed and or otherwise modified or amended except with a
subsequent written instrument executed by both Parties.
5. Concurrently with the execution and delivery of this MOU,
the Parties are executing a Mutual Confidentiality and
Non-Circumvention Agreement that shall survive this MOU.
6. Each Party shall bear its own expenses in connection with
the preparation, negotiation execution and delivery of this
MOU and the Definitive Agreements
7. Each Party acknowledges and agrees that in the event of
any breach by either Party, including without limitations,
the actual or threatened disclosure of this MOU, the
Transactions or the other terms and provisions of this MOU
before the Closing, the other Party will suffer irreparable
damage and injury such that no remedy at law will afford
adequate protection against or appropriate compensation for
such injury. Accordingly, each Party hereby agrees that the
other Party shall be entitled to specific performance of the
obligations of the other Party under this MOU. As well,
further injunctive relief may be sought, and granted by a
court of competent jurisdiction.
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8. Unless authorized by the other Party in writing, under no
other circumstances, shall a Party make any effort to
contact an Affiliate of the other Party or any of its
employees.
Consideration
and Execution: In consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the Parties, intending to be
legally bound, have caused this MOU to be executed and
delivered by their duly authorized officers.
Signatures:
Hyundai Syscomm Corp. Electronic Control Security, Inc.
By: /s/ ▇▇▇▇▇▇ ▇▇▇ By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇ Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Chairman of the Board Title: Chief Executive Officer
Dated: November 28, 2006 Dated: November 28, 2006
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